Exhibit EX-99

PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY
________________________________________________
(Company’s Full Name)

Ramon Cojuangco Building
Makati Avenue, Makati City
_________________________________________________
(Company’s Address)

Not Applicable
______________________________________
(Fiscal Year Ending)
(month & day)

Not Applicable
______________________________________
Amendment Designation (if applicable)

Not Applicable
__________________________________________________
(Secondary License Type and File Number)

In accordance with Section 17.1(b) of the Securities Regulation Code and SRC Rule 17.1, we submit herewith two (2) copies of SEC Form 17-Q with Management’s Discussion and Analysis and accompanying unaudited consolidated financial statements for the nine (9) months ended September 30, 2013.

QUARTERLY REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE (“SRC”) AND
SRC 17 (2) (b) THEREUNDER

Former name, former address, and former fiscal year, if changed since last report

(a)

has filed all reports required to be filed by Section 17 of the SRC during the preceding ten months (or for such shorter period that the registrant was required to file such reports):

Our consolidated financial statements as at September 30, 2013 (unaudited) and December 31, 2012 (as adjusted) and for the nine months ended September 30, 2013 and 2012 (unaudited) and related notes (pages F-1 to F-140) are filed as part of this report on Form 17-Q.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In the following discussion and analysis of our financial condition and results of operations, unless the context indicates or otherwise requires, references to “we,” “us,” “our” or “PLDT Group” mean the Philippine Long Distance Telephone Company and its consolidated subsidiaries, and references to “PLDT” mean the Philippine Long Distance Telephone Company, not including its consolidated subsidiaries (please see Note 2 – Summary of Significant Accounting Policies to the accompanying unaudited consolidated financial statements for the list of these subsidiaries, including a description of their respective principal business activities and PLDT’s direct and/or indirect equity interest).

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited consolidated financial statements and the related notes. Our unaudited consolidated financial statements, and the financial information discussed below, have been prepared in accordance with Philippine Financial Reporting Standards, or PFRS, which is virtually converged with International Financial Reporting Standards as issued by the International Accounting Standards Board. PFRS differs in certain significant respects from generally accepted accounting principles, or GAAP, in the U.S.

The financial information appearing in this report and in the accompanying unaudited consolidated financial statements is stated in Philippine pesos. All references to “Philippine pesos,” “Php” or “pesos” are to the lawful currency of the Philippines; all references to “U.S. dollars,” “US$” or “dollars” are to the lawful currency of the United States; all references to “Japanese yen,” “JP¥” or “yen” are to the lawful currency of Japan and all references to “Euro” or “€” are to the lawful currency of the European Union. Unless otherwise indicated, translations of Philippine peso amounts into U.S. dollars in this report and in the accompanying unaudited consolidated financial statements were made based on the exchange rate of Php43.54 to US$1.00, the volume weighted average exchange rate as at September 30, 2013 quoted through the Philippine Dealing System.

Some information in this report may contain forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current beliefs, expectations and intentions as to facts, actions and events that will or may occur in the future. Such statements generally are identified by forward-looking words such as “believe,” “plan,” “anticipate,” “continue,” “estimate,” “expect,” “may,” “will” or other similar words.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We have chosen these assumptions or bases in good faith, and we believe that they are reasonable in all material respects. However, we caution you that forward-looking statements and assumed facts or bases almost always vary from actual results, and the differences between the results implied by the forward-looking statements and assumed facts or bases and actual results can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the description of risks and cautionary statements in this report. You should also keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as at the date on which we made it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this report after the date hereof. In light of these risks and uncertainties, actual results may differ materially from any forward-looking statement made in this report or elsewhere might not occur.
Financial Highlights and Key Performance Indicators

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect the discontinued operations of the Business Process Outsourcing, or BPO, segment and the adjustments on the application of the Revised PAS 19 – Employee Benefits. See “Other Information – Sale of BPO Segment” discussion and Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Changes in Accounting Policies and Disclosures to the accompanying unaudited consolidated financial statements for further discussion.

⁽²⁾ EBITDA margin for the period is measured as EBITDA from continuing operations divided by service revenues.

⁽³⁾ Core earnings per common share, or EPS, for the period is measured as core income divided by the weighted average number of outstanding common shares for the period.

⁽⁴⁾ The December 31, 2012 comparative information was restated to reflect the adjustments on the application of the Revised PAS 19 – Employee Benefits. See Note 2 – Summary of Significant Accounting Policies – Changes in Accounting Policies and Disclosures to the accompanying unaudited consolidated financial statements for further discussion.

⁽⁵⁾ Net debt is derived by deducting cash and cash equivalents and short-term investments from total debt (long-term debt, including current portion and notes payable).

We are the largest and most diversified telecommunications company in the Philippines. We have organized our business into business units based on our products and services and have three reportable operating segments which serve as bases for management’s decision to allocate resources and evaluate operating performance:

•

Wireless ¾ wireless telecommunications services provided by Smart Communications, Inc., or Smart, and Digital Mobile Philippines, Inc., or DMPI, which owns the Sun Cellular business and is a wholly-owned subsidiary of Digital Telecommunications Philippines, Inc., or Digitel, our cellular service providers; Smart Broadband, Inc., or SBI, and Primeworld Digital Systems, Inc., or PDSI, our wireless broadband service providers; Chikka Holdings Limited, or Chikka, and its subsidiaries, or Chikka Group, our wireless content operators; and ACeS Philippines Cellular Satellite Corporation, or ACeS Philippines, our satellite operator;

•

Fixed Line ¾ fixed line telecommunications services primarily provided by PLDT. We also provide fixed line services through PLDT’s subsidiaries, namely, PLDT Clark Telecom, Inc., PLDT Subic Telecom, Inc., PLDT-Philcom, Inc. or Philcom, and its subsidiaries, or Philcom Group, PLDT-Maratel, Inc., SBI, PDSI, Bonifacio Communications Corporation, PLDT Global Corporation, or PLDT Global, and Digitel, all of which together account for approximately 12% of our consolidated fixed line subscribers; and information and communications infrastructure and services for internet applications, internet protocol, or IP-based solutions and multimedia content delivery provided by ePLDT, Inc., or ePLDT, IP Converge Data Services, Inc., or IPCDSI, ABM Global Solutions, Inc., or AGS, and its subsidiaries, or AGS Group, and netGames, Inc.; and bills printing and other value-added services, or VAS, -related services provided by ePDS, Inc., or ePDS; and

•

Others ¾ Philippine Global Investment Holdings, Inc., PLDT Global Investments Corporation and PLDT Communications and Energy Ventures, Inc., or PCEV, our investment companies.

See Note 2 – Summary of Significant Accounting Policies, Note 4 – Operating Segment Information and Note 13 – Business Combinations to the accompanying unaudited consolidated financial statements.

As at September 30, 2013, our chief operating decision maker, or our Management Committee, views our business activities in three business units: Wireless, Fixed Line and Others. On December 4, 2012, our Board of Directors authorized the sale of our BPO segment. Consequently, as at December 31, 2012, the BPO segment was classified as discontinued operations and a disposal group held-for-sale. The BPO segment met the criteria of an asset to be classified as held-for-sale as at December 31, 2012 for the following reasons: (1) the BPO segment is available for immediate sale and can be sold to a potential buyer in its current condition; (2) the Board of Directors had approved the plan to sell the BPO segment and we entered into preliminary negotiations with a potential buyer and should negotiations with a potential buyer not lead to a sale, we expect to be able to seek other sale opportunities as a number of other potential buyers had been identified; and (3) the Board of Directors expected negotiations to be finalized and the sale to be completed in April 2013. Thus, we adjusted the comparative consolidated income statement for the nine months ended September 30, 2012 to present the results of operations of our BPO business as discontinued operations. See “Other Information – Sale of BPO Segment” section and Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions to the accompanying unaudited consolidated financial statements for further discussion.

We use a number of non-GAAP performance indicators to monitor financial performance. These are summarized below and discussed later in this report.

EBITDA for the period is measured as net income from continuing operations excluding depreciation and amortization, amortization of intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equity share in net earnings (losses) of associates and joint ventures, foreign exchange gains (losses) – net, gains (losses) on derivative financial instruments – net, provision for (benefit from) income tax and other income. EBITDA is monitored by the management for each business unit separately for purposes of making decisions about resource allocation and performance assessment. EBITDA is presented also as a supplemental disclosure because our management believes that it is widely used by investors in their analysis of the performance of PLDT and to assist them in their comparison of PLDT’s performance with that of other companies in the technology, media and telecommunications sector. We also present EBITDA because it is used by some investors as a way to measure a company’s ability to incur and service debt, make capital expenditures and meet working capital requirements. Companies in the technology, media and telecommunications sector have historically reported EBITDA as a supplement to financial measures in accordance with PFRS. EBITDA should not be considered as an alternative to net income as an indicator of our performance, as an alternative to cash flows from operating activities, as a measure of liquidity or as an alternative to any other measure determined in accordance with PFRS. Unlike net income, EBITDA does not include depreciation and amortization or financing costs and, therefore, does not reflect current or future capital expenditures or the cost of capital. We compensate for these limitations by using EBITDA as only one of several comparative tools, together with PFRS-based measurements, to assist in the evaluation of operating performance. Such PFRS-based measurements include income before income tax, net income, cash flows from operations and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in EBITDA. Our calculation of EBITDA may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

Core income for the period is measured as net income attributable to equity holders of PLDT (net income less net income attributable to noncontrolling interests), excluding foreign exchange gains (losses) – net, gains (losses) on derivative financial instruments – net (excluding hedge costs), asset impairment on noncurrent assets, other non-recurring gains (losses), net of tax effect of aforementioned adjustments, as applicable, and similar adjustments to equity share in net earnings (losses) of associates and joint ventures. The core income results are monitored by the management for each business unit separately for purposes of making decisions about resource allocation and performance assessment. Also, core income is used by the management as a basis of determining the level of dividend payouts to shareholders and basis of granting incentives to employees. Core income should not be considered as an alternative to income before income tax or net income determined in accordance with PFRS as an indicator of our performance. Unlike income before income tax, core income does not include foreign exchange gains and losses, gains and losses on derivative financial instruments, asset impairments and other non-recurring gains and losses. We compensate for these limitations by using core income as only one of several comparative tools, together with PFRS-based measurements, to assist in the evaluation of operating performance. Such PFRS-based measurements include income before income tax and net income. Our calculation of core income may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

We use EBITDA and core income to assess our operating performance. The reconciliation of our consolidated EBITDA and our consolidated core income to our consolidated net income for the nine months ended September 30, 2013 and 2012 are set forth below.

The following table shows the reconciliation of our consolidated EBITDA to our consolidated net income for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect the discontinued operations of the BPO segment and the adjustments on the application of the Revised PAS 19 – Employee Benefits. See “Other Information – Sale of BPO Segment” discussion and Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Changes in Accounting Policies and Disclosures to the accompanying unaudited consolidated financial statements for further discussion.

⁽²⁾ The Revised PAS 19 modifies the timing of recognition for termination benefits. The modification requires the termination benefits to be recognized at the earlier of when the offer cannot be withdrawn or when the related restructuring costs are recognized. See Note 2 – Summary of Significant Accounting Policies – Changes in Accounting Policies and Disclosures to the accompanying unaudited consolidated financial statements for further discussion.

The following table shows the reconciliation of our consolidated core income to our consolidated net income for the nine months ended September 30, 2013 and 2012:

The table below shows the contribution by each of our business segments to our consolidated revenues, expenses, other income (expenses), income before income tax, provision for income tax, net income/segment profit, EBITDA, EBITDA margin and core income for the nine months ended September 30, 2013 and 2012. In each of the nine months ended September 30, 2013 and 2012, we generated a majority of our revenues from our operations within the Philippines.


										Inter-segment
	Wireless			Fixed Line			Others			Transactions			Consolidated
				(in millions)
For the nine months ended September 30, 2013
Revenues		88,232			47,180			–			(10,827	)		124,585
Expenses		60,598			39,892			4			(11,274	)		89,220
Other income (expenses)		(3,686	)		(1,076	)		2,895			(301	)		(2,168	)
Income before income tax		23,948			6,212			2,891			146			33,197
Provision for (benefit from) income tax		6,277			(81	)		75			–			6,271
Net income/Segment profit		17,671			6,293			2,816			146			28,995
Continuing operations		17,671			6,293			2,816			146			26,926
Discontinued operations		–			–			–			–			2,069
EBITDA from continuing operations		41,152			17,955			(4	)		447			59,550
EBITDA margin⁽¹⁾		48	%		39	%		–			(4	%)		49	%
Core income		19,236			7,005			2,498			146			28,786
Continuing operations		19,236			7,005			2,498			146			28,885
Discontinued operations		–			–			–			–			(99	)

For the nine months ended September 30, 2012⁽²⁾
Revenues		86,337			44,831			–			(9,805	)		121,363
Expenses		58,654			39,799			15			(10,334	)		88,134
Other income (expenses)		671			(1,581	)		4,159			(210	)		3,039
Income before income tax		28,354			3,451			4,144			319			36,268
Provision for income tax		7,835			434			3			–			8,272
Net income/Segment profit		20,519			3,017			4,141			319			28,359
Continuing operations		20,519			3,017			4,141			319			27,996
Discontinued operations		–			–			–			–			363
EBITDA from continuing operations		41,978			14,713			(15	)		529			57,205
EBITDA margin⁽¹⁾		50	%		33	%		–			(4	%)		48	%
Core income		19,298			3,484			4,231			319			27,690
Continuing operations		19,298			3,484			4,231			319			27,332
Discontinued operations		–			–			–			–			358

Increase (Decrease)
Revenues		1,895			2,349			–			(1,022	)		3,222
Expenses		1,944			93			(11	)		(940	)		1,086
Other income (expenses)		(4,357	)		505			(1,264	)		(91	)		(5,207	)
Income before income tax		(4,406	)		2,761			(1,253	)		(173	)		(3,071	)
Provision for (benefit from) income tax		(1,558	)		(515	)		72			–			(2,001	)
Net income/Segment profit		(2,848	)		3,276			(1,325	)		(173	)		636
Continuing operations		(2,848	)		3,276			(1,325	)		(173	)		(1,070	)
Discontinued operations		–			–			–			–			1,706
EBITDA from continuing operations		(826	)		3,242			11			(82	)		2,345
Core income		(62	)		3,521			(1,733	)		(173	)		1,096
Continuing operations		(62	)		3,521			(1,733	)		(173	)		1,553
Discontinued operations		–			–			–			–			(457	)

⁽¹⁾ EBITDA margin for the period is measured as EBITDA from continuing operations divided by service revenues.

⁽²⁾ The September 30, 2012 comparative information was adjusted to reflect the discontinued operations of the BPO segment, certain presentation adjustments to conform with the current presentation of our business segments and the adjustments on the application of the Revised PAS 19 – Employee Benefits. See “Other Information – Sale of BPO Segment” discussion and Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Changes in Accounting Policies and Disclosures to the accompanying unaudited consolidated financial statements for further discussion.

We reported consolidated revenues of Php124,585 million in the first nine months of 2013, an increase of Php3,222 million, or 3%, as compared with Php121,363 million in the same period in 2012, primarily due to higher revenues from data and other network, and miscellaneous services from our fixed line business, and higher cellular and broadband revenues from our wireless business, partially offset by lower revenues from national long distance, local exchange and international long distance services from our fixed line business, and satellite and other services from our wireless business.

The following table shows the breakdown of our consolidated revenues by business segment for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect the discontinued operations of the BPO segment and certain presentation adjustments to conform with the current presentation of our business segments. See “Other Information – Sale of BPO Segment” discussion and Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Changes in Accounting Policies and Disclosures to the accompanying unaudited consolidated financial statements for further discussion.

Consolidated expenses increased by Php1,086 million, or 1%, to Php89,220 million in the first nine months of 2013 from Php88,134 million in the same period in 2012, as a result of higher expenses related to cost of sales, professional and other contracted services, asset impairment and communication, training and travel, partially offset by lower expenses related to depreciation and amortization, interconnection costs, amortization of intangible assets, selling and promotions, taxes and licenses, rent, and compensation and employee benefits, including the retroactive effect of the application of the Revised PAS 19 in our manpower rightsizing program, or MRP, costs of Php1,269 million in the first nine months of 2013.

The following table shows the breakdown of our consolidated expenses by business segment for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect the discontinued operations of the BPO segment, certain presentation adjustments to conform with the current presentation of our business segments and the adjustments on the application of the Revised PAS 19 – Employee Benefits. See “Other Information – Sale of BPO Segment” discussion and Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Changes in Accounting Policies and Disclosures to the accompanying unaudited consolidated financial statements for further discussion.

Consolidated other expenses amounted to Php2,168 million in the first nine months of 2013, a change of Php5,207 million as against other income of Php3,039 million in the same period in 2012, primarily due to the combined effects of the following: (i) foreign exchange losses of Php2,004 million in the first nine months of 2013 as against foreign exchange gains of Php2,424 million in the same period in 2012 mainly due to the revaluation of net foreign-currency denominated liabilities as a result of the effect of the depreciation of the Philippine peso relative to the U.S. dollar to Php43.54 as at September 30, 2013 from Php41.08 as at December 31, 2012 as against an appreciation of the Philippine peso relative to the U.S. dollar to Php41.74 as at September 30, 2012 from Php43.92 as at December 31, 2011; (ii) a decrease in other income by Php2,706 million mainly due to the realized portion of deferred gain on the transfer of Meralco shares to Beacon Electric Asset Holdings, Inc., or Beacon, of Php2,012 million in the first nine months of 2012 and lower dividend income by Php292 million, partially offset by a gain on insurance claims by Php193 million in the same period in 2013; (iii) lower interest income by Php328 million due to lower weighted average peso interest rate and lower weighted average level of dollar and peso investments, effect of lower weighted average exchange rate of the Philippine peso relative to the U.S. dollar, and shorter average tenor of dollar placements, partly offset by higher dollar interest rates and longer average tenors of Philippine peso placements; (iv) an increase in net financing costs by Php260 million mainly due to higher amortization of debt discount, lower capitalized interest and an increase in financing charges, partially offset by lower outstanding long-term debts by our fixed line and wireless businesses, lower interest on loans and other related items on account of lower interest rates and lower weighted average exchange rate of the Philippine peso relative to the U.S. dollar; (v) an increase in equity share in net earnings of associates and joint ventures by Php463 million; and (vi) net gains on derivative financial instruments of Php492 million in the first nine months of 2013 as against net losses on derivative financial instruments of Php1,560 million in the same period in 2012 due to the depreciation of the Philippine peso, maturity of the 2012 hedges and wider dollar and peso interest rate differentials in the first nine months of 2013.

The following table shows the breakdown of our consolidated other income (expenses) by business segment for the nine months ended September 30, 2013 and 2012:

Consolidated net income increased by Php636 million, or 2%, to Php28,995 million in the first nine months of 2013, from Php28,359 million in the same period in 2012. The increase was mainly due to the combined effects of the following: (i) an increase in consolidated revenues by Php3,222 million;
(ii) higher income from discontinued operations of Php1,706 million mainly due to the gain on disposal of our BPO business; (iii) a decrease in consolidated provision for income tax by Php2,001 million, which was mainly due to lower taxable income of our wireless and other businesses; (iv) an increase in consolidated expenses by Php1,099 million; and (v) an increase in consolidated other expense – net by Php5,194 million. Our consolidated basic and diluted EPS, including EPS from discontinued operations, increased to Php133.81 in the first nine months of 2013 from consolidated basic and diluted EPS of Php131.20 in the same period in 2012. Our weighted average number of outstanding common shares was approximately 216.06 million in each of the nine months ended September 30, 2013 and 2012.

The following table shows the breakdown of our consolidated net income by business segment for the nine months ended September 30, 2013 and 2012:

Our consolidated EBITDA from continuing operations, amounted to Php59,550 million in the first nine months of 2013, an increase of Php2,345 million, or 4%, as compared with Php57,205 million in the same period in 2012, primarily due to higher consolidated revenues, lower operating expenses related to compensation and employee benefits, excluding the retroactive effect of the application of the Revised PAS 19 in our MRP costs of Php1,269 million in the first nine months of 2013, lower selling and promotions expenses, and interconnection costs, partially offset by higher operating expenses driven by cost of sales, professional and other contracted services, asset impairment and communication, training and travel.

The following table shows the breakdown of our consolidated EBITDA from continuing operations by business segment for the nine months ended September 30, 2013 and 2012:

Our consolidated core income, including core income from discontinued operations, amounted to Php28,786 million in the first nine months of 2013, an increase of Php1,096 million, or 4%, as compared with Php27,690 million in the same period in 2012, primarily due to an increase in consolidated revenues and lower provision for income tax, partially offset by an increase in consolidated expenses, excluding the retroactive effect of the application of the Revised PAS 19 in our MRP costs of Php1,269 million in the first nine months of 2013. Our consolidated basic and diluted core EPS, including basic and diluted core EPS from discontinued operations, increased to Php133.03 in the first nine months of 2013 from Php127.99 in the same period in 2012.

The following table shows the breakdown of our consolidated core income by business segment for the nine months ended September 30, 2013 and 2012:

We generated revenues from our wireless business of Php88,232 million in the first nine months of 2013, an increase of Php1,895 million, or 2%, from Php86,337 million in the same period in 2012.

The following table summarizes our total revenues from our wireless business for the nine months ended September 30, 2013 and 2012 by service segment:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Our wireless service revenues in the first nine months of 2013, increased by Php1,714 million, or 2%, to Php86,380 million as compared with Php84,666 million in the same period in 2012, mainly as a result of higher revenues from our cellular and wireless broadband services, partially offset by lower revenues from our satellite and other services. The increase in our cellular revenues was mainly due to higher domestic voice and internet-based VAS revenues, partially offset by a decrease in text messaging revenues, international voice and other VAS revenues. The increase in our wireless broadband revenues was mainly due to a 5% growth in our broadband subscriber base. Our dollar-linked revenues were negatively affected by the appreciation of the Philippine peso relative to the U.S. dollar, which decreased to a weighted average exchange rate of Php42.06 for the nine months ended September 30, 2013 from Php42.56 for the nine months ended September 30, 2012. With subscriber growth being driven more by multiple SIM card ownership, especially in the lower income segment of the Philippine wireless market, monthly cellular average revenue per unit/s, or ARPUs, for the first nine months of 2013 were lower as compared with the same period in 2012. As a percentage of our total wireless revenues, service revenues accounted for 98% in each of the first nine months of 2013 and 2012.

Our cellular service revenues in the first nine months of 2013 amounted to Php78,278 million, an increase of Php1,190 million, or 2%, from Php77,088 million in the same period in 2012. Cellular service revenues accounted for 91% of our wireless service revenues in each of the first nine months of 2013 and 2012.

We have focused on segmenting the market by offering sector-specific, value-driven packages for our subscribers. These include load buckets which provide a fixed number of messages with prescribed validity periods and call packages which allow a fixed number of calls of preset duration. Starting out as purely on-net packages, buckets now also offer voice, text and hybrid bundles available to all networks. Smart and Sun Cellular also provide packages with unlimited voice, text, data, and combinations thereof, whose denominations depend on the duration and nature of the unlimited packages.

The following table shows the breakdown of our cellular service revenues for the nine months ended September 30, 2013 and 2012:

⁽¹⁾

The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

⁽²⁾

Refers to other non-subscriber-related revenues consisting primarily of inbound international roaming fees, share in revenues from PLDT’s WeRoam and PLDT Landline Plus, or PLP, services, a small number of leased line contracts, and revenues from Chikka and other Smart subsidiaries.

The following table shows other key measures of our cellular business as at and for the nine months ended September 30, 2013 and 2012:


					Increase (Decrease)
	2013		2012		Amount			%
Cellular subscriber base		72,498,270		68,599,733		3,898,537			6
Prepaid		70,198,270		66,415,877		3,782,393			6
Smart		23,867,643		25,377,864		(1,510,221	)		(6	)
Talk ’N Text		31,922,834		26,524,760		5,398,074			20
Sun Cellular		14,407,793		14,513,253		(105,460	)		(1	)
Postpaid		2,300,000		2,183,856		116,144			5
Sun Cellular		1,433,840		1,524,946		(91,106	)		(6	)
Smart		866,160		658,910		207,250			31
Systemwide traffic volumes (in millions)⁽¹⁾
Calls (in minutes)		41,302		39,788		1,514			4
Domestic		38,616		37,273		1,343			4
Inbound		889		910		(21	)		(2	)
Outbound		37,727		36,363		1,364			4
International		2,686		2,515		171			7
Inbound		2,206		2,216		(10	)		–
Outbound		480		299		181			61

SMS/Data count (in hits)(in millions)⁽¹⁾		392,418		381,770		10,648			3
Text messages		381,221		374,454		6,767			2
Domestic		380,567		373,825		6,742			2
Bucket-Priced/Unlimited		355,036		350,668		4,368			1
Standard		25,531		23,157		2,374			10
International		654		629		25			4
Value-Added Services		11,129		7,276		3,853			53
Financial Services		68		40		28			70

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Revenues generated from our prepaid cellular services amounted to Php62,637 million in the first nine months of 2013, a decrease of Php348 million, or 1%, as compared with Php62,985 million in the same period in 2012. Prepaid cellular service revenues accounted for 82% and 84% of cellular voice and data revenues in the first nine months of 2013 and 2012, respectively. Revenues generated from postpaid cellular service amounted to Php13,947 million in the first nine months of 2013, an increase of Php1,793 million, or 15%, as compared with Php12,154 million earned in the same period in 2012, and which accounted for 18% and 16% of cellular voice and data revenues in the first nine months of 2013 and 2012, respectively. The decrease in revenues from our prepaid cellular services was primarily due to a decline in our revenues from outbound domestic standard SMS and international SMS, inbound and outbound international calls, and MMS-based VAS, partially offset by an increase in revenues from domestic bucket-priced/unlimited SMS, internet/SMS-based VAS and financial services. The increase in our postpaid cellular service revenues was primarily due to a higher subscriber base.

Cellular revenues from our voice services, which include all voice traffic and voice VAS, such as voice mail and outbound international roaming, increased by Php914 million, or 2%, to Php37,789 million in the first nine months of 2013 from Php36,875 million in the same period in 2012, primarily due to higher cellular domestic call revenues, partially offset by lower cellular international call revenues. Cellular voice services accounted for 48% of our cellular service revenues in each of the first nine months of 2013 and 2012.

The following table shows the breakdown of our cellular voice revenues for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Domestic voice service revenues increased by Php1,354 million, or 6%, to Php25,923 million in the first nine months of 2013 from Php24,569 million in the same period in 2012, primarily due to an increase in domestic outbound and inbound voice service revenues by Php1,317 million and Php37 million, respectively.

Revenues from domestic outbound voice service increased by Php1,317 million, or 6%, to Php22,419 million in the first nine months of 2013 from Php21,102 million in the same period in 2012 mainly due to increased traffic on unlimited calls and improved yield on bucket offers. Domestic outbound call volume of 37,727 million minutes increased by 1,364 million minutes, or 4%, from 36,363 million minutes in the same period in 2012.

Revenues from our domestic inbound voice service increased by Php37 million, or 1%, to Php3,504 million in the first nine months of 2013 from Php3,467 million in the same period in 2012 primarily due to an increase in traffic originating from other domestic mobile carriers. Domestic inbound call volumes of 889 million minutes in the first nine months of 2013, decreased by 21 million minutes, or 2%, from 910 million minutes in the same period in 2012 primarily due to lower traffic from fixed line calls.

International voice service revenues decreased by Php440 million, or 4%, to Php11,866 million in the first nine months of 2013 from Php12,306 million in the same period in 2012 primarily due to lower international inbound voice service revenues by Php147 million, or 1%, to Php10,222 million in the first nine months of 2013 from Php10,369 million in the same period in 2012 and the decline in international outbound voice service revenues by Php293 million, or 15%, to Php1,644 million in the first nine months of 2013 from Php1,937 million in the same period in 2012. Average international termination rates also decreased in the first nine months of 2013. The decrease in international voice service revenues was also due to the unfavorable effect on dollar-linked revenues of lower weighted average exchange rate of Php42.06 for the nine months ended September 30, 2013 from Php42.56 for the nine months ended September 30, 2012. International inbound and outbound calls totaled 2,686 million minutes, an increase of 171 million minutes, or 7%, from 2,515 million minutes in the same period in 2012.

Cellular revenues from our data services, which include all text messaging-related services, as well as VAS, increased by Php531 million, or 1%, to Php38,795 million in the first nine months of 2013 from Php38,264 million in the same period in 2012 primarily due to higher internet/SMS-based VAS, partially offset by lower text messaging revenues, MMS-based VAS and Pasa Load/Give-a-Load revenues. Cellular data services accounted for 50% in each of our cellular service revenues in the first nine months of 2013 and 2012.

The following table shows the breakdown of our cellular data service revenues for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

⁽²⁾ Includes revenues from web-based services, net of allocated discounts and content provider costs.

⁽³⁾ Includes revenues from info-on-demand and voice text services, net of allocated discounts and content provider costs.

⁽⁴⁾ Includes revenues from Pasa Load and Dial*SOS, net of allocated discounts. Pasa Load/Give-a-load is a service which allows prepaid and postpaid subscribers to transfer small denominations of air time credits to other prepaid subscribers. Dial*SOS allows Smart prepaid subscribers to borrow Php4 of load (Php3 on-net SMS plus Php1 air time) from Smart which will be deducted upon their next top-up.

⁽⁵⁾ Includes revenues from point-to-point multimedia messaging system, or MMS, and content download services, such as ringtone, logo or music downloads, net of allocated discounts and content provider costs.

Text messaging-related services contributed revenues of Php34,140 million in the first nine months of 2013, a decrease of Php607 million, or 2%, as compared with Php34,747 million in the same period in 2012, and accounted for 88% and 91% of our total cellular data service revenues in the first nine months of 2013 and 2012, respectively. The decrease in revenues from text messaging-related services resulted mainly from lower domestic standard and international messaging revenues, partially offset by higher text messaging revenues from the various bucket-priced/unlimited SMS offers. Text messaging revenues from the various bucket-priced/unlimited SMS offers totaled Php22,150 million in the first nine months of 2013, an increase of Php784 million, or 4%, as compared with Php21,366 million in the same period in 2012. Bucket-priced/unlimited text messages increased by 4,368 million, or 1%, to 355,036 million in the first nine months of 2013 from 350,668 million in the same period in 2012.

Standard text messaging revenues, which includes inbound and outbound standard SMS revenues, decreased by Php1,168 million, or 11%, to Php9,372 million in the first nine months of 2013 from Php10,540 million in the same period in 2012, primarily due to increased preference for unlimited SMS offers. Standard text messages increased by 2,374 million, or 10% to 25,531 million in the first nine months of 2013 from 23,157 million in the same period in 2012, as a result of increased domestic inbound SMS volume, partially offset by the decline in domestic outbound standard SMS volume.

International text messaging revenues amounted to Php2,618 million in the first nine months of 2013, a decrease of Php223 million, or 8%, from Php2,841 million in the same period in 2012 mainly due to the unfavorable effect of lower weighted average exchange rate on international inbound text messaging revenues, partially offset by the higher SMS traffic and effective dollar yield of international inbound SMS.

VAS contributed revenues of Php4,513 million in the first nine months of 2013, an increase of Php1,045 million, or 30%, as compared with Php3,468 million in the same period in 2012, primarily due to an increase in revenues from mobile internet service, which increased by Php1,206 million, or 55%, to Php3,388 million in the first nine months of 2013 from Php2,182 million in the same period in 2012.

As at September 30, 2013, our cellular subscribers totaled 72,498,270, an increase of 3,898,537, or 6%, over the cellular subscriber base of 68,599,733 as at September 30, 2012. Our cellular prepaid subscriber base grew by 3,782,393, or 6%, to 70,198,270 as at September 30, 2013 from 66,415,877 as at September 30, 2012, and our cellular postpaid subscriber base increased by 116,144, or 5%, to 2,300,000 as at September 30, 2013 from 2,183,856 as at September 30, 2012. The increase in subscriber base was primarily due to the growth in Talk ‘N Text prepaid subscribers by 5,398,074, partially offset by a net decrease in Smart and Sun Cellular subscribers by 1,302,971 and 196,566, respectively, primarily due to lower average activations in the first nine months of 2013. Prepaid subscribers accounted for 97% of our total subscriber base as at September 30, 2013 and 2012.

Our net subscriber activations (reductions) for the nine months ended September 30, 2013 and 2012 were as follows:

Prepaid and postpaid subscribers reflected net activations of 2,586,733 and 45,079 subscribers, respectively, in the first nine months of 2013 as compared with net activations of 4,623,085 and 280,019, respectively, in the same period in 2012.

The following table summarizes our average monthly churn rates for the nine months ended September 30, 2013 and 2012:

For Smart Prepaid subscribers, the average monthly churn rate in the first nine months of 2013 and 2012 were 5.7% and 6.3%, respectively, while the average monthly churn rate for Talk ’N Text subscribers were 3.8% and 4.3% in the first nine months of 2013 and 2012, respectively. The average monthly churn rate for Sun Cellular prepaid subscribers were 10.1% and 10.4% in the first nine months of 2013 and 2012, respectively.

The average monthly churn rate for Smart Postpaid subscribers were 2.6% and 2.7% in the first nine months of 2013 and 2012, respectively. The average monthly churn rate for Sun Cellular postpaid subscribers was 3.7% and 1.0% in the first nine months of 2013 and 2012, respectively.

The following table summarizes our average monthly cellular ARPUs for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ Gross monthly ARPU is calculated by dividing gross cellular service revenues for the month, gross of discounts, allocated content provider costs and interconnection income but excluding inbound roaming revenues, by the average number of subscribers in the month.

⁽²⁾ Net monthly ARPU is calculated by dividing gross cellular service revenues for the month, including interconnection income, but excluding inbound roaming revenues, net of discounts and content provider costs, by the average number of subscribers in the month.

⁽³⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Our average monthly prepaid and postpaid ARPUs per quarter in 2013 and 2012 were as follows:

⁽¹⁾ Sun Cellular brand and its subscribers were acquired by PLDT when PLDT acquired a controlling interest in Digitel on October 26, 2011. Sun Cellular operates through DMPI, a wholly-owned subsidiary of Digitel.

⁽²⁾ Gross monthly ARPU is calculated based on the average of the gross monthly ARPUs for the quarter.

⁽³⁾ Net monthly ARPU is calculated based on the average of the net monthly ARPUs for the quarter.

⁽⁴⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Our revenues from wireless broadband, satellite and other services consist mainly of wireless broadband service revenues from SBI and DMPI, charges for ACeS Philippines’ satellite information and messaging services and service revenues generated by the mobile virtual network operations of PLDT Global’s subsidiary.

Revenues from our wireless broadband services increased by Php689 million, or 11%, to Php7,073 million in the first nine months of 2013 from Php6,384 million in the same period in 2012, primarily due to a 5% growth in broadband subscriber base.

The following table shows information of our wireless broadband subscriber base as at September 30, 2013 and 2012:

Smart Broadband and Sun Broadband Wireless, SBI’s and DMPI’s broadband services, respectively, offer a number of wireless broadband services and had a total of 2,378,607 subscribers as at September 30, 2013, a net increase of 111,177 subscribers, or 5%, as compared with 2,267,430 subscribers as at September 30, 2012, primarily due to an increase by 158,689, or 9%, in Smart Broadband subscribers, partially offset by a decrease in Sun Broadband subscribers by 47,512, or 8%, as at September 30, 2013. Our prepaid wireless broadband subscriber base increased by 81,337 subscribers, or 5%, to 1,597,186 subscribers as at September 30, 2013 from 1,515,849 subscribers as at September 30, 2012, while our postpaid wireless broadband subscriber base increased by 29,840 subscribers, or 4%, to 781,421 subscribers as at September 30, 2013 from 751,581 subscribers as at September 30, 2012.

Smart Broadband offers myBro, a fixed wireless broadband service being offered under PLDT’s Home megabrand. myBro fixed wireless broadband service is powered either via a link to Smart’s wireless broadband-enabled base stations which allows subscribers to connect to the internet using an outdoor aerial antenna installed in the subscriber’s home or via Smart’s WiMAX (Worldwide Interoperability for Microwave Access) network. myBro revenues increased by Php340 million, or 12%, to Php3,298 million in the first nine months of 2013 from Php2,958 million in the same period in 2012 primarily due to an increase in subscriber base by 37 thousand, or 9%, to 448 thousand as at September 30, 2013 from 411 thousand as at September 30, 2012.

Smart Broadband also offers mobile internet access through SmartBro Plug-It, a wireless modem and SmartBro Pocket Wifi, a portable wireless router which can be shared by up to five users at a time. Both provide instant connectivity at varying speeds in places where there is Smart network coverage provided by either 3G high speed packet access (HSPA), 4G HSPA+ or Long Term Evolution, or LTE, technology. SmartBro Plug-It and SmartBro Pocket Wifi are available in both postpaid and prepaid variants. Smart Broadband also offers unlimited internet surfing for SmartBro Plug-It and Pocket Wifi Prepaid subscribers. SmartBro LTE offers the latest broadband technology with speeds of up to 42 Mbps. SmartBro LTE Plug-It and SmartBro LTE Pocket Wifi are also available in both postpaid and prepaid variants. We also have an additional array of load packages that offer time period-based charging and longer validity periods, as well as Always On packages, which offers volume over time-based buckets catering to subscribers with varying data surfing requirements.

DMPI’s Sun Broadband Wireless is an affordable high-speed broadband wireless service utilizing advanced 3.5G HSPA technology on an all-IP network offering various plans and packages to internet users.

Revenues from our satellite and other services decreased by Php165 million, or 14%, to Php1,029 million in the first nine months of 2013 from Php1,194 million in the same period in 2012, primarily due to the termination of wired and wireless leased line clients, a decrease in the number of ACeS Philippines’ subscribers and the effect of lower weighted average exchange rate of Php42.06 for the nine months ended September 30, 2013 from Php42.56 for the nine months ended September 30, 2012 on our U.S. dollar and U.S. dollar-linked satellite and other service revenues.

Our wireless non-service revenues consist of proceeds from sales of cellular handsets, cellular SIM-packs and broadband data modems. Our wireless non-service revenues increased by Php181 million, or 11%, to Php1,852 million in the first nine months of 2013 from Php1,671 million in the same period in 2012, primarily due to increased availments for broadband Pocket WiFi and cellular retention packages, partly offset by lower quantity of broadband Plug-It modem and cellular handsets/SIMpacks issued for activation.

Expenses associated with our wireless business amounted to Php60,598 million in the first nine months of 2013, an increase of Php1,944 million, or 3%, from Php58,654 million in the same period in 2012. A significant portion of this increase was attributable to higher expenses related to cost of sales, compensation and employee benefits, professional and other contracted services, asset impairment, rent, and other operating expenses, partially offset by lower depreciation and amortization, amortization of intangible assets, taxes and licenses, and interconnection costs. As a percentage of our total wireless revenues, expenses associated with our wireless business accounted for 69% and 68% in the first nine months of 2013 and 2012, respectively.

The following table summarizes the breakdown of our total wireless-related expenses for the nine months ended September 30, 2013 and 2012 and the percentage of each expense item in relation to the total:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments and the adjustments on the application of the Revised PAS 19 – Employee Benefits. See Note 2 – Summary of Significant Accounting Policies – Changes in Accounting Policies and Disclosures to the accompanying unaudited consolidated financial statements for further discussion.

Depreciation and amortization charges decreased by Php1,030 million, or 8%, to Php12,246 million primarily due to a lower depreciable asset base.

Rent expenses increased by Php208 million, or 3%, to Php7,461 million primarily due to an increase in leased circuit charges and office building rental, partially offset by lower site rental charges. In the nine months ended September 30, 2013, we had 9,452 cell sites, 20,657 cellular/mobile broadband base stations and 2,903 fixed wireless broadband base stations, of which approximately 10,000 are 4G-capable broadband stations, as compared with 10,033 cell sites, 18,586 cellular/mobile broadband base stations and 2,811 fixed wireless broadband base stations, of which 4,627 are 4G-capable broadband stations, in the same period in 2012.

Cost of sales increased by Php1,782 million, or 32%, to Php7,369 million primarily due to increased issuances for cellular retention and higher average cost of handsets/SIMpacks issued for activation purposes, complemented by higher average cost for broadband Pocket WiFi, partially offset by lower quantity of handsets/SIMpacks issued for activation and decreased issuances for broadband Plug-It modems.

Compensation and employee benefits expenses increased by Php858 million, or 15%, to Php6,750 million primarily due to higher MRP costs as a result of the retroactive adjustment of the application of the Revised PAS 19 of Php537 million in the first nine months of 2013, as well as LTIP costs and salaries employee benefits, partially offset by lower provision for pension benefits. Employee headcount decreased to 8,243 as at September 30, 2013 as compared with 8,467 as at September 30, 2012, primarily due to the availment of the MRP by Smart and DMPI employees as at September 30, 2013.

Interconnection costs decreased by Php149 million, or 2%, to Php6,073 million primarily due to a decrease in interconnection charges on international calls and roaming SMS.

Repairs and maintenance expenses decreased by Php76 million, or 1%, to Php5,911 million mainly due to lower site electricity consumption and site facilities maintenance costs, partially offset by higher maintenance costs on IT hardware and software, and cellular and broadband network facilities.

Selling and promotion expenses decreased by Php75 million, or 1%, to Php5,447 million primarily due to lower advertising expenses, partially offset by higher commissions and public relations expenses.

Professional and other contracted service fees increased by Php309 million, or 11%, to Php3,054 million primarily due to an increase in outsourced service costs and call center fees, partly offset by lower consultancy and technical service fees.

Taxes and licenses decreased by Php175 million, or 9%, to Php1,716 million primarily due to lower business-related taxes and license fees.

Asset impairment increased by Php250 million, or 25%, to Php1,263 million primarily due to higher provision for uncollectible receivables, partially offset by lower provision for inventory obsolescence.

Communication, training and travel expenses increased by Php113 million, or 11%, to Php1,134 million primarily due to higher expenses related to mailing and courier, as well as freight and hauling, partially offset by lower travel expenses, fuel consumption costs for vehicles and communication charges.

Insurance and security services increased by Php81 million, or 12%, to Php777 million primarily due to higher office and site security expenses, partly offset by lower insurance and bond premiums.

Amortization of intangible assets decreased by Php284 million, or 28%, to Php735 million primarily due to lower adjusted amortization of intangible assets related to customer list of DMPI.

Other expenses increased by Php132 million, or 25%, to Php662 million primarily due to higher various business and operational-related expenses.

The following table summarizes the breakdown of our total wireless-related other income (expenses) for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Our wireless business’ other expenses amounted to Php3,686 million in the first nine months of 2013, a change of Php4,357 million as against other income of Php671 million in the same period in 2012, primarily due to the combined effects of the following: (i) net foreign exchange losses of Php1,368 million in the first nine months of 2013 as against net foreign exchange gains of Php1,788 million in the same period in 2012 on account of revaluation of net foreign currency-denominated liabilities due to the depreciation of the Philippine peso relative to the U.S. dollar to Php43.54 as at September 30, 2013 from Php41.08 as at December 31, 2012 as against an appreciation of the Philippine peso relative to the U.S. dollar to Php41.74 as at September 30, 2012 from Php43.92 as at December 31, 2011;
(ii) higher net financing costs by Php627 million primarily due to higher amortization of debt discount, lower capitalized interest and an increase in financing charges, partly offset by lower outstanding debt balance and lower weighted average interest rates on loans; (iii) a decrease in other income by Php423 million mainly due to lower income from consultancy and loss on disposal of fixed assets; (iv) a decrease in interest income by Php157 million mainly due to lower weighted average interest rates, lower principal amounts of dollar and peso placements, and the lower weighted average exchange rate of the Philippine peso to the U.S. dollar, partially offset by higher U.S. dollar interest rates and longer average tenor of Philippine peso placements in the first nine months of 2013; (v) an increase in equity share in net losses of associates by Php32 million; and (vi) lower loss on derivative financial instruments by Php38 million mainly on account of mark-to-market gain on derivatives as a result of the depreciation of the Philippine peso in the first nine months of 2013 as against the appreciation of the Philippine peso in the same period in 2012, maturity of the 2012 hedges and a wider dollar and peso interest rate differentials.

Provision for income tax decreased by Php1,558 million, or 20%, to Php6,277 million in the first nine months of 2013 from Php7,835 million in the same period in 2012 primarily due to lower taxable income. The effective tax rates for our wireless business were 26% and 28% in the first nine months of 2013 and 2012, respectively.

As a result of the foregoing, our wireless business’ net income decreased by Php2,848 million, or 14%, to Php17,671 million in the first nine months of 2013 from Php20,519 million recorded in the same period in 2012.

As a result of the foregoing, our wireless business’ EBITDA decreased by Php826 million, or 2%, to Php41,152 million in the first nine months of 2013 from Php41,978 million in the same period in 2012.

Our wireless business’ core income decreased by Php62 million to Php19,236 million in the first nine months of 2013 from Php19,298 million in the same period in 2012 on account of a decrease in other income and higher wireless-related operating expenses, excluding the retroactive effect of the application of the Revised PAS 19 in our MRP costs of Php537 million in the first nine months of 2013, partially offset by an increase in wireless revenues and a decrease in provision for income tax.

Revenues generated from our fixed line business amounted to Php47,180 million in the first nine months of 2013, an increase of Php2,349 million, or 5%, from Php44,831 million in the same period in 2012.

The following table summarizes our total revenues from our fixed line business for the nine months ended September 30, 2013 and 2012 by service segment:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Our fixed line business provides local exchange service, national and international long distance services, data and other network services, and miscellaneous services. Our fixed line service revenues increased by Php1,809 million, or 4%, to Php45,990 million in the first nine months of 2013 from Php44,181 million in the same period in 2012 due to an increase in the revenue contribution of our data and other network, international long distance and miscellaneous services, partially offset by decreases in national long distance and local exchange services.

The following table summarizes the key measures of our local exchange service business as at and for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Revenues from our local exchange service decreased by Php184 million, or 1%, to Php12,194 million in the first nine months of 2013 from Php12,378 million in the same period in 2012, primarily due to lower weighted average billed lines, lower installation and activation charges, and a decrease in ARPU on account of lower fixed charges due to the increase in demand for bundled voice and data services. The percentage contribution of local exchange revenues to our total fixed line service revenues was 27% and 28% in the first nine months of 2013 and 2012, respectively.

The following table shows our international long distance service revenues and call volumes for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Our total international long distance service revenues increased by Php498 million, or 6%, to Php8,448 million in the first nine months of 2013 from Php7,950 million in the same period in 2012, primarily due to the net increase in call volumes and the increase in average collection rates in dollar terms, partially offset by the unfavorable effect of lower weighted average exchange rate of the Philippine peso to the U.S. dollar to Php42.06 in the first nine months of 2013 from Php42.56 in the same period in 2012. The percentage contribution of international long distance service revenues to our total fixed line service revenues accounted for 18% in each of the first nine months of 2013 and 2012.

Our revenues from inbound international long distance service increased by Php524 million, or 8%, to Php7,442 million in the first nine months of 2013 from Php6,918 million in the same period in 2012 primarily due to the increase in inbound call volumes, partially offset by the decrease in average settlement rate in dollar terms and the unfavorable effect on our inbound revenues of a lower weighted average exchange rate of the Philippine peso to the U.S. dollar.

Our revenues from outbound international long distance service decreased by Php26 million, or 3%, to Php1,006 million in the first nine months of 2013 from Php1,032 million in the same period in 2012, primarily due to the decrease in call volumes and the unfavorable effect of lower weighted average exchange rate of the Philippine peso to the U.S. dollar to Php42.06 for the nine months ended September 30, 2013 from Php42.56 for the nine months ended September 30, 2012, and a decrease in the average billing rate to Php41.74 in the first nine months of 2013 from Php42.79 in the same period in 2012, partially offset by the increase in the average collection rate in dollar terms.

Our total international long distance service revenues, net of interconnection costs, decreased by Php77 million, or 2%, to Php3,417 million in the first nine months of 2013 from Php3,494 million in the same period in 2012. The decrease was primarily due to lower inbound net average settlement rate in dollar terms on account of higher interconnection costs, and the unfavorable effect of lower weighted average exchange rate of the Philippine peso to the U.S. dollar and the decrease in outbound call volumes, partly offset by an increase in inbound call volumes and higher outbound net average collection rate in dollar terms.

The following table shows our national long distance service revenues and call volumes for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Our national long distance service revenues decreased by Php392 million, or 10%, to Php3,481 million in the first nine months of 2013 from Php3,873 million in the same period in 2012, primarily due to a decrease in call volumes, partially offset by an increase in the average revenue per minute of our national long distance services. The percentage contribution of national long distance revenues to our fixed line service revenues was 8% and 9% in the first nine months of 2013 and 2012, respectively.

Our national long distance service revenues, net of interconnection costs, decreased by Ph279 million, or 9%, to Php2,699 million in the first nine months of 2013 from Php2,978 million in the same period in 2012, primarily due to a decrease in call volumes, partially offset by an increase in the average revenue per minute of our national long distance services.

The following table shows information of our data and other network service revenues for the nine months ended September 30, 2013 and 2012:

⁽¹⁾ The September 30, 2012 comparative information was adjusted to reflect certain presentation adjustments to conform with the current presentation of our business segments.

Our data and other network services posted revenues of Php20,338 million in the first nine months of 2013, an increase of Php1,785 million, or 10%, from Php18,553 million in the same period in 2012, primarily due to higher revenues from PLDT DSL, data centers, and domestic leased line revenues resulting from the higher revenue contribution of Metro Ethernet, as well as higher international data revenues primarily from i-Gate. The percentage contribution of this service segment to our fixed line service revenues was 44% and 42% in the first nine months of 2013 and 2012, respectively.

Domestic data services contributed Php14,817 million in the first nine months of 2013, an increase of Php981 million, or 7%, as compared with Php13,836 million in the same period in 2012 mainly due to higher DSL, Fibr and Metro Ethernet revenues, and Shops.Work subscribers as customer locations and bandwidth requirements continued to expand and demand for offshoring, outsourcing services increased, partially offset by lower IP-VPN revenues. The percentage contribution of domestic data service revenues to total data and other network services was 73% and 74% in the first nine months of 2013 and 2012, respectively.

Broadband data services include DSL broadband internet service, which is intended for individual internet users, small and medium enterprises, and large corporations with multiple branches, and Fibr, our most advanced broadband internet connection, which is intended for individual internet users.

Broadband data revenues amounted to Php9,096 million in the first nine months of 2013, an increase of Php716 million, or 9%, from Php8,380 million in the same period in 2012 as a result of the increase in the number of subscribers by 70,525, or 8%, to 949,762 subscribers as at September 30, 2013 from 879,237 subscribers as at September 30, 2012. Broadband revenues accounted for 45% of total data and other network service revenues in each of the first nine months of 2013 and 2012.

Leased lines and other data services include: (1) Diginet, our domestic private leased line service providing Smart’s fiber optic and leased line data requirements; (2) IP-VPN, a managed corporate IP network that offers a secure means to access corporate network resources; (3) Metro Ethernet, our high-speed wide area networking services that enable mission-critical data transfers; (4) Shops.Work, our connectivity solution for retailers and franchisers that links company branches to their head office; and (5) SWUP, our wireless VPN service that powers mobile point-of-sale terminals and off-site bank ATMs, as well as other retail outlets located in remote areas. As at September 30, 2013, SWUP had a total subscriber base of 28,339 up by 7,501, or 36%, from 20,838 subscribers in the same period in 2012. Leased lines and other data revenues amounted to Php5,721 million in the first nine months of 2013, an increase of Php265 million, or 5%, from Php5,456 million in the same period in 2012, primarily due to higher revenues from Metro Ethernet and Shops.Work, partially offset by lower internet exchange and IP-VPN revenues. The percentage contribution of leased lines and other data service revenues to the total data and other network services were 28% and 29% in the first nine months of 2013 and 2012, respectively.

International leased lines and other data services consist mainly of: (1) i-Gate, our premium dedicated internet access service that provides high speed, reliable and managed connectivity to the global internet, and is intended for enterprises and VAS providers; (2) Fibernet, which provides cost-effective and reliable bilateral point-to-point private networking connectivity, through the use of our extensive international alliances to offshore and outsourcing, banking and finance, and semiconductor industries; and (3) other international managed data services in partnership with other global service providers, which provide data networking services to multinational companies. International data service revenues increased by Php212 million, or 5%, to Php4,247 million in the first nine months of 2013 from Php4,035 million in the same period in 2012, primarily due to higher i-Gate revenues and an increase in revenues from various global service providers, partially offset by lower inland-cable lease and Fibernet revenues, and the unfavorable effect of the appreciation of the Philippine peso relative to the U.S. dollar. The percentage contribution of international data service revenues to total data and other network service revenues was 21% and 22% in the first nine months of 2013 and 2012, respectively.

Data centers provide co-location or rental services, server hosting, disaster recovery and business continuity services, intrusion detection, security services, such as firewalls and managed firewalls. Data center revenues increased by Php592 million, or 87%, to Php1,274 million in the first nine months of 2013 from Php682 million in the same period in 2012 mainly due to higher co-location and managed services as a result of the consolidation of IPCDSI in October 2012. The percentage contribution of this service segment to our total data and other network service revenues was 6% and 4% in the first nine months of 2013 and 2012, respectively.

Miscellaneous service revenues are derived mostly from rental and facilities management fees, internet and online gaming, and directory advertising. These service revenues increased by Php102 million, or 7%, to Php1,529 million in the first nine months of 2013 from Php1,427 million in the same period in 2012 mainly due to higher outsourcing fees and co-location charges, and the revenue contribution of PGNL, which is the exclusive distributor and licensee of the programs, shows, films and channels of TV5 abroad, the distribution of which is via syndication and international linear channels. The percentage contribution of miscellaneous service revenues to our total fixed line service revenues was 3% in each of the first nine months of 2013 and 2012.

Non-service revenues increased by Php540 million, or 83%, to Php1,190 million in the first nine months of 2013 from Php650 million in the same period in 2012, primarily due to higher revenues from Telpad units.

Expenses related to our fixed line business totaled Php39,892 million in the first nine months of 2013, an increase of Php93 million as compared with Php39,799 million in the same period in 2012. The increase was primarily due to higher expenses related to interconnection costs, cost of sales, depreciation and amortization, professional and other contracted services, asset impairment, repairs and maintenance, and taxes and licenses, partly offset by lower expenses related to compensation and employee benefits, selling and promotions, insurance and security services, and communication, training and travel. As a percentage of our total fixed line revenues, expenses associated with our fixed line business accounted for 85% and 89% in the first nine months of 2013 and 2012, respectively.

The following table shows the breakdown of our total fixed line-related expenses for the nine months ended September 30, 2013 and 2012 and the percentage of each expense item to the total:

Depreciation and amortization charges increased by Php253 million, or 3%, to Php9,934 million due to higher depreciable asset base.

Compensation and employee benefits expenses decreased by Php944 million, or 9%, to Php9,807 million primarily due to lower MRP costs, net of the retroactive adjustment of the application of the Revised PAS 19 of Php732 million in the first nine months of 2013, a decrease in salaries and employee benefits, and lower provision for LTIP costs, partially offset by higher provision for pension costs. Employee headcount decreased to 9,892 in the first nine months of 2013 as compared with 10,619 in the same period in 2012 mainly due to a decrease in PLDT’s and Digitel’s headcounts as a result of the MRP, partially offset by the number of employee headcount of IPCDSI, which was included in the consolidation beginning October 2012.

Interconnection costs increased by Php442 million, or 8%, to Php6,021 million primarily due to higher international long distance interconnection/settlement costs as a result of higher international received paid calls that terminated to other domestic carriers, partially offset by lower settlement costs for national long distance interconnection costs and data and other network services particularly Fibernet and Infonet.

Repairs and maintenance expenses increased by Php72 million, or 2%, to Php4,102 million primarily due to higher repairs and maintenance costs for IT software and hardware, and buildings, partially offset by a decrease in office and site electricity costs, lower repairs and maintenance costs on central office/telecoms equipment, cable and wire facilities, vehicles, furniture and other work equipment, and lower site fuel and electricity consumption.

Professional and other contracted service expenses increased by Php79 million, or 3%, to Php2,580 million primarily due to higher contracted service and bill printing fees, partially offset by lower consultancy and technical service fees.

Rent expenses increased by Php2 million to Php1,930 million primarily due to higher domestic leased circuit charges, and site and pole rentals, partially offset by lower international leased circuits charges.

Cost of sales increased by Php410 million, or 52%, to Php1,204 million primarily due to higher sale of Telpad units.

Selling and promotion expenses decreased by Php158 million, or 12%, to Php1,171 million primarily due to lower advertising and public relations expenses, partially offset by higher commissions expenses.

Taxes and licenses increased by Php37 million, or 4%, to Php872 million as a result of higher municipal licenses and other business-related taxes.

Asset impairment increased by Php77 million, or 10%, to Php857 million mainly due to higher provision for uncollectible receivables.

Communication, training and travel expenses decreased by Php50 million, or 8%, to Php555 million mainly due to a decrease in mailing and courier, and fuel consumption charges, partially offset by higher local and foreign training and travel.

Insurance and security services decreased by Php73 million, or 15%, to Php417 million primarily due to lower expenses on insurance and bond premiums, and office security services.

Amortization of intangible assets amounted to Php1 million in the first nine months of 2013 relating to the amortization of intangible assets related to customer list and licenses in relation to IPCDSI’s acquisition.

Other expenses decreased by Php55 million, or 11%, to Php441 million primarily due to lower various business and operational-related expenses.

The following table summarizes the breakdown of our total fixed line-related other expenses for the nine months ended September 30, 2013 and 2012:

Our fixed line business’ other expenses amounted to Php1,076 million in the first nine months of 2013, a decrease of Php505 million, or 32%, from Php1,581 million in the same period in 2012. The decrease was due to the combined effects of the following: (i) net gains on derivative financial instruments of Php508 million in the first nine months of 2013 as against net losses on derivative financial instruments of Php1,506 million in the same period in 2012 due to maturity of the 2012 hedges, the depreciation of the Philippine peso and a wider dollar and peso interest rate differentials; (ii) lower financing costs by Php346 million mainly due to lower average interest rates on loans, partly offset by lower capitalized interest and higher financing charges; (iii) an increase in other income by Php122 million mainly due to the gain on insurance claims and dividend income in the first nine months of 2013; (iv) a decrease in interest income by Php209 million due to lower weighted average peso interest rate, lower principal amounts of dollar and peso placements, the lower weighted average exchange rate of the Philippine peso to the U.S. dollar and shorter average tenor of U.S. dollar placements, partially offset by higher U.S. dollar interest rates and longer average tenor of Philippine peso placements in the first nine months of 2013; (v) foreign exchange losses of Php1,000 million in the first nine months of 2013 as against foreign exchange gains of Php636 million in the same period in 2012 on account of revaluation of net foreign currency-denominated liabilities due to the depreciation of the Philippine peso relative to the U.S. dollar to Php43.54 as at September 30, 2013 from Php41.08 as at December 31, 2012 as against an appreciation of the Philippine peso relative to the U.S. dollar to Php41.74 as at September 30, 2012 from Php43.92 as at December 31, 2011; and (vi) equity share in net losses of associates and joint ventures of Php18 million as against equity share in net earnings of associates of Php114 million in the same period in 2012 primarily due to the disposal of Philweb shares in 2012.

Benefit from income tax amounted to Php81 million in the first nine months of 2013, a change of Php515 million, or 119%, as against a provision for income tax of Php434 million in the same period in 2012, primarily due to lower taxable income and the recognition of deferred tax assets on intangible assets. The effective tax rate for our fixed line business was negative 1% in the first nine months of 2013 and 13% in the same period in 2012.

As a result of the foregoing, our fixed line business contributed a net income of Php6,293 million in the first nine months of 2013, increased by Php3,276 million, or 109%, as compared with Php3,017 million in the same period in 2012.

As a result of the foregoing, our fixed line business’ EBITDA increased by Php3,242 million, or 22%, to Php17,955 million in the first nine months of 2013 from Php14,713 million in the same period in 2012.

Our fixed line business’ core income increased by Php3,521 million, or 101%, to Php7,005 million in the first nine months of 2013 from Php3,484 million in the same period in 2012, primarily as a result of higher fixed line revenues, a decrease in other expenses and a benefit from income tax, partially offset by higher fixed line expenses, excluding the retroactive effect of the application of the Revised PAS 19 in our MRP costs of Php732 million in the first nine months of 2013.

Expenses associated with our other business segment totaled Php4 million in the first nine months of 2013, a decrease of Php11 million, or 73%, as compared with Php15 million in the same period in 2012, primarily due to PCEV’s lower other operating expenses.

The following table summarizes the breakdown of other income for other business segment for the nine months ended September 30, 2013 and 2012:

Other income decreased by Php1,264 million, or 30%, to Php2,895 million in the first nine months of 2013 from Php4,159 million in the same period in 2012 primarily due to lower other income by Php2,314 million mainly due to the realized portion of deferred gain on the transfer of Meralco shares to Beacon in the first nine months of 2012 and lower dividend income by Php314 million, partly offset by an increase in equity share in net earnings of associates by Php627 million mainly due to the increase in PCEV’s share in the net earnings of Beacon, which includes its share in the results of operations of Meralco, and equity share in Asia Outsourcing Beta Limited, or Beta, a holding company of SPi Group, where we reinvested approximately US$40 million of the proceeds from the sale of our BPO business in 2013.

