Exhibit EX-99

Name of Contact Person

Email Address

Telephone Number/s

Mobile Number

June Cheryl A. Cabal-Revilla

jacabal@pldt.com.ph

(02) 816-8534

PLDT Inc.
________________________________________________
(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)

Securities & Exchange Commission
Secretariat Building, PICC Complex
Roxas Boulevard, Pasay City

In accordance with Section 17.1(b) of the Securities Regulation Code and SRC Rule 17.1.1.1.2, 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 three (3) months ended March 31, 2017.

CONTACT PERSON INFORMATION
The designated contact person MUST be an Officer of the Corporation

Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.

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

2. SEC Identification Number PW-55 3. BIR Tax Identification No. 000-488-793

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 March 31, 2017 (unaudited) and December 31, 2016 (audited) and for the three months ended March 31, 2017 and 2016 (unaudited) and related notes (pages F-1 to F-145) 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 PLDT Inc. and its consolidated subsidiaries, and references to “PLDT” mean PLDT Inc., 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 Php50.22 to US$1.00, the exchange rate as at March 31, 2017 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⁾ EBITDA margin for the period is measured as EBITDA divided by service revenues.

⁽²⁾ 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.

⁽³⁾ 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 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 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 – net. EBITDA is monitored by 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, and 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 management for each business unit separately for purposes of making decisions about resource allocation and performance assessment. Also, core income is used by 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.
Overview

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

Wireless mobile telecommunications services provided by Smart Communications, Inc., or Smart, and Digital Mobile Philippines, Inc., or DMPI, a wholly-owned subsidiary of Digital Telecommunications Philippines, Inc., or Digitel, our mobile service providers; Voyager Innovations, Inc., or Voyager, and certain subsidiaries, our mobile applications and digital platforms developers and mobile financial services provider; Smart Broadband, Inc., or SBI, and Primeworld Digital Systems, Inc., or PDSI, our wireless broadband service providers; ACeS Philippines Cellular Satellite Corporation, or ACeS Philippines, our satellite information and messaging services provider; and certain subsidiaries of PLDT Global Corporation, or PLDT Global, our mobile virtual network operations, or MVNO, provider;

Fixed Line 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, Bonifacio Communications Corporation, PLDT Global and certain subsidiaries and Digitel, all of which together account for approximately 4% of our consolidated fixed line subscribers; data center, cloud, big data, managed security services, managed IT services and resellership provided by ePLDT, Inc., or ePLDT, IP Converge Data Services, Inc., or IPCDSI, and subsidiary, or IPCDSI Group, ABM Global Solutions, Inc., or AGS, and its subsidiaries, or AGS Group, Curo Teknika, Inc. and ePDS, Inc., or ePDS; business infrastructure and solutions, intelligent data processing and implementation services and data analytics insight generation provided by Talas Data Intelligence, Inc., or Talas; distribution of Filipino channels and content by Pilipinas Global Network Limited and its subsidiaries; and

Others PLDT Communications and Energy Ventures, Inc., or PCEV, PLDT Global Investment Holdings, Inc., Mabuhay Investments Corporation, PLDT Global Investments Corporation, PLDT Digital Investments Pte. Ltd., or PLDT Digital, and its subsidiary, our investment companies.

As at March 31, 2017, our chief operating decision maker, or our Management Committee, views our business activities in three business units: Wireless, Fixed Line and Others.

In addition to consolidated net income, 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 three months ended March 31, 2017 and 2016 are set forth below.

The following table shows the reconciliation of our consolidated EBITDA to our consolidated net income for the three months ended March 31, 2017 and 2016:

The following table shows the reconciliation of our consolidated core income to our consolidated net income for the three months ended March 31, 2017 and 2016:

The table below shows the contribution by each of our business segments to our consolidated revenues, expenses, other income (expense), income (loss) before income tax, net income (loss), EBITDA, EBITDA margin and core income for the three months ended March 31, 2017 and 2016. In each of the three months ended March 31, 2017 and 2016, majority of our revenues are derived from our operations within the Philippines. Our revenues derived from outside the Philippines consist primarily of revenues from incoming international calls to the Philippines.

In 2016, we changed the classification of our revenue mix to provide for a more direct comparison to the current industry presentation in the Philippines by combining or separating certain line items from our service lines, and moving line items from one service line to another. We also changed the classification of our impairment on investments not directly affecting operations (most significantly, the impairment of our investment in Rocket Internet SE, or Rocket), from operating expenses to other expenses. Accordingly, we changed prior year’s financial information to conform with the current year’s presentation in order to provide a clear comparison.


										Inter-segment
	Wireless			Fixed Line			Others			Transactions			Consolidated
				(in millions)
For the three months ended March 31, 2017
Revenues		23,162			19,049			–			(3,023	)		39,188
Expenses		19,488			14,372			18			(3,402	)		30,476
Other expenses		(363	)		(293	)		(421	)		(379	)		(1,456	)
Income (loss) before income tax		3,311			4,384			(439	)		–			7,256
Provision for income tax		1,081			1,175			31			–			2,287
Net income (loss)/Segment profit (loss)		2,230			3,209			(470	)		–			4,969
EBITDA		8,309			7,797			(18	)		379			16,467
EBITDA margin⁽¹⁾		37	%		43	%		–			–			44	%
Core income		2,298			2,856			175			–			5,329
For the three months ended March 31, 2016
Revenues		27,931			17,935			–			(3,087	)		42,779
Expenses		22,576			14,460			15			(3,448	)		33,603
Other income (expenses)		622			139			(614	)		(361	)		(214	)
Income (loss) before income tax		5,977			3,614			(629	)		–			8,962
Provision for (Beneift from) income tax		1,702			1,065			(38	)		–			2,729
Net income (loss)/Segment profit (loss)		4,275			2,549			(591	)		–			6,233
EBITDA		9,629			6,631			(15	)		361			16,606
EBITDA margin⁽¹⁾		36	%		39	%		–			–			41	%
Core income		3,895			2,648			668			–			7,211
Increase (Decrease)
Revenues		(4,769	)		1,114			–			64			(3,591	)
Expenses		(3,088	)		(88	)		3			46			(3,127	)
Other income (expenses)		(985	)		(432	)		193			(18	)		(1,242	)
Income (loss) before income tax		(2,666	)		770			190			–			(1,706	)
Provision for (Benefit from) income tax		(621	)		110			69			–			(442	)
Net income (loss)/Segment profit (loss)		(2,045	)		660			121			–			(1,264	)
EBITDA		(1,320	)		1,166			(3	)		18			(139	)
Core income		(1,597	)		208			(493	)		–			(1,882	)

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

We reported consolidated revenues of Php39,188 million in the first three months of 2017, a decrease of Php3,591 million, or 8%, as compared with Php42,779 million in the same period in 2016, primarily due to the combined effects of the following: (i) lower revenues from mobile, home broadband and MVNO and other services, partially offset by higher digital platforms and mobile financial services from our wireless business; (ii) lower revenues from voice services, partially offset by higher corporate data and leased lines, and miscellaneous revenues from our fixed line business; and (iii) lower non-service revenues from our wireless and fixed line businesses.

The following table shows the breakdown of our consolidated revenues by services for the three months ended March 31, 2017 and 2016:


					Inter-segment
	Wireless		Fixed Line		Transactions			Consolidated
	(in millions)
For the three months ended March 31, 2017
Service Revenues
Wireless		22,475				(330	)		22,145
Mobile		21,387				(318	)		21,069
Home Broadband		655				(3	)		652
Digital platforms and mobile financial services		318				(9	)		309
MVNO and others		115				–			115
Fixed Line				18,249		(2,693	)		15,556
Voice				7,220		(908	)		6,312
Data				10,574		(1,549	)		9,025
Home broadband				4,134		(60	)		4,074
Corporate data and leased lines				5,622		(1,289	)		4,333
Data Center and IT				818		(200	)		618
Miscellaneous				455		(236	)		219
Total Service Revenues		22,475		18,249		(3,023	)		37,701

Non-Service Revenues
Sale of computers, cellular handsets and SIM-packs		687		589		–			1,276
Point-product sales		–		211		–			211

Total Non-Service Revenues		687		800		–			1,487

Total Revenues		23,162		19,049		(3,023	)		39,188

For the three months ended March 31, 2016
Service Revenues
Wireless		26,670				(359	)		26,311
Mobile		25,657				(352	)		25,305
Home Broadband		683				(4	)		679
Digital platforms and mobile financial services		134				(1	)		133
MVNO and others		196				(2	)		194
Fixed Line				17,015		(2,728	)		14,287
Voice				7,501		(1,084	)		6,417
Data				9,110		(1,460	)		7,650
Home broadband				3,434		(21	)		3,413
Corporate data and leased lines				4,938		(1,260	)		3,678
Data Center and IT				738		(179	)		559
Miscellaneous				404		(184	)		220
Total Service Revenues		26,670		17,015		(3,087	)		40,598

Non-Service Revenues
Sale of computers, cellular handsets and SIM-packs		1,261		760		–			2,021
Point-product sales		–		160		–			160

Total Non-Service Revenues		1,261		920		–			2,181

Total Revenues		27,931		17,935		(3,087	)		42,779

The following table shows the breakdown of our consolidated revenues by business segment for the three months ended March 31, 2017 and 2016:

Consolidated expenses decreased by Php3,127 million, or 9%, to Php30,476 million in the first three months of 2017 from Php33,603 million in the same period in 2016, as a result of lower expenses related to cost of sales, asset impairment, and cash operating expenses related to repairs and maintenance, taxes and licenses, interconnection costs, selling and promotions, and other operating expenses, partially offset by higher expenses related to professional and other contracted services, compensation and employee benefits, cost of content and rent, as well as higher depreciation and amortization expense.

The following table shows the breakdown of our consolidated expenses by business segment for the three months ended March 31, 2017 and 2016:

Consolidated other expenses amounted to Php1,456 million in the first three months of 2017, an increase of Php1,242 million from Php214 million in the same period in 2016, primarily due to the combined effects of the following: (i) foreign exchange losses of Php397 million on account of revaluation of foreign currency-denominated assets and liabilities due to the depreciation of the Philippine peso relative to the U.S. dollar to Php50.22 as at March 31, 2017 from Php49.77 as at December 31, 2016 as against foreign exchange gains of Php970 million due to an appreciation of the Philippine peso relative to the U.S. dollar to Php45.99 as at March 31, 2016 from Php47.12 as at December 31, 2015; (ii) a decrease in equity share in net earnings of associates by Php444 million due to lower share in net earnings of Beacon Electric Asset Holdings, Inc., or Beacon, and Asia Outsourcing Beta Limited, or Beta, higher share in net losses of AF Payments, Inc., or AFPI, and share in net losses of Vega Telecom, Inc. or VTI, for the three months ended March 31, 2017, partly offset by lower share in net losses of Cignal TV, Inc., or Cignal TV, and higher share in net earnings of Hastings Holdings, Inc., or Hastings; (iii) lower other income by Php168 million, primarily due to lower gains on sale of properties, partly offset by lower impairment on the Rocket investment; (iv) higher net financing costs by Php96 million due to higher loan principal amount, higher weighted average interest rate, higher weighted average exchange rate of the Philippine peso relative to the U.S. dollar and higher financing charges, partly offset by higher capitalized interest; (v) higher interest income by Php54 million due to higher principal amount of temporary cash investments and the higher weighted average exchange rate of the Philippine peso relative to the U.S. dollar, partly offset by lower weighted average interest rates; and (vi) gain on derivative financial instruments of Php282 million for the three months ended March 31, 2017 as against losses on derivative financial instruments of Php497 million in the same period in 2016 on account of mark-to-market gain on foreign exchange derivatives as a result of the peso depreciation for the three months ended March 31, 2017, and wider dollar and peso interest rate differentials.

The following table shows the breakdown of our consolidated other income (expenses) by business segment for the three months ended March 31, 2017 and 2016:

Consolidated net income decreased by Php1,264 million, or 20%, to Php4,969 million in the first three months of 2017, from Php6,233 million in the same period in 2016. The decrease was mainly due to the combined effects of the following: (i) lower consolidated revenues by Php3,591 million; (ii) higher consolidated other expenses – net by Php1,242 million; (iii) lower consolidated provision for income tax by Php442 million; and (iv) lower consolidated expenses by Php3,127 million. Our consolidated basic and diluted EPS decreased to Php22.84 for the three months ended March 31, 2017 from consolidated basic and diluted EPS of Php28.71 in the same period in 2016. Our weighted average number of outstanding common shares was approximately 216.06 million in each of the first three months of 2017 and 2016.

The following table shows the breakdown of our consolidated net income by business segment for the three months ended March 31, 2017 and 2016:

Our consolidated EBITDA amounted to Php16,467 million in the first three months of 2017, a decrease of Php139 million, or 1%, as compared with Php16,606 million in the same period in 2016, primarily due to lower consolidated revenues, partially offset by lower cost of sales, lower asset impairment, and lower consolidated cash operating expenses mainly driven by repairs and maintenance, taxes and licenses, interconnection costs, selling and promotions, and other operating expenses.

The following table shows the breakdown of our consolidated EBITDA by business segment for the three months ended March 31, 2017 and 2016:

Our consolidated core income amounted to Php5,329 million in the first three months of 2017, a decrease of Php1,882 million, or 26%, as compared with Php7,211 million in the same period in 2016, primarily due to lower other income and higher depreciation, as well as lower equity share in net earnings and EBITDA, partially offset by lower provision for income tax. Our consolidated basic and diluted core EPS decreased to Php24.60 in the first three months of 2017 from Php33.31 in the same period in 2016.

The following table shows the breakdown of our consolidated core income by business segment for the three months ended March 31, 2017 and 2016:

We generated revenues of Php23,162 million from our wireless business in the first three months of 2017, a decrease of Php4,769 million, or 17%, from Php27,931 million in the same period in 2016.

The following table summarizes our total revenues from our wireless business for the three months ended March 31, 2017 and 2016 by service:

⁽¹⁾ Includes service revenues generated by MVNOs of PLDT Global subsidiaries.

Our wireless service revenues in the first three months of 2017 decreased by Php4,195 million, or 16%, to Php22,475 million as compared with Php26,670 million in the same period in 2016, mainly as a result of lower revenues from mobile, home broadband and MVNO and other services, partially offset by higher revenues from our digital platforms and mobile financial services. As a percentage of our total wireless revenues, service revenues accounted for 97% and 95% for the three months ended March 31, 2017 and 2016, respectively.

Our mobile service revenues amounted to Php21,387 million in the first three months of 2017, a decrease of Php4,270 million, or 17%, from Php25,657 million in the same period in 2016. Mobile service revenues accounted for 95% and 96% of our wireless service revenues for the three months ended March 31, 2017 and 2016, respectively.

⁽¹⁾ Refers to other non-subscriber-related revenues consisting primarily of inbound international roaming fees and share in revenues from Smart Money.

Smart and DMPI market nationwide mobile communications services under the brand names Smart, TNT and Sun. Smart, together with TNT and Sun, have focused on segmenting the market by offering sector-specific, value-driven packages for our subscribers. Our mobile services include a variety of data and multimedia services that cater to the growing use of smartphones by our subscribers, as well as voice and text services. We offer a variety of packages that include “buckets” consisting of text messages, calls of a preset duration and data allowance, with a prescribed validity period. Smart, TNT and Sun also provide buckets which offer voice, text and hybrid bundles available to all networks, as well as packages with unlimited on-net voice, text, volume-based data, and combinations thereof, denominations of which depend on the duration and nature of the packages.

Smart and Sun are committed to provide their customers with a superior data experience. Key to achieving this is a superior network in terms of coverage, capacity and internet speeds. This involves the use of 3G and LTE technologies, the integration of Smart and Sun networks to improve coverage and quality for subscribers of both brands, and access and use of the PLDT’s extensive fiber optic transmission network, among others.

In 2016, Smart was the first to introduce LTE-Advanced, or LTE-A, in Boracay, which achieved breakthrough LTE speeds of up to 250 Mbps. The program also boosted 3G data service in Boracay behind an enhanced 3G/high speed packet access, or HSPA/HSPA+ coverage and capacity. Smart accelerated the deployment of new base stations to boost quality and coverage, and accommodate technology bands under the co-use agreement with Bell Telecommunications.

PLDT and Smart have rolled-out carrier-grade Smart WiFi in key transport hubs, including regional airports and sea ports all over the country, and similar network improvements are also underway for rail-based MRT and LRT lines 1 and 2 in Metro Manila. Smart also completed spectrum refarming process in Davao, which involved re-allocating the use of spectrum of 2G, 3G and 4G/LTE services to optimize the spectrum for data traffic.

As we improve our network around the country, we continue to keep an eye on the future of mobile technology. In December 2016, Smart and Nokia successfully carried out the country’s first fifth-generation, or 5G, showcase over a live network at Nokia Technology Center in Quezon City, achieving 5G speeds of 2.5 Gigabits per second using 100 MHz with latency of just one millisecond. This milestone is part of Smart’s roadmap to be 5G-ready by 2020 through strategic investments in infrastructure today.

Smart also teamed up with PayMaya Philippines to launch Smart Mastercard. Under the partnership, mobile users who download the PayMaya app on their Android or iOS phones and register with their Smart, TNT or Sun number, may instantly get a virtual Smart Mastercard account number which they can load up at PayMaya load-up centers and can use at any of the more than 36 million merchants worldwide that accept Mastercard.

On February 14, 2017, Smart and technology partner, Huawei Philippines, agreed to conduct research and development on 5G wireless broadband technology. The collaboration aims to develop the areas of technological innovation to deliver 5G. Last year, Smart and Huawei combined five frequencies through Carrier Aggregation, a capability of LTE-A to combine two or more frequency bands to deliver bigger bandwidth and much faster data speeds to mobile users.