In the first nine months of 2013, Meralco’s reported and core income amounted to Php13,644 million and Php13,558 million, respectively, compared with Php13,646 million and Php12,892 million, respectively, in the same period in 2012. The increase in consolidated core income is primarily due to the increase in billed customers, higher volume sold, partially offset by lower generation costs in the first nine months of 2013. Reported income remained stable in the first nine months of 2013. PCEV’s share in the reported and core income of Meralco, including its share in Beacon’s results of operations and amortization of fair value adjustment related to the acquisition of Meralco, amounted to Php1,805 million and Php1,785 million, respectively, in the first nine months of 2013, and Php1,361 million and Php1,451 million, respectively, in the same period in 2012.

As a result of the foregoing, our other business segment registered a net income of Php2,816 million, a decrease of Php1,325 million, or 32%, in the first nine months of 2013 from Php4,141 million in the same period in 2012.

As a result of the foregoing, negative EBITDA from our other business segment decreased by Php11 million, or 73%, to negative Php4 million in the first nine months of 2013 from negative Php15 million in the same period in 2012.

Our other business segment’s core income amounted to Php2,498 million in the first nine months of 2013, a decrease of Php1,733 million, or 41%, as compared with Php4,231 million in the same period in 2012 mainly as a result of a lower other income, partially offset by an increase in the equity share of Beacon and equity share in Beta in 2013.

The following table shows our consolidated cash flows for the nine months ended September 30, 2013 and 2012, as well as our consolidated capitalization and other consolidated selected financial data as at September 30, 2013 and December 31, 2012:


	Nine months ended September 30,
	2013		2012
	(in millions)
Cash Flows
Net cash provided by operating activities		51,605		54,822
Net cash used in investing activities		8,001		22,765
Capital expenditures		14,888		19,294
Net cash used in financing activities		52,652		39,125
Net decrease in cash and cash equivalents		8,517		7,423
	September 30,		December 31,

		2013		2012⁽¹⁾

	(in millions)
Capitalization
Long-term portion of interest-bearing financial liabilities – net of current portion:
Long-term debt		95,201		102,811
Obligations under finance lease		7		10

		95,208		102,821

Current portion of interest-bearing financial liabilities:
Long-term debt maturing within one year		14,252		12,981
Obligations under finance lease maturing within one year		6		8

		14,258		12,989

Total interest-bearing financial liabilities		109,466		115,810
Total equity attributable to equity holders of PLDT		139,337		145,550

		248,803		261,360

Other Selected Financial Data
Total assets⁽¹⁾		390,817		405,815
Property, plant and equipment		191,578		200,078
Cash and cash equivalents		29,779		37,161
Short-term investments		595		574

⁽¹⁾ The December 31, 2012 comparative information was restated to reflect the adjustments on the application of the Revised PAS 19 – Employee Benefits. See Note 2 – Summary of Significant Accounting Policies – Changes in Accounting Policies and Disclosures to the accompanying unaudited consolidated financial statements for further discussion.

Our consolidated cash and cash equivalents and short-term investments totaled Php30,374 million as at September 30, 2013. Principal sources of consolidated cash and cash equivalents in the first nine months of 2013 were cash flows from operating activities amounting to Php51,605 million, proceeds from availment of long-term debt of Php31,701 million, proceeds from disposal of investments, net of cash of deconsolidated subsidiaries, of Php12,075 million, proceeds from sale of Philweb shares of Php1,009 million, interest received of Php742 million and dividends received of Php426 million. These funds were used principally for: (1) debt principal and interest payments of Php42,473 million and Php3,832 million, respectively; (2) dividend payments of Php37,634 million; (3) capital outlays, net of capitalized interest, of Php14,888 million; (4) payment for purchase of investments in joint ventures, associates and deposits for PDR subscription of Php5,594 million; (5) net payment for purchase of investment in debt securities of Php501 million; and (6) settlements of derivative financial instruments of Php427 million.

Our consolidated cash and cash equivalents and short-term investments totaled Php37,890 million as at September 30, 2012. Principal sources of consolidated cash and cash equivalents in the first nine months of 2012 were cash flows from operating activities amounting to Php54,822 million, proceeds from availment of long-term debt and notes payable of Php41,449 million, interest received of Php980 million and dividends received of Php752 million. These funds were used principally for: (1) dividend payments of Php36,854 million; (2) debt principal and interest payments of Php30,749 million and Php4,195 million, respectively; (3) capital outlays, including capitalized interest, of Php19,294 million;
(4) payment for purchase of investment in associates and deposits for PDR subscription of Php8,956 million and payment for purchase of shares of noncontrolling interest of Php772 million; (5) Trust Fund and settlement for redemption of shares of Php5,603 million; (6) net settlement of capital expenditures under long-term financing of Php1,992 million; and (7) settlements of derivative financial instruments of Php918 million.

Our consolidated net cash flows from operating activities decreased by Php3,217 million, or 6%, to Php51,605 million in the first nine months of 2013 from Php54,822 million in the same period in 2012, primarily due to higher settlement of accounts payable and other various liabilities and higher pension contributions, partially offset by higher level of collection of receivables and higher operating income.

Cash flows from operating activities of our wireless business decreased by Php2,889 million, or 8%, to Php32,732 million in the first nine months of 2013 from Php35,621 million in the same period in 2012, primarily due to higher level of settlement of other current liabilities and lower operating income, partially offset by lower level of settlement of accounts payable and higher level of collection of outstanding receivables. Conversely, cash flows provided by operating activities of our fixed line business increased by Php2,769 million, or 16%, to Php20,482 million in the first nine months of 2013 from Php17,713 million in the same period in 2012, primarily due to higher operating income and higher level of collection of receivables, partially offset by higher level of settlement of accounts payable and other liabilities, and higher pension contributions.

Consolidated net cash used in investing activities amounted to Php8,001 million in the first nine months of 2013, a decrease of Php14,764 million, or 65%, from Php22,765 million in the same period in 2012, primarily due to the combined effects of the following: (1) proceeds from sale of BPO business, net of cash of deconsolidated subsidiaries, of Php12,075 million; (2) lower payment for investment in joint ventures, associates and deposits for PDR subscription by Php3,362 million, and acquisition of shares of noncontrolling interest by Php765 million; (3) the decrease in capital expenditures by Php4,406 million; (4) lower net proceeds from disposal of investments available for sale of Php3,578 million; (5) increase in notes receivable of Php1,024 million; and (6) lower dividends received by Php326 million.

Our consolidated capital expenditures, including capitalized interest, in the first nine months of 2013 totaled Php14,888 million, a decrease of Php4,406 million, or 23%, as compared with Php19,294 million in the same period in 2012, primarily due to decreases in the Digitel Group’s and Smart Group’s capital spending, partially offset by PLDT’s higher capital spending. PLDT’s capital spending of Php7,369 million in the first nine months of 2013 was principally used to finance the expansion and upgrade of its submarine cable facilities, DFON facilities, NGN roll-out, fixed line data and IP-based network services and outside plant rehabilitation. Smart Group’s capital spending of Php6,874 million in the first nine months of 2013 was used primarily to modernize and expand its 2G/3G cellular and mobile broadband networks, as well as to purchase additional customer premises equipment for the fixed wireless broadband business. DMPI’s capital spending of Php403 million in the first nine months of 2013 was intended principally to finance the expansion of fixed mobile convergence and continued upgrade of its core and transmission network to increase penetration, particularly in provincial areas. The balance represented other subsidiaries’ capital spending.

As part of our growth strategy, we may continue to make acquisitions and investments in companies or businesses whenever we deem such acquisitions and investments will contribute to our growth.

Dividends received in the first nine months of 2013 amounted to Php426 million, a decrease of Php326 million, or 43%, as compared with Php752 million in the same period in 2012. The dividends received in the first nine months of 2013 were from Beacon and Philweb. The dividends received in the first nine months of 2012 were from Meralco and Philweb.

On a consolidated basis, net cash used in financing activities amounted to Php52,652 million, an increase of Php13,527 million, or 35% as compared with Php39,125 million in the same period in 2012, resulting largely from the combined effects of the following: (1) higher net payments of long-term debt and notes payable by Php11,724 million; (2) lower proceeds from the issuance of long-term debt and notes payable by Php9,748 million; (3) higher cash dividends paid by Php780 million; (4) creation of Trust Fund for the redemption of shares of Php5,603 million in 2012; (5) net additions to capital expenditures under long-term financing of Php2,165 million; (6) lower settlement of derivative financial instruments of Php491 million; and (7) lower interest payment by Php363 million.

Proceeds from availment of long-term debt for the nine months ended September 30, 2013 amounted to Php31,701 million, mainly from PLDT’s and Smart’s drawings related to the financing of our capital expenditure requirements and maturing loan obligations. Payments of principal and interest on our total debt amounted to Php42,473 million and Php3,832 million, respectively, in the first nine months of 2013.

Our consolidated long-term debt decreased by Php6,339 million, or 5%, to Php109,453 million as at September 30, 2013 from Php115,792 million as at December 31, 2012, primarily due to debt amortizations and prepayments, partially offset by drawings from our term loan facilities and the depreciation of the Philippine peso relative to the U.S. dollar to Php43.54 as at September 30, 2013 from Php41.08 as at December 31, 2012 as compared with the appreciation of the Philippine peso relative to the U.S. dollar to Php41.74 as at September 30, 2012 from Php43.92 as at December 31, 2011. As at September 30, 2013, PLDT’s long-term debt level increased by 7% to Php61,319 million, respectively, while the long-term debt levels of Smart and Digitel decreased by 6% and 33% to Php35,726 million and Php12,408 million as compared with December 31, 2012.

On January 16, 2013, PLDT signed a US$300 million term loan facility agreement with a syndicate of banks with the Bank of Tokyo-Mitsubishi UFJ, Ltd. as the facility agent, to finance capital expenditures and/or to refinance existing obligations which were utilized for network expansion and improvement programs. The loan is payable over five years in nine equal semi-annual installments commencing on the date which falls 12 months after the date of the loan, with final installment on January 16, 2018. The amounts of US$40 million, US$160 million and US$100 million were partially drawn on March 6, 2013, April 19, 2013 and July 3, 2013, respectively. The amount of US$300 million, or Php13,063 million, remained outstanding as at September 30, 2013.

On January 28, 2013, Smart signed a US$35 million five-year term loan facility agreement with China Banking Corporation, to finance the equipment and service contracts for the modernization and expansion projects. The loan is payable over five years in ten equal semi-annual installments. The loan was fully drawn on May 7, 2013. The amount of US$31 million, or Php1,371 million, remained outstanding as at September 30, 2013.

On February 22, 2013, Smart signed a US$46 million five-year term loan facility agreement with Nordea Bank as the original lender, arranger and facility agent, to finance the supply and services contracts for the modernization and expansion project. Nordea Bank will subsequently assign its rights and obligations to the SEK guaranteed by EKN. This facility is payable semi-annually in ten equal installments commencing six months after the applicable mean delivery date. No availment has been made on this facility as at November 5, 2013.

On March 25, 2013, Smart signed a US$50 million five-year term loan facility agreement with FEC as the original lender, to finance the supply and services contracts for the modernization and expansion projects. The loan was arranged by the Bank of Tokyo-Mitsubishi UFJ, Ltd. and Mizuho Corporate Bank, Ltd. This loan is payable over five years in nine equal semi-annual installments commencing six months after drawdown date. The loan was partially drawn on September 16, 2013. The amount of US$17 million, or Php747 million, net of unamortized debt discount, remained outstanding as at September 30, 2013.

On May 31, 2013, Smart signed a US$80 million term loan facility agreement with China Banking Corporation to refinance existing loan obligations which were utilized for network expansion and improvement programs of Smart. The loan is payable over five years in ten equal semi-annual installments commencing six months after drawdown date, with final installment on May 31, 2018. The loan was fully drawn on September 25, 2013. The amount of US$80 million, or Php3,483 million, net of unamortized debt discount, remained outstanding as at September 30, 2013.

On June 19, 2013, Smart issued Php1,376 million fixed rate corporate notes under a Notes Agreement dated June 14, 2013, comprised of Series A five-year notes amounting to Php742 million and Series B ten-year notes amounting to Php634 million. Proceeds from the issuance of these notes were used primarily for debt refinancing of Smart. The Series A note facility has annual amortization equivalent to 1% of the principal amount starting June 19, 2014 with the balance of 97% payable on March 20, 2017. The Series B note facility has annual amortization equivalent to 1% of the principal amount starting June 19, 2014 with the balance of 92% payable on March 19, 2022. The aggregate amount of Php1,376 million remained outstanding as at September 30, 2013.

On June 20, 2013, Smart signed a US$120 million term loan facility agreement with Mizuho Corporate Bank, Ltd. and Sumitomo Mitsui Banking Corporation, as the lead arrangers and creditors with Sumitomo Mitsui Banking Corporation, as the facility agent. Proceeds of the facility will be used to refinance existing loan obligations which were utilized for network expansion and improvement programs of Smart. The loan is payable over five years in eight equal semi-annual installments commencing six months after drawdown date, with final installment on June 20, 2018. The loan was fully drawn on September 25, 2013. The amount of US$118 million, or Php5,129 million, net of unamortized debt discount, remained outstanding as at September 30, 2013.

On June 21, 2013, PLDT issued Php2,055 million fixed rate corporate notes under a Fixed Rate Corporate Notes Facility Agreement, dated June 14, 2013, comprised of Series A six-year notes amounting to Php1,735 million and Series B nine-year notes amounting to Php320 million. Proceeds from the issuance of these notes were used to refinance existing loan obligations which were used for capital expenditures for network expansion and improvement. The Series A notes are payable over six years with an annual amortization rate of 1% of the issued price up to the fifth year and the balance payable upon maturity on September 21, 2019. The Series B notes are payable over nine years with an annual amortization rate of 1% of the issue price up to the eight year and the balance payable upon maturity on September 21, 2022. The aggregate amount of Php2,034 million remained outstanding as at September 30, 2013.

On July 29, 2013, PLDT issued Php1,188 million fixed rate corporate note under a Fixed Rate Corporate Notes Facility Agreement, dated July 19, 2013. Proceeds from the issuance of these notes were used to finance capital expenditures for network expansion and improvement. The notes are payable over six years with an annual amortization rate of 1% of the issue price on the first year up to the 5^th year from the issue date and the balance upon maturity on July 29, 2019. The amount of Php1,188 million remained outstanding as at September 30, 2013.

As a result of the acquisition of Digitel, PLDT assumed the obligations of JG Summit Holdings, Inc., or JGSHI, as guarantor under the Digitel and DMPI loan agreements covered by guarantees from JGSHI. These loans and guarantees contained certain representations and covenants applicable to JGSHI including that on the ownership of JGSHI in Digitel. Digitel and DMPI obtained the required consents of the lenders and export credit agencies for the replacement of JGSHI by PLDT as guarantor under these loans. As at September 30, 2013, the outstanding balance of DMPI loans covered by PLDT guarantees is Php12,408 million. There are no outstanding Digitel loans covered by PLDT guarantees as at September 30, 2013.

Approximately Php49,356 million principal amount of our consolidated outstanding long-term debt as at September 30, 2013 is scheduled to mature over the period from 2013 to 2016. Of this amount, Php19,076 million is attributable to PLDT, Php21,603 million to Smart and Php8,677 million to the Digitel Group.

For a complete discussion of our long-term debt, see Note 20 – Interest-bearing Financial Liabilities – Long-term Debt to the accompanying unaudited consolidated financial statements.

Our consolidated debt instruments contain restrictive covenants, including covenants that require us to comply with specified financial ratios and other financial tests, calculated in conformity with PFRS, at relevant measurement dates, principally at the end of each quarterly period. We have complied with all of our maintenance financial ratios as required under our loan covenants and other debt instruments. Furthermore, certain of DMPI’s debt instruments contain provisions wherein DMPI may be declared in default in case of a change in control in DMPI.

See Note 20 – Interest-bearing Financial Liabilities – Debt Covenants to the accompanying unaudited consolidated financial statements for a detailed discussion of our debt covenants.

We believe that our available cash, including cash flow from operations, will provide sufficient liquidity to fund our projected operating, investment, capital expenditures and debt service requirements for the next 12 months.

There are no off-balance sheet arrangements that have or are reasonably likely to have any current or future effect on our financial position, results of operations, cash flows, changes in stockholders’ equity, liquidity, capital expenditures or capital resources that are material to investors.

Our current dividend policy is to pay out 70% of our core earnings per share taking into consideration the interest of our shareholders as well as our working capital, capital expenditures and debt servicing requirements. The retention of earnings may be necessary to meet the funding requirements of our business expansion and development programs. However, in the event that no investment opportunities arise, we may consider the option of returning additional cash to our shareholders in the form of special dividends up to the 30% balance of our core earnings or share buybacks. We were able to declare dividend payouts of approximately 100% of our core earnings for six consecutive years from 2007 to 2012. The accumulated equity in the net earnings of our subsidiaries, which form part of our retained earnings, are not available for distribution unless realized in the form of dividends from such subsidiaries.

Consolidated cash dividend payments in the first nine months of 2013 amounted to Php37,634 million as compared with Php36,854 million paid to shareholders in the same period in 2012.

The following table shows the dividends declared to common and preferred shareholders from the earnings for the nine months ended September 30, 2013 and 2012:

See Note 19 – Equity to the accompanying unaudited consolidated financial statements for further details.

For a discussion of our consolidated contractual undiscounted obligations as at September 30, 2013 and 2012, see Note 27 – Financial Assets and Liabilities – Liquidity Risks to the accompanying unaudited consolidated financial statements.

Our outstanding consolidated commercial commitments, in the form of letters of credit, amounted to Php29 million and Php342 million as at September 30, 2013 and December 31, 2012, respectively. The outstanding commitments will expire within one year.

Our operations are exposed to various risks, including liquidity risk, foreign currency exchange risk, interest rate risk, credit risk and capital management risk. The importance of managing these risks has significantly increased in light of considerable change and continuing volatility in both the Philippine and international financial markets. With a view to managing these risks, we have incorporated financial risk management functions in our organization, particularly in our treasury operations, equity issues and sales of certain assets.

For further discussions of these risks, see Note 27 – Financial Assets and Liabilities to the accompanying unaudited consolidated financial statements.

The following table sets forth the estimated consolidated fair values of our financial assets and liabilities recognized as at September 30, 2013 and June 30, 2013:


	Fair Values
	September 30,		June 30,
	2013		2013
	(Unaudited)
	(in millions)
Noncurrent Financial Assets
Available-for-sale financial investments
Listed equity securities		102		107
Unlisted equity securities		5,571		5,586
Investments in debt securities and other long-term investments – net of current portion		770		695
Derivative financial assets – interest rate swap		22		38
Advances and other noncurrent assets – net of current portion		2,001		1,286

Total noncurrent financial assets		8,466		7,712

Current Financial Assets
Cash and cash equivalents		29,779		40,133
Short-term investments		595		3,385
Trade and other receivables – net		16,808		17,234
Derivative financial assets		1		1
Current portion of investment in debt securities and other long-term investments		91		91
Current portion of advances and other noncurrent assets		7,993		7,873

Total current financial assets		55,267		68,717

Total Financial Assets		63,733		76,429

Noncurrent Financial Liabilities
Interest-bearing financial liabilities		100,605		93,659
Derivative financial liabilities		1,962		2,114
Customers’ deposits		2,067		2,051
Deferred credits and other noncurrent liabilities		17,695		15,325

Total noncurrent financial liabilities		122,329		113,149

Current Financial Liabilities
Accounts payable		26,911		24,104
Accrued expenses and other current liabilities		56,713		54,662
Interest-bearing financial liabilities		14,258		30,639
Dividends payable		1,054		899
Derivative financial liabilities		117		554
Total current financial liabilities		99,053		110,858

Total Financial Liabilities		221,382		224,007

The following table sets forth the amount of gains (losses) recognized for the financial assets and liabilities for the months ended September 30, 2013 and June 30, 2013:

Inflation can be a significant factor in the Philippine economy, and we are continually seeking ways to minimize its impact. The average inflation rate in the Philippines in the first nine months of 2013 and 2012 was 2.8% and 3.2%, respectively. Moving forward, we currently expect inflation to increase, which may have an impact on our operations.

On July 1, 2013, PLDT entered into an agreement to acquire the subscription assets of Digitel for a total cost of approximately Php5.3 billion. The agreement covers the transfer, assignment and conveyance of Digitel’s subscription agreements and subscriber list, and includes a transition mechanism to ensure uninterrupted availability of services to the Digitel subscribers until migration to the PLDT network is completed.

On April 23, 2013 and June 14, 2013, the Board of Directors and stockholders, respectively, approved the following actions: (1) decrease in PLDT’s authorized capital stock from Php9,395 million divided into two classes consisting of: (a) Preferred Capital Stock sub-classified into 150 million shares of Voting Preferred Stock of the par value of Php1.00 each and 807.5 million shares of Non-Voting Serial Preferred Stock of the par value of Php10.00 each; and (b) 234 million shares of Common Capital Stock of the par value of Php5.00 each, to Php5,195 million, divided into two classes consisting of:
(a) Preferred Capital Stock sub-classified into: 150 million shares of Voting Preferred Stock of the par value of Php1.00 each and 387.5 million shares of Non-Voting Serial Preferred Stock of the par value of Php10.00 each; and (b) 234 million shares of Common Capital Stock of the par value of Php5.00 each; and (2) corresponding amendments to the Seventh Article of the Articles of Incorporation of PLDT. On October 3, 2013, the Philippine SEC approved the decrease in authorized capital stock and Amendments to the Articles of Incorporation of PLDT.

In 2012, ePLDT made deposits totaling Php6 billion to MediaQuest, an entity wholly-owned by the BTF, for the issuance of PDRs to be issued by MediaQuest in relation to its indirect interest in Cignal TV, Inc., or Cignal TV (formerly Mediascape, Inc.) Cignal TV is a wholly-owned subsidiary of Satventures, Inc., or Satventures, which is a wholly-owned subsidiary of MediaQuest. The Cignal TV PDRs confer an economic interest in common shares of Cignal TV indirectly owned by MediaQuest, and when issued, will provide ePLDT with a 40% economic interest in Cignal TV. Cignal TV operates a direct-to-home, or DTH, Pay-TV business under the brand name “Cignal TV”, which is the largest DTH Pay-TV operator in the Philippines with over 540 thousand net subscribers as at September 30, 2013.

On March 5, 2013, PLDT’s Board of Directors approved two further investments in additional PDRs of MediaQuest:

•

a Php3.6 billion investment by ePLDT in PDRs to be issued by MediaQuest in relation to its interest in Satventures. The Satventures PDRs confer an economic interest in common shares of Satventures owned by MediaQuest, and when issued, will provide ePLDT with a 40% economic interest in Satventures; and

•

a Php1.95 billion investment by ePLDT in PDRs to be issued by MediaQuest in relation to its interest in Hastings Holdings, Inc., or Hastings. The Hastings PDRs confer an economic interest in common shares of Hastings owned by MediaQuest, and when issued, will provide ePLDT with a 100% economic interest in Hastings. Hastings is a wholly-owned subsidiary of MediaQuest and holds all the print-related investments of MediaQuest, including minority positions in the three leading broadsheets: The Philippine Star, the Philippine Daily Inquirer, and Business World.

For the nine months ended September 30, 2013, ePLDT made various deposits aggregating to Php3.6 billion and Php350 million for its investment in Satventures PDRs and Hastings PDRs of MediaQuest, respectively. Also in October 2013, ePLDT made additional deposit of Php400 million for its investment in Hastings PDRs of MediaQuest.

The Php6 billion Cignal TV PDRs and Php3.6 billion Satventures PDRs were issued on September 27, 2013. These PDRs will provide ePLDT an aggregate of 64% economic interest in Cignal TV.

The PLDT Group’s financial investment in PDRs of MediaQuest is part of the PLDT Group’s overall strategy of broadening its distribution platforms and increasing the Group’s ability to deliver multi-media content to its customers across the Group’s broadband and mobile networks.

See Note 10 – Investments in Associates, Joint Ventures and Deposits – Investment in MediaQuest to the accompanying unaudited consolidated financial statements for further discussion.

On February 5, 2013, PLDT entered into an agreement to sell the BPO business owned by its wholly-owned subsidiary, SPi Global to Asia Outsourcing Gamma Limited, or AOGL, a company controlled by CVC Capital Partners, or CVC. The sale of the BPO business was completed on April 30, 2013. PLDT reinvested approximately US$40 million of the proceeds from the sale in Asia Outsourcing Beta Limited, resulting in an approximately 19.7% interest, and will continue to participate in the growth of the business as a partner of CVC. Upon the completion of the sale, PLDT will be subject to certain obligations, including: (1) an obligation, for a period of five years, not to carry on or be engaged or concerned or interested in or assist any business which competes with the business process outsourcing business as carried on at the relevant time or at any time in the 12 months prior to such time in any territory in which business is carried on (excluding activities in the ordinary course of PLDT’s business); and (2) an obligation, for a period of five years, to provide transitional services on a most-favored-nation basis (i.e., no less favorable material terms (including pricing) than those offered by PLDT or any of its controlled affiliates to any other customer in relation to services substantially similar to those provided or to be provided). In addition, PLDT may be liable for certain damages actually suffered by AOGL arising out of, among others, breach of representation, tax matters and non-compliance with Indian employment laws by SPi Technologies India Pvt. Ltd., a wholly-owned subsidiary of SPi. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Assets Held-for-Sale and Discontinued Operations to the accompanying unaudited consolidated financial statements for a further discussion of the classification of the BPO segment as an asset held-for-sale.

For a detailed discussion of the related party transactions, see Note 24 –Related Party Transactions to the accompanying unaudited consolidated financial statements.

The following table shows the aging of our consolidated receivables as at September 30, 2013:

The following table shows our financial soundness indicators as at September 30, 2013 and 2012:

(1) Current ratio is measured as current assets divided by current liabilities (including current portion – LTD, unearned revenues and mandatory tender option liability.)

(2)

Net Debt to equity ratio is measured as total debt (long-term debt, including current portion and notes payable) less cash and cash equivalent and short-term investments divided by total equity.

(3)

Net Debt to EBITDA ratio is measured as total debt (long-term debt, including current portion and notes payable) less cash and cash equivalent and short-term investments divided by EBITDA for the 12 months average period.

(4) Asset to equity ratio is measured as total assets divided by total equity.

(5)

Interest coverage ratio is measured by EBIT, or earnings before interest and taxes for the 12 months average period, divided by total financing cost for the 12 months average period.

(6) Profit margin is derived by dividing net income for the period with total revenues for the period.

(7) Return on assets is measured as 12 months average net income for the period divided by average total assets.

(8) Return on Equity is measured as 12 months average net income for the period divided by average total equity.

(9) EBITDA margin for the period is measured as EBITDA divided by service revenues for the period.

EBITDA for the period is measured as net income for the period excluding depreciation and amortization, amortization of intangible assets, asset impairment on noncurrent assets, financing cost, interest income, equity share in net earnings (losses) of associated and joint ventures, foreign exchange gains (losses) – net, gains (losses) on derivative financial instruments – net, provision for (benefit from) income tax and other income (expenses) for the period.

Pursuant to the requirements of the Securities Regulation Code, the registrant has duly caused this report for the first nine months of 2013 to be signed on its behalf by the undersigned thereunto duly authorized.

AS AT SEPTEMBER 30, 2013 (UNAUDITED),
DECEMBER 31, 2012 AND JANUARY 1, 2012 (AS ADJUSTED)
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED)


	As at			As at December 31,			As at January 1,
	September 30, 2013			2012			2012
	(Unaudited)			(As Adjusted*)

ASSETS

Noncurrent Assets
Property, plant and equipment (Notes 3, 5, 9, 12 and 20)		191,578			200,078			200,142
Investments in associates, joint ventures and deposits (Notes 3, 4, 5, 10 and 24)		35,038			27,077			17,865
Available-for-sale financial investments (Notes 6, 10 and 27)		5,673			5,651			7,181
Investment in debt securities and other long-term investments – net of current portion (Notes 11 and 27)		778			205			150
Investment properties (Notes 3, 6, 9 and 12)		712			712			1,115
Goodwill and intangible assets (Notes 3, 4, 5 and 14)		74,273			74,250			83,303
Deferred income tax assets – net (Notes 3, 4 and 7)		9,706			7,225			5,117
Derivative financial assets (Note 27)		22			–			–
Prepayments – net of current portion (Notes 3, 5, 18, 24 and 25)		5,946			4,500			11,697
Advances and other noncurrent assets – net of current portion (Note 27)		2,473			1,376			1,340

Total Noncurrent Assets		326,199			321,074			327,910

Current Assets
Cash and cash equivalents (Notes 15 and 27)		29,779			37,161			46,057
Short-term investments (Note 27)		595			574			558
Trade and other receivables (Notes 3, 5, 16, 24 and 27)		16,808			16,379			16,245
Inventories and supplies (Notes 3, 4, 5 and 17)		2,869			3,467			3,827
Current portion of investment in debt securities and other long-term investments (Notes 11 and 27)		91			150			358
Current portion of prepayments (Note 18)		5,990			5,144			6,345
Current portion of advances and other noncurrent assets (Notes 19, 27 and 28)		8,131			8,116			492

		64,263			70,991			73,882
Assets classified as held-for-sale (Notes 2, 3, 4 and 10)		355			13,750			–

Total Current Assets		64,618			84,741			73,882

TOTAL ASSETS		390,817			405,815			401,792

EQUITY AND LIABILITIES

Equity
Non-voting serial preferred stock (Notes 8, 19, 27 and 28)		360			360			4,419
Voting preferred stock (Note 19)		150			150			–
Common stock (Notes 8, 19, 27 and 28)		1,093			1,093			1,085
Treasury stock (Notes 8, 19 and 27)		(6,505	)		(6,505	)		(6,505	)
Capital in excess of par value		130,562			130,566			127,246
Retained earnings (Note 19)		16,516			25,416			26,160
Other comprehensive income (Note 6)		(2,839	)		(3,387	)		1,456
Reserves of a disposal group classified as held-for-sale (Note 2)		–			(2,143	)		–

Total Equity Attributable to Equity Holders of PLDT (Note 27)		139,337			145,550			153,861
Noncontrolling interests (Note 6)		223			184			386

TOTAL EQUITY		139,560			145,734			154,247

Certain amounts shown here do not correspond to the consolidated financial statements as at December 31, 2012 and January 1, 2012, and reflect adjustments made as detailed in Note 2 – Summary of Significant Accounting Policies – Changes in Accounting Policies and Disclosures.


	As at		As at December 31,		As at January 1,
	September 30, 2013		2012		2012
	(Unaudited)		(As Adjusted*)

Noncurrent Liabilities
Interest-bearing financial liabilities – net of current portion (Notes 3, 4, 5, 9, 20, 23 and 27)		95,208		102,821		91,280
Deferred income tax liabilities – net (Notes 3, 4 and 7)		4,359		5,713		7,078
Derivative financial liabilities (Note 27)		1,962		2,802		2,235
Customers’ deposits (Note 27)		2,555		2,529		2,272
Pension and other employee benefits (Notes 3, 5, 23 and 25)		3,174		1,982		551
Deferred credits and other noncurrent liabilities (Notes 3, 5, 9, 21, 23, 27 and 28)		21,705		21,950		22,642

Total Noncurrent Liabilities		128,963		137,797		126,058

Current Liabilities
Accounts payable (Notes 22, 24, 26 and 27)		28,724		30,451		29,554
Accrued expenses and other current liabilities (Notes 3, 10, 14, 19, 20, 21, 23, 24, 25, 26, 27 and 28)		73,085		71,624		58,271
Current portion of interest-bearing financial liabilities (Notes 3, 4, 5, 9, 20, 23 and 27)		14,258		12,989		26,009
Provision for claims and assessments (Notes 3 and 26)		1,555		1,555		1,555
Dividends payable (Notes 19 and 27)		1,054		827		2,583
Derivative financial liabilities (Note 27)		117		418		924
Income tax payable (Note 7)		3,501		1,809		2,591

		122,294		119,673		121,487
Liabilities directly associated with assets classified as held-for-sale (Notes 2 and 4)		–		2,611		–

Total Current Liabilities		122,294		122,284		121,487

TOTAL LIABILITIES		251,257		260,081		247,545

TOTAL EQUITY AND LIABILITIES		390,817		405,815		401,792

CONSOLIDATED INCOME STATEMENTS
For the Nine Months and Three Months Ended September 30, 2013 and 2012
(in million pesos, except earnings per common share amounts)


	Nine Months Ended September 30,						Three Months Ended September 30,
	2013			2012			2013			2012
	(Unaudited)			(As Adjusted*)			(Unaudited)			(As Adjusted*)

REVENUES
Service revenues (Notes 2, 3 and 4)		121,604			119,050			40,567			39,321
Non-service revenues (Notes 3, 4 and 5)		2,981			2,313			1,017			806

		124,585			121,363			41,584			40,127

EXPENSES
Depreciation and amortization (Notes 3, 4 and 9)		22,180			22,957			7,648			7,668
Compensation and employee benefits (Notes 3, 5 and 25)		16,517			16,632			5,518			5,285
Repairs and maintenance (Notes 12, 17 and 24)		9,524			9,624			2,990			3,217
Cost of sales (Notes 5, 17 and 24)		8,532			6,381			2,994			1,898
Interconnection costs (Note 2)		7,865			8,243			2,509			2,684
Selling and promotions (Note 24)		6,598			6,850			2,313			2,537
Professional and other contracted services (Note 24)		4,546			3,894			1,714			1,284
Rent (Notes 3, 24 and 27)		4,224			4,349			1,373			1,631
Taxes and licenses (Note 26)		2,588			2,725			872			859
Asset impairment (Notes 3, 4, 5, 9, 10, 16, 17 and 27)		2,120			1,793			729			609
Communication, training and travel		1,570			1,522			507			497
Insurance and security services (Note 24)		1,117			1,112			362			405
Amortization of intangible assets (Notes 3, 4 and 14)		736			1,019			283			307
Other expenses (Note 24)		1,103			1,033			303			380

		89,220			88,134			30,115			29,261

		35,365			33,229			11,469			10,866

OTHER INCOME (EXPENSES)
Equity share in net earnings of associates and joint ventures (Notes 4 and 10)		1,903			1,440			803			129
Interest income (Notes 4, 5, 11 and 15)		680			1,008			195			389
Gains (losses) on derivative financial instruments – net (Notes 4 and 27)		492			(1,560	)		44			(1,123	)
Foreign exchange gains (losses) – net (Notes 4, 9 and 27)		(2,004	)		2,424				(82)		818
Financing costs – net (Notes 4, 5, 9, 20 and 27)		(5,245	)		(4,985	)		(1,918	)		(1,621	)
Other income (Notes 4 and 18)		2,006			4,712			148			1,570

		(2,168	)		3,039				(810)		162

INCOME BEFORE INCOME TAX FROM CONTINUING OPERATIONS (Note 4)		33,197			36,268			10,659			11,028
PROVISION FOR INCOME TAX (Notes 2, 3, 4 and 7)		6,271			8,272			1,594			2,037

NET INCOME FROM CONTINUING OPERATIONS (Note 4)		26,926			27,996			9,065			8,991
NET INCOME FROM DISCONTINUED OPERATIONS (Notes 2, 4 and 8)		2,069			363			206			117

NET INCOME (Note 4)		28,995			28,359			9,271			9,108

ATTRIBUTABLE TO:
Equity holders of PLDT (Notes 4 and 8)		28,954			28,384			9,247			9,102
Noncontrolling interests (Notes 4 and 8)		41				(25)		24			6

		28,995			28,359			9,271			9,108

Earnings Per Share Attributable to Common Equity Holders of PLDT (Notes 4 and 8)
Basic		133.81			131.20			42.72			42.07
Diluted		133.81			131.20			42.72			42.07

Earnings Per Share for Continuing Operations Attributable to Common Equity Holders of PLDT (Note 8)
Basic		124.23			129.52			41.76			41.52
Diluted		124.23			129.52			41.76			41.52

Certain amounts shown here do not correspond to the consolidated financial statements for the nine months and three months ended September 30, 2012 and reflect adjustments made as detailed in Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Changes in Accounting Policies and Disclosures.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Nine Months and Three Months Ended September 30, 2013 and 2012
(in million pesos)


	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(Unaudited)			(As Adjusted*)			(Unaudited)			(As Adjusted*)

NET INCOME (Note 4)		28,995			28,359			9,271			9,108
OTHER COMPREHENSIVE INCOME (LOSS) – NET OF TAX (Note 6)
Net gains (losses) on available-for-sale financial investments (Note 10):		6			16			(19	)		13
Gains (losses) from changes in fair value recognized during the period (Note 10)		8			17			(19	)		14
Income tax related to fair value adjustments charged directly to equity		(2	)		(1	)		–			(1	)
Foreign currency translation differences of subsidiaries		752			(685	)		(34	)		(134	)
Net transactions on cash flow hedges:		68			(1,260	)		249			(1,298	)
Net fair value gains (losses) on cash flow hedges (Note 27)		144			(1,284	)		371			(1,322	)
Income tax related to fair value adjustments charged directly to equity		(76	)		24			(122	)		24

Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods		826			(1,929	)		196			(1,419	)

Remeasurement gains in actuarial gains on defined benefit obligations		452			–			(79	)		–
Revaluation increment on investment properties (Notes 9 and 12):		(1	)		(1	)		–			–
Income tax related to revaluation increment charged directly to equity		1			1			1			1
Depreciation of revaluation increment in investment property transferred to property, plant and equipment		(2	)		(2	)		(1	)		(1	)
Net other comprehensive income (loss) reclassified directly to retained earnings in subsequent periods		451			(1	)		(79	)		–
Total Other Comprehensive Income (Loss) – Net of Tax		1,277			(1,930	)		117			(1,419	)

TOTAL COMPREHENSIVE INCOME		30,272			26,429			9,388			7,689

ATTRIBUTABLE TO:
Equity holders of PLDT		30,237			26,454			9,364			7,683
Noncontrolling interests		35			(25	)		24			6

		30,272			26,429			9,388			7,689

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 2013 and 2012
(in million pesos)


																		Reserves of a			Total Equity
																		Disposal Group			Attributable to
				Common					Capital in Excess of						Other Comprehensive			Classified as			Equity Holders			Noncontrolling			Total
	Preferred Stock			Stock		Treasury Stock			Par Value			Retained Earnings			Income			Held-for-Sale			of PLDT			Interests			Equity
Balances as at January 1, 2013, as previously presented		510			1,093		(6,505	)		130,566			24,794			790			(2,188	)		149,060			182			149,242
Effect of changes in accounting policies for employee benefits (Note 2)		–			–		–			–			622			(4,177	)		45			(3,510	)		2			(3,508	)

Balances as at January 1, 2013, as adjusted		510			1,093		(6,505	)		130,566			25,416			(3,387	)		(2,143	)		145,550			184			145,734
Total comprehensive income:		–			–		–			–			28,954			1,283			–			30,237			35			30,272
Net income (Notes 4 and 8)		–			–		–			–			28,954			–			–			28,954			41			28,995
Other comprehensive income (Note 6)		–			–		–			–			–			1,283			–			1,283			(6	)		1,277
Cash dividends (Note 19)		–			–		–			–			(37,854	)		–			–			(37,854	)		(13	)		(37,867	)
Discontinued operations (Notes 2 and 6)		–			–		–			–			–			(735	)		2,143			1,408			–			1,408
Acquisition and dilution of noncontrolling interests (Notes 2 and 13)		–			–		–			(4	)		–			–			–			(4	)		(6	)		(10	)
Others (Notes 2 and 13)		–			–		–			–			–			–			–			–			23			23

Balances as at September 30, 2013 (Unaudited)		510			1,093		(6,505	)		130,562			16,516			(2,839	)		–			139,337			223			139,560

Balances as at January 1, 2012, as previously presented		4,419			1,085		(6,505	)		127,246			26,232			(644	)		–			151,833			386			152,219
Effect of changes in accounting policies for employee benefits (Note 2)		–			–		–			–			(72	)		2,100			–			2,028			–			2,028

Balances as at January 1, 2012, as adjusted		4,419			1,085		(6,505	)		127,246			26,160			1,456			–			153,861			386			154,247
Total comprehensive income:		–			–		–			–			28,384			(1,930	)		–			26,454			(25	)		26,429
Net income (Notes 4 and 8)		–			–		–			–			28,384			–			–			28,384			(25	)		28,359
Other comprehensive loss (Note 6)		–			–		–			–			–			(1,930	)		–			(1,930	)		–			(1,930	)
Cash dividends (Note 19)		–			–		–			–			(36,983	)		–			–			(36,983	)		–			(36,983	)
Issuance of capital stock – net of conversion (Note 19)		(30	)		8		–			4,423			–			–			–			4,401			–			4,401
Redemption of preferred shares (Note 19)		(4,029	)		–		–			–			–			–			–			(4,029	)		–			(4,029	)
Acquisition and dilution of noncontrolling interests (Notes 2 and 13)		–			–		–			(1,090	)		–			–			–			(1,090	)		(180	)		(1,270	)
Others (Note 2)		–			–		–			–			–			–			–			–			40			40

Balances as at September 30, 2012 (As Adjusted*)		360			1,093		(6,505	)		130,579			17,561			(474	)		–			142,614			221			142,835

Certain amounts shown here do not correspond to the consolidated financial statements for the nine months ended September 30, 2012 and reflect adjustments made as detailed in Note 2 – Summary of Significant Accounting Policies – Changes in Accounting Policies and Disclosures.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2013 and 2012
(in million pesos)


	2013			2012
	(Unaudited)			(As Adjusted*)

CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax and noncontrolling interest from continuing operations		33,197			36,268
Income before income tax and noncontrolling interest from discontinued operations (Note 2)		2,124			622

Income before income tax (Note 4)		35,321			36,890
Adjustments for:
Depreciation and amortization (Notes 3, 4 and 9)		22,333			23,304
Interest on loans and other related items – net (Notes 4, 5, 9, 20 and 27)		3,406			3,979
Asset impairment (Notes 3, 4, 5, 9, 10, 16, 17 and 27)		2,122			1,793
Foreign exchange losses (gains) – net (Notes 4, 9 and 27)		2,000			(2,403	)
Accretion on financial liabilities – net (Notes 5, 20 and 27)		1,514			795
Incentive plans (Notes 3, 5 and 25)		1,278			1,250
Amortization of intangible assets (Notes 3 and 14)		791			1,158
Pension benefit costs (Notes 3, 5 and 25)		719			551
Losses (gains) on disposal of property, plant and equipment (Note 9)		106			(73	)
Losses (gains) on derivative financial instruments – net (Notes 4 and 27)		(493	)		1,532
Interest income (Notes 4, 5 and 15)		(683	)		(1,019	)
Equity share in net earnings of associates and joint ventures (Notes 4 and 10)		(1,766	)		(1,440	)
Gain on disposal of investment available-for-sale		(2,404	)		(2,016	)
Others		(1,304	)		(1,842	)

Operating income before changes in assets and liabilities		62,940			62,459
Decrease (increase) in:
Trade and other receivables		166			(3,576	)
Inventories and supplies		616			1,007
Prepayments		(1,564	)		225
Advances and other noncurrent assets		67			(38	)
Increase (decrease) in:
Accounts payable		(2,324	)		(1,406	)
Accrued expenses and other current liabilities		1,819			4,908
Pension and other employee benefits		(2,275	)		(1,250	)
Customers’ deposits		26			263
Other noncurrent liabilities		(22	)		(196	)

Net cash flows generated from operations		59,449			62,396
Income taxes paid		(7,844	)		(7,574	)

Net cash flows from operating activities		51,605			54,822

CASH FLOWS FROM INVESTING ACTIVITIES
Interest received		742			980
Dividends received (Note 10)		426			752
Proceeds from:
Disposal of investments – net of cash of deconsolidated subsidiaries		12,075			–
Sale of net assets held-for-sale		1,009			919
Maturity of investment in debt securities		150			–
Disposal of property, plant and equipment (Note 9)		107			150
Disposal of available-for-sale investments		–			3,567
Payments for:
Purchase of short-term investments		(3	)		(23	)
Purchase of shares of noncontrolling interest (Note 13)		(7	)		(772	)
Purchase of investments available-for-sale		(15	)		(4	)
Acquisition of intangibles (Note 4)		(261	)		–
Purchase of investment in debt securities		(651	)		–
Purchase of investments in associates, joint ventures and deposits (Note 10)		(5,594	)		(8,956	)
Interest paid – capitalized to property, plant and equipment (Notes 4, 5, 9, 20 and 27)		(526	)		(699	)
Increase in notes receivable		(1,024	)		–
Additions to property, plant and equipment (Notes 4 and 9)		(14,362	)		(18,595	)
Decrease in advances and other noncurrent assets		(67	)		(84	)
Net cash flows used in investing activities		(8,001	)		(22,765	)

See accompanying Notes to Consolidated Financial Statements.PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Nine Months Ended September 30, 2013 and 2012
(in million pesos)


	2013			2012
	(Unaudited)			(As Adjusted*)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Availments of long-term debt (Note 20)		31,701			40,892
Availments of long-term financing for capital expenditures		8,663			5,305
Notes payable (Note 20)		–			557
Issuance of capital stock		–			48
Payments for:
Redemption of shares		(5	)		–
Obligations under finance leases		(9	)		(7	)
Debt issuance costs (Note 20)		(146	)		(57	)
Derivative financial instruments (Note 27)		(427	)		(918	)
Interest – net of capitalized portion (Notes 5, 20 and 27)		(3,832	)		(4,195	)
Long-term financing for capital expenditures		(8,490	)		(7,297	)
Cash dividends (Note 19)		(37,634	)		(36,854	)
Long-term debt (Note 20)		(42,473	)		(27,036	)
Redemption of liabilities		–			(247	)
Notes payable (Note 20)		–			(3,713	)
Trust fund for redemption of shares (Note 19)		–			(5,603	)
Net cash flows used in financing activities		(52,652	)		(39,125	)

NET EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		531			(355	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(8,517	)		(7,423	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD		38,296			46,057

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD		29,779			38,634
Continuing operations		29,779			37,320
Discontinued operations (Note 2)		–			1,314

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Philippine Long Distance Telephone Company, or PLDT, or the Parent Company, was incorporated under the old Corporation Law of the Philippines (Act 1459, as amended) on November 28, 1928, following the merger of four telephone companies under common U.S. ownership. Under its amended Articles of Incorporation, PLDT’s corporate term is currently limited through 2028. In 1967, effective control of PLDT was sold by the General Telephone and Electronics Corporation, then a major shareholder since PLDT’s incorporation, to a group of Filipino businessmen. In 1981, in furtherance of the then existing policy of the Philippine government to integrate the Philippine telecommunications industry, PLDT purchased substantially all of the assets and liabilities of the Republic Telephone Company, which at that time was the second largest telephone company in the Philippines. In 1998, certain subsidiaries of First Pacific Company Limited, or First Pacific, and its Philippine affiliates (collectively the First Pacific Group and its Philippine affiliates), acquired a significant interest in PLDT. On March 24, 2000, NTT Communications Corporation, or NTT Communications, through its wholly-owned subsidiary NTT Communications Capital (UK) Ltd., became PLDT’s strategic partner with approximately 15% economic and voting interest in the issued and outstanding common stock of PLDT at that time. Simultaneous with NTT Communications’ investment in PLDT, the latter acquired 100% of Smart Communications, Inc., or Smart. On March 14, 2006, NTT DOCOMO, Inc., or NTT DOCOMO, acquired from NTT Communications approximately 7% of PLDT’s then outstanding common shares held by NTT Communications with NTT Communications retaining ownership of approximately 7% of PLDT’s common shares. Since March 14, 2006, NTT DOCOMO has made additional purchases of shares of PLDT, and together with NTT Communications beneficially owned approximately 20% of PLDT’s outstanding common stock as at September 30, 2013. NTT Communications and NTT DOCOMO are subsidiaries of NTT Holding Company. On February 28, 2007, Metro Pacific Asset Holdings, Inc., a Philippine affiliate of First Pacific, completed the acquisition of an approximately 46% interest in Philippine Telecommunications Investment Corporation, or PTIC, a shareholder of PLDT. This investment in PTIC represented an attributable interest of approximately 6% of the then outstanding common shares of PLDT and thereby raised First Pacific Group’s and its Philippine affiliates’ beneficial ownership to approximately 28% of PLDT’s outstanding common stock as at that date. Since then, First Pacific Group’s beneficial ownership interest in PLDT decreased by approximately 2%, mainly due to the holders of Exchangeable Notes, which were issued in 2005 by a subsidiary of First Pacific and exchangeable into PLDT shares owned by First Pacific Group, who fully exchanged their notes. First Pacific Group and its Philippine affiliates had beneficial ownership of approximately 26% in PLDT’s outstanding common stock as at September 30, 2013. On October 26, 2011, PLDT completed the acquisition of a controlling interest in Digital Telecommunications Phils., Inc., or Digitel, from JG Summit Holdings, Inc., or JGSHI, and certain other seller-parties. As payment for the assets acquired from JGSHI, PLDT issued approximately 27.7 million common shares. In November 2011, JGSHI sold 5.81 million and 4.56 million PLDT shares to a Philippine affiliate of First Pacific and NTT DOCOMO, respectively, pursuant to separate option agreements that JGSHI had entered into with a Philippine affiliate of First Pacific and NTT DOCOMO, respectively. As at September 30, 2013, the JG Summit Group owned approximately 8% of PLDT’s outstanding common shares.

On October 16, 2012, BTF Holdings, Inc., or BTFHI, a wholly-owned company of the Board of Trustees for the Account of the Beneficial Trust Fund, or BTF, created pursuant to PLDT’s Benefit Plan, subscribed to 150 million newly issued shares of Voting Preferred Stock of PLDT, or Voting Preferred Shares, at a subscription price of Php1.00 per share for a total subscription price of Php150 million pursuant to a subscription agreement dated October 15, 2012 between BTFHI and PLDT. As a result of the issuance of Voting Preferred Shares, the voting power of the NTT Group (NTT DOCOMO and NTT Communications), First Pacific Group and its Philippine affiliates, and JG Summit Group was reduced to 12%, 15% and 5%, respectively, as at September 30, 2013. See Note 19 – Equity – Voting Preferred Stock and Note 26 – Provisions and Contingencies – Matters Relating to the Gamboa Case and the recent Jose M. Roy III Petition.

The common shares of PLDT are listed and traded on the Philippine Stock Exchange, Inc., or PSE. On
October 19, 1994, an American Depositary Receipt, or ADR, facility was established, pursuant to which Citibank N.A., as the depositary, issued ADRs evidencing American Depositary Shares, or ADSs, with each ADS representing one PLDT common share with a par value of Php5 per share. Effective February 10, 2003, PLDT appointed JP Morgan Chase Bank as successor depositary for PLDT’s ADR facility. The ADSs are listed on the New York Stock Exchange, or NYSE, in the United States and are traded on the NYSE under the symbol “PHI”. There were approximately 45 million ADSs outstanding as at September 30, 2013.

PLDT and our Philippine-based fixed line and wireless subsidiaries operate under the jurisdiction of the Philippine National Telecommunications Commission, or NTC, which jurisdiction extends, among other things, to approving major services offered and certain rates charged to customers.

We are the leading telecommunications service provider in the Philippines. Through our three business segments, wireless, fixed line and others, we offer the largest and most diversified range of telecommunications services across the Philippines’ most extensive fiber optic backbone and wireless, fixed line and satellite networks. Our principal activities are discussed in Note 4 – Operating Segment Information.

Our registered office address is Ramon Cojuangco Building, Makati Avenue, Makati City, Philippines.

Our consolidated financial statements as at and for the nine months ended September 30, 2013 have been prepared in conformity with Philippine Financial Reporting Standards, or PFRS.

Our consolidated financial statements have been prepared under the historical cost basis, except for derivative financial instruments, available-for-sale financial investments and investment properties that have been measured at fair values.

Our consolidated financial statements include adjustments consisting only of normal recurring adjustments, necessary to present fairly the results of operations for the interim periods. The results of operations for the nine months ended September 30, 2013 are not necessarily indicative of the results of operations that may be expected for the full year.

Our consolidated financial statements are presented in Philippine peso, PLDT’s functional and presentation currency, and all values are rounded to the nearest million, except when otherwise indicated.

Our consolidated financial statements include the financial statements of PLDT and the following subsidiaries (collectively, the “PLDT Group”) as at September 30, 2013:

Place of

Percentage of Ownership

Name of Subsidiary

Incorporation

Principal Business Activity

Direct

Indirect

Wireless

Smart:

Philippines

Cellular mobile services

100.0

–

Smart Broadband, Inc., or SBI, and Subsidiary

Philippines

Internet broadband distribution services

–

100.0

Primeworld Digital Systems, Inc., or PDSI

Philippines

Internet broadband distribution services

–

100.0

I-Contacts Corporation

Philippines

Call center services

–

100.0

Wolfpac Mobile, Inc., or Wolfpac

Philippines

Mobile applications development and services

–

100.0

Wireless Card, Inc.

Philippines

Promotion of the sale and/or patronage of debit and/or
charge cards

–

100.0

Smart e-Money, Inc., or SeMI (formerly Smarthub, Inc., or
SHI)^(a)

Philippines

Software development and sale of maintenance and
support services

–

100.0

Smart Money Holdings Corporation,
or SMHC:

Cayman Islands

Investment company

–

100.0

Smart Money, Inc., or SMI

Cayman Islands

Mobile commerce solutions marketing

–

100.0

Far East Capital Limited and Subsidiary,
or FECL Group

Cayman Islands

Cost effective offshore financing and risk management
activities for Smart

–

100.0

PH Communications Holdings Corporation

Philippines

Investment company

–

100.0

Francom Holdings, Inc.:

Philippines

Investment company

–

100.0

Connectivity Unlimited Resource Enterprise, or CURE

Philippines

Cellular mobile services

–

100.0

Chikka Holdings Limited, or Chikka, and Subsidiaries, or
Chikka Group

British Virgin
Islands

Mobile applications development and services;
Content provider

–

100.0

Smarthub Pte. Ltd., or SHPL:

Singapore

Investment company

–

100.0

Takatack Pte. Ltd. (formerly SmartConnect Global Pte.
Ltd., or SGP^(b)

Singapore

International trade of satellites and Global System for
Mobile Communication, or GSM, enabled global
telecommunications

–

100.0

3^rd Brand Pte. Ltd., or 3^rd Brand

Singapore

Solutions and systems integration services

–

85.0

Voyager Innovations, Inc., or Voyager^(c)

Philippines

Mobile applications development and services

–

100.0

Telesat, Inc.^(d)

Philippines

Satellite communications services

100.0

–

ACeS Philippines Cellular Satellite Corporation,
or ACeS Philippines

Philippines

Satellite information and messaging services

88.5

11.5

Mabuhay Investment Corporation
(formerly Mabuhay Satellite Corporation),
or MIC^(e)

Philippines

Investment company

67.0

–

Digitel Mobile Philippines, Inc., or DMPI,
a wholly-owned subsidiary of Digitel

Philippines

Cellular mobile services

–

99.5

Place of

Percentage of Ownership

Name of Subsidiary

Incorporation

Principal Business Activity

Direct

Indirect

Fixed Line

PLDT Clark Telecom, Inc., or ClarkTel

Philippines

Telecommunications services

100.0

–

PLDT Subic Telecom, Inc., or SubicTel

Philippines

Telecommunications services

100.0

–

PLDT Global Corporation, or PLDT Global, and Subsidiaries

British Virgin
Islands

Telecommunications services

100.0

–

Smart-NTT Multimedia, Inc.^(d)

Philippines

Data and network services

100.0

–

PLDT-Philcom, Inc., or Philcom, and Subsidiaries, or Philcom
Group

Philippines

Telecommunications services

100.0

–

ePLDT, Inc., or ePLDT^(e):

Philippines

Information and communications infrastructure for
internet-based services, e-commerce, customer
relationship management and information technology, or
IT,
related services

100.0

–

IP Converge Data Services, Inc., or IPCDSI^(g)

Philippines

Information and communications infrastructure for
internet-based services, e-commerce, customer
relationship management and IT related services

–

100.0

ABM Global Solutions, Inc., or AGS, and Subsidiaries, or
AGS Group^(h)

Philippines

Internet-based purchasing, IT consulting and professional
services

–

99.2

ePDS, Inc., or ePDS

Philippines

Bills printing and other related value-added services, or
VAS

–

67.0

netGames, Inc., or netGames⁽ⁱ⁾

Philippines

Gaming support services

–

57.5

Digitel_:

Philippines

Telecommunications services

99.5

–

Digitel Capital Philippines Ltd., or DCPL^(j)

British Virgin
Islands

Telecommunications services

–

99.5

Digitel Information Technology
Services, Inc.^(k)

Philippines

Internet services

–

99.5

PLDT-Maratel, Inc., or Maratel

Philippines

Telecommunications services

98.0

–

Bonifacio Communications Corporation, or BCC

Philippines

Telecommunications, infrastructure and related VAS

75.0

–

Pilipinas Global Network Limited, or PGNL,
and Subsidiaries

British Virgin
Islands

International distributor of Filipino channels and content

60.0

–

Others

PLDT Global Investments Holdings, Inc.,
or PGIH (formerly SPi Global Holdings, Inc.)^(l)(m)

Philippines

Investment company

100.0

–

SPi Global Investments Limited, or SGIL

British Virgin
Islands

Investment company

–

100.0

PLDT Global Investments Corporation, or PGIC

British Virgin
Islands

Investment company

–

100.0

PLDT Communications and Energy Ventures, Inc., or PCEV

Philippines

Investment company

–

99.8

^(a)

On July 9, 2013, by the majority vote of the Board of Directors and Stockholders, SHI filed with Philippine Securities and Exchange Commission, or Philippine SEC the amended Articles of Incorporation changing the registered business name of SHI to Smart e-Money, Inc., or SeMI.

^(e)

Ceased commercial operations; however, on January 13, 2012, the Philippine SEC approved the amendment of MIC’s Articles of Incorporation changing its name from Mabuhay Satellite Corporation to Mabuhay Investment Corporation and its primary purpose from satellite communication to holding company.

^(f)

On June 11, 2012, MySecureSign, Inc., or MSSI, and ePLDT were merged, wherein ePLDT became the surviving company.

^(h)

In January 2013, ePLDT acquired an additional 2% equity interest in AGS from its minority shareholders for a consideration of Php2 million, thereby increasing ePLDT’s ownership in AGS from 97.1% to 99.2%.

^(m)

On December 4, 2012, our Board of Directors authorized the sale of our Business Process Outsourcing, or BPO, segment, thus, the BPO segment was classified as discontinued operations and a disposal group held-for-sale. The sale of the BPO segment was completed on April 30, 2013. See – Discontinued Operations and Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Discontinued Operations.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the PLDT Group obtains control, and continue to be consolidated until the date that such control ceases. We control an investee when we are exposed, or has rights, to variable returns from our involvement with the investee and when we have the ability to affect those returns through our power over the investee.

The financial statements of our subsidiaries are prepared for the same reporting period as PLDT. We prepare our consolidated financial statements using uniform accounting policies for like transactions and other events with similar circumstances. All intra-group balances, income and expenses, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.

Noncontrolling interests share in losses even if the losses exceed the noncontrolling equity interest in the subsidiary.

A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction.

If the PLDT Group loses control over a subsidiary, it: (a) derecognizes the assets (including goodwill) and liabilities of the subsidiary; (b) derecognizes the carrying amount of any noncontrolling interest;
(c) derecognizes the cumulative translation differences recorded in equity; (d) recognizes the fair value of the consideration received; (e) recognizes the fair value of any investment retained; (f) recognizes any surplus or deficit in profit or loss; and (g) reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate.

On November 2, 2011, the Board of Directors of PCEV authorized PCEV’s management to take such steps necessary for the voluntary delisting of PCEV from the PSE in accordance with the PSE Rules on Voluntary Delisting. On December 2, 2011, PCEV’s Board of Directors also created a special committee to review and evaluate any tender offer to be made by Smart (as the owner of 99.51% of the outstanding common shares of PCEV) to purchase the shares owned by the remaining noncontrolling shareholders representing 0.49% of the outstanding common stock of PCEV. Smart’s tender offer commenced on March 19, 2012 and ended on April 18, 2012, with approximately 25.1 million shares, or 43.4% of PCEV’s noncontrolling shares tendered, thereby increasing Smart’s ownership to 99.7% of the outstanding common stock of PCEV at that time. The aggregate cost of the tender offer paid by Smart to noncontrolling shareholders on April 30, 2012 amounted to Php115 million. PCEV filed its petition with the PSE for voluntary delisting on March 19, 2012. On April 25, 2012, the PSE approved the petition for voluntary delisting and PCEV’s shares were delisted and ceased to be tradable on the PSE effective May 18, 2012.

Following the voluntary delisting of the common stock of PCEV from the PSE on May 18, 2012, PCEV’s Board of Directors and stockholders approved on June 6, 2012 and July 31, 2012, respectively, the following resolutions and amendments to the articles of incorporation of PCEV to decrease the authorized capital stock of PCEV, increase the par value of PCEV’s common stock (and thereby decrease the number of shares of such common stock) and decrease the number of shares of preferred stock of PCEV as follows:

The decrease in authorized capital and amendments to the articles of incorporation were subject to approval of the Philippine SEC, which approval was received on October 8, 2012. As a result of the increase in the par value of PCEV common stock, each multiple of 21,000 shares of PCEV common stock, par value Php1, was reduced to one PCEV share of common stock, with a par value of Php21,000. Shareholdings of less than 21,000 shares or in excess of an integral multiple of 21,000 shares of PCEV which could not be replaced with fractional shares were paid the fair value of such residual shares equivalent to Php4.50 per share of pre-amendments PCEV common stock, the same amount as the tender offer price paid by Smart during the last tender offer conducted from March 19 to April 18, 2012.