In April 2017, Smart, together with Ericsson Philippines recently made the Philippines’ first successful mobile call using Voice over LTE, or VoLTE. VoLTE will enable users with capable device to utilize 4G/LTE network even when making or receiving calls, providing users direct global reach and enhanced voice quality with almost no background noise.

Smart continues to ramp up network upgrades across the country, significantly boosting LTE and 3G coverage in Metro Cebu and Metro Manila. This comprehensive network modernization includes deploying high-frequency bands like 1800 MHz and 2100 MHz to increase network capacity and additional base station equipment to improve coverage and enhance indoor signals. A major leg of this network upgrade was recently completed in Metro Davao. Improvements in LTE speeds were likewise experienced in Metro Cebu and southern Metro Manila.

Mobile revenues from our voice services, which include all voice traffic, decreased by Php2,690 million, or 26%, to Php7,835 million in the first three months of 2017 from Php10,525 million in the same period in 2016, primarily due to lower domestic and international voice revenues due to the availability of alternative calling options and other over-the-top, or OTT, services such as Viber, Facebook Messenger and similar services. Mobile voice services accounted for 37% and 41% of our mobile service revenues for the three months ended March 31, 2017 and 2016, respectively.

The following table shows the breakdown of our mobile voice revenues for the three months ended March 31, 2017 and 2016:

Domestic voice service revenues decreased by Php2,192 million, or 27%, to Php6,029 million in the first three months of 2017 from Php8,221 million in the same period in 2016, due to lower domestic outbound and inbound voice service revenues.

International voice service revenues decreased by Php498 million, or 22%, to Php1,806 million in the first three months of 2017 from Php2,304 million in the same period in 2016, primarily due to lower international inbound and outbound voice service revenues as a result of lower international voice traffic, partially offset by the effect of higher weighted average exchange rate of the Philippine peso relative to the U.S. dollar.

Mobile revenues from our SMS services, which include all SMS-related services and value-added services, or VAS, decreased by Php1,778 million, or 20%, to Php6,912 million in the first three months of 2017 from Php8,690 million in the same period in 2016 mainly from lower bucket-priced and unlimited SMS revenues. Mobile SMS services accounted for 32% and 34% of our mobile service revenues for the three months ended March 31, 2017 and 2016, respectively.

The following table shows the breakdown of our mobile SMS service revenues for the three months ended March 31, 2017 and 2016:

⁽¹⁾ Includes revenues, net of discounts and content provider costs, from Smart Pasa Load, Sun Cellular Give-a-load and Dial*SOS; Music (Spinnr and Deezer, music subscription mainly ring back tunes and music downloads); Gaming (games subscriptions, downloads, and purchases); Videos (video subscriptions, downloads and video and movie streaming via iflix and Fox); Infotainment (subscriptions and downloads of broadcast materials, as well as info-on-demand); financial services (revenues from Smart Money Clicks via Smart Menu and mobile banking); Communicate, (revenues from group chat, text and voice messaging services); and Other VAS (includes revenues from application program interface (API) downloads, info-on-demand and voice text services).

Mobile revenues from our data services, which include mobile internet, mobile broadband and other data services, increased by Php181 million, or 3%, to Php6,308 million in the first three months of 2017 from Php6,127 million in the same period in 2016.

The following table shows the breakdown of our mobile data revenues for the three months ended March 31, 2017 and 2016:

⁽¹⁾ Includes revenues from web-based services, net of discounts and content provider costs.

Mobile internet service revenues increased by Php801 million, or 21%, to Php4,612 million in the first three months of 2017 from Php3,811 million in the same period in 2016 as a result of the increase in smartphone ownership and greater data adoption among our subscriber base leading to an increase in mobile internet browsing and prevalent use of mobile apps, social networking sites and other OTT services. Enhanced data offerings, such as All Out Surf, continue to provide users volume data bundles with unlimited Facebook access, all-net texts and tri-net calls and is available for as low as Php15 per day. Mobile internet services accounted for 22% and 15% of our mobile service revenues for the three months ended March 31, 2017 and 2016, respectively.

Mobile broadband revenues amounted to Php1,655 million in the first three months of 2017, a decrease of Php621 million, or 27%, from Php2,276 million in the same period in 2016, primarily due to a decrease in the number of subscribers. Mobile broadband services accounted for 8% and 9% of our mobile service revenues for the three months ended March 31, 2017 and 2016, respectively.

Smart Bro continues to grow mobile broadband revenues through various prepaid and postpaid offers, with various packages for both new and existing subscribers. Smart Bro Pocket/LTE WiFi, a portable wireless router which can be shared by up to five users/devices at a time, provides connectivity at varying speeds and is supported by Smart’s network utilizing HSPA, 4G HSPA+ and LTE-technology.

With its goal to provide faster mobile data service at reasonable prices, Smart Bro recently launched its new postpaid plans which include free Smart Bro LTE Pocket Wifi devices, more data and faster speeds. The plans range from Plan 499, which comes with 6GB monthly data, to Plan 999, which offers 15GB of data. Smart Bro’s prepaid variant also launched a promotional offer for the Smart Bro LTE Pocket Wifi at Php1,495 only from Php1,995 during the first quarter of 2017.

In March 2017, Smart Bro launched the Smart Bro LTE 2-in-1 Pocket Wifi device, which comes with a built-in 5200mAh power bank for better LTE experience for subscribers. The device is offered at Php2,995 for prepaid and for as low as Php1,000 one-time fee for Plan 999.

Sun Bro is an affordable wireless broadband service utilizing advanced 3.5G HSPA and LTE technology offering various plans and packages to internet users. Sun Bro continues to grow the value broadband segment with its Non-Stop Surf Plans and Loads.

Revenues from our other data services, which include domestic leased lines and share in revenue from PLDT WeRoam, increased by Php1 million, or 3%, to Php41 million in the first three months of 2017 from Php40 million in the same period in 2016.

Mobile revenues from inbound roaming and other services increased by Php17 million, or 5%, to Php332 million in the first three months of 2017 from Php315 million in the same period in 2016.

The following table shows the breakdown of our mobile service revenues for the three months ended March 31, 2017 and 2016:

Revenues generated from our mobile prepaid services amounted to Php15,135 million in the first three months of 2017, a decrease of Php2,750 million, or 15%, as compared with Php17,885 million in the same period in 2016. Mobile prepaid service revenues accounted for 71% and 70% of mobile service revenues for the three months ended March 31, 2017 and 2016, respectively. The decrease in revenues from our mobile prepaid services was primarily driven by lower mobile prepaid subscriber base resulting in lower voice and SMS revenues, partially offset by the increase in mobile internet revenues.

Smart Prepaid continues to offer data, call and text packages to its subscribers. In March 2017, Smart Prepaid offered AllOut Combo 25 providing subscribers with 200MB data access and free Facebook, with unlimited texts to all networks and 80 minutes tri-net calls. Booster bundle, such as Express Call 50, can also be added to existing base offers, providing subscribers with 50 minutes of calls to all network valid for three days.

Smart Bro Prepaid offers load packages including SurfMax with all-day surfing valid for 30 days and GigaSurf, a volume-based data package with free entertainment bundle and has a Pasa-Data feature, enabling users to share open-access volume to other subscribers.

Along with Smart’s digital transformation, its value brand, TNT, also launched its new logo, brand ambassadors and theme song “It’s a Tropa Thing” in 2016, expanding its target market to appeal to Filipino youth cliques who are more tech-savvy, fun-loving and budget-conscious.

TNT recently launched ItsATropaTreat, which enables subscribers to enjoy digital treats such as free data or texts for every registration to top TNT promos.

Sun Prepaid continues to offer best value packages. On March 10, 2017, Sun Prepaid launched Sun Unlimited 100 providing subscribers with unlimited on-net calls and texts valid for 15 days, and Sun Unlimited 200 which also offers unlimited on-net calls and texts with additional 500 texts to Smart and TNT, valid for 30 days.

Revenues generated from mobile postpaid service amounted to Php5,920 million in the first three months of 2017, a decrease of Php1,537 million, or 21%, as compared with Php7,457 million in the same period in 2016, and accounted for 28% and 29% of mobile service revenues for the three months ended March 31, 2017 and 2016, respectively. The decrease in our mobile postpaid service revenues was primarily due to a lower postpaid subscriber base.

We continue to offer a wide array of choices and more flexible postpaid subscription plans to our subscribers.

Smart Postpaid continues to offer All-in Consumable Plans ranging from Plan 399 up to Plan 2999, which enable subscribers to avail of call, text and data services, and mix and match services or create their own plan using various Flexibundles, and personalized entertainment content such as iWant TV, iFlix, Fox and more. All these are charged within the subscriber’s monthly service fee. Top picks for Flexibundles are All-net Talk 249, Unli Call and Text 599, SurfMax 995 and other App On bundles.

Smart Bro Postpaid provides reliable wireless internet on postpaid plans, offering free Pocket/LTE WiFi, with fixed data allocation and bundled gadgets of choice.

Sun postpaid plans offer a variety of services to cater to the needs of subscribers at affordable prices. The Best Value Plans, which start at Php350 per month, come with a free smartphone, unlimited Sun Calls and Texts, 250 free texts to users on other networks, and 100MB of mobile data.

In 2016, Sun introduced new SIM only Fixed Load Plan 300, which provides subscribers unlimited tri-net calls and unlimited all-net texts, and comes with free access to Facebook and Viber. Sun also continues to offer international direct dialing, or IDD, plans which allow subscribers to make international calls and send SMS to select countries for as low as Php1.50 per minute of voice call or per SMS. The IDD plans also come with a free Android handset and free calls and SMS to Sun and other networks, depending on the plan.

Smart offers Smart Travel WiFi powered by virtual SIM technology, which enables local connectivity for up to five devices and provides high-speed internet service in over 100 countries for as low as Php390 per day for Asian countries and Php490 per day for the rest of the world.

The following table shows our wireless subscriber base as at March 31, 2017 and 2016:

The following table summarizes our average monthly churn rates for the three months ended March 31, 2017 and 2016:

The following table summarizes our average monthly ARPUs for the three months ended March 31, 2017 and 2016:

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

HOMEBro is a fixed wireless broadband service being offered under PLDT’s HOME brand. PLDT HOMEBro is powered by Smart’s wireless broadband base stations which allow subscribers to connect to the internet using indoor or outdoor customer premises equipment through various wireless technologies. Home Ultera, our fixed wireless broadband offering specifically designed for the home, offers customized packages and utilizes the TD-LTE technology.

Revenues from our HOMEBro services decreased by Php28 million, or 4%, to Php655 million in the first three months of 2017 from Php683 million in the same period in 2016 due mainly to the continued migration of our high-value fixed wireless subscribers from legacy technologies (Canopy & Wimax) to either TD-LTE or wired broadband (digital subscriber line, or DSL/fiber-to-the-home, or FTTH). In addition, ARPU has decreased as a result of lower-priced plan offerings as part of PLDT’s efforts to expand its customer base to include lower income home segments.

Subscribers of our HOMEBro services increased by 15,552 or 6% from 248,675 subscribers as of March 31, 2016 to 264,227 subscribers as of March 31, 2017. This increase in subscriber base was directly attributed to the launch of a more affordable postpaid broadband offering designed for the home – Home Ultera Plan 699.

In addition to providing the country a more affordable home broadband service, PLDT has always been at the forefront of offering subscribers with diverse and compelling bundled content through its partnerships with globally renowned content providers. These partners include iflix, Southeast Asia’s leading internet TV service provider; Fox International Channels which offers a wide range of video-on-demand, live content and catch-up TV; and ABS-CBN’s iWanTV – the leading OTT content platform in the Philippines.

Revenues from digital platforms and mobile financial services, as reported by Voyager, increased by Php184 million, or 137%, to Php318 million in the first three months of 2017 from Php134 million in the same period in 2016, primarily due to registered growth in PayMaya revenues driven by the increase in PayMaya transactions.

Revenues from our other services decreased by Php81 million, or 41%, to Php115 million in the first three months of 2017 from Php196 million in the same period in 2016, primarily due to lower revenue contribution from MVNOs of PLDT Global and ACeS Philippines, partially offset by the impact of higher weighted average exchange rate of the Philippine peso relative to the U.S. dollar to Php50.01 for the three months ended March 31, 2017 from Php47.26 for the three months ended March 31, 2016 on our U.S. dollar and U.S. dollar-linked other service revenues.

Our wireless non-service revenues consist of sales of mobile handsets, SIM-packs and broadband data modems, tablets and accessories. Our wireless non-service revenues decreased by Php574 million, or 46%, to Php687 million in the first three months of 2017 from Php1,261 million in the same period in 2016, primarily due to lower revenues from the sale of broadband data modems and mobile handsets.

Expenses associated with our wireless business amounted to Php19,488 million in the first three months of 2017, a decrease of Php3,088 million, or 14%, from Php22,576 million in the same period in 2016. A significant portion of the decrease was mainly attributable to lower cost of sales, asset impairment, taxes and licenses, interconnection costs, repairs and maintenance, selling and promotions, and amortization of intangible assets, partially offset by higher expenses related to depreciation and amortization, rent, professional and other contracted services, cost of content, and compensation and employee benefits. As a percentage of our total wireless revenues, expenses associated with our wireless business accounted for 84% and 81% in the first three months ended March 31, 2017 and 2016, respectively.

The following table summarizes the breakdown of our total wireless-related expenses for the three months ended March 31, 2017 and 2016 and the percentage of each expense item in relation to the total:

Depreciation and amortization charges increased by Php428 million, or 11%, to Php4,430 million, primarily due to higher depreciable asset base.

Rent expenses increased by Php325 million, or 14%, to Php2,709 million, primarily due to higher leased lines rental with the increase in data usage and site rental charges.

Compensation and employee benefits increased by Php57 million, or 3%, to Php1,943 million, primarily due to higher salaries and employee benefits, and provision for pension benefits, partly offset by lower MRP costs. Employee headcount increased to 7,218 as at March 31, 2017 as compared with 7,207 as at March 31, 2016.

Cost of sales decreased by Php2,516 million, or 57%, to Php1,905 million, primarily due to lower issuances of mobile handsets and broadband data modems.

Repairs and maintenance expenses decreased by Php197 million, or 10%, to Php1,852 million, mainly due to lower site and office electricity costs and lower technical support fees.

Interconnection costs decreased by Php310 million, or 15%, to Php1,709 million, primarily due to lower interconnection cost on domestic voice and text services, and international voice, partially offset by an increase in interconnection charges on international roaming data.

Professional and other contracted service fees increased by Php261 million, or 20%, to Php1,597 million, primarily due to increase in facility usage costs, and legal and call center fees, partly offset by lower consultancy fees.

Selling and promotion expenses decreased by Php161 million, or 13%, to Php1,089 million, primarily due to lower advertising and promotions, and commissions expenses.

Asset impairment decreased by Php607 million, or 45%, to Php728 million, primarily due to lower provisions for doubtful accounts and inventory obsolescence.

Taxes and licenses decreased by Php345 million, or 36%, to Php620 million due to lower tax settlements and other business taxes, partly offset by higher spectrum user fees.

Insurance and security services decreased by Php2 million, or 1%, to Php310 million, primarily due to lower insurance expenses, partly offset by higher site and office security expenses.

Amortization of intangible assets decreased by Php67 million, or 25%, to Php205 million, primarily due to the decrease in the remaining carrying value of intangible assets.

Communication, training and travel expenses decreased by Php11 million, or 5%, to Php199 million, primarily due to lower travel, and freight and hauling expenses, partially offset by higher communication charges and fuel costs for vehicles as a result of higher average fuel cost per liter.

Cost of content increased by Php88 million to Php119 million, primarily due to higher cost on music licenses and various partnership with content providers.

Other expenses decreased by Php31 million, or 30%, to Php73 million, primarily due to lower various business and operational-related expenses.

The following table summarizes the breakdown of our total wireless-related other income (expenses) for the three months ended March 31, 2017 and 2016:

Our wireless business’ other expenses amounted to Php363 million in the first three months of 2017, a change of Php985 million, or 158%, as against other income of Php622 million in the same period in 2016, primarily due to the combined effects of the following: (i) foreign exchange losses of Php254 million on account of revaluation of foreign currency-denominated assets and liabilities due to the depreciation of the Philippine peso relative to the U.S. dollar to Php50.22 as at March 31, 2017 from Php49.77 as at December 31, 2016 as against foreign exchange gains of Php604 million due to an appreciation of the Philippine peso relative to the U.S. dollar to Php45.99 as at March 31, 2016 from Php47.12 as at December 31, 2015; (ii) a decrease in other income – net by Php306 million mainly due to lower income from consultancy and other miscellaneous income; (iii) lower interest income by Php53 million mainly due to lower weighted average interest rate, and lower principal amount of temporary cash investments, partly offset by higher weighted average rate of the Philippine peso relative to the U.S. dollar; (iv) higher equity share in net losses of associates by Php3 million due to higher share in net losses of AFPI; (v) lower net financing costs by Php11 million primarily due to higher capitalized interest, partly offset by higher loan principal amount, higher weighted average interest rates and higher weighted average of the Philippine peso relative to the U.S. dollar in the first three months of 2017; and (vi) gains on derivative financial instruments of Php134 million in the first three months of 2017 as against losses on derivative financial instruments of Php90 million in the same period in 2016 on account of mark-to-market gain on foreign exchange derivatives as a result of the peso depreciation for the three months ended March 31, 2017 and wider dollar and peso interest rate differentials.

Provision for income tax amounted to Php1,081 million in the first three months of 2017, a decrease of Php621 million, or 36%, from Php1,702 million in the same period in 2016, primarily due to lower taxable income. The effective tax rates for our wireless business were 33% and 28% in the first three months of 2017 and 2016, respectively.

As a result of the foregoing, our wireless business’ net income decreased by Php2,045 million, or 48%, to Php2,230 million in the first three months of 2017 from Php4,275 million in the same period in 2016.

Our wireless business’ EBITDA decreased by Php1,320 million, or 14%, to Php8,309 million in the first three months of 2017 from Php9,629 million in the same period in 2016. EBITDA margin increased, however, to 37% in the first three months of 2017 from 36% in the same period in 2016.

Our wireless business’ core income decreased by Php1,597 million, or 41%, to Php2,298 million in the first three months of 2017 from Php3,895 million in the same period in 2016 on account of lower EBITDA and other income, and higher depreciation, partially offset by lower provision for income tax.

Revenues generated from our fixed line business amounted to Php19,049 million in the first three months of 2017, an increase of Php1,114 million, or 6%, from Php17,935 million in the same period in 2016.

The following table summarizes our total revenues from our fixed line business for the three months ended March 31, 2017 and 2016 by service segment:

Our fixed line service revenues increased by Php1,234 million, or 7%, to Php18,249 million in the first three months of 2017 from Php17,015 million in the same period in 2016, due to higher revenues from our data and miscellaneous services, partially offset by lower voice service revenues.

Revenues from our voice services decreased by Php281 million, or 4%, to Php7,220 million in the first three months of 2017 from Php7,501 million in the same period in 2016, primarily due to lower international and domestic services, partially offset by higher revenues from local exchange.

The following table shows information of our voice service revenues for the three months ended March 31, 2017 and 2016:

The following table summarizes the key measures of our local exchange service business as at and for the three months ended March 31, 2017 and 2016:

Revenues from our local exchange service increased by Php223 million, or 5%, to Php4,580 million in the first three months of 2017 from Php4,357 million in the same period in 2016, primarily due to an increase in subscribers. The percentage contribution of local exchange revenues to our total fixed line service revenues were 25% and 26% in the first three months of 2017 and 2016, respectively.

Our international service revenues decreased by Php459 million, or 21%, to Php1,744 million in the first three months of 2017 from Php2,203 million in the same period in 2016, primarily due to lower call volumes for both inbound and outbound traffic as a result of the popularity of OTT service providers (e.g. Facebook Messenger, Skype, Viber, WhatsApp, etc.) over traditional long distance services, partially offset by the favorable effect of a higher weighted average exchange rate of the Philippine peso relative to the U.S. dollar to Php50.01 for the three months ended March 31, 2017 from Php47.26 for the three months ended March 31, 2016, and the net increase in average billing rates in dollar terms. The percentage contribution of international service revenues to our total fixed line service revenues accounted for 10% and 13% in the first three months of 2017 and 2016, respectively.

Our domestic service revenues decreased by Php45 million, or 5%, to Php896 million in the first three months of 2017 from Php941 million in the same period in 2016, primarily due to a decrease in call volumes. The percentage contribution of domestic service revenues to our fixed line service revenues was 5% in each of the first three months of 2017 and 2016.

The following table shows information of our data service revenues for the three months ended March 31, 2017 and 2016:

Our data services posted revenues of Php10,574 million in the first three months of 2017, an increase of Php1,464 million, or 16%, from Php9,110 million in the same period in 2016, primarily due to higher home broadband revenues from DSL and Fibr, an increase in corporate data and leased lines primarily i-Gate, Fibernet, Metro Ethernet and Shops.Work, and higher data center and IT revenues. The percentage contribution of this service segment to our fixed line service revenues were 58% and 54% for the three months ended March 31, 2017 and 2016, respectively.

PLDT HOME remains to be the nation’s leading home broadband service provider, now serving 1,402,861 subscribers nationwide. PLDT HOME’s broadband data services include Home DSL and Home Fibr, the country’s most powerful broadband connection. Home broadband data revenues amounted to Php4,134 million in the first three months of 2017, an increase of Php700 million, or 20%, from Php3,434 million in the same period in 2016. This growth is driven by increasing demand for broadband services which the company is providing through its existing copper network and an aggressive nationwide roll-out of its FTTH network. Home broadband revenues accounted for 39% and 38% of total data service revenues for the three months ended March 31, 2017 and 2016, respectively. In the first quarter of 2017, PLDT’s FTTH nationwide network rollout has passed over three million homes and targets to reach up to 4.4 million homes passed by end of 2017.

In the first quarter of 2017, PLDT HOME launched its initial set of fiber-powered “PLDT SmartCities,” in Toledo City, Cebu in February, General Santos City in April, and Naga City in May. Working with city governments of these key urban centers, PLDT is deploying high-speed world-class internet connectivity to more homes, providing a wide range of entertainment, home security and other digital services.

To complement the build-out of its fiber network, PLDT HOME is also aggressively modernizing and upgrading its current copper network through the use of new technologies like Very-high-bit-rate, or VDSL, which delivers speeds of up to 100 Mbps. PLDT has the country’s most extensive transmission and distribution network infrastructure which now has 150,000 kilometers of fiber optic cables that transport the growing data traffic of its fixed line and mobile networks. PLDT is also set to start deploying in the second quarter of 2017 hybrid fiber technologies, such as G.Fast, that can deliver fiber-like data speeds through the copper wires in homes and buildings under a three-year program.

PLDT HOME is strongly committed to fulfill its subscribers’ digital home lifestyle needs through conveniently and strategically bundled packages with our core data service. PLDT HOME was first to market such services under the Smart Home banner, spreading close to half a million digital services nationwide.

This digital ecosystem is built on the following pillars: connectivity, peace of mind, entertainment, and convergence. The Smart Home connectivity is best experienced through devices like the Telpad which is the world’s first landline, broadband and tablet service in one; and the TVolution which turns an ordinary TV into a smart TV, enabled by Home Fibr’s Internet speeds of up to 1 Gbps. This allows for high-speed browsing of multiple websites and the country’s first symmetrical speed service which provides equal upload and download speeds. By end-2018, PLDT envisions its subscribers to have fully adapted to the Smart Home concept.

PLDT HOME also pioneered the ‘peace of mind’ suite which features security-enhancing products like the home monitoring system Fam Cam launched in partnership with network solutions giant D-Link; the online safety solution Fam Zone which is Australia’s leading online parental control platform; and the multi-functional kiddie gadget Smart Watch manufactured by global telecommunications company Alcatel.

PLDT HOME has always been at the forefront of providing subscribers with diverse and compelling bundled content through its partnerships with globally renowned content providers. These partners include Southeast Asia’s internet TV service provider iflix; US-based internet TV pioneer Netflix; the country’s pay TV service provider Cignal Digital TV; Fox International Channels which offers a wide range of video-on-demand, live content and catch-up TV; and ABS-CBN’s iWanTV, an OTT content platform in the Philippines.

Finally, PLDT HOME has blazed the trail for the convergence of wired and wireless connections through its data sharing feature which allows subscribers to seamlessly share data with their Smart mobile phones, thus revolutionizing the way families share and enjoy their high-speed connection. The data sharing bundle also allows subscribers to conveniently upgrade their mobile devices to the latest iPhone plans or bundle their home broadband service with a Smart Bro Pocket WiFi so they can enjoy the same strongest connections even outside the home. This innovation was recognized by the CIO Asia Awards, wherein PLDT HOME was recognized for its leadership in digital innovation in Asia.

Corporate data and leased line services contributed Php5,622 million in the first three months of 2017, an increase of Php684 million, or 14%, as compared with Php4,938 million in the same period in 2016, mainly due to sustained market traction of broadband data services and growth on Fibr, as a result of higher internet connectivity requirements, and key Private Networking Solutions such as Internet Protocol-Virtual Private Network, or IP-VPN, Metro Ethernet and Shops.Work. Corporate data and leased line revenues accounted for 53% and 54% of total data services for the three months ended March 31, 2017 and 2016, respectively.

Leased lines and other data services include: (i) Diginet, a domestic private leased line service, specifically supporting Smart’s fiber optic and enterprises’ leased line network requirements; (ii) IP-VPN, an end-to-end managed IP-based or Layer 3 data networking service that offers secure means to access corporate network resources; (iii) Metro Ethernet, a high-speed, Layer 2, wide area networking service that enables mission-critical data transfers; (iv) Shops.Work, a connectivity solution designed for retailers and franchisers, linking company branches to the head office; and (v) Shops.Work UnPlugged, or SWUP, a 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.

International leased lines and other data services consist mainly of: (i) i-Gate, our premium, direct internet access service, which continues to be the choice among enterprise users for dedicated internet connectivity, where users can be provided with as much as 10 Gbps of i-Gate internet bandwidth, complemented by industry-leading Service Level Agreements; (ii) Fibernet, which provides cost-effective, managed and resilient international high bandwidth point-to-point private data networking connectivity, through our global points of presence and extensive international alliances, to offshore and outsourcing, banking and finance, and semiconductor industries; and (iii) other international managed data services in partnership with other global service providers, which provide web acceleration, network security, content delivery and other data networking services to multinational companies.

Data centers provide colocation and related connectivity services, managed server hosting, disaster recovery and business continuity services, managed security services, cloud services, big data services and various managed IT solutions. On July 28, 2016, ePLDT inaugurated VITRO Makati, the country’s biggest data center with 3,600 racks at full capacity and located in one of the country’s premiere business districts. VITRO Makati is equipped with highly-resilient systems and facilities to guarantee continuous operations, ensuring that businesses can utilize robust and scalable digital infrastructure, as well as world-class 24/7 technical support capabilities. On February 13, 2017, ePLDT inaugurated the first data center, south of the Philippines. VITRO Davao has a total capacity of 45 racks that can serve both primary and back-up requirements of enterprises based in Mindanao. Designed to fully address redundancy on power and cooling, the carrier-neutral facility is able to provide 99.95% availability. Four days after the launch of VITRO Davao, ePLDT also launched the biggest data center outside of Metro Manila. VITRO Clark is the first purpose-built data center North of Manila. This is the second TIA-942 Rated 3 certified data center of ePLDT, and another Nexcenter certified facility. It has a total capacity of 1,500 racks, fully redundant infrastructure that can deliver 99.99% availability. By the end of 2017, ePLDT Group will have about 9,000 rack capacity in ten locations covering Metro Manila, Subic, Clark, Cebu and Davao. Data center and IT revenues increased by Php80 million, or 11%, to Php818 million in the first three months of 2017 from Php738 million in the same period in 2016 mainly due to higher revenues from colocation and managed IT services. Cloud services include cloud contact center, cloud Infrastructure as a Service, cloud Software as a Service and cloud professional services. The percentage contribution of this service segment to our total data service revenues was 8% in each of the first three months of 2017 and 2016.

Miscellaneous service revenues are derived mostly from rental, outsourcing and facilities management fees. These service revenues increased by Php51 million, or 13%, to Php455 million in the first three months of 2017 from Php404 million in the same period in 2016 mainly due to higher outsourcing and management fees. The percentage contribution of miscellaneous service revenues to our total fixed line service revenues was 2% in each of the first three months of 2017 and 2016.

Non-service revenues decreased by Php120 million, or 13%, to Php800 million in the first three months of 2017 from Php920 million in the same period in 2016, primarily due to lower sale of PLDT Landline Plus, or PLP, and Telpad units, and FabTab for myDSL retention, partly offset by higher computer-bundled and point-product sales.

Expenses related to our fixed line business totaled Php14,372 million in the first three months of 2017, a decrease of Php88 million, or 1%, as compared with Php14,460 million in the same period in 2016. The decrease was primarily due to lower expenses related to repairs and maintenance, interconnection costs, rent, selling and promotions, depreciation and amortization and other operating expenses, partly offset by higher expenses related to professional and other contracted services, compensation and employee benefits, cost of content, cost of sales, communication, training and travel and asset impairment. As a percentage of our total fixed line revenues, expenses associated with our fixed line business accounted for 75% and 81% for the three months ended March 31, 2017 and 2016, respectively.

The following table shows the breakdown of our total fixed line-related expenses for the three months ended March 31, 2017 and 2016 and the percentage of each expense item to the total:

Compensation and employee benefits expenses increased by Php199 million, or 6%, to Php3,548 million, primarily due to higher salaries and employee benefits and provision for pension benefits, partially offset by lower MRP costs. Employee headcount increased to 10,667 as at March 31, 2017 as compared with 9,835 as at March 31, 2016.

Depreciation and amortization charges decreased by Php36 million, or 1% to Php3,120 million due to a lower depreciable asset base.

Professional and other contracted service expenses increased by Php357 million, or 26%, to Php1,713 million, primarily due to higher contracted and technical services and legal fees, partially offset by lower consultancy fees.

Repairs and maintenance expenses decreased by Php289 million, or 17%, to Php1,456 million primarily due to lower repairs and maintenance costs on cable and wire facilities, partially offset by higher maintenance costs on IT hardware and software and electricity charges.

Interconnection costs decreased by Php258 million, or 16%, to Php1,322 million primarily due to lower international interconnection costs as a result of a decrease in international inbound calls that terminated to other domestic carriers, and lower international outbound calls, and domestic interconnection costs.

Cost of sales increased by Php36 million, or 5%, to Php741 million primarily due to higher cost of point-product sales, partially offset by lower sale of PLP and Telpad units, and FabTab for myDSL retention.

Rent expenses decreased by Php119 million, or 14%, to Php729 million, primarily due to lower domestic and international leased circuit rental charges.

Selling and promotion expenses decreased by Php41 million, or 9%, to Php427 million, primarily due to lower advertising and promotions expenses, public relations and marketing expenses.

Taxes and licenses decreased by Php4 million, or 1%, to Php349 million, primarily due to lower business-related taxes.

Asset impairment increased by Php13 million, or 4%, to Php323 million, mainly due to higher provision for doubtful accounts.

Cost of content increased by Php114 million, or 150%, to Php190 million, primarily due to various partnership with content providers.

Communication, training and travel expenses increased by Php14 million, or 11%, to Php144 million, mainly due to higher local training and travel expenses and fuel consumption costs.

Other expenses decreased by Php74 million, or 36%, to Php132 million, primarily due to lower various business and operational-related expenses.

The following table summarizes the breakdown of our total fixed line-related other income (expenses) for the three months ended March 31, 2017 and 2016:

Our fixed line business’ other expenses amounted to Php293 million in the first three months of 2017 as against other income of Php139 million for the same period in 2016, mainly due to the combined effects of the following: (i) lower other income – net by Php887 million due to gain on sale of property in 2016, partly offset by the reversal of impairment of investment in Digitel Crossing, Inc., or DCI, in 2017; (ii) foreign exchange losses of Php41 million on account of revaluation of foreign currency-denominated assets and liabilities due to the depreciation of the Philippine peso relative to the U.S. dollar to Php50.22 as at March 31, 2017 from Php49.77 as at December 31, 2016 as against foreign exchange gains of Php105 million due to an appreciation of the Philippine peso relative to the U.S. dollar to Php45.99 as at March 31, 2016 from Php47.12 as at December 31, 2015; (iii) higher net financing costs by Php106 million mainly due to higher loan principal amount, higher weighted average interest rate and higher weighted average exchange rate of the Philippine peso relative to the U.S. dollar in 2017, partially offset by higher capitalized interest; (iv) an increase in interest income by Php17 million due to higher principal amount of temporary cash investments and higher weighted average exchange rate of the Philippine peso relative to the U.S. dollar in 2017, partly offset by lower weighted average interest rates; (v) equity share in net earnings of associates of Php67 million in the first three months of 2017 as against equity share in net losses of associates of Php68 million in the same period in 2016 mainly due to lower share in net losses of Cignal TVand higher share in net earnings of Hastings and DCI; (vi) gains on derivative financial instruments of Php148 million as against losses on derivative financial instruments of Php407 million mainly on account of mark-to-market gains on foreign exchange derivatives due to the depreciation of the Philippine peso relative to the U.S. dollar in the first three months of 2017 and wider dollar and peso interest rate differentials in 2017.

Provision for income tax amounted to Php1,175 million in the first three months of 2017, an increase of Php110 million, or 10%, from Php1,065 million in the same period in 2016, primarily due to higher taxable income. The effective tax rates for our fixed line business were 27% and 29% in the first three months of 2017 and 2016, respectively.

As a result of the foregoing, our fixed line business registered a net income of Php3,209 million in the first three months of 2017, an increase of Php660 million, or 26%, as compared with Php2,549 million in the same period in 2016.

Our fixed line business’ EBITDA increased by Php1,166 million, or 18%, to Php7,797 million in the first three months of 2017 from Php6,631 million in the same period in 2016. EBITDA margin increased to 43% in the first three months in 2017 from 39% in the same period in 2016.

Our fixed line business’ core income increased by Php208 million, or 8%, to Php2,856 million in the first three months of 2017 from Php2,648 million in the same period in 2016, primarily as a result of higher EBITDA and equity share in net earnings of associates, partially offset by lower other income and financing costs.

Expenses related to our other business totaled Php18 million in the first three months of 2017, an increase of Php3 million, or 20%, as compared with Php15 million in the same period in 2016, primarily due to higher cash operating expenses.

The following table summarizes the breakdown of other expenses – net for other business segment for the three months ended March 31, 2017 and 2016:

Other expenses – net decreased by Php193 million, or 31%, to Php421 million in the first three months of 2017 from Php614 million in the same period in 2016, primarily due to the combined effects of the following: (i) lower other expenses by Php1,043 million due to lower impairment loss on our Rocket investment resulting from the decline in fair value; (ii) an increase in interest income by Php92 million; (iii) higher financing costs by Php3 million; (iv) foreign exchange losses of Php102 million in the first three months of 2017 as against foreign exchange gains of Php261 million in the same period in 2016; and (v) lower equity share in net earnings of associates by Php576 million mainly from lower equity share in Beacon and Beta, and equity share in net losses of VTI in 2017.