As a consequence of the foregoing, the number of outstanding shares of PCEV common stock decreased to approximately 555,716 from 11,683,156,455 (exclusive of treasury shares). The number of holders of PCEV common stock decreased to 123 as at September 30, 2013 and under the rules of the Philippine SEC, PCEV is still required to make update filings with the Philippine SEC. Smart’s percentage of ownership in PCEV stood at 99.8% as at September 30, 2013.

On October 26, 2011, PLDT received the Order issued by the NTC approving the application jointly filed by PLDT and Digitel for the sale and transfer of approximately 51.6% of the outstanding common stock of Digitel to PLDT. The approval of the application was subject to conditions which included the divestment by PLDT of CURE, in accordance with the Divestment Plan, as follows:

•

CURE must sell its Red Mobile business to Smart consisting primarily of its subscriber base, brand and fixed assets; and

•

Smart will sell all of its rights and interests in CURE whose remaining assets will consist of its congressional franchise, 10 MHz of 3G frequency in the 2100 band and related permits.

In compliance with the commitments in the divestment plan, CURE completed the sale and transfer of its Red Mobile business to Smart on June 30, 2012 for a total consideration of Php18 million through a series of transactions, which included: (a) the sale of CURE’s Red Mobile trademark to Smart; (b) the transfer of CURE’s existing Red Mobile subscriber base to Smart; and (c) the sale of CURE’s fixed assets to Smart at net book value.

In a letter dated July 26, 2012, Smart informed the NTC that it has complied with the terms and conditions of the divestment plan as CURE had rearranged its assets, such that, except for assets necessary to pay off obligations due after June 30, 2012 and certain tax assets, CURE’s only remaining assets as at June 30, 2012 were its congressional franchise, the 10 MHz of 3G frequency in the 2100 band and related permits.

In a letter dated September 10, 2012, Smart informed the NTC that the minimum Cost Recovery Amount, or CRA, to enable the PLDT Group to recover its investment in CURE, includes, among others, the total cost of equity investments in CURE, advances from Smart for operating requirements, advances from stockholders and associated funding costs. Smart also informed the NTC that the divestment will be undertaken through an auction sale of CURE’s shares of stock to the winning bidder and submitted CURE’s audited financial statements as at June 30, 2012 to the NTC. In a letter dated January 21, 2013, the NTC proposed the referral to commissioners of the computation of the CRA due Smart. Smart sent a reply agreeing to the proposal and is awaiting advice from the NTC on the bidding and auction of the 3G license of CURE.

The divestment of CURE-related franchise and licenses qualifies as noncurrent assets held-for-sale as at September 30, 2013 and December 31, 2012, but was not presented separately in our consolidated statement of financial position as the carrying amounts are not material.

In April 2012, the Board of Directors of MSSI and ePLDT approved the plan of merger between MSSI and ePLDT, with ePLDT as the surviving company, in order to realize economies in operation and achieve greater efficiency in the management of their business. The merger was approved by two-thirds vote of MSSI and ePLDT’s stockholders on April 13, 2012 and April 27, 2012, respectively. On June 11, 2012, the Philippine SEC approved the plan and articles of merger. The merger has no impact on our consolidated financial statements.

On October 12, 2012, ePLDT and IP Ventures, Inc., or IPVI, and IPVG Employees, Inc., or IEI, entered into a Sale and Purchase Agreement whereby ePLDT acquired 100% of the issued and outstanding capital stock of IPCDSI and advances to IPCDSI for a total adjusted purchase price of Php693 million. See Note 13 – Business Combinations – ePLDT’s Acquisition of IPCDSI.

In December 2012 and January 2013, ePLDT acquired an additional 5.67% equity interest in AGS from its minority shareholders for a total consideration of Php5 million, thereby increasing ePLDT’s ownership in AGS from 93.5% to 99.2%.

On December 4, 2012, our Board of Directors authorized the sale of our BPO segment. Consequently, as at December 31, 2012, the BPO segment was classified as discontinued operations and a disposal group held-for-sale. The BPO segment met the criteria of an asset to be classified as held-for-sale as at December 31, 2012 for the following reasons: (1) the BPO segment is available for immediate sale and can be sold to a potential buyer in its current condition; (2) the Board of Directors had approved the plan to sell the BPO segment and we entered into preliminary negotiations with a potential buyer and should the negotiations with a potential buyer not lead to a sale, we expect to seek other sale opportunities as a number of other potential buyers had been identified; and (3) the Board of Directors expected negotiations to be finalized and the sale to be completed in April 2013. Thus, we adjusted the comparative consolidated income statement for the nine months ended September 30, 2012 to present the results of operations of our BPO business as discontinued operations. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Assets Held-for-Sale and Discontinued Operations.

On February 5, 2013, PLDT entered into an agreement to sell the BPO business owned by its wholly-owned subsidiary, SPi Global, to Asia Outsourcing Gamma Limited, or AOGL, a company controlled by CVC Capital Partners, or CVC. The sale of the BPO business was completed on April 30, 2013. PLDT reinvested approximately US$40 million of the proceeds from the sale in Asia Outsourcing Beta Limited, or Beta, resulting in an approximately 19.7% interest, and will continue to participate in the growth of the business as a partner of CVC. Upon the completion of the sale, PLDT will be subject to certain obligations, including: (1) an obligation, for a period of five years, not to carry on or be engaged or concerned or interested in or assist any business which competes with the business process outsourcing business as carried on at the relevant time or at any time in the 12 months prior to such time in any territory in which business is carried on (excluding activities in the ordinary course of PLDT’s business); and (2) an obligation, for a period of five years, to provide transitional services on a most-favored-nation basis (i.e., no less favorable material terms (including pricing) than those offered by PLDT or any of its controlled affiliates to any other customer in relation to services substantially similar to those provided or to be provided). In addition, PLDT may be liable for certain damages actually suffered by AOGL arising out of, among others, breach of representation, tax matters and non-compliance with Indian employment laws by SPi Technologies India Pvt. Ltd., a wholly-owned subsidiary of SPi.

The results of the BPO segment, net of intercompany transactions, classified as discontinued operations for the four months ended April 30, 2013 (closing period of the sale) and for the nine months ended September 30, 2012 are as follows:


	2013			2012
	(Unaudited)
	(in million pesos)
Revenues (Notes 3 and 4)		3,132			6,742

Expenses:
Compensation and employee benefits (Notes 3, 5 and 25)		2,047			4,197
Professional and other contracted services (Note 24)		267			455
Depreciation and amortization (Notes 3 and 9)		153			347
Repairs and maintenance (Notes 12, 17 and 24)		129			289
Communication, training and travel		118			262
Rent (Notes 3 and 27)		86			204
Amortization of intangible assets (Notes 3 and 14)		55			139
Selling and promotions		27			57
Insurance and security services (Note 24)		21			47
Taxes and licenses (Note 26)		14			44
Other expenses (Note 24)		57			85

		2,974			6,126

		158			616

Other income (expenses):
Foreign exchange gains (losses) – net (Notes 9 and 27)		4			(21	)
Interest income (Notes 5, 11 and 15)		3			11
Gains on derivative financial instruments – net		1			28
Financing costs (Notes 5, 9, 20 and 27)		(4	)		(23	)
Other income (loss) (Note 18)		1,962			11
		1,966			6
Income before income tax from discontinued operations		2,124			622
Provision for income tax (Notes 2, 3 and 7)		55			259

Income after tax from discontinued operations (Note 4)		2,069			363

Earnings per share (Notes 4 and 8):
Basic – income from discontinued operations		9.58			1.68
Diluted – income from discontinued operations		9.58			1.68

As indicated above, the sale of BPO segment was completed on April 30, 2013. Thus, our consolidated statement of financial position does not include any assets and liabilities of the BPO segment as at September 30, 2013. Below are the major classes of assets and liabilities of BPO segment, net of intercompany transactions, classified as held-for-sale as at December 31, 2012:


	2012
	(As Adjusted*)
	(in million pesos)
Assets:
Property, plant and equipment (Notes 3 and 9)		1,529
Available-for-sale financial investments (Notes 6 and 10)		2
Goodwill and intangible assets (Notes 3 and 14)		7,033
Deferred income tax assets – net (Note 7)		212
Prepayments – net of current portion		9
Advances and other noncurrent assets – net of current portion		117
Cash and cash equivalents		1,135
Trade and other receivables (Note 16)		2,704
Derivative financial assets (Note 27)		68
Current portion of prepayments		296
Current portion of advances and other noncurrent assets		7
Assets classified as held-for-sale		13,112
Liabilities:
Interest-bearing financial liabilities – net of current portion (Note 20)		425
Deferred income tax liabilities – net (Note 7)		147
Pension and other employee benefits (Notes 3 and 25)		221
Accounts payable		481
Accrued expenses and other current liabilities		885
Current portion of interest-bearing financial liabilities (Note 20)		278
Dividends payable		6
Derivative financial liabilities (Note 27)		7
Income tax payable		161

Liabilities directly associated with assets classified as held-for-sale		2,611

Net assets directly associated with disposal group		10,501

Included in other comprehensive income:
Net transactions on cash flow hedges – net of tax (Note 6)		62
Actuarial gains on defined benefit plans		45
Foreign currency translation differences of subsidiaries (Note 6)		(2,250	)

Reserves of a disposal group classified as held-for-sale		(2,143	)

Certain amounts shown here do not correspond to the consolidated financial statements as at December 31, 2012 and reflect adjustments made as detailed in Note 2 – Changes in Accounting Policies and Disclosures.

The net cash flows generated by the BPO segment for the four months ended April 30, 2013 (closing period of sale) and for the nine months ended September 30, 2012 are as follows:

Our accounting policies adopted in the preparation of our consolidated financial statements are consistent with those of the previous financial year, except for the adoption of new standards and interpretations effective as at January 1, 2013:

Amendments to PFRS 7, Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities. These amendments require an entity to disclose information about rights of set–off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set–off in accordance with PAS 32, Financial Instruments: Presentation – Tax Effect of Distribution to Holders of Equity Instruments. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or “similar arrangement”, irrespective of whether they are set–off in accordance with PAS 32. The amendments affect disclosures only and have no impact on our financial position or performance. The additional disclosure required by the amendments is presented in Note 27 – Financial Assets and Liabilities.

PFRS 10, Consolidated Financial Statements. PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, which addresses the accounting for consolidated financial statements. It also includes the issues raised in Standards Interpretation Committee, or SIC, 12, Consolidation – Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27.

As a result of the adoption of PFRS 10, we changed our accounting policy with respect to determining whether we have control over and consequently whether we consolidate our investees. PAS 10 introduces a new control model that is applicable to all investees; among other things, it requires the consolidation of an investee if, and only if, we have: (1) the power over the investee, i.e., the investor has existing rights that give it the ability to direct the relevant activities, i.e., the activities that significantly affect the investee’s returns; (2) the exposure, or rights, to variable returns from its involvement with the investees; and (3) the ability to use its power over the investee to affect the amount of the investor’s returns.

In accordance with the transitional provisions of PFRS 10, we re-assessed the control conclusion for our investees beginning January 1, 2013 and based on the reassessment there were no additional investees that should be consolidated on the basis of the above circumstances and therefore, the adoption of this revised standard has no impact on our financial position or performance.

PFRS 11, Joint Arrangements. PFRS 11 superseded PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities – Non-Monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities, or JCEs, using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.

As a result of the adoption of PFRS 11, we changed our accounting policy with respect to our interest in joint arrangements.

Under PFRS 11, we classified our interest in joint arrangements as either joint operations or joint ventures depending on our rights to the assets and obligations for the liabilities of the arrangements. When making this assessment, we consider the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Previously, the structure of the arrangement was the sole focus of classification.

We re-evaluated our involvement in our joint arrangements and assessed that its classification as joint ventures is in accordance with PFRS 11 and therefore, the adoption of this revised standard has no impact on our financial position or performance.

PFRS 12, Disclosure of Interests in Other Entities. PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in PAS 31 and PAS 28, Investments in Associates. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required.

The adoption of the revised standard has no significant impact on our consolidated financial statements. See also Note 2 – Summary of Significant Accounting Policies – Basis of Consolidation and Note 10 – Investments in Associates, Joint Venture and Deposits for a more comprehensive disclosure about our interest in subsidiaries, associates and joint ventures. The impact of the adoption affects disclosures only.

PFRS 13, Fair Value Measurement. PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS. PFRS 13 defines fair value as an exit price. As a result of the guidance in PFRS 13, we reassessed our policies for measuring fair values, in particular, our valuation inputs such as non-performance risk for fair value measurement of liabilities. PFRS 13 also requires additional disclosures.

Revised PAS 19, Employee Benefits. Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. On January 1, 2013, we adopted the Revised PAS 19.

The Revised PAS 19 requires all actuarial gains and losses under defined benefit plans to be recognized in other comprehensive income and unvested past service costs previously recognized over the average vesting period to be recognized immediately in profit or loss when incurred.

Prior to adoption of the Revised PAS 19, we recognized actuarial gains and losses as income or expense when the net cumulative unrecognized gains and losses for each individual plan at the end of the previous period exceeded 10% of the higher of the defined benefit obligation and the fair value of the plan assets and recognized unvested past service costs as an expense on a straight-line basis over the average vesting period until the benefits become vested. Upon adoption of the Revised PAS 19, we changed our accounting policy to recognize all actuarial gains and losses in other comprehensive income and all past service costs in profit or loss in the period they occur.

The Revised PAS 19 replaced the interest cost and expected return on plan assets with the concept of net interest on defined benefit liability or asset which is calculated by multiplying the net balance sheet defined benefit liability or asset by the discount rate used to measure the employee benefit obligation, each as at the beginning of the annual period.

The Revised PAS 19 also amended the definition of short-term employee benefits and requires employee benefits to be classified as short-term based on expected timing of settlement rather than the employee’s entitlement to the benefits. In addition, the Revised PAS 19 modified the timing of recognition for termination benefits. The modification requires the termination benefits to be recognized at the earlier of when the offer cannot be withdrawn or when the related restructuring costs are recognized.

The changes in our accounting policies as a result of the adoption of the Revised PAS 19 have been applied retrospectively.

Consequently, we reviewed our existing employee benefits and determined that the revised standard has significant impact on our accounting for defined benefit retirement plans. We obtained the services of an external actuary to compute the impact on the consolidated financial statements upon adoption of the standard and have increased (decreased) the following accounts in our consolidated statements of financial position as at December 31, 2012 and January 1, 2012 and our consolidated statement of income for the nine months ended September 30, 2012:

Our adoption of this standard also affected the recognition of termination benefits, wherein certain cost of manpower rightsizing program, or MRP, accrued based on formal detailed plan on December 31, 2012 was reversed and was recognized in 2013 based on the date of actual acceptance of the employees by signing the acceptance letter. This reduced our consolidated deferred income tax assets – net by Php166 million, accrued expenses and other current liabilities by Php1,287 million and retained earnings by Php1,121 million as at December 31, 2012. A total of Php1,269 million of MRP cost was recognized for the nine months ended September 30, 2013 as a result of this change in the recognition of termination benefits.

The Revised PAS 19 requires additional disclosure requirements for defined benefit plans. These disclosures, among others, include the following: (a) a description of the risks to which the plan exposes the entity, focused on any unusual, entity-specific or plan-specific risks, and of any significant concentrations of risk; (b) a sensitivity analysis for each significant actuarial assumption including the methods and assumptions used in preparing the sensitivity analysis and any changes and reasons for such changes from the previous period in the methods and assumptions used; (c) a description of any asset-liability matching strategies used by the plan or the entity, including the use of annuities and other techniques, such as longevity swaps, to manage risk; (d) a description of funding arrangements, including the funding policy of the defined benefit plan;
(e) expected contributions for the next annual reporting period; and (f) information about the maturity profile of the defined benefit obligation, including but not limited to weighted average duration of the defined benefit obligation. We are still in the process of collating the additional required disclosures mentioned above and expect to provide such information once available.

Revised PAS 27, Separate Financial Statements. As a consequence of the new PFRS 10 and PFRS 12, PAS 27 is now limited to accounting for investments in subsidiaries, joint ventures and associates when an entity elects, or is required by local regulations, to present separate financial statements.

Revised PAS 28, Investments in Associates and Joint Ventures. Superseding PAS 28, Investments in Associates, is PAS 28, Investments in Associates and Joint Ventures, which prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

Amendments to PAS 1, Financial Statement Presentation – Presentation of Items of Other Comprehensive Income. The amendments to PAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that may not be reclassified at any point in time. The amendment solely affects presentation and therefore has no impact on our financial position or performance.

The annual improvements to PFRS contain non-urgent but necessary amendments to PFRS. The amendments are effective for annual periods beginning on or after January 1, 2013 and to be applied retrospectively.

PFRS 1, First-time Adoption of International Financial Reporting Standards. The amendments clarify that an entity that has stopped applying PFRS may choose to either: (a) re-apply PFRS 1, even if the entity applied PFRS 1 in a previous reporting period; or (b) apply PFRS retrospectively in accordance with PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, in order to resume reporting under PFRS. It also clarifies that upon adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles may carryforward, without adjustment, the amount previously capitalized in its opening statement of financial position at the date of transition. Such borrowing costs are then recognized in accordance with PAS 23, Borrowing Costs. The amendment will have no impact on our financial position or performance, as we are not a first-time adopter of PFRS.

PAS 1, Presentation of Financial Statements – Clarification of the Requirements for Comparative Information. The amendment requires an entity to present a: (a) comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period; and (b) opening statement of financial position (known as the “third balance sheet”) when an entity changes its accounting policies, makes retrospective restatements or makes reclassifications, and that change has a material effect on the statement of financial position. The opening statement will be at the beginning of the preceding period. The amendment has no impact on our financial position or performance.

PAS 16, Property, Plant and Equipment – Classification of Servicing Equipment. The amendment clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory. The improvement has no impact on our financial position or performance.

PAS 32, Financial Instruments: Presentation – Tax Effect of Distribution to Holders of Equity Instruments. The amendment removes existing income tax requirements from PAS 32 and requires entities to apply requirements in PAS 12, Income Taxes, to any income tax arising from distributions to equity holders. The amendment has no impact on our financial position or performance.

PAS 34, Interim Financial Reporting and Segment Information for Total Assets and Liabilities. The amendment clarifies the requirements in PAS 34 relating to segment information for total assets and liabilities for each reportable segment to enhance consistency with the requirement in PFRS 8, Operating Segments. The amendment has no impact on our financial position or performance.

In addition to the above-mentioned amendments and new standards, PFRS 1, First-time Adoption of Philippine Financial Reporting Standards, was amended with effect for reporting periods starting on or after January 1, 2013. We are not a first-time adopter of PFRS, therefore, this amendment is not relevant to us.

We have not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

The following is the summary of significant accounting policies we applied in preparing our consolidated financial statements:

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any noncontrolling interest in the—acquiree. For each business combination, the acquirer has the option to measure the components of the noncontrolling interest in the—acquiree that are present ownership interest and entitle their holders to a proportionate share of the net assets in the event of liquidation either at fair value or at the proportionate share of the—acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

When we acquire a business, we assess the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the—acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss. The fair value of previously held equity interest is then included in the amount of total consideration transferred.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of PAS 39, Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognized either in profit or loss or as a change in other comprehensive income. If the contingent consideration is not within the scope of PAS 39, it is measured in accordance with the appropriate PFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for noncontrolling interests and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, we reassess whether we correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain in the form of negative goodwill is recognized in profit or loss.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we report in our consolidated financial statements provisional amounts for the items for which the accounting is incomplete. At measurement period which is no longer than one year from the acquisition date, the provisional amounts recognized at acquisition date are retrospectively adjusted to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date. During the measurement period, we also recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of our cash-generating units, or CGUs, that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill acquired in a business combination has yet to be allocated to identifiable CGUs because the initial accounting is incomplete, such provisional goodwill is not tested for impairment unless indicators of impairment exist and we can reliably allocate the carrying amount of goodwill to a CGU or group of CGUs that are expected to benefit from the synergies of the business combination.

Where goodwill forms part of a CGU 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 when 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 CGU retained.

An associate is an entity in which we have significant influence, but no control or joint control, over the financial and operating policies. The existence of significant influence is presumed to exist when we hold between 20% and 50% of the voting power of another entity. Significant influence is also exemplified when we have: (a) a representation on the board of directors or the equivalent governing body of the investee;
(b) participation in policy-making processes, including participation in decisions about dividends or other distributions; (c) material transactions with the investee; (d) interchange managerial personnel with the investee; or (e) provision of essential technical information.

Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The cost of the investments includes transaction costs. The details of our investments in associates are disclosed in Note 10 – Investments in Associates, Joint Ventures and Deposits – Investments in Associates.

Under the equity method, an investment in an associate is carried in our consolidated statement of financial position at cost plus post acquisition changes in our share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized nor individually tested for impairment. Our consolidated income statement reflects our share in the financial performance of our associates. Where there has been a change recognized directly in the equity of the associate, we recognize our share in such change and disclose this, when applicable, in our consolidated statements: (1) statement of comprehensive income; and (2) statement of changes in equity. Unrealized gains and losses resulting from our transactions with and among our associates are eliminated to the extent of our interest in those associates.

Our share in the profits or losses of our associates is shown on the face of our consolidated income statement. This is the profit or loss attributable to equity holders of the associate and therefore is profit or loss after tax and net of noncontrolling interest in the subsidiaries of the associate.

When our share of losses exceeds our interest in an equity-accounted investee, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that we have an obligation or has made payments on behalf of the investee.

Our reporting dates and that of our associates are identical and our associates’ accounting policies conform to those used by us for like transactions and events in similar circumstances. When necessary, adjustments are made to bring such accounting policies in line with our policies.

After application of the equity method, we determine whether it is necessary to recognize an additional impairment loss on our investments in associates. We determine at the end of each reporting period whether there is any objective evidence that our investment in associate is impaired. If this is the case, we calculate the amount of impairment as the difference between the recoverable amount of our investment in the associate and its carrying value and recognize the amount in our consolidated income statement.

Upon loss of significant influence over the associate, we measure and recognize any retained investment at its fair value. Any difference between the carrying amounts of our investment in the associate upon loss of significant influence and the fair value of the remaining investment and proceeds from disposal is recognized in profit or loss.

Joint arrangements are arrangements of which we have joint control, established by contracts requiring unanimous consent for decisions about the activities that significantly affect the arrangements’ returns. They are classified and accounted for as follows:

•

Joint operation – when we have rights to the assets, and obligations for the liabilities, relating to an arrangement, we account for each of our assets, liabilities and transactions, including our share of those held or incurred jointly, in relation to the joint operation.

•

Joint venture – when we have rights only to the net assets of the arrangements, we account for our interest using the equity method, same as investments in associates.

The financial statements of the joint venture are prepared for the same reporting period as our consolidated financial statements. Where necessary, adjustments are made to bring the accounting policies of the joint venture in line with our policies. The details of our investments in joint ventures are disclosed in Note 10 – Investments in Associates, Joint Ventures and Deposits – Investments in Joint Ventures.

Adjustments are made in our consolidated financial statements to eliminate our share of unrealized gains and losses on transactions between us and our joint venture. The joint venture is carried at equity method until the date on which we cease to have joint control over the joint venture.

Upon loss of joint control and provided that the former joint venture does not become a subsidiary or associate, we measure and recognize our remaining investment at fair value. Any difference between the carrying amount of the former joint venture upon loss of joint control and the fair value of the remaining investment and proceeds from disposal is recognized in profit or loss. When the remaining investment constitutes significant influence, it is accounted for as an investment in an associate.

Our consolidated financial statements are presented in Philippine peso, which is also the Parent Company’s functional currency. The Philippine peso is the currency of the primary economic environment in which we operate. This is also the currency that mainly influences the revenue from and cost of rendering products and services. Each entity in our Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

The functional and presentation currency of the entities under PLDT Group (except for SHPL, SGP, 3^rd Brand, SMHC, SMI, Telecoms Solutions, Inc., or TSI, FECL Group, PLDT Global and its subsidiaries, PGNL, DCPL, SPi Global and certain of its subsidiaries, and certain subsidiaries of Chikka and AGS) is the Philippine peso.

Transactions in foreign currencies are initially recorded by entities under our Group at the respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing rate of exchange prevailing at the end of the reporting period. All differences arising on settlement or translation of monetary items are recognized in our consolidated income statement except for foreign exchange differences that qualify as capitalizable borrowing costs for qualifying assets. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currency of SMHC, SMI, TSI, FECL Group, PLDT Global and certain of its subsidiaries, PGNL, DCPL, SPi Global and certain of its subsidiaries, and certain subsidiaries of Chikka is the U.S. dollar; and the functional currency of SHPL, SGP, 3^rd Brand, and certain subsidiaries of AGS is the Singapore dollar. As at the reporting date, the assets and liabilities of these subsidiaries are translated into Philippine peso at the rate of exchange prevailing at the end of the reporting period, and income and expenses of these subsidiaries are translated monthly using the weighted average exchange rate for the month. The exchange differences arising on translation are recognized as a separate component of other comprehensive income as cumulative translation adjustments. On disposal of these subsidiaries, the amount of deferred cumulative translation adjustments recognized in other comprehensive income relating to subsidiaries is recognized in our consolidated income statement.

When there is a change in an entity’s functional currency, the entity applies the translation procedures applicable to the new functional currency prospectively from the date of the change. The entity translates all assets and liabilities into the new functional currency using the exchange rate at the date of the change. The resulting translated amounts for non-monetary items are treated as the new historical cost. Exchange differences arising from the translation of a foreign operation previously recognized in other comprehensive income are not reclassified from equity to profit or loss until the disposal of the operation.

Foreign exchange gains or losses of the Parent Company and our Philippine-based subsidiaries are treated as taxable income or deductible expenses in the period such exchange gains or losses are realized.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

Noncurrent assets and disposal groups classified as held-for-sale are measured at the lower of their carrying amount and fair value less costs to sell. Noncurrent assets and disposal groups are classified as held-for-sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

In the consolidated income statement, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of profit after taxes, even when we retain a noncontrolling interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the consolidated income statement.

Property, plant and equipment and intangible assets once classified as held-for-sale are neither depreciated nor amortized.

Financial assets within the scope of PAS 39 are classified as financial assets at fair value through profit or loss, or FVPL, loans and receivables, held-to-maturity, or HTM, investments, available-for-sale financial investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. We determine the classification of financial assets at initial recognition and, where allowed and appropriate, re-evaluate the designation of such assets at each financial year-end.

Financial assets are recognized initially at fair value plus transaction costs, except in the case of financial assets recorded at FVPL.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way purchases or sales) are recognized on the trade date, i.e., the date that we commit to purchase or sell the asset.

The subsequent measurement of financial assets depends on the classification as described below:

Financial assets at FVPL include financial assets held-for-trading and financial assets designated upon initial recognition at FVPL. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivative assets, including separated embedded derivatives are also classified as held-for-trading unless they are designated as effective hedging instruments. Financial assets at FVPL are carried in our consolidated statement of financial position at fair value with net changes in gains or losses recognized in our consolidated income statement under “Gains (losses) on derivative financial instruments – net” for derivative instruments (negative net changes in fair value) and “Other income” for non-derivative financial assets (positive net changes in fair value). Interest earned and dividends received from financial assets at FVPL are recognized in our consolidated income statement under “Interest income” and “Other income”, respectively.

Financial assets may be designated at initial recognition as at FVPL if any of the following criteria are met:
(i) 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 different bases; (ii) the assets are part of a group of financial assets which are managed and their performance are evaluated on a fair value basis, in accordance with a documented risk management strategy and information about the company is provided internally on that basis to the entity’s key management personnel; or (iii) the financial assets contain 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.

Derivatives embedded in host contracts are accounted for as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value. These embedded derivatives are measured at fair value with gains or losses arising from changes in fair value recognized in our consolidated income statement. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

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

Our financial assets at FVPL include portions of short-term investments as at September 30, 2013, December 31, 2012 and January 1, 2012. See Note 27 – Financial Assets and Liabilities.

Loans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market. Such financial assets are carried at amortized cost using the effective interest rate, or EIR, method. This method uses an EIR that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. Gains and losses are recognized in our consolidated income statement when the loans and receivables are derecognized or impaired, as well as through the amortization process. Interest earned or incurred is recorded in “Interest income” in our consolidated income statement. Assets in this category are included in the current assets except for those with maturities greater than 12 months after the end of the reporting period, which are classified as noncurrent assets.

Our loans and receivables include trade and other receivables, portions of short-term and long-term investments, and portions of advances and other noncurrent assets as at September 30, 2013, December 31, 2012 and January 1, 2012. See Note 16 – Trade and Other Receivables and Note 27 – Financial Assets and Liabilities.

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as HTM when we have the positive intention and ability to hold it to maturity. After initial measurement, HTM investments are measured at amortized cost using the EIR method. Gains or losses are recognized in our consolidated income statement when the investments are derecognized or impaired, as well as through the amortization process. Interest earned or incurred is recorded in “Interest income” in our consolidated income statement. Assets in this category are included in current assets except for those with maturities greater than 12 months after the end of the reporting period, which are classified as noncurrent assets.

Our HTM investments include portion of investment in debt securities and other long-term investments as at September 30, 2013, December 31, 2012 and January 1, 2012. See Note 11 – Investment in Debt Securities and Other Long-term Investments and Note 27 – Financial Assets and Liabilities.

Available-for-sale financial investments include equity investments and debt securities. Equity investments classified as available-for-sale are those that are neither classified as held-for-trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to liquidity requirements or in response to changes in the market conditions.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealized gains or losses recognized in other comprehensive income in the available-for-sale reserve account until the investment is derecognized, at which time the cumulative gain or loss recorded in other comprehensive income is recognized in our consolidated income statement; or the investment is determined to be impaired, at which time the cumulative loss recorded in other comprehensive income is recognized in our consolidated income statement. Interest earned on holding available-for-sale financial investments are included under “Interest income” using the EIR method in our consolidated income statement. Dividends earned on holding available-for-sale equity investments are recognized in our consolidated income statement under “Other income” when the right to receive payment has been established. These financial assets are included under noncurrent assets unless we intend to dispose of the investment within 12 months from the end of the reporting period.

We evaluate whether the ability and intention to sell our available-for-sale financial investments in the near term is still appropriate. When, in rare circumstances, we are unable to trade these financial investments due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, we may elect to reclassify these financial investments. Reclassification to loans and receivables is permitted when the financial investments meet the definition of loans and receivables and we have the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is permitted only when the entity has the ability and intention to hold the financial investment to maturity accordingly.

For a financial investment reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortized cost and any previous gain or loss on the asset has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the maturity amount is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the income statement.

Our available-for-sale financial investments include listed and unlisted equity securities as at September 30, 2013, December 31, 2012 and January 1, 2012. See Note 27 – Financial Assets and Liabilities.

Financial liabilities within the scope of PAS 39 are classified as financial liabilities at FVPL, other financial liabilities or as derivatives designated as hedging instruments in an effective hedge, as appropriate. We determine the classification of our financial liabilities at initial recognition.

Financial liabilities are recognized initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs.

The subsequent measurement of financial liabilities depends on their classification as described below:

Financial liabilities at FVPL include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as at FVPL. Financial liabilities are classified as held-for-trading if they are acquired for the purpose of selling in the near term. Derivative liabilities, including separated embedded derivatives are also classified as at FVPL unless they are designated as effective hedging instruments. Financial liabilities at FVPL are carried in our consolidated statement of financial position at fair value with gains or losses on liabilities held-for-trading recognized in our consolidated income statement under “Gains (losses) on derivative financial instruments – net” for derivative instruments and “Other income” for non-derivative financial liabilities.

Financial liabilities may be designated at initial recognition as FVPL if any of the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognizing gains or losses on them on different bases; (ii) the liabilities are part of a group of financial liabilities which are managed and their performance are evaluated on a fair value basis, in accordance with a documented risk management strategy and information about the company is provided internally on that basis to the entity’s key management personnel; or (iii) the financial liabilities contain 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.

Our financial liabilities at FVPL include long-term principal only currency swaps, interest rate swaps and an equity forward sale contract as at September 30, 2013 and long-term principal only currency swaps, interest rate swaps and forward foreign exchange contracts as at December 31, 2012 and January 1, 2012. See Note 27 – Financial Assets and Liabilities.

After initial recognition, other financial liabilities are subsequently measured at amortized cost using the EIR method.

Gains and losses are recognized in our consolidated income statement when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included under “Financing costs – net” in our consolidated income statement.

Our other financial liabilities include accounts payable, accrued expenses and other current liabilities, with the exemption of statutory payables, interest-bearing financial liabilities, customers’ deposits, dividends payable, and accrual for long-term capital expenditures included under “Deferred credits and other noncurrent liabilities” account as at September 30, 2013, December 31, 2012 and January 1, 2012. See Note 20 – Interest-bearing Financial Liabilities, Note 21 – Deferred Credits and Other Noncurrent Liabilities, Note 22 – Accounts Payable, and Note 23 – Accrued Expenses and Other Current Liabilities.

Financial assets and financial liabilities are offset and the net amount is reported in our consolidated statement of financial position 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 assets and settle the liabilities simultaneously.

Amortized cost is computed using the EIR method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of EIR.

Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique which variables include only data from observable market, we recognize the difference between the transaction price and fair value (a “Day 1” difference) in our consolidated income statement unless it qualifies for recognition as some other type of asset or liability. In cases where data used are not observable, the difference between the transaction price and model value is only recognized in our consolidated income statement when the inputs become observable or when the instrument is derecognized. For each transaction, we determine the appropriate method of recognizing the “Day 1” difference amount.

We assess at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that the debtor will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

We recognize impairment losses for the whole amount of receivables from permanently disconnected wireless and fixed line subscribers. Permanent disconnections are made after a series of collection steps following nonpayment by postpaid subscribers. Such permanent disconnection usually occurs within a predetermined period from the last statement date.

We also recognize impairment losses for accounts with extended credit arrangements or promissory notes.

Regardless of the age of the account, additional impairment losses are also made for accounts specifically identified to be doubtful of collection when there is information on financial incapacity after considering the other contractual obligations between us and the subscriber.

Receivables from corporate subscribers are provided with impairment losses when they are specifically identified as impaired. Full allowance is generally provided for the whole amount of receivables from corporate accounts based on aging of individual account balances. In making this assessment, we take into account normal payment cycle, counterparty’s payment history and industry-observed settlement periods.

For receivables from foreign administration and domestic carriers, impairment losses are recognized when they are specifically identified as impaired regardless of the age of balances. Full allowance is generally provided after quarterly review of the status of settlement with the carriers. In making this assessment, we take into account normal payment cycle, counterparty carrier’s payment history and industry-observed settlement periods.

Similar to carrier accounts, we recognize impairment losses for the full amount of receivables from dealers, agents and other parties based on our specific assessment of individual balances regardless of the age of balances.

We estimate impairment losses for temporarily disconnected accounts for both wireless and fixed line subscribers based on the historical trend of temporarily disconnected accounts which eventually become permanently disconnected. Temporary disconnection is initiated after a series of collection activities is implemented, including the sending of a collection letter, call-out reminders and collection messages via text messaging. Temporary disconnection generally happens 90 days after the due date of the unpaid balance. If the account is not settled within 60 days from temporary disconnection, the account is permanently disconnected.

We recognize impairment losses on our postpaid wireless and fixed line subscribers through net flow-rate methodology which is derived from account-level monitoring of subscriber accounts between different age brackets, from current to one day past due to 120 days past due. The criterion adopted for making the allowance for doubtful accounts takes into consideration the calculation of the actual percentage of losses incurred on each range of accounts receivable.

Receivables that have been assessed individually and found not to be impaired are then assessed collectively based on similar credit risk characteristics to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident in the individual impairment assessment. Retail subscribers are provided with collective impairment based on a certain percentage derived from historical data/statistics.

For financial assets carried at amortized cost, we first assess whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If we determine that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, we include the asset in a group of financial assets with similar credit risk characteristics and collectively assess them 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 objective evidence that an impairment loss 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 expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized under “Asset impairment” in our consolidated income statement. Interest income continues to be accrued on the reduced carrying amount based on the original EIR of the asset. The financial asset together with the associated allowance are written-off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to us. 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. Any subsequent reversal of an impairment loss is recognized in our consolidated income statement, to the extent that the carrying value of the asset does not exceed its original amortized cost at the reversal date. If a future write-off is later recovered, the recovery is recognized in profit or loss.

For available-for-sale financial investments, we assess at each reporting date whether there is objective evidence that an investment or a group of investment is impaired.

In the case of equity investments classified as available-for-sale financial investments, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. The determination of what is “significant” or “prolonged” requires judgment. We treat “significant” generally as decline of 20.0% or more below the original cost of investment, and “prolonged” as greater than 12 months. When a decline in the fair value of an available-for-sale financial investment has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from other comprehensive income to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. The amount of the cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss. Impairment losses recognized in profit or loss for an investment in an equity instrument are not reversed in profit or loss. Subsequent increases in the fair value after impairment are recognized directly in other comprehensive income.

In the case of debt instruments classified as available-for-sale financial investments, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost less any impairment loss on that investment previously recognized in our consolidated income statement and the current fair value. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest income” in our consolidated income statement. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in our consolidated income statement, the impairment loss is reversed in profit or loss.

A financial asset (or where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: (1) the rights to receive cash flows from the asset have expired; or (2) we have transferred its rights to receive cash flows from the asset or have assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either: (a) we have transferred substantially all the risks and rewards of the asset; or (b) we have neither transferred nor retained substantially all the risks and rewards of the asset, but have transferred control of the asset.

When we have transferred the rights to receive cash flows from an asset or have entered into a “pass-through” arrangement, and have neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognized to the extent of our continuing involvement in the asset.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of the consideration that we could be required to repay.

When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of our continuing involvement is the amount of the transferred asset that we may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of our continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired.

When 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 carrying amount of a financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

The financial liability is also derecognized when equity instruments are issued to extinguish all or part of the financial liability. The equity instruments issued are recognized at fair value if it can be reliably measured, otherwise, it is recognized at the fair value of the financial liability extinguished. Any difference between the fair value of the equity instruments issued and the carrying value of the financial liability extinguished is recognized in profit or loss.

We use derivative financial instruments, such as long-term currency swaps, foreign currency options, forward currency contracts and interest rate swaps to hedge our risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of long-term currency swaps, foreign currency options, forward currency contracts and interest rate swap contracts is determined using applicable valuation techniques. See Note 27 – Financial Assets and Liabilities.

Any gains or losses arising from changes in fair value on derivatives during the period that do not qualify for hedge accounting are taken directly to the “Gains (losses) on derivative financial instruments – net” in our consolidated income statement.

For the purpose of hedge accounting, hedges are classified as: (1) fair value hedges when hedging the exposure to changes in the fair value of a recognized financial asset or liability or an unrecognized firm commitment (except for foreign currency risk); or (2) cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized financial asset or liability, a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment; or
(3) hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, we formally designate and document the hedge relationship to which we wish 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 we 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 on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they are designated. In a situation when that hedged item is a forecast transaction, we assess whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect our consolidated income statement.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

The change in the fair value of a hedging derivative is recognized in our consolidated income statement. The change in the fair value of the hedged item attributable to the risk being hedged is recorded as part of the carrying value of the hedged item and is also recognized in our consolidated income statement.

The fair value for financial instruments traded in active markets at the end of the reporting period is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a 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. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models and other relevant valuation models.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as a financial asset or liability with a corresponding gain or loss recognized in our consolidated income statement. The changes in the fair value of the hedging instrument are also recognized in our consolidated income statement.

The effective portion of the gain or loss on the hedging instrument is recognized in other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statement. See Note 27 – Financial Assets and Liabilities for more details.

Amounts taken to other comprehensive income are transferred to our consolidated income statement when the hedged transaction affects our consolidated income statement, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in other comprehensive income are transferred to our consolidated income statement. 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 other comprehensive income remain in other comprehensive income until the forecast transaction or firm commitment occurs.

We use an equity forward contract to hedge the sale of Philweb shares. See Note 27 – Financial Assets and Liabilities – ePLDT Group.

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

We use a loan as a hedge of its exposure to foreign exchange risk on its investment in foreign subsidiaries. See Note 27 – Financial Assets and Liabilities for more details.

Derivative instruments that are not designated as effective hedging instruments are classified as current or noncurrent or separated into a current and noncurrent portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).

Where we expect to hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the reporting date, the derivative is classified as noncurrent (or separated into current and noncurrent portions) consistent with the classification of the underlying item.

Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the host contract.

Derivative instruments that are designated as effective hedging instruments are classified consistently with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and a noncurrent portion only if a reliable allocation can be made.

We recognize transfers into and transfers out of fair value hierarchy levels as at the date of the event or change in circumstances that caused the transfer.

Property, plant and equipment, except for land, is stated at cost less accumulated depreciation and amortization and any accumulated impairment losses. The initial cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the property, plant and equipment to its working condition and location for its intended use. Such cost includes the cost of replacing component parts of the property, plant and equipment when the cost is incurred, if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, we recognize such parts as individual assets with specific useful lives and depreciate them accordingly. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied. The present value of the expected cost for the decommissioning of the asset after use is included in the cost of the asset if the recognition criteria for a provision are met. Land is stated at cost less any impairment in value.

Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are normally recognized as expense in the period such costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of the property, plant and equipment.

Depreciation and amortization commence once the property, plant and equipment are available for use and are calculated on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives used in depreciating our property, plant and equipment are disclosed in Note 9 – Property, Plant and Equipment.

The asset’s residual value, estimated useful life, and depreciation and amortization method are reviewed at least at each financial year-end to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property, plant and equipment and are adjusted prospectively, if appropriate.

An item of property, plant 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 profit or loss in the period the asset is derecognized.

Property under construction is stated at cost less any impairment in value. This includes cost of construction, plant and equipment, capitalizable borrowing costs and other direct costs associated to construction. Property under construction is not depreciated until such time that the relevant assets are completed and available for its intended use.

Construction-in-progress is transferred to the related property, plant and equipment when the construction or installation and related activities necessary to prepare the property, plant and equipment for their intended use have been completed, and the property, plant and equipment are ready for commercial service.

Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Qualifying assets are assets that necessarily take a substantial period of time to get ready for its intended use or sale. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset shall be determined as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization shall be determined by applying a capitalizable rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to our borrowings that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during the period shall not exceed the amount of borrowing costs incurred during that period.

Capitalization of borrowing costs commences when the activities necessary to prepare the asset for intended use are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the asset is available for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, as well as exchange differences arising from foreign currency borrowings used to finance these projects, to the extent that they are regarded as an adjustment to interest costs.

We are legally required under various lease agreements to dismantle the installation in leased sites and restore such sites to their original condition at the end of the lease contract term. We recognize the liability measured at the present value of the estimated costs of these obligations and capitalize such costs as part of the balance of the related item of property, plant and equipment. The amount of asset retirement obligations are accreted and such accretion is recognized as interest expense. See Note 21 – Deferred Credits and Other Noncurrent Liabilities.

Investment properties are initially measured at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met and excludes the cost of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair values, which have been determined annually based on the latest appraisal performed by an independent firm of appraisers, an industry specialist in valuing these types of investment properties. Gains or losses arising from changes in the fair values of investment properties are included in our consolidated income statement in the period in which they arise, including the corresponding tax effect. 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 that fair value can be determined or construction is completed.

Investment properties are derecognized when they have been disposed or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property is recognized in our consolidated income statement in the year of retirement or disposal.

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If an owner occupied property becomes an investment property, we account for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. The difference between the carrying amount of the owner occupied property and its fair value at the date of change is accounted for as revaluation increment recognized in other comprehensive income. On subsequent disposal of the investment property, the revaluation increment recognized in other comprehensive income is transferred to retained earnings.

No assets held under operating lease have been classified as investment properties.

Intangible assets acquired separately are measured at cost on initial recognition. The cost of intangible assets acquired from business combinations is initially recognized at fair value on the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment loss. The useful lives of intangible assets are assessed at the individual asset level as either finite or indefinite.

Intangible assets with finite lives are amortized over the useful economic life using the straight-line method and assessed for impairment whenever there is an indication that the intangible assets may be impaired. At a minimum, the amortization period and the amortization method for an intangible asset with a finite useful life are 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 are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in our consolidated income statement.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the CGU level. Such intangible assets are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the 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.

The estimated useful lives used in amortizing our intangible assets are disclosed in Note 14 – Goodwill and Intangible Assets.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in our consolidated income statement when the asset is derecognized.

Intangible assets created within the business are not capitalized and expenditures are charged against operations in the period in which the expenditures are incurred.

Inventories and supplies, which include cellular phone units, materials, spare parts, terminal units and accessories, are valued at the lower of cost and net realizable value.

Costs incurred in bringing inventories and supplies to its present location and condition are accounted using the weighted average method. Net realizable value is determined by either estimating the selling price in the ordinary course of the business, less the estimated cost to sell or determining the prevailing replacement costs.

We assess at each reporting period whether there is an indication that an asset may be impaired. If any such indication exists, or when the annual impairment testing for an asset is required, we make an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell or its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent from those of other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing the 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. In determining the fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. Impairment losses are recognized in our consolidated income statement.

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, we make an estimate of the recoverable amount. 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 this is the case, the carrying amount of the asset is increased to its recoverable amount. The 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 our consolidated income statement. After such reversal, the depreciation and amortization charges are adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining economic useful life.

For property, plant and equipment, we also assess for impairment on the basis of impairment indicators such as evidence of internal obsolescence or physical damage.

We determine at the end of each reporting period whether there is any objective evidence that our investments in associates and joint ventures are impaired. If this is the case, the amount of impairment is calculated as the difference between the recoverable amount of the investments in associates and joint ventures, and its carrying amount. The amount of impairment loss is recognized in our consolidated income statement.

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU, or group of CGUs, to which the goodwill relates. When the recoverable amount of the CGU, or group of CGUs, is less than the carrying amount of the CGU, or group of CGUs, to which goodwill has been allocated, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

If there is incomplete allocation of goodwill acquired in a business combination to CGUs, or group of CGUs, an impairment testing of goodwill is only carried out when impairment indicators exist. Where impairment indicators exist, impairment testing of goodwill is performed at a level at which the acquirer can reliably test for impairment.

Intangible assets with indefinite useful lives are not amortized but are tested for impairment annually either individually or at the CGU level, as appropriate. We calculate the amount of impairment as being the difference between the recoverable amount of the intangible asset and its carrying amount and recognize the amount of impairment in our consolidated income statement. Impairment losses relating to intangible assets can be reversed in future periods.

Investment in debt securities are government securities which are carried at amortized cost using the EIR method. Interest earned from these securities is recognized as “Interest income” in our consolidated income statement.

Cash includes cash on hand and in banks. Cash equivalents, which include temporary cash investments, are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from the date of acquisition, and for which there is an insignificant risk of change in value.

Short-term investments are money market placements, which are highly liquid with maturities of more than three months but less than one year from the date of acquisition.

We measure financial instruments, such as, derivatives, available-for-sale financial investments, short-term investments, investment in debt securities and other long-term investments and non-financial assets such as investment properties, at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortised cost are disclosed in Note 27 – Financial Assets and Liabilities.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: (i) in the principal market for the asset or liability, or?(ii) in the absence of a principal market, in the most advantageous market for the asset or liability.

The fair value of an asset or a liability is measured using the assumptions that market participants would use
when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant
that would use the asset in its highest and best use.

We use valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair
value measurement as a whole: (i) Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities; (ii) Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and (iii) Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, we determine whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

We determine the policies and procedures for both recurring fair value measurement, such as investment properties and unquoted available-for-sale financial assets, and for non-recurring measurement, such as assets held for distribution in discontinued operation.

External valuers are involved for valuation of significant assets, such as properties. Involvement of external valuers is decided upon annually. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. At each reporting date, we analyse the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per our accounting policies. For this analysis, we verify the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.

We, in conjunction with our external valuers, also compare the changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. On an interim basis, the valuation committee and our external valuers present the valuation results to the audit committee and our independent auditors. This includes a discussion of the major assumptions used in the valuations. For the purpose of fair value disclosures, we have determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

Revenue is recognized to the extent that it is probable that the economic benefits will flow to us and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding value-added tax, or VAT, or overseas communication tax, where applicable. When deciding the most appropriate basis for presenting revenue and cost of revenue, we assess our revenue arrangements against specific criteria to determine if we are acting as principal or agent. We consider both the legal form and the substance of our agreement, to determine each party’s respective roles in the agreement. When our role in a transaction is that of principal, revenue is presented on a gross basis, otherwise, revenue is presented on a net basis.

Our revenues are principally derived from providing the following telecommunications services: cellular voice and data services in the wireless business; and local exchange, international and national long distance, data and other network, and information and communications services in the fixed line business. When determining the amount of revenue to be recognized in any period, the overriding principle followed is to match the revenue with the provision of service. Services may be sold separately or bundled with goods or other services. The specific recognition criteria are as follows:

We provide telephone, cellular and data communication services under prepaid and postpaid payment arrangements as follows:

Postpaid service arrangements include fixed monthly charges generated from postpaid cellular voice and data services through the postpaid plans of Smart and Sun Cellular, from cellular and local exchange services primarily through wireless, landline and related services, and from data and other network services primarily through broadband and leased line services, which we recognized on a straight-line basis over the customer’s subscription period. Services provided to postpaid subscribers are billed throughout the month according to the billing cycles of subscribers. Services availed by subscribers in addition to these fixed fee arrangements are charged separately and recognized as the additional service is provided or as availed by the subscribers.

Our prepaid services include over-the-air reloading channels and prepaid cards provided by Smart Prepaid, Talk ‘N Text and Sun Cellular. Proceeds from over-the-air reloading channels and prepaid cards are initially recognized as unearned revenue and realized upon actual usage of the airtime value (i.e., the pre-loaded airtime value of subscriber identification module, or SIM, cards and subsequent top-ups) for voice, short messaging services, or SMS, multimedia messaging services, or MMS, content downloading (inclusive of browsing), infotext services and prepaid unlimited and bucket-priced SMS and call subscriptions, net of free SMS allocation and bonus credits (load package purchased, i.e. free additional SMS or minute calls or Peso credits), or upon expiration of the usage period, whichever comes earlier. Interconnection fees and charges arising from the actual usage of prepaid cards are recorded as incurred.

Revenue from international and national long distance calls carried via our network is generally based on rates which vary with distance and type of service (direct dial or operator-assisted, paid or collect, etc.). Revenue from both wireless and fixed line long distance calls is recognized as the service is provided.

Nonrecurring upfront fees such as activation fees charged to subscribers for connection to our network are deferred and are recognized as revenue throughout the estimated average customer relationship. The related incremental costs are similarly deferred and recognized over the same period in our consolidated income statement.

Interconnection revenue for call termination, call transit and network usages is recognized in the period the traffic occurs. Revenue related to local, long distance, network-to-network, roaming and international call connection services are recognized when the call is placed or connection is provided and the equivalent amounts charged to us by other carriers are recorded under interconnection costs in our consolidated income statement. Inbound revenue and outbound charges are based on agreed transit and termination rates with other foreign and local carriers and content providers.

Revenues from VAS include SMS in excess of consumable fixed monthly service fees (for postpaid) and free SMS allocations (for prepaid), MMS, content downloading and infotext services. The amount of revenue recognized is net of amount settled with carriers owning the network where the outgoing voice call or SMS terminates and payout to content providers.

We operate customer loyalty programmes in our wireless business which allows customers to accumulate points when they purchase services or prepaid credits from us. The points can then be redeemed for free services and discounts, subject to a minimum number of points being obtained. Consideration received is allocated between the services and prepaid credits sold and the points issued, with the consideration allocated to the points equal to their value. The fair value of the points issued is deferred and recognized as revenue when the points are redeemed.

Product-based incentives provided to dealers and customers as part of a transaction are accounted for as multiple element arrangements and recognized when earned.

In revenue arrangements including more than one deliverable, the deliverables are assigned to one or more separate units of accounting and the arrangement consideration is allocated to each unit of accounting based on their relative fair value to reflect the substance of the transaction. Where fair value is not directly observable, the total consideration is allocated using an appropriate allocation method.

Revenue from server hosting, co-location services and customer support services are recognized as the service is performed.

Our revenues are principally derived from knowledge processing solutions and customer relationship management services in the business process outsourcing business.

Revenue from outsourcing contracts under our knowledge processing solutions and customer relationship management businesses are recognized when evidence of an arrangement exists, the service has been provided, the fee is fixed or determinable, and collectability is reasonably assured. If the fee is not fixed or determinable, or collectability is not reasonably assured, revenue is not recognized until payment is received. For arrangements requiring specific customer acceptance, revenue recognition is deferred until the earlier of the end of the deemed acceptable period or until a written notice of acceptance is received from the customer. Revenue on services rendered to customers whose ability to pay is in doubt at the time of performance of services is also not recorded. Rather, revenue is recognized from these customers as payment is received. Revenue contingent on meeting specific performance conditions are recognized to the extent of costs incurred to provide the service. Outsourcing contracts may also include incentive payments dependent on achieving performance targets. Revenue relating to such incentive payments is recognized when the performance target is achieved.

Revenues from handset and equipment sales are recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. The related cost or net realizable value of handsets or equipment, sold to customers is presented as “Cost of sales” in the consolidated income statements.

Interest income is recognized as it accrues on a time proportion basis taking into account the principal amount outstanding and the EIR.

We recognize a provision when we have a present obligation, legal or constructive, as a result of a past event, and when 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. When we expect some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in our consolidated income statement, net of any reimbursements. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, 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 interest expense.

We have separate and distinct retirement plans for PLDT and majority of our Philippine-based operating subsidiaries, administered by the respective Fund’s Trustees, covering permanent employees. Retirement costs are separately determined using the projected unit credit method. This method reflects services rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries.

Service cost which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as part of compensation and employee benefits account in the consolidated income statements.

Net interest on the net defined benefit asset or obligation is the change during the period in the net defined benefit asset or obligation that arises from the passage of time which is determined by applying the discount rate based on the government bonds to the net defined benefit liability or asset. Net deferred benefit asset is recognized as part of advances and other noncurrent assets and net defined benefit obligation is recognized as part of pension and other employee benefits in our consolidated statement of financial position.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit obligation) are recognized immediately in other comprehensive income in the period in which they arise. Remeasurements are not classified to profit or loss in subsequent periods.

The net defined benefit asset or liability comprises the present value of the defined benefit obligation (using a discount rate based on government bonds, as explained in Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimation of Pension Benefit Costs and Other Employee Benefits), net of the fair value of plan assets out of which the obligations are to be settled directly. Plan assets are assets held by a long-term employee benefit fund or qualifying insurance policies and are not available to our creditors nor can they be paid directly to us. Fair value is based on market price information and in the case of quoted securities, the published bid price. The value of any defined benefit asset recognized is restricted to the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. See Note 25 – Employee Benefits – Defined Benefit Pension Plans for more details.

Smart and certain of its subsidiaries have a host defined contribution plan under which it recognizes an expense for contribution made to such plan in relation to services rendered by covered employees. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, such excess is recognized as a prepaid asset to the extent that the prepayment will lead to a reduction in future payments. When the expected future value of the plan assets is below the future expected value of the retirement benefits prescribed under Republic Act No. 7641, or R.A. 7641 otherwise known as “The Retirement Pay Law”, such deficit is accounted for similar to defined benefit accounting. See Note 25 – Employee Benefits – Smart’s Retirement Plan for more details.

Our liability arising from 2010 to 2012 Long-term Incentive Plan, or 2010 to 2012 LTIP, and 2012 to 2014 Long-term Incentive Plan, or the revised LTIP, is determined using the projected unit credit method. Employee benefit costs include current service cost, net interest on the net defined benefit obligation, and remeasurements of the net defined benefit obligation. Past service costs and actuarial gains and losses are recognized immediately in profit or loss. See Note 25 – Employee Benefits – Other Long-term Employee Benefits for more details.

The long-term employee benefit liability comprises the present value of the defined benefit obligation (using a discount rate based on government bonds) at the end of the reporting period.

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date. The arrangement is assessed for whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. A reassessment is made after the 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).

As a Lessor. Leases where we retain substantially all the risks and benefits of ownership of the asset are classified as operating leases. Any initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as rental income. Rental income is recognized in our consolidated income statement on a straight-line basis over the lease term.

All other leases are classified as finance leases. At the inception of the finance lease, the asset subject to lease agreement is derecognized and lease receivable is recognized. Interest income is accrued over the lease term and lease amortization is accounted for as reduction of lease receivable.

As a Lessee. Leases where the lessor retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Operating lease payments are recognized as expense in our consolidated income statement on a straight-line basis over the lease term.

All other leases are classified as finance leases. A finance lease gives rise to the recognition of a leased asset and finance lease liability. Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term, if there is no reasonable certainty that we will obtain ownership of the leased asset at the end of the lease term. Interest expense is recognized over the lease term.

Current income tax assets and liabilities for the current and prior years 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 as at the end of the reporting period where we operate and generate taxable income.

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

Deferred income tax liabilities are recognized for all taxable temporary differences except: (1) when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (2) with respect to taxable temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, the carryforward benefits of unused tax credits from excess minimum corporate income tax, or MCIT, over regular corporate income tax, or RCIT, and unused net operating loss carry over, or NOLCO. Deferred income tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of unused tax credits and unused tax losses can be utilized, except: (1) when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (2) with respect to deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period 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 assets to be utilized. Unrecognized deferred income tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will allow the deferred income tax assets to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as at the end of the reporting period.

Deferred income tax relating to items recognized in other comprehensive income account is included in the statement of comprehensive income and not in our consolidated income statement.

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

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognized subsequently if new information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it is incurred during the measurement period or in profit or loss.

Revenues, expenses and assets are recognized net of the amount of VAT except: (1) where the VAT incurred on a purchase of assets or services is not recoverable from the tax authority, in which case, the VAT is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
(2) receivables and payables that are stated with the amount of VAT included.

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

Post quarter-end events up to the date of approval of the Board of Directors that provide additional information about our financial position at the end of the reporting period (adjusting events) are reflected in the consolidated financial statements. Post quarter-end events that are not adjusting events are disclosed in the notes to the consolidated financial statements when material.

Preferred and common stocks are measured at par value for all shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax. Proceeds and/or fair value of considerations received in excess of par value are recognized as capital in excess of par value.

Treasury stocks are our own equity instruments which are reacquired and recognized at cost and presented as reduction in equity. No gain or loss is recognized in our consolidated income statement on the purchase, sale, reissuance or cancellation of our own equity instruments. Any difference between the carrying amount and the consideration upon reissuance or cancellation of shares is recognized as capital in excess of par value.

Change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction and any impact is presented as part of capital in excess of par value.

Retained earnings represent our net accumulated earnings less cumulative dividends declared.

Other comprehensive income comprises of income and expense, including reclassification adjustments, that are not recognized in profit or loss as required or permitted by other PFRSs.

New Accounting Standards and Amendments and Interpretations to Existing Standards Effective Subsequent to September 30, 2013

We will adopt the following standard, amendments and interpretation to existing standards enumerated below which are relevant to us when these become effective. Except as otherwise indicated, we do not expect the adoption of these standard, amendments and interpretation to PFRS to have a significant impact on our consolidated financial statements.

Amendments to PFRS 10, Consolidated Financial Statements – Investment Entities. The amendments require a parent that is an investment entity to measure its investments in particular subsidiaries at fair value through profit or loss instead of consolidating them. New disclosure requirements relating to investment entities were added in PFRS 12 and PAS 27. The amendments to PFRS 10 are to be applied for annual periods beginning on or after January 1, 2014. We are currently assessing the impact of the amendments to PFRS 10 on our financial position or performance.

Amendments to PFRS 12, Disclosure of Interests in Other Entities – Investment Entities. The amendments require a parent that is an investment entity to disclose information about significant judgments and assumptions it has made in determining that it is an investment entity, as well as and any changes thereto. A parent that is an investment entity is also required to disclose certain information on unconsolidated subsidiaries, which are accounted for at fair value through profit and loss. The amendments to PFRS 12 are to be applied for annual periods beginning on or after January 1, 2014. We are currently assessing the impact of the amendments to PFRS 12 on our financial position or performance.

Amendments to PAS 27, Separate Financial Statements – Investment Entities. The amendments require a parent that is an investment entity and does not consolidate its subsidiaries in accordance with the exceptions of PFRS 10, to present a separate financial statement as its only financial statement. The amendments to PAS 27 are to be applied for annual periods beginning on or after January 1, 2014. We are currently assessing the impact of the amendments to PAS 27 on our financial position or performance.

Amendments to PAS 32, Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities. These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right to set- off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. While the amendment is expected not to have any impact on our net assets, any changes in offsetting are expected to impact leverage ratios and regulatory capital requirements. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, 2014. We are currently assessing the impact of the amendments to PAS 32 on our financial position or performance.

Amendments to PAS 36, Recoverable Amount of Disclosures for Non-Financial Assets. The amendments clarify that recoverable amount disclosure only applies to impaired assets or CGU. If the recoverable amount is fair value less costs of disposal, an entity is required to disclose: (1) the level of the fair value hierarchy within which the fair value measurement of the asset is categorized in its entirety; (2) a description of the valuation technique used to measure fair value less costs of disposal or fair value measurements categorized within Level 2 and Level 3 of the fair value hierarchy; and (3) the discount rate used in the current and previous measurement if fair value less cost of disposal is measured using a present value technique. The amendments are to be applied retrospectively for annual periods beginning on or after January 1, 2014 but cannot be applied in periods (including comparative periods) in which PFRS 13 is not applied. The amendments affect disclosures only and have no impact on our financial position or performance.