As a result of the foregoing, our other business segment registered a net loss of Php470 million in the first three months of 2017, a decrease of Php121 million from Php591 million in the same period in 2016.

Our other business segment’s core income amounted to Php175 million in the first three months of 2017, a decrease of Php493 million, or 74%, as compared with Php668 million in the same period in 2016, mainly as a result of lower equity share in net earnings of associates, partially offset by higher interest income.

The following table shows our consolidated cash flows for the three months ended March 31, 2017 and 2016, as well as our consolidated capitalization and other consolidated selected financial data as at March 31, 2017 and December 31, 2016:

Our consolidated cash and cash equivalents and short-term investments totaled Php39,953 million as at March 31, 2017. Principal sources of consolidated cash and cash equivalents in the first three months of 2017 were cash flows from operating activities amounting to Php15,131 million, proceeds from availment of long-term debt of Php12,256 million, proceeds from issuance of perpetual notes of Php4,200 million, dividends received of Php286 million and interest received of Php242 million. These funds were used principally for: (1) debt principal and interest payments of Php22,637 million and Php2,072 million, respectively; (2) net payment for purchase of short-term investments of Php5,572 million; (3) net reduction in capital expenditures under long-term financing of Php4,387 million; (4) advances to VTI and Bow Arken of Php2,892 million to cover for the assumed liabilities and working capital requirements; and (5) capital expenditures, including capitalized interest, of Php1,770 million.

Our consolidated cash and cash equivalents and short-term investments totaled Php48,490 million as at
March 31, 2016. Principal sources of consolidated cash and cash equivalents in the first three months of 2016 were cash flows from operating activities amounting to Php17,780 million, proceeds from availment of long-term debt of Php7,158 million, proceeds from disposal of property and equipment of Php1,236 million and interest received of Php304 million. These funds were used principally for: (1) capital expenditures, including capitalized interest, of Php14,570 million; (2) debt principal and interest payments of Php5,351 million and Php1,864 million, respectively; (3) net reduction in capital expenditures under long-term financing of Php2,688 million; (4) net payment for purchase of short-term investments of Php1,859 million; and
(5) purchase of investment in associates and joint ventures of Php130 million.

Our consolidated net cash flows provided by operating activities decreased by Php2,649 million, or 15%, to Php15,131 million in the first three months of 2017 from Php17,780 million in the same period in 2016, primarily due to higher level of settlement of accounts payable and lower operating income, partially offset by higher collection efficiency, lower pension contribution, lower inventories and prepayments, and lower corporate taxes paid.

Cash flows provided by operating activities of our wireless business decreased by Php6,649 million, or 55%, to Php5,484 million in the first three months of 2017 from Php12,133 million in the same period in 2016, primarily due to higher level of settlement of accounts payable and other liabilities and lower operating income, partially offset by higher level of collection of receivables, lower inventories and prepayments, and lower corporate taxes paid. Cash flows provided by operating activities of our fixed line business increased by Php3,720 million, or 64%, to Php9,519 million in the first three months of 2017 from Php5,799 million in the same period in 2016, primarily due to lower pension contribution, higher operating income, higher collection efficiency and lower level of settlement of accounts payable and other liabilities, partly offset by higher inventories. Cash flows provided by operating activities of our other business amounted to Php238 million in the first three months in 2017 as against cash flows used in operating activities of Php19 million in the same period in 2016 mainly due to higher accounts payable.

Consolidated net cash flows used in investing activities amounted to Php9,681 million in the first three months in 2017, a decrease of Php5,499 million, or 36%, from Php15,180 million in the same period in 2016, primarily due to the combined effects of the following: (1) lower capital expenditures by Php12,800 million; (2) dividends received of Php286 million in 2017; (3) higher net payment for purchase of short-term investments by Php3,713 million; (4)advances to VTI and Bow Arken of Php2,892 million; and
(5) lower proceeds from disposal of property and equipment by Php1,142 million.

Our consolidated capital expenditures, including capitalized interest, in the first three months of 2017 totaled Php1,770 million, a decrease of Php12,800 million, or 88%, as compared with Php14,570 million in the same period in 2016, primarily due to lower capital spending of Smart Group and PLDT. Smart Group’s capital spending, decreased by Php12,210 million, or 90%, to Php1,403 million in the first three months in 2017 from Php13,613 million in the same period in 2016. Smart Group’s capex spending was primarily focused on expanding 3G, 4G and LTE coverage and reach, as well as capacity and service enhancements. PLDT’s capital spending decreased by Php355 million, or 70%, to Php152 million in the first three months of 2017 from Php507 million in the same period in 2016. The capex spending was used to finance the continuous facility roll-out and expansion of our domestic fiber optic network, as well as expansion of our data center business. The balance represented other subsidiaries’ capital spending.

As part of our growth strategy, we may from time to time, continue to make acquisitions and investments in companies or businesses.

On a consolidated basis, cash flows used in financing activities amounted to Php12,756 million in the first three months of 2017, an increase of Php9,593 million from Php3,163 million in the same period in 2016, resulting largely from the combined effects of the following: (1) higher payments of long-term debt by Php17,286 million; (2) higher net settlement of capital expenditures under long-term financing by Php1,699 million; (3) higher proceeds from availment of long-term debt by Php5,098 million; and (4) proceeds from issuance of perpetual notes of Php4,200 million.

Proceeds from availment of long-term debt for the three months ended March 31, 2017 amounted to Php12,256 million, mainly from PLDT’s drawings related to the financing of our capital expenditure requirements and refinancing maturing loan obligations. Payments of principal and interest on our total debt amounted to Php22,637 million and Php2,072 million, respectively, for the three months ended March 31, 2017.

Our consolidated long-term debt decreased by Php9,885 million, or 5%, to Php175,147 million as at March 31, 2017 from Php185,032 million as at December 31, 2016, primarily due to debt amortizations and prepayments, partly offset by drawings from our long-term facilities and the depreciation of the Philippine peso relative to the U.S. dollar. As at March 31, 2017, the long-term debt levels of PLDT and Smart decreased by 4% and 7% to Php105,461 million and Php69,686 million, respectively, as compared with Php109,867 million and Php74,851 million, respectively, as at December 31, 2016. DMPI loans, with a balance of Php314 million as at December 31, 2016, have been fully paid as at March 31, 2017.

On January 31, 2017, PLDT signed a US$25 million term loan facility with NTT Finance Corporation to finance its capital expenditure requirements for network expansion and improvement and/or refinance existing indebtedness, the proceeds of which were utilized for service improvements and network expansion. The loan was fully drawn on March 30, 2017.

On April 18, 2017, Smart signed a Php1,500 million term loan facility with Philippine National Bank to refinance its existing term loans and/or partially finance capital expenditure requirements for service improvement and network expansion.

Approximately Php87,604 million principal amount of our consolidated outstanding long-term debt as at March 31, 2017 is scheduled to mature over the period from 2017 to 2021. Of this amount, Php49,616 million is attributable to PLDT and Php37,988 million to Smart.

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

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.

As at March 31, 2017 and 2016, we are in compliance with all of our debt covenants.

See Note 20 – Interest-bearing Financial Liabilities – Compliance with Debt Covenants to the accompanying unaudited consolidated financial statements for a more 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; however, we may finance a portion of these costs from external sources if we consider it prudent to do so.

The following table shows the dividends declared to shareholders from the earnings for the three months ended March 31, 2017 and 2016:

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

Our total assets amounted to Php467,456 million as at March 31, 2017, a decrease of Php7,663 million from Php475,119 million as at December 31, 2016, primarily due to lower cash and cash equivalents and lower property equipment, partially offset by higher-short term investments and advances to VTI and Bow Arken.

Our total liabilities amounted to Php357,120 million as at March 31, 2017, a decrease of Php9,462 million from Php366,582 million as at December 31, 2016 mainly due to lower interest-bearing financial liabilities of Php175,148 million as at March 31, 2017 from Php185,032 million as at December 31, 2016, combined with lower accrued capital expenditures under long-term financing and accounts payable, partially offset by higher dividends payable to common and preferred shareholders.

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.

On August 5, 2014, the PLDT Board of Directors approved the amendment of our dividend policy, increasing the dividend payout rate to 75% from 70% of our core earnings per share as regular dividends. In 2016, in view of our elevated capital expenditures to support the build-out of a resilient and reliable data network, lower EBITDA primarily due to higher subsidies to grow the data business and defend market share and the resources required to support the acquisition of SMC’s telecommunications business, we have lowered our regular dividend payout to 60% of our core income. In declaring dividends, we take 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 of up to the balance of our core earnings or to undertake share buybacks. We were able to pay out approximately 100% of our core earnings for seven consecutive years from 2007 to 2013, approximately 90% of our core earnings for 2014, 75% of our core earnings for 2015 and 60% of our core earnings in 2016. 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. Dividends are generally paid in Philippine pesos. In the case of shareholders residing outside the Philippines, PLDT’s transfer agent in Manila, Philippines, as the dividend-disbursing agent, converts the Philippine peso dividends into U.S. dollars at the prevailing exchange rates and remits the dollar dividends abroad, net of any applicable withholding tax.

Our subsidiaries pay dividends subject to the requirements of applicable laws and regulations and availability of unrestricted retained earnings, without any restriction imposed by the terms of contractual agreements. Notwithstanding the foregoing, the subsidiaries of PLDT may, at any time, declare and pay such dividends depending upon the results of operations and future projects and plans, the respective subsidiary’s earnings, cash flow, financial condition, capital investment requirements and other factors.

Consolidated cash dividend payments in the first three months in 2017 amounted to Php17 million as compared with Php16 million paid to shareholders in the same period in 2016.

For a detailed discussion of our consolidated contractual undiscounted obligations as at March 31, 2017 and 2016, see Note 27 – Financial Assets and Liabilities to the accompanying unaudited consolidated financial statements.

Our outstanding consolidated commercial commitments, in the form of letters of credit, amounted to Php6,619 million and Php6,788 million as at March 31, 2017 and December 31, 2016, respectively, which include standby letters of credit issued in relation with PLDT’s acquisition of VTI, Bow Arken and Brightshare. These 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 issuances and sale 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 March 31, 2017 and December 31, 2016 other than those whose carrying amounts are reasonable approximations of fair values:

The following table sets forth the amount of gains (losses) recognized for the financial assets and liabilities for the three months ended March 31, 2017 and the year ended December 31, 2016:

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 for the three months ended March 31, 2017 and 2016 were 3.1% and 1.1%, respectively. Moving forward, we currently expect inflation to rise following the impact of peso depreciation on oil prices.

On March 27, 1992, Philippine Congress granted a legislative franchise to Smart under Republic Act (R.A.) No. 7294 to establish, install, maintain, lease and operate integrated telecommunications, computer, electronic services, and stations throughout the Philippines for public domestic and international telecommunications, and for other purposes. R.A. 7294 took effect on April 15, 1992, which was 15 days from date of publication in at least two newspapers of general circulation in the Philippines.

On April 21, 2017, R.A. 10926, which effectively extends Smart’s franchise until 2042, was signed into law by the President of the Republic of the Philippines. The law was published in a newspaper of general circulation on May 4, 2017 and will take effect on May 19, 2017, or 15 days after the said publication.

Smart issued Php2,610 million and Php1,590 million perpetual notes under two Notes Facility Agreements dated March 3, 2017 and March 6, 2017, respectively. Proceeds from the issuance of these notes are intended to finance capital expenditures. The notes have no fixed redemption dates and Smart may, at its sole option, redeem the notes in whole but not in part. In accordance with PAS 32, the notes are classified as part of equity in the financial statements of Smart. The notes are subordinated to and rank junior to all senior loans of Smart.

In the Matter of the Petition against the Philippine Competition Commission, or PCC

On July 12, 2016, PLDT filed before the Court of Appeals, or CA, a Petition for Certiorari and Prohibition (With Urgent Application for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction), or the Petition, against the PCC. The Petition seeks to enjoin the PCC from proceeding with the review of the SMC Transactions and performing any act which challenges or assails the “deemed approved” status of the transaction. On July 19, 2016, the 12^th Division of the CA issued a Resolution directing the Office of the Solicitor General, or the OSG, to file its Comment within a non-extensible period of 10 days from notice and show cause why the Petition should not be granted. On August 11, 2016, the PCC through the OSG, filed its Comment to the Petition (With Opposition to Petitioner’s Application for a Writ of Preliminary Injunction). On August 19, 2016, PLDT filed its Reply to Respondent PCC’s Comment.

On August 26, 2016, the CA 12^th Division issued a Writ of Preliminary Injunction enjoining and directing the respondent PCC, their officials and agents, or persons acting for and in their behalf, to cease and desist from conducting further proceedings for the pre-acquisition review and/or investigation of the subject acquisition based on its Letters dated June 7, 2016 and June 17, 2016 during the effectivity hereof and until further orders are issued by the Court. On September 14, 2016, the PCC filed a Motion for Reconsideration of the CA’s Resolution dated August 26, 2016. In a Resolution promulgated on October 19, 2016, the CA’s 12^th Division: (i) accepted the consolidation of Globe’s petition versus the PCC (CA G.R. SP No. 146538) into PLDT’s petition versus the PCC (CA G.R. SP No. 146528) with the right of replacement; (ii) admitted the Comment dated October 4, 2016 filed by the PCC; (iii) referred to the PCC for Comment (within 10 days from notice) PLDT’s Urgent Motion for the Issuance of a Gag Order dated September 30, 2016; and (iv) ordered all parties to submit simultaneous memoranda within a non-extendible period of 15 days from notice. Thereafter, with or without their respective memorandum, the instant cases are submitted for decision. On November 11, 2016, PLDT filed its Memorandum in compliance with the CA Resolution.

On February 17, 2017, the CA issued a Resolution denying PCC’s Motion for Reconsideration dated September 14, 2016 for lack of merit. The Court denied PLDT’s Motion to Cite the PCC in indirect contempt for being premature. In the same Resolution as well as in a separate Gag Order attached to the Resolution, the Court granted PLDT’s Urgent Motion for the Issuance of a Gag Order and directed the PCC to remove immediately from its website its preliminary statement of concern and submit its compliance within five days from receipt thereof. All the parties were ordered to refrain, cease and desist from issuing public comments and statements that would violate the sub judice rule and subject them to indirect contempt of court. The parties were also required to comment within ten days from receipt of the Resolution, on the Motion for Leave to Intervene, and to Admit the Petition-in-Intervention dated February 7, 2017 filed by Citizenwatch, a non-stock and non-profit association.

On April 18, 2017, the PCC filed before the Supreme Court a Petition to Annul the Writ of Preliminary Injunction issued by the Court of Appeal’s 12^th Division on August 26, 2016 restraining PCC’s review of the SMC Transactions. The petition remains pending resolution with the Supreme Court.

The Supreme Court, in its November 22, 2016 decision, dismissed the Petition and upheld the validity of the Guidelines. In the course of discussing the Petition, the Supreme Court expressly rejected petitioners’ argument that the 60% Filipino ownership requirement for public utilities must be applied to each class of shares. According to the Court, the position is “simply beyond the literal text and contemplation of Section 11, Article XII of the 1987 Constitution” and that the petitioners’ suggestion would “effectively and unwarrantedly amend or change” the Court’s ruling in Gamboa. In categorically rejecting the petitioners’ claim, the Court declared and stressed that its Gamboa ruling “did NOT make any definitive ruling that the 60% Filipino ownership requirement was intended to apply to each class of shares.” On the contrary, according to the Court, “nowhere in the discussion of the term “capital” in Section 11, Article XII of the 1987 Constitution in the Gamboa Decision did the Court mention the 60% Filipino equity requirement to be applied to each class of shares.”

In respect of ensuring Filipino ownership and control of public utilities, the Court noted that this is already achieved by the requirements under Memorandum Circular, or MC, No. 8. According to the Court, “since Filipinos own at least 60% of the outstanding shares of stock entitled to vote directors, which is what the Constitution precisely requires, then the Filipino stockholders control the corporation – i.e., they dictate corporate actions and decisions...”

The Court further noted that the application of the Filipino ownership requirement as proposed by petitioners “fails to understand and appreciate the nature and features of stocks and financial instruments” and would “greatly erode” a corporation’s “access to capital – which a stock corporation may need for expansion, debt relief/repayment, working capital requirement and other corporate pursuits.” The Court reaffirmed that “stock corporations are allowed to create shares of different classes with varying features” and that this “is a flexibility that is granted, among others, for the corporation to attract and generate capital (funds) from both local and foreign capital markets” and that “this access to capital – which a stock corporation may need for expansion, debt relief/repayment, working capital requirement and other corporate pursuits – will be greatly eroded with further unwarranted limitations that are not articulated in the Constitution.” The Court added that “the intricacies and delicate balance between debt instruments (liabilities) and equity (capital) that stock corporations need to calibrate to fund their business requirements and achieve their financial targets are better left to the judgment of their boards and officers, whose bounden duty is to steer their companies to financial stability and profitability and who are ultimately answerable to their shareholders.”

The Court went on to say that “a too restrictive definition of ‘capital’, one that was never contemplated in the Gamboa Decision, will surely have a dampening effect on the business milieu by eroding the flexibility inherent in the issuance of preferred shares with varying terms and conditions. Consequently, the rights and prerogatives of the owners of the corporation will be unwarrantedly stymied.” Accordingly, the Court said that the petitioners’ “restrictive interpretation of the term “capital” would have a tremendous adverse impact on the country as a whole – and to all Filipinos.”

Petitioner Jose M. Roy III filed a Motion for Reconsideration of the Supreme Court Decision dated
November 22, 2016. On April 18, 2017, the Supreme Court denied with finality Petitioner’s Motion for Reconsideration.

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 March 31, 2017:

The following table shows our financial soundness indicators as at March 31, 2017 and 2016:

⁽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 attributable to equity holders of PLDT.

⁽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 period.

⁽⁴⁾

Total Debt to EBITDA ratio is measured as total debt (long-term debt, including current portion and notes payable) divided by EBITDA for the period.

⁽⁵⁾ Asset to equity ratio is measured as total assets divided by total equity attributable to equity holders of PLDT.

⁽⁶⁾

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

⁽⁷⁾ Profit margin is derived by dividing net income for the period with total revenues for the period.

⁽⁸⁾ Return on assets is measured as net income for the period divided by average total assets.

⁽⁹⁾ Return on Equity is measured as net income for the period divided by average total equity attributable to equity holders of PLDT.

⁽¹⁰⁾ EBITDA margin is measured as EBITDA for the period divided by service revenues for the period.

Pursuant to the requirements of the Securities Regulation Code, the registrant has duly caused this report for the first quarter of 2017 to be signed on its behalf by the undersigned thereunto duly authorized.

AS AT MARCH 31, 2017 (UNAUDITED) AND DECEMBER 31, 2016 (AUDITED)
AND FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016 (UNAUDITED)


	As at March 31,			As at December 31,
	2017			2016
	(Unaudited)			(Audited)
ASSETS

Noncurrent Assets
Property and equipment (Notes 9 and 21)		197,306			203,188
Investments in associates and joint ventures (Notes 10 and 24)		60,043			56,858
Available-for-sale financial investments (Notes 6, 11 and 27)		10,803			12,189
Investment in debt securities and other long-term investments – net of current portion (Notes 12 and 27)		250			374
Investment properties (Notes 6 and 13)		1,890			1,890
Goodwill and intangible assets (Note 14)		70,112			70,280
Deferred income tax assets – net (Note 7)		26,386			27,348
Derivative financial assets – net of current portion (Note 27)		349			499
Prepayments – net of current portion (Note 18)		7,097			7,056
Advances and other noncurrent assets – net of current portion (Notes 24 and 27)		9,430			9,473

Total Noncurrent Assets		383,666			389,155

Current Assets
Cash and cash equivalents (Note 15)		31,628			38,722
Short-term investments (Note 27)		8,325			2,738
Trade and other receivables (Note 16)		24,046			24,436
Inventories and supplies (Note 17)		3,192			3,744
Current portion of derivative financial assets (Note 27)		248			242
Current portion of investment in debt securities and other long-term investments (Note 12)		452			326
Current portion of prepayments (Note 18)		7,674			7,505
Current portion of advances and other noncurrent assets (Note 19)		8,225			8,251

Total Current Assets		83,790			85,964

TOTAL ASSETS		467,456			475,119

EQUITY AND LIABILITIES

Equity
Non-voting serial preferred stock (Notes 8 and 19)		360			360
Voting preferred stock (Note 19)		150			150
Common stock (Notes 8 and 19)		1,093			1,093
Perpetual notes (Note 19)		4,200			–
Treasury stock (Notes 8 and 19)		(6,505	)		(6,505	)
Capital in excess of par value (Note 19)		130,361			130,488
Retained earnings (Note 19)		2,370			3,483
Other comprehensive loss (Note 6)		(22,075	)		(20,894	)
Total Equity Attributable to Equity Holders of PLDT (Note 27)		109,954			108,175
Noncontrolling interests (Note 6)		382			362

TOTAL EQUITY		110,336			108,537

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)
(in million pesos)

CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended March 31, 2017 and 2016
(in million pesos, except earnings per common share amounts which are in pesos)


	2017			2016
	(Unaudited)
REVENUES
Service revenues		37,701			40,598
Non-service revenues (Note 5)		1,487			2,181

		39,188			42,779

EXPENSES
Depreciation and amortization (Note 9)		7,550			7,158
Compensation and employee benefits (Notes 5 and 25)		5,487			5,231
Repairs and maintenance (Notes 13, 17 and 24)		3,160			3,671
Professional and other contracted services (Note 24)		2,698			2,174
Cost of sales (Notes 5, 17 and 24)		2,646			5,126
Interconnection costs		2,091			2,436
Rent (Note 24)		1,830			1,670
Selling and promotions (Note 24)		1,508			1,718
Asset impairment (Note 5)		1,051			1,645
Taxes and licenses (Note 26)		971			1,322
Insurance and security services (Note 24)		462			463
Cost of content		309			107
Communication, training and travel (Note 24)		304			301
Amortization of intangible assets (Note 14)		205			272
Other expenses		204			309

		30,476			33,603

		8,712			9,176

OTHER INCOME (EXPENSES)
Interest income (Note 5)		309			255
Gains (losses) on derivative financial instruments – net (Note 27)		282			(497	)
Equity share in net earnings of associates and joint ventures (Note 10)		193			637
Foreign exchange gains (losses) – net (Notes 9 and 27)		(397	)		970
Financing costs – net (Note 5)		(1,900	)		(1,804	)
Other income – net (Notes 11 and 13)		57			225

		(1,456	)		(214	)

INCOME BEFORE INCOME TAX		7,256			8,962
PROVISION FOR INCOME TAX (Note 7)		2,287			2,729

NET INCOME		4,969			6,233

ATTRIBUTABLE TO:
Equity holders of PLDT (Note 8)		4,951			6,217
Noncontrolling interests (Note 8)		18			16

		4,969			6,233

Earnings Per Share Attributable to Common Equity Holders of PLDT (Note 8)
Basic		22.84			28.71
Diluted		22.84			28.71

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2017 and 2016
(in million pesos)


	2017			2016
	(Unaudited)
NET INCOME		4,969			6,233
OTHER COMPREHENSIVE INCOME (LOSS) – NET OF TAX (Note 6)
Foreign currency translation differences of subsidiaries		13			(42	)
Share in the other comprehensive loss of associates and joint ventures accounted for using the equity method (Note 10)		(42	)		–
Net transactions on cash flow hedges:		(132	)		(259	)
Net fair value losses on cash flow hedges (Note 27)		(145	)		(390	)
Income tax related to fair value adjustments charged directly to equity (Note 7)		13			131
Net losses on available-for-sale financial investments:		(847	)		(1	)
Impairment recognized in profit or loss (Note 11)		540			1,583
Unrealized losses from changes in fair value recognized during the period (Note 11)		(1,386	)		(1,584	)
Income tax related to fair value adjustments charged directly to equity (Note 7)		(1	)		–

Net other comprehensive loss to be reclassified to profit or loss in subsequent years		(1,008	)		(302	)

Share in the other comprehensive income of associates and joint ventures accounted for using the equity method (Note 10)		216			–
Actuarial losses on defined benefit obligations:		(387	)		(1,873	)
Remeasurement in actuarial losses on defined benefit obligations		(549	)		(2,682	)
Income tax related to remeasurement adjustments (Note 7)		162			809
Revaluation increment on investment properties:		–			–
Depreciation of revaluation increment in investment properties transferred to property and equipment (Note 9)		(1	)		(1	)
Income tax related to revaluation increment charged directly to equity (Note 7)		1			1

Net other comprehensive loss not to be reclassified to profit or loss in subsequent years		(171	)		(1,873	)

Total Other Comprehensive Loss – Net of Tax		(1,179	)		(2,175	)

TOTAL COMPREHENSIVE INCOME		3,790			4,058

ATTRIBUTABLE TO:
Equity holders of PLDT		3,770			4,046
Noncontrolling interests		20			12

		3,790			4,058

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2017 and 2016
(in million pesos)

Total Equity

Other

Attributable to

Preferred

Common

Capital in Excess of

Comprehensive

Equity Holders

Noncontrolling

Total

Stock

Treasury Stock

Par Value

Retained Earnings

(Loss) Income

Perpetual Notes

of PLDT

Interests

Equity

Balances as at January 1, 2017

510

1,093

(6,505

)

130,488

3,483

(20,894

)

–

108,175

362

108,537

Total comprehensive income:

–

4,951

(1,181

)

–

3,770

3,790

Net income (Note 8)

–

4,951

–

4,951

4,969

Other comprehensive income
(loss) (Note 6)

–

(1,181)

–

(1,181)

(1,179)

Cash dividends (Note 19)

–

(6,064

)

–

(6,064

)

–

(6,064

)

Perpetual notes (Note 19)

–

4,200

–

4,200

Equity reserves

–

(127

)

–

(127

)

–

(127

)

Balances as at March 31, 2017
(Unaudited)

510

1,093

(6,505)

130,361

2,370

(22,075)

4,200

109,954

382

110,336

Balances as at January 1, 2016

510

1,093

(6,505

)

130,517

6,195

(18,202

)

–

113,608

290

113,898

Total comprehensive income:

–

6,217

(2,171

)

–

4,046

4,058

Net income (Note 8)

–

6,217

–

6,217

6,233

Other comprehensive loss
(Note 6)

–

(2,171)

–

(2,171)

(4)

(2,175)

Cash dividends (Note 19)

–

(12,330

)

–

(12,330

)

(20

)

(12,350

)

Acquisition and dilution of
noncontrolling interests

–

(2)

–

(2)

(1)

(3)

Balances as at March 31, 2016
(Unaudited)

510

1,093

(6,505)

130,515

(20,373)

–

105,322

281

105,603

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2017 and 2016
(in million pesos)


	2017			2016
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		7,256			8,962
Adjustments for:
Depreciation and amortization (Note 9)		7,550			7,158
Interest on loans and other related items – net (Note 5)		1,824			1,722
Asset impairment (Note 5)		1,051			1,645
Pension benefit costs (Notes 5 and 25)		483			435
Foreign exchange losses (gains) – net (Notes 9 and 27)		397			(970	)
Impairment of investments (Note 11)		212			1,583
Amortization of intangible assets (Note 14)		205			272
Accretion on financial liabilities – net (Note 5)		60			75
Gains on disposal of property and equipment (Note 9)		(1	)		(973	)
Equity share in net earnings of associates and joint ventures (Note 10)		(193	)		(637	)
Losses (gains) on derivative financial instruments – net (Note 27)		(282	)		497
Interest income (Note 5)		(309	)		(255	)
Gain on disposal of investment in joint ventures		–			(2	)
Others		(168	)		9

Operating income before changes in assets and liabilities		18,085			19,521
Decrease (increase) in:
Trade and other receivables		(324	)		(5,245	)
Inventories and supplies		489			(1,268	)
Prepayments		(60	)		(1,371	)
Advances and other noncurrent assets		23			(50	)
Increase (decrease) in:
Accounts payable		(3,843	)		9,665
Accrued expenses and other current liabilities		1,708			51
Pension and other employee benefits		(569	)		(2,487	)
Customers’ deposits		(3	)		(6	)
Other noncurrent liabilities		14			16

Net cash flows generated from operations		15,520			18,826
Income taxes paid		(389	)		(1,046	)

Net cash flows from operating activities		15,131			17,780

CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received (Note 10)		286			–
Interest received		242			304
Proceeds from disposal of property and equipment (Note 9)		94			1,236
Payments for:
Acquisition of intangible assets (Note 14)		(37	)		(1	)
Interest paid – capitalized to property and equipment (Note 9)		(207	)		(101	)
Purchase of investments in associates and joint ventures		(2,896	)		(130	)
Additions to property and equipment (Note 9)		(1,563	)		(14,469	)
Increase in short-term investments		(5,572	)		(1,859	)
Cash from deconsolidated subsidiaries		–			(141	)
Increase in advances and other noncurrent assets		(28	)		(19	)

Net cash flows used in investing activities		(9,681	)		(15,180	)

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Three Months Ended March 31, 2017 and 2016
(in million pesos)

PLDT Inc. (formerly Philippine Long Distance Telephone Company), which we refer to as 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 March 31, 2017. 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 March 31, 2017. 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 its affiliates, or JG Summit Group. 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 March 31, 2017, the JG Summit Group beneficially 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 PLDT Beneficial Trust Fund, 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 between BTFHI and PLDT dated October 15, 2012. 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 March 31, 2017. See Note 19 – Equity – Voting Preferred Stock and Note 26 – Provisions and Contingencies – In the Matter of the Wilson Gamboa Case and 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 American Depositary Shares, or ADSs, with each ADS representing one PLDT common share with a par value of Php5.00 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 39.8 million ADSs outstanding as at March 31, 2017.

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.

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

On April 12, 2016 and June 14, 2016, the Board of Directors and stockholders of PLDT, respectively, approved the following actions: (i) change in the name of the Company from Philippine Long Distance Telephone Company to PLDT Inc.; (ii) expansion of the purpose clause to expressly provide for such other purposes and powers incidental to or in furtherance of the primary purpose, including the power to do or engage in such activities required, necessary or expedient in the pursuit of lawful businesses or for the protection or benefit of the Company; and (iii) corresponding amendments to the First Article and Second Article of the Articles of Incorporation of the Company.

On July 29, 2016, the Amended Articles of Incorporation of the Company containing the aforementioned amendments was approved by the Philippine Securities and Exchange Commission, or Philippine SEC.

On August 30, 2016, the Board of Directors, exercising its own power and the authority duly delegated to it by the stockholders of PLDT to amend the By-Laws, authorized and approved the following amendments: (i) change in the name of the Company from Philippine Long Distance Telephone Company to PLDT Inc. both in the heading and Section 1, Article XV of the By-Laws; and (ii) change in the logo of the Company as stated in Section 1, Article XV of the By-Laws from desk telephone to the current triangle-shaped logo of the corporation. On November 14, 2016, the Amended By-Laws of the Company containing the aforementioned amendments was approved by the Philippine SEC.

Our consolidated financial statements have been prepared in accordance with Philippine Financial Reporting Standards, or PFRSs, as issued by the Philippine Financial Reporting Standards Council, or FRSC.

Our consolidated financial statements have been prepared under the historical cost basis, except for derivative financial instruments, available-for-sale financial investments, certain short-term investments and investment properties that are 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 three months ended March 31, 2017 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 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 March 31, 2017 and December 31, 2016:

March 31,

2017

December 31, 2016

(Unaudited)

(Audited)

Place of

Percentage of Ownership

Name of Subsidiary

Incorporation

Principal Business Activity

Direct

Indirect

Direct

Indirect

Wireless

Smart:

Philippines

Cellular mobile services

100.0

–

100.0

–

Smart Broadband, Inc., or SBI,

Internet broadband distribution

and Subsidiary

Philippines

services

–

100.0

–

100.0

Primeworld Digital Systems, Inc.,

Internet broadband distribution

or PDSI

Philippines

services

–

100.0

–

100.0

I-Contacts Corporation

Philippines

Operations support servicing business

–

100.0

–

100.0

Smart Money Holdings Corporation, or SMHC

Cayman Islands

Investment company

–

100.0

–

100.0

Far East Capital Limited, or FECL,

Cayman Islands

Cost effective offshore financing

–

100.0

–

100.0

and Subsidiary, or FECL Group

and risk management activities for

Smart

PH Communications Holdings Corporation

Philippines

Investment company

–

100.0

–

100.0

Connectivity Unlimited Resource

Philippines

Cellular mobile services

–

100.0

–

100.0

Enterprise, or CURE

Francom Holdings, Inc.:

Philippines

Investment company

–

100.0

–

100.0

Chikka Holdings Limited, or Chikka,

British Virgin

Content provider, mobile

–

100.0

–

100.0

and Subsidiaries, or Chikka Group

Islands

applications development and

services

Voyager Innovations, Inc., or

Philippines

Mobile applications and digital

–

100.0

–

100.0

Voyager

platforms developer

eInnovations Holdings Pte. Ltd.,

Singapore

Investment company

–

100.0

–

100.0

or eInnovations:

Takatack Holdings Pte. Ltd., or

Singapore

Investment company

–

100.0

–

100.0

Takatack Holdings

Takatack Technologies Pte.

Singapore

Development and maintenance of

–

100.0

–

100.0

Ltd., or Takatack Technologies

IT-based solutions for

communications and e-Commerce

platforms

Takatack Malaysia Sdn. Bhd., or

Malaysia

Development, maintenance and support

–

100.0

–

Takatack Malaysia^(a)

services to enable the digital

commerce ecosystem

iCommerce Investments Pte. Ltd., or

Singapore

Investment company

–

100.0

–

100.0

iCommerce

Voyager Fintech Ventures Pte. Ltd.,

Singapore

Investment company

–

100.0

–

100.0

or Fintech Ventures (formerly eInnovations Ventures Pte. Ltd. or eVentures)^(b)

Fintqnologies Corporation,

Philippines

Development of financial technology

–

100.0

–

or FINTQ^(c)

innovations

Fintq Inventures Insurance

Philippines

Insurance company

–

100.0

–

Agency Corporation^(d)

ePay Investments Pte. Ltd.,

Singapore

Investment company

–

100.0

–

100.0

or ePay

PayMaya Philippines, Inc.