Philippine Interpretation IFRIC 21, Levies. The interpretation clarifies when a liability for a levy should be recognized and is effective for annual periods beginning on or after January 1, 2014. The interpretation has no significant impact on our financial position or performance.

PFRS 9, Financial Instruments: Classification and Measurement. PFRS 9 as issued reflects the first phase on the replacement of PAS 39 and applies to the classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2015. In subsequent phases, hedge accounting and impairment of financial assets will be addressed with the completion of this project.

We have made an evaluation of the impact of the adoption of this standard. We decided not to early adopt PFRS 9 for our 2013 reporting ahead of its effectivity date on January 1, 2015, therefore, the consolidated financial statements as at and for the nine months ended September 30, 2013 do not reflect the impact of the said standard.

Only financial assets and liabilities will be affected by the standard and based on this evaluation, loans and receivables (consisting of short-term placements, trade and other receivables, and advances), investment in debt securities and other long-term investments, and financial liabilities (consisting of accounts payable, accrued expenses, customers’ deposits, deferred credits, long-term debt, notes payable, obligations under finance leases, and dividends payable), which are carried at amortized cost will not be significantly affected. Upon adoption, these financial instruments shall continue to be carried at their amortized cost, thus, will have no significant financial impact to our financial position and performance. For the derivative financial assets and liabilities, we will still carry them at fair value through profit and loss. For our current available-for-sale investments which are composed of equity investments carried at fair value, we plan to classify these items at fair value through other comprehensive income and will continue to measure these investments at fair value with any changes in the remeasurement to be presented in other comprehensive income, thus, this has no significant financial impact to our financial position and performance.

We have not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

The preparation of our consolidated financial statements in conformity with PFRS requires us to make judgments, estimates and assumptions that affect the reported amounts of our revenues, expenses, assets and liabilities and disclosure of contingent liabilities at the end of each reporting period. The uncertainties inherent in these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities affected in the future years.

In the process of applying the PLDT Group’s accounting policies, management has made the following judgments, apart from those including estimations and assumptions, which have the most significant effect on the amounts recognized in our consolidated financial statements.

On December 4, 2012, our Board of Directors authorized the sale of our BPO segment. Consequently, as at December 31, 2012, the BPO segment was classified as discontinued operations and a disposal group held-for-sale. The BPO segment met the criteria of an asset to be classified as held-for-sale as at December 31, 2012 for the following reasons: (1) the BPO segment is available for immediate sale and can be sold to a potential buyer in its current condition; (2) the Board of Directors had approved the plan to sell the BPO segment and we had entered into preliminary negotiations with a potential buyer and should the negotiations with a potential buyer not lead to a sale, we expect to be able to seek other sale opportunities as a number of other potential buyers had been identified; and (3) the Board of Directors expected negotiations to be finalized and the sale to be completed in April 2013. Thus, we adjusted the comparative consolidated income statement for the nine months ended September 30, 2012 to present the results of operations of our BPO segment as discontinued operations. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations.

The classification of financial assets to HTM investments requires significant judgment. In making this judgment, PLDT Group evaluates its intention and ability to hold such investments to maturity. If PLDT Group fails to keep these investments to maturity, it will be required to reclassify the entire portfolio as part of available-for-sale financial investments. The investments would thereafter be measured at fair value and not at amortized cost.

Our investments in certain quoted debt securities are classified as HTM investments. See Note 11 – Investment in Debt Securities and Other Long-term Investments.

The functional currencies of the entities under the PLDT Group are the currency of the primary economic environment in which each entity operates. It is the currency that mainly influences the revenue from and cost of rendering products and services.

The presentation currency of the PLDT Group is the Philippine peso. Based on the economic substance of the underlying circumstances relevant to the PLDT Group, the functional currency of all entities under PLDT Group is the Philippine peso, except for, SMHC, SMI, TSI, FECL Group, PLDT Global and certain of its subsidiaries, PGNL, DCPL, SPi Global and certain of its subsidiaries, and certain subsidiaries of Chikka, which use the U.S. dollar. SHPL, SGP, 3^rd Brand, and certain subsidiaries of AGS use the Singapore dollar as functional currency.

As a lessee, we have various lease agreements in respect of our certain equipment and properties. We evaluate whether significant risks and rewards of ownership of the leased properties are transferred to us (finance lease) or retained by the lessor (operating lease) based on PAS 17, Leases. Total lease expense arising from operating leases from continuing operations amounted to Php4,224, million and Php4,349 million for the nine months ended September 30, 2013 and 2012, respectively, while that from discontinued operations amounted to Php86 million and Php204 million for the nine months ended September 30, 2013 and 2012, respectively. Total finance lease obligations from continuing operations amounted to Php13 million, Php18 million and Php14 million as at September 30, 2013, December 31, 2012, and January 1, 2012, respectively, while that from discontinued operations amounted to nil and Php7 million as at September 30, 2013 and December 31, 2012, respectively. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations, Note 20 – Interest-bearing Financial Liabilities – Obligations under Finance Leases and Note 27 – Financial Assets and Liabilities – Liquidity Risk.

Accounting for investment in MediaQuest Holdings, Inc., or MediaQuest, through Philippine Depositary Receipts, or PDRs

ePLDT made various investments in PDRs issued by MediaQuest in relation to its direct interest
in Satventures, Inc., or Satventures, and indirect interest in Cignal TV, Inc, or Cignal TV. Satventures is
a wholly-owned subsidiary of MediaQuest and Cignal TV is a wholly-owned subsidiary of Satventures. ePLDT’s investments in PDRs are part of our overall strategy to broaden our distribution platform and
increase our ability to deliver multi-media content. On September 27, 2013, the Satventures and
Cignal TV PDRs were issued and provide ePLDT a 40% economic interest each in the common shares of Satventures and Cignal TV, or an aggregate of 64% economic interest in Cignal TV.

Based on our judgment, ePLDT’s investments in PDRs give ePLDT a significant influence over Satventures and Cignal TV as evidenced by inter-change of managerial personnel, provision of essential technical information and material transactions among PLDT, Smart, Satventures and Cignal TV, thus accounted for as investments in associates using the equity method.

See related discussion on Note 10- Investment in Associates, Joint Ventures and Deposits – Investment in MediaQuest.

The key estimates and assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities recognized in the consolidated financial statements within the next financial year are discussed below. We based our estimates and assumptions on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of PLDT. Such changes are reflected in the assumptions when they occur.

PFRS requires that an impairment review be performed when certain impairment indicators are present. In the case of goodwill, at a minimum, such asset is subject to an annual impairment test and more frequently whenever there is an indication that such asset may be impaired. This requires an estimation of the value in use of the CGUs to which the goodwill is allocated. Estimating the value in use requires us to make an estimate of the expected future cash flows from the CGU and to choose a suitable discount rate in order to calculate the present value of those cash flows.

Determining the recoverable amount of property, plant and equipment, investments in associates and joint ventures, intangible assets and other noncurrent assets, requires us to make estimates and assumptions in the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets. Future events could cause us to conclude that property, plant and equipment, investments in associates and joint ventures, intangible assets and other noncurrent assets associated with an acquired business are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and financial performance.

The preparation of estimated future cash flows involves significant estimations and assumptions. While we believe that our assumptions are appropriate and reasonable, significant changes in our assumptions may materially affect our assessment of recoverable values and may lead to future additional impairment charges under PFRS.

There were no asset impairment recognized on noncurrent assets from continuing and discontinued operations for the nine months ended September 30, 2013 and 2012.

The carrying values of our property, plant and equipment, investments in associates, joint ventures and deposits, goodwill and intangible assets, and prepayments are separately disclosed in Notes 9, 10, 14 and 18, respectively.

Estimating useful lives of property, plant and equipment and intangible assets with finite life

We estimate the useful lives of each item of our property, plant and equipment and intangible assets with finite life based on the periods over which our assets are expected to be available for use. Our estimate of the useful lives of our property, plant and equipment and intangible assets with finite life is based on our collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives of our property, plant and equipment and intangible assets with finite life are reviewed every year-end and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limitations on the use of our assets. It is possible, however, that future results of operations could be materially affected by changes in our estimates brought about by changes in the factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of our property, plant and equipment and intangible assets with finite life would increase our recorded depreciation and amortization and decrease our property, plant and equipment and intangible assets.

The total depreciation and amortization of property, plant and equipment from continuing operations amounted to Php22,180 million and Php22,957 million for the nine months ended September 30, 2013 and 2012, respectively, while that from discontinued operations amounted to Php153 million and Php347 million for the nine months ended September 30, 2013 and 2012, respectively. Total carrying values of property, plant and equipment, net of accumulated depreciation and amortization from continuing operations, amounted to Php191,578 million, Php200,078 million and Php200,142 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively, while that from discontinued operations amounted to nil and Php1,529 million as at September 30, 2013 and December 31, 2012, respectively.

Intangible assets acquired from business combination with finite lives are amortized over the expected useful life using the straight-line method of accounting. At a minimum, the amortization period and the amortization method for an intangible asset with a finite useful life are 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 are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in our consolidated income statement.

The total amortization of intangible assets with definite life from continuing operations amounted to Php736 million and Php1,019 million for the nine months ended September 30, 2013 and 2012, respectively, while that from discontinued operations amounted to Php55 million and Php139 million for the nine months ended September 30, 2013 and 2012, respectively. Total carrying values of intangible assets with definite life from continuing operations amounted to Php7,569 million, Php7,505 million and Php8,698 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively, while that from discontinued operations amounted to nil and Php354 million as at September 30, 2013 and December 31, 2012, respectively.

See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations, Note 4 – Operating Segment Information, Note 9 – Property, Plant and Equipment and Note 14 – Goodwill and Intangible Assets.

We have adopted the fair value approach in determining the carrying value of our investment properties. We opted to rely on independent appraisers in determining the fair values of our investment properties, and such fair values were determined based on recent prices of similar properties, with adjustments to reflect any changes in economic conditions since the date of those transactions. The amounts and timing of recorded changes in fair value for any period would differ if we made different judgments and estimates or utilized a different basis for determining fair value. Appraisal of investment properties is performed every December 31.

There were no gains from fair value adjustments charged to profit or loss in each of the nine months ended September 30, 2013 and 2012. Total carrying values of our investment properties amounted to Php712 million each as at September 30, 2013 and December 31, 2012 and Php1,115 million as at January 1, 2012. See Note 12 – Investment Properties.

Our consolidated financial statements and financial performance reflect acquired businesses after the completion of the respective acquisition. We account for the acquired businesses using the acquisition method, which require extensive use of accounting judgments and estimates to allocate the purchase price to the fair market values of the acquiree’s identifiable assets and liabilities and contingent liabilities, if any, at the acquisition date. Any excess in the purchase price over the estimated fair market values of the net assets acquired is recorded as goodwill in our consolidated statement of financial position. Thus, the numerous judgments made in estimating the fair market value to be assigned to the acquiree’s assets and liabilities can materially affect our financial performance.

Total carrying values of goodwill and intangible assets with indefinite useful life from continuing operations amounted to Php66,704 million, Php66,745 million and Php74,605 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively, while that from discontinued operations amounted to nil million and Php6,679 million as at September 30, 2013 and December 31, 2012, respectively. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Note 14 – Goodwill and Intangible Assets.

We review the carrying amounts of deferred income tax assets at the end of each reporting period and reduce these to the extent that these are no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. Our assessment on the recognition of deferred income tax assets on deductible temporary differences is based on the level and timing of forecasted taxable income of the subsequent reporting periods. This forecast is based on our past results and future expectations on revenues and expenses as well as future tax planning strategies. However, there is no assurance that we will generate sufficient taxable income to allow all or part of our deferred income tax assets to be utilized. We also review the level of projected gross margin for the use of Optional Standard Deduction, or OSD method, and assess the future tax consequences for the recognition of deferred income tax assets. Based on Smart and SBI’s projected gross margin, they expect to continue using the OSD method in the foreseeable future.

Based on the above assessment, our consolidated unrecognized deferred income tax assets amounted to
Php12,278 million, Php15,351 million and Php16,098 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. In addition, our unrecognized net deferred income tax assets for items which would not result in future tax benefits when using the OSD method amounted to Php4,620 million, Php3,655 million and Php4,240 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. Total consolidated benefit from deferred income tax from continuing operations amounted to Php3,906 million for the nine months ended September 30, 2013 and total consolidated provision for deferred income tax from continuing operations amounted to Php687 million for the nine months ended September 30, 2012, while provision for deferred income tax from discontinued operations amounted to Php30 million and Php46 million for the nine months ended September 30, 2013 and 2012, respectively. Total consolidated net deferred income tax assets from continuing operations amounted to Php9,706 million, Php7,225 million and Php5,117 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively, while that from discontinued operations amounted to nil and Php212 million as at September 30, 2013 and December 31, 2012, respectively. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations, Note 4 – Operating Segment Information and Note 7 – Income Taxes.

If we assessed that there was objective evidence that an impairment loss has been incurred in our trade and other receivables, we estimate the allowance for doubtful accounts related to our trade and other receivables that are specifically identified as doubtful of collection. The amount of allowance is evaluated by management on the basis of factors that affect the collectability of the accounts. In these cases, we use judgment based on the best available facts and circumstances, including, but not limited to, the length of our relationship with the customer and the customer’s credit status based on third party credit reports and known market factors, to record specific reserves for customers against amounts due in order to reduce our receivables to amounts that we expect to collect. These specific reserves are re-evaluated and adjusted as additional information received affect the amounts estimated.

In addition to specific allowance against individually significant receivables, we also assess a collective impairment allowance against credit exposures of our customer which were grouped based on common credit characteristic, which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when the receivables were originally granted to customers. This collective allowance is based on historical loss experience using various factors, such as historical performance of the customers within the collective group, deterioration in the markets in which the customers operate, and identified structural weaknesses or deterioration in the cash flows of customers.

Total provision for doubtful accounts for trade and other receivables from continuing operations recognized in our consolidated income statements amounted to Php1,957 million and Php1,577 million for the nine months ended September 30, 2013 and 2012, respectively. Trade and other receivables, net of allowance for doubtful accounts, from continuing operations amounted to Php16,808 million, Php16,379 million and Php16,245 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively, while that from discontinued operations amounted to nil and Php2,704 million as at September 30, 2013 and December 31, 2012, respectively. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations, Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Asset Impairment, Note 16 – Trade and Other Receivables and Note 27 – Financial Assets and Liabilities.

We write-down the cost of inventories whenever the net realizable value of inventories becomes lower than cost due to damage, physical deterioration, obsolescence, change in price levels or other causes. The lower of cost and net realizable value of inventories is reviewed on a periodic basis. Inventory items identified to be obsolete or unusable are written-off and charged as expense in our consolidated income statement.

Total write-down of inventories and supplies amounted to Php163 million and Php216 million for the nine months ended September 30, 2013 and 2012, respectively. The carrying values of inventories and supplies amounted to Php2,869 million, Php3,467 million and Php3,827 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Asset Impairment and Note 17 – Inventories and Supplies.

The cost of defined benefit plans and present value of the pension obligation are determined using projected unit credit method. Actuarial valuation includes making various assumptions which consists, among other things, discount rates, expected rates of return on plan assets, rates of compensation increases and mortality rates. See Note 25 – Employee Benefits. Actual results that differ from our assumptions are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceed 10% of the higher of the present value of the defined benefit obligation and the fair value of plan assets at that date. These excess actuarial gains and losses are recognized over the expected average remaining working lives of the employees participating in the plan. Due to complexity of valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in assumptions. While we believe that our assumptions are reasonable and appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our cost for pension and other retirement obligations. All assumptions are reviewed every year-end.

Net consolidated pension benefit costs from continuing operations amounted to Php710 million and Php421 million for the nine months ended September 30, 2013 and 2012, respectively, while net consolidated pension benefit costs from discontinued operations amounted to Php9 million and Php130 million for the nine months ended September 30, 2013 and 2012, respectively. The prepaid benefit costs from continuing operations amounted to Php2,897 million, Php1,471 million and Php8,482 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. The accrued benefit costs from continuing operations amounted to Php517 million, Php331 million and Php496 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively, while that from discontinued operations amounted to nil million and Php221 million as at September 30, 2013 and December 31, 2012, respectively. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations, Note 5 – Income and Expenses – Compensation and Employee Benefits, Note 18 – Prepayments and Note 25 – Employee Benefits – Defined Benefit Pension Plans.

To ensure the proper execution of our strategic and operational business plans while taking into account the acquisition of Digitel in 2011 and other recent market developments, the 2012 to 2014 LTIP, covering the period from January 1, 2012 to December 31, 2014, was approved by the Board of Directors with the endorsement of the ECC on March 22, 2012. The award in the 2012 to 2014 LTIP is contingent upon the successful achievement of certain profit targets, intended to align the execution of the business strategies of the expanded Group, including Digitel, over the three year period from 2012 to 2014. In addition, the 2012 to 2014 LTIP allows for the participation of a number of senior executives and certain newly hired executives and ensures the continuity of management in line with the succession planning of the PLDT Group. LTIP costs recognized for the nine months ended September 30, 2013 and 2012 amounted to Php1,167 million and Php1,185 million, respectively, while LTIP costs from discontinued operations amounted to Php111 million and Php65 million for the nine months ended September 30, 2013 and 2012, respectively. Total outstanding liability and fair value of 2012 to 2014 LTIP cost amounted to Php2,657 million and Php1,490 million as at September 30, 2013 and December 31, 2012, respectively. See Note 5 – Income and Expenses – Compensation and Employee Benefits and Note 25 – Employee Benefits – Other Long-term Employee Benefits.

Provision for asset retirement obligations are recognized in the period in which they are incurred if a reasonable estimate of fair value can be made. This requires an estimation of the cost to restore/dismantle on a per square meter basis, depending on the location, and is based on the best estimate of the expenditure required to settle the obligation at the future restoration/dismantlement date, discounted using a pre-tax rate that reflects the current market assessment of the time value of money and, where appropriate, the risk specific to the liability. Total provision for asset retirement obligations amounted to Php2,667 million, Php2,543 million and Php2,107 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 21 – Deferred Credits and Other Noncurrent Liabilities.

We are currently involved in various legal proceedings and tax assessments. Our estimate of the probable costs for the resolution of these claims have been developed in consultation with our counsel handling the defense in these matters and is based upon our analysis of potential results. We currently do not believe these proceedings could materially reduce our revenues and profitability. It is possible, however, that future financial performance could be materially affected by changes in our estimates or effectiveness of our strategies relating to these proceedings and assessments. See Note 26 – Provisions and Contingencies.

Based on management’s assessment, appropriate provisions were made; however, management has decided not to disclose further details of these provisions as they may prejudice our position in certain legal proceedings.

Our revenue recognition policies require us to make use of estimates and assumptions that may affect the reported amounts of our revenues and receivables.

Our agreements with domestic and foreign carriers for inbound and outbound traffic subject to settlements require traffic reconciliations before actual settlement is done, which may not be the actual volume of traffic as measured by us. Initial recognition of revenues is based on our observed traffic adjusted by our normal experience adjustments, which historically are not material to our consolidated financial statements. Differences between the amounts initially recognized and the actual settlements are taken up in the accounts upon reconciliation. However, we cannot assure you that the use of such estimates will not result in material adjustments in future periods.

Revenues under a multiple element arrangement specifically applicable to our fixed line and wireless businesses are split into separately identifiable components based on their relative fair value in order to reflect the substance of the transaction. Where fair value is not directly observable, the total consideration is allocated using an appropriate allocation method. We account for mobile contracts in accordance with PAS 18, Revenue Recognition, and have concluded that the handset and the mobile services may be accounted for as separate identifiable components. The handset (with activation) is delivered first, followed by the mobile service (which is provided over the contract period, generally one or two years). Because some amount of the arrangement consideration that may be allocated to the handset generally is contingent on providing the mobile service, the amount that is allocated to the handset is limited to the cash received (i.e., the amount paid for the handset) at the time of the handset delivery.

Under certain arrangements with our knowledge processing solutions services, if there is uncertainty regarding the outcome of the transaction for which service was rendered, revenue is recognized only to the extent of expenses incurred for rendering the service and only to such amount is determined to be recoverable.

We recognize our revenues from installation and activation related fees and the corresponding costs over the expected average periods of customer relationship for fixed line and cellular services. We estimate the expected average period of customer relationship based on our most recent churn rate analysis.

Where the fair value of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Total fair values of financial assets and liabilities as at September 30, 2013 amounted to Php63,733 million and Php221,382 million, respectively, while the total fair values of financial assets and liabilities as at December 31, 2012 amounted to Php68,961 million and Php233,541 million, respectively. The total fair values of financial assets and liabilities as at January 1, 2012 amounted to Php72,002 million and Php216,443 million, respectively. See Note 27 – Financial Assets and Liabilities.

Operating segments are components of the PLDT Group that engage in business activities from which they may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of PLDT Group), which operating results are regularly reviewed by the chief operating decision maker, or our Management Committee, to make decisions about how resources are to be allocated to each of the segments and to assess their performances, and for which discrete financial information is available.

For management purposes, we are organized into business units based on our products and services and based on the reorganization as discussed below. We have three reportable operating segments, as follows:

•

Wireless – wireless telecommunications services provided by Smart, CURE and DMPI, which owns the Sun Cellular business and is a wholly-owned subsidiary of Digitel, our cellular service providers; SBI and PDSI, our wireless broadband service providers; Voyager and Chikka Group, our wireless content operators; and ACeS Philippines, our satellite operator;

•

Fixed Line – fixed line telecommunications services primarily provided by PLDT. We also provide fixed line services through PLDT’s subsidiaries, namely, ClarkTel, SubicTel, Philcom Group, Maratel, SBI, PDSI, BCC, PLDT Global and Digitel, all of which together account for approximately 10% of our consolidated fixed line subscribers; and information and communications infrastructure and services for internet applications, internet protocol-based solutions and multimedia content delivery provided by ePLDT, IPCDSI and AGS Group; and netGames; and bills printing and other VAS-related services provided by ePDS; and

See Note 2 – Summary of Significant Accounting Policies, and Note 13 – Business Combinations, for further discussion.

As at September 30, 2013, our chief operating decision maker views our business activities in three business units: Wireless, Fixed Line and Others. On December 4, 2012, our Board of Directors authorized the sale of our BPO segment. Consequently, as at December 31, 2012, the BPO segment was classified as discontinued operations and a disposal group held-for-sale. The BPO segment met the criteria of an asset to be classified as held-for-sale as at December 31, 2012 for the following reasons: (1) the BPO segment is available for immediate sale and can be sold to a potential buyer in its current condition; (2) the Board of Directors had approved the plan to sell the BPO segment and we had entered into preliminary negotiations with a potential buyer and should the negotiations with a potential buyer not lead to a sale, we expect to be able to seek other sale opportunities as a number of other potential buyers had been identified; and (3) the Board of Directors expected negotiations to be finalized and the sale to be completed in April 2013. Thus, we adjusted the comparative consolidated income statement for the nine months ended September 30, 2012 to present the results of operations of our BPO business as discontinued operations. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Assets Held-for-Sale and Discontinued Operations.

The chief operating decision maker monitors the operating results of each business unit separately for purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on net income (loss) for the year; earnings before interest, taxes and depreciation and amortization, or EBITDA; EBITDA margin; and core income. Net income (loss) for the year is measured consistent with net income (loss) in the consolidated financial statements.

EBITDA for the year is measured as net income from continuing operations excluding depreciation and amortization, amortization of intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equity share in net earnings (losses) of associates and joint ventures, foreign exchange gains (losses) – net, gains (losses) on derivative financial instruments – net, provision for (benefit from) income tax and other income (expenses).

EBITDA margin for the year is measured as EBITDA from continuing operations divided by service revenues.

Core income for the year is measured as net income attributable to equity holders of PLDT (net income less net income attributable to noncontrolling interests), excluding foreign exchange gains (losses) – net, gains (losses) on derivative financial instruments – net (excluding hedge costs), asset impairment on noncurrent assets, other nonrecurring gains (losses), net of tax effect of aforementioned adjustments, as applicable, and similar adjustments to equity share in net earnings (losses) of associates and joint ventures.

Transfer prices between operating segments are on an arm’s length basis similar to transactions with third parties. Segment revenues, segment expenses and segment results include transfers between business segments. These transfers are eliminated in full upon consolidation.

Core earnings per common share, or core EPS, for the year is measured as core income divided by the weighted average number of outstanding common shares. See Note 8 – Earnings Per Common Share for the weighted average number of common shares.

The amount of segment assets and liabilities and segment profit or loss are based on measurement principles that are similar to those used in measuring the assets and liabilities and profit or loss in the consolidated financial statement, which is in accordance with PFRS.

The segment revenues, net income for the year, assets, liabilities, and other segment information of our reportable operating segments for the nine months ended September 30, 2013 and 2012 and as at September 30, 2013 and December 31, 2012 are as follows:


										Inter-segment
	Wireless			Fixed Line			Others			Transactions			Consolidated
	(in million pesos)
September 30, 2013 (Unaudited)
Revenues
External customers		86,964			37,621			–			–			124,585
Service revenues (Notes 2 and 3)		85,112			36,492			–			–			121,604
Non-service revenues (Notes 3 and 5)		1,852			1,129			–			–			2,981
Inter-segment transactions		1,268			9,559			–			(10,827	)		–
Service revenues (Note 3)		1,268			9,498			–			(10,766	)		–
Non-service revenues (Notes 3 and 5)		–			61			–			(61	)		–

Total revenues		88,232			47,180			–			(10,827	)		124,585

Results
Depreciation and amortization (Notes 3 and 9)		12,246			9,934			–			–			22,180
Asset impairment (Notes 3, 5, 9, 10, 16, 17 and 27)		1,263			857			–			–			2,120
Equity share in net earnings (losses) of associates and joint ventures (Note 10)		(67	)		(18	)		1,988			–			1,903
Interest income (Notes 2 and 5)		282			318			101			(21	)		680
Financing costs – net (Notes 2, 5, 9, 20 and 27)		2,622			2,644			–			(21	)		5,245
Provision for (benefit from) income tax (Notes 3 and 7)		6,277			(81	)		75			–			6,271
Net income / Segment profit		17,671			6,293			2,816			146			28,995
Continuing operations		17,671			6,293			2,816			146			26,926
Discontinued operations (Notes 2 and 8)		–			–			–			–			2,069
EBITDA from continuing operations		41,152			17,955			(4	)		447			59,550
EBITDA margin		48	%		39	%		–			(2	%)		49	%
Core income		19,236			7,005			2,498			146			28,786
Continuing operations		19,236			7,005			2,498			146			28,885
Discontinued operations		–			–			–			–			(99	)

Assets and liabilities
Operating assets		186,479			177,937			19,968			(38,666	)		345,718
Investments in associates, joint ventures and deposits (Notes 3, 5 and 10)		–			10,154			24,884			–			35,038
Deferred income tax assets – net (Notes 3 and 7)		1,056			8,650			–			–			9,706
Assets classified as held-for-sale (Notes 2 and 10)		–			355			–			–			355

Total assets		187,535			197,096			44,852			(38,666	)		390,817

Operating liabilities		114,655			136,371			2,534			(6,662	)		246,898
Deferred income tax liabilities – net (Notes 3 and 7)		3,634			693			32			–			4,359
Total liabilities		118,289			137,064			2,566			(6,662	)		251,257

Other segment information
Capital expenditures, including capitalized interest (Notes 5, 9, 20 and 21)		7,274			7,614			–			–			14,888
September 30, 2012 (As Adjusted – Note 2)⁽¹⁾
Revenues
External customers		85,054			36,309			–			–			121,363
Service revenues (Notes 2 and 3)		83,383			35,667			–			–			119,050
Non-service revenues (Notes 3 and 5)		1,671			642			–			–			2,313
Inter-segment transactions		1,283			8,522			–			(9,805	)		–
Service revenues (Note 3)		1,283			8,514			–			(9,797	)		–
Non-service revenues (Notes 3 and 5)		–			8			–			(8	)		–

Total revenues		86,337			44,831			–			(9,805	)		121,363

Results
Depreciation and amortization (Notes 3 and 9)		13,276			9,681			–			–			22,957
Asset impairment (Notes 3, 5, 9, 10, 16, 17 and 27)		1,013			780			–			–			1,793
Equity share in net earnings (losses) of associates and joint ventures (Note 10)		(35	)		114			1,361			–			1,440
Interest income (Notes 2 and 5)		439			527			42			–			1,008
Financing costs – net (Notes 2, 5, 9, 20 and 27)		1,995			2,990			–			–			4,985
Provision for income tax (Notes 3 and 7)		7,835			434			3			–			8,272
Net income / Segment profit		20,519			3,017			4,141			319			28,359
Continuing operations		20,519			3,017			4,141			319			27,996
Discontinued operations (Notes 2 and 8)		–			–			–			–			363
EBITDA from continuing operations		41,978			14,796			(15	)		446			57,205
EBITDA margin		50	%		33	%		–			(2	%)		48	%
Core income from:		19,298			3,484			4,231			319			27,690
Continuing operations		19,298			3,484			4,231			319			27,332
Discontinued operations		–			–			–			–			358

December 31, 2012 (As Adjusted – Note 2)⁽²⁾
Assets and liabilities
Operating assets		202,494			282,656			9,979			(137,366	)		357,763
Investments in associates, joint ventures and deposits (Notes 3, 5 and 10)		54			6,222			20,801			–			27,077
Deferred income tax assets – net (Notes 3 and 7)		754			6,471			–			–			7,225
Assets classified as held-for-sale (Notes 2 and 10)		–			–			–			–			13,750

Total assets		203,302			295,349			30,780			(137,366	)		405,815

Operating liabilities		134,524			138,338			4,788			(25,893	)		251,757
Deferred income tax liabilities – net (Notes 3 and 7)		4,918			795			–			–			5,713
Liabilities directly associated with assets classified as held-for-sale (Note 2)		–			–			–			–			2,611

Total liabilities		139,442			139,133			4,788			(25,893	)		260,081

Other segment information⁽¹⁾
Capital expenditures, including capitalized interest (Notes 5, 9, 20 and 21)		11,565			7,404			–			–			19,294
Continuing operations		11,565			7,404			–			–			18,969
Discontinued operations		–			–			–			–			325

⁽¹⁾

The September 30, 2012 comparative information was adjusted to reflect the discontinued operations of the BPO segment, certain presentation adjustments to conform with the current presentation of our business segments and the adjustments on the adoption of the Revised PAS 19. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations and Changes in Accounting Policies and Disclosures.

⁽²⁾

The December 31, 2012 comparative information was restated to reflect the adjustments on the adoption of the Revised PAS 19 and certain presentation adjustments to conform with the current presentation of our business segments. See Note 2 – Summary of Significant Accounting Policies – Changes in Accounting Policies and Disclosures for further discussion.

The following table shows the reconciliation of our consolidated EBITDA to our consolidated net income for the nine months ended September 30, 2013 and 2012:

⁽¹⁾

The Revised PAS 19 modifies the timing of recognition for termination benefits. The modification requires the termination benefits to be recognized at the earlier of when the offer cannot be withdrawn or when the related restructuring costs are recognized. See Note 2 – Summary of Significant Accounting Policies – Changes in Accounting Policies and Disclosures for further discussion.

The following table shows the reconciliation of our consolidated core income to our consolidated net income for the nine months ended September 30, 2013 and 2012:

⁽¹⁾

The following table shows the reconciliation of our consolidated basic and diluted core EPS to our consolidated basic and diluted EPS attributable to common equity holder of PLDT for the nine months ended September 30, 2013 and 2012:


	2013						2012
	Basic			Diluted			Basic			Diluted
	(Unaudited)						(As Adjusted – Note 2)
Core EPS from continuing operations		133.48			133.48			126.33			126.33
Core EPS from discontinued operations		(0.45	)		(0.45	)		1.66			1.66

Consolidated core EPS		133.03			133.03			127.99			127.99
Foreign exchange gains (losses) – net (Notes 2, 9 and 27)		(6.63	)		(6.63	)		7.86			7.86
Gains (losses) on derivative financial instruments – net, excluding hedge cost (Notes 2 and 27)		2.33			2.33			(4.25	)		(4.25	)
Core income adjustment on equity share in net earnings (losses) of associates and joint ventures		0.15			0.15			(0.42	)		(0.42	)
Retroactive effect of adoption of Revised PAS 19 (Note 2)		(5.10	)		(5.10	)		–			–

Total adjustment		(9.25	)		(9.25	)		3.19			3.19

Adjustments to discontinued operations		10.03			10.03			0.02			0.02

EPS from continuing operations attributable to common equity holders of PLDT		124.23			124.23			129.52			129.52
EPS from discontinued operations attributable to common equity holders of PLDT (Notes 2 and 8)		9.58			9.58			1.68			1.68

Consolidated EPS attributable to common equity holders of PLDT (Note 8)		133.81			133.81			131.20			131.20

The following table presents our revenues from external customers by category of products and services for the nine months ended September 30, 2013 and 2012:

The September 30, 2012 comparative information was adjusted to reflect the discontinued operations of the BPO segment and certain presentation adjustments to conform with the current presentation of our business segments.

Disclosure of the geographical distribution of our revenues from external customers and the geographical location of our total assets are not provided since the majority of our consolidated revenues are derived from our operations within the Philippines.

In each of the nine months ended September 30, 2013 and 2012, no revenue transactions with a single external customer had accounted for 10% or more of our consolidated revenues from external customers.

Non-service revenues for the nine months ended September 30, 2013 and 2012 consists of the following:

Compensation and employee benefits for the nine months ended September 30, 2013 and 2012 consists of the following:

⁽¹⁾

Includes the retroactive effect of the adoption of the Revised PAS 19 in MRP costs of Php1,269 million for the nine months ended September 30, 2013. See Note 2 – Summary of Significant Accounting Policies – Changes in Accounting Policies and Disclosures for further discussion.

Over the past years, we have been implementing MRP in line with our continuing efforts to reduce the cost base of our businesses. The total MRP cost charged to operations amounted to Php1,555 million and Php1,786 million for the nine months ended September 30, 2013 and 2012, respectively. The decision to implement the MRP was a result of challenges faced by our businesses as significant changes in technology, increasing competition, and shifting market preferences have reshaped the future of our businesses. The MRP is being implemented in compliance with the Labor Code of the Philippines and all other relevant labor laws and regulations in the Philippines.

Cost of sales for the nine months ended September 30, 2013 and 2012 consists of the following:

Asset impairment for the nine months ended September 30, 2013 and 2012 consists of the following:

Interest income for the nine months ended September 30, 2013 and 2012 consists of the following:

Financing costs – net for the nine months ended September 30, 2013 and 2012 consists of the following:

Changes in other comprehensive income under equity of our consolidated statements of financial position for the nine months ended September 30, 2013 and 2012 are as follows:


															Total other
	Foreign			Net gains on					Revaluation						comprehensive
	currency			available-for-sale		Net			increment on			Actuarial			income (loss)						Total other
	translation			financial		transactions			investment			gains (losses)			attributable to			Share of			comprehensive
	differences of			investments		on cash flow hedges			properties			on defined			equity holders of			noncontrolling			income (loss)
	subsidiaries			– net of tax		– net of tax			– net of tax			benefits plans			PLDT			interests			– net of tax
	(in million pesos)
Balances as at January 1, 2013		431			75		44			240			(4,177	)		(3,387	)		8			(3,379	)
Other comprehensive income (loss) from:
Continuing operations		758			6		68			(1	)		452			1,283			(6	)		1,277
Discontinued operations		(747	)		–		12			–			–			(735	)		–			(735	)
Balances as at September 30, 2013 (Unaudited)		442			81		124			239			(3,725	)		(2,839	)		2			(2,837	)

Balances as at January 1, 2012		(1,024	)		52		14			314			2,100			1,456			8			1,464
Other comprehensive income (loss) from continuing operations		(685	)		16		(1,260	)		(1	)		–			(1,930	)		–			(1,930	)

Balances as at September 30, 2012 (As Adjusted – Note 2)		(1,709	)		68		(1,246	)		313			2,100			(474	)		8			(466	)

Revaluation increment on investment properties pertains to the difference between the carrying value and fair value of property, plant and equipment transferred to investment property at the time of change in classification.

The major components of consolidated net deferred income tax assets (liabilities) recognized in our consolidated statements of financial position as at September 30, 2013, December 31, 2012 and January 1, 2012 are as follows:

The components of our consolidated net deferred income tax assets and liabilities as at September 30, 2013, December 31, 2012 and January 1, 2012 are as follows:


	September 30,			December 31,			January 1,
	2013			2012			2012
	(Unaudited)			(As Adjusted – Note 2)
	(in million pesos)
Net deferred income tax assets:
Unearned revenues		2,691			2,305			2,726
Unamortized past service pension costs		2,527			2,244			2,124
Accumulated provision for doubtful accounts		2,503			2,379			2,466
Unrealized foreign exchange losses		1,403			970			111
Derivative financial instruments		563			922			768
Provision for other assets		482			367			441
Accumulated write-down of inventories to net realizable values		185			135			198
NOLCO		107			145			326
Fixed asset impairment		51			24			1,469
MCIT		41			33			9
Capitalized foreign exchange differential – net of depreciation		(1	)		(100	)		(231	)
Capitalized taxes and duties – net of amortization		(20	)		(65	)		(125	)
Pension and other employee benefits		(414	)		(369	)		(2,511	)
Undepreciated capitalized interest charges		(1,799	)		(1,964	)		(2,624	)
Others		1,387			199			(30	)

Total deferred income tax assets		9,706			7,225			5,117

Net deferred income tax liabilities:
Intangible assets – net of amortization		3,234			3,607			3,725
Unrealized foreign exchange gains		744			2,049			1,756
Unamortized fair value adjustment on fixed assets from business combinations		634			687			997
Undepreciated capitalized interest charges		10			82			582
Others		(263	)		(712	)		18

Total deferred income tax liabilities		4,359			5,713			7,078

Changes in our consolidated net deferred income tax assets (liabilities) as at September 30, 2013 and December 31, 2012 are as follows:

The analysis of our consolidated net deferred income tax assets as at September 30, 2013, December 31, 2012 and January 1, 2012 are as follows:

The analysis of our consolidated net deferred income tax liabilities as at September 30, 2013, December 31, 2012 and January 1, 2012 are as follows:

Provision for (benefit from) corporate income tax from continuing operations for the nine months ended September 30, 2013 and 2012 consists of:

The reconciliation between the provision for income tax at the applicable statutory tax rate and the actual provision for corporate income tax for the nine months ended September 30, 2013 and 2012 are as follows:

On December 18, 2008, the Bureau of Internal Revenue, or BIR, issued Revenue Regulations No. 16-2008, which implemented the provisions of Republic Act No. 9504 on OSD. Under the OSD method of computing taxable income, corporations may elect a standard deduction in an amount equivalent to 40% of gross income, as provided by law, in lieu of the itemized allowed deductions.

Smart and SBI project to use the OSD method for computing the taxable income in the foreseeable future. Certain deferred income tax assets and liabilities of Smart and SBI, for which the related income and expenses are not considered in determining gross income for income tax purposes, are not recognized as deferred income tax assets and liabilities in the consolidated statements of financial position. This is because the manner by which they expect to recover or settle the underlying assets and liabilities would not result in any future tax consequence. Deferred income tax assets and liabilities, for which the related income and expenses are considered in determining gross income for income tax purposes, are recognized only to the extent of their future tax consequence assuming OSD method was applied, which results in such deferred income tax assets and liabilities being reduced by the 40% allowable deduction that are provided for under the OSD method. Accordingly, the deferred income tax assets and liabilities that were not recognized due to the OSD method amounted to Php4,620 million, Php3,655 million and Php4,240 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Recognition of Deferred Income Tax Assets and Liabilities.

The breakdown of our consolidated deductible temporary differences, carry forward benefits of unused tax credits from excess of MCIT over RCIT, and NOLCO (excluding those not recognized due to the adoption of the OSD method) for which no deferred income tax assets were recognized and the equivalent amount of unrecognized deferred income tax assets as at September 30, 2013, December 31, 2012 and January 1, 2012 are as follows:

As at September 30, 2013, Digitel Group’s deferred income tax assets were not recognized because management believes that there is no sufficient future taxable income that will be available upon which these can be utilized. Digitel Group’s unrecognized deferred income tax assets amounted to Php12,028 million, Php15,098 million and Php14,766 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

Our consolidated deferred income tax assets have been recorded to the extent that such consolidated deferred income tax assets are expected to be utilized against sufficient future taxable profit. Deferred income tax assets related to the preceding table were not recognized as we believe that future taxable profit will not be sufficient to realize these deductible temporary differences and carry forward benefits of unused tax credits from excess of MCIT over RCIT, and NOLCO in the future.

The breakdown of our consolidated excess MCIT and NOLCO as at September 30, 2013 are as follows:

The excess MCIT totaling Php404 million as at September 30, 2013 can be deducted against future RCIT due. The excess MCIT that was deducted against RCIT due amounted to Php4 million and Php12 million for the nine months ended September 30, 2013 and 2012, respectively. The amount of expired portion of excess MCIT amounted to Php2 million and Php16 million for the nine months ended September 30, 2013 and 2012, respectively.

NOLCO totaling Php2,410 million as at September 30, 2013 can be claimed as deduction against future taxable income. The NOLCO claimed as deduction against taxable income amounted to Php5,068 million and Php742 million for the nine months ended September 30, 2013 and 2012, respectively. The amount of expired portion of excess NOLCO amounted to nil and Php988 million for the nine months ended September 30, 2013 and 2012, respectively.

There are no income tax consequences attached to the payment of dividends in 2013 and 2012 by the PLDT Group to its shareholders.

SubicTel is registered as Subic Bay Freeport Enterprises, while ClarkTel is registered as a Clark Special Economic Zone Enterprise under Republic Act No. 7227, or R.A. 7227, otherwise known as the Bases Conversion and Development Act of 1992. As registrants, SubicTel and ClarkTel are entitled to all the rights, privileges and benefits established thereunder including tax and duty-free importation of capital equipment and a special income tax rate of 5% of gross income, as defined in R.A. 7227.

SeMI was registered with the PEZA as an Ecozone IT enterprise on a non-pioneer status last July 31, 2009. Under the terms of registration, SeMI is entitled to certain tax and non-tax incentives which include, among other things, an income tax holiday, or ITH, for four years starting June 2009. However, SeMI is in a net loss position as at June 2013 and for the year ended December 2012, hence, no tax incentives were availed from the registration with the Economic Zone.

On July 23, 2013, PEZA approved IPCDSI’s application for pioneer status as an Ecozone IT enterprise (take-over of PEZA-registered activities of IP Converge Data Center, Inc., or IPDCI). IPCDSI was granted a three-year ITH for its expansion project up to June 29, 2015, among others. Income from its IT operations shall be covered by the 5% gross income tax incentive, in lieu of all national and local taxes, including additional deductions for training expenses.

On January 3, 2007, the BOI approved ePLDT’s application for pioneer status as a new IT service firm in the field of services related to Internet Data Center for its new data center facility. ePLDT was granted a six-year ITH for its new data center facility starting January 2007. Income derived after the expiration of the ITH is now subject to 30% RCIT on taxable income or 2% MCIT on total gross income, whichever is higher.

Consolidated income derived from non-registered activities with Economic Zone and BOI is subject to the RCIT rate as at the end of the reporting period.

Consolidated tax incentives that were availed from registration with Economic Zone and BOI amounted to Php30 million and Php147 million for the nine months ended September 30, 2013 and 2012, respectively.

The following table presents information necessary to calculate the EPS for the nine months ended September 30, 2013 and 2012:

Basic EPS amounts are calculated by dividing our consolidated net income for the year attributable to common equity holders of PLDT (consolidated net income adjusted for dividends on all series of preferred shares, except for dividends on preferred stock subject to mandatory redemption) by the weighted average number of common shares issued and outstanding during the period.

Diluted EPS amounts are calculated in the same manner assuming that, at the beginning of the year or at the time of issuance during the period, all outstanding options are exercised and convertible preferred shares are converted to common shares, and appropriate adjustments to consolidated net income are effected for the related income and expenses on preferred shares. Outstanding stock options will have a dilutive effect only when the average market price of the underlying common share during the period exceeds the exercise price of the stock option.

Convertible preferred shares are deemed dilutive when required dividends declared on each series of convertible preferred shares divided by the number of equivalent common shares, assuming such convertible preferred shares are converted to common shares, decreases the basic EPS. As such, the diluted EPS is calculated by dividing our consolidated net income attributable to common shareholders (consolidated net income, adding back any dividends and/or other charges recognized for the year related to the dilutive convertible preferred shares classified as liability, less dividends on non-dilutive preferred shares except for dividends on preferred stock subject to mandatory redemption) by the weighted average number of common shares excluding the weighted average number of common shares held as treasury shares, and including the common shares equivalent arising from the conversion of the dilutive convertible preferred shares and from the mandatory tender offer for all remaining Digitel shares.

Where the effect of the assumed conversion of the preferred shares and the exercise of all outstanding options have an anti-dilutive effect, basic and diluted EPS are stated at the same amount.

Changes in property, plant and equipment account for the nine months ended September 30, 2013 and for the year ended December 31, 2012 are as follows:


																Information
																origination
												Vehicles, furniture				and		Land and
		Cable and wire			Central					Buildings		and other network		Communications		termination		land		Property
		facilities			office equipment		Cellular facilities			and improvements		equipment		satellite		equipment		improvements		under construction		Total
		(in million pesos)
January 1, 2012 (Unaudited)
Cost	146,430			92,953		119,791			24,299		40,731		966		9,102		3,014		44,361		481,647
Accumulated depreciation, impairment and amortization	(86,947	)		(72,368	)	(68,473)			(11,716	)	(32,881	)	(966	)	(7,876	)	(278	)	–		(281,505	)

Net book value	59,483			20,585		51,318			12,583		7,850		–		1,226		2,736		44,361		200,142


Year Ended December 31, 2012 (Audited)
Net book value at beginning of the year	59,483			20,585		51,318			12,583		7,850		–		1,226		2,736		44,361		200,142
Additions	2,750			415		8,879			562		2,549		–		387		2		21,144		36,688
Disposals/Retirements	(10	)		(5	)	(26)			(4	)	(74	)	–		–		(7	)	–		(126	)
Translation differences charged directly to cumulative translation adjustments	(2	)		(10	)	–			(15	)	(49	)	–		–		–		(7	)	(83	)
Acquisition through business combinations (Note 13)	112			104		–			45		6		–		–		–		–		267
Impairment losses recognized during the year	(5	)		–		(2,876)			–		–		–		–		–		–		(2,881	)
Reclassifications (Notes 12 and 17)	1,543			(321	)	(3,452)			131		2,438		–		(65	)	401		(253	)	422
Transfers	8,000			4,045		4,227			449		990		–		47		–		(17,758	)	–
Depreciation of revaluation increment on investment properties transferred to property, plant and equipment charged to other comprehensive income	–			–		–			(2	)	–		–		–		–		–		(2	)
Depreciation and amortization (Note 2)	(11,380	)		(4,130	)	(9,678)			(1,493	)	(5,606	)	–		(532	)	(1	)	–		(32,820	)
Discontinued operations (Note 2)	–			(155	)	–			(340	)	(694	)	–		–		(165	)	(175	)	(1,529	)

Net book value at end of the year (Note 3)	60,491		20,528					48,392	11,916		7,410		–		1,063		2,966		47,312		200,078


As at December 31, 2012 (Audited)
Cost	157,036			95,258		100,935			24,333		42,628		966		9,341		3,224		47,312		481,033
Accumulated depreciation, impairment and amortization	(96,545	)		(74,730	)	(52,543)			(12,417	)	(35,218	)	(966	)	(8,278	)	(258	)	–		(280,955	)

Net book value (Note 3)	60,491			20,528		48,392			11,916		7,410		–		1,063		2,966		47,312		200,078


Period Ended September 30, 2013 (Unaudited)
Net book value at beginning of the period (Note 3)	60,491			20,528		48,392			11,916		7,410		–		1,063		2,966		47,312		200,078
Additions	1,797			162		4,073			210		1,302		–		490		7		6,874		14,915
Disposals/Retirements	(19	)		(99	)	(29)			–		(68	)	–		(1	)	–		–		(216	)
Translation differences charged directly to cumulative translation adjustments	4			3		–			–		2		–		–		–		–		9
Reclassifications (Notes 12 and 17)	52			17		265			4		1		–		–		–		(1,365	)	(1,026	)
Depreciation of revaluation increment on investment properties transferred to property, plant and equipment charged to other comprehensive income	–			–		–			(2	)	–		–		–		–		–		(2	)
Transfers and others	3,698			2,434		4,528			213		849		–		119		3		(11,844	)	–
Depreciation and amortization (Notes 2, 3 and 4)	(6,968	)		(2,831	)	(8,133)			(1,012	)	(2,787	)	–		(447	)	(2	)	–		(22,180	)

Net book value at end of the period(Note 3)	59,055			20,214		49,096			11,329		6,709		–		1,224		2,974		40,977		191,578


As at September 30, 2013 (Unaudited)
Cost	175,423			115,515		151,075			26,617		48,166		966		10,903		3,233		40,977		572,875
Accumulated depreciation, impairment and amortization	(116,368	)		(95,301	)	(101,979)			(15,288	)	(41,457	)	(966	)	(9,679	)	(259	)	–		(381,297	)

Net book value (Note 3)	59,055			20,214		49,096			11,329		6,709		–		1,224		2,974		40,977		191,578

Substantially all of our telecommunications equipment are purchased outside the Philippines. Our significant sources of financing for such purchases are foreign loans requiring repayment in currencies other than Philippine pesos, which are principally in U.S. dollars. See Note 20 – Interest-bearing Financial Liabilities – Long-term Debt.

Interest capitalized to property, plant and equipment that qualified as borrowing costs amounted to Php526 million and Php699 million for the nine months ended September 30, 2013 and 2012, respectively. See Note 5 – Income and Expenses – Financing Costs. Our undepreciated interest capitalized to property, plant and equipment that qualified as borrowing costs amounted to Php7,288 million, Php7,686 million and Php10,357 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. The average interest capitalization rate used was approximately 5% for each of the nine months ended September 30, 2013 and 2012.

Our undepreciated capitalized net foreign exchange losses, which qualified as borrowing costs amounted to Php4 million, Php353 million and Php837 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. There were no additional capitalized foreign exchange differences, which qualified as borrowing costs for the nine months ended September 30, 2013 and 2012.

Property, plant and equipment include the net carrying value of capitalized vehicles, furniture and other network equipment under financing leases, which amounted to Php19 million, Php22 million and Php6 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 20 – Interest-bearing Financial Liabilities – Obligations under Finance Leases.

In December 2012, DMPI recognized an impairment loss of Php2,881 million representing write-down of certain telecommunications equipment and related infrastructure to their recoverable amounts. The impairment loss pertains to the net book values of certain identified network equipment and facilities that are affected by the unified wireless strategy as the overall business of DMPI became anchored on PLDT’s wireless business unit, Smart.

The necessary alignment of the DMPI’s network with the massive modernization program of Smart due to advancement in technologies resulted to an impairment of certain equipment and facilities of the former based on an overall assessment and synergy plan.

In December 2011, Smart recognized full impairment provision of Php8,457 million for certain network equipment and facilities which no longer support our network modernization program, which was discussed and approved by Smart’s Board of Directors on February 28, 2011 and have been identified for replacement. The modernization program is designed to enable the delivery and fulfillment of advanced capabilities to support multimedia services and upcoming technologies in our technology roadmap by substantially expanding capacity, enhancing capabilities and improving quality of experience to meet the increasing demand for cellular, and advanced broadband services in a highly competitive playing field. This program is expected to result to savings in operating expenses, as well as alignment of Smart and Digitel networks. The full impairment provision recognized represents the net book value of these network equipment and facilities. No impairment loss was recognized for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

As at September 30, 2013, December 31, 2012 and January 1, 2012, this account consists of:

Changes in the cost of investments and deposits for the nine months ended September 30, 2013 and for the year ended December 31, 2012 are as follows:

Changes in the accumulated impairment losses for the nine months ended September 30, 2013 and for the year ended December 31, 2012 are as follows:

Changes in the accumulated equity share in net earnings of associates and joint ventures for the nine months ended September 30, 2013 and for the year ended December 31, 2012 are as follows:

Represents share in net earnings of Philweb for the nine months ended September 30, 2012.

In 2012, ePLDT made deposits totaling Php6 billion to MediaQuest, an entity wholly-owned by the BTF, for the issuance of PDRs to be issued by MediaQuest in relation to its indirect interest in Cignal TV. Cignal TV is a wholly-owned subsidiary of Satventures, which is a wholly-owned subsidiary of MediaQuest. The Cignal TV PDRs confer an economic interest in common shares of Cignal TV indirectly owned by MediaQuest, and when issued, will provide ePLDT with a 40% economic interest in Cignal TV. Cignal TV operates a direct-to-home, or DTH, Pay-TV business under the brand name “Cignal TV”, which is the largest DTH Pay-TV operator in the Philippines with over 540 thousand net subscribers as at September 30, 2013.

On March 5, 2013, PLDT’s Board of Directors approved two further investments in additional PDRs of MediaQuest:

•

a Php1.95 billion investment by ePLDT in PDRs to be issued by MediaQuest in relation to its interest in Hastings Holdings, Inc., or Hastings. The Hastings PDRs confer an economic interest in common shares of Hastings owned by MediaQuest, and when issued, will provide ePLDT with a 100% economic interest in Hastings. Hastings is a wholly-owned subsidiary of MediaQuest and holds all the print-related investments of MediaQuest, including minority positions in the three leading broadsheets: The Philippine Star, the Philippine Daily Inquirer, and Business World. See Note 25 – Employee Benefits – Unlisted Equity Investments – Investment in MediaQuest.

The Php6 billion Cignal TV PDRs and Php3.6 billion Satventures PDRs were issued on September 27, 2013. These PDRs will provide ePLDT an aggregate of 64% economic interest in Cignal TV.

ePLDT’s deposit for future PDRs subscription amounted to Php350 million for Hastings PDRs as at September 30, 2013 and Php6 billion for Cignal TV PDRs as at December 31, 2012.

On February 5, 2013, PLDT entered into a Subscription and Shareholders’ Agreement with Asia Outsourcing Alpha Limited, or Alpha, and Beta, wherein PLDT, through its indirect subsidiary PGIC, acquired from Alpha approximately 19.7% equity interest in Beta for a total cost of approximately US$40 million, which consists of preferred shares of US$39.8 million and ordinary shares of US$0.2 million. In June 2013, PGIC transferred 112 ordinary shares and 41,069 preferred shares to certain employees of Beta for a total consideration price of US$42 thousand. The equity interest of PGIC in Beta remained at 19.7% after the transfer with economic interest of 18.24%. See related discussion on Note 2 – Summary of Significant Accounting Policies – Discontinued Operations.

Alpha and Beta are both exempted limited liability companies incorporated under the laws of Cayman Islands and are both controlled by CVC. Beta has been designated to be the holding company of the SPi Group.

PGIC is a wholly-owned subsidiary of PLDT Global, which was incorporated under the laws of British Virgin Islands.

On June 14, 2011, PLDT, Meralco Powergen Corporation, or MPG, Philex Mining Corporation, or Philex, Metro Pacific Tollways Corporation, or MPTC, Metro Pacific Investments Corporation, or MPIC, and Jubilee Sky Limited, or JSL, entered into a shareholders’ agreement to establish PG1, with the purpose of carrying on, by means of aircraft of every kind or description, the general business of common and/or private carrier. PLDT subscribed for 125 million common shares with an aggregate value of Php125 million, representing 50% equity interest in PG1 and 30 million preferred shares with an aggregate value of Php30 million, which were all paid by assigning to PG1 certain aircraft and other related assets of PLDT. The difference between the Php244 million fair value of the assets and the Php155 million total subscription price amounting to Php89 million shall be paid by PG1 to PLDT in cash as soon as reasonably practicable after incorporation.

MPG, Philex, MPTC, MPIC and JSL owns 5%, 15%, 5%, 10% and 15% of PG1, respectively. PLDT has significant influence in PG1, and was accounted for as investment in associate.

PLDT has agreed to transfer 10% of its common shares to MPG, within a reasonable time after incorporation of PG1, to increase MPG’s ownership to 15% and reduce PLDT’s ownership to 40% of the outstanding common shares of PG1.

Digitel has 60% and 40% interest in ANPC and DCI, respectively. DCI is involved in the business of cable system linking Philippines, United States and other neighboring countries in Asia. ANPC is an investment holding company owning 20% of DCI.

In December 2000, Digitel, Pacnet Network (Philippines), Inc., or PNPI, (formerly Asia Global Crossing Ltd.) and BT Group O/B Broadband Infrastructure Group Ltd., or BIG, entered into a Joint Venture Agreement, or JVA, under which the parties agreed to form DCI with each party owning 40%, 40% and 20%, respectively. DCI was incorporated to develop, provide and market backhaul network services, among others.

On April 19, 2001, after BIG withdrew from the proposed joint venture, or JV, Digitel and PNPI formed ANPC to replace BIG. Digitel contributed US$2 million, or Php69 million, for a 60% equity interest in ANPC while PNPI owned the remaining 40% equity interest.

Digitel provided full impairment loss on its investment in DCI and ANPC in prior years on the basis that DCI and ANPC have incurred significant recurring losses in the past. In 2011, Digitel recorded a reversal of impairment loss amounting to Php92 million following recent improvement in the associates’ operations.

Digitel has no control over ANPC despite owning more than half of voting interest because of certain governance matters, and management has assessed that Digitel only has significant influence.

Digitel’s investment in DCI does not qualify as investment in JV as there is no provision for joint control in the JV agreement among Digitel, PNPI and ANPC.

Following PLDT’s acquisition of a controlling stake in Digitel, PNPI, on November 4, 2011, sent a notice to exercise its Call Right under Section 6.3 of the JVA, which provides for a Call Right exercisable by PNPI following the occurrence of a Digitel change in control. As at the date of issuance of this report, Digitel management is ready to conclude the transfer of its investment in DCI, subject to PNPI’s ability to meet certain regulatory and valuation requirements.

Philweb is primarily engaged in internet-based online gaming, through its appointment as Principal Technology Service Provider under the Marketing Consultancy Agreement for Internet Sports Betting and Internet Casino with the Philippine Amusement and Gaming Corporation, or PAGCOR. Philweb offers Internet Sports Betting in over 180 PAGCOR Internet Sports Betting Stations and over 180 Internet Casino Stations nationwide.

In May 2006, ePLDT subscribed to newly issued common shares of Philweb for an aggregate amount of Php503 million, representing 20% of the total outstanding capital stock of Philweb at a price of Php0.020 per share. Of the total subscription price, Php428 million was paid by ePLDT on the closing date. The remaining Php75 million was paid in July 2012, as discussed below.

In October 2006, ePLDT acquired an additional 8,038 million shares of Philweb at a price of Php0.026 per share for an aggregate amount of Php209 million.

On September 22, 2009, PSE approved the change in par value of Philweb shares from Php0.01 to Php1.00. Thus, the total number of shares subscribed by ePLDT was reduced to 332 million shares from 33,157 million shares.

The market value of ePLDT’s investment in Philweb amounted to Php5,093 million, based on quoted share price of Php15.36 as at December 31, 2011.

On April 19, 2012, Philweb approved the 20% stock dividend declaration payable on May 30, 2012 to stockholders of record as at May 4, 2012, thereby increasing ePLDT’s shares to 398 million shares.

On June 30, 2012, as a result of the committed plan of ePLDT to sell its interest over Philweb following a strategic review of the PLDT Group’s business, the investment in Philweb was reclassified as assets held-for-sale in accordance with PFRS 5, Noncurrent Assets Held-for-Sale and Discontinued Operations. Consequently, the assets held-for-sale was carried at the carrying value of the investment in Philweb, which is lower than the fair value less costs to sell of the Philweb shares.

On July 10, 2012, ePLDT entered into a Share Purchase Agreement with Philweb for the sale of 398 million common shares of Philweb, representing ePLDT’s 27% equity interest in Philweb. The sale of the 398 million common shares will be executed in four tranches, and is expected to be completed by the end of 2013. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Assets Held-for-Sale and Discontinued Operations. Philweb shall have the unilateral option to accelerate the acquisition of the portion of the subject shares corresponding to the second to fourth tranches upon prior written notice of five days to ePLDT. The rights (including the rights to receive dividend) to the first to fourth tranches of the subject shares shall belong to Philweb after the closing of the sale of each tranche. The first tranche, which was transacted on July 13, 2012, was for 93.5 million common shares for a purchase price of Php1 billion. The first tranche payment is net of subscriptions payable of Php75 million.

On October 17, 2012, a Supplement to the Share Purchase Agreement was entered into wherein Philweb designated its wholly-owned subsidiary, Philweb Casino Corporation, or PCC, to act as the buyer of the second to fourth tranches and to make the second to fourth payments.

Subsequently, on October 18, 2012, a Second Supplement to the Share Purchase Agreement was agreed upon between Philweb, ePLDT and PCC, wherein PCC, as the designee of Philweb notified ePLDT of its desire to exercise its option to accelerate the acquisition of the portion of the Philweb shares corresponding to the second tranche from December 12, 2012 to October 18, 2012, or one day after the PSE approves the special block sale, whichever is later. The acquisition of the second tranche, which was for 93.5 million common shares for a purchase price of Php1 billion, was completed on October 22, 2012.