Philippines

Provide and market certain mobile

–

100.0

–

100.0

or PayMaya

payment services

PayMaya Operations

Philippines

Market, sell and distribute payment

–

100.0

–

100.0

Philippines, Inc., or

solutions and other related services

PayMaya Ops

3^rd Brand Pte. Ltd., or

Solutions and systems integration

3^rd Brand

Singapore

services

–

85.0

–

85.0

WiFun, Inc., or WiFun^(e)

Philippines

Software developer and selling of

–

100.0

–

100.0

WiFi access equipment

Telesat, Inc.^(f)

Philippines

Satellite communications services

100.0

–

100.0

–

ACeS Philippines Cellular Satellite

Philippines

Satellite information and messaging

88.5

11.5

88.5

11.5

Corporation, or ACeS Philippines

services

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

Philippines

Cellular mobile services

–

99.6

–

99.6

Fixed Line

PLDT Clark Telecom, Inc., or ClarkTel

Philippines

Telecommunications services

100.0

–

100.0

–

PLDT Subic Telecom, Inc., or SubicTel

Philippines

Telecommunications services

100.0

–

100.0

–

PLDT Global Corporation, or PLDT Global, and

British Virgin

Subsidiaries

Islands

Telecommunications services

100.0

–

100.0

–

Smart-NTT Multimedia, Inc.^(f)

Philippines

Data and network services

100.0

–

100.0

–

PLDT-Philcom, Inc., or Philcom, and

Philippines

Telecommunications services

100.0

–

100.0

–

Subsidiaries, or Philcom Group

Talas Data Intelligence, Inc., or Talas

Philippines

Business infrastructure and

100.0

–

100.0

–

solutions; intelligent data

processing and implementation

services and data analytics insight

generation

ePLDT, Inc., or ePLDT:

Philippines

Information and communications

100.0

–

100.0

–

infrastructure for internet-based

services, e-commerce, customer

relationship management and IT

related services

IP Converge Data Services, Inc.,

Philippines

Information and communications

–

100.0

–

100.0

or IPCDSI, and Subsidiary, or IPCDSI Group

infrastructure for internet-based

services, e-commerce, customer

relationship management and IT

related services

Curo Teknika, Inc., or Curo

Philippines

Managed IT outsourcing

–

100.0

–

100.0

ABM Global Solutions, Inc., or AGS, and

Philippines

Internet-based purchasing, IT

–

100.0

–

100.0

Subsidiaries, or AGS Group

consulting and professional services

Bills printing and other related

ePDS, Inc., or ePDS

Philippines

value-added services, or VAS

–

67.0

–

67.0

netGames, Inc.

Philippines

Gaming support services

–

57.5

–

57.5

Digitel:

Philippines

Telecommunications services

99.6

–

99.6

–

Digitel Information Technology Services,

Philippines

Internet services

–

99.6

–

99.6

Inc.^(f)

PLDT-Maratel, Inc., or Maratel

Philippines

Telecommunications services

98.0

–

98.0

–

Bonifacio Communications Corporation, or BCC

Philippines

Telecommunications, infrastructure

75.0

–

75.0

–

and related VAS

Pacific Global One Aviation Company, Inc.,

Philippines

Air transportation business

65.0

–

65.0

–

or PG1

Pilipinas Global Network Limited,

British Virgin

Internal distributor of Filipino

64.6

–

64.6

–

or PGNL, and Subsidiaries

Islands

channels and content

Others

PLDT Global Investments Holdings, Inc., or PGIH

Philippines

Investment company

100.0

–

100.0

–

PLDT Digital Investments Pte. Ltd., or PLDT Digital, and Subsidiaries

Singapore

Investment company

100.0

–

100.0

–

Mabuhay Investments Corporation,

Philippines

Investment company

67.0

–

67.0

–

or MIC^(f)

PLDT Global Investments Corporation,

British Virgin

Investment company

–

100.0

–

100.0

or PGIC

Islands

PLDT Communications and Energy Ventures,

Philippines

Investment company

–

99.9

–

99.9

Inc., or PCEV

^(a)

On April 12, 2016, Takatack Malaysia was incorporated in Malaysia to provide development, maintenance and support services and sales and marketing to enable the entire digital commerce ecosystem in favor of consumers, merchants, service providers and other third parties.

^(b)

On August 21, 2015, eVentures was incorporated in Singapore to serve as a holding company of other digital investments providing digital, internet, information, communication and IT-related activities. On January 12, 2016, the ACRA of Singapore approved the change in business name of eVentures to Voyager Fintech Ventures Pte. Ltd.

^(c)

On April 27, 2016, Voyager incorporated its financial technology unit FINTQ to focus on customer-centric, demand-driven and mobile-first financial technology platforms that enable banks and non-banks in offering their respective customer base seamless digital access to loans, savings, insurance, disbursements, payments, anti-fraud and card control services, among others. Its key thrust is to promote inclusive growth and financial inclusion leveraging on digital and mobile technologies in emerging markets.

^(d)

On December 19, 2016, Fintq Inventures Insurance Agency Corporation was incorporated in the Philippines to engage in business as an insurance agent for the distribution, marketing and sale of insurance products such as life, non-life, accident and health insurance and pre-need projects and services.

^(e)

On November 25, 2015, Smart acquired the remaining 13% noncontrolling shares of WiFun for a total purchase price of Php10 million, of which Php7 million and Php3 million were paid on November 25, 2015 and February 29, 2016, respectively.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which PLDT obtains control, and continue to be consolidated until the date that such control ceases. We control an investee when we are exposed, or have 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 PLDT 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 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 is obligated to sell its Red Mobile business to Smart consisting primarily of its subscriber base, brand and fixed assets; and

Smart is obligated to sell all of its rights and interests in CURE whose remaining assets will consist of its congressional franchise, 10 Megahertz, or 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 PLDT 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 referred the computation of the CRA to the Commissioners of the NTC. 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.

As at May 12, 2017, CURE is still waiting for advice from the NTC on how to proceed with the planned divestment.

Due to the planned divestment, franchise and licenses related to CURE qualify as noncurrent assets held-for-sale. However, these were not presented separately in our consolidated statements of financial position as the carrying amounts are not material.

On April 15, 2016, PLDT Capital and Hopscotch entered into an agreement to market and exclusively distribute Hopscotch’s mobile solutions in Southeast Asia through Gohopscotch Southeast Asia Pte. Ltd., a Singapore company incorporated on March 1, 2016, of which PLDT Capital and Hopscotch own 90% and 10% of the equity interests, respectively. The Hopscotch mobile-platform technology allows for the rapid development of custom mobile applications for sports teams, live events, and brands to create a memorable and monetizable fan experience and also increase mobile advertising revenue. As a vehicle to execute the agreement, PLDT Capital incorporated Gohopscotch Southeast Asia Pte. Ltd., a Singapore company, on March 1, 2016.

Transfer of DMPI’s Sun Postpaid Cellular and Broadband Subscription Assets to Smart

On August 1, 2016, the Board of Directors of Smart and DMPI approved the sale/transfer of DMPI’s trademark and subscribers (both individual and corporate) including all of DMPI’s assets, rights and obligations directly or indirectly connected to its postpaid cellular and broadband subscribers. The transfer is in accordance with the integration of the wireless business to simplify business operations, as well as to provide flexibility in offering new bundled/converged products and enhanced customer experience. The transfer was completed on November 1, 2016, after which only its prepaid cellular business remains with DMPI.

On March 27, 1992, Philippine Congress granted a legislative franchise to Smart under Republic Act No. 7294, or R.A. 7294, to establish, install, maintain, lease and operate integrated telecommunications, computer, electronic services, and stations throughout the Philippines for public domestic and international telecommunications, and for other purposes. R.A. 7294 took effect on April 15, 1992, which was 15 days from date of publication in at least two newspapers of general circulation in the Philippines.

On April 21, 2017, Republic Act No. 10926, which effectively extends Smart’s franchise until 2042, was signed into law by the President of the Republic of the Philippines. The law was published in a newspaper of general circulation on May 4, 2017 and will take effect on May 19, 2017, or 15 days after the said publication.

The accounting policies adopted are consistent with those of the previous financial year, except that the PLDT Group has adopted the following new accounting pronouncements starting January 1, 2017. The adoption of these pronouncements did not have any significant impact on the PLDT Group’s financial position or performance.

Amendments to PFRS 12, Clarification of the Scope of the Standard (Part of Annual Improvements to PFRSs 2014 — 2016 Cycle)
Amendments to PAS 7, Statement of Cash Flows, Disclosure Initiative
Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses

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, we elect whether to measure the components of the noncontrolling interest in the acquiree 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 is measured at fair value with changes in fair value recognized in profit or loss. 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 review 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 on a bargain purchase 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. During the 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 has been allocated to 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 disposed operation and the portion of the CGU retained.

An associate is an entity in which we have significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but has no control nor joint control over those policies. The existence of significant influence is presumed to exist when we hold 20% or more, but less than 50% of the voting power of another entity. Significant influence is also exemplified when we have one or more of the following: (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 of 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 directly attributable transaction costs. The details of our investments in associates are disclosed in Note 10 – Investments in Associates and Joint Ventures – Investments in Associates.

Under the equity method, an investment in an associate is carried 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 statement of comprehensive income and consolidated 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 interests 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 associate, 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 have 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 with respect to which we have joint control, established by contracts requiring unanimous consent from the parties sharing control 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 in accordance with the PFRS applicable to the particular assets, liabilities and transactions.

Joint venture – when we have rights only to the net assets of the arrangements, we account for our interest using the equity method, the same as our accounting for 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 and Joint Ventures – 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. Our investment in 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 over the joint venture, we measure and recognize our retained 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 with no remeasurement.

We present assets and liabilities in the consolidated statements of financial position based on current or noncurrent classification.

Expected to be realized or intended to be sold or consumed in the normal operating cycle;
Held primarily for the purpose of trading;
Expected to be realized within twelve months after the reporting period; or
Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

It is expected to be settled in the normal operating cycle;
It is held primarily for the purpose of trading;
It is due to be settled within twelve months after the reporting period; or
There is no unconditional right to defer the settlement of the liability for at least twelve months after the period.

Deferred income tax assets and liabilities are classified as noncurrent assets and liabilities, respectively.

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 the subsidiaries discussed below) 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 gain or loss arising from transactions of non-monetary items measured at fair value is treated in line with the recognition of this gain or loss on the change in fair value of the items (i.e., translation differences on items whose fair value gain or loss is recognized in other comprehensive income or profit or loss are also recognized in other comprehensive income or profit or loss, respectively).

The functional currency of SMHC, FECL Group, PLDT Global and certain of its subsidiaries, DCPL, PGNL and certain of its subsidiaries, Chikka and certain of its subsidiaries and PGIC is the U.S. dollar; the functional currency of eInnovations, Takatack Holdings, Takatack Technologies, iCommerce, Fintech Ventures, ePay, 3^rd Brand, CPL and ABM Global Solutions Pte. Ltd., or AGSPL, is the Singapore dollar; the functional currency of Chikka Communications Consulting (Beijing) Co. Ltd., or CCCBL, is the Chinese renminbi; the functional currency of AGS Malaysia and Takatack Malaysia, is the Malaysian ringgit; and the functional currency of AGS Indonesia is the Indonesian rupiah. 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. Upon 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.

Financial assets within the scope of PAS 39, Financial Instruments: Recognition and Measurement, 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 reporting date.

Financial assets are recognized initially at fair value plus transaction costs that are attributable to the acquisition of the financial asset, 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 as defined by PAS 39. Financial assets at FVPL are carried in our consolidated statement of financial position at fair value with net changes in fair value 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 (expenses) – net” 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 (expenses) – net”, 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 group of financial assets 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.

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. 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.

Our financial assets at FVPL include certain short-term investments and derivative financial assets as at March 31, 2017 and December 31, 2016. 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. After initial measurement, such financial assets are carried at amortized cost using the effective interest rate, or EIR, method less impairment. This method uses an EIR that exactly discounts the estimated future cash payments or 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 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 portions of investment in debt securities and other long-term investments, cash and cash equivalents, certain short-term investments, trade and other receivables and portions of advances and other noncurrent assets as at March 31, 2017 and December 31, 2016. See Note 12 – Investment in Debt Securities and Other Long-term Investments, Note 15 – Cash and Cash Equivalents, 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 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 portions of investment in debt securities and other long-term investments as at March 31, 2017 and December 31, 2016. See Note 12 – 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 FVPL. 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 “Net gains (losses) on available-for-sale financial investments – net of tax” 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. Available-for-sale investments in equity instruments that do not have a quoted price in an active market and whose fair value cannot be reliably measured shall be measured at cost.

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 (expenses) – net” 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. 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 at the date of reclassification becomes its new amortized cost and any previous gain or loss on the asset that has been recognized in other comprehensive income is amortized to profit or loss over the remaining life of the investment using the EIR method. Any difference between the new amortized cost and the maturity amount is also amortized over the remaining life of the asset using the EIR method. If the asset is subsequently determined to be impaired, then the amount recorded in other comprehensive income is reclassified to the consolidated income statement.

Our available-for-sale financial investments include listed and unlisted equity securities as at March 31, 2017 and December 31, 2016. 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 and, in the case of loans and borrowings, net of 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 as defined by PAS 39. 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 (expenses) – net” for non-derivative financial liabilities.

Financial liabilities 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 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 group of financial liabilities 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 and interest rate swaps as at March 31, 2017 and December 31, 2016. 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 (except for 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 March 31, 2017 and December 31, 2016. 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 the 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. Subscribers are permanently disconnected 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.

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, payment history and status of the account.

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 based on age and payment habits, as applicable.

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 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.

See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimating Allowance for Doubtful Accounts – Impairment of non-financial assets, Note 16 – Trade and Other Receivables and Note 27 – Financial Assets and Liabilities – Impairment Assessments for further disclosures relating to impairment of financial assets.

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 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 investments 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% or more below the original cost of investment, and “prolonged” as greater than 12 months assessed against the period in which the fair value has been below its original cost. 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 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 the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss. If available-for-sale equity security is impaired, any further decline in the fair value at subsequent reporting date is recognized as impairment. Therefore, at each reporting period, for an equity security that was determined to be impaired, additional impairments are recognized for the difference between fair value and the original cost, less any previously recognized impairment. Impairment losses on equity investments are not reversed in profit or loss. Subsequent increases in the fair value after impairment are recognized 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 and the current fair value, less any impairment loss on that investment previously recognized in our consolidated income statement. 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 as part of a financial asset or part of a group of similar financial assets) is primarily derecognized when: (1) the right to receive cash flows from the asset has expired; or (2) we have transferred the right 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 right 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 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 foreign currency fluctuations and interest rates. 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 transaction 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 interest rate swap agreement and a long-term principal only-currency swap agreement to hedge our interest rate exposure and our foreign exchange exposure, respectively, on certain outstanding loan balances. See Note 27 – Financial Assets and Liabilities.

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 and equipment, except for land, is stated at cost less accumulated depreciation and amortization and any accumulated impairment losses. Land is stated at cost less any impairment in value. The initial cost of property and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the property and equipment to its working condition and location for its intended use. Such cost includes the cost of replacing component parts of the property and equipment when the cost is incurred, if the recognition criteria are met. When significant parts of property 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 and equipment as a replacement if the recognition criteria are satisfied. All other repairs and maintenance costs are recognized as expense as incurred. 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.

Depreciation and amortization commence once the property and equipment are available for their intended 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 and equipment are disclosed in Note 9 – Property and Equipment.

The residual values, estimated useful lives, and methods of depreciation and amortization are reviewed at least at each financial year-end and adjusted prospectively, if appropriate.

An item of property and equipment and any significant part initially recognized are 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 when 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.

Property under construction is transferred to the related property and equipment when the construction or installation and related activities necessary to prepare the property and equipment for their intended use have been completed, and the property and equipment are ready for operational use.

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 their intended use or sale. Capitalization of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalized until the assets are substantially completed for their intended use or sale.

All other borrowing costs are expensed as incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

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 and equipment. The amount of asset retirement obligations are accreted and such accretion is recognized as interest expense. See Note 9 – Property and Equipment and Note 21 – Deferred Credits and Other Noncurrent Liabilities.

Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. 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. Fair values are determined based on an amount evaluation performed by a Philippine SEC accredited external independent valuer applying a valuation model recommended by the International Valuation Standards Committee.

Investment properties are derecognized when they are disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their 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 owner-occupied property becomes an investment property, we account for such property in accordance with the policy stated under property 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 accumulated impairment losses. 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 the minimum, the amortization period and the amortization method for an intangible asset with a finite useful life are reviewed 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 not amortized, but are tested for impairment annually either individually or at the CGU level. 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.

Internally generated intangibles are not capitalized and the related expenditures are charged against operations in the period in which the expenditures are incurred.

Inventories and supplies, which include cellular and landline 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 for using the weighted average cost method. Net realizable value is determined by either estimating the selling price in the ordinary course of 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 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 of disposal and its value in use. The 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 of disposal, 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 to determine whether there is an indication that previously recognized impairment losses no longer exist or 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 assumptions 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 and equipment, we also assess for impairment on the basis of impairment indicators such as evidence of internal obsolescence or physical damage. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Impairment of non-financial assets, Note 9 – Property and Equipment and Note 14 – Goodwill and Intangible Assets for further disclosures relating to impairment of non-financial assets.

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. See Note 10 – Investments in Associates and Joint Ventures for further disclosures relating to impairment of non-financial assets.

Goodwill is tested for impairment annually as at December 31, and when 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.

Intangible asset with indefinite useful life is not amortized but is 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 or the CGU, 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.

See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Impairment of non-financial assets and Note 14 – Goodwill and Intangible Assets – Impairment Testing of Goodwill and Intangible Assets with Indefinite Life for further disclosures relating to impairment of non-financial assets.

Investment in debt securities are government securities which are carried at amortized cost using the EIR method. Interest earned from these securities is recognized under “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 and certain short-term investments and non-financial assets such as investment properties, at fair value at each reporting date. The fair values of financial instruments measured at amortized cost are disclosed in
Note 27 – Financial Assets and Liabilities. The fair values of investment properties are disclosed in
Note 13 – Investment Properties.