On June 13, 2013, the third tranche was paid for 93.5 million common shares for a purchase price of Php10.70 per share plus 3% per annum of the total thereof calculated from December 12, 2012 to the actual date of payment of the third tranche, or Php1 billion. The fourth tranche will be paid on December 13, 2013 for 118 million common shares for a purchase price of Php10.70 per share plus 3% per annum of the total thereof calculated from December 12, 2012 to the actual date of payment of the fourth tranche. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments – ePLDT Group.

The remaining balance of assets held-for-sale amounted to Php355 million and Php638 million as at September 30, 2013 and December 31, 2012, respectively.

As at September 30, 2013, ACeS Philippines held 36.99% equity interest in AIL, a company incorporated under the laws of Bermuda. AIL owns the Garuda I Satellite and the related system control equipment in Batam, Indonesia.

AIL has incurred recurring significant operating losses, negative operating cash flows, and significant levels of debt. The financial condition of AIL was partly due to the National Service Providers’, or NSPs, inability to generate the amount of revenues originally expected as the growth in subscriber numbers has been significantly lower than budgeted. These factors raised substantial doubt about AIL’s ability to continue as a going concern. On this basis, we recognized a full impairment provision of Php1,896 million in respect of our investment in AIL in 2003.

Unrecognized share in net income of AIL amounted to Php251 million and Php3 million for the nine months ended September 30, 2013 and 2012, respectively. Share in net cumulative losses amounting to Php1,500 million, Php2,005 million and Php2,035 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively, were not recognized as we do not have any legal or constructive obligation to pay for such losses and have not made any payments on behalf of AIL.

See Note 24 – Related Party Transactions – Air Time Purchase Agreement between PLDT and AIL Related Agreements and Note 27 – Financial Assets and Liabilities – Liquidity Risk – Unconditional Purchase Obligations for further details as to the contractual relationships with respect to AIL.

The following tables present our share in the summarized financial information of our investments in associates in conformity with PFRS for equity investees in which we have significant influence as at September 30, 2013, December 31, 2012 and January 1, 2012 and for the nine months ended September 30, 2013 and 2012:

We have no outstanding contingent liabilities or capital commitments with our associates as at September 30, 2013, December 31, 2012 and January 1, 2012.

On March 1, 2010, PCEV, MPIC, and Beacon, entered into an Omnibus Agreement, or OA. Beacon was organized with the sole purpose of holding the respective shareholdings in Manila Electric Company, or Meralco, of PCEV and MPIC. PCEV and MPIC are Philippine affiliates of First Pacific and both held equity interest in Meralco. Under the OA, PCEV and MPIC have agreed to set out their mutual agreement in respect of, among other matters, the capitalization, organization, conduct of business and the extent of their participation in the management of the affairs of Beacon.

Beacon’s authorized capital stock of Php5,000 million consists of 3 billion common shares with a par value of Php1 per share and 2 billion preferred shares with a par value of Php1 per share. The preferred shares of Beacon are non-voting, not convertible to common shares or any shares of any class of Beacon and have no pre-emptive rights to subscribe to any share or convertible debt securities or warrants issued or sold by Beacon. The preferred shareholder is entitled to liquidation preference and yearly cumulative dividends at the rate of 7% of the issue value subject to: (a) availability of unrestricted retained earnings; and (b) dividend payment restrictions imposed by Beacon’s bank creditors.

On March 30, 2010, MPIC subscribed to 1,156.5 million common shares of Beacon and approximately 801 million preferred shares of Beacon in consideration of: (1) the transfer of 163.6 million Meralco shares at a price of Php150 per share, or an aggregate amount of Php24,540 million; and (2) Php6,600 million in cash as further described below in “Transfer of Meralco Shares to Beacon” section.

PCEV likewise subscribed to 1,156.5 million common shares of Beacon on March 30, 2010 in consideration of the transfer of 154.2 million Meralco common shares at a price of Php150 per share, or an aggregate amount of Php23,130 million.

Alongside with the subscription to the Beacon shares pursuant to the OA, Beacon purchased 154.2 million and 163.6 million Meralco common shares, or the Transferred Shares, from PCEV and MPIC, respectively, for a consideration of Php150 per share or a total of Php23,130 million for the PCEV Meralco shares and Php24,540 million for the MPIC Meralco shares. PCEV transferred the 154.2 million Meralco common shares to Beacon on May 12, 2010. The transfer of legal title to the Meralco shares was implemented through a special block sale/cross sale in the PSE.

PCEV recognized a deferred gain of Php8,047 million for the difference between the Php23,130 million transfer price of the Meralco shares to Beacon and the Php15,083 million carrying amount in PCEV’s books of the Meralco shares transferred since the transfer was between entities with common shareholders. The deferred gain, presented as a reduction in PCEV’s investment in Beacon common shares, will only be realized upon the disposal of the Meralco shares to a third party.

On October 25, 2011, PCEV transferred to Beacon its remaining investment in 68.8 million of Meralco’s common shares for a total cash consideration of Php15,136 million. PCEV also subscribed to 1,199 million Beacon preferred shares at the same amount. The transfer of the Meralco shares was implemented by a cross sale through the PSE.

Since the transactions involve entities with common shareholders, PCEV recognized a deferred gain on transfer of the Meralco shares amounting to Php8,145 million, equivalent to the difference between the Php15,136 million transfer price of the Meralco shares and the Php6,991 million carrying amount in PCEV’s books of the Meralco shares transferred. The deferred gain was presented as an adjustment to the investment cost of the Beacon preferred shares in 2011. Similar to the deferred gain on the transfer of the 154.2 million Meralco shares, the deferred gain will only be realized upon the disposal of the Meralco shares to a third party.

The carrying value of PCEV’s investment in Beacon, representing 50% of Beacon’s common shares outstanding, was Php23,137 million, Php20,801 million and Php16,593 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On January 20, 2012, PCEV subscribed to 135 million Beacon common shares for a total cash consideration of Php2,700 million. On the same date, MPIC also subscribed to 135 million Beacon common shares for a total cash consideration of Php2,700 million.

On June 6, 2012, PCEV sold 282.2 million of its investment in Beacon preferred shares to MPIC for a total cash consideration of Php3,563 million, which took effect on June 29, 2012. In this instance, the sale of Beacon preferred shares is deemed as a sale between non-related entities. Consequently, PCEV realized a portion of the deferred gain, amounting to Php2,012 million, which was recorded when the underlying Meralco shares were transferred to Beacon. The carrying value of PCEV’s investment in Beacon’s preferred shares classified as available-for-sale financial assets, amounting to Php5,440 million each as at September 30, 2013 and December 31, 2012 and Php6,991 million as at January 1, 2012 was presented as part of “Investment and other noncurrent assets” account in our consolidated statements of financial position.

On October 30, 2013, PCEV’s Board of Directors confirmed management’s change in view and purpose of investment in Beacon preferred shares, from investment available-for-sale to strategic investment intended to generate safe and steady returns which PCEV intends to hold on to in the long-term, similar to its investment in common shares. The change in assessment will result to the investment in Beacon preferred shares being reclassified from available-for-sale investments to investment in joint venture (both are noncurrent assets) effective upon approval by PCEV’s Board of Directors.

Under the OA, MPIC assigned its right to acquire the call option, or the Call Option, over 74.7 million common shares of Meralco held by First Philippine Pacific Holdings Corporation, or FPHC, or the Option Shares, to Beacon. As a result of this assignment, Beacon and FPHC executed an Option Agreement dated March 1, 2010 pursuant to which FPHC granted the Call Option over the Option Shares to Beacon.

On March 30, 2010, Beacon exercised the Call Option and FPHC transferred the 74.7 million shares of Meralco common stock to Beacon in consideration of the payment by Beacon of Php22,410 million.

With respect to the approximately 317.8 million Transferred Shares, the 74.7 million Option Shares transferred by FPHC to Beacon pursuant to the Call Option and the 68.8 million shares transferred by PCEV to Beacon in October 2011, FPHC has the benefit of being assigned, or retaining in the case of the Option Shares, Rockwell Land Corporation, or Rockwell, common shares that may be declared as property dividends by Meralco. Beacon recognized in March 2010, a liability for contingent consideration amounting to Php2,373 million for said Rockwell common shares. The liability for contingent consideration was remeasured based on the fair value of said Rockwell common shares as at December 31, 2011 and 2010 and the resulting remeasurement loss of Php317 million and Php331 million were charged to Beacon’s profit or loss for the years ended December 31, 2011 and 2010, respectively.

On February 27, 2012, Meralco’s Board of Directors declared its common shareholdings in Rockwell as property dividend, to shareholders of record as at March 23, 2012, payable five days after the approval by the Philippine SEC of such property dividend, which approval was issued on April 25, 2012. Thereafter, Beacon recognized the property dividend received from Meralco as “Investment in available-for-sale financial assets” account. On June 27, 2012, Beacon sold its investment in Rockwell common shares, arising from Meralco shares acquired from the market, to FPHC and FPHC Pension Fund for a cash consideration of Php2 per share or an aggregate amount of Php283 million, thus, recognizing a gain on disposal of investment amounting to Php77 million for the difference between the consideration and the value of the property dividend. On June 27 and 28, 2012, Beacon transferred its investment in Rockwell common shares arising from Meralco shares acquired from PCEV, MPIC, FPHC and First Philippine Utilities Corporation, or FPUC, to FPHC through a crossed sale at the PSE. With the transfer, Beacon derecognized the outstanding balance of its liability for contingent consideration.

Beacon, PCEV and MPIC have also agreed on certain corporate governance matters, including Board composition, election of officers, shareholders’ action, representation to the Meralco Board, nomination of the Meralco Board Committees, and nomination of Meralco officers. The corporate governance agreements and Beacon equity structure resulted in a jointly controlled entity.

A summary of Beacon’s purchases of Meralco shares for the past three years are shown below (in millions except for nominal value per share):

As at September 30, 2013, Beacon effectively owns 563 million Meralco common shares representing approximately 49.96% beneficial ownership in Meralco with a carrying value of Php121,644 million and market value of Php161,047 million based on quoted price of approximately Php286 per share. As at December 31, 2012, Beacon effectively owned 545 million Meralco common shares representing approximately 48% beneficial ownership in Meralco with a carrying value of Php113,940 million and market value of Php141,971 million based on quoted price of Php261 per share. As at January 1, 2012, Beacon beneficially owned 511.2 million Meralco common shares representing approximately 45.4% beneficial ownership in Meralco with a carrying value of Php104,092 million and market value of Php126,379 million based on quoted price of Php247 per share.

On March 22, 2010, Beacon entered into an Php18,000 million ten-year corporate notes facility with First Metro Investment Corporation, or FMIC, and PNB Capital and Investment Corporation, or PNB Capital, as joint lead arrangers and various local financial institutions as noteholders. The initial drawdown of Php16,200 million (Php16,031 million, net of debt issuance cost of Php168.5 million) under this notes facility partially financed the acquisition of Meralco shares by Beacon pursuant to its exercise of the Call Option in March 2010. In May 2011, the remaining Php1,800 million was drawn to partially finance the acquisition of the additional 49.9 million Meralco common shares including shares purchased under a deferred payment scheme. The outstanding balance of the facility amounted to nil, Php17,441 million and Php17,835 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. The loan was prepaid in full on March 27, 2013.

On May 24, 2011, Beacon entered into an Php11,000 million ten-year corporate notes facility with FMIC and PNB Capital as joint lead arrangers and various local financial institutions as noteholders. The amount drawn under this facility as at December 31, 2011 amounting to Php4,000 million was also used to partially finance the acquisition of the additional 49.9 million Meralco common shares. The remaining Php7,000 million was subsequently drawn on July 9, 2012 and used for the payment of the final tranche of the deferred purchase made in May 2011. The outstanding balance of the facility amounted to Php10,871 million, Php10,856 million and Php3,897 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On November 9, 2011, Beacon entered into a Php5,000 million ten-year corporate notes facility with FMIC and PNB Capital as joint lead arrangers and various local financial institutions as noteholders. The full amount was drawn on February 1, 2012 and was used to finance the acquisition of the additional 30 million Meralco common stock from FPUC. The outstanding balance of the facility amounted to Php5,000 million as at December 31, 2012. The loan was prepaid in full on August 1, 2013.

On February 6, 2013, Beacon entered into a Php17,000 million ten-year corporate notes facility with FMIC and PNB Capital as joint lead arrangers and various local financial institutions as noteholders. The proceeds were used to refinance the Php18,000 million ten-year corporate notes facility under a Facility Agreement dated March 22, 2010. The loan facility is divided into two tranches with the first tranche amounting to Php2,285 million (the “Tranche A”) and the second tranche amounting to Php14,715 million (the “Tranche B”).

Both tranches have a term of ten years with semi-annual interest and principal payments starting May 27, 2013 with final repayment on March 27, 2023. The Tranche A bears a fixed interest rate based on the ten-year PDST-F plus a spread, subject to a floor rate. The Tranche B bears a fixed interest rate for the first five years from the Drawdown Date based on the five-year PDST-F plus a spread, subject to a floor rate. For the next five years, the fixed interest rate for Tranche B will be repriced based on the five-year PDST-F on the Business Day immediately preceding the Repricing Date plus a spread, provided that such interest rate shall not be lower than the applicable interest rate for the first five years. The outstanding balance of the facility amounted to Php16,777 million as at September 30, 2013.

On May 27, 2013, Beacon entered into a Forward Starting Interest Rate Swap, or Forward Starting IRS, to hedge the interest repricing risk on the outstanding balance of the Tranche B (Php14,715 million) by the end of the fifth year. The Forward Starting IRS will have a receive leg based on a rate which will be determined on March 26, 2018 and pay leg of 6.98% fixed rate that virtually matches the debt’s critical terms (i.e., benchmark rate and fixing date). The hedge is expected to be highly effective and such as Beacon designates the Forward Starting IRS as a cash flow hedge. The changes in fair value of the Forward Starting IRS will be deferred in equity under Beacon’s other comprehensive income (loss) reserve account.

On July 29, 2013, Beacon entered into a Php9,000 million ten-year corporate notes facility with FMIC and PNB Capital as joint lead arrangers and various local financial institutions as noteholders. The proceeds were used to refinance the Php5,000 million ten-year corporate notes facility under a Facility Agreement dated November 9, 2011 and to partially finance the acquisition of the additional 18.3 million Meralco common shares. This facility was fully drawn on August 1, 2013 with semi-annual interest and principal payments starting July 31, 2013 with final repayment on July 31, 2023. The loan facility is divided into two tranches with the first tranche amounting to Php2,950 million (the “Tranche A”) and the second tranche amounting to Php6,050 million (the “Tranche B”). The outstanding balance of the facility amounted to Php8,884 million as at September 30, 2013.

On August 13, 2013, Beacon availed of two short-term notes from local banks, each with a principal sum of Php200 million. Both notes are payable in full not later than November 13, 2013 (then maturity date) and bear interest at a fixed rate equivalent to the higher of 4.5% per annum and the Bangko Sentral ng Pilipinas Overnight Reverse Repurchase Agreement Rate prevailing on the interest setting date plus 1%.

The above facilities were secured by a pledge over the Meralco shares and were not guaranteed by PLDT. Also, the above facilities were not included in our consolidated long-term debt.

In June 2010, SeMI and MasterCard Asia/Pacific Pte. Ltd., or MasterCard Asia, entered into a JVA under which the parties agreed to form MPS. The joint venture will develop, provide and market certain mobile payment services among other activities as stipulated in the agreement. MPS was incorporated in Singapore on June 4, 2010 and is 40% and 60% owned by SeMI and MasterCard Asia, respectively. On November 9, 2010, SeMI contributed US$2.4 million representing 40% ownership in MPS.

On November 21, 2011, the Board of Directors of MPS approved the allotment and issuance of additional 5 million shares for US$5 million and 3 million shares for US$3 million to MasterCard Asia and SeMI, respectively. On April 25, 2012, SeMI remitted the amount of US$2 million representing the 60% payment for the additional shares allotted to SeMI. On August 23, 2012, the balance of US$1 million representing the 40% of the remaining additional shares was paid.

On March 26, 2012, SeMI entered into a licensing agreement with MasterCard Asia to accept and process MasterCard Asia’s debit and credit card transactions of accredited merchants. SeMI became the first non-bank institution in the country to be granted an acquiring license by MasterCard Asia.

The carrying values of SeMI’s investment in MPS amounted to nil, Php54 million and nil as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

PLDT Global holds 100% equity interest in PLDT Italy, a company incorporated under the laws of Italy, which is intended to carry the joint venture business between PLDT Global and Hutchison Global Communications Limited, or HGC, a company based in Hong Kong. On March 12, 2008, PLDT Global and HGC entered into a Co-operation Agreement wherein the parties agreed to launch their first commercial venture in Italy by offering mobile telecommunications services through PLDT Italy. Under the terms of the agreement, PLDT Global and HGC agreed to share equally the profit or loss from the operations of PLDT Italy. As a condition precedent to the effectiveness of the Co-Operation Agreement, PLDT Global pledged 50% of its shareholdings in PLDT Italy to HGC.

The amount of funding contributed by each partner to the joint venture is Euro 3.9 million, or a total of Euro 7.8 million each as at September 30, 2013, December 31, 2012 and January 1, 2012. PLDT Global has made a full impairment provision on its investment to PLDT Italy as at September 30, 2013, December 31, 2012 and January 1, 2012.

The following table presents our share in the summarized financial information of our investments in joint ventures as at September 30, 2013, December 31, 2012 and January 1, 2012 and for the nine months ended September 30, 2013 and 2012:

The above information as at September 30, 2013, December 31, 2012 and January 1, 2012 and for the nine months ended September 30, 2013 and 2012 includes the financial information of Beacon as shown below:

We have no outstanding contingent liabilities or capital commitments with our joint ventures as at September 30, 2013, December 31, 2012 and January 1, 2012.

As at September 30, 2013, December 31, 2012 and January 1, 2012, this account consists of:

In April 2013, Smart purchased, at a premium, a PSALM Bond with face value of Php200 million maturing on April 22, 2017 with yield-to-maturity at 4.25% gross. The bond has a gross coupon of 7.25% payable on a quarterly basis, and was recognized as held-to-maturity investment. Premium is accreted using the effective interest rate method. Interest income recognized on the PSALM Bond amounted to Php5.8 million for the nine months ended September 30, 2013.

In August 2013, Smart purchased, at a premium, a PSALM Bond with face value of Php100 million maturing on April 22, 2015 with yield-to-maturity at 3.25% gross. The bond has a gross coupon of 6.875% payable on a quarterly basis, and was recognized as held-to-maturity investment. Premium is accreted using the effective interest rate method. Interest income recognized on the PSALM Bond amounted to Php974 thousand for the nine months ended September 30, 2013.

In October 2012, PLDT and Smart invested US$2.5 million each in a five-year time deposit with Security Bank maturing on October 11, 2017 at a gross coupon rate of 4%. These long-term fixed rate time deposits pay interest on a monthly basis or an estimate of 30 days. The deposits may be terminated prior to maturity at the applicable pretermination rates. Interest income (net of withholding tax) recognized on the time deposit amounted to US$140 thousand, or Php6 million, for the nine months ended September 30, 2013 and US$42 thousand, or Php2 million, for the year ended December 31, 2012.

In May 2013, PLDT invested US$2.0 million in a five-year time deposit with Security Bank maturing on May 31, 2018 at a gross coupon rate of 3.5%. These long-term fixed rate time deposits pay interest on a monthly basis or an estimate of 30 days. The deposits may be terminated prior to maturity at the applicable pretermination rates. Interest income (net of withholding tax) recognized on the time deposit amounted to US$22 thousand, or Php1 million, for the nine months ended September 30, 2013.

In February 2013, Smart purchased at par a seven-year GT Capital Bond with a face value of Php150 million, maturing on February 27, 2020. The bond has a gross coupon of 4.8371% payable on a quarterly basis, and was recognized as held-to-maturity investment. Interest income, net of withholding tax, recognized on the GT Capital Bond amounted to Php3.5 million for the nine months ended September 30, 2013.

In May 2013, Smart purchased, at a discount, a Home Guaranty Corporation Zero Coupon Bond, or HGC Bond, with a face value of Php91.5 million at a yield-to-maturity of 2.50% gross. This investment will mature on November 24, 2013 and was booked as held-to-maturity investment. The HGC Bond was carried at amortized cost using the effective interest rate method. Interest income recognized on the HGC Bond amounted to Php708 thousand for the nine months ended September 30, 2013.

In 2007, Smart purchased, at a discount, a NAPOCOR Zero Coupon Bond, or NAPOCOR Bond, with a face value of Php380 million, that matured on November 29, 2012 at a net yield to maturity of 6.88%. The NAPOCOR Bond was carried at amortized cost using the effective interest rate method. Interest income recognized on the NAPOCOR Bond amounted to nil and Php19 million for the nine months ended September 30, 2013 and 2012, respectively.

In 2008, Smart purchased at par a ten-year RCBC Tier 2 Note, or RCBC Note, with a face value of Php150 million bearing a fixed rate of 7.00% for the first five years and the step-up interest rate from the fifth year up to maturity date. The RCBC early redeemed its Tier 2 Note with face value of Php150 million and interest payment of Php2 million on February 22, 2013 pursuant to the exercise of Redemption at the Option of the Issuer and as approved by the Bangko Sentral ng Pilipinas. Interest income recognized on the RCBC Note amounted to Php1.2 million and Php6 million for the nine months ended September 30, 2013 and 2012, respectively.

Changes in investment properties account for the nine months ended September 30, 2013 and for the year ended December 31, 2012 are as follows:

⁽¹⁾

Presented as part of “other income” in our consolidated income statement.

Investment properties, which consist of land and building, are stated at fair values, which have been determined annually based on the year-end appraisal performed by an independent firm of appraisers, an industry specialist in valuing these types of investment properties. The valuation for land was based on an open market value, supported by a market evidence in which such assets could be exchanged between a knowledgeable and willing buyer and seller in an arm’s length transaction at the date of valuation, while the valuation for building was based on the depreciated replacement cost approach. None of our investment properties are being leased to third parties that earn rental income.

Repairs and maintenance expenses that do not generate rental income related to investment properties amounted to Php42 million and Php43 million for the nine months ended September 30, 2013 and 2012, respectively.

The above investment properties were categorized under Level 2 fair value hierarchy. There were no transfers between Level 2 and Level 3 fair value hierarchy.

On October 12, 2012, ePLDT, IPVI and IEI entered into a Sale and Purchase Agreement whereby IPVI and IEI sold its 100% ownership in IPCDSI to ePLDT for a purchase price of Php728 million and Php72 million shareholder advances. The purchase price is subject to adjustments as enumerated herein: (a) receivables of Php13 million as specified in the schedule attached to the Sale and Purchase Agreement, provided that IPCDSI shall have collected such receivables, in whole or in part, within six months from October 12, 2012, or Closing Date; and (b) write-off of Philippine peso and U.S. dollar deposits of IPDCI, former parent company of IPCDSI, in Export and Industry Bank, Inc. amounting to Php8 million.

ePLDT shall pay the purchase price as follows: (a) initial payment of Php629 million on Closing Date; (b) retention amount of Php50 million to be remitted by ePLDT on Claim Period Termination Date (first business day after six months from Closing Date) subject to conditions as set forth in the Sale and Purchase Agreement, among which is the claim for deduction from the retention amount due to establishment of undisclosed liabilities or uncollected receivables; and (c) escrow amount of Php100 million deposited with an escrow agent designed by both parties on Closing Date and will be released to relevant party subject to the amount of EBITDA valuation. An additional consideration may be paid by ePLDT if the EBITDA valuation exceeds Php140 million. ePLDT determined that IPCDSI did not exceed Php140 million; thus, ePLDT does not have any contingent liability as at December 31, 2012.

The purchase price, after the adjustments on retention payable and escrow amount, amounted to Php693 million.

IPCDSI owns and operates two internet data centers in the country and provides enterprises with managed data services and cloud-based business solutions across a wide range of industries including IT solutions providers, gaming companies, e-learning and healthcare. IPCDSI is the country’s first and only Salesforce.com Cloud Alliance Partner providing Salesforce CRM licenses and consulting services to businesses. In addition, IPCDSI is also the country’s premier Google Enterprise Partner, allowing local organizations to adopt a cloud computing mindset and to ThinkOutCloud^TM. Our investment in IPCDSI allows us to complete our multi-tiered data center product suite and expand our cloud solutions business. See Note 2 – Summary of Significant Accounting Policies – ePLDT’s Acquisition of IPCDSI.

The purchase price consideration has been allocated to the identifiable assets and liabilities on the basis of fair values at the date of acquisition and the corresponding carrying amounts immediately before the acquisition are as follows:

The net assets acquired at the date of acquisition were based on a final assessment of fair value.

The fair value and gross amount of trade and other receivables amounted to Php159 million and Php196 million, respectively. The amount of allowance for impairment for uncollectible trade and other receivables amounted to Php37 million.

The goodwill of Php533 million pertains to the fair value of IPCDSI’s data center business, which includes operations of data centers, managed data services and cloud-based business solutions across a wide range of industries. The intangible assets of Php2 million pertain to the fair value of IPCDSI’s customer list and licenses.

Our consolidated revenues and net income would have increased by Php228 million and Php24 million, respectively, for the year ended December 31, 2012 had the acquisition of IPCDSI actually taken place on January 1, 2012. Total revenues and net income of IPCDSI included in our consolidated income statement from October 12 to December 31, 2012 amounted to Php206 million and Php32 million, respectively.

Changes in goodwill and intangible assets for the nine months ended September 30, 2013 and for the year ended December 31, 2012 are as follows:


																Intangible Assets
													Total			with Indefinite
	Intangible Assets with Definite Life												Intangible			Life								Total Goodwill
	Customer												Assets with Definite					Total						and
	List			Franchise		Licenses		Spectrum		Others			Life			Trademark		Intangible Assets			Goodwill			Intangible Assets
	(in million pesos)
September 30, 2013 (Unaudited)
Costs:
Balance at beginning of the period		4,726			3,016		135		1,205		1,177			10,259			4,505		14,764			62,939			77,703
Additions during the perod		–			–		801		–		–			801			–		801			–			801
Translation and other adjustments		–			–		–		–		14			14			–		14			–			14
Business combinations (Note 13)		–			–		–		–		–			–			–		–			(41	)		(41	)
Balance at end of the period		4,726			3,016		936		1,205		1,191			11,074			4,505		15,579			62,898			78,477

Accumulated amortization and impairment:
Balance at beginning of the period		722			217		62		669		1,084			2,754			–		2,754			699			3,453
Amortization during the period (Note 3)		387			140		139		60		10			736			–		736			–			736
Translation and other adjustments		–			–		–		–		15			15			–		15			–			15

Balance at end of the period		1,109			357		201		729		1,109			3,505			–		3,505			699			4,204

Net balance at end of the period (Note 3)		3,617			2,659		735		476		82			7,569			4,505		12,074			62,199			74,273

Estimated useful lives (in years)		1 – 9			16		1 – 18		15		1 – 10			–			–		–			–			–
Remaining useful lives (in years)		1 – 7			14		1 – 9		6		2 – 6			–			–		–			–			–

December 31, 2012 (Audited)
Costs:
Balance at beginning of the year		6,231			3,016		120		1,205		1,211			11,783			4,505		16,288			74,322			90,610
Business combinations (Note 13)		1			–		1		–		–			2			–		2			574			576
Noncontrolling interest adjustments (Note 13)		–			–		–		–		–			–			–		–			(919	)		(919	)
Discontinued operations (Note 2)		(1,691	)		–		–		–		(20	)		(1,711	)		–		(1,711	)		(10,097	)		(11,808	)
Translation and other adjustments		185			–		14		–		(14	)		185			–		185			(941	)		(756	)
Balance at end of the year		4,726			3,016		135		1,205		1,177			10,259			4,505		14,764			62,939			77,703

Accumulated amortization and impairment:
Balance at beginning of the year		1,360			–		41		589		1,095			3,085			–		3,085			4,222			7,307
Amortization during the year		778			217		7		80		19			1,101			–		1,101			–			1,101
Discontinued operations (Note 2)		(1,338	)		–		–		–		(19	)		(1,357	)		–		(1,357	)		(3,418	)		(4,775	)
Translation and other adjustments		(78	)		–		14		–		(11	)		(75	)		–		(75	)		(105	)		(180	)

Balance at end of the year		722			217		62		669		1,084			2,754			–		2,754			699			3,453

Net balance at end of the year (Note 3)		4,004			2,799		73		536		93			7,505			4,505		12,010			62,240			74,250

Estimated useful lives (in years)		1 – 9			16		1 – 18		15		1 – 10			–			–		–			–			–
Remaining useful lives (in years)		1 – 8			15		2 – 10		7		2 – 7			–			–		–			–			–

The goodwill and intangible assets of our reportable segments as at September 30, 2013, December 31, 2012 and January 1, 2012 are as follows:

In April 2013, Smart entered into a three-year licensing agreement with MCA Music, Inc., an affiliate of the Universal Music Group, the world’s largest music company with wholly-owned record operations in 77 countries. Smart recognized intangible assets of Php600 million for the license contents and marketing partnership in the Philippines, while amortization amounted to Php100 million for the nine months ended September 30, 2013.

In July 2013, Smart entered into an 18-month licensing agreement with Ivory Music and Video, Inc., a domestic corporation and one of the major labels in the Philippine music industry. Smart recognized intangible assets of Php201 million for the license contents and marketing partnership, while amortization amounted to Php33 million for the nine months ended September 30, 2013.

There were no impairment indicators identified as at September 30, 2013. Annual impairment testing will be performed at year-end.

The consolidated future amortization of intangible assets as at September 30, 2013 is as follows:

The organizational structure of PLDT and its subsidiaries is designed to monitor financial operations based on fixed line and wireless segmentation. Management provides guidelines and decisions on resource allocation, such as continuing or disposing of asset and operations by evaluating the performance of each segment through review and analysis of available financial information on the fixed and wireless segments. As at September 30, 2013, the PLDT Group’s goodwill comprised of goodwill resulting from ePLDT’s acquisition of IPCDSI in 2012, PLDT’s acquisition of Digitel in 2011, ePLDT’s acquisition of ePDS in 2011, Smart’s acquisition of PDSI and Chikka in 2009, CURE in 2008, SBI’s acquisition of a 99.4% equity interest in Airborne Access Corporation, or Airborne Access, from ePLDT in 2008 and Smart’s acquisition of SBI in 2004. The test for recoverability of PLDT’s and Smart’s goodwill was applied to the fixed line and wireless asset group, respectively, which represent the lowest level for which identifiable cash flows are largely independent of the cash inflows from other groups of assets and liabilities.

Although revenue streams may be segregated among the companies within the Group, the cost items and cash flows are difficult to carve out due largely to the significant portion of shared and common used network/platform. In the case of CURE, it provided cellular services to its subscribers using Smart’s 2G network. SBI, on the other hand, provides broadband wireless access to its subscribers using Smart’s cellular base stations and fiber optic and IP backbone, as well as the Worldwide Interoperability for Microwave Access technology of PDSI. The same is true for Sun, wherein Smart 2G/3G network, cellular base stations and fiber optic backbone are shared for areas where Sun has limited connectivity and facilities. On the other hand, PLDT has the largest fixed line network in the Philippines covering 73% of the total cities within the country. PLDT’s transport facilities are installed nationwide to cover both domestic and international IP backbone to route and transmit IP traffic generated by the customers. In the same manner, PLDT has the most Internet Gateway facilities which is composed of high capacity IP routers and switches that serve as the main gateway of the Philippines to the Internet connecting to the World Wide Web. With PLDT’s network coverage, other fixed line subsidiaries shared the same facilities to leverage on a Group perspective.

Given the significant common use of network facilities among fixed and wireless companies within the Group, Management deems that the wireless and fixed line operating segment are the lowest CGU to which goodwill is to be allocated and which are expected to benefit from the synergies.

The recoverable amount of the wireless and fixed line segments had been determined using the value-in-use approach calculated using cash flow projections based on the financial budgets approved by the Board of Directors, covering a three-year period from 2013 to 2015. The pre-tax discount rate applied to cash flow projections is 12% for the wireless and fixed line segments. Cash flows beyond the three-year period are determined using a 2.5% growth rate for the wireless and fixed line segments, which is the same as the long-term average growth rate for the telecommunications industry.

Based on the assessment of the value-in-use of the wireless and fixed line segment, the recoverable amount exceeded the carrying amount of the CGUs, which as a result, no impairment was recognized as at December 31, 2012 in relation to goodwill resulting from the acquisition of IPCDSI, Digitel, ePDS, Chikka, CURE, Airborne Access, PDSI and SBI. Annual impairment testing will be performed at year-end.

As at September 30, 2013, December 31, 2012 and January 1, 2012, this account consists of:

Cash in banks earn interest at prevailing bank deposit rates. Temporary cash investments are made for varying periods of up to three months depending on our immediate cash requirements, and earn interest at the prevailing temporary cash investment rates. Due to the short-term nature of such transactions, the carrying value approximates the fair value of our temporary cash investments. See Note 27 – Financial Assets and Liabilities.

Interest income earned from cash in banks and temporary cash investments amounted to Php633 million and Php949 million for the nine months ended September 30, 2013 and 2012, respectively.

As at September 30, 2013, December 31, 2012 and January 1, 2012, this account consists of receivables from:

Receivables from foreign administrations and domestic carriers represent receivables based on interconnection agreements with other telecommunications carriers. The aforementioned amounts of receivables are shown net of related payable to the same telecommunications carriers where a legal right of offset exists and settlement is facilitated on a net basis.

Receivables from dealers, agents and others consist mainly of receivables from credit card companies, dealers and distributors having collection arrangements with the Group.

Trade receivables are non interest-bearing and are generally on terms of 30 to 180 days.

For terms and conditions relating to related party receivables, see Note 24 – Related Party Transactions.

See Note 24 – Related Party Transactions – Terms and Conditions of Transactions with Related Parties for the summary of transactions with related parties and Note 27 – Financial Assets and Liabilities – Credit Risk on credit risk of trade receivables to understand how we manage and measure credit quality of trade receivables that are neither past due nor impaired.

Changes in the allowance for doubtful accounts for the nine months ended September 30, 2013 and for the year ended December 31, 2012 are as follows:


							Corporate			Foreign						Dealers,
	Total			Retail Subscribers			Subscribers			Administrations			Domestic Carriers			Agents and Others
	(in million pesos)
September 30, 2013 (Unaudited)
Balance at beginning of the period		13,290			6,489			6,137			99			106			459
Provisions (Notes 2, 3, 4 and 5)		1,957			1,380			497			5			14			61
Translation and other adjustments		156			(180	)		342			14			(20	)		–
Write-offs		(935	)		(666	)		(261	)		–			(7	)		(1	)

Balance at end of the period		14,468			7,023			6,715			118			93			519

Individual impairment		8,682			2,018			6,060			118			93			393
Collective impairment		5,786			5,005			655			–			–			126

		14,468			7,023			6,715			118			93			519

Gross amount of receivables individually impaired, before deducting any impairment allowance		8,682			2,018			6,060			118			93			393

December 31, 2012 (Audited)
Balance at beginning of the year		14,772			7,264			6,492			199			111			706
Provisions		2,178			1,404			675			6			7			86
Business combinations and others (Note 13)		36			–			36			–			–			–
Discontinued operations		(118	)		(2	)		(87	)		–			–			(29	)
Write-offs		(3,564	)		(2,700	)		(531	)		(95	)		–			(238	)
Translation and other adjustments		(14	)		523			(448	)		(11	)		(12	)		(66	)

Balance at end of the year		13,290			6,489			6,137			99			106			459

Individual impairment		8,705			2,653			5,514			99			106			333
Collective impairment		4,585			3,836			623			–			–			126

		13,290			6,489			6,137			99			106			459

Gross amount of receivables individually impaired, before deducting any impairment allowance		8,705			2,653			5,514			99			106			333

As at September 30, 2013, December 31, 2012 and January 1, 2012, this account consists of:

The cost of inventories and supplies recognized as expense for the nine months ended September 30, 2013 and 2012 are as follows:

As at September 30, 2013, December 31, 2012 and January 1, 2012, this account consists of:

Prepaid taxes include creditable withholding taxes, input VAT and real property taxes.

Prepaid benefit costs represent excess of fair value of plan assets over present value of defined benefit obligations recognized in our consolidated statements of financial position. See Note 25 – Employee Benefits.

Agreement between PLDT and Smart with Associated Broadcasting Company Development Corporation,
or TV5

In 2010, PLDT and Smart entered into advertising placement agreements with TV5, a subsidiary of MediaQuest, which is a wholly-owned investee company of PLDT Beneficial Trust Fund, or PLDT-BTF, for the airing and telecast of advertisements and commercials of PLDT and Smart on TV5’s television network for a period of five years. The costs of telecast of each advertisement shall be applied and deducted from the placement amount only after the relevant advertisement or commercial is actually aired on TV5’s television network. Total prepayment under the advertising placement agreements amounted to Php893 million each as at September 30, 2013, December 31, 2012 and January 1, 2012. See Note 24 – Related Party Transactions.

PLDT’s number of shares of issued and outstanding capital stock as at September 30, 2013, December 31, 2012 and January 1, 2012 are as follows:

Changes in PLDT’s capital account for the nine months ended September 30, 2013 and for the year ended December 31, 2012 are as follows:

On January 26, 2010, the Board of Directors designated 100,000 shares of preferred stock as Series II 10% Cumulative Convertible Preferred Stock to be issued from January 1, 2010 to December 31, 2012, pursuant to the PLDT Subscriber Investment Plan, or SIP.

The Series HH and II 10% Cumulative Convertible Preferred Stock, or SIP shares, earns cumulative dividends at an annual rate of 10%. After the lapse of one year from the last day of the year of issuance of a particular Series of 10% Cumulative Convertible Preferred Stock, any holder of such series may convert all or any of the shares of 10% Cumulative Convertible Preferred Stock held by him into fully paid and non-assessable shares of Common Stock of PLDT, at a conversion price equivalent to 10% below the average of the high and low daily sales price of a share of Common Stock on the PSE, or if there have been no such sales on the PSE on any day, the average of the bid and the ask prices of a share of Common Stock of PLDT at the end of such day on such Exchange, in each such case averaged over a period of 30 consecutive trading days prior to the conversion date, but in no case shall the conversion price be less than the price set by the Board of Directors which, as at September 30, 2013 was Php5.00 each per share. The number of shares of Common Stock issuable at any time upon conversion of 10% Cumulative Convertible Preferred Stock is determined by dividing Php10.00 by the then applicable conversion price.

In case the shares of Common Stock outstanding are at anytime subdivided into a greater or consolidated into a lesser number of shares, then the minimum conversion price per share of Common Stock will be proportionately decreased or increased, as the case may be, and in the case of a stock dividend, such price will be proportionately decreased, provided, however, that in every case the minimum conversion price shall not be less than the par value per share of Common Stock. In the event the relevant effective date for any such subdivision or consolidation of shares of stock dividend occurs during the period of 30 trading days preceding the presentation of any shares of 10% Cumulative Convertible Preferred Stock for conversion, a similar adjustment will be made in the sales prices applicable to the trading days prior to such effective date utilized in calculating the conversion price of the shares presented for conversion.

In case of any other reclassification or change of outstanding shares of Common Stock, or in case of any consolidation or merger of PLDT with or into another corporation, the Board of Directors shall make such provisions, if any, for adjustment of the minimum conversion price and the sale price utilized in calculating the conversion price as the Board of Directors, in its sole discretion, shall deem appropriate.

At PLDT’s option, the Series HH and II 10% Cumulative Convertible Preferred Stock are redeemable at par value plus accrued dividends five years after the year of issuance.

The Series IV Cumulative Non-Convertible Redeemable Preferred Stock earns cumulative dividends at an annual rate of 13.5% based on the paid-up subscription price. It is redeemable at the option of PLDT any time one year after subscription at the actual amount paid for such stock, plus accrued dividends.

The Non-Voting Serial Preferred Stocks are non-voting, except as specifically provided by law, and are preferred as to liquidation.

All preferred stocks limit the ability of PLDT to pay cash dividends unless all dividends on such preferred stock for all past dividend payment periods have been paid and or declared and set apart and provision has been made for the currently payable dividends.

On June 5, 2012, the Philippine SEC approved the amendments to the Seventh Article of PLDT’s Articles of Incorporation consisting of the sub-classification of its authorized Preferred Capital Stock into: 150 million shares of Voting Preferred Stock with a par value of Php1.00 each, and 807.5 million shares of Non-Voting Serial Preferred Stock with a par value of Php10.00 each, and other conforming amendments, or the Amendments. The shares of Voting Preferred Stock may be issued, owned, or transferred only to or by: (a) a citizen of the Philippines or a domestic partnership or association wholly-owned by citizens of the Philippines; (b) a corporation organized under the laws of the Philippines of which at least 60% of the capital stock entitled to vote is owned and held by citizens of the Philippines and at least 60% of the board of directors of such corporation are citizens of the Philippines; and (c) a trustee of funds for pension or other employee retirement or separation benefits, where the trustee qualifies under paragraphs (a) and (b) above and at least 60% of the funds accrue to the benefit of citizens of the Philippines, or Qualified Owners. The holders of Voting Preferred Stock will have voting rights at any meeting of the stockholders of PLDT for the election of directors and for all other purposes, with one vote in respect of each share of Voting Preferred Stock. The Amendments were approved by the Board of Directors and stockholders of PLDT on July 5, 2011 and March 22, 2012, respectively.

On October 12, 2012, the Board of Directors, pursuant to the authority granted to it in the Seventh Article of PLDT’s Articles of Incorporation, determined the following specific rights, terms and features of the Voting Preferred Stock: (a) entitled to receive cash dividends at the rate of 6.5% per annum, payable before any dividends are paid to the holders of Common Stock; (b) in the event of dissolution or liquidation or winding up of PLDT, holders will be entitled to be paid in full, or pro-rata insofar as the assets of PLDT will permit, the par value of such shares of Voting Preferred Stock and any accrued or unpaid dividends thereon before any distribution shall be made to the holders of shares of Common Stock; (c) redeemable at the option of PLDT; (d) not convertible to Common Stock or to any shares of stock of PLDT of any class; (e) voting rights at any meeting of the stockholders of PLDT for the election of directors and all other matters to be voted upon by the stockholders in any such meetings, with one vote in respect of each Voting Preferred Share; and (f) holders will have no pre-emptive right to subscribe for or purchase any shares of stock of any class, securities or warrants issued, sold or disposed by PLDT.

On October 16, 2012, BTFHI subscribed to 150 million newly issued shares of Voting Preferred Stock, at a subscription price of Php1.00 per share for a total subscription price of Php150 million pursuant to a subscription agreement dated October 15, 2012 between BTFHI and PLDT. As a result of the issuance of Voting Preferred Shares, the voting power of the NTT Group (NTT DOCOMO and NTT Communications), First Pacific Group and its Philippine affiliates, and JG Summit Group was reduced to 12%, 15% and 5%, respectively, as at September 30, 2013. See Note 1 – Corporate Information and Note 26 – Provisions and Contingencies – Matters Relating to the Gamboa Case and the recent Jose M. Roy III Petition.

On September 23, 2011, the Board of Directors approved the redemption, or the Redemption, of all outstanding shares of PLDT’s Series A to FF 10% Cumulative Convertible Preferred Stock, or the SIP Preferred Shares, and all such shares were redeemed and retired effective on January 19, 2012, or the Redemption Date. The record date for the determination of the holders of outstanding SIP Preferred Shares subject to Redemption, or Holders of SIP Preferred Shares, was fixed on October 10, 2011, or the Record Date. In accordance with the terms and conditions of the SIP Preferred Shares, the Holders of SIP Preferred Shares as of the Record Date are entitled to payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to the Redemption Date, or the Redemption Price.

PLDT has set aside Php5.9 billion (the amount required to fund the redemption price for the SIP Preferred Shares) in addition to Php2.3 billion for unclaimed dividends on SIP Preferred Shares, or a total amount of Php8.2 billion, to fund the redemption of the SIP Preferred Shares, or the Redemption Trust Fund, in a trust account, or the Trust Account, in the name of RCBC, as Trustee. Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund or any balance thereof, in trust, for the benefit of Holders of SIP Preferred Shares, for a period of ten years from the Redemption Date, or until January 19, 2022. After the said date, any and all remaining balance in the Trust Account shall be returned to PLDT and revert to its general funds. Any interests on the Redemption Trust Fund shall accrue for the benefit of, and be paid from time to time, to PLDT.

On May 8, 2012, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series GG 10% Cumulative Convertible Preferred Stock and all such shares were redeemed and retired effective on August 30, 2012. The record date for purposes of determining the holders of the outstanding Series GG Shares subject to redemption, or Holders of Series GG Shares, was fixed on May 22, 2012. In accordance with the terms and conditions of the Series GG Shares, the Holders of the Series GG Shares as at May 22, 2012 are entitled to the payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to August 30, 2012, or the Redemption Price of Series GG Shares.

PLDT has set aside Php247 thousand (the amount required to fund the redemption price for the Series GG Shares) in addition to Php63 thousand for unclaimed dividends on Series GG Shares, or a total amount of Php310 thousand, to fund the redemption price for the Series GG Shares, or the Redemption Trust Fund for Series GG Shares, which forms an integral part of the Redemption Trust Fund previously set aside in the trust account with RCBC, as Trustee, for the purpose of funding the payment of the Redemption Price of PLDT Series A to FF 10% Cumulative Convertible Preferred Stock.

As at January 19, 2012 and August 30, 2012, notwithstanding that any stock certificate representing the Series A to FF 10% Cumulative Convertible Preferred Stock and Series GG 10% Cumulative Convertible Preferred Stock, respectively, were not surrendered for cancellation, the Series A to FF 10% Cumulative Convertible Preferred Stock and Series GG 10% Cumulative Convertible Preferred Stock were no longer deemed outstanding and the right of the holders of such shares to receive dividends thereon ceased to accrue and all rights with respect to such shares ceased and terminated, except only the right to receive the Redemption Price of such shares, but without interest thereon.

A total amount of Php333 million was withdrawn from the Trust Account, representing total payments on redemption as at September 30, 2013. The balance of the Trust Account of Php7,961 million was presented as part of the current portion of advances and other noncurrent assets and the related redemption liability of the same amount was presented as part of accrued expenses and other current liabilities in our statement of financial position as at September 30, 2013. See Note 23 – Accrued Expenses and Other Current Liabilities and Note 27 – Financial Assets and Liabilities.

On January 29, 2013, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series HH 10% Cumulative Convertible Preferred Stock which were issued in 2007 effective on May 16, 2013. The record date for purpose of determining the holders of the outstanding Series HH shares issued in 2007 subject to redemption, or Holder of Series HH Shares issued in 2007, was fixed on February 14, 2013. In accordance with the terms and conditions of Series HH Shares issued in 2007, the Holders of Series HH Shares issued in 2007 as at February 14, 2013 are entitled to the payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to May 16, 2013, or the Redemption Price of Series HH Shares issued in 2007.

PLDT expects to similarly redeem the outstanding shares of Series HH 10% Cumulative Convertible Preferred Stock which were issued in 2008 and Series II 10% Cumulative Convertible Preferred Stock as and when they become eligible for redemption.

The Board of Directors approved a share buyback program of up to five million shares of PLDT’s common stock, representing approximately 3% of PLDT’s then total outstanding shares of common stock in 2008. The share buyback program reflects PLDT’s commitment to capital management as an important element in enhancing shareholders value. This also reinforces initiatives that PLDT has already undertaken, such as the declaration of special dividends on common stock in addition to the regular dividend payout equivalent to 70% of our core EPS, after having determined that PLDT has the capacity to pay additional returns to shareholders. Under the share buyback program, PLDT reacquired shares on an opportunistic basis, directly from the open market through the trading facilities of the PSE and NYSE.

We had acquired a total of approximately 2.72 million shares of PLDT’s common stock at a weighted average price of Php2,388 per share for a total consideration of Php6,505 million in accordance with the share buyback program as at September 30, 2013, December 31, 2012 and January 1, 2012.

On November 9, 2011, the PSE approved the listing of the additional 27.7 million common shares of PLDT, which were issued on October 26, 2011 at the issue price of Php2,500 per share, as consideration for the acquisition by PLDT of the Enterprise Assets of Digitel.

On January 27, 2012, a total of 1.61 million PLDT common shares were issued for settlement of the purchase price of 2,518 million common shares of Digitel tendered by the noncontrolling Digitel stockholders under the mandatory tender offer conducted by PLDT, and which opted to receive payment of the purchase price in the form of PLDT common shares.

On April 23, 2013 and June 14, 2013, the Board of Directors and stockholders, respectively, approved the following actions: (1) decrease in PLDT’s authorized capital stock from Php9,395 million divided into two classes consisting of: (a) Preferred Capital Stock sub-classified into 150 million shares of Voting Preferred Stock of the par value of Php1.00 each and 807.5 million shares of Non-Voting Serial Preferred Stock of the par value of Php10.00 each; and (b) 234 million shares of Common Capital Stock of the par value of Php5.00 each, to Php5,195 million, divided into two classes consisting of: (a) Preferred Capital Stock sub-classified into: 150 million shares of Voting Preferred Stock of the par value of Php1.00 each and 387.5 million shares of Non-Voting Serial Preferred Stock of the par value of Php10.00 each; and (b) 234 million shares of Common Capital Stock of the par value of Php5.00 each; and (2) corresponding amendments to the Seventh Article of the Articles of Incorporation of PLDT. On October 3, 2013, the Philippine SEC approved the decrease in authorized capital stock and amendments to the Articles of Incorporation of PLDT.

Our dividends declared for the nine months ended September 30, 2013 and 2012 are detailed as follows:

The following table shows the reconciliation of our retained earnings available for dividend declaration as at September 30, 2013:


	(in million pesos)
Consolidated unappropriated retained earnings as at December 31, 2012 (As Adjusted – Note 2)		25,416
Effect of PAS 27 Adjustments		2,914

Parent Company’s unappropriated retained earnings at beginning of the period (As Adjusted – Note 2)		28,330
Less: Cumulative unrealized income – net of tax:
Fair value adjustments of investment property resulting to gain		(535	)
Unrealized foreign exchange gains – net (except those attributable to cash and cash equivalents)		(1,096	)
Fair value adjustments (mark-to-market gains)		(1,132	)

Unappropriated retained earnings as adjusted at beginning of the period		25,567

Parent Company’s net income attributable to equity holder of PLDT for the nine months ended September 30, 2013		16,385
Less: Unrealized income – net of tax during the period:
Fair value adjustments (mark-to-market gains)		(359	)
		16,026

Realized income during the period
Realized foreign exchange gains		307
Cash dividends declared during the period
Preferred stocks		(45	)
Common stocks		(37,809	)
		(37,854	)

Parent Company’s unappropriated retained earnings available for dividends as at September 30, 2013 (Unaudited)		4,046

As at September 30, 2013, the consolidated unappropriated retained earnings amounted to Php16,516 million while the Parent Company’s unappropriated retained earnings amounted to Php6,860 million. The difference of Php9,656 million pertains to the accumulated gains of consolidated subsidiaries, associates and joint ventures accounted for under the equity method.

As at September 30, 2013, December 31, 2012 and January 1, 2012, this account consists of the following:

Unamortized debt discount, representing debt issuance costs and any difference between the fair value of consideration given or received at initial recognition, included in the financial liabilities as at September 30, 2013, December 31, 2012 and January 1, 2012 are as follows:

The following table describes all changes to unamortized debt discount for the nine months ended September 30, 2013 and for the year ended December 31, 2012.

As at September 30, 2013, December 31, 2012 and January 1, 2012, long-term debt consists of:


		September 30, 2013			December 31, 2012				January 1, 2012
Description	Interest Rates	(Unaudited)			(Audited)
					(in millions)
U.S. Dollar Debts:
Export Credit Agencies-Supported Loans:
China Export and Credit Insurance Corporation, or Sinosure	US$ LIBOR + 0.55% to 1.80% in 2013 and 2012	US$133	Php5,804		US$	204	Php8,363		US$	248	Php10,879
Exportkreditnamnden, or EKN	1.90% to 3.79% and LIBOR + 0.30% to 0.35% in 2013 and 2012	US$98	4,259		104		4,253		102		4,483
EKN and AB Svensk Exportkredit, or SEK	3.9550% in 2013 and 2012	59	2,571		67		2,771		79		3,475
Finnvera, Plc, or Finnvera	2.99% and US$ LIBOR + 1.35% in 2013 and 2012	30	1,289		44		1,813		63		2,775
Others	US$ LIBOR + 0.35% to 0.40% in 2013 and 2012	1	34		2		101		6		256

		321		13,957		421		17,301		498		21,868
Fixed Rate Notes	8.35% in 2013 and 8.35% to 11.375% in 2012	233	10,130		232		9,544		377		16,567
Term Loans:
Debt Exchange Facility	2.25% in 2013 and 2012	–		–		254		10,450		238		10,472
GSM Network Expansion Facilities	US$ LIBOR + 0.42% to 1.85% in 2013 and 2012	131	5,713		172		7,041		50		2,201
Others	US$ LIBOR + 0.42% to 1.90% in 2013 and 2012	685	29,833		194		7,962		51		2,222

		US$1,370	Php59,633		US$	1,273	Php52,298		US$	1,214	Php53,330

Philippine Peso Debts:
Corporate Notes	5.3300% to 7.7946% in 2013 and 5.3300% to 9.1038% in 2012		Php29,900				Php40,006				Php38,510
Term Loans:
Unsecured Term Loans	3.9250% to 7.4292%, PDST-F + 0.30% and BSP overnight rate + 0.30% to 0.50% in 2013 and 4.9110% to 8.6271%, PDST-F + 0.30% and BSP overnight rate + 0.30% to 0.50% in 2012		19,920				23,488				22,277
Secured Term Loans	PDST-F + 1.375% in 2012			–				–				49

				49,820				63,494				60,836

Total long-term debt				109,453				115,792				114,166
Less portion maturing within one year (Note 27)				14,252				12,981				22,893

Noncurrent portion of long-term (Note 27)			Php95,201				Php102,811				Php91,273

Note: Amounts presented are net of unamortized debt discount and debt issuance costs.

The scheduled maturities of our consolidated outstanding long-term debt at nominal values as at September 30, 2013 are as follows:

In order to acquire imported components for our network infrastructure in connection with our expansion and service improvement programs, we obtained loans extended and/or guaranteed by various export credit agencies.

On December 1, 2005, DMPI signed a US$23.6 million Export Credit Agreement with Societe Generale and Credit Agricole Corporate and Investment Bank (formerly Calyon) as the lenders, to finance the supply of the equipment, software, and offshore services for the GSM 1800 in the National Capital Region, or NCR. The loan is covered by a guarantee from China Export and Credit Insurance Corporation, or Sinosure, the export-credit agency of China. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on December 1, 2013. The loan was fully drawn on various dates in 2005, 2006 and 2007. The amounts of US$2 million, or Php73 million, US$3 million, or Php138 million, and US$7 million, or Php296 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On May 4, 2006, DMPI signed a US$12.7 million Export Credit Agreement with the Societe Generale and Calyon as the lenders, to finance the supply of the equipment and software for the expansion of its GSM services in the NCR. The loan is covered by a guarantee from Sinosure. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on October 6, 2014. The loan was drawn on various dates in 2007 and 2008 in the total amount of US$12.2 million. The undrawn amount of US$0.5 million was cancelled. The amounts of US$3 million, or Php114 million, US$4 million, or Php143 million, and US$5 million, or Php229 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On June 1, 2006, DMPI signed a US$12 million Buyer’s Credit Agreement with ING Bank N.V., or ING Bank, as the lender, to finance the equipment and service contracts for the upgrading of GSM Phase 5 Core Intelligent Network Project. The loan is covered by a guarantee from Sinosure. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on June 1, 2014. The loan was drawn in 2006 and 2007 in the amounts of US$8 million and US$2 million, respectively. The undrawn amount of US$2 million was cancelled. The amounts of US$1 million, or Php61 million, US$2 million, or Php86 million, and US$4 million, or Php153 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On May 24, 2007, DMPI signed a US$21 million Buyer’s Credit Agreement with ING Bank as the lender, to finance the equipment for the Phase 6 South Luzon Change Out and Expansion Project. The loan is covered by a guarantee from Sinosure. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on May 24, 2015. The loan was drawn on various dates in 2008 in the total amount of US$20.8 million. The undrawn amount of US$0.2 million was cancelled. The amounts of US$6 million, or Php259 million, US$7 million, or Php305 million, and US$10 million, or Php457 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On May 24, 2007, DMPI signed a US$12.1 million Buyer’s Credit Agreement with ING Bank as the lender, to finance the equipment for the Phase 6 NCR Expansion Project. The loan is covered by a guarantee from Sinosure. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on May 24, 2015. The loan was fully drawn on various dates in 2008. The amounts of US$3 million, or Php150 million, US$4 million, or Php178 million, and US$6 million, or Php266 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On November 10, 2008, DMPI signed a US$23.8 million Buyer’s Credit Agreement with ING Bank as the lender, to finance the equipment and service contracts for the Phase 7 Core Expansion Project. The loan is covered by a guarantee from Sinosure. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on September 1, 2016. The loan was fully drawn on various dates in 2008 and 2009. The amounts of US$10 million, or Php444 million, US$14 million, or Php558 million, and US$17 million, or Php746 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On November 10, 2008, DMPI signed a US$5.5 million Buyer’s Credit Agreement with ING Bank as the lender, to finance the equipment and service contracts for the supply of 3G network in the NCR. The loan is covered by a guarantee from Sinosure. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on September 1, 2016. The loan was fully drawn on various dates in 2008 and 2009. The amounts of US$2 million, or Php103 million, US$3 million, or Php129 million, and US$4 million, or Php172 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On November 10, 2008, DMPI signed a US$4.9 million Buyer’s Credit Agreement with ING Bank as the lender, to finance the equipment and service contracts for the Phase 7 Intelligent Network Expansion Project. The loan is covered by a guarantee from Sinosure. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on September 1, 2016. The loan was fully drawn on various dates in 2008 and 2009. The amounts of US$2 million, or Php92 million, US$3 million, or Php116 million, and US$4 million, or Php155 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On August 14, 2009, DMPI signed a US$24.7 million loan agreement with Credit Suisse as the lead arranger, to finance the supply of telephone equipment for the Phase 7 NCR Base Station Expansion. The loan is covered by a guarantee from Sinosure. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on August 14, 2017. The loan was fully drawn on various dates in 2009 and 2010. The amounts of US$18 million, or Php725 million, and US$21 million, or Php930 million, remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The loan was prepaid in full on February 14, 2013.

On August 14, 2009, DMPI signed a US$15.9 million loan agreement with The Hong Kong and Shanghai Banking Corporation Limited, or HSBC, as the lender, to finance the supply of telephone equipment for the Phase 7 South Luzon Base Station Expansion. The loan is covered by a guarantee from Sinosure. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on August 14, 2017. The loan was drawn in 2009 and 2010 in the amounts of US$14.1 million and US$1.4 million, respectively. The undrawn amount of US$0.4 million was cancelled. The amounts of US$11 million, or Php453 million, and US$13 million, or Php581 million, remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The loan was prepaid in full on February 14, 2013.

On December 16, 2009, DMPI signed a US$50 million Buyer’s Credit Agreement with China Citic Bank Corporation Ltd., or China CITIC Bank, as the original lender, to finance the equipment and related materials for the Phase 2 3G Expansion and Phase 8A NCR and South Luzon BSS Expansion Projects. The loan is covered by a guarantee from Sinosure. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on December 17, 2017. The loan was drawn on various dates in 2010 in the total amount of US$48 million. The undrawn amount of US$2 million was cancelled. On December 9, 2011, China CITIC Bank and ING Bank signed a Transfer Certificate and Assignment of Guarantee whereby ING Bank took over the debt under the Buyers Credit Agreement. The assignment of debt was completed on December 16, 2011. The amounts of US$31 million, or Php1,328 million, US$34 million, or Php1,392 million, and US$41 million, or Php1,786 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On September 15, 2010, DMPI signed a US$117.3 million loan agreement with China Development Bank and HSBC as the lenders, to finance the purchase of equipment and related materials for the expansion of:
(1) Phase 8A and 8B Core and IN; (2) Phase 3 3G; and (3) Phase 8B NCR and SLZ BSS. The loan is covered by a guarantee from Sinosure. The loan is payable over seven and a half years in 15 equal semi-annual installments, with final installment on April 10, 2019. The loan was drawn on various dates in 2011 in the total amount of US$116.3 million. The undrawn amount of US$1 million was cancelled. The amounts of US$73 million, or Php3,180 million, US$101 million, or Php4,140 million, and US$116 million, or Php5,108 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On April 4, 2006, DMPI signed a US$18.7 million loan agreement with Nordea Bank AB (publ), or Nordea Bank, as the lender, to finance the supply of GSM mobile telephone equipment and related services. The loan is covered by a guarantee from EKN, the export-credit agency of Sweden. The loan is payable over nine years in 18 equal semi-annual installments, with final installment on April 30, 2015. The loan was fully drawn on various dates in 2006 and 2007. The amounts of US$4 million, or Php187 million, US$5 million, or Php220 million, and US$7 million, or Php329 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On December 20, 2006, DMPI signed a US$43.2 million Buyer’s Credit Agreement with ING Bank as the lender, to finance the equipment and service contracts for the GSM Expansion in Visayas and Mindanao. The loan is covered by a guarantee from EKN. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on May 30, 2014. The loan was drawn on various dates in 2007 and 2008 in the total amount of US$42.9 million. The undrawn amount of US$0.3 million was cancelled. The amounts of US$6 million, or Php277 million, US$10 million, or Php393 million, and US$16 million, or Php700 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On December 17, 2007, DMPI signed a US$59.2 million Buyer’s Credit Agreement with ING Bank, Societe Generale and Calyon as the lenders, to finance the equipment and service contracts for the Phase 7 North Luzon Expansion and Change-out Project. The loan is covered by a guarantee from EKN. The loan is payable over nine years in 18 equal semi-annual installments, with final installment on March 30, 2017. The loan was drawn on various dates in 2008 and 2009 in the total amount of US$59 million. The undrawn amount of US$0.2 million was cancelled. The amounts of US$24 million, or Php1,029 million, US$31 million, or Php1,248 million, and US$38 million, or Php1,631 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments.

On December 17, 2007, DMPI signed a US$51.2 million Buyer’s Credit Agreement with ING Bank, Societe Generale and Calyon as the lenders, to finance the equipment and service contracts for the Phase 7 Expansion Project in Visayas and Mindanao. The loan is covered by a guarantee from EKN. The loan is payable over nine years in 18 equal semi-annual installments, with final installment on June 30, 2017. The loan was drawn on various dates in 2008 and 2009 in the total amount of US$51.1 million. The undrawn amount of US$0.1 million was cancelled. The amounts of US$24 million, or Php1,021 million, US$26 million, or Php1,084 million, and US$32 million, or Php1,416 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments.

On November 25, 2008, Smart signed a US$22 million term loan facility agreement with Nordea Bank as the original lender, arranger and facility agent and subsequently assigned its rights and obligations to the AB Svensk Exportkredit (Swedish Export Credit Corporation), or SEK, supported by EKN on December 10, 2008, to finance the supply, installation, commissioning and testing of Wireless-Code Division Multiple Access, or W-CDMA/High Speed Packet Access project. The loan is payable over five years in ten equal semi-annual installments, with final installment on December 10, 2013. The loan was fully drawn on various dates in 2008 and 2009. The amounts of US$2 million, or Php104 million, US$5 million, or Php195 million, and US$9 million, or Php414 million, net of unamortized debt discount, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On June 10, 2011, Smart signed a US$49 million term loan facility agreement with Nordea Bank as the original lender, arranger and facility agent, to finance the supply and services contracts for the modernization and expansion project. On July 5, 2011, Nordea Bank assigned its rights and obligations to the SEK guaranteed by EKN. The loan is comprised of Tranche A1, Tranche A2 and Tranche B in the amounts of US$24 million, US$24 million and US$1 million, respectively. The loan is payable over five years in ten equal semi-annual installments, with final installment on December 29, 2016 for Tranche A1 and B and October 30, 2017 for Tranche A2. The loan was drawn on various dates in 2012 in the total amount of US$33 million (US$24 million for Tranche A1, US$8 million for Tranche A2 and US$1 million for Tranche B) and the remaining balance of US$16 million for Tranche A2 was drawn on February 21, 2013. The aggregate amounts of US$38 million, or Php1,654 million, and US$27 million, or Php1,113 million, net of unamortized debt discount, remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On April 28, 2009, DMPI signed a US$96.6 million loan agreement with Nordea Bank and ING Bank as the lenders, to finance the supply of GSM mobile telephone equipment and related services. The loan is comprised of Tranche 1 and Tranche 2 in the amounts of US$43 million and US$53.6 million, respectively. The loan is covered by a guarantee from EKN and SEK, the export-credit agency of Sweden. Both tranches are payable over eight and a half years in 17 equal semi-annual installments, with final installment on February 28, 2018 for Tranche 1 and November 30, 2018 for Tranche 2. Tranches 1 and 2 were fully drawn on various dates in 2009, 2010 and 2011. The aggregate amounts of US$59 million, or Php2,571 million, US$67 million, or Php2,771 million, and US$79 million, or Php3,475 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On May 14, 2009, Smart signed a US$50 million term loan facility agreement with Finnish Export Credit, Plc, or FEC, guaranteed by Finnvera, the Finnish Export Credit Agency, and awarded to Calyon as the arranger, to finance the Phase 10 (Extension) GSM equipment and services contract. The loan is payable over five years in ten equal semi-annual installments, with final installment on July 15, 2014. The loan was fully drawn on July 15, 2009. The amounts of US$10 million, or Php432 million, US$20 million, or Php811 million, and US$29 million, or Php1,290 million, net of unamortized debt discount, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On October 9, 2009, Smart signed a US$50 million term loan facility agreement with FEC guaranteed by Finnvera for 100% political and commercial risk cover to finance GSM equipment and services contracts. The loan was awarded to Citicorp as the arranger which was subsequently transferred to ANZ on January 4, 2011. The loan is payable over five years in ten equal semi-annual installments, with final installment on April 7, 2015. The loan was fully drawn on April 7, 2010. The amounts of US$20 million, or Php857 million, US$24 million, or Php1,002 million, and US$34 million, or Php1,485 million, net of unamortized debt discount, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On August 18, 2005, DMPI signed a US$19 million Export Credit Agreement with ING Bank, Societe Generale and Calyon as the lenders, to finance the supply of telecommunications materials, software, and services for the GSM Cellular Mobile Short Term Core Expansion Project. The loan is covered by a guarantee from COFACE, the export-credit agency of France. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on February 8, 2013. The loan was drawn on various dates in 2005 and 2006 in the total amount of US$18.2 million. The undrawn amount of US$0.8 million was cancelled. The amount of US$1 million, or Php53 million, and US$4 million, or Php171 million, remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The loan was paid in full on February 8, 2013.

On July 3, 2006, DMPI signed a US$6 million Buyer’s Credit Agreement with ING Bank as the lender, to finance the equipment and service contracts for the Phase 5 Mobile Messaging Core Network. The loan is covered by a guarantee from Atradius, the export-credit agency of Amsterdam, the Netherlands. The loan is payable over seven years in 14 equal semi-annual installments, with final installment on June 27, 2014. The loan was drawn in 2006 and 2007 in the total amount of US$5.4 million. The undrawn amount of US$0.6 million was cancelled. The amounts of US$1 million, or Php34 million, US$1 million, or Php48 million, and US$2 million, or Php85 million, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On March 6, 1997, PLDT issued a US$300 million 20-year non-amortizing fixed rate note with a coupon rate of 8.350% under the Indenture dated April 19, 1996 between PLDT and Deutsche Bank Trust Company Americas (formerly Bankers Trust Company) as trustee (“2017 Notes”). Proceeds from the issuance of these notes were used to finance service improvements and expansion programs. The 2017 Notes will mature on March 6, 2017. On various dates in 2008 to 2010, PLDT repurchased the 2017 Notes from the secondary market in the aggregate amount of US$65.7 million. The amounts of US$233 million, or Php10,130 million, US$232 million, or Php9,544 million, and US$232 million, or Php10,189 million, net of unamortized debt discount, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments.

On May 15, 2002, PLDT issued a US$250 million ten-year non-amortizing fixed rate note with a coupon rate of 11.375% under the Indenture dated April 1, 1994 between PLDT and JP Morgan Chase Bank (formerly The Chase Manhattan Bank (National Association)) as trustee (“2012 Notes”). Proceeds from the issuance of these notes were used to refinance existing short-term and medium-term debts maturing up to 2005. On various dates in 2008 and 2009, PLDT repurchased the 2012 Notes from the secondary market in the aggregate amount of US$104.2 million. The amounts of US$145 million, or Php6,378 million, remained outstanding as at January 1, 2012. The 2012 Notes was paid in full on maturity date on May 15, 2012. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments.

On July 2, 2004, Smart acquired from PCEV’s creditors approximately US$289 million, or 69.4%, of the aggregate of PCEV’s outstanding restructured debt at that time, in exchange for debt and a cash payment by Smart. In particular, Smart paid cash amounting to US$1.5 million, or Php84 million and issued new debt of US$283.2 million, or Php15,854 million, at fair value of Php8,390 million, net of unamortized debt discount amounting to Php7,464 million. The loan is payable in full upon maturity on June 30, 2014. The amounts of US$254 million, or Php10,450 million, and US$238 million, or Php10,472 million, net of unamortized debt discount, remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The loan was prepaid in full on September 27 and September 30, 2013 and the remaining debt discount of US$13 million, or Php731 million, was amortized in full in September 2013.

On October 16, 2006, Smart signed a US$50 million term loan facility agreement with Metropolitan Bank and Trust Company, or Metrobank, to finance the related Phase 9 GSM facility. The loan is payable over five years in 18 equal quarterly installments commencing on the third quarter from initial drawdown date, with final installment on October 10, 2012. The loan was fully drawn on October 10, 2007. The amount of US$11 million, or Php488 million, remained outstanding as at January 1, 2012. The loan was paid in full on October 10, 2012.

On October 10, 2007, Smart signed a US$50 million term loan facility agreement with Norddeutsche Landesbank Girozentrale Singapore Branch, or Nord LB, as the lender with Standard Chartered Bank (Hong Kong) Ltd., or Standard Chartered, as the facility agent, to finance the related Phase 10 GSM equipment and service contracts. The loan is payable over five years in ten equal semi-annual payments, with final installment on March 11, 2013. The loan was fully drawn on March 10, 2008. The amounts of US$5 million, or Php205 million, and US$15 million, or Php657 million, net of unamortized debt discount, remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The loan was paid in full on March 11, 2013.

On November 27, 2008, Smart signed a US$50 million term loan facility agreement with FEC to finance the Phase 10 GSM equipment and service contracts. The loan was awarded to ABN AMRO Bank N.V., Australia and New Zealand Banking Group Limited, Standard Chartered, Mizuho Corporate Bank Ltd. as the lead arrangers. The loan is payable over five years in ten equal semi-annual installments, with final installment on January 23, 2014. The loan was fully drawn on various dates in 2009. The amounts of US$5 million, or Php217 million, US$15 million, or Php614 million, and US$25 million, or Php1,090 million, net of unamortized debt discount, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On June 6, 2011, Smart signed a US$60 million term loan facility agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd. as the lender, to finance the equipment and service contracts for the modernization and expansion project. The loan is payable over five years in eight equal semi-annual installments commencing on the18th month from signing date, with final installment on June 6, 2016. The loan was fully drawn on various dates in 2012. The amounts of US$45 million, or Php1,959 million, and US$53 million, or Php2,157 million, remained outstanding as at September 30, 2013 and December 31, 2012, respectively. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments.

On August 19, 2011, Smart signed a US$50 million term loan facility agreement with FEC as the lender, to finance the supply contracts for the modernization and expansion project. The loan was arranged by The Bank of Tokyo-Mitsubishi UFJ, Ltd., HSBC and Mizuho Corporate Bank, Ltd. The loan is payable over five years in ten equal semi-annual installments commencing six months after August 19, 2012, with final installment on August 19, 2016. The loan was fully drawn on various dates in 2012. The amounts of US$37 million, or Php1,623 million, and US$50 million, or Php2,040 million, net of unamortized debt discount, remained outstanding as at September 30, 2013 and December 31, 2012, respectively. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments.

On May 29, 2012, Smart signed a US$50 million term loan facility agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd. as the lender, to finance the equipment and service contracts for the modernization and expansion project. The loan is payable over five years in nine equal semi-annual installments commencing on May 29, 2013, with final installment on May 29, 2017. The loan was fully drawn on various dates in 2012. The amounts of US$44 million, or Php1,914 million, and US$49 million, or Php2,025 million, net of unamortized debt discount, remained outstanding as at September 30, 2013 and December 31, 2012, respectively. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments.

On January 15, 2008, PLDT signed a US$100 million term loan facility agreement with Nord LB to be used for its capital expenditure requirements. The loan is payable over five years in ten equal semi-annual installments. Two separate drawdowns of US$50 million each were drawn from the facility on March 27, 2008 and April 10, 2008. The amounts of US$10 million, or Php411 million, and US$30 million, or Php1,318 million, remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The loan was paid in full on March 27, 2013.

On July 15, 2008, PLDT signed a US$50 million term loan facility agreement with the Bank of the Philippine Islands, or BPI, to refinance its loan obligations which were utilized for service improvements and expansion programs. The loan is payable over five years in 17 equal quarterly installments commencing on the fourth quarter from initial drawdown date, with final installment on July 22, 2013. The loan was fully drawn on various dates in 2008. The amounts of US$9 million, or Php362 million, and US$21 million, or Php904 million, remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The loan was paid in full on July 22, 2013.

On March 7, 2012, PLDT signed a US$150 million term loan facility agreement with a syndicate of banks with The Bank of Tokyo-Mitsubishi UFJ, Ltd., as the facility agent, to finance capital expenditures and/or to refinance existing loan obligations which were utilized for network expansion and improvement programs. The loan is payable over five years in nine equal semi-annual installments commencing on the date which falls 12 months after the date of the loan agreement, with final installment on March 7, 2017. Two separate drawdowns of US$100 million and US$50 million were drawn on May 10, 2012 and September 4, 2012, respectively. The amounts of US$117 million, or Php5,080 million, and US$150 million, or Php6,162 million, remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On March 16, 2012, PLDT signed a US$25 million term loan facility agreement with Citibank, N.A. Manila to refinance loan obligations which were utilized for service improvements and expansion programs. The loan is payable over five years in 17 equal quarterly installments commencing 12 months from initial drawdown date, with final installment on May 30, 2017. The loan was fully drawn on May 29, 2012. The amounts of US$22 million, or Php960 million, and US$25 million, or Php1,027 million, remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On March 23, 2012, SPi signed a US$15 million term loan facility agreement with Security Bank to finance working capital requirements. The loan is payable over five years in 19 quarterly installments commencing on September 24, 2012, with final installment on March 27, 2017. The loan was fully drawn on March 26, 2012. The amounts of US$13 million, or Php551 million, has been presented as part of interest-bearing financial liabilities under liabilities directly associated with assets classified as held-for-sale as at December 31, 2012. The loan was prepaid in full on April 24, 2013. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations.

On January 16, 2013, PLDT signed a US$300 million term loan facility agreement with a syndicate of banks with The Bank of Tokyo-Mitsubishi UFJ, Ltd., as the facility agent, to finance capital expenditures and/or to refinance existing obligations which were utilized for network expansion and improvement programs. The loan is payable over five years in nine equal semi-annual installments commencing on the date which falls 12 months after the date of the loan agreement, with final installment on January 16, 2018. The amounts of US$40 million, US$160 million and US$100 million were drawn on March 6, 2013, April 19, 2013 and July 3, 2013, respectively. The amount of US$300 million, or Php13,063 million, remained outstanding as at September 30, 2013. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments.

On January 28, 2013, Smart signed a US$35 million term loan facility agreement with China Banking Corporation to finance the equipment and service contracts for the modernization and expansion project. The loan is payable over five years in ten equal semi-annual installments. The loan was fully drawn on May 7, 2013. The amount of US$31 million, or Php1,371 million, remained outstanding as at September 30, 2013.

On March 25, 2013, Smart signed a US$50 million term loan facility agreement with FEC as the original lender, to finance the supply and services contracts for the modernization and expansion project. The loan was arranged by the Bank of Tokyo-Mitsubishi UFJ, Ltd. and Mizuho Corporate Bank, Ltd. The loan is payable over five years in nine equal semi-annual installments commencing six months after drawdown date. The loan was partially drawn on September 16, 2013. The amount of US$17 million, or Php747 million, net of unamortized debt discount, remained outstanding as at September 30, 2013.

On May 31, 2013, Smart signed a US$80 million term loan facility agreement with China Banking Corporation to refinance existing loan obligations which were utilized for network expansion and improvement program of Smart. The loan is payable over five years in ten equal semi-annual installments commencing six months after drawdown date, with final installment on May 31, 2018. The loan was fully drawn on September 25, 2013. The amount of US$80 million, or Php3,483 million, remained outstanding as at September 30, 2013.

On June 20, 2013, Smart signed a US$120 million term loan facility agreement with Mizuho Corporate Bank, Ltd. and Sumitomo Mitsui Banking Corporation, as the lead arrangers and creditors with Sumitomo Mitsui Banking Corporation, as the facility agent. Proceeds of the facility will be used to refinance existing loan obligations which were utilized for network expansion and improvement program of Smart. The loan is payable over five years in eight equal semi-annual installments commencing six months after drawdown date, with final installment on June 20, 2018. The loan was fully drawn on September 25, 2013. The amount of US$118 million, or Php5,129 million, net of unamortized debt discount, remained outstanding as at September 30, 2013. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments.

On February 15, 2007, Smart issued Php5,000 million fixed rate corporate notes, comprised of Series A five-year notes amounting to Php3,800 million and Series B ten-year notes amounting to Php1,200 million. Proceeds from the issuance of these notes were used to finance the capital expenditures for network improvement and expansion program of Smart. The Series A note of Php3,800 million was paid in full on February 16, 2012. The amount of Php1,140 million, Php1,152 million and Php4,963 million remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On December 12, 2008, Smart issued Php5,000 million unsecured fixed rate corporate notes. Proceeds from the issuance of these notes were used primarily to finance the capital expenditures for network upgrade and expansion program of Smart. The notes are payable over five years with an annual amortization rate of 1% of the principal amount on the first year up to the fourth year from issue date and the balance payable upon maturity on December 13, 2013. The amount of Php4,827 million, net of unamortized debt discount, remained outstanding as at January 1, 2012 and was paid in full on March 12, 2012.

On February 20, 2009, PLDT issued Php5,000 million fixed rate corporate notes under a Notes Facility Agreement dated February 18, 2009, comprised of Series A five-year notes amounting to Php2,390 million, Series B seven-year notes amounting to Php100 million, and Series C ten-year notes amounting to Php2,510 million. Proceeds from the issuance of these notes were used to finance capital expenditures of PLDT. The Series A notes are payable over five years with an annual amortization rate of 1% of the issue price on the first year up to the fourth year from issue date and the balance payable upon maturity on February 21, 2014. The Series B notes are payable over seven years with an amortization rate of 1% of the issue price on the fifth year and sixth year from issue date and the balance payable upon maturity on February 22, 2016. The Series C notes are payable over ten years with an amortization rate of 1% of the issue price on the fifth year up to the ninth year from issue date and the balance payable upon maturity on February 20, 2019. The aggregate amount of Php4,952 million remained outstanding as at January 1, 2012. The notes were prepaid in full on November 20, 2012.

On December 10, 2009, PLDT issued Php7,000 million fixed rate corporate notes under a Notes Facility Agreement dated December 8, 2009, comprised of Series A five-year notes amounting to Php5,050 million, Series B seven-year notes amounting to Php850 million, and Series C ten-year notes amounting to Php1,100 million. Proceeds from the issuance of these notes were used to finance capital expenditures and/or to refinance existing loan obligations which were utilized for network expansion and improvement. The Series A notes are payable over five years with an annual amortization rate of 2% of the issue price on the first year up to the fourth year from issue date and the balance payable upon maturity on March 10, 2015. The Series B notes are payable over seven years with an annual amortization rate of 1% of the issue price on the first year up to the sixth year from issue date and the balance payable upon maturity on December 12, 2016. The Series C notes are payable in full upon maturity on December 10, 2019. The aggregate amount of Php6,781 million remained outstanding as at January 1, 2012. The notes were prepaid in full on December 10, 2012.

On July 13, 2010, PLDT issued Php2,500 million five-year fixed rate corporate notes under a Notes Facility Agreement dated July 12, 2010. Proceeds from the issuance of these notes were used to finance capital expenditures and/or to refinance existing loan obligations which were utilized for network expansion and improvement. The notes are non-amortizing and will mature on July 13, 2015. The amount of Php2,500 million each remained outstanding as at December 31, 2012 and January 1, 2012. The notes were prepaid in full on July 15, 2013.

On July 13, 2010, Smart issued Php2,500 million five-year fixed rate corporate notes under a Notes Facility Agreement dated July 12, 2010. Proceeds from the issuance of these notes were used primarily to finance capital expenditures for network improvement and expansion program of Smart. The notes are non-amortizing and will mature on July 13, 2015. The amounts of Php2,490 million and Php2,487 million, net of unamortized debt discount, remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The notes were prepaid in full on July 15, 2013.

On March 9, 2011, Smart signed a Php2,000 million Notes Facility Agreement with BDO Private Bank, Inc. comprised of Tranche A amounting to Php1,000 million which was issued on March 16, 2011 and Tranche B amounting to Php1,000 million which was fully drawn and issued in multiple drawdowns of Php250 million each on various dates in 2011. Proceeds from the issuance of these notes were used to finance capital expenditures for network improvement and expansion program of Smart. The notes are payable in full, five years from their respective issue dates. The aggregate amount of Php2,000 million remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012.

On March 24, 2011, PLDT issued Php5,000 million fixed rate corporate notes under a Notes Facility Agreement dated March 22, 2011, comprised of Series A five-year notes amounting to Php3,435 million, Series B seven-year notes amounting to Php700 million and Series C ten-year notes amounting to Php865 million. Proceeds from the issuance of these notes were used to finance capital expenditures for network expansion and improvement and/or to refinance existing loan obligations which were utilized for service improvements and expansion programs. The Series A notes are payable over five years with an annual amortization rate of 1% of the issue price on the first year up to the fourth year from issue date and the balance payable upon maturity on March 25, 2016. The Series B notes are payable over seven years with an annual amortization rate of 1% of the issue price on the first year up to the sixth year from issue date and the balance payable upon maturity on March 26, 2018. The Series C notes are payable over ten years with an annual amortization rate of 1% of the issue price on the first year up to the ninth year from issue date and the balance payable upon maturity on March 24, 2021. The aggregate amounts of Php4,950 million and Php5,000 million remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The notes were prepaid in full on March 25, 2013.

On November 8, 2011, PLDT issued Php5,000 million fixed rate notes under a Notes Facility Agreement dated November 4, 2011, comprised of Series A five-year notes amounting to Php2,795 million, Series B seven-year notes amounting to Php230 million and Series C ten-year notes amounting to Php1,975 million. Proceeds from the issuance of these notes were used to finance capital expenditures for network expansion and improvement and/or to refinance existing loan obligations which were utilized for service improvements and expansion programs. The Series A notes are payable over five years with an annual amortization rate of 1% of the issue price on the first year up to the fourth year from issue date and the balance payable upon maturity on November 9, 2016. The Series B notes are payable over seven years with an annual amortization rate of 1% of the issue price on the first year up to the sixth year from issue date and the balance payable upon maturity on November 8, 2018. The Series C notes are payable over ten years with an annual amortization rate of 1% of the issue price on the first year up to the ninth year from issue date and the balance payable upon maturity on November 8, 2021. The aggregate amounts of Php4,950 million remained outstanding as at September 30, 2013 and December 31, 2012 and Php5,000 million as at January 1, 2012.

On March 19, 2012, Smart issued Php5,500 million fixed rate corporate notes under a Notes Facility Agreement dated March 15, 2012, comprised of Series A five-year notes amounting to Php1,910 million and Series B ten-year notes amounting to Php3,590 million. Proceeds from the issuance of these notes were used primarily for debt refinancing and capital expenditures of Smart. The Series A note facility has annual amortization equivalent to 1% of the principal amount starting March 19, 2013 with the balance of 96% payable on March 20, 2017. The Series B note facility has annual amortization equivalent to 1% of the principal amount starting March 19, 2013 with the balance of 91% payable on March 21, 2022. The notes were partially prepaid in the amount of Php1,376 million on June 19, 2013. The aggregate amounts of Php4,037 million and Php5,464 million, net of unamortized debt discount, remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On July 27, 2012, PLDT issued Php1,500 million fixed rate corporate notes under a Fixed Rate Corporate Notes Facility Agreement dated July 25, 2012. Proceeds from the issuance of these notes were used to finance capital expenditures for network expansion and improvement. The notes are payable over seven years with an annual amortization rate of 1% of the issue price on the first year up to the sixth year from issue date and the balance payable upon maturity on July 29, 2019. The notes were partially prepaid in the amount of Php1,188 million on July 29, 2013. The amounts of Php297 million and Php1,500 million remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On September 21, 2012, PLDT issued Php8,800 million fixed rate corporate notes under a Fixed Rate Corporate Notes Facility Agreement, dated September 19, 2012, comprised of Series A seven-year notes amounting to Php4,610 million and Series B ten-year notes amounting to Php4,190 million. Proceeds from the issuance of these notes were used to refinance existing loan obligations which were used for capital expenditures for network expansion and improvement. The Series A notes are payable over seven years with an annual amortization rate of 1% of the issue price on the first year up to the sixth year from issue date and the balance payable upon maturity on September 21, 2019. The Series B notes are payable over ten years with an annual amortization rate of 1% of the issue price on the first year up to the ninth year from issue date and the balance payable upon maturity on September 21, 2022. The notes were partially prepaid in the amount of Php2,055 million on June 21, 2013. The aggregate amounts of Php6,678 million and Php8,800 million remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On November 22, 2012, PLDT issued Php6,200 million fixed rate corporate notes under a Fixed Rate Corporate Notes Facility Agreement, dated November 20, 2012, comprised of Series A seven-year notes amounting to Php3,775 million and Series B ten-year notes amounting to Php2,425 million. Proceeds from the issuance of these notes were used to refinance existing loan obligations which were used for capital expenditures for network expansion and improvement. The Series A notes are payable over seven years with an annual amortization rate of 1% of the issued price on the first year up to the sixth year from issue date and the balance payable upon maturity on November 22, 2019. The Series B notes are payable over ten-years with an annual amortization rate of 1% of the issue price on the first year up to the ninth year from issue date and the balance payable upon maturity on November 22, 2022. The aggregate amount of Php6,200 million remained outstanding as at September 30, 2013 and December 31, 2012.

On June 19, 2013, Smart issued Php1,376 million fixed rate corporate notes under a Notes Agreement dated June 14, 2013, comprised of Series A five-year notes amounting to Php742 million and Series B ten-year notes amounting to Php634 million. Proceeds from the issuance of these notes were used primarily for debt refinancing of Smart. The Series A note facility has annual amortization equivalent to 1% of the principal amount starting June 19, 2014 with the balance of 97% payable on March 20, 2017. The Series B note facility has annual amortization equivalent to 1% of the principal amount starting June 19, 2014 with the balance of 92% payable on March 19, 2022. The aggregate amounts of Php1,376 million remained outstanding as at September 30, 2013.

On June 21, 2013, PLDT issued Php2,055 million fixed rate corporate notes under a Fixed Rate Corporate Notes Facility Agreement, dated June 14, 2013, comprised of Series A notes amounting to Php1,735 million and Series B notes amounting to Php320 million. Proceeds from the issuance of these notes were used to refinance existing loan obligations which were used for capital expenditures for network expansion and improvement. The Series A notes are payable over six years with an annual amortization rate of 1% of the issue price up to the fifth year and the balance payable upon maturity on September 21, 2019. The Series B notes are payable over nine years with an annual amortization rate of 1% of the issue price up to the eight year and the balance payable upon maturity on September 21, 2022. The aggregate amount of Php2,034 million remained outstanding as at September 30, 2013.

On July 29, 2013, PLDT issued Php1,188 million fixed rate corporate notes under a Fixed Rate Corporate Notes Facility Agreement, dated July 19, 2013. Proceeds from the issuance of these notes were used to finance capital expenditures for network expansion and improvement. The notes are payable over six years with an annual amortization rate of 1% of the issue price on the first year up to the fifth year from the issue date and the balance upon maturity on July 29, 2019. The amount of Php1,188 million remained outstanding as at September 30, 2013.

On October 21, 2008, Smart signed a Php2,500 million term loan facility agreement with Metrobank to finance capital expenditures for network improvement and expansion program. The loan is payable over five years in 16 equal consecutive quarterly installments commencing on the fifth quarter from the date of the first drawdown, with final installment on November 13, 2013. The loan was fully drawn on November 13, 2008. The amounts of Php156 million, Php624 million and Php1,248 million, net of unamortized debt discount, remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On November 21, 2008, PLDT signed a Php2,400 million term loan facility agreement with Land Bank of the Philippines, or LBP, to finance capital expenditures and/or to refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable over five years in ten equal semi-annual installments, with final installment on December 12, 2013. The loan was fully drawn on various dates in 2008 and 2009. The amounts of Php256 million, Php511 million and Php1,022 million remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On November 26, 2008, PLDT signed a Php3,000 million term loan facility agreement with Union Bank of the Philippines, or Union Bank, to finance capital expenditures and/or to refinance its loan obligations which were utilized for service improvements and expansion programs. The loan is payable over five years in nine equal semi-annual installments commencing on the second semester from initial drawdown date, with final installment on December 23, 2013. The loan was fully drawn on various dates in 2008 and 2009. The amounts of Php333 million, Php667 million and Php1,333 million remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On November 28, 2008, PLDT signed a Php2,000 million term loan facility agreement with Philippine National Bank, or PNB, to be used for its capital expenditure requirements in connection with PLDT’s service improvement and expansion programs. The loan is payable over five years in 17 equal quarterly installments commencing on the fourth quarter from initial drawdown date, with final installment on December 19, 2013. The loan was fully drawn on various dates in 2008 and 2009. The amounts of Php118 million, Php470 million and Php941 million, remained outstanding as at September 30, 2013, December 31, 2012, and January 1, 2012, respectively.

On March 6, 2009, PLDT signed a Php2,500 million term loan facility agreement with Banco de Oro Unibank, Inc., or BDO, to finance capital expenditures and/or refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable in full upon maturity on April 17, 2014. The loan was fully drawn on April 17, 2009. The amount of Php2,500 million remained outstanding as at January 1, 2012. The loan was prepaid in full on October 17, 2012.

On May 12, 2009, Smart signed a Php1,500 million term loan facility agreement with BDO to finance capital expenditures for network improvement and expansion program. The loan is payable in full upon maturity on May 20, 2012. The loan was fully drawn on May 20, 2009. The amount of Php1,498 million, net of unamortized debt discount, remained outstanding as at January 1, 2012 and was paid in full on May 20, 2012.

On June 8, 2009, PLDT signed a Php2,500 million term loan facility agreement with RCBC to finance capital expenditures and/or refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable over seven years with an annual amortization of 1% on the fifth and sixth year from initial drawdown date and the balance payable upon maturity on September 28, 2016. The loan was fully drawn on June 28, 2009. The amount of Php2,500 million remained outstanding as at January 1, 2012. The loan was prepaid in full on September 28, 2012.

On June 16, 2009, PLDT signed Php1,500 million term loan facility agreement with Allied Banking Corporation to finance capital expenditures and/or refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable over five years in 17 equal quarterly installments commencing on September 15, 2010, with final installment on September 15, 2014. The loan was fully drawn on September 15, 2009. The amounts of Php618 million and Php971 million remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The loan was prepaid in full on June 17, 2013.

On June 29, 2009, PLDT signed a Php500 million term loan facility agreement with Insular Life Assurance Company, Ltd. to finance capital expenditures and/or refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable in full upon maturity on July 1, 2016. The loan was fully drawn on July 1, 2009. The amount of Php500 million remained outstanding as at January 1, 2012. The loan was prepaid in full on October 1, 2012.

On July 16, 2009, Smart signed a Php1,000 million term loan facility agreement with Metrobank to finance capital expenditures for network improvement and expansion program. The loan is payable over five years in 16 equal consecutive quarterly installments commencing on the fifth quarter from the date of the first drawdown, with final installment on August 1, 2014. The loan was fully drawn on August 3, 2009. The amounts of Php250 million, Php438 million and Php688 million remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On September 18, 2009, PLDT signed a Php2,000 million term loan facility agreement with BPI to finance capital expenditures and/or refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable over five years in 17 equal quarterly installments, with final installment on October 27, 2014. The initial drawdown under this loan was made on October 26, 2009 in the amount of Php1,000 million and the balance of Php1,000 million was subsequently drawn on December 4, 2009. The amounts of Php588 million, Php941 million and Php1,412 million remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On November 23, 2009, PLDT signed a Php1,000 million term loan facility agreement with BPI to finance capital expenditures and/or refinance existing obligations which were utilized for service improvements and expansion programs. The loan is payable over five years in 17 equal quarterly installments, with final installment on December 18, 2014. The loan was fully drawn on December 18, 2009. The amounts of Php294 million, Php471 million and Php706 million remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

On March 15, 2011, Smart signed a Php1,500 million term loan facility agreement with Metrobank to finance capital expenditures for network improvement and expansion program. The loan is payable in full upon maturity on March 22, 2016. The loan was fully drawn on March 22, 2011. The amount of Php1,500 million remained outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012.

On March 24, 2011, Smart signed a Php2,000 million term loan facility agreement with PNB to finance capital expenditures for network improvement and expansion program. The loan is payable in full upon maturity on March 29, 2016. The loan was fully drawn on March 29, 2011. The loan was partially prepaid on December 28, 2012 in the amount of Php200 million. The amount of Php1,800 million remained outstanding as at September 30, 2013 and December 31, 2012 and Php2,000 million as at January 1, 2012.

On April 4, 2011, PLDT signed a Php500 million term loan facility agreement with the Manufacturers Life Insurance Co. (Phils.), Inc., or Manulife, to finance capital expenditures and/or refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable in full upon maturity on June 17, 2016. The loan was fully drawn on June 16, 2011. The amount of Php500 million each remained outstanding as at December 31, 2012 and January 1, 2012. The loan was prepaid in full on June 17, 2013.

On April 4, 2011, PLDT signed a Php300 million term loan facility agreement with the Manulife to finance capital expenditures and/or refinance its existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable in full upon maturity on April 29, 2016. The loan was fully drawn on April 28, 2011. The amount of Php300 million each remained outstanding as at December 31, 2012 and January 1, 2012. The loan was prepaid in full on July 29, 2013.

On April 12, 2011, Digitel signed a Php1,000 million term loan facility agreement with Metrobank as the lender, to finance additional capital expenditure requirements. The loan is payable in full upon maturity on June 23, 2016. The loan was partially drawn on various dates in June 2011 in the aggregate amount of Php710 million and the remaining balance was subsequently drawn on June 21, 2012. The amounts of Php1,000 million and Php710 million remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The loan was prepaid in full on September 10, 2013.

On April 14, 2011, Digitel signed a Php2,000 million term loan facility agreement with BDO as the lender, to finance the capital expenditures and/or refinance existing loan obligations. The loan is payable in full upon maturity on May 26, 2016. The loan was drawn on various dates in 2011 in the total amount of Php1,948 million. The undrawn amount of Php52 million was cancelled. The amount of Php1,948 million each remained outstanding as at December 31, 2012 and January 1, 2012. The loan was prepaid in full on August 27, 2013.

On March 20, 2012, PLDT signed a Php2,000 million term loan facility agreement with RCBC to finance capital expenditures and/or refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable over ten years with an annual amortization rate of 1% on the fifth year up to the ninth year from initial drawdown date and the balance payable upon maturity on April 12, 2022. The loan was fully drawn on April 12, 2012. The amount of Php2,000 million each remained outstanding as at September 30, 2013 and December 31, 2012.

On April 27, 2012, PLDT signed a Php3,000 million term loan facility agreement with LBP to finance capital expenditures and/or refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable over five years with an annual amortization rate of 1% on the first year up to the fourth year from drawdown date and the balance payable upon maturity on July 18, 2017. The loan was fully drawn on July 18, 2012. The amounts of Php2,970 million and Php3,000 million remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On May 29, 2012, PLDT signed a Php2,000 million term loan facility agreement with LBP to finance capital expenditures and/or refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable over five years with an annual amortization rate of 1% on the first year up to the fourth year from initial drawdown date and the balance payable upon maturity on June 27, 2017. The loan was fully drawn on June 27, 2012. The amounts of Php1,980 million and Php2,000 million remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On June 7, 2012, Smart signed a Php1,000 million term loan facility agreement with LBP to finance capital expenditures for its network upgrade and expansion program. The loan is payable over five years with an annual amortization rate of 1% of the principal amount commencing on the first anniversary of the initial drawdown up to the fourth year and the balance payable upon maturity on August 22, 2017. The loan was fully drawn on August 22, 2012. The amounts of Php990 million and Php1,000 million remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On June 27, 2012, DMPI signed a Php1,500 million term loan facility agreement with BPI, BPI Asset Management and Trust Group and ALFM Peso Bond Fund, Inc. to finance capital expenditures for network expansion and improvements. The loan is payable over seven years with an annual amortization rate of 1% of the outstanding principal amount on the first year up to the sixth year and the balance payable on June 29, 2019. The amount of Php700 million was partially drawn on June 29, 2012 and the remaining balance of Php800 million was subsequently drawn on September 24, 2012. The amount of Php1,485 million and Php1,500 million, remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On August 31, 2012, PLDT signed a Php200 million term loan facility agreement with Manulife to refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable in full upon maturity on October 9, 2019. The loan was fully drawn on October 9, 2012. The amount of Php200 million each remained outstanding as at September 30, 2013 and December 31, 2012.

On September 3, 2012, PLDT signed a Php1,000 million term loan facility agreement with Union Bank to finance capital expenditures and/or refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable over seven years with an annual amortization rate of 1% on the first year up to the sixth year from initial drawdown date and the balance payable upon maturity on January 13, 2020. The loan was fully drawn on January 11, 2013. The amount of Php1,000 million remained outstanding as at September 30, 2013.

On October 11, 2012, PLDT signed a Php1,000 million term loan facility agreement with Philippine American Life and General Insurance to refinance existing loan obligations which were utilized for service improvements and expansion programs. The loan is payable in full upon maturity on December 5, 2022. The loan was fully drawn on December 3, 2012. The amount of Php1,000 million each remained outstanding as at September 30, 2013 and December 31, 2012.

On December 17, 2012, Smart signed a Php3,000 million term loan facility agreement with LBP to finance capital expenditures for its network upgrade and expansion program. The loan is payable over seven years with an annual amortization rate of 1% of the principal amount on the first year up to the sixth year commencing on the first anniversary of the initial drawdown and the balance payable upon maturity on December 20, 2019. The amount of Php1,000 million was partially drawn on December 20, 2012 and the remaining balance was subsequently drawn on March 15, 2013. The amounts of Php3,000 million and Php1,000 million remained outstanding as at September 30, 2013 and December 31, 2012, respectively.

On June 7, 2007, AGS obtained a Php150 million medium term loan facility agreement with BPI, which was fully availed of in December 2007. Each interest period will cover a 90-day period commencing on the initial drawdown date and the interest rate will be determined at the first day of each interest period and payable at the end of the interest period. The loan was obtained to facilitate the purchase of a subsidiary and to support its working capital requirements. The aggregate loan amount is due as follows: (a) 20% within the third year from first drawdown date; (b) 20% within the fourth year from first drawdown date; and (c) 60% within the fifth year from first drawdown date. AGS is given a right to repay the principal and the interest accruing thereon on each interest payment date or interest rate setting date without any prepayment penalty. AGS and the bank has agreed to the following terms: (a) pledge of AGS’s shares of stock of the subsidiary purchased at a collateral loan ratio of 2:1; (b) assignment of receivables at a collateral-to-loan of 2:1; and (c) negative pledge on other present and future assets of AGS. The outstanding principal balance of the loan amounting to Php49 million as at January 1, 2012 was paid in full on June 30, 2012.

On January 5, 2006, DMPI issued a US$1.3 million Promissory Note in relation to the Purchase Agreement between DMPI and Ceragon Networks Ltd., dated December 1, 2005, as payment for the financeable portion of the Contract Price. The Promissory Note is payable in ten consecutive semi-annual installments, with final installment on February 22, 2012. The outstanding balance amounting to US$0.1 million, or Php5 million, as at January 1, 2012 was paid in full on February 22, 2012.

On January 5, 2006, DMPI issued a US$1.2 million Promissory Note in relation to the Purchase Agreement between DMPI and Ceragon Networks Ltd., dated December 1, 2005, as payment for the financeable portion of the Contract Price. The Promissory Note is payable in ten consecutive semi-annual installments, with final installment on June 28, 2012. The outstanding balance amounting to US$0.1 million, or Php5 million, as at January 1, 2012 was paid in full on June 28, 2012.

The aggregate outstanding balance of trust receipts amounted to Php1,562 million as at January 1, 2012. The trust receipts of DMPI and DTPI have been fully paid as at December 31, 2012.

On April 1, 2011, SPi availed US$9 million and US$16 million short-term loans from BPI and Security Bank, respectively. The additional loan US$10 million was availed last October 28, 2011 from Security Bank. Proceeds of the loans were used for working capital requirements. Interest rate on each loan is repriced every month with final installment on December 18, 2012. The loans were prepaid on various dates in 2012 in the aggregate amount of US$31.5 million. The aggregate amounts of US$3.5 million, or Php144 million, and US$35 million, or Php1,537 million, remained outstanding as at December 31, 2012 and January 1, 2012, respectively. The remaining balance of US$3.5 million, or Php144 million, as at December 31, 2012 was fully paid in February 2013. The December 31, 2012 outstanding balance was presented as part of interest-bearing financial liabilities under liabilities directly associated with assets classified as held-for-sale. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations.

Our debt instruments contain restrictive covenants, including covenants that require us to comply with specified financial ratios and other financial tests, calculated in conformity with PFRS at relevant measurement dates, principally at the end of each quarterly period. We have complied with all of our maintenance financial ratios as required under our loan covenants and other debt instruments.

The principal factors that can negatively affect our ability to comply with these financial ratios and other financial tests are depreciation of the Philippine peso relative to the U.S. dollar, poor operating performance of PLDT and its consolidated subsidiaries, impairment or similar charges in respect of investments or other long-lived assets that may be recognized by PLDT and its consolidated subsidiaries, and increases in our interest expense. Interest expense may increase as a result of various factors including issuance of new debt, the refinancing of lower cost indebtedness by higher cost indebtedness, depreciation of the Philippine peso, the lowering of PLDT’s credit ratings or the credit ratings of the Philippines, increase in reference interest rates, and general market conditions. Since approximately 54%, 45% and 47% of PLDT’s total consolidated debts as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively, were denominated in foreign currencies, principally in U.S. dollars, many of these financial ratios and other tests are negatively affected by any weakening of the Philippine peso. See Note 27 – Financial Assets and Liabilities – Foreign Currency Exchange Risk.

PLDT’s debt instruments contain a number of other negative covenants that, subject to certain exceptions and qualifications, restrict PLDT’s ability to take certain actions without lenders’ approval, including: (a) making or permitting any material change in the character of its business; (b) disposing of all or substantially all of its assets, or any significant portion thereof other than in the ordinary course of business; (c) creating any lien or security interest; (d) permitting set-off against amounts owed to PLDT; and (e) merging or consolidating with any other company except where PLDT is the surviving corporation.

Furthermore, certain of DMPI’s debt instruments contain provisions wherein DMPI may be declared in default in case of a change in control in DMPI.

PLDT’s debt instruments and guarantees for DMPI loans also contain customary and other default provisions that permit the lender to accelerate amounts due or terminate their commitments to extend additional funds under the debt instruments. These default provisions include: (a) cross-defaults that will be triggered only if the principal amount of the defaulted indebtedness exceeds a threshold amount specified in these debt instruments; (b) failure by PLDT to meet certain financial ratio covenants referred to above; (c) the occurrence of any material adverse change in circumstances that a lender reasonably believes materially impairs PLDT’s ability to perform its obligations under its debt instrument with the lender; (d) the revocation, termination or amendment of any of the permits or franchises of PLDT in any manner unacceptable to the lender; (e) the nationalization or sustained discontinuance of all or a substantial portion of PLDT’s business; and (f) other typical events of default, including the commencement of bankruptcy, insolvency, liquidation or winding up proceedings by PLDT.

Smart’s debt instruments contain certain restrictive covenants that require Smart to comply with specified financial ratios and other financial tests at semi-annual measurement dates. Smart’s loan agreements include compliance with financial tests such as consolidated debt to consolidated equity, consolidated debt to consolidated EBITDA and debt service coverage ratios. Previously, Smart was required to comply with certain consolidated debt to consolidated equity ratio under Variable Loan Agreement 2014 debt with Marubeni Corporation as original lender and under the 2014 (A) Debt under Metrobank as Facility Agent. On August 16, 2012 and September 3, 2012, the approvals to amend the covenant from “the ratio of Consolidated Debt to Consolidated Equity” to “the ratio of Consolidated Debt to Consolidated EBITDA” were obtained. The agreements also contain customary and other default provisions that permit the lender to accelerate amounts due under the loans or terminate their commitments to extend additional funds under the loans. These default provisions include: (a) cross-defaults and cross-accelerations that permit a lender to declare a default if Smart is in default under another loan agreement. These cross-default provisions are triggered upon a payment or other default permitting the acceleration of Smart debt, whether or not the defaulted debt is accelerated;
(b) failure by Smart to comply with certain financial ratio covenants; and (c) the occurrence of any material adverse change in circumstances that the lender reasonably believes materially impairs Smart’s ability to perform its obligations or impair the guarantors’ ability to perform their obligations under its loan agreements.

DMPI’s debt instruments contain customary and other default provisions that permit the lender to accelerate amounts due under the loans, including: (a) cross-defaults and cross-accelerations that permit a lender to declare a default if DMPI or PLDT, as guarantor, is in default under another loan agreement; (b) failure by PLDT to comply with certain financial ratio covenants; (c) occurrence of any material adverse change in circumstances that the lender reasonably believes materially impairs DMPI’s and PLDT’s ability to perform its obligations under its loan agreements; (d) change of control; and (e) other typical events of default including the commencement of bankruptcy, insolvency, liquidation, or winding up proceedings by DMPI.

The consolidated future minimum payments for finance leases as at September 30, 2013 are as follows:

The PLDT Group has various long-term lease contracts for a period of three years covering various office equipment. In particular, PLDT, ePLDT and PLDT Global have finance lease obligations in the aggregate amounts of Php15 million and Php21 million as at September 30, 2013 and December 31, 2012, respectively, while PLDT and SPi have finance lease obligations in the aggregate amounts of Php16 million as at January 1, 2012. See Note 9 – Property, Plant and Equipment.

Under the terms of certain loan agreements and other debt instruments, PLDT may not create, incur, assume, permit or suffer to exist any mortgage, pledge, lien or other encumbrance or security interest over the whole or any part of its assets or revenues or suffer to exist any obligation as lessee for the rental or hire of real or personal property in connection with any sale and leaseback transaction.

As at September 30, 2013, December 31, 2012 and January 1, 2012, this account consists of:

Accrual of capital expenditures under long-term financing represent expenditures related to the expansion and upgrade of our network facilities which are not due to be settled within one year. Such accruals are settled through refinancing from long-term loans obtained from the banks.

The following table summarizes all changes to asset retirement obligations for the nine months ended September 30, 2013 and for the year ended December 31, 2012:

As at September 30, 2013, December 31, 2012 and January 1, 2012, this account consists of:

Accounts payable are non-interest bearing and are normally settled within 180 days.

For terms and conditions relating to related parties, see Note 24 – Related Party Transactions.

For explanation on the PLDT Group’s credit risk management processes, see Note 27 – Financial Assets and Liabilities – Credit Risk.

As at September 30, 2013, December 31, 2012 and January 1, 2012, this account consists of:

Accrued utilities and related expenses pertain to cost incurred for repairs and maintenance (mostly pertaining to electricity and water consumption), selling and promotions, professional and other contracted services, rent, insurance and security services, and other operational-related expenses pending receipt of billings and statement of accounts from suppliers.

Accrued taxes and related expenses pertain to licenses, permits and other related business taxes.

Unearned revenues represent advance payments for leased lines, installation fees, monthly service fees and unused and/or unexpired portion of prepaid loads.

Accrued expenses and other current liabilities are non-interest bearing and are normally settled within a year.

The PLDT Group has not recorded any impairment of receivables relating to amounts owed by related parties as at September 30, 2013 and December 31, 2012. This assessment is undertaken each financial period through examining the financial position of the related party and the market in which the related party operates.

The following table provides the summary of outstanding balances as at September 30, 2013, December 31, 2012 and January 1, 2012 transactions that have been entered into with related parties:

September 30,

December 31,

January 1,

2013

2012

Classifications

Terms

Conditions

(Unaudited)

(Audited)

(in million pesos)

Indirect investment in

joint ventures through

PCEV:

Meralco

Accrued expenses

Electricity charges – immediately

Unsecured;

233

266

271

and other current

upon receipt

no impairment

liabilities (Note

of invoice

Unsecured;

23)

Pole rental – 45 days upon receipt

no impairment

of billing

Meralco Industrial

Accrued expenses

Outside and inside plant –

Unsecured;

–

Engineering Services

and other current

20 days upon receipt of invoice

no impairment

Corporation, or

liabilities (Note

MIESCOR

23)

Indirect investment in

associate through ACeS

Philippines:

AIL

Accrued expenses

30 days upon receipt of billing

Unsecured;

147

and other current

no impairment

liabilities (Note 23)

Transactions with major

stockholders, directors

and officers:

Asia Link B.V., or ALBV

Accounts payable

15 days from end of quarter

Unsecured;

330

252

234

(Note 22)

no impairment

NTT World Engineering

Accrued expenses

1^st month of each quarter;

Unsecured;

Marine Corporation

and other current

non-interest bearing

no impairment

liabilities (Note 23)

JGSHI

Accounts payable

Immediately upon receipt of invoice

Unsecured;

and accrued

no impairment

expenses and other current liabilities (Note 23)

Accrued expenses and other current liabilities (Note

Unsecured;

NTT Communications

23)

30 days; non-interest bearing

no impairment

Accrued expenses and other current liabilities (Note

Unsecured;

NTT DOCOMO

23)

30 days; non-interest bearing

no impairment

Accrued expenses

NTT Worldwide

and other current

Telecommunications

liabilities (Note

Unsecured;

Corporation

23)

30 days; non-interest bearing

no impairment

–

Accrued expenses and other current

Malayan Insurance Co.,

liabilities (Note

Unsecured;

Inc., or Malayan

23)

Immediately upon receipt of invoice

no impairment

Others:

Various

Trade and other

30 days upon receipt of billing

Unsecured;

319

297

325

receivables (Note

no impairment

16)

The following table provides the summary of transactions for the nine months ended September 30, 2013 and 2012 in relation with the table above for the transactions that have been entered into with related parties.

In the ordinary course of business, Meralco provides electricity to PLDT and certain subsidiaries’ offices within its franchise area. The rates charged by Meralco are the same as those with unrelated parties. Total electricity costs, which was presented as part of repairs and maintenance in our consolidated income statements, amounted to Php1,943 million and Php2,512 million for the nine months ended September 30, 2013 and 2012, respectively. Under these agreements, the outstanding utilities payable, which was presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php233 million, Php266 million and Php271 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

In 2009, PLDT and Smart renewed their respective Pole Attachment Contracts with Meralco, wherein Meralco leases its pole spaces to accommodate PLDT’s and Smart’s cable network facilities. Total fees under these contracts, which was presented as part of rent in our consolidated income statements, amounted to Php203 million and Php201 million for the nine months ended September 30, 2013 and 2012, respectively. Under these agreements, the outstanding obligations, which was presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php9 million, Php12 million and Php6 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

See also Note 10 – Investments in Associates, Joint Ventures and Deposits – Investment in Beacon – Beacon’s Acquisition of Additional Meralco Shares for additional transactions involving Meralco.

PLDT has an existing Outside and Inside Plant Contracted Services Agreement with MIESCOR, a subsidiary of Meralco, covering the periods from November 25, 2011 until December 31, 2014, renewable upon mutual agreement by both parties. Under the agreement, MIESCOR assumes full and overall responsibility for the implementation and completion of any assigned project such as cable works, civil and electrical engineering works and subscriber line installation and maintenance that are required for the provisioning and restoration of lines and recovery of existing plant.

Total fees under this agreement, which was presented as part of repairs and maintenance in our consolidated income statements, amounted to Php21 million and Php8 million for the nine months ended September 30, 2013 and 2012, respectively. Total amount capitalized to property, plant and equipment amounted to Php2 million and Php4 million for the nine months ended September 30, 2013 and 2012, respectively. Under this agreement, the outstanding obligations of PLDT, which was presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php5 million and Php2 million as at September 30, 2013 and December 31, 2012, respectively.

PLDT also has an existing agreement with MIESCOR for the provision of work for outside plant rehabilitation and related activities. Under the agreement, MIESCOR is responsible for the preventive and corrective maintenance of cables and cabinets in the areas awarded to them. The original contract covers the period from January 1, 2011 up to December 31, 2012, however, both parties mutually agreed to an extension until March 31, 2014.

Total fees under this agreement, which was presented as part of repairs and maintenance in our consolidated income statements, amounted to Php31 million and Php19 million for the nine months ended September 30, 2013 and 2012, respectively. Total amount capitalized to property, plant and equipment amounted to Php35 million and Php17 million for the nine months ended September 30, 2013 and 2012, respectively. Under this agreement, the outstanding obligations of PLDT, which was presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to nil as at September 30, 2013, December 31, 2012 and January 1, 2012.

PLDT has insurance policies with RSIC, a wholly-owned subsidiary of Meralco, covering material damages for buildings, building improvements and equipment. Total fees under these contracts, which was presented as part of insurance and security services in our consolidated income statements, amounted to Php3 million for each of the nine months ended September 30, 2013 and 2012. There were no outstanding obligations for these transaction as at September 30, 2013, December 31, 2012 and January 1, 2012.

Under the Founder NSP Air Time Purchase Agreement, or ATPA, entered into with AIL in March 1997, which was amended in December 1998, or Original ATPA, PLDT was granted the exclusive right to sell AIL services, through ACeS Philippines, as national service provider, or NSP, in the Philippines. In exchange, the Original ATPA required PLDT to purchase from AIL a minimum of US$5 million worth of air time, or Minimum Air Time Purchase Obligation, annually over ten years commencing on January 1, 2002, or Minimum Purchase Period, the expected date of commercial operations of the Garuda I Satellite. In the event that AIL’s aggregate billed revenue was less than US$45 million in any given year, the Original ATPA also required PLDT to make supplemental air time purchase payments not to exceed US$15 million per year during the Minimum Purchase Period, or Supplemental Air Time Purchase Obligation.

On February 1, 2007, the parties to the Original ATPA entered into an amendment to the Original ATPA on substantially the terms attached to the term sheet negotiated with the relevant banks, or Amended ATPA. Under the Amended ATPA, the Minimum Air Time Purchase Obligation was amended and replaced in its entirety with an obligation of PLDT to purchase from AIL a minimum of US$500 thousand worth of air time annually over a period ending upon the earlier of: (i) the expiration of the Minimum Purchase Period; and (ii) the date on which all indebtedness incurred by AIL to finance the AIL System is repaid. Furthermore, the Amended ATPA unconditionally released PLDT from any obligations arising out of or in connection with the Original ATPA prior to the date of the Amended ATPA, except for obligations to pay for billable units used prior to such date.

Total fees under the Amended ATPA, which was presented as part of cost of sales in our consolidated income statements, amounted to Php39 million and Php62 million for the nine months ended September 30, 2013 and 2012, respectively. Under the Amended ATPA, the outstanding obligations of PLDT, which was presented as part of accounts payable in our consolidated statements of financial position, amounted to Php40 million, Php43 million and Php147 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 5 – Income and Expenses – Cost of Sales.

Material transactions to which PLDT or any of its subsidiaries is a party, in which a director, key officer or owner of more than 10% of the outstanding common stock of PLDT, or any member of the immediate family of a director, key officer or owner of more than 10% of the outstanding common stock of PLDT had a direct or indirect material interest as at September 30, 2013, December 31, 2012 and January 1, 2012 and for the nine months ended September 30, 2013 and 2012 are as follows:

Smart has an existing Technical Assistance Agreement with ALBV, a subsidiary of the First Pacific Group and its Philippine affiliates. ALBV provides technical support services and assistance in the operations and maintenance of Smart’s cellular business. The agreement, which expired on February 23, 2012 was renewed until February 23, 2016 and is subject to further renewal upon mutual agreement of the parties, provides for payment of technical service fees equivalent to a rate of 0.5% of the consolidated net revenues of Smart. Total service fees under this agreement, which was presented as part of professional and other contracted services in our consolidated income statements, amounted to Php212 million and Php258 million for the nine months ended September 30, 2013 and 2012, respectively. Under this agreement, the outstanding obligations, which was presented as part of accounts payable in our consolidated statements of financial position, amounted to Php330 million, Php252 million and Php234 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

PLDT is a party to the following agreements with NTT Communications and/or its affiliates:

•

Service Agreement. On February 1, 2008, PLDT entered into an agreement with NTT World Engineering Marine Corporation wherein the latter provides offshore submarine cable repair and other allied services for the maintenance of PLDT’s domestic fiber optic network submerged plant. The fees under this agreement, which was presented as part of repairs and maintenance in our consolidated income statements, amounted to Php24 million and Php11 million for the nine months ended September 30, 2013 and 2012, respectively. Under this agreement, the outstanding obligations of PLDT, which was presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php31 million as at September 30, 2013 and Php29 million each as at December 31, 2012 and January 1, 2012;

•

Advisory Services Agreement. On March 24, 2000, PLDT entered into an agreement with NTT Communications, as amended on March 31, 2003, March 31, 2005 and June 16, 2006, under which NTT Communications provides PLDT with technical, marketing and other consulting services for various business areas of PLDT starting April 1, 2000. The fees under this agreement, which was presented as part of professional and other contracted services in our consolidated income statements, amounted to Php53 million and Php52 million for the nine months ended September 30, 2013 and 2012, respectively. Under this agreement, the outstanding obligations of PLDT, which was presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php12 million, Php17 million and Php12 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively;

•

Conventional International Telecommunications Services Agreement. On March 24, 2000, PLDT entered into an agreement with NTT Communications under which PLDT and NTT Communications agreed to cooperative arrangements for conventional international telecommunications services to enhance their respective international businesses. The fees under this agreement, which was presented as part of rent in our consolidated income statements, amounted to Php9 million and Php8 million for the nine months ended September 30, 2013 and 2012, respectively. Under this agreement, the outstanding obligations of PLDT, which was presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php6 million, Php1 million and nil as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively; and

•

Arcstar Licensing Agreement and Arcstar Service Provider Agreement. On March 24, 2000, PLDT entered into an agreement with NTT Worldwide Telecommunications Corporation under which PLDT markets, and manages data and other services under NTT Communications’ “Arcstar” brand to its corporate customers in the Philippines. PLDT also entered into a Trade Name and Trademark Agreement with NTT Communications under which PLDT has been given the right to use the trade name “Arcstar” and its related trademark, logo and symbols, solely for the purpose of PLDT’s marketing, promotional and sales activities for the Arcstar services within the Philippines. The fees under this agreement, which was presented as part of selling and promotions in our consolidated income statements, amounted to Php12 million and Php11 million for the nine months ended September 30, 2013 and 2012, respectively. Under this agreement, the outstanding obligations of PLDT, which was presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php9 million, Php2 million and nil as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

PLDT and certain of its subsidiaries have existing agreements with Universal Robina Corporation and Robinsons Land Corporation for office and business office rental. Total fees under these contracts, which was presented as part of rent in our consolidated income statements, amounted to Php118 million and Php75 million for the nine months ended September 30, 2013 and 2012, respectively. Under these agreements, the outstanding obligations, which was presented as part of accounts payable and accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php19 million, Php4 million and Php67 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

There were also other transactions such as airfaire, electricity, marketing expenses and bank fees, which was presented as part of communication, training and travel, selling and promotions, repair and maintenance and professional and other contracted services, totaling to Php17 million and Php22 million for the nine months ended September 30, 2013 and 2012, respectively. The outstanding obligations for these transactions, which was presented as part of accounts payable and accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php1 million each as at September 30, 2013 and December 31, 2012 and Php3 million as at January 1, 2012.

An Advisory Services Agreement was entered into by NTT DOCOMO and PLDT on June 5, 2006, in accordance with the Cooperation Agreement dated January 31, 2006. Pursuant to the Advisory Services Agreement, NTT DOCOMO will provide the services of certain key personnel in connection with certain aspects of the business of PLDT and Smart. Also, this agreement governs the terms and conditions of the appointments of such key personnel and the corresponding fees related thereto. Total fees under this agreement, which was presented as part of professional and other contracted services in our consolidated income statements, amounted to Php54 million and Php38 million for the nine months ended September 30, 2013 and 2012, respectively. Under this agreement, the outstanding obligations of PLDT, which was presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php9 million as at September 30, 2013 and Php8 million each as at December 31, 2012 and January 1, 2012.

PLDT and certain of its subsidiaries have insurance policies with Malayan covering directors, officers, employees liability and material damages for buildings, building improvements, equipment and motor vehicles. The premiums are directly paid to Malayan. Total fees under these contracts, which was presented as part of insurance and security services in our consolidated income statements, amounted to Php111 million and Php185 million for the nine months ended September 30, 2013 and 2012, respectively. Under this agreement, the outstanding obligations, which was presented as part of accrued expenses and other current liabilities in our consolidated statement of financial position, amounted to Php1 million each as at September 30, 2013, December 31, 2012 and January 1, 2012. One director of PLDT has direct/indirect interests in or serves as a director/officer of Malayan as at September 30, 2013, December 31, 2012 and January 1, 2012.

Cooperation Agreement with First Pacific and certain affiliates, or the FP Parties, NTT Communications and NTT DOCOMO

In connection with the transfer by NTT Communications of approximately 12.6 million shares of PLDT’s common stock to NTT DOCOMO pursuant to a Stock Sale and Purchase Agreement dated January 31, 2006 between NTT Communications and NTT DOCOMO, the FP Parties, NTT Communications and NTT DOCOMO entered into a Cooperation Agreement, dated January 31, 2006. Under the Cooperation Agreement, the relevant parties extended certain rights of NTT Communications under the Stock Purchase and Strategic Investment Agreement dated September 28, 1999, as amended, and the Shareholders Agreement dated March 24, 2000, to NTT DOCOMO, including:

•

certain contractual veto rights over a number of major decisions or transactions; and

•

rights relating to the representation on the Board of Directors of PLDT and Smart, respectively, and any committees thereof.