Fair value is the estimated 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, maximizing the use of relevant observable inputs and minimizing 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 recognized 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 certain short-term investments and investment 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 analyze 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. 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 received. 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, or OCT, 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. We are acting as a principal when we have the significant risks and rewards associated with the rendering of telecommunication services. 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 rendered 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 (including excess of consumable fixed monthly service fees) generated from postpaid cellular voice, short messaging services, or SMS, and data services through the postpaid plans of Smart, Sun and Infinity brands, 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 recognize 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 service revenues arise from the usage of airtime load from channels and prepaid cards provided by Smart, TNT, SmartBro and Sun Broadband brands. 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, 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 airtime value or subscriptions 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.

Non-recurring 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 length of customer relationship. The related incremental costs are similarly deferred and recognized over the same period in our consolidated income statement.

Interconnection revenues for call termination, call transit and network usages are recognized in the period in which the traffic occurs. Revenues 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.

Revenues from VAS include MMS, downloading and streaming of content, applications and other digital services, and infotext services. The amount of revenue recognized is net of payout to content provider’s share in revenue. Revenue is recognized upon service availment.

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 retailers and customers as part of a transaction are accounted for as multiple element arrangements and recognized when earned.

In revenue arrangements, which involve bundled sales of mobile devices, SIM cards/packs and accessories (non-service component) and telecommunication services (service component), the total arrangement consideration is allocated to each component based on their relative fair value to reflect the substance of the transaction. Revenues from the sale of non-service component are recognized when the goods are delivered while revenues from telecommunication services component are recognized when the services are provided to subscribers. When fair value is not directly observable, the total consideration is allocated using residual method.

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

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 our consolidated income statement.

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 to be received if the entity settles the obligation. 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.

PLDT has separate and distinct retirement plans for itself and majority of its Philippine-based operating subsidiaries, administered by the respective Funds’ 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;
Net interest on the net defined benefit asset or obligation; and
Remeasurements of net defined benefit asset or obligation

Service cost (which includes current service costs, past service costs and gains or losses on curtailments and non-routine settlements) is recognized as part of “Compensation and employee benefits” account in our consolidated income statement. These amounts are calculated periodically by an independent qualified actuary.

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 asset or obligation. 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 occur. Remeasurements are not classified to profit or loss in subsequent periods.

The net defined benefit asset or obligation 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 – Estimating 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 and in the case of unquoted securities, the discounted cash flow using the income approach. The value of any defined benefit asset recognized is restricted to the asset ceiling which is 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 maintain a defined contribution plan that covers all regular full-time employees under which it pays fixed contributions based on the employees’ monthly salaries. Smart and certain of its subsidiaries, however, are covered under Republic Act 7641, or R.A. 7641, otherwise known as “The Philippine Retirement Law”, which provides for qualified employees to receive a defined benefit minimum guarantee. The defined benefit minimum guarantee is equivalent to a certain percentage of the monthly salary payable to an employee at normal retirement age with the required credited years of service based on the provisions of R.A. 7641.

Accordingly, Smart and certain of its subsidiaries account for their retirement obligation under the higher of the defined benefit obligation related to the minimum guarantee and the obligation arising from the defined contribution plan.

For the defined benefit minimum guarantee plan, the liability is determined based on the present value of the excess of the projected defined benefit obligation over the projected defined contribution obligation at the end of the reporting period. The defined benefit obligation is calculated annually by a qualified independent actuary using the projected unit credit method. Smart and certain of its subsidiaries determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense (income) and other expenses (income) related to the defined benefit plan are recognized in our profit or loss.

The defined contribution liability, on the other hand, is measured at the fair value of the defined contribution assets upon which the defined contribution benefits depend, with an adjustment for margin on asset returns, if any, where this is reflected in the defined contribution benefits.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in our other comprehensive income.

When the benefits of the plan are changed or when the plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in our profit or loss. Gains or losses on the settlement of the defined benefit plan are recognized when the settlement occurs. See Note 25 – Employee Benefits – Defined Contribution Plans for more details.

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 our profit or loss.

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 and is determined using the projected unit credit method.

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 and 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 using the EIR 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 using the EIR.

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 our 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 our 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) where receivables and payables 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 our consolidated financial statements but are disclosed in the notes to our consolidated financial statements when an inflow of economic benefits is probable.

Post period-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 our consolidated financial statements. Post period-end events that are not adjusting events are disclosed in the notes to our 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 in our consolidated statements of changes in equity.

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 in our consolidated statements of changes in equity and statements of financial position.

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 in our consolidated statements of changes in equity.

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 our profit or loss as required or permitted by PFRSs.

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the financial statements are listed below. We will adopt these standards and amendments to existing standards which are relevant to us when these become effective. Except for Philippine Financial Reporting Standards, or PFRS, 9, Financial Instruments, PFRS 15, Revenue from Contracts with Customers, and PFRS 16, Leases, as discussed further below, we do not expect the adoption of these standards and amendments to PFRS to have a significant impact on our consolidated financial statements.

Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based Payment Transactions
Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with PFRS 4
Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual Improvements to PFRSs 2014 — 2016 Cycle)
Amendments to PAS 40, Investment Property, Transfers of Investment Property
Philippine Interpretation IFRIC 22, Foreign Currency Transactions and Advance Consideration

PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under PFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted. We are currently assessing the impact of adopting this standard.

The standard reflects all phases of the financial instruments project and replaces PAS 39, Financial Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. Early application of previous versions of PFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before February 1, 2015. We did not early adopt PFRS 9.

The adoption of PFRS 9 will have an effect on the classification and measurement of our financial assets, but will have no significant impact on the classification and measurement of our financial liabilities. The adoption will also have an effect on our application of hedge accounting and on the amount of credit losses on financial assets. We are currently assessing the impact of adopting this standard.

Under the new standard, lessees will no longer classify their leases as either operating or finance leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-asset model. Under this model, lessees will recognize the assets and related liabilities for most leases on their balance sheets, and subsequently, will depreciate the lease assets and recognize interest on the lease liabilities in their profit or loss. Leases with a term of 12 months or less or for which the underlying asset is of low value are exempted from these requirements.

The accounting by lessors is substantially unchanged as the new standard carries forward the principles of lessor accounting under PAS 17. Lessors, however, will be required to disclose more information in their financial statements, particularly on the risk exposure to residual value.

Entities may early adopt PFRS 16 but not before an entity applies PFRS 15. When adopting PFRS 16, an entity is permitted to use either a full retrospective or a modified retrospective approach, with options to use certain transition reliefs. We are currently assessing the impact of adopting this standard.

Amendments to PFRS 10 and PAS 28, Sale of Contribution of Assets between an Investor and Its Associate or Joint Venture

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.

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 (a) SMHC, FECL Group, PLDT Global and certain of its subsidiaries, DCPL, PGNL and certain of its subsidiaries, Chikka and certain of its subsidiaries and PGIC, which use the U.S. dollar; (b) eInnovations, Takatack Holdings, Takatack Technologies, iCommerce, Fintech Ventures, ePay, 3^rd Brand, CPL and AGSPL, which use the Singapore dollar; (c) CCCBL, which uses the Chinese renminbi; (d) AGS Malaysia and Takatack Malaysia, which uses the Malaysian ringgit; and (e) AGS Indonesia, which uses the Indonesian rupiah.

As a lessee, we have various lease agreements in respect of 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 amounted to Php1,830 million and Php1,670 million for the three months ended March 31, 2017 and 2016, respectively. Total finance lease obligations amounted to Php1 million and nil as at March 31, 2017 and December 31, 2016, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 20 – Interest-bearing Financial Liabilities – Obligations under Finance Leases and Note 27 – Financial Assets and Liabilities – Liquidity Risk.

Accounting for investments 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 Hastings Holdings, Inc., or Hastings, and indirect interest in Cignal TV, Inc., or Cignal TV.

Based on our judgment, at the PLDT Group level, ePLDT’s investments in PDRs gives ePLDT a significant influence over Satventures, Hastings and Cignal TV as evidenced by provision of essential technical information and material transactions among PLDT, Smart, Satventures, Hastings and Cignal TV, and thus are accounted for as investments in associates using the equity method.

The carrying value of our investments in PDRs issued by MediaQuest amounted to Php12,646 million and Php12,647 million as at March 31, 2017 and December 31, 2016, respectively. See related discussion on Note 10 – Investments in Associates and Joint Ventures – Investments in Associates – Investment in MediaQuest PDRs.

In 2015, PLDT Capital subscribed to preferred shares of Phunware and AppCard. See Note 10 – Investments in Associates and Joint Ventures. The investments in Phunware and AppCard allow PLDT Capital to designate one director to the five-seat board of each of Phunware and AppCard for as long as PLDT Capital beneficially owns a specified percentage of Phunware or AppCard shares, as applicable.

Based on our judgment, at the PLDT Group Level, PLDT Capital’s investments in preferred shares give PLDT a significant influence over Phunware and AppCard as evidenced by the board seats assigned to us. This gives us the authority to participate in the financial and operating policy decisions of Phunware and AppCard but neither control nor joint control of those policies. Hence, the investments are accounted for as investment in associates.

Accounting for investments in Vega Telecom Inc., or VTI, Bow Arken Holdings Company, or Bow Arken and Brightshare Holdings, Inc., or Brightshare

On May 30, 2016, PLDT acquired a 50% equity interest in each of VTI, Bow Arken and Brightshare. See related discussion on Note 10 – Investments in Associates and Joint Ventures – Investments in Joint Ventures. Based on the Memorandum of Agreement, PLDT and Globe Telecom, Inc., or Globe, each have the right to appoint half the members of the Board of Directors of each VTI, Bow Arken and Brightshare, as well as the (i) co-Chairman of the Board; (ii) co-Chief Executive Officer and President; and (iii) co-Controller where any matter requiring their approval shall be deemed passed or approved if the consents of both co-officers holding the same position are obtained. All decisions of each such Board of Directors may only be approved if at least one director nominated by each of PLDT and Globe votes in favor of it.

Based on these rights, PLDT and Globe have joint control over VTI, Bow Arken and Brightshare, which is defined in PFRS 11 as a contractually agreed sharing of control of an arrangement and exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Further, PLDT and Globe classified the joint arrangement as a joint venture in accordance with PFRS 11 given that PLDT and Globe each have the right to 50% of the net assets of VTI, Bow Arken and Brightshare and their respective subsidiaries.

Accordingly, PLDT accounted for the investment in VTI, Bow Arken and Brightshare using the equity method of accounting in accordance with PAS 28, Investment in Associates and Joint Ventures. Under the equity method of accounting, the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets.

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

Based on our judgment, the continuing decline in fair value of our investment in Rocket is considered significant as the cumulative net losses from changes in fair value represents more than 20% decline in value below cost. As a result, total cumulative impairment losses recognized on our investment in Rocket amounted to Php11,045 million and Php10,505 million as at March 31, 2017 and December 31, 2016, respectively. Impairment loss charged in our consolidated income statement amounted to Php540 million and Php1,583 million for the three months ended March 31, 2017 and 2016, respectively. See related discussion on Note 5 – Income and Expenses and Note 11 – Available-for-Sale Financial Investments – Investment of PLDT Online in Rocket.

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 our 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 our control. 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 and intangible assets with indefinite useful life, at a minimum, such assets are subject to an impairment test annually and whenever there is an indication that such assets may be impaired. This requires an estimation of the value in use of the CGUs to which these assets are allocated. The value in use calculation 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. See Note 14 – Goodwill and Intangible Assets – Impairment Testing of Goodwill and Intangible Assets with Indefinite Useful Life for the key assumptions used to determine the value in use of the relevant CGUs.

Determining the recoverable amount of property and equipment, investments in associates and joint ventures, intangible assets, prepayments 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 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 position 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 impairment charges under PFRS.

There were no asset impairment recognized on noncurrent assets for the three months ended March 31, 2017 and 2016, respectively.

See Note 4 – Operating Segment Information and Note 5 – Income and Expenses – Asset Impairment.

The carrying values of our property 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.

We estimate the useful lives of each item of our property and equipment based on the periods over which our assets are expected to be available for use. Our estimate of the useful lives of our property and equipment is based on our collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives of our property and equipment 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 and equipment would increase our recorded depreciation and amortization and decrease our property and equipment.

The total depreciation and amortization of property and equipment amounted to Php7,550 million and Php7,158 million for the three months ended March 31, 2017 and 2016, respectively. Total carrying values of property and equipment, net of accumulated depreciation and amortization, amounted to Php197,306 million and Php203,188 million as at March 31, 2017 and December 31, 2016, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 4 – Operating Segment Information and Note 9 – Property and Equipment.

Intangible assets with finite lives are amortized over their expected useful lives using the straight-line method of amortization. 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 finite lives amounted to Php205 million and Php272 million for the three months ended March 31, 2017 and 2016, respectively. Total carrying values of intangible assets with finite lives amounted to Php4,228 million and Php4,396 million as at March 31, 2017 and December 31, 2016, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 4 – Operating Segment Information 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. Based on this, management expects that we will generate sufficient taxable income to allow all or part of our deferred income tax assets to be utilized.

Based on the above assessment, our consolidated unrecognized deferred income tax assets amounted to Php5,865 million and Php5,829 million as at March 31, 2017 and December 31, 2016, respectively. Total consolidated provision from deferred income tax amounted to Php1,262 million and Php717 million for the three months ended March 31, 2017 and 2016, respectively. Total consolidated recognized net deferred income tax assets amounted to Php26,386 million and Php27,348 million as at March 31, 2017 and December 31, 2016, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 4 – Operating Segment Information and Note 7 – Income Taxes.

If we assessed that there was objective evidence that an impairment loss was 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 all 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 affects 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 characteristics, 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 recognized in our consolidated income statements amounted to Php911 million and Php1,429 million for the three months ended March 31, 2017 and 2016, respectively. Trade and other receivables, net of allowance for doubtful accounts, amounted to Php24,046 million and Php24,436 million as at March 31, 2017 and December 31, 2016, respectively. See 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.

The cost of defined benefit and present value of the pension obligation are determined using the projected unit credit method. An actuarial valuation includes making various assumptions which consists, among other things, discount rates, rates of compensation increases and mortality rates. Further, our accrued benefit cost is affected by the fair value of the plan assets. Key assumptions used to estimate fair value of the unlisted equity investments included in the plan assets consist of revenue growth, operating margin, capital expenditures, discount rates and terminal growth rates. See Note 25 – Employee Benefits. 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 amounted to Php483 million and Php435 million for the three months ended March 31, 2017 and 2016, respectively. The prepaid benefit costs amounted to Php58,292 million and Php261 million as at March 31, 2017 and December 31, 2016, respectively. The accrued benefit costs amounted to Php11,667 million and Php11,206 million as at March 31, 2017 and December 31, 2016, respectively. See Note 5 – Income and Expenses – Compensation and Employee Benefits, Note 18 – Prepayments and Note 25 – Employee Benefits – Defined Benefit Pension Plans.

Provision for asset retirement obligations are recognized in the period in which these are incurred if a reasonable estimate 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 Php1,588 million and Php1,582 million as at March 31, 2017 and December 31, 2016, respectively. See Note 21 – Deferred Credits and Other Noncurrent Liabilities.

We are currently involved in various legal proceedings and tax assessments. Our estimates 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 are 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 position and 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.

Revenues earned from multiple element arrangements offered by 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/lock-in 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 as 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 our 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.

Other than those whose carrying amounts are reasonable approximations of fair values, total fair values of noncurrent financial assets and noncurrent financial liabilities as at March 31, 2017 amounted to Php9,218 million and Php161,491 million, respectively, while the total fair values of noncurrent financial assets and noncurrent financial liabilities as at December 31, 2016 amounted to Php8,120 million and Php160,990 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). The operating results of these operating segments are regularly reviewed by the 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 and DMPI, a wholly-owned subsidiary of Digitel, our mobile service providers; Voyager and certain subsidiaries, our mobile applications and digital platforms developer and mobile financial services provider; SBI and PDSI, our wireless broadband service providers; ACeS Philippines, our satellite information and messaging services provider; and certain subsidiaries of PLDT Global, our mobile virtual network operations, or MVNO, provider;

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, BCC, PLDT Global and certain subsidiaries and Digitel, all of which together account for approximately 4% of our consolidated fixed line subscribers; data center, cloud, big data, managed security services, managed information technology services and resellership through ePLDT, IPCDSI Group, AGS Group, Curo and ePDS; business infrastructure and solutions, intelligent data processing and implementation services and data analytics insight generation through Talas; and distribution of Filipino channels and content through PGNL and its subsidiaries; and

Others – PCEV, PGIH, PLDT Digital and its subsidiaries, MIC and PGIC, our investment companies.

See Note 2 – Summary of Significant Accounting Policies for further discussion.

The Management Committee 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 for the year; earnings before interest, taxes and depreciation and amortization, or EBITDA; EBITDA margin; and core income. Net income for the year is measured consistent with net income in our consolidated financial statements.

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

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, net of tax effect of aforementioned adjustments, as applicable, and similar adjustments to equity share in net earnings of associates and joint ventures.

Transfer prices between operating segments are on 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 amounts 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 our consolidated financial statements, which is in accordance with PFRS.