Moreover, key provisions of the Cooperation Agreement pertain to, among other things:

•

Restriction on Ownership of Shares of PLDT by NTT Communications and NTT DOCOMO. Each of NTT Communications and NTT DOCOMO has agreed not to beneficially own, directly or indirectly, in the aggregate with their respective subsidiaries and affiliates, more than 21% of the issued and outstanding shares of PLDT’s common stock. If such event does occur, the FP Parties, as long as they own in the aggregate not less than 21% of the issued and outstanding shares of PLDT’s common stock, have the right to terminate their respective rights and obligations under the Cooperation Agreement, the Shareholders Agreement and the Stock Purchase and Strategic Investment Agreement.

•

Limitation on Competition. NTT Communications, NTT DOCOMO and their respective subsidiaries are prohibited from investing in excess of certain thresholds in businesses competing with PLDT in respect of customers principally located in the Philippines and from using their assets in the Philippines in such businesses. Moreover, if PLDT, Smart or any of Smart’s subsidiaries intend to enter into any contractual arrangement relating to certain competing businesses, PLDT is required to provide, or to use reasonable efforts to procure that Smart or any of Smart’s subsidiaries provide, NTT Communications and NTT DOCOMO with the same opportunity to enter into such agreement with PLDT or Smart or any of Smart’s subsidiaries, as the case may be.

•

Business Cooperation. PLDT and NTT DOCOMO agreed in principle to collaborate with each other on the business development, roll-out and use of a wireless-code division multiple access mobile communication network. In addition, PLDT agreed, to the extent of the power conferred by its direct or indirect shareholding in Smart, to procure that Smart will: (i) become a member of a strategic alliance group for international roaming and corporate sales and services; and

(ii) enter into a business relationship concerning preferred roaming and inter-operator tariff discounts with NTT DOCOMO.

•

Additional Rights of NTT DOCOMO. Pursuant to amendments effected by the Cooperation Agreement to the Stock Purchase and Strategic Investment Agreement and the Shareholders Agreement, upon NTT Communications and NTT DOCOMO and their respective subsidiaries owning in the aggregate 20% or more of PLDT’s shares of common stock and for as long as they continue to own in the aggregate at least 17.5% of PLDT’s shares of common stock then outstanding, NTT DOCOMO has additional rights under the Stock Purchase and Strategic Investment Agreement and Shareholders Agreement, including that:

NTT DOCOMO is entitled to nominate one additional NTT DOCOMO nominee to the Board of Directors of each PLDT and Smart;

PLDT must consult NTT DOCOMO no later than 30 days prior to the first submission to the board of PLDT or certain of its committees of any proposal of investment in an entity that would primarily engage in a business that would be in direct competition or substantially the same business opportunities, customer base, products or services with business carried on by NTT DOCOMO, or which NTT DOCOMO has announced publicly an intention to carry on;

PLDT must procure that Smart does not cease to carry on its business, dispose of all of its assets, issue common shares, merge or consolidate, or effect winding up or liquidation without PLDT first consulting with NTT DOCOMO no later than 30 days prior to the first submission to the board of PLDT or Smart, or certain of its committees; and

PLDT must first consult with NTT DOCOMO no later than 30 days prior to the first submission to the board of PLDT or certain of its committees for the approval of any transfer by any member of the PLDT Group of Smart common capital stock to any person who is not a member of the PLDT Group.

NTT Communications and NTT DOCOMO together beneficially owned approximately 20% of PLDT’s outstanding common stock as at September 30, 2013, December 31, 2012 and January 1, 2012.

•

Change in Control. Each of NTT Communications, NTT DOCOMO and the FP Parties agreed that to the extent permissible under applicable laws and regulations of the Philippines and other jurisdictions, subject to certain conditions, to cast its vote as a shareholder in support of any resolution proposed by the Board of Directors of PLDT for the purpose of safeguarding PLDT from any Hostile Transferee. A “Hostile Transferee” is defined under the Cooperation Agreement to mean any person (other than NTT Communications, NTT DOCOMO, First Pacific or any of their respective affiliates) determined to be so by the PLDT Board of Directors and includes, without limitation, a person who announces an intention to acquire, seeking to acquire or acquires 30% or more of PLDT common shares then issued and outstanding from time to time or having (by itself or together with itself) acquired 30% or more of the PLDT common shares who announces an intention to acquire, seeking to acquire or acquires a further 2% of such PLDT common shares: (a) at a price per share which is less than the fair market value as determined by the Board of Directors of PLDT, as advised by a professional financial advisor;

(b) which is subject to conditions which are subjective or which could not be reasonably satisfied; (c) without making an offer for all PLDT common shares not held by it and/or its affiliates and/or persons who, pursuant to an agreement or understanding (whether formal or informal), actively cooperate to obtain or consolidate control over PLDT; (d) whose offer for the PLDT common shares is unlikely to succeed; or (e) whose intention is otherwise not bona fide; provided that, no person will be deemed a Hostile Transferee unless prior to making such determination, the Board of Directors of PLDT has used reasonable efforts to discuss with NTT Communications and NTT DOCOMO in good faith whether such person should be considered a Hostile Transferee.

•

Termination. If NTT Communications, NTT DOCOMO or their respective subsidiaries cease to own, in the aggregate, full legal and beneficial title to at least 10% of the shares of PLDT’s common stock then issued and outstanding, their respective rights and obligations under the Cooperation Agreement and the Shareholders Agreement will terminate and the Strategic Arrangements (as defined in the Stock Purchase and Strategic Investment Agreement) will terminate. If the FP Parties and their respective subsidiaries cease to have, directly or indirectly, effective voting power in respect of shares of PLDT’s common stock representing at least 18.5% of the shares of PLDT’s common stock then issued and outstanding, their respective rights and obligations under the Cooperation Agreement, the Stock Purchase and Strategic Investment Agreement, and the Shareholders Agreement will terminate.

Telecommunications services provided by PLDT and certain of its subsidiaries to various related parties

PLDT and certain of its subsidiaries provide telephone and data communication services to various related parties at arm’s length similar to transactions with other customers. The revenues under these services amounted to Php388 million and Php265 million for the nine months ended September 30, 2013 and 2012, respectively. The outstanding receivables of PLDT and certain of its subsidiaries, which was presented as part of trade and other receivables in our consolidated statements of financial position, from these services amounted to Php319 million, Php297 million and Php325 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

See Note 10 – Investments in Associates, Joint Ventures and Deposits – Investment in MediaQuest and Note 18 – Prepayments – Agreement between PLDT and Smart with TV5 for other related party transactions.

The compensation of key officers of the PLDT Group by benefit type for the nine months ended September 30, 2013 and 2012 are as follows:

Each of the directors, including the members of the advisory board of PLDT, is entitled to a director’s fee in the amount of Php200 thousand for each board meeting attended. Each of the members or advisors of the audit, executive compensation, governance and nomination and technology strategy committees is entitled to a fee in the amount of Php75 thousand for each committee meeting attended.

There are no agreements between PLDT Group and any of its key management personnel providing for benefits upon termination of employment, except for such benefits to which they may be entitled under PLDT Group’s retirement and incentive plans.

The amounts disclosed in the table are the amounts recognized as expenses during the reporting period related to key management personnel.

We have defined benefit pension plans, operating under the legal name “The Board of Trustees for the account of the Beneficial Trust Fund created pursuant to the Benefit Plan of PLDT Company” and covering substantially all of our permanent and regular employees, excluding those employees of Smart and certain subsidiaries, which require contributions to be made to a separate administrative fund.

Our actuarial valuation is performed every year-end. Based on the latest actuarial valuation, the actual present value of accrued (prepaid) benefit costs, net periodic benefit costs and average assumptions used in developing the valuation as at September 30, 2013 and December 31, 2012 are as follows:

Net pension benefit costs for the nine months ended September 30, 2013 and 2012 were computed as follows:

The weighted average assumptions used to determine pension benefits as at September 30, 2013 are as follows:

We have adopted mortality rates in accordance with the 1994 Group Annuity Mortality Table developed by the U.S. Society of Actuaries, which provides separate rates for males and females.

The overall expected rate of return on assets is determined based on the market expectations prevailing, applicable to the period over which the obligation is to be settled.

The Board of Trustees, which manages the beneficial trust fund, is composed of: (1) a member of the Board of Directors of PLDT, who is not a beneficiary of the Plan; (ii) a member of the Board of Directors or a senior officer of PLDT, who is a beneficiary of the Plan; (iii) a senior member of the executive staff of PLDT; and
(iv) two persons who are not executives or employees of PLDT.

Benefits are payable in the event of termination of employment due to: (i) compulsory, optional, or deferred retirement; (ii) death while in active service; (iii) physical disability; (iv) voluntary resignation; or (v) involuntary separation from service. For a plan member with less than 15 years of credited services, retirement benefit is equal to 100% of final compensation for every year of service. For those with at least 15 years of service, retirement benefit is equal to 125% of final compensation for every year of service, with such percentage to be increased by an additional 5% for each completed year of service in excess of 15 years, but not to exceed a maximum of 200%. In case of voluntary resignation after attainment of age 40 and completion of at least 15 years of credited service, benefit is equal to a percentage of his vested retirement benefit, in accordance with percentages prescribed in the retirement plan.

The Board of Trustees of the beneficial trust fund uses an investment approach with the objective of maximizing the long-term expected return of plan assets. The majority of investment portfolio consists of listed and unlisted equity securities while the remaining portion consists of passive investments like temporary cash investments and fixed income investments.

The plan assets are primarily exposed to financial risks such as liquidity risk and price risk.

Liquidity risk pertains to the plan’s ability to meet its obligation to the employees upon retirement. To effectively manage liquidity risk, the Board of Trustees invests at least the equivalent amount of actuarially computed expected compulsory retirement benefit payments for the year to liquid/semi-liquid assets such as treasury notes, treasury bills, savings and time deposits with commercial banks.

Price risk pertains mainly to fluctuations in market prices of equity securities listed in the Philippine SEC. In order to effectively manage price risk, the Board of Trustees continuously assesses these risks by closely monitoring the market value of the securities and implementing prudent investment strategies.

For the nine months ended September 30, 2013, PLDT contributed a total of Php2,029 million to the beneficial trust fund.

The following table sets forth the fair values, which are equal to the carrying values, of PLDT’s plan assets recognized as at September 30, 2013 and December 31, 2012:

Investment in shares of stocks is valued using the latest bid price at reporting date. Investments in mutual funds and government securities are valued using the market values at reporting date. Investment properties are valued using the latest available appraised values. The fair values of these investments can be classified as Level 1 instruments based on the definitions in PFRS 13. Investment in unlisted equity investments are valued using discounted cash flow analysis and can be classified as Level 3.

MediaQuest was registered with the Philippine SEC on June 29, 1999 primarily to purchase, subscribe for or otherwise acquire and own, hold, use, manage, sell, assign, transfer, mortgage, pledge, exchange, or otherwise dispose of real and personal property or every kind and description, and to pay thereof in whole or in part, in cash or by exchanging, stocks, bonds and other evidences of indebtedness or securities of this any other corporation. Its investments include common shares of stocks of various communication, broadcasting and media entities.

The Board of Trustees of the Beneficial Trust Fund approved to make additional investments in MediaQuest amounting to Php750 million each on November 5, 2012 and January 25, 2013 to fund the latter’s operational and capital expenditure requirements. Subsequently, on March 1, 2013, the Board of Directors of MediaQuest approved its application of the additional investment to additional paid in capital on the existing subscribed shares of stock.

On May 8, 2012, the Board of Trustees of the Beneficial Trust Fund approved the issuance by MediaQuest of PDRs amounting to Php6 billion. The underlying shares of these PDRs are the shares of stocks of Cignal TV held by MediaQuest (Cignal TV PDRs). On the same date, MediaQuest Board of Directors approved the investment in Cignal TV PDRs by ePLDT, which will give ePLDT a 40% economic interest in Cignal TV. In June 2012, MediaQuest received a deposit for future PDRs subscription of Php4 billion from ePLDT. Additional deposits of Php1 billion each were received on July 6, 2012 and August 9, 2012. The Cignal TV PDRs were subsequently issued on September 27, 2013.

On January 25, 2013, the Board of Trustees of the Beneficial Trust Fund and the MediaQuest Board of Directors approved the issuance of additional MediaQuest PDRs amounting to Php3.6 billion. The underlying shares of these additional PDRs are the shares of stocks of Satventures held by MediaQuest (Satventures PDRs), the holder of which will have a 40% economic interest in Satventures. Satventures is a wholly-owned subsidiary of MediaQuest and the investment vehicle for Cignal TV. From March to August 2013, MediaQuest received from ePLDT an amount aggregating to Php3.6 billion representing deposits for future PDRs subscription. The Satventures PDRs were subsequently issed on September 27, 2013.

Also, on January 25, 2013, the Board of Trustees of the Beneficial Trust Fund and the Board of Directors of MediaQuest approved the issuance of additional PDRs amounting to Php1.95 billion. The underlying shares of these additional PDRs are the shares of stocks of Hastings held by MediaQuest (Hastings PDRs), the holder of which will have a 100% economic interest in Hastings. Hastings is a wholly-owned subsidiary of MediaQuest, which holds all the print-related investments of MediaQuest, including noncontrolling interests in the three leading broadsheets: The Philippine Star, the Philippine Daily Inquirer, and Business World. From August to October 2013, MediaQuest received from ePLDT an amount aggregating to Php750 million representing deposits for future PDRs subscription. See Note 10 – Investments in Associates, Joint Ventures and Deposits – Investment in MediaQuest.

TMBLA was incorporated for the primary purpose of accumulating the savings of its stockholders and lending funds to them for housing programs. The beneficial trust fund has a direct subscription in shares of stocks of TMBLA in the amount of Php112 million. The related unpaid subscription of Php32 million is included in “unlisted equity investments, deposits on future stock subscriptions and advances” in the total financial assets table. The cumulative change in the fair market value of this investment amounted to Php211 million and Php191 million as at September 30, 2013 and December 31, 2012, respectively.

BTFHI was incorporated for the primary purpose of acquiring voting preferred shares in PLDT and while the owner, holder of possessor thereof, to exercise all the rights, powers, and privileges of ownership or any other interest therein.

On October 26, 2012, BTFHI subscribed to a total of 150 million shares of Voting Preferred Stock of PLDT at a subscription price of Php1.00 per share for a total subscription price of Php150 million. Dividend receivable amounted to Php2 million each as at September 30, 2013 and December 31, 2012.

Common shares pertain to shares listed in the PSE with fair value of Php2,431 million, which include shares of PSE with fair value of Php1,994 million, shares of PLDT with fair value of Php79 million and other shares with fair value of Php358 million as at September 30, 2013. Total gain from investment in shares of PLDT for the nine months ended September 30, 2013 amounted to Php17 million comprising of Php5 million in dividend income and Php12 million unrealized gain from increase in market value of investment.

Common shares pertain to shares listed in the PSE with fair value of Php2,696 million, which include shares of PSE with fair value of Php2,286 million, shares of PLDT with fair value of Php67 million and other shares with fair value of Php343 million as at December 31, 2012. Total gain from investment in shares of PLDT for the year ended December 31, 2012 amounted to Php5 million comprising of Php5 million in dividend income and Php159 thousand unrealized gain from increase in market value of investment.

Preferred shares represent 300 million shares of preferred shares of PLDT at Php10 par value as at September 30, 2013 and December 31, 2012, net of subscription payable of Php2,640 million. These shares, which bear dividend of 13.5% per annum based on the paid-up subscription price, are cumulative, non-convertible and redeemable at par value at the option of PLDT. Dividend earned on this investment amounted to Php37 million for each of the nine months ended September 30, 2013 and 2012.

Investment in mutual funds include various U.S. dollar and Euro denominated equity and fixed income funds, which aims to out-perform benchmarks in various international indices as part of its investment strategy.

Investment in government securities include treasury bills and fixed-term treasury notes bearing interest ranging from 5.88% to 7%. These securities are fully guaranteed by the government of the Republic of the Philippines.

Investment properties include two condominium units (bare, separate 127 and 58 square meter units) located in Ayala-FGU Building along Alabang-Zapote Road in Muntinlupa City.

The allocation of the fair value of the assets for the PLDT pension plan as at September 30, 2013 and December 31, 2012 are as follows:

Smart and certain of its subsidiaries contributions to the plan are made based on the employees’ years of tenure and range from 5% to 10% of the employee’s monthly salary. Additionally, an employee has an option to make a personal contribution to the fund, at an amount not exceeding 10% of his monthly salary. The employer then provides an additional contribution to the fund ranging from 10% to 50% of the employee’s contribution based on the employee’s years of tenure. Although the plan has a defined contribution format, Smart and certain of its subsidiaries regularly monitor compliance with R.A. 7641. As at September 30, 2013 and December 31, 2012, Smart and certain of its subsidiaries were in compliance with the requirements of R.A. 7641.

The fund is being managed and invested by BPI Asset Management and Trust Group, as Trustee, pursuant to an amended trust agreement dated February 21, 2012.

The plan’s investment portfolio seeks to achieve regular income, long-term capital growth and consistent performance over its own portfolio benchmark. In order to attain this objective, the Trustee’s mandate is to invest in a diversified portfolio of bonds and equities, both domestic and international. The portfolio mix is kept at 60% to 90% for debt and fixed income securities while 10% to 40% is allotted to equity securities.

The following table sets forth the fair values, which are equal to the carrying values, of Smart’s plan assets recognized as at September 30, 2013 and December 31, 2012:

Investments in domestic fixed income include Philippine peso denominated bonds, such as government securities, corporate bonds and notes, special savings, debt securities and other deposit products of the banks. The investments under this category earned between 6.4% and 9.13% interest for the nine months ended September 30, 2013 and between 6.2% to 9.1% interest in 2012.

Investments in domestic equities include common shares and convertible preferred shares listed in the PSE. These investments earn on stock price appreciation and dividend payments.

This category consists of international mutual funds being managed by ING International.

Investments in international fixed income include foreign currency denominated bonds, such as mutual funds and unit investment trust funds. The Philippine sovereign debt, the only interest-bearing investment in this category, earned zero interest for the nine months ended September 30, 2013 and 5% interest in 2012.

This pertains to the fund’s excess liquidity in Philippine peso and U.S. dollars including time deposits and mutual funds and other deposit products of banks with tenor of less than one year.

The allocation of the fair value of Smart and certain of its subsidiaries pension plan assets as at September 30, 2013 and December 31, 2012 is as follows:

Smart and certain of its subsidiaries contributed Php151 million to the fund in 2012. Approximately Php208 million are expected to be contributed to the fund in 2013.

Net consolidated pension benefit costs (income) for the nine months ended September 30, 2013 and 2012 are as follows:

To ensure the proper execution of our strategic and operational business plans while taking into account the acquisition of Digitel in 2011 and other recent market developments, the 2012 to 2014 LTIP, covering the period from January 1, 2012 to December 31, 2014, was approved by the Board of Directors with the endorsement of the ECC on March 22, 2012. The award in the 2012 to 2014 LTIP is contingent upon the successful achievement of certain profit targets, intended to align the execution of the business strategies of the expanded Group, including Digitel, over the three year period from 2012 to 2014. In addition, the new LTIP allows for the participation of a number of senior executives and certain newly hired executives and ensures the continuity of management in line with the succession planning of the PLDT Group. LTIP costs recognized for the nine months ended September 30, 2013 and 2012 amounted to Php1,167 million and Php1,185 million, respectively. Total outstanding liability and fair value of 2012 to 2014 LTIP cost amounted to Php2,657 million and Php1,490 million as at September 30, 2013 and December 31, 2012, respectively. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimation of Pension Benefit Costs and Other Employee Benefits and Note 5 – Income and Expenses – Compensation and Employee Benefits.

Net periodic benefit costs computed for the nine months ended September 30, 2013 and 2012 are as follows:

Since 1994, following the rejection of PLDT’s formal protest against the assessments by the NTC of SRF, pursuant to Section 40 of Commonwealth Act No. 146, otherwise known as the Public Service Act, PLDT and the NTC had been involved in legal proceedings before the Court of Appeals and the Supreme Court. The principal issue in these proceedings was the basis for the computation of the SRF. PLDT’s position, which was upheld by the Court of Appeals, but, as set forth below, was rejected by the Supreme Court, was that the SRF should be computed based only on the par value of the subscribed or paid up capital of PLDT, excluding stock dividends, premium or capital in excess of par. The Supreme Court, in its decision dated July 28, 1999, ordered the NTC to make a recomputation of the SRF based on the actual amount paid (inclusive of premiums) for the “capital stock subscribed or paid” and not on par or market value. Subsequently, in February 2000, the NTC issued an assessment letter for the balance of the SRF, but in calculating said fees, the NTC used as basis not only capital stock subscribed or paid, but also the stock dividends. PLDT questioned the inclusion of the stock dividends in the calculation of the SRF and sought to restrain the NTC from enforcing its assessment until the resolution of the issue. Prior to the resolution of the issue mentioned above, PLDT paid the SRF due in 2000 together with the balance due from the recalculation of the SRF and had been paying the SRF due in September of each year thereafter, excluding the portion based on stock dividends.

In a resolution promulgated on December 4, 2007, the Supreme Court upheld the NTC assessment of SRF based on outstanding capital stock of PLDT, including stock dividends. In a letter to PLDT on February 29, 2008, or the Assessment Letter, the NTC assessed the total amount of SRF on stock dividends due from PLDT to be Php2,870 million, which assessment included penalties and interest. On April 3, 2008, PLDT complied with the Supreme Court resolution by paying to the NTC the outstanding principal amount relating to SRF on stock dividends in the amount of Php455 million, but not including penalties and interest. PLDT believes that it is not liable for penalties and interest, and therefore protested and disputed NTC’s assessments in the total amount of Php2,870 million, which included penalties. In letters dated April 14, 2008 and June 18, 2008, or the Demand Letters, the NTC demanded payment of the balance of its assessment. On July 9, 2008, PLDT filed a Petition for Certiorari and Prohibition with the Court of Appeals, or the PLDT Petition, praying that the NTC be restrained from enforcing or implementing its Assessment Letter and Demand Letters, all demanding payment of SRF including penalties and interests. The PLDT Petition further prayed that after notice and hearing, the NTC be ordered to forever cease and desist from implementing and/or enforcing, and annulling and reversing and setting aside, the Assessment Letter and Demand Letters. The Court of Appeals, in its Decision dated May 25, 2010, granted PLDT’s Petition and set aside/annulled the NTC’s Assessment Letter and Demand Letters. The NTC did not file a Motion for Reconsideration of the decision of the Court of Appeals but instead filed a Petition for Review, or the NTC Petition, directly with the Supreme Court. PLDT received a copy of the NTC Petition on July 29, 2010, and after receiving the order of the Supreme Court, filed its comment on the NTC Petition on December 7, 2010. The NTC filed a Reply dated August 26, 2011 and PLDT filed a Rejoinder on October 12, 2011.

On January 30, 2013, the Supreme Court’s Third Division issued a resolution denying the NTC Petition for failure to show any reversible error in the challenged judgment as to warrant the exercise of the Supreme Court’s discretionary appellate jurisdiction. The Supreme Court resolution affirms the decision of the Court of Appeals, which declared that the NTC erred in imposing/assessing penalties and interest on the SRF payment of PLDT for the period 1987-2007, and annulled and set aside the Assessment Letter and Demand Letters. On April 10, 2013, the NTC filed a Motion for Reconsideration of the decision of the Supreme Court. PLDT received the Motion for Reconsideration on April 15, 2013 and filed its Comment/Opposition on May 15, 2013.

On June 26, 2013, the Supreme Court issued a resolution denying with finality the Motion for Reconsideration of the NTC. PLDT received the Supreme Court’s resolution on August 6, 2013, which serves as the termination of the case.

Pursuant to a decision of the Supreme Court on March 25, 2003 in the case of PLDT vs. City of Davao declaring PLDT not exempt from the local franchise tax, PLDT started paying local franchise tax to various local government units. PLDT has paid a total amount of Php1,152 million as at September 30, 2013 for local franchise tax covering prior periods up to September 30, 2013.

As at September 30, 2013, PLDT has no contested local government unit, or LGU, assessments for franchise taxes based on gross receipts received or collected for services within their respective territorial jurisdiction.

However, PLDT contested the imposition of local business taxes in addition to local franchise tax by the City of Tuguegarao in the amount of Php1.9 million for the years 1998 to 2003. The Regional Trial Court, or RTC, rendered a decision stating that the City of Tuguegarao cannot impose local business tax on PLDT, there being no ordinance enacted for that purpose. Its Motion for Reconsideration having been denied by the court in its Order dated March 2, 2009, the City of Tuguegarao has filed a Notice of Appeal before the Court of Appeals. PLDT filed a motion to dismiss on the said appeal on the ground of lack of jurisdiction as the appeal should have been filed before the Court of Tax Appeals, or CTA. In a resolution dated February 9, 2012, the Court of Appeals dismissed the case for failure of the City of Tuguegarao and its Treasurer to file their Appellants’ Brief. PLDT also contested the imposition of local business tax in addition to local franchise tax also by the City of Tuguegarao in the amount of Php2.3 million for the years 2006 to 2011. PLDT filed a Petition with the RTC of the City of Makati on July 8, 2011. The City of Tuguegarao filed its Answer with Motion to Dismiss claiming that the RTC of the City of Makati does not have jurisdiction over the case. Both parties have filed their respective Memorandum on the issue of Jurisdiction. A judicial dispute resolution, or JDR, conference was set by the court after the parties failed to settle the case in the mediation proceedings. Due to the failure of the City of Tuguegarao to appear on the JDR conference last May 15, 2012, the court transmitted the case to the Office of the Clerk of Court of the City of Makati for re-raffling in accordance with the JDR guidelines. The case was raffled to Branch 132 of Makati City and a Pre-Trial Conference, which was scheduled on October 19, 2012, was postponed by the court due to the Motion for Resolution on the previously filed Motion to Dismiss by Tuguegarao City on the ground of lack of jurisdiction. In an order dated October 12, 2012, the court granted the Motion to Dismiss for lack of jurisdiction. PLDT filed a Motion for Reconsideration while the City of Tuguegarao has filed its corresponding Comment. In a Resolution dated January 18, 2013, the court denied the Motion for Reconsideration filed by PLDT. On March 8, 2013, PLDT filed a Petition for Review on the said dismissal of the case before the CTA. Acting on the Petition for Review filed by PLDT, the Second Division of the CTA issued a Resolution dated March 13, 2013 ordering the Respondents City of Tuguegarao and City Treasurer to file their Comment on the Petition for Review filed by PLDT. In a Resolution dated July 2, 2013 and received on July 12, 2013, the CTA ordered both parties to submit its respective Memorandum. PLDT has already submitted its Memorandum together with its Motion to Admit Memorandum and submit case for Resolution after Respondent City of Tuguegarao and City Treasurer failed to file their Comment on the Petition for Review filed by PLDT.

In Smart Communications, Inc. vs. City of Makati (Civil Cases No. 02-249 and 02-725, August 3, 2004), the deficiency local franchise tax assessment issued against Smart by the City of Makati covering the years 1995 and 1998 to 2001 had been ordered cancelled by the RTC of the City of Makati. This was upheld by the Court of Appeals in its Resolution dated June 9, 2005 (CA G.R. SP No. 88681, June 9, 2005). The Court’s Decision declaring Smart as exempt from paying local franchise tax had become final and executory.

In August 2009, the City of Makati issued a Letter of Authority for the examination of Smart’s local tax liabilities covering the years 2006, 2007 and 2008. The City of Makati issued deficiency local tax assessments, which Smart protested. On August 3, 2010, the City of Makati issued a Notice of Distraint and Levy. Smart filed on September 1, 2010 an Appeal before the RTC of the City of Makati. After several hearings, Smart and the City of Makati entered into a compromise agreement which was submitted to the court for judgment. On January 20, 2012, the RTC of the City of Makati issued its Judgment finding the compromise agreement meritorious and ordered both parties to comply with the terms and conditions of the agreement. With the compliance to the terms and conditions, the audit of Smart’s local tax liabilities by the City of Makati was terminated.

In the cases of Smart Communications, Inc. vs. City of Davao (July 21, 2009) and City of Iloilo vs. Smart Communications (July 1, 2009), the Supreme Court held that Smart is liable to pay the local franchise tax to the City of Davao and City of Iloilo. Several cities and provinces have begun discussions with Smart on the settlement of alleged local franchise tax with their respective jurisdictions. To limit the years covered by Smart’s tax liability, Smart is invoking the prospective application of the decisions on the Cities of Iloilo and Davao and the recognition of its local tax exemption by virtue of its BOI registration issued on May 3, 2001.

Meanwhile, the Province of Cagayan also issued tax assessment for alleged local franchise tax. On January 24, 2011, Smart filed a Petition before the RTC of the City of Makati, appealing the assessment on the ground that Smart cannot be held liable for local franchise tax mainly because it has no sales office within the Province of Cagayan pursuant to Section 137 of the Local Government Code (Republic Act No. 7160, or R.A. 7160). The RTC of the City of Makati issued a temporary restraining order on October 21, 2011, and the writ of preliminary injunction on November 14, 2011. On April 30, 2012, the RTC rendered a decision giving the petition due course and the assailed tax assessment nullified and set aside. The Province of Cagayan was directed to cease and desist from imposing local franchise taxes on Smart’s gross receipts. The Province of Cagayan then filed a Petition for Review before the Court of Tax Appeals in the City of Quezon on June 19, 2012, appealing the RTC Decision dated April 30, 2012. In a Decision promulgated on June 25, 2013, the Court of Tax Appeals ruled that the franchise tax assessment made by the Province of Cagayan against Smart for 2004 to 2009 based on “presumptive tax” is null and void for lack of legal and factual justifications.

In Smart Communications, Inc. vs. Central Board of Assessment Appeals, or CBAA, Local Board of Assessment Appeals of Surigao City, and City Assessor of Surigao City, Smart filed a Petition for Review with the Court of Appeals assailing the prior decision of the CBAA which declared Smart as being liable to pay real property taxes to the City of Surigao. The Court of Appeals on November 26, 2008 decided that Smart is exempt from the payment of real property taxes for its properties which are actually, directly and exclusively used in the operation of its franchise.

On August 16, 2010, the Court of Appeals issued an Entry of Judgment confirming that the November 26, 2008 Resolution had become final and executory on December 22, 2008, and it was recorded in the book of Entries of Judgments.

In 2004, PCEV secured a favorable decision from a Trial Court involving the local franchise tax in the City of Makati. In the case entitled “Pilipino Telephone Corporation vs. City of Makati and Andrea Pacita S. Guinto” (PCEV vs. City of Makati) (Civil Case No. 01-1760), the RTC of the City of Makati rendered its Decision dated December 10, 2002 declaring PCEV exempt from the payment of local franchise and business taxes. The Trial Court ruled that the legislative franchise of PCEV, Republic Act. No. 7293, granting the corporation exemption from local franchise and business taxes took effect after R.A. 7160 or the local government code which removed all prior tax exemptions granted by law or other special law. The Trial Court’s decision was affirmed by the Court of Appeals in its Decision dated July 12, 2004 and then subsequently, the Supreme Court denied the appeal of the City of Makati in its Entry of Judgment dated October 13, 2004. The Supreme Court ruled that the City of Makati, failed to sufficiently show that the Court of Appeals committed any reversible error in the questioned judgment to warrant the exercise of the Supreme Court’s discretionary appellate jurisdiction.

On March 9, 2009, PCEV received a letter from the City of Makati on alleged outstanding franchise tax obligations covering the period from 1995 to 2009. In November 2009, PCEV received a Billing Statement from the City of Makati for alleged franchise tax liability covering the period from 1999 to 2003. On December 16, 2009, PCEV filed its reply and refuted the alleged franchise tax liability based on the PCEV vs. City of Makati case.

In the case of Digitel vs. Province of Pangasinan (G.R. No. 152534, February 23, 2007), the Supreme Court held that Digitel is liable to the Province of Pangasinan for franchise tax from November 13, 1992 and real property tax only on real properties not actually, directly and exclusively used in the franchise operations from February 17, 1994. Digitel has fully settled its obligation with the Province of Pangasinan with respect to franchise tax and is currently in talks with the Province for the settlement of the real property tax. However, in the case of Digitel vs. City Government of Batangas (G.R. No. 156040, December 11, 2008), the Supreme Court ruled that Digitel’s real properties used in its telecommunications business are subject to the real property tax. On June 16, 2009, the Supreme Court denied Digitel’s Motion for Reconsideration. Digitel has already fully settled its obligation with the City Government of Batangas and in an order dated January 8, 2012, the case has been terminated by the Regional Trial Court, Branch 8 of Batangas City.

In DMPI vs. City of Cotabato (Civil Case No. 2010-345, February 2010), DMPI filed a Petition for prohibition and mandamus against the City of Cotabato due to their threats to close its cell sites due to real property tax delinquencies. DMPI is awaiting confirmation from external counsel and there are still ongoing negotiations for the reassessment of the valuation of DMPI sites.

In the DMPI vs. City of Davao (Special Civil Case No. 33,823-11, March 2011), DMPI’s Petition for Prohibition and Mandamus sought the Court’s intervention due to the threats issued by the City of Davao to stop the operations of DMPI business centers in the locality due to lack of business permits. DMPI contended that the City of Davao’s act of refusing to process its applications due to failure to pay real property taxes and business taxes is unwarranted, being that it is exempt under its BOI registration and prevailing laws. The case is in pre-trial stage. DMPI paid local business taxes and real property tax on tower and improvements. The City of Davao’s Legal Officer issued a letter-opinion declaring DMPI’s machinery as exempt from real property tax.

In the DMPI vs. City Government of Malabon (Special Civil Action 11-011-MN, November 2011), DMPI filed a Petition for Prohibition and Mandamus against the City of Malabon to prevent the auction sale of DMPI sites in its jurisdiction for alleged real property tax liabilities. DMPI was able to secure a Temporary Restraining Order to defer the sale. There is an ongoing mediation and the parties are exploring the possibility of settling amicably.

In DMPI vs. Municipality of San Mateo (Special Civil Action Case No. Br. 20-542, September 2011), DMPI filed a petition for Prohibition and Mandamus with Preliminary Injunction and Temporary Restraining Order against the Tower Fee Ordinance of the Municipality of San Mateo. The parties have already submitted their respective memorandum and the case is already submitted for resolution. The RTC denied DMPI’s petition. In June, 2013, DMPI filed a motion for reconsideration.

Meanwhile, in DMPI vs. the City Government of Santiago City and the City Permits and License Inspection Office of Santiago City, Isabela (CA-G.R. SP No. 127253) (Special Civil Action Case No. 36-0360, February 2011), the City Government of Santiago City filed an appeal with the Court of Appeals after the lower court granted DMPI’s petition and ruled as unconstitutional the provision of the ordinance imposing the Php200,000 per cell site per annum. DMPI has already filed its comment to the petition.

DMPI vs. City of Trece Martires (Civil Case No. TMSCA-004-10, February 2010) – The Company petitioned to declare void the Trece Martires ordinance of imposing tower fee of Php150,000 for each cell site annually. Application for the issuance of a preliminary injunction by DMPI is pending resolution.

Globe Telecoms, et al. vs. City of Lipa (Civil Case No. 2006-0568, 2006) – Globe filed a Protest of Assessment questioning the act of the LGU in assessing tower fees for its sites amounting to Php105,000 per year. A joint Memoranda for Smart, DTPI and DMPI was submitted in June 2013 pertaining to the issue of whether the Ordinance is a regulatory or tax imposition.

Since 1990 (up to present), PLDT and ETPI have been engaged in legal proceedings involving a number of issues in connection with their business relationship. While they have entered into Compromise Agreements in the past (one in February 1990, and another one in March 1999), these agreements have not put to rest their issues against each other. Accordingly, to avoid further protracted litigation and improve their business relationship, both PLDT and ETPI have agreed in April 2008 to submit their differences and issues to voluntary arbitration. For this arbitration (after collating various claims of one party against the other), ETPI, on one hand, initially submitted its claims of about Php2.9 billion against PLDT; while PLDT, on the other hand, submitted its claims of about Php2.8 billion against ETPI. Currently, PLDT and ETPI have agreed to suspend the arbitration proceedings between them.

In the Gamboa Case, the Supreme Court in its decision dated June 28, 2011, or the Gamboa Case Decision, held that “the term ‘capital’ in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors and thus, in the case of PLDT, only to voting common shares, and not to the total outstanding capital stock (common and non-voting preferred shares)”. The Gamboa Case Decision reversed earlier opinions issued by the Philippine SEC that non-voting preferred shares are included in the computation of the 60%-40% Filipino-alien equity requirement of certain economic activities, such as telecommunications which is a public utility under Section 11, Article XII of the 1987 Constitution. Several Motions for Reconsideration of the Gamboa Case Decision were filed by the parties. On October 18, 2012, the Gamboa Case Decision became final and executory.

While PLDT was not a party to the Gamboa Case, the Supreme Court directed the Philippine SEC in the Gamboa Case “to apply this definition of the term ‘capital’ in determining the extent of allowable foreign ownership in PLDT, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.”

On July 5, 2011, the Board of Directors of PLDT approved the amendments to the Seventh Article of PLDT’s Articles of Incorporation consisting of the sub-classification of its authorized preferred capital stock into preferred shares with full voting rights, or Voting Preferred Stock, and serial preferred shares without voting rights, and other conforming amendments, or the Amendments. The Amendments were approved by the stockholders of PLDT on March 22, 2012 and by the Philippine SEC on June 5, 2012.

On October 12, 2012, the Board of Directors of PLDT approved the specific rights, terms and conditions of the Voting Preferred Stock and authorized the subscription and issuance thereof to BTFHI, a Filipino corporation. On October 16, 2012, BTFHI subscribed to 150 million newly issued shares of Voting Preferred Stock, or the Voting Preferred Shares, at a subscription price of Php1.00 per share for a total subscription price of Php150 million pursuant to a subscription agreement dated October 15, 2012 between BTFHI and PLDT.

On May 30, 2013, the Philippine SEC issued SEC Memorandum Circular No. 8, or the Philippine SEC Guidelines, which provides under Section 2 thereof, as follows: “All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes of compliance therewith, the required percentage of Filipino ownership shall be applied to both: (a) the total number of outstanding shares of stock entitled to vote in the election of directors; and (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.” PLDT was, and continues to be, compliant with the Philippine SEC Guidelines. As at end of September 30, 2013, PLDT’s foreign ownership was 32.67% of its outstanding shares entitled to vote (Common and Voting Preferred Shares), and 17.95% of its total outstanding capital stock.

On June 10, 2013, PLDT was served a copy of a Petition for Certiorari under Rule 65 of the Revised Rules of Court, or the Petition, filed with the Supreme Court by Jose M. Roy III as petitioner against the Chairperson of the Philippine SEC, Teresita Herbosa, the Philippine SEC and PLDT as respondents. The Petition primarily questions the constitutionality of the Philippine SEC Guidelines in determining the nationality of a Philippine company pursuant to the Gamboa Case Decision and Section 11, Article XII of the Constitution. Per the Philippine SEC Guidelines, the Philippine nationality requirement of Section 11, Article XII of the Constitution is met if at least 60% of: (a) the outstanding voting stocks; and (b) the outstanding capital stock of the company is owned by Filipinos.

The Petition admits that if the Philippine SEC Guidelines were to be followed, PLDT would be compliant with the nationality requirement of the Philippine Constitution. However, the Petition claims that the Philippine SEC Guidelines do not conform to the letter and spirit of the Constitution and the Gamboa Case Decision supposedly requiring the application of the 60%-40% ownership requirement in favor of Filipino citizens separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares, or the Other Gamboa Statements. The Petition also claims that the PLDT-BTF does not satisfy the effective Filipino-control test for purposes of incorporating BTFHI which acquired the 150 million Voting Preferred Shares.

Wilson C. Gamboa, Jr., Daniel V. Cartagena, John Warren P. Gabinete, Antonio V. Pesina, Jr., Modesto Martin Y. Mamon and Gerardo C. Erebaren, or the Intervenors, filed a Motion for Leave to file Petition-In-Intervention dated July 16, 2013 which the Supreme Court granted in a Resolution dated August 6, 2013. The Petition-In-Intervention raised identical arguments and issues as that of the Petition.

PLDT, through counsels, filed its Comment on the Petition on September 5, 2013. In its Comment, PLDT raised the following defenses: (a) Petitioner’s direct recourse to the Supreme Court in filing the petition violates the fundamental doctrine of the hierarchy of courts. There are no compelling reasons to invoke the Supreme Court’s original jurisdiction; (b) The Petition was prematurely brought before the Supreme Court. Petitioner failed to exhaust administrative remedies before the Philippine SEC, and there are facts yet to be established (in the lower courts) that are necessary for a proper and complete ruling; (c) The Petition is in the nature of a petition for mandamus and/or declaratory relief which, under Rules 65 and 63 of the Rules of Court, are not within the exclusive and/or original jurisdiction of the Supreme Court, as provided under Article VIII, Sections 5(1), 5(5), 6 and 11 of the Constitution and Rule 56 of the Rules of Court; (d) The Petition must be dismissed in as much as it is challenging the validity and constitutionality of a Memorandum Circular, which was issued in the exercise of the Philippine SEC’s quasi-legislative power, for which a petition for certiorari is an inappropriate remedy; (e) Assuming arguendo that the issuance of Philippine SEC Memorandum Circular No. 8 involved the exercise by the Philippine SEC of its quasi-judicial power, the Petition still cannot prosper since the issue of the validity and constitutionality of Philippine SEC Memorandum Circular No. 8 does not pertain to errors of jurisdiction on the part of the Philippine SEC; (f) Petitioner is not the proper party to question the constitutionality of the Philippine SEC Guidelines and PLDT’s compliance with the Gamboa decision and the Petition is likewise not a valid taxpayer’s suit and should not be entertained by the Supreme Court; (g) The Petition seeks relief that effectively deprives the necessary and indispensable parties affected thereby (such as, BTFHI, MediaQuest, PLDT-BTF, and all corporations in which PLDT-BTF made an investment and their subsidiaries) of their constitutional right to due process, all of whom were not impleaded as parties; and
(h) Philippine SEC Memorandum Circular No. 8 merely implemented the dispositive portion of the Gamboa Case Decision.

Particularly, for the defense under (h) above, PLDT argued that: (a) the only binding and enforceable part of the Gamboa Case Decision is the dispositive portion, which defined the term “capital” under Article XII, Section 11 of the 1987 Constitution as “shares of stock entitled to vote in the election of directors”, and such dispositive portion of the Gamboa Case Decision is properly reflected and enforced in Philippine SEC Memorandum Circular No. 8. The Other Gamboa Statements were just “obiter dicta” or expressions of opinion which have no precedential value and binding effect; and (b) with respect to the nationality of PLDT-BTF and BTFHI, the fundamental requirements which needs to be satisfied in order for PLDT-BTF and BTFHI to be considered Filipino is for PLDT-BTF’s Trustees to be Filipinos and 60% of the Fund will accrue to the benefit of Philippine nationals. This is reflected in Section 3(a) of Republic Act No. 7042, as amended, or the Foreign Investment Act, which provides that the term “Philippine national” includes “a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least 60% of the fund will accrue to the benefit of “Philippine nationals”. Both requirements are present with respect to the PLDT-BTF. Consequently, there is no question that PLDT-BTF and BTFHI are Filipino shareholders for purposes of classifying their 150 million shares of Voting Preferred Stock in PLDT and as a result, more than 60% of PLDT’s total voting stock is Filipino-owned. PLDT is thus compliant with the Philippine nationality requirement under Article XII, Section 11 of the 1987 Constitution.

The resolution of the Jose M. Roy III Petition remains pending with the Supreme Court.

Other disclosures required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, were not provided as it may prejudice our position in on-going claims, litigations and assessments. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Provision for Legal Contingencies and Tax Assessments.

We have various financial assets such as trade and non-trade receivables and cash and short-term deposits, which arise directly from our operations. Our principal financial liabilities, other than derivatives, comprise of bank loans and overdrafts, finance leases, trade and non-trade payables. The main purpose of these financial liabilities is to finance our operations. We also enter into derivative transactions, primarily principal only-currency swap agreements, currency options, interest rate swaps and forward foreign exchange contracts to manage the currency and interest rate risks arising from our operations and sources of financing. Our accounting policies in relation to derivatives are set out in Note 2 – Summary of Significant Accounting Policies – Financial Instruments.

The following table sets forth our financial assets and financial liabilities held as at September 30, 2013, December 31, 2012 and January 1, 2012:

Financial

Available-for-sale

Financial

Total

Loans

instruments

Derivatives used

financial

liabilities carried

financial assets

and receivables

HTM investments

at FVPL

for hedging

investments

at amortized cost

and liabilities

(in million pesos)

Assets as at September 30, 2013 (Unaudited)

Noncurrent:

Available-for-sale financial investments

–

5,673

–

5,673

Investment in debt securities and other long-term investments

305

473

–

778

Derivative financial assets

–

Advances and other noncurrent assets – net of current portion

2,039

–

2,039

Current:

Cash and cash equivalents

29,779

–

29,779

Short-term investments

–

571

–

595

Trade and other receivables

16,808

–

16,808

Derivative financial assets

–

Current portion of investment in debt securities and other long-term investments

–

Current portion of advances and other noncurrent assets

7,993

–

7,993

Total assets

56,948

564

571

5,673

–

63,779

Liabilities as at September 30, 2013 (Unaudited)

Noncurrent:

Interest-bearing financial liabilities – net of current portion

–

95,208

Derivative financial liabilities

–

1,954

–

1,962

Customers’ deposits

–

2,555

Deferred credits and other noncurrent liabilities

–

18,828

Current:

Accounts payable

–

26,911

Accrued expenses and other current liabilities

–

56,713

Current portion of interest-bearing financial liabilities

–

14,258

Dividends payable

–

1,054

Derivative financial liabilities

–

117

Total liabilities

–

2,022

–

215,527

217,606

Net assets (liabilities)

56,948

564

(1,451

)

(34

)

5,673

(215,527

)

(153,827

)

Assets as at December 31, 2012 (As Adjusted – Note 2)

Noncurrent:

Available-for-sale financial investments

–

5,651

–

5,651

Investment in debt securities and other long-term investments – net of current portion

205

–

205

Advances and other noncurrent assets – net of current portion

962

–

962

Current:

Cash and cash equivalents

37,161

–

37,161

Short-term investments

–

550

–

574

Trade and other receivables

16,379

–

16,379

Current portion of investment in debt securities and other long-term investments

–

150

–

150

Current portion of advances and other noncurrent assets

7,915

–

7,915

Total assets

62,646

150

550

–

5,651

–

68,997

Liabilities as at December 31, 2012 (As Adjusted – Note 2)

Noncurrent:

Interest-bearing financial liabilities – net of current portion

–

102,821

Derivative financial liabilities

–

2,802

–

2,802

Customers’ deposits

–

2,529

Deferred credits and other noncurrent liabilities

–

19,224

Current:

Accounts payable

–

29,027

Accrued expenses and other current liabilities

–

56,662

Current portion of interest-bearing financial liabilities

–

12,989

Dividends payable

–

827

Derivative financial liabilities

–

348

–

418

Total liabilities

–

2,872

348

–

224,079

227,299

Net assets (liabilities)

62,646

150

(2,322

)

(348

)

5,651

(224,079

)

(158,302

)

Assets as at January 1, 2012 (As Adjusted – Note 2)

Noncurrent:

Available-for-sale financial investments

–

7,181

–

7,181

Investment in debt securities and other long-term investments – net of current portion

–

150

–

150

Advances and other noncurrent assets – net of current portion

1,147

–

1,147

Current:

Cash and cash equivalents

46,057

–

46,057

Short-term investments

–

534

–

558

Trade and other receivables

16,245

–

16,245

Current portion of investment in debt securities and other long-term investments

–

358

–

358

Current portion of advances and other noncurrent assets

–

366

–

384

Total assets

63,491

508

900

–

7,181

–

72,080

Liabilities as at January 1, 2012 (As Adjusted – Note 2)

Noncurrent:

Interest-bearing financial liabilities – net of current portion

–

91,280

Derivative financial liabilities

–

2,235

–

2,235

Customers’ deposits

–

2,272

Deferred credits and other noncurrent liabilities

–

20,343

Current:

Accounts payable

–

27,982

Accrued expenses and other current liabilities

–

40,459

Current portion of interest-bearing financial liabilities

–

26,009

Dividends payable

–

2,583

Derivative financial liabilities

–

922

–

924

Total liabilities

–

3,157

–

210,928

214,087

Net assets (liabilities)

63,491

508

(2,257

)

7,181

(210,928

)

(142,007

)

The following table sets forth the consolidated carrying values and estimated fair values of our financial assets and liabilities recognized as at September 30, 2013, December 31, 2012 and January 1, 2012:


	Carrying Value						Fair Value
	September 30,		December 31,		January 1,		September 30,		December 31,		January 1,
	2013		2012		2012		2013		2012		2012
	(Unaudited)		(As Adjusted – Note 2)				(Unaudited)		(As Adjusted – Note 2)
			(in million pesos)
Noncurrent Financial Assets
Available-for-sale financial investments:
Listed equity securities		102		89		81		102		89		81
Unlisted equity securities		5,571		5,562		7,100		5,571		5,562		7,100
Investment in debt securities and other long-term investments – net of current portion		778		205		150		770		219		158
Derivative financial assets:
Interest rate swap		22		–		–		22		–		–
Advances and other noncurrent assets – net of current portion		2,039		962		1,147		2,001		912		1,061

Total noncurrent financial assets		8,512		6,818		8,478		8,466		6,782		8,400

Current Financial Assets
Cash and cash equivalents:
Cash on hand and in banks		4,430		5,611		4,637		4,430		5,611		4,637
Temporary cash investments		25,349		31,550		41,420		25,349		31,550		41,420
Short-term investments		595		574		558		595		574		558
Trade and other receivables – net:
Foreign administrations		5,645		4,861		4,762		5,645		4,861		4,762
Retail subscribers		5,102		4,079		4,038		5,102		4,079		4,038
Corporate subscribers		1,505		1,963		2,708		1,505		1,963		2,708
Domestic carriers		1,332		1,601		1,212		1,332		1,601		1,212
Dealers, agents and others		3,224		3,875		3,525		3,224		3,875		3,525
Derivative financial assets:
Short-term currency swap		1		–		–		1		–		–
Long-term currency swap		–		–		356		–		–		356
Forward foreign exchange contracts		–		–		10		–		–		10
Current portion of investment in debt securities and other long-term investments		91		150		358		91		150		358
Current portion of advances and other noncurrent assets		7,993		7,915		18		7,993		7,915		18

Total current financial assets		55,267		62,179		63,602		55,267		62,179		63,602

Total Financial Assets		63,779		68,997		72,080		63,733		68,961		72,002

Noncurrent Financial Liabilities
Interest-bearing financial liabilities:
Long-term debt – net of current portion		95,201		102,811		91,273		100,598		110,431		95,052
Obligations under finance leases		7		10		7		7		9		7
Derivative financial liabilities:
Long-term currency swap – net of current portion		1,876		2,681		2,090		1,876		2,681		2,090
Interest rate swap – net of current portion		86		121		145		86		121		145
Customers’ deposits		2,555		2,529		2,272		2,067		2,200		1,772
Deferred credits and other noncurrent liabilities		18,828		19,224		20,343		17,695		18,176		19,420

Total noncurrent financial liabilities		118,553		127,376		116,130		122,329		133,618		118,486

Current Financial Liabilities Accounts payable:
Suppliers and contractors		23,901		26,128		25,476		23,901		26,128		25,476
Carriers		2,003		2,007		1,642		2,003		2,007		1,642
Related parties		863		668		626		863		668		626
Others		144		224		238		144		224		238
Accrued expenses and other current liabilities:
Utilities and related expenses		34,965		36,435		28,123		34,965		36,435		28,123
Liability from redemption of preferred shares		7,961		7,884		–		7,961		7,884		–
Employee benefits		6,792		5,469		4,438		6,792		5,469		4,438
Interests and other related costs		649		1,174		1,122		649		1,174		1,122
Mandatory tender offer option liability		–		–		4,940		–		–		4,940
Others		6,346		5,700		1,836		6,346		5,700		1,836
Interest-bearing financial liabilities:
Current portion of long-term debt		14,252		12,981		22,893		14,252		12,981		22,893
Obligations under finance leases		6		8		7		6		8		7
Notes payable		–		–		3,109		–		–		3,109
Dividends payable		1,054		827		2,583		1,054		827		2,583
Derivative financial liabilities:
Current portion of interest rate swap		111		70		89		111		70		89
Forward foreign exchange contracts		–		–		1		–		–		1
Equity forward sale contract		6		348		–		6		348		–
Current portion of long-term currency swap		–		–		834		–		–		834
Total current financial liabilities		99,053		99,923		97,957		99,053		99,923		97,957

Total Financial Liabilities		217,606		227,299		214,087		221,382		233,541		216,443

The following table sets forth the consolidated offsetting of financial assets and liabilities recognized as at September 30, 2013:

There were no financial instruments subject to an enforceable master netting arrangement that were not set-off in the statement of financial position.

Below are the list of financial assets and liabilities carried at fair value that are classified using a fair value hierarchy as required for complete sets of financial statements as at September 30, 2013, December 31, 2012 and January 1, 2012. This classification provides a reasonable basis to illustrate the nature and extent of risks associated with those financial statements.

⁽¹⁾

Fair values determined using observable market inputs that reflect quoted prices in active markets for identical assets or liabilities.

⁽²⁾

Fair values determined using inputs other than quoted market prices that are either directly or indirectly observable for the assets or liabilities.

As at September 30, 2013, December 31, 2012 and January 1, 2012, we have no financial instruments whose fair values are determined using inputs that are not based on observable market data (Level 3). There were also no transfers into and out of Level 3 during the period.

As at September 30, 2013, December 31, 2012 and January 1, 2012, there were no transfers between Level 1 and Level 2 fair value measurements.

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:

Forward foreign exchange contracts, foreign currency swaps and interest rate swaps: The fair values were computed as the present value of estimated future cash flows using market U.S. dollar and Philippine peso interest rates as at valuation date.

Equity forward sale contract: The fair values were adjusted as the present value of estimated future cash flows using equity prices and Philippine peso interest rates as at valuation date.

Available-for-sale financial investments: Fair values of available-for-sale financial investments, which consist of proprietary listed shares, were determined using quoted prices. For investment where there is no active market, investments are carried at cost less any accumulated impairment losses.

Investment in debt securities: Fair values were determined using quoted prices. For non-quoted securities, fair values were determined using discounted cash flow based on market observable rates.

Due to the short-term nature of the transactions, the fair value of cash and cash equivalents, short-term investments, trade and other receivables, accounts payable, accrued expenses and other current liabilities, and dividends payable approximate their carrying values as at the end of the reporting period.

Our derivative financial instruments are accounted for as either cash flow hedges or transactions not designated as hedges. Cash flow hedges refer to those transactions that hedge our exposure to variability in cash flows attributable to a particular risk associated with a recognized financial asset or liability and exposures arising from forecast transactions. Changes in the fair value of these instruments representing effective hedges are recognized directly in other comprehensive income until the hedged item is recognized in our consolidated income statement. For transactions that are not designated as hedges, any gains or losses arising from the changes in fair value are recognized directly to income for the period. Equity forward sale contract was designated as cash flow hedge by ePLDT as at September 30, 2013, December 31, 2012 and January 1, 2012 and forward foreign exchange contracts were designated as cash flow hedges by SPi and SPi CRM as at January 1, 2012. Interest rate swap agreements were designated as cash flow hedges by PLDT and Smart as at September 30, 2013.

The table below sets out the information about our derivative financial instruments as at September 30, 2013, December 31, 2012 and January 1, 2012:


			September 30, 2013					December 31, 2012					January 1, 2012
			(Unaudited)					(Audited)
	Maturity		Notional		Mark-to- market Gains (Losses)			Notional		Mark-to- market Gains (Losses)			Notional		Mark-to- market Gains (Losses)

								(in millions)
Transactions not designated as hedges:
PLDT
Long-term currency swaps		2017	US$	202	(Php1,876)			US$	202	(Php2,681)			US$	222	(Php2,090)
		2012		–		–			–		–			100		(834	)
		2012		–		–			–		–		60⁽¹⁾			356
Short-term currency swaps		2013		7		1			–		–			–		–
						(1,875	)				(2,681	)				(2,568	)

Digitel Group
Interest rate swaps		2017		47		(146	)		57		(191	)		69		(234	)

Transactions designated as hedges:
Cash flow hedges:
PLDT
Interest rate swaps		2018		120		1			–		–			–		–
									–		–			–		–
Smart
Interest rate swaps		2016		83		(4	)		–		–			–		–
		2017		44		(5	)		–		–			–		–
		2018		40		(21	)

						(29	)									–

ePLDT Group
Equity forward sale contract	2013		118 shares		(6)			211 shares		(348)			–		–

SPi Group
Forward foreign exchange contracts	2012		–		–			–		–			57		10
		2013		–		–			–		–			4		(1	)

						–					–					9

Net liabilities					(Php2,056)					(Php3,220)					(Php2,793)

⁽¹⁾

Overlay principal only swap agreements to effectively unwind a portion of the outstanding long-term principal only swap agreement matured in 2012.

Movements of mark-to-market losses for the nine months ended September 30, 2013 and for the year ended December 31, 2012 are summarized as follows:

Analysis of gains (losses) on derivative financial instruments for the nine months ended September 30, 2013 and 2012 are as follows:

Due to the amounts of PLDT’s foreign currency hedging requirements and the large interest differential between the Philippine peso and the U.S. dollar, the costs to book long-term hedges can be significant. In order to manage such hedging costs, PLDT utilizes structures that include currency option contracts, and fixed-to-floating coupon-only swaps that may qualify for hedge accounting.

On May 27, 2013, PLDT entered into a five-year interest rate swap agreement with a total notional amount of US$40 million to hedge its interest rate exposure on a portion of the outstanding balance of the US$300 million Loan Facility maturing in January 2018 into fixed interest rate. Under this agreement, PLDT is entitled to receive a floating rate of equivalent to the three-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of three months commencing on June 6, 2013) and in exchange, will pay a fixed rate of 1.945%.

On June 6, 2013, PLDT entered into a five-year interest rate swap agreement with a total notional amount of US$40 million to hedge its interest rate exposure on a portion of the outstanding balance of the US$300 million Loan Facility maturing in January 2018 into fixed interest rate. Under this agreement, PLDT is entitled to receive a floating rate of equivalent to the three-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of three months commencing on September 6, 2013) and in exchange, will pay a fixed rate of 2.385%.

On July 13, 2013, PLDT entered into a five-year interest rate swap agreement with a notional amount of US$40 million to hedge its interest rate exposure on a portion of the outstanding balance of the US$300 million Loan Facility maturing in January 2018 into fixed interest rate. Under this agreement, PLDT is entitled to receive a floating rate of equivalent to the three-month US$ LIBOR plus a margin at the end of each Calculation Period (comprising of successive periods of three months commencing on September 6, 2013) and in exchange, will pay a fixed rate of 2.25%.

The interest rate swap agreements were designated as cash flow hedges, wherein effective portion of the movements in the fair value is recognized in other comprehensive income while any ineffective portion is recognized immediately in our consolidated income statement. As at September 30, 2013, the mark-to-market gains of the interest swap with aggregate notional amount of US$120 million and recognized in other comprehensive income amounted to Php2 million. There was no ineffective portion in the fair value of these instruments recognized in the consolidated statement of income for the nine months ended September 30, 2013. See Note 20 – Interest-bearing Financial Liabilities – Long-term Debt.

PLDT has entered into long-term principal only-currency swap agreements with various foreign counterparties to hedge the currency risk on its fixed rate notes maturing in 2012 and 2017. Under the swaps, PLDT effectively exchanges the principal of its U.S. dollar-denominated fixed rate notes into Philippine peso-denominated loan exposures at agreed swap exchange rates. The agreed swap exchange rates are reset to the lowest U.S. dollar/Philippine peso spot exchange rate during the term of the swaps, subject to a minimum exchange rate. The outstanding swap contracts have an agreed average swap exchange rates of Php49.85 and Php49.81 for the nine months ended September 30, 2013 and 2012, respectively. The semi-annual fixed or floating swap cost payments that PLDT is required to make to its counterparties averaged about 3.42% per annum for the nine months ended September 30, 2013 and 2012.

On various dates from August to November 2012, the long-term principal only-currency swap agreements maturing in 2017 were partially terminated, with a total aggregate settlement of Php256 million. As a result of these unwinding transactions, the outstanding notional amount was reduced to US$202 million as at September 30, 2013 and December 31, 2012. The mark-to-market losses of the 2017 swaps with a notional amount of US$202 million amounted to Php1,876 million and Php2,681 million as at September 30, 2013 and December 31, 2012, respectively. The mark-to-market losses of the 2012 and 2017 swaps with notional amounts of US$100 million and US$222 million, respectively, amounted to Php834 million and Php2,090 million, respectively, as at January 1, 2012.

On various dates from October to November 2010, PLDT entered into several overlay principal only swap agreements with an aggregate notional amount of US$60 million to effectively unwind a portion of the outstanding long-term principal only-currency swap agreement maturing in 2012. The overlay swaps are offsetting swaps which carry the direct opposite terms and cash flows of our existing swap agreement. As consideration for the overlay swaps, PLDT will pay an average fixed rate of 10.84% on a semi-annual basis over the life of the offsetting swaps. These overlay swap agreements have an aggregate mark-to-market gains of Php356 million as at January 1, 2012. These overlay swaps matured on May 15, 2012, where PLDT received proceeds amounting to Php565 million. See Note 20 – Interest-bearing Financial Liabilities – Long-term Debt.

In September 2013, PLDT also entered into short-term currency swap contracts to generate short-term peso liquidity while preserving U.S. dollar receipts for purposes of enhancing yields on our excess funds. The total outstanding swaps amounted to US$7 million with U.S. dollar forward purchase leg booked at an average exchange rate of Php43.31 resulting to mark-to-market gains of Php1 million as at September 30, 2013. The spot leg of these swaps were sold at an average exchange rate of Php43.35. There were no outstanding short-term currency swaps and forward foreign exchange contracts as at December 31, 2012 and January 1, 2012.

On October 7, 2008, DMPI entered into an eight-year interest rate swap agreement with a total notional amount of US$54.1 million to hedge its interest rate exposures on the US$59.2 million Loan Facility maturing in March 2017 into fixed interest rate. Under this agreement, Digitel is entitled to receive a floating rate of equivalent to the US$ LIBOR rate as of the last Calculation Date and in exchange, will pay a fixed rate of 3.88%. The outstanding notional amounts under this agreement amounted to US$24 million, US$31 million and US37 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. The mark-to-market losses amounted to Php68 million, Php102 million and Php125 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 20 – Interest-bearing Financial Liabilities – Long-term Debt.

On October 7, 2008, DMPI entered into an eight-year interest rate swap agreement with a total notional amount of US$46.5 million to hedge its interest rate exposures on the US$51.2 million Loan Facility maturing in June 2017 into fixed interest rate. Under this agreement, Digitel is entitled to receive a floating rate of equivalent to the US$ LIBOR rate as of the last Calculation Date and in exchange, will pay a fixed rate of 3.97%. The outstanding notional amounts under this agreement amounted to US$23 million, US$26 million and US$32 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. The mark-to-market losses amounted to Php78 million, Php89 million and Php109 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 20 – Interest-bearing Financial Liabilities – Long-term Debt.

On May 8, 2013, Smart entered into a three-year interest rate swap agreement with a total notional amount of US$45 million to hedge its interest rate exposure on the outstanding balance of the US$60 million Loan Facility maturing in June 2016 into fixed interest rate. Under this agreement, Smart is entitled to receive a floating rate equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on December 6, 2013) and in exchange, will pay a fixed rate of 1.527%. See Note 20 – Interest-bearing Financial Liabilities – Long-term Debt.

On May 9, 2013, Smart entered into a three-year interest rate swap agreement with a total notional amount of US$38 million to hedge its interest rate exposure on the outstanding balance of the US$50 million Loan Facility maturing in August 2016 into fixed interest rate. Under this agreement, Smart is entitled to receive a floating rate equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on February 19, 2014) and in exchange, will pay a fixed rate of 1.4275%. See Note 20 – Interest-bearing Financial Liabilities – Long-term Debt.

On May 16, 2013, Smart entered into a four-year interest rate swap agreement with a total notional amount of US$44 million to hedge its interest rate exposure on the outstanding balance of the US$50 million Loan Facility maturing in May 2017 into fixed interest rate. Under this agreement, Smart is entitled to receive a floating rate equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on November 29, 2013) and in exchange, will pay a fixed rate of 1.77%. See Note 20 – Interest-bearing Financial Liabilities – Long-term Debt.

On July 18, 2013, Smart entered into a five-year interest rate swap agreement with a notional amount of US$40 million to hedge its interest rate exposure on a portion of the US$120 million Loan Facility maturing in June 2018 into fixed interest rate. Under this agreement, Smart is entitled to receive a floating rate equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on March 25, 2014) and in exchange, will pay a fixed rate of 2.36%. See Note 20 – Interest-bearing Financial Liabilities – Long-term Debt.

The interest rate swap agreements were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in other comprehensive income while any ineffective portion is recognized immediately in our consolidated income statement. As at September 30, 2013, mark-to-market losses amounting to Php27 million was recognized in other comprehensive income and Php3 million was recorded as interest accrual on the interest swap with aggregate notional amount of US$167 milion. There was no ineffective portion in the fair value movements recognized in the consolidated statement of income for the nine months ended September 30, 2013.

On July 10, 2012, ePLDT entered into an equity forward sale contract amounting to Php4,310 million in order to hedge its exposure to the volatility of the share price of Philweb when it sold its investment in 398 million common shares of Philweb at a certain price in four tranches, which is expected to be completed by the end of 2013. The first and second tranches were transacted on July 13, 2012 and October 22, 2012, respectively. Each tranche was for 93.5 million common shares and for a total purchase price of Php1 billion each. On June 13, 2013, the third tranche was paid for 93.5 million common shares for a purchase price of Php10.70 per share plus 3% per annum of the total thereof calculated from December 12, 2012 to the actual date of payment of the third tranche, or Php1 billion. The fourth tranche will be paid on December 13, 2013 for 118 million common shares for a purchase price of Php10.70 per share plus 3% per annum of the total thereof calculated from December 12, 2012 to the actual date of payment of the fourth tranche. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Assets Held-for-Sale and Discontinued Operations and Note 10 – Investments in Associates, Joint Ventures and Deposits – Investment of ePLDT in Philweb. The mark-to-market losses recognized in the profit or loss at the inception of this contract amounted to Php727 million. The gains and losses from the inception of this contract will be recognized in cumulative translation adjustments and are expected to be realized in profit or loss upon occurrence of each tranche. The mark-to-market loss transferred from cumulative translation adjustment to profit or loss in relation with the first and second tranches amounted to Php387 million and was recognized as a reduction on gain of sale of Philweb shares presented as part of other income in our consolidated income statements. The mark-to-market losses as at September 30, 2013 for the remaining tranche amounted to Php6 million, with Php213 million recognized in cumulative translation adjustments, Php727 million recognized in profit or loss in 2012, representing losses at the inception of the contract, and Php5 million recognized in profit or loss, representing the ineffective portion of the loss in the fair value of the contract as at September 30, 2013. The mark-to-market losses as at December 31, 2012 for the remaining two tranches amounted to Php348 million, with Php44 million recognized in cumulative translation adjustments, Php727 million recognized in profit or loss, representing losses at the inception of the contract, and Php3 million recognized in profit or loss, representing the ineffective portion of the loss in the fair value of the contract as at December 31, 2012.

On various dates in 2013, PGIH entered into short-term U.S. dollar forward foreign exchange sale contracts to hedge proceeds from the sale of BPO segment. There were no outstanding forward foreign exchange contracts as at September 30, 2013.

In February and March 2011, SPi CRM and SPi entered into several forward foreign exchange contracts with various financial institutions to hedge a portion of monthly dollar denominated revenues and peso denominated expenses, respectively, maturing March 2011 up to October 2012. The gains and losses on such contracts are expected to be recognized in profit or loss upon occurrence of the monthly dollar revenues and monthly peso expenses hedged.

On December 6, 2011, SPi CRM changed its functional currency from Philippine peso to U.S. dollar resulting for all its outstanding hedges to become ineffective starting from that date and mark-to-market gains and losses thereafter are recognized in profit or loss. The mark-to-market gains of SPi CRM and SPi’s outstanding forward exchange contracts that were designated as hedges with notional amounts of US$24 million and US$29 million, respectively, amounted to Php9 million as at January 1, 2012. In January 2012, SPi CRM pre-terminated all outstanding ineffective hedges.

In March 2012, SPi CRM entered into several forward foreign exchange contracts with various financial institutions to hedge a portion of its monthly peso denominated expenses maturing from June 29, 2012 to December 26, 2013. The gains and losses on such contracts are expected to be recognized in profit or loss upon occurrence of the monthly peso expenses hedged.

The mark-to-market gains of SPi CRM and SPi’s outstanding forward exchange contracts that were designated as hedges and presented as part of derivative financial liabilities under liabilities directly associated with assets classified as held-for-sale with notional amount of US$55 million, amounted to Php61 million as at December 31, 2012. See Note 2 – Summary of Significant Accounting Policies – Discontinued Operations.

The mark-to-market gains of SPi CRM and SPi’s outstanding forward exchange contracts were no longer included in our consolidated financial statements since April 30, 2013, which is the closing date of the sale of our BPO segment.

The main risks arising from our financial instruments are liquidity risk, foreign currency exchange risk, interest rate risk and credit risk. The importance of managing those risks has significantly increased in light of the considerable change and volatility in both the Philippine and international financial markets. Our Board of Directors reviews and approves policies for managing each of these risks. Our policies for managing these risks are summarized below. We also monitor the market price risk arising from all financial instruments.

Our exposure to liquidity risk refers to the risk that our financial liabilities are not reviewed in a timely manner and that our working capital requirements and planned capital expenditures are not met.

We manage our liquidity profile to be able to finance our operations and capital expenditures, service our maturing debts and meet our other financial obligations. To cover our financing requirements, we use internally generated funds and proceeds from debt and equity issues and sales of certain assets.

As part of our liquidity risk management program, we regularly evaluate our projected and actual cash flows, including our loan maturity profiles, and continuously assess conditions in the financial markets for opportunities to pursue fund-raising initiatives. These activities may include bank loans, export credit agency-guaranteed facilities, debt capital and equity market issues.

Any excess funds are primarily invested in short-term and principal-protected bank products that provide flexibility of withdrawing the funds anytime. We also allocate a portion of our cash in longer tenor investments such as fixed income securities issued or guaranteed by the Republic of the Philippines, and Philippine banks and corporates, managed funds and other structured products linked to the Republic of the Philippines. We regularly evaluate available financial products and monitor market conditions for opportunities to enhance yields at acceptable risk levels. Our investments are also subject to certain restrictions contained in our debt covenants. Our funding arrangements are designed to keep an appropriate balance between equity and debt and to provide financing flexibility while enhancing our businesses.

We have undrawn credit facilities amounting to US$78 million, or Php3,375 million, as at September 30, 2013 and certain financial instruments that are allocated to meet our short-term liquidity needs. These financial instruments are cash and cash equivalents, and short-term investments amounting to Php29,779 million and Php595 million, respectively, as at September 30, 2013. See Note 15 – Cash and Cash Equivalents.

The following table discloses a summary of maturity profile of our financial assets based on our consolidated undiscounted claims outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012:

Less than

More than

Total

1 year

1-3 years

3-5 years

5 years

(in million pesos)

September 30, 2013 (Unaudited)

Loans and receivables:

67,254

64,642

992

1,479

141

Advances and other noncurrent assets

10,300

7,993

992

1,174

141

Cash equivalents

25,349

–

Short-term investments

–

Investment in debt securities and other long-term investments

305

–

305

–

Retail subscribers

12,125

–

Corporate subscribers

8,220

–

Foreign administrations

5,763

–

Domestic carriers

1,425

–

Dealers, agents and others

3,743

–

Available-for-sale financial investments

5,673

–

5,673

Financial instruments at FVPL:

571

–

Short-term investments

571

–

HTM investments:

564

–

473

Investment in debt securities and other long-term investments

564

–

473

Total

74,062

65,304

992

1,479

6,287

December 31, 2012 (Audited)

Loans and receivables:

70,437

69,158

686

453

140

Advances and other noncurrent assets

8,989

7,915

686

248

140

Cash equivalents

31,550

–

Short-term investments

–

Investment in debt securities and other long-term investments

205

–

205

–

Retail subscribers

10,568

–

Corporate subscribers

8,100

–

Foreign administrations

4,960

–

Domestic carriers

1,707

–

Dealers, agents and others

4,334

–

Available-for-sale financial investments

5,651

–

5,651

Financial instruments at FVPL:

550

–

Short-term investments

550

–

HTM investments:

150

–

Investment in debt securities and other long-term investments

150

–

Total

76,788

69,858

686

453

5,791

January 1, 2012 (Audited)

Loans and receivables:

73,626

72,479

899

201

Advances and other noncurrent assets

1,165

899

201

Cash equivalents

41,420

–

Short-term investments

–

Retail subscribers

11,302

–

Corporate subscribers

9,200

–

Foreign administrations

4,961

–

Domestic carriers

1,323

–

Dealers, agents and others

4,231

–

Available-for-sale financial investments

7,181

–

7,181

Financial instruments at FVPL:

534

–

Short-term investments

534

–

HTM investments:

508

358

150

–

Investment in debt securities and other long-term investments

508

358

150

–

Total

81,849

73,371

1,049

201

7,228

The following table discloses a summary of maturity profile of our financial liabilities based on our consolidated contractual undiscounted obligations outstanding as at September 30, 2013, December 31, 2012 and January 1, 2012:


	Payments Due by Period
			Less than
	Total		1 year		1-3 years		3-5 years		More than 5 years
	(in million pesos)
September 30, 2013 (Unaudited)
Debt⁽¹⁾:		131,128		2,508		54,296		40,118		34,206
Principal		109,795		2,316		41,967		35,980		29,532
Interest		21,333		192		12,329		4,138		4,674
Lease obligations:		13,102		7,112		3,176		2,014		800
Operating lease		13,087		7,110		3,163		2,014		800
Finance lease		15		2		13		–		–
Unconditional purchase obligations⁽²⁾		224		62		43		44		75
Other obligations:		102,977		79,046		13,075		8,803		2,055
Derivative financial liabilities⁽³⁾:		2,527		99		986		1,442		–
Long-term currency swap		2,316		–		893		1,423		–
Interest rate swap		205		93		93		19		–
Equity forward sale contract		6		6		–		–		–
Various trade and other obligations:		100,450		78,947		12,089		7,361		2,055
Suppliers and contractors		42,721		23,901		11,500		7,320		–
Utilities and related expenses		29,982		29,862		93		6		21
Liability from redemption of preferred shares		7,961		7,961		–		–		–
Employee benefits		6,812		6,812		–		–		–
Customers’ deposits		2,555		–		488		35		2,032
Carriers		2,003		2,003		–		–		–
Dividends		1,054		1,054		–		–		–
Others		7,362		7,354		8		–		–

Total contractual obligations		247,431		88,728		70,590		50,979		37,136

December 31, 2012 (As Adjusted – Note 2)
Debt⁽¹⁾:		144,467		3,981		56,353		48,417		35,716
Principal		117,115		3,641		41,469		42,492		29,513
Interest		27,352		340		14,884		5,925		6,203
Lease obligations:		13,655		7,059		3,641		1,832		1,123
Operating lease		13,634		7,057		3,623		1,831		1,123
Finance lease		21		2		18		1		–
Unconditional purchase obligations⁽²⁾		413		167		246		–		–
Other obligations:		105,492		80,443		12,505		10,515		2,029
Derivative financial liabilities⁽³⁾:		3,507		418		871		2,218		–
Long-term currency swap		2,968		–		770		2,198		–
Equity forward sale contract		348		348		–		–		–
Interest rate swap		191		70		101		20		–
Various trade and other obligations:		101,985		80,025		11,634		8,297		2,029
Suppliers and contractors		45,331		26,128		10,942		8,261		–
Utilities and related expenses		31,305		31,098		202		5		–
Liability from redemption of preferred shares		7,884		7,884		–		–		–
Employee benefits		5,488		5,488		–		–		–
Customers’ deposits		2,529		–		469		31		2,029
Carriers		2,007		2,007		–		–		–
Dividends		827		827		–		–		–
Others		6,614		6,593		21		–		–

Total contractual obligations		264,027		91,650		72,745		60,764		38,868

January 1, 2012 (As Adjusted – Note 2)
Debt⁽¹⁾:		142,271		16,378		62,213		39,476		24,204
Principal		119,410		15,348		48,141		33,971		21,950
Interest		22,861		1,030		14,072		5,505		2,254
Lease obligations:		17,826		6,352		5,324		2,998		3,152
Operating lease		17,810		6,349		5,317		2,992		3,152
Finance lease		16		3		7		6		–
Unconditional purchase obligations⁽²⁾		674		279		263		132		–
Other obligations:		91,828		66,223		14,976		7,072		3,557
Derivative financial liabilities⁽³⁾:		3,789		589		1,026		701		1,473
Long-term currency swap		3,552		500		907		673		1,472
Interest rate swap		237		89		119		28		1
Various trade and other obligations:		88,039		65,634		13,950		6,371		2,084
Suppliers and contractors		45,604		25,476		13,761		6,367		–
Utilities and related expenses		23,839		23,834		5		–		–
Employee benefits		4,452		4,452		–		–		–
Dividends		2,583		2,583		–		–		–
Customers’ deposits		2,272		–		184		4		2,084
Carriers		1,642		1,642		–		–		–
Others		7,647		7,647		–		–		–

Total contractual obligations		252,599		89,232		82,776		49,678		30,913

⁽¹⁾

Consists of long-term debt, including current portion, and notes payable; gross of unamortized debt discount and debt issuance costs.

⁽²⁾

Based on the Amended ATPA with AIL. See Note 24 – Related Party Transactions – Air Time Purchase Agreement between PLDT and AIL Related Party Agreements.

See Note 20 – Interest-bearing Financial Liabilities – Long-term Debt for a detailed discussion of our debt.

The PLDT Group has various lease contracts for periods ranging from one to ten years covering certain offices, warehouses, cell sites telecommunications equipment locations and various office equipment. These lease contracts are subject to certain escalation clauses.

The consolidated future minimum lease commitments payable with non-cancellable operating leases as at September 30, 2013, December 31, 2012 and January 1, 2012 are as follows:

See Note 20 – Interest-bearing Financial Liabilities – Obligations under Finance Leases for the detailed discussion of our long-term finance lease obligations.

See Note 24 – Related Party Transactions – Air Time Purchase Agreement between PLDT and AIL Related Agreements for a detailed discussion of PLDT’s obligation under the Original and the Amended ATPA.

Under the Amended ATPA, PLDT’s aggregate remaining minimum obligation is approximately Php224 million, Php413 million and Php674 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively.

PLDT Group has various obligations to suppliers for the acquisition of phone and network equipment, contractors for services rendered on various projects, foreign administrations and domestic carriers for the access charges, shareholders for unpaid dividends distributions, employees for benefits and other related obligations, and various business and operational related agreements. Total obligations under these various agreements amounted to approximately Php100,450 million, Php101,985 million and Php88,039 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. See Note 22 – Accounts Payable and Note 23 – Accrued Expenses and Other Current Liabilities.

Our outstanding consolidated commercial commitments, in the form of letters of credit, amounted to Php29 million, Php342 million and Php913 million as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. The outstanding commitments will expire within one year.

We have not made any pledges with respect to our financial liabilities as at September 30, 2013, December 31, 2012 and January 1, 2012.

Foreign currency exchange risk is the risk that the fair value of future cash flows of a financial instruments will fluctuate because of changes in foreign exchange rates.

The revaluation of our foreign currency-denominated financial assets and liabilities as a result of the appreciation or depreciation of the Philippine peso is recognized as foreign exchange gains or losses as at the end of the reporting period. The extent of foreign exchange gains or losses is largely dependent on the amount of foreign currency debt. While a certain percentage of our revenues are either linked to or denominated in U.S. dollars, most of our indebtedness and related interest expense, a substantial portion of our capital expenditures and a portion of our operating expenses are denominated in foreign currencies, mostly in U.S. dollars. As such, a strengthening or weakening of the Philippine peso against the U.S. dollar will decrease or increase in Philippine peso terms both the principal amount of our foreign currency-denominated debts and the related interest expense, our foreign currency-denominated capital expenditures and operating expenses as well as our U.S. dollar-linked and U.S. dollar-denominated revenues. In addition, many of our financial ratios and other financial tests are affected by the movements in the Philippine peso to U.S. dollar exchange rate.

To manage our foreign exchange risks and to stabilize our cash flows in order to improve investment and cash flow planning, we enter into forward foreign exchange contracts, currency swap contracts, currency option contracts and other hedging products aimed at reducing and/or managing the adverse impact of changes in foreign exchange rates on our operating results and cash flows. We use forward foreign exchange sale and purchase contracts, currency swap contracts and foreign currency option contracts to manage the foreign currency risks associated with our foreign currency-denominated loans. We also enter into forward foreign exchange sale contracts to manage foreign currency risks associated with our U.S. dollar-linked and U.S. dollar-denominated revenues. In order to manage the hedge costs of these contracts, we utilize structures that include credit-linkage with PLDT as the reference entity, a combination of foreign currency option contracts, and fixed to floating coupon only swap contracts. We accounted for these instruments as either cash flow hedges, wherein changes in the fair value are recognized as cumulative conversion adjustments in other comprehensive income until the hedged transaction affects our consolidated income statement or when the hedging instrument expires, or transactions not designated as hedges, wherein changes in the fair value are recognized directly as income or expense for the year.

The following table shows our consolidated foreign currency-denominated monetary financial assets and liabilities and their Philippine peso equivalents as at September 30, 2013, December 31, 2012 and January 1, 2012:

⁽¹⁾

The exchange rate used to convert the U.S. dollar amounts into Philippine peso was Php43.54 to US$1.00, the Philippine peso-U.S. dollar exchange rate as quoted through the Philippine Dealing System as at September 30, 2013.

⁽²⁾

The exchange rate used to convert the U.S. dollar amounts into Philippine peso was Php41.08 to US$1.00, the Philippine peso-U.S. dollar exchange rate as quoted through the Philippine Dealing System as at December 31, 2012.

⁽³⁾

The exchange rate used to convert the U.S. dollar amounts into Philippine peso was Php43.92 to US$1.00, the Philippine peso-U.S. dollar exchange rate as quoted through the Philippine Dealing System as at January 1, 2012.

As at November 5, 2013, the Philippine peso-U.S. dollar exchange rate was Php43.31 to US$1.00. Using this exchange rate, our consolidated net foreign currency-denominated financial liabilities would have decreased in Philippine peso terms by Php312 million as at September 30, 2013.

Approximately 54%, 45% and 47% of our total consolidated debts (net of consolidated debt discount) were denominated in U.S. dollars as at September 30, 2013, December 31, 2012 and January 1, 2012, respectively. Consolidated foreign currency-denominated debt increased to Php59,633 million as at September 30, 2013 from Php52,298 million as at December 31, 2012 and Php53,330 million as at January 1, 2012. See Note 20 – Interest-bearing Financial Liabilities. The aggregate notional amount of PLDT’s outstanding long-term principal only-currency swap contracts was US$202 million as at September 30, 2013 and December 31, 2012 and US$262 million as at January 1, 2012. Consequently, the unhedged portion of our consolidated debt amounts was approximately 46% (or 39%, net of our consolidated U.S. dollar cash balances) and 38% (or 33%, net of our consolidated U.S. dollar cash balances) as at September 30, 2013 and December 31, 2012, respectively and 37% (or 30%, net of our consolidated U.S. dollar cash balances) as at January 1, 2012.

Approximately, 21% of our consolidated service revenues were denominated in U.S. dollars and/or were linked to U.S. dollars for each of the nine months ended September 30, 2013 and 2012. Our consolidated expenses denominated in U.S. dollars and/or linked to U.S. dollars was approximately 12% for the nine months ended September 30, 2013 as compared with approximately 13% for the nine months ended September 30, 2012. In this respect, the lower weighted average exchange rate of the Philippine peso against the U.S. dollar decreased our revenues and expenses, and consequently, affects our cash flow from operations in Philippine peso terms.

The Philippine peso depreciated by 5.99% against the U.S. dollar to Php43.54 to US$1.00 as at September 30, 2013 from Php41.08 to US$1.00 as at December 31, 2012. As at September 30, 2012, the Philippine peso had appreciated by 4.96% against the U.S. dollar to Php41.74 to US$1.00 from Php43.92 to US$1.00 as at December 31, 2011. As a result of our consolidated foreign exchange movements, as well as the amount of our consolidated outstanding net foreign currency financial assets and liabilities, we recognized net consolidated foreign exchange losses of Php2,004 million for the nine months ended September 30, 2013, while net consolidated foreign exchange gains amounted to Php2,424 million for the nine months ended September 30, 2012. See Note 4 – Operating Segment Information.

Management conducted a survey among our banks to determine the outlook of the Philippine peso-U.S. dollar exchange rate until our next reporting date of December 31, 2013. Our outlook is that the Philippine peso-U.S. dollar exchange rate may weaken/strengthen by 1.02% as compared to the exchange rate of Php43.54 to US$1.00 as at September 30, 2013. If the Philippine peso-U.S. dollar exchange rate had weakened/strengthened by 1.02% as at September 30, 2013, with all other variables held constant, profit after tax for the nine months ended September 30, 2013 would have been approximately Php356 million higher/lower and our consolidated stockholders’ equity as at September 30, 2013 would have been approximately Php353 million higher/lower, mainly as a result of consolidated foreign exchange gains and losses on conversion of U.S. dollar-denominated net assets/liabilities and mark-to-market valuation of derivative financial instruments.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of change in market interest rates.

Our exposure to the risk of changes in market interest rates relates primarily to our long-term debt obligations and short-term borrowings with floating interest rates.

Our policy is to manage interest cost through a mix of fixed and variable rate debts. We evaluate the fixed to floating ratio of our loans in line with movements of relevant interest rates in the financial markets. Based on our assessment, new financing will be priced either on a fixed or floating rate basis. On a limited basis, we enter into interest rate swap agreements in order to manage our exposure to interest rate fluctuations. We make use of hedging instruments and structures solely for reducing or managing financial risk associated with our liabilities and not for trading purposes.

The following tables set out the carrying amounts, by maturity, of our financial instruments that are expected to have exposure on interest rate risk as at September 30, 2013, December 31, 2012 and January 1, 2012. Financial instruments that are not subject to interest rate risk were not included in the table.

Discount/

Debt Issuance Cost

Carrying Value

In U.S. Dollars

In Php

Fair Value

In U.S.

Below 1 year

1-2 years

2-3 years

3-5 years

Over 5 years

Total

In Php

Dollar

In Php

(in millions)

Assets:

Investment in Debt Securities and Other

Long-term Investments

U.S. Dollar

–

305

–

305

319

Interest rate

–

3.5000% to 4.0000%

–

Philippine Peso

–

564

–

564

542

Interest rate

2.5000

–

4.2500

4.8370

–

Cash in Bank

U.S. Dollar

–

1,214

–

1,214

Interest rate

0.0100% to 0.7500%

–

Philippine Peso

–

2,477

–

2,477

Interest rate

0.0200% to 2.2500%

–

Other Currencies

–

162

–

162

Interest rate

0.0100% to 0.5000%

–

Temporary Cash Investments

U.S. Dollar

122

–

122

5,324

–

5,324

122

5,324

Interest rate

0.2500% to 4.0000%

–

Philippine Peso

460

–

460

20,025

–

20,025

460

20,025

Interest rate

0.4750% to 4.7500%

–

Short-term
Investments

U.S. Dollar

–

577

–

577

Interest rate

2.2120

–

Philippine Peso

–

Interest rate

1.5000

–

686

–

704

30,666

–

30,666

703

30,658

Liabilities:

Long-term Debt

Fixed Rate

U.S. Dollar Notes

–

234

–

234

10,200

10,130

273

11,900

Interest rate

–

8.3500

–

U.S. Dollar
Fixed Loans

121

5,244

5,173

121

5,270

Interest rate

3.7900

1.9000% to 3.9550%

3.9550

–

Philippine Peso

–

131

275

675

1,099

47,857

47,825

1,173

51,074

Interest rate

–

3.9250% to 6.5000%

3.9250% to 6.3462%

–

Variable Rate

U.S. Dollar

469

241

287

–

1,022

44,499

169

44,330

1,022

44,499

Interest rate

0.3000% to 1.8500%
over LIBOR

0.3000% to 1.9000%
over LIBOR

–

Philippine Peso

–

1,995

–

1,995

Interest rate

PHP PDST-F + 0.3000%

–

570

394

827

678

2,522

109,795

342

109,453

2,635

114,738

Discount/

Debt Issuance Cost

Carrying Value

In U.S. Dollars

In Php

Fair Value

In U.S.

Below 1 year

1-2 years

2-3 years

3-5 years

Over 5 years

Total

In Php

Dollar

In Php

(in millions)

Assets:

Investment in Debt Securities and Other

Long-term Investments

U.S. Dollar

–

205

–

205

219

Interest rate

–

4.0000

–

Philippine Peso

–

150

–

150

154

Interest rate

7.0000

–

Cash in Bank

U.S. Dollar

–

1,529

–

1,529

Interest rate

0.0100% to 0.7500%

–

Philippine Peso

–

3,445

–

3,445

Interest rate

0.1000% to 3.0000%

–

Other Currencies

–

161

–

161

Interest rate

0.0100% to 0.7500%

–

Temporary Cash Investments

U.S. Dollar

–

3,062

–

3,062

Interest rate

0.2500% to 4.7500%

–

Philippine Peso

694

–

694

28,488

–

28,488

694

28,488

Interest rate

1.1250% to 5.0000%

–

Short-term
Investments

U.S. Dollar

–

557

–

557

Interest rate

9.1730

–

Philippine Peso

–

Interest rate

3.0000

–

911

–

916

37,614

–

37,614

916

37,632

Liabilities:

Long-term Debt

Fixed Rate

U.S. Dollar Notes

–

234

–

234

9,623

9,544

283

11,644

Interest rate

–

8.3500

–

U.S. Dollar
Fixed Loans

337

406

16,674

1,143

15,531

410

16,843

Interest rate

3.7900

1.9000% to 3.9550%

3.9550

–

Philippine Peso

–

132

522

686

1,375

56,469

56,424

1,475

60,576

Interest rate

–

4.9110% to 7.7946%

–

Variable Rate

U.S. Dollar

312

127

175

664

27,278

27,223

664

27,278

Interest rate

0.4000% to 0.5000%
over LIBOR

0.3000% to 1.9000%
over LIBOR

1.8000% over LIBOR

–

Philippine Peso

–

172

7,071

7,070

172

7,071

Interest rate

PHP PDST-F + 0.3000%

–

BSP overnight rate
+ 0.3000% to
0.5000%

–

729

282

1,035

718

2,851

117,115

1,323

115,792

3,004

123,412

Discount/

Debt Issuance Cost

Carrying Value

In U.S. Dollars

In Php

Fair Value

In U.S.

Below 1 year

1-2 years

2-3 years

3-5 years

Over 5 years

Total

In Php

Dollar

In Php

(in millions)

Assets:

Investment in Debt Securities and Other

Long-term Investments

Philippine Peso

–

508

–

508

516

Interest rate

6.8750

7.0000

–

Cash in Bank

U.S. Dollar

–

626

–

626

Interest rate

0.0100% to 0.7663%

–

Philippine Peso

–

2,886

–

2,886

Interest rate

0.0100% to 3.1500%

–

Other Currencies

–

218

–

218

Interest rate

0.0100% to 2.0000%

–

Temporary Cash Investments

U.S. Dollar

133

–

133

5,824

–

5,824

133

5,824

Interest rate

0.2500% to 1.7000%

–

Philippine Peso

810

–

810

35,596

–

35,596

810

35,596

Interest rate

1.0000% to 4.8750%

–

Short-term Investments

U.S. Dollar

–

540

–

540

Interest rate

3.1020

–

Philippine Peso

–

Interest rate

3.5000

–

1,048

–

1,052

46,216

–

46,216

1,052

46,224

Liabilities:

Long-term Debt

Fixed Rate

U.S. Dollar Notes

146

–

234

380

16,691

124

16,567

427

18,740

Interest rate

11.3750

–

8.3500

–

U.S. Dollar Fixed Loans

–

302

404

17,738

1,900

15,838

359

15,770

Interest rate

–

2.9900% to 3.9550%

2.2500% to 3.9550%

2.9900% to 3.9550%

3.9550

–

Philippine Peso

121

137

122

590

187

1,157

50,818

50,780

1,194

52,454

Interest rate

5.6250% to 6.5708%

5.4692% to 8.4346%

5.4692% to 9.1038%

5.4963% to 9.1038%

–

Variable Rate

U.S. Dollar

242

478

20,996

20,925

476

20,925

Interest rate

US$LIBOR + 0.7500%

US$LIBOR + 0.3000%

–

to 1.8500%

to 1.8000%

Philippine Peso

147

–

229

10,059

10,056

229

10,056

Interest rate

PDST-F + 1.3750%

PDST-F + 0.3000%

BSPovernight rate

–

+ 0.3000% to

0.5000

Short-term Debt

Notes Payable

U.S. Dollar

–

1,537

–

1,537

Bank’s

Interest rate

prime rate

–

Philippine Peso

–

1,572

–

1,572

Interest rate

4.0000

–

350

579

517

773

500

2,719

119,411

2,136

117,275

2,756

121,054

Fixed rate financial instruments are subject to fair value interest rate risk while floating rate financial instruments are subject to cash flow interest rate risk.

Repricing of floating rate financial instruments is mostly done on intervals of three months or six months. Interest on fixed rate financial instruments is fixed until maturity of the particular instrument.

Management conducted a survey among our banks to determine the outlook of the U.S. dollar and Philippine peso interest rates until our next reporting date of December 31, 2013. Our outlook is that the U.S. dollar and Philippine peso interest rates may move 5 basis points higher/lower as compared to levels as at September 30, 2013. If U.S. dollar interest rates had been 5 basis points higher/lower as compared to market levels as at September 30, 2013, with all other variables held constant, profit after tax for the nine months ended September 30, 2013 and our consolidated stockholders’ equity as at September 30, 2013 would have been approximately Php5 million lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and loss/gain on derivative transactions. If Philippine peso interest rates had been 5 basis points higher/lower as compared to market levels as at September 30, 2013, with all other variables held constant, profit after tax for the nine months ended September 30, 2013 and our consolidated stockholders’ equity as at September 30, 2013 would have been approximately Php11 million lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and loss/gain on derivative transactions.

Credit risk is the risk that we will incur a loss arising from our customers, clients or counterparties that fail to discharge their contracted obligations. We manage and control credit risk by setting limits on the amount of risk we are willing to accept for individual counterparties and by monitoring exposures in relation to such limits.

We trade only with recognized and creditworthy third parties. It is our policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an on-going basis to reduce our exposure to bad debts.

We established a credit quality review process to provide regular identification of changes in the creditworthiness of counterparties. Counterparty limits are established and reviewed periodically based on latest available financial data on our counterparties’ credit ratings, capitalization, asset quality and liquidity. Our credit quality review process allows us to assess the potential loss as a result of the risks to which we are exposed and allow us to take corrective actions.

The table below shows the maximum exposure to credit risk for the components of our consolidated statement of financial position, including derivative financial instruments as at September 30, 2013, December 31, 2012 and January 1, 2012:


	September 30, 2013						December 31, 2012						January 1, 2012
	(Unaudited)						(Audited)
			Collateral and						Collateral and						Collateral and
	Gross Maximum		Other Credit				Gross Maximum		Other Credit		Net		Gross Maximum		Other Credit		Net
	Exposure		Adjustments*		Net Maximum Exposure		Exposure		Adjustments*		Maximum Exposure		Exposure		Adjustments*		Maximum Exposure

	(in million pesos)
Loans and receivables:
Advances and other noncurrent assets		10,032		1		10,031		8,877		12		8,865		1,165		13		1,152
Cash and cash equivalents		29,779		209		29,570		37,161		528		36,633		46,057		574		45,483
Short-term investments		24		–		24		24		–		24		24		–		24
Investment in debt securities and other long-term investments		305		–		305		205		–		205		–		–		–
Foreign administrations		5,645		–		5,645		4,861		–		4,861		4,762		69		4,693
Retail subscribers		5,102		37		5,065		4,079		27		4,052		4,038		63		3,975
Corporate subscribers		1,505		130		1,375		1,963		246		1,717		2,708		213		2,495
Domestic carriers		1,332		–		1,332		1,601		–		1,601		1,212		–		1,212
Dealers, agents and others		3,224		1		3,223		3,875		31		3,844		3,525		28		3,497
HTM investments:
Investment in debt securities and other long-term investments		564		–		564		150		–		150		508		–		508
Available-for-sale financial investments		5,673		–		5,673		5,651		–		5,651		7,181		–		7,181
Financial instruments at FVPL:
Short-term investments		571		–		571		550		–		550		534		–		534
Short-term currency swap		1		–		1		–		–		–		–		–		–
Long-term currency swap		–		–		–		–		–		–		356		–		356
Derivatives used for hedging:
Forward foreign exchange contracts		–		–		–		–		–		–		10		–		10
Interest rate swap		22		–		22		–		–		–		–		–		–

Total		63,779		378		63,401		68,997		844		68,153		72,080		960		71,120

Includes bank insurance, security deposits and customer deposits. [We have no collateral held during the periods].

The table below provides information regarding the credit quality by class of our financial assets according to our credit ratings of counterparties as at September 30, 2013, December 31, 2012 and January 1, 2012:


			Neither past due
			nor impaired				Past due but
	Total		Class A⁽¹⁾		Class B⁽²⁾		not impaired		Impaired
	(in million pesos)
September 30, 2013 (Unaudited)
Loans and receivables:		71,528		41,729		6,736		8,483		14,580
Advances and other noncurrent assets		10,144		9,957		41		34		112
Cash and cash equivalents		29,779		28,009		1,770		–		–
Short-term investments		24		24		–		–		–
Investment in debt securities and other long-term investments		305		305		–		–		–
Retail subscribers		12,125		1,395		1,650		2,057		7,023
Corporate subscribers		8,220		450		285		770		6,715
Foreign administrations		5,763		818		1,444		3,383		118
Domestic carriers		1,425		224		23		1,085		93
Dealers, agents and others		3,743		547		1,523		1,154		519
Available-for-sale financial investments		5,673		172		5,501		–		–
Financial instruments at FVPL⁽³⁾:		572		572		–		–		–
Short-term investments		571		571		–		–		–
Short-term currency swap		1		1		–		–		–
HTM investments:		564		564		–		–		–
Investment in debt securities and other long-term investments		564		564		–		–		–
Derivatives used for hedging		22		22		–		–		–
Interest rate swap		22		22		–		–		–

Total		78,359		43,059		12,237		8,483		14,580

December 31, 2012 (Audited)
Loans and receivables:		76,048		47,710		6,682		8,254		13,402
Advances and other noncurrent assets		8,989		8,848		3		26		112
Cash and cash equivalents		37,161		34,381		2,780		–		–
Short-term investments		24		24		–		–		–
Investment in debt securities and other long-term investments		205		205		–		–		–
Retail subscribers		10,568		967		989		2,123		6,489
Corporate subscribers		8,100		478		540		945		6,137
Foreign administrations		4,960		1,043		923		2,895		99
Domestic carriers		1,707		266		27		1,308		106
Dealers, agents and others		4,334		1,498		1,420		957		459
Available-for-sale financial investments		5,651		159		5,492		–		–
Financial instruments at FVPL⁽³⁾:		550		550		–		–		–
Short-term investments		550		550		–		–		–
HTM investments:		150		150		–		–		–
Investment in debt securities and other long-term investments		150		150		–		–		–

Total		82,399		48,569		12,174		8,254		13,402

January 1, 2012 (Audited)
Loans and receivables:		78,263		51,689		5,117		6,685		14,772
Advances and other noncurrent assets		1,165		1,128		37		–		–
Cash and cash equivalents		46,057		44,885		1,172		–		–
Short-term investments		24		24		–		–		–
Retail subscribers		11,302		1,449		1,050		1,539		7,264
Corporate subscribers		9,200		974		375		1,359		6,492
Foreign administrations		4,961		1,309		1,242		2,211		199
Domestic carriers		1,323		215		24		973		111
Dealers, agents and others		4,231		1,705		1,217		603		706
HTM investments:		508		508		–		–		–
Investment in debt securities and other long-term investments		508		508		–		–		–
Available-for-sale financial investments		7,181		150		7,031		–		–
Financial instruments at FVPL⁽³⁾:		890		890		–		–		–
Short-term investments		534		534		–		–		–
Long-term currency swap		356		356		–		–		–
Derivatives used for hedging:		10		10		–		–		–
Forward foreign exchange contracts		10		10		–		–		–

Total		86,852		53,247		12,148		6,685		14,772

⁽¹⁾

This includes low risk and good paying customer accounts with no history of account treatment for a defined period and no overdue accounts as at report date; and deposits or placements to counterparties with good credit rating or bank standing financial review.

⁽²⁾

This includes medium risk and average paying customer accounts with no overdue accounts as at report date, and new customer accounts for which sufficient credit history has not been established; and deposits or placements to counterparties not classified as Class A.

⁽³⁾

Gross receivables from counterparties, before any offsetting arrangements.

The aging analysis of past due but not impaired class of financial assets as at September 30, 2013, December 31, 2012 and January 1, 2012 are as follows:


					Past due but not impaired
			Neither past due
	Total		nor impaired		1-60 days		61-90 days		Over 91 days		Impaired
	(in million pesos)
September 30, 2013 (Unaudited)
Loans and receivables:		71,528		48,465		3,697		981		3,805		14,580
Advances and other noncurrent assets		10,144		9,998		–		–		34		112
Cash and cash equivalents		29,779		29,779		–		–		–		–
Short-term investments		24		24		–		–		–		–
Investment in debt securities and other long-term investments		305		305		–		–		–		–
Retail subscribers		12,125		3,045		1,738		165		154		7,023
Corporate subscribers		8,220		735		357		127		286		6,715
Foreign administrations		5,763		2,262		688		485		2,210		118
Domestic carriers		1,425		247		117		152		816		93
Dealers, agents and others		3,743		2,070		797		52		305		519
Available-for-sale financial investments		5,673		5,673		–		–		–		–
Financial instruments at FVPL:		572		572		–		–		–		–
Short-term investments		571		571		–		–		–		–
Short-term currency swap		1		1		–		–		–		–
HTM investments:		564		564		–		–		–		–
Investment in debt securities and other long-term investments		564		564		–		–		–		–
Derivatives used for hedging:		22		22		–		–		–		–
Interest rate swap		22		22		–		–		–		–

Total		78,359		55,296		3,697		981		3,805		14,580

December 31, 2012 (Audited)
Loans and receivables:		76,048		54,392		3,017		1,079		4,158		13,402
Advances and other noncurrent assets		8,989		8,851		–		–		26		112
Cash and cash equivalents		37,161		37,161		–		–		–		–
Short-term investments		24		24		–		–		–		–
Investment in debt securities and other long-term investments		205		205		–		–		–		–
Retail subscribers		10,568		1,956		1,363		270		490		6,489
Corporate subscribers		8,100		1,018		351		198		396		6,137
Foreign administrations		4,960		1,966		645		452		1,798		99
Domestic carriers		1,707		293		174		144		990		106
Dealers, agents and others		4,334		2,918		484		15		458		459
Available-for-sale financial investments		5,651		5,651		–		–		–		–
Financial instruments at FVPL:		550		550		–		–		–		–
Short-term investments		550		550		–		–		–		–
HTM investments:		150		150		–		–		–		–
Investment in debt securities and other long-term investments		150		150		–		–		–		–

Total		82,399		60,743		3,017		1,079		4,158		13,402

January 1, 2012 (Audited)
Loans and receivables:		78,263		56,806		3,087		1,068		2,530		14,772
Advances and other noncurrent assets		1,165		1,165		–		–		–		–
Cash and cash equivalents		46,057		46,057		–		–		–		–
Short-term investments		24		24		–		–		–		–
Retail subscribers		11,302		2,499		1,202		226		111		7,264
Corporate subscribers		9,200		1,349		706		263		390		6,492
Foreign administrations		4,961		2,551		897		282		1,032		199
Domestic carriers		1,323		239		100		98		775		111
Dealers, agents and others		4,231		2,922		182		199		222		706
Available-for-sale financial investments		7,181		7,181		–		–		–		–
Financial instruments at FVPL:		890		890		–		–		–		–
Short-term investments		534		534		–		–		–		–
Long-term currency swap		356		356		–		–		–		–
HTM investments:		508		508		–		–		–		–
Investment in debt securities and other long-term investments		508		508		–		–		–		–
Derivatives used for hedging:		10		10		–		–		–		–
Forward foreign exchange contracts		10		10		–		–		–		–

Total		86,852		65,395		3,087		1,068		2,530		14,772

The main consideration for the impairment assessment include whether any payments of principal or interest are overdue by more than 90 days or whether there are any known difficulties in the cash flows of counterparties, credit rating downgrades, or infringement of the original terms of the contract. Our impairment assessments are classified into two areas: individually assessed allowance and collectively assessed allowances.

We determine the allowance appropriate for each individually significant loan or advance on an individual basis. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance once a financial difficulty has arisen, projected receipts and the expected dividend payout should bankruptcy ensue, the availability of other financial support, the realizable value of collateral, if any, and the timing of the expected cash flows. We also recognize an impairment for accounts specifically identified to be doubtful of collection when there is information on financial incapacity after considering the other contractual obligations between us and the subscriber. The impairment losses are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.

Allowances are assessed collectively for losses on loans and advances that are not individually significant and for individually significant loans and advances where there is no objective evidence of individual impairment. Allowances are evaluated on each reporting date with each portfolio receiving a separate review.

The collective assessment takes account of impairment that is likely to be present in the portfolio even though there is no objective evidence of the impairment in an individual assessment. Impairment losses are estimated by taking into consideration the following information: historical losses on the portfolio, current economic conditions, the approximate delay between the time a loss is likely to have been incurred and the time it is identified as requiring an individually assessed impairment allowance, and expected receipts and recoveries once impaired. The impairment allowance is then reviewed by credit management to ensure alignment with our policy.

We aim to achieve an optimal capital structure in pursuit of our business objectives which include maintaining healthy capital ratios and strong credit ratings, and maximizing shareholder value.

In recent years, our cash flow from operations has allowed us to substantially reduce debts and, in 2005, resume payment of dividends on common shares. Since 2005, our strong cash flow has enabled us to make investments in new areas and pay higher dividends.

Our approach to capital management focuses on balancing the allocation of cash and the incurrence of debt as we seek new investment opportunities for new businesses and growth areas. Our current dividend policy is to pay out 70% of our core EPS. Further, in the event no investment opportunities arise, we may consider the option of returning additional cash to our shareholders in the form of special dividends or share buybacks. Philippine corporate regulations prescribe, however, that we can only pay out dividends or make capital distribution up to the amount of our unrestricted retained earnings.

As part of our goal to maximize returns to our shareholders, we obtained in 2008 an approval from the Board of Directors to conduct a share buyback program for up to five million PLDT common shares. We did not buy back any shares of common stock for the nine months ended September 30, 2013.

Some of our debt instruments contain covenants that impose maximum leverage ratios. In addition, our credit ratings from the international credit ratings agencies are based on our ability to remain within certain leverage ratios.

We monitor capital using several financial leverage measurements calculated in conformity with PFRS, such as net consolidated debt to equity ratio. Net consolidated debt is derived by deducting cash and cash equivalents and short-term investments from total debt (long-term debt, including current portion and notes payable). Our objective is to maintain our net consolidated debt to equity ratio below 100%.

The table below provides information regarding our consolidated debt to equity ratio as at September 30, 2013, December 31, 2012 and January 1, 2012:

The table below shows non-cash activities for the nine months ended September 30, 2013 and 2012:


MS. JUNE CHERYL A. CABAL-REVILLA		816-8534
Contact Person		Company Telephone Number


C	F	D	N/A
-	-	-
Dept. Requiring this Doc.				Amended Articles
				Number/Section


6.	Industry Classification Code:(SEC Use Only)
7.	Ramon Cojuangco Building, Makati Avenue, Makati City		0721

	Address of registrant’s principal office	Postal Code


	Nine Months ended September 30,				Increase (Decrease)
	2013		2012		Amount			%
Consolidated Statements of Cash Flows
Net cash provided by operating activities		51,605		54,822		(3,217	)		(6	)
Net cash used in investing activities		8,001		22,765		(14,764	)		(65	)
Capital expenditures		14,888		19,294		(4,406	)		(23	)
Net cash used in financing activities		52,652		39,125		13,527			35
Operational Data
Number of cellular subscribers		72,498,270		68,599,733		3,898,537			6
Number of fixed line subscribers		2,073,831		2,127,188		(53,357	)		(3	)
Number of broadband subscribers:		3,328,369		3,146,667		181,702			6
Fixed Line		949,762		879,237		70,525			8
Wireless		2,378,607		2,267,430		111,177			5
Number of employees:		18,135		19,086		(951	)		(5	)
Fixed Line		9,892		10,619		(727	)		(7	)
LEC		7,151		7,811		(660	)		(8	)
Others		2,741		2,808		(67	)		(2	)
Wireless		8,243		8,467		(224	)		(3	)


							Increase (Decrease)
	2013			2012			Amount			%
Prepaid		2,586,733			4,623,085			(2,036,352	)		(44	)
Smart		(1,193,810	)		(2,633,657	)		1,439,847			(55	)
Talk ’N Text		3,477,781			6,057,585			(2,579,804	)		(43	)
Sun Cellular		302,762			1,199,157			(896,395	)		(75	)
Postpaid		45,079			280,019			(234,940	)		(84	)
Smart		182,680			108,162			74,518			69
Sun Cellular		(137,601	)		171,857			(309,458	)		(180	)

Total		2,631,812			4,903,104			(2,271,292	)		(46	)


1		2	3		1	SEC FORM 17-Q			0	6	Every 2^nd
											Tuesday
-		-	-		-				-	-
Month				Day			FORM TYPE	Month				Day
	Fiscal Year							Annual Meeting


Title of Each ClassNumber of Shares of Common Stock Outstanding
Common Capital Stock, Php5 par value		216,055,775 shares as at September 30, 2013


Condition and Results of Operations			1
Financial Highlights and Key Performance Indicators			2
Overview			3
Performance Indicators			4
Management’s Financial Review			5
Results of Operations			6
Wireless			10
Revenues			10
Expenses			17
Other Income (Expenses)			18
Provision for Income Tax			19
Net Income			19
EBITDA			19
Core Income			19
Fixed Line			19
Revenues			19
Expenses			24
Other Expenses			26
Provision for (Benefit from) Income Tax			26
Net Income			26
EBITDA			26
Core Income			27
Others			27
Expenses			27
Other Income			27
Net Income			27
EBITDA			28
Core Income			28
Liquidity and Capital Resources			28
Operating Activities			29
Investing Activities			29
Financing Activities			30
Off-Balance Sheet Arrangements			32
Equity Financing			32
Contractual Obligations and Commercial Commitments			33
Quantitative and Qualitative Disclosures about Market Risks			33
Impact of Inflation and Changing Prices			34
PART II – OTHER INFORMATION			35
Related Party Transactions			36
ANNEX – Aging of Accounts Receivable			A-1
Financial Soundness Indicators			A-2
SIGNATURES			S-1


			Weighted average rates
Exchange Rates – per US$	Month-end rates		during the period
September 30, 2013		43.54		42.06
December 31, 2012		41.08		42.24
September 30, 2012		41.74		42.56
December 31, 2011		43.92		43.31


													Change
	2013			%			2012⁽¹⁾			%			Amount			%
							(in millions)
Wireless		88,232			71			86,337			71			1,895			2
Fixed line		47,180			38			44,831			37			2,349			5
Inter-segment transactions		(10,827	)		(9	)		(9,805	)		(8	)		(1,022	)		10

Consolidated		124,585			100			121,363			100			3,222			3


	2013		2012
	(in %)
Prepaid
Smart		5.7		6.3
Talk ’N Text		3.8		4.3
Sun Cellular		10.1		10.4
Postpaid
Smart		2.6		2.7
Sun Cellular		3.7		1.0


	Gross⁽¹⁾				Increase (Decrease)						Net⁽²⁾				Increase (Decrease)
	2013		2012⁽³⁾		Amount			%			2013		2012⁽³⁾		Amount			%
Prepaid
Smart		161		169		(8	)		(5	)		142		146		(4	)		(3	)
Talk ’N Text		96		112		(16	)		(14	)		85		98		(13	)		(13	)
Sun Cellular		66		67		(1	)		(1	)		58		57		1			2
Postpaid
Smart		1,149		1,270		(121	)		(10	)		1,135		1,252		(117	)		(9	)
Sun Cellular		479		394		85			22			475		391		84			21


					Decrease
	2013		2012⁽¹⁾		Amount			%
Total national long distance service revenues (in millions)		3,481		3,873		(392	)		(10	)
National long distance call volumes (in million minutes)		644		747		(103	)		(14	)


					Increase
	2013		2012⁽¹⁾		Amount		%
Data and other network service revenues (in millions)		20,338		18,553		1,785		10
Domestic		14,817		13,836		981		7
Broadband		9,096		8,380		716		9
Leased Lines and Others		5,721		5,456		265		5
International
Leased Lines and Others		4,247		4,035		212		5
Data Centers		1,274		682		592		87
Subscriber base
Broadband		949,762		879,237		70,525		8
SWUP		28,339		20,838		7,501		36


					31-60		61-90		Over 91
Type of Accounts Receivable	Total		Current		Days		Days		Days
					(in millions)
Retail subscribers		12,125		3,317		1,168		381		7,259
Corporate subscribers		8,220		1,270		1,391		702		4,857
Foreign administrations		5,763		1,157		1,209		867		2,530
Domestic carriers		1,425		255		132		156		882
Dealers, agents and others		3,743		2,047		797		54		845
Total		31,276		8,046		4,697		2,160		16,373

Less: Allowance for doubtful accounts.		14,468
Total Receivables — net		16,808


	______________________________
File Number		LCU


	______________________________
Document I.D.		Cashier


Yes [ X ]No [ ]


TABLE OF CONTENTS
	Page

PART I - FINANCIAL INFORMATION		1


	2013			2012
Current Ratio⁽¹⁾		0.53:1.0			0.61:1.0
Net Debt to Equity Ratio⁽²⁾		0.57:1.0			0.61:1.0
Net Debt to EBITDA Ratio⁽³⁾		1.02:1.0			1.17:1.0
Asset to Equity Ratio⁽⁴⁾		2.80:1.0			2.83:1.0
Interest Coverage Ratio⁽⁵⁾		6.36:1.0			6.51:1.0
Profit Margin⁽⁶⁾		23	%		23	%
Return on Assets⁽⁷⁾		9	%		7	%
Return on Equity⁽⁸⁾		26	%		20	%
EBITDA Margin⁽⁹⁾		49	%		48	%


^(b) ^(c) ^(d)		On September 29, 2013, by a special resolution of the Board of Directors, SGP resolved to change its registered business name to Takatack Pte. Ltd. On January 7, 2013, Voyager was incorporated in the Philippine SEC to provide mobile applications development and services. Ceased commercial operations.


⁽ⁱ⁾ ^(j) ^(k) ^(l)		Ceased commercial operations in January 2013. Liquidated in January 2013. Corporate life shortened until June 2013. On June 3, 2013, the Philippine SEC approved the change in the name of SPi Global Holdings, Inc. to PLDT Global Investments Holdings, Inc.


	Prior to Amendments						After Amendments
	Authorized Capital		Number of Shares		Par Value		Authorized Capital		Number of Shares		Par Value
Common Stock	Php12,060,000,000			12,060,000,000	Php1		Php12,060,006,000			574,286	Php21,000
Class I Preferred Stock		240,000,000		120,000,000		2		66,661,000		33,330,500		2
Class II Preferred Stock		500,000,000		500,000,000		1		50,000,000		50,000,000		1

Total Authorized Capital Stock	Php12,800,000,000						Php12,176,667,000


	As at December			As at January 1,
	31, 2012			2012
	(in million pesos)
Increase (decrease) in:
Consolidated Statements of Financial Position
Prepaid benefit costs under prepayments – net of current portion		(6,394	)		2,828
Accrued benefit costs under pension and other employee benefits		160			(58	)
Accrued benefit costs under liabilities directly associated with assets classified as held-for-sale		(18	)		–
Deferred income tax assets – net		1,907			(858	)
Other comprehensive income – net of tax		(4,177	)		2,100
Reserves of a disposal group classified as held-for-sale		45			–
Retained earnings		622			(72	)
Noncontrolling interests		2			–


	For the Nine Months Ended
	September 30, 2012
	(in million pesos)
Consolidated Income Statement
Net benefit costs under pension and other employee benefits		183
Net benefit income under other income		(161	)
Income tax expense		(102	)
Income after tax from discontinued operations		(88	)
Profit attributable to equity holders of PLDT		(330	)


Date Incurred	Expiry Date	MCIT			NOLCO
		(in million pesos)
December 31, 2010	December 31, 2013		7			162
December 31, 2011	December 31, 2014		7			1,590
December 31, 2012	December 31, 2015		266			208
September 30, 2013	December 31, 2016		124			450

			404			2,410

Consolidated tax benefits			404			723
Consolidated unrecognized deferred income tax assets			(363	)		(616	)
Consolidated recognized deferred income tax assets			41			107


Cable and wire facilities		10 – 15 years
Central office equipment		3 – 15 years
Cellular facilities		3 – 10 years
Buildings		25 years
Vehicles, furniture and other network equipment		3 – 5 years
Information origination and termination equipment		3 – 5 years
Leasehold improvements		3 – 5 years
Land improvements		10 years


						Nominal Value Per
Date	Number of Shares		Beneficial Ownership			Share		Aggregate Cost*
Various dates in 2011		49.9		4.40	%		–		14,310.0
January 2012		30.0		2.70	%		295		9,103.8
November 2012		3.2		0.30	%		263		841.7
December 2012		0.3		0.03	%		249		89.5
July 19, 2013		10.0		0.89	%		270		2,728.0
July 30, 2013		8.3		0.74	%		291		3,207.0


			Values
	Previous		Recognized on
	Carrying Values		Acquisition
	(in million pesos)
Assets:
Property, plant and equipment (Note 9)		267		267
Intangible assets (Note 14)		–		2
Other noncurrent assets		7		7
Cash and cash equivalents		14		14
Trade and other receivables		159		159
Prepayments and other current assets		30		30

		477		479

Liabilities:
Long-term debt		26		26
Obligations under finance lease		18		18
Other noncurrent liabilities		43		43
Accounts payable		212		212
Accrued expenses and other current liabilities		20		20

		319		319

Total identifiable net assets acquired		158		160
Goodwill from the acquisition (Note 14)		–		533

Purchase consideration transferred		158		693

Cash flows from investing activity:
Net cash acquired with subsidiary				14
Cash paid				(693	)

Purchase of subsidiary – net of cash acquired				(679	)


Year	(in million pesos)
2013⁽¹⁾	283
2014	1,133
2015		998
2016		848
2017 and onwards		4,307

Intangible assets with definite life (Note 3)		7,569


	U.S. Dollar Debt				Php Debt		Total
Year	In U.S. Dollar		In Php		In Php		In Php
			(in millions)
2013⁽¹⁾		63		2,718		1,244		3,962
2014		286		12,435		1,290		13,725
2015		271		11,807		397		12,204
2016		255		11,113		8,352		19,465
2017 and onwards		502		21,870		38,569		60,439

		1,377		59,943		49,852		109,795


	(in million pesos)
Present value of defined benefit obligations as at December 31, 2012		17,456
Fair value of plan assets as at December 31, 2012		18,435

Surplus status – net		(979	)
Net actuarial pension benefit costs during the period (Note 3)		559
Translation and other adjustments		69
Contributions		(2,029	)

Net prepaid benefit costs as at September 30, 2013 (Note 3)		(2,380	)
Accrued benefit costs (Note 3)		517

Prepaid benefit costs as at September 30, 2013 (Notes 3 and 18)		(2,897	)


Average remaining working years of covered employee	19
Rate of increase in compensation	6	%
Discount rate	5	%


	% of Ownership						Amounts
	2013			2012			2013		2012
	(Unaudited)			(Audited)			(Unaudited)		(Audited)
							(in million pesos)
MediaQuest		100	%		100	%		11,030		14,468
Tahanan Mutual Building and Loan Association, or TMBLA (net of subscriptions payable of Php32 million)		100	%		100	%		291		271
BTF Holdings, Inc., or BTFHI		100	%		100	%		160		152
Superior Multi Parañaque Homes, Inc., or SMPHI		100	%		100	%		39		38
Bancholders, Inc., or Bancholders		100	%		100	%		1		1
Superior Parañaque Homes, Inc., or SPHI		100	%		100	%		–		–

								11,521		14,930


			Gross amounts of
			recognized
			financial assets
	Gross amounts		and liabilities		Net amount
	of recognized		set-off in the		presented in the
	financial assets		statement of		statement of
	and liabilities		financial position		financial position
	(in million pesos)
September 30, 2013 (Unaudited)
Noncurrent Financial Assets
Derivative financial instruments
Interest rate swap		200		178		22
Current Financial Assets
Trade and other receivables
Foreign administrations		8,102		2,457		5,645
Corporate subscribers		1,589		84		1,505
Domestic carriers		6,622		5,290		1,332
Derivative financial instruments
Interest rate swap		72		72		–
Total		16,585		8,081		8,504

Noncurrent Financial Liabilities
Derivative financial instruments
Interest rate swap – net of current portion		265		179		86
Current Financial Liabilities
Accounts payable
Suppliers and contractors		23,986		85		23,901
Carriers		3,919		1,916		2,003
Derivative financial instruments
Current portion of interest rate swap		197		86		111

Total		28,367		2,266		26,101


Type		Fair Value Assumptions

Noncurrent portion of advances and other noncurrent assets		Estimated fair value is based on the discounted values of future cash flows using the applicable zero coupon rates plus credit spread.

Fixed Rate Loans:
U.S. dollar notes Other loans in all other currencies		Quoted market price. Estimated fair value is based on the discounted value of future cash flows using the applicable Commercial Interest Reference Rate and Philippine Dealing System Treasury Fixing, or PDST-F, rates for similar types of loans.

Variable Rate Loans		The carrying value approximates fair value because of recent and regular repricing based on market conditions.

Customers’ deposits and deferred credits and other noncurrent liabilities		Estimated fair value is based on the discounted values of future cash flows using the applicable zero coupon rates plus credit spread.