The segment revenues, net income, and other segment information of our reportable operating segments for the three months ended March 31, 2017 and 2016 and as at March 31, 2017 and December 31, 2016 are as follows:

Inter-segment

Wireless

Fixed Line

Others

Transactions

Consolidated

(in million pesos)

March 31, 2017 (Unaudited)

Revenues

External customers

22,832

16,356

–

39,188

Service revenues

22,145

15,556

–

37,701

Non-service revenues

687

800

–

1,487

Inter-segment transactions

330

2,693

–

(3,023

)

–

Service revenues

330

2,693

–

(3,023

)

–

Non-service revenues

–

Total revenues

23,162

19,049

–

(3,023

)

39,188

Results

Depreciation and amortization

4,430

3,120

–

7,550

Asset impairment

728

323

–

1,051

Impairment of investments

–

(212

)

540

–

328

Equity share in net earnings (losses) of associates and joint ventures

(33

)

159

–

193

Interest income

199

111

(61

)

309

Financing costs – net

604

1,308

(61

)

1,900

Provision for income tax

1,081

1,175

–

2,287

Net income (loss) / Segment profit (loss)

2,230

3,209

(470

)

–

4,969

EBITDA

8,309

7,797

(18

)

379

16,467

EBITDA margin

–

Core income

2,298

2,856

175

–

5,329

Assets and liabilities

Operating assets

216,568

180,345

21,957

(37,843

)

381,027

Investments in associates and joint ventures

1,912

43,987

14,144

–

60,043

Deferred income tax assets – net

13,566

12,820

–

26,386

Total assets

232,046

237,152

36,101

(37,843

)

467,456

Operating liabilities

153,501

203,556

13,016

(16,472

)

353,601

Deferred income tax liabilities – net

2,861

378

280

–

3,519

Total liabilities

156,362

203,934

13,296

(16,472

)

357,120

Other segment information

Capital expenditures, including capitalized interest

1,408

362

–

1,770

March 31, 2016 (Unaudited)

Revenues

External customers

27,572

15,207

–

42,779

Service revenues

26,311

14,287

–

40,598

Non-service revenues

1,261

920

–

2,181

Inter-segment transactions

359

2,728

–

(3,087

)

–

Service revenues

359

2,728

–

(3,087

)

–

Non-service revenues

–

Total revenues

27,931

17,935

–

(3,087

)

42,779

Results

Depreciation and amortization

4,002

3,156

–

7,158

Asset impairment

1,335

310

–

1,645

Impairment of investments

–

1,583

–

1,583

Equity share in net earnings (losses) of associates and joint ventures

(30

)

(68

)

735

–

637

Interest income

113

182

(59

)

255

Financing costs – net

615

1,202

(59

)

1,804

Provision for (benefit from) income tax

1,702

1,065

(38

)

–

2,729

Net income (loss) / Segment profit (loss)

4,275

2,549

(591

)

–

6,233

EBITDA

9,629

6,631

(15

)

361

16,606

EBITDA margin

–

Core income

3,895

2,648

668

–

7,211

December 31, 2016 (Audited)

Assets and liabilities

Operating assets

217,964

183,533

22,804

(33,388

)

390,913

Investments in associates and joint ventures

1,945

40,874

14,039

–

56,858

Deferred income tax assets – net

13,985

13,363

–

27,348

Total assets

233,894

237,770

36,843

(33,388

)

475,119

Operating liabilities

161,480

203,777

12,637

(14,879

)

363,015

Deferred income tax liabilities – net

2,923

384

260

–

3,567

Total liabilities

164,403

204,161

12,897

(14,879

)

366,582

Other segment information

Capital expenditures, including capitalized interest

13,615

955

–

14,570

The following table shows the reconciliation of our consolidated EBITDA to our consolidated net income for the three months ended March 31, 2017 and 2016:

The following table shows the reconciliation of our consolidated core income to our consolidated net income for the three months ended March 31, 2017 and 2016:

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 three months ended March 31, 2017 and 2016:

The following table presents our revenues from external customers by category of products and services for the three months ended March 31, 2017 and 2016:

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.

There is no revenue transaction with a single external customer that accounted for 10% or more of our consolidated revenues from external customers for the three months ended March 31, 2017 and 2016.

Non-service revenues for the three months ended March 31, 2017 and 2016 consist of the following:

Compensation and employee benefits for the three months ended March 31, 2017 and 2016 consist of the following:

Over the past several years, we have been implementing the MRP in line with our continuing efforts to reduce the cost base of our businesses. 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 three months ended March 31, 2017 and 2016 consist of the following:

Asset impairment for the three months ended March 31, 2017 and 2016 consist of the following:

Interest income for the three months ended March 31, 2017 and 2016 consist of the following:

Financing costs – net for the three months ended March 31, 2017 and 2016 consist of the following:

Changes in other comprehensive income under equity of our consolidated statements of financial position for the three months ended March 31, 2017 and 2016 are as follows:


															Share in the other
															comprehensive
															income of
	Foreign			Net gains on						Revaluation					associates and		Total other
	currency			available-for-sale			Net			increment on		Actuarial losses			joint ventures		comprehensive loss
	translation			financial			transactions			investment		on defined			accounted for		attributable			Share of			Total other
	differences of			investments			on cash flow hedges			properties		benefit plans			using the equity		to equity holders			noncontrolling			comprehensive loss
	subsidiaries			– net of tax			– net of tax			– net of tax		– net of tax			method		of PLDT			interests			– net of tax
	(in million pesos)
Balances as at January 1, 2017		608			936			7			619		(23,376	)		312		(20,894	)		7			(20,887	)
Other comprehensive income (loss)		11			(847	)		(132	)		–		(387	)		174		(1,181	)		2			(1,179	)
Balances as at March 31, 2017 (Unaudited)		619			89			(125	)		619		(23,763	)		486		(22,075	)		9			(22,066	)

Balances as at January 1, 2016		524			76			(3	)		602		(19,805	)		404		(18,202	)		12			(18,190	)
Other comprehensive loss		(38	)		(1	)		(259	)		–		(1,873	)		–		(2,171	)		(4	)		(2,175	)

Balances as at March 31, 2016 (Unaudited)		486			75			(262	)		602		(21,678	)		404		(20,373	)		8			(20,365	)

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

The major components of consolidated net deferred income tax assets and liabilities recognized in our consolidated statements of financial position as at March 31, 2017 and December 31, 2016 are as follows:

The components of our consolidated net deferred income tax assets and liabilities as at March 31, 2017 and December 31, 2016 are as follows:

Changes in our consolidated net deferred income tax assets (liabilities) as at March 31, 2017 and December 31, 2016 are as follows:

The analysis of our consolidated net deferred income tax assets as at March 31, 2017 and December 31, 2016 are as follows:

The analysis of our consolidated net deferred income tax liabilities as at March 31, 2017 and December 31, 2016 are as follows:

Provision for corporate income tax for the three months ended March 31, 2017 and 2016 consist 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 three months ended March 31, 2017 and 2016 are as follows:

The breakdown of our consolidated deductible temporary differences, carryforward 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 March 31, 2017 and December 31, 2016 are as follows:

DMPI recognized deferred income tax assets to the extent that it is probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. Digitel and DMPI’s unrecognized deferred income tax assets amounted to Php3,551 million and Php3,573 million as at March 31, 2017 and December 31, 2016, 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 shown in the preceding table were not recognized as we believe that future taxable profit will not be sufficient to realize these deductible temporary differences and carryforward 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 March 31, 2017 are as follows:

The excess MCIT totaling Php551 million as at March 31, 2017 can be deducted against future RCIT liability. No excess MCIT was deducted against RCIT for the three months ended March 31, 2017 and 2016. No excess MCIT expired for the three months ended March 31, 2017 and 2016.

NOLCO totaling Php11,571 million as at March 31, 2017 can be claimed as deduction against future taxable income. The NOLCO claimed as deduction against taxable income amounted to Php271 million and Php28 million for the three months ended March 31, 2017 and 2016, respectively. The amount of expired NOLCO amounted to nil and Php57 million for the three months ended March 31, 2017 and 2016, respectively.

Registration with Subic Bay Freeport Enterprise and Clark Special Economic Zone Enterprise

SubicTel is registered with Subic Bay Freeport Enterprise, while ClarkTel is registered with Clark Special Economic Zone Enterprise under Republic Act 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.

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

The following table presents information necessary to calculate the EPS for the three months ended March 31, 2017 and 2016:

Basic EPS amounts are calculated by dividing our consolidated net income for the period 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 our 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 period 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 and equipment account for the three months ended March 31, 2017 and for the year ended December 31, 2016 are as follows:


											Vehicles, aircraft,				Information
									Buildings		furniture				origination		Land and
		Cable and wire			Central				and		and other network		Communications		and termination		land		Property
		facilities			office equipment		Cellular facilities		improvements		equipment		satellite		equipment		improvements		under construction		Total
		(in million pesos)
As at December 31, 2016 (Audited)
Cost	196,652			115,461		202,581		25,914		55,973		966		14,596		3,440		50,070		665,653
Accumulated depreciation, impairment and amortization	(148,622)			(96,793	)	(138,189	)	(16,992	)	(48,300	)	(966	)	(12,338	)	(265	)	–		(462,465	)

Net book value	48,030			18,668		64,392		8,922		7,673		–		2,258		3,175		50,070		203,188


Period Ended March 31, 2017 (Unaudited)
Net book value at beginning of the period			48,030	18,668		64,392		8,922		7,673		–		2,258		3,175		50,070		203,188
Additions	883			277		1,567		9		501		–		224		–		(1,640	)	1,821
Disposals/Retirements	(1)			–		(73	)	–		(21	)	–		–		–		(2	)	(97	)
Reclassifications (Note 13)	(1)			(1	)	–		–		(1	)	–		–		–		(53	)	(56	)
Transfers and others	1,086			712		997		79		1,238		–		119		1		(4,232	)	–
Translation differences charged directly to cumulative translation adjustments	1			–		–		–		–		–		–		–		–		1
Depreciation of revaluation increment on investment properties transferred to property and equipment charged to other comprehensive income	–			–		–		(1	)	–		–		–		–		–		(1	)
Depreciation and amortization	(1,909)			(1,057	)	(3,239	)	(311	)	(729	)	–		(304	)	(1	)	–		(7,550	)
Net book value at end of the period	48,089			18,599		63,644		8,698		8,661		–		2,297		3,175		44,143		197,306


As at March 31, 2017 (Unaudited)
Cost	198,609			116,191		204,082		25,991		57,331		966		14,939		3,441		44,143		665,693
Accumulated depreciation, impairment and amortization	(150,520)			(97,592	)	(140,438	)	(17,293	)	(48,670	)	(966	)	(12,642	)	(266	)	–		(468,387	)

Net book value	48,089			18,599		63,644		8,698		8,661		–		2,297		3,175		44,143		197,306


As at December 31, 2015 (Audited)
Cost	187,195			112,867		177,118		27,162		53,797		966		12,962		3,441		57,410		632,918
Accumulated depreciation, impairment and amortization	(138,958)			(93,336	)	(129,040	)	(17,667	)	(45,628	)	(966	)	(11,278	)	(263	)	–		(437,136	)

Net book value	48,237			19,531		48,078		9,495		8,169		–		1,684		3,178		57,410		195,782


Year Ended December 31, 2016 (Audited)
Net book value at beginning of the period			48,237	19,531		48,078		9,495		8,169		–		1,684		3,178		57,410		195,782
Additions	3,419			357		19,225		374		3,358		–		674		7		15,668		43,082
Disposals/Retirements	(11)			(8	)	(97	)	(85	)	(251	)	–		–		(15	)	(69	)	( 536	)
Translation differences charged directly to cumulative translation adjustments	4			1		–		–		1		–		–		–		–		6
Reclassifications (Note 13)	(2)			285		(196	)	33		(594	)	–		–		4		(219	)	(689	)
Transfers and others	6,315			3,189		10,660		332		1,258		–		963		3		(22,720	)	–
Depreciation of revaluation increment on investment properties transferred to property and equipment charged to other comprehensive income	–			–		–		(2	)	–		–		–		–		–		(2	)
Depreciation and amortization	(9,932)			(4,687	)	(13,278	)	(1,225	)	(4,268	)	–		(1,063	)	(2	)	–		(34,455	)

Net book value at end of the year	48,030			18,668		64,392		8,922		7,673		–		2,258		3,175		50,070		203,188

Interest capitalized to property and equipment that qualified as borrowing costs amounted to Php207 million and Php101 million for the three months ended March 31, 2017 and 2016, respectively. See Note 5 – Income and Expenses – Financing Costs – net. Our undepreciated interest capitalized to property and equipment that qualified as borrowing costs amounted to Php5,295 million and Php5,289 million as at March 31, 2017 and December 31, 2016, respectively. The average interest capitalization rate used was approximately 5% and 4% for the three months ended March 31, 2017 and 2016, respectively.

Our net foreign exchange differences, which qualified as borrowing costs, amounted to Php50 million and nil for the three months ended March 31, 2017 and 2016, respectively. Our undepreciated capitalized net foreign exchange losses amounted to Php398 million and Php356 million as at March 31, 2017 and December 31, 2016, respectively.

The estimated useful lives of our property and equipment are estimated as follows:

Property and equipment include the net carrying value of capitalized vehicles, aircraft, furniture and other network equipment under financing leases, which amounted to nil and Php71 thousand as at March 31, 2017 and December 31, 2016, respectively. See Note 20 – Interest-bearing Financial Liabilities – Obligations under Finance Leases.

Changes in the cost of investments for the three months ended March 31, 2017 and for the year ended December 31, 2016 are as follows:

Changes in the accumulated impairment losses for the three months ended March 31, 2017 and for the year ended December 31, 2016 are as follows:

Changes in the accumulated equity share in net earnings of associates and joint ventures for the three months ended March 31, 2017 and for the year ended December 31, 2016 are as follows:

In 2012, ePLDT made deposits totaling Php6 billion to MediaQuest, an entity wholly-owned by the PLDT Beneficial Trust Fund for the issuance of PDRs 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.

In June 2013, ePLDT’s Board of Directors approved additional investments in 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 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. The Hastings PDRs confer an economic interest in common shares of Hastings owned by MediaQuest. Hastings is a wholly-owned subsidiary of MediaQuest and holds all the print-related investments of MediaQuest, including equity interests in the three leading newspapers: The Philippine Star, 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 provided ePLDT an aggregate of 64% economic interest in Cignal TV.

On February 19, 2014, ePLDT’s Board of Directors approved an additional investment of up to Php500 million in Hastings PDRs to be issued by MediaQuest. On March 11, 2014, MediaQuest received from ePLDT an amount aggregating to Php300 million representing additional deposits for future PDRs subscription. As at December 31, 2014, total deposit for PDRs subscription amounted to Php2,250 million.

On May 21, 2015, ePLDT’s Board of Directors approved an additional Php800 million investment in Hastings PDRs and settlement of the Php200 million balance of the Php500 million Hastings PDR investment in 2014. Subsequently, on May 30, 2015, the Board of Trustees of the Beneficial Trust Fund and the Board of Directors of MediaQuest approved the issuance of Php3,250 million Hastings PDRs. This provided ePLDT with 70% economic interest in Hastings. See Note 25 – Employee Benefits – Investment in MediaQuest.

The carrying value of investment in MediaQuest PDRs amounted to Php12,646 million and Php12,647 million as at March 31, 2017 and December 31, 2016, respectively. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Accounting for investments in MediaQuest through PDRs.

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 PLDT Group’s ability to deliver multi-media content to its customers across the PLDT Group’s broadband and mobile networks.

On February 5, 2013, PLDT entered into a Subscription and Shareholders’ Agreement with Asia Outsourcing Alpha Limited, or Alpha, wherein PLDT, through its indirect subsidiary PGIC, acquired from Alpha approximately 20% 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. On various dates in 2013 and 2014, PGIC transferred a total of 85 ordinary shares and 31,426 preferred shares to certain employees of Beta for a total consideration of US$53 thousand. The equity interest of PGIC in Beta remained at 20% after the transfer with economic interest of 18.32%.

Alpha and Beta are both exempted limited liability companies incorporated under the laws of Cayman Islands and are both controlled by CVC Capital Partners. Beta has been designated to be the ultimate holding company of the SPi Technologies, Inc. and Subsidiaries.

On October 1, 2014, Asia Outsourcing Gamma Limited, or AOGL,’s healthcare business, which provides revenue cycle management, health information management and software solutions for independent and provider-owned physician practices, was sold to Conifer Health Solutions, America’s leading provider of technology-enabled healthcare performance improvement services, for a total value of US$235 million. AOGL is a wholly-owned subsidiary of Beta and the direct holding company of SPi Technologies, Inc. and Subsidiaries. As a result of the sale, PGIC received a cash distribution of US$42 million from Beta.

On July 22, 2016, AOGL entered into Sale and Purchase Agreement, or SPA, with Relia, Inc., one of the largest BPO companies in Japan, relating to the acquisition of AOGL’s Customer Relationship Management, or CRM, business under the legal entity SPi CRM, Inc. and Infocom Technologies, Inc., wholly-owned subsidiaries of SPi Technologies, Inc., for an enterprise value of US$181 million. The transaction was completed on September 30, 2016. As a result of the sale, PGIC received a cash distribution of US$11.2 million from Beta through redemption of its preferred shares and portion of its ordinary shares. The economic interest of PGIC in Beta remained at 18.32% as at March 31, 2017.

The carrying value of investment in common shares in Beta amounted to Php883 million and Php855 million as at March 31, 2017 and December 31, 2016, respectively.

PGIC is a wholly-owned subsidiary of PLDT Global, which was incorporated under the laws of British Virgin Islands.

Digitel has 60% and 40% interest in Asia Netcom Philippines Corporation, or ANPC, and Digitel Crossing, Inc., or DCI, respectively. DCI is involved in the business of cable system linking the 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, 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 improvement in the associates’ operations. In January 2017, Digitel recognized a reversal of impairment on investment amounting to Php201 million following improvement in DCI’s operations.

Digitel has no control over ANPC. Though Digitel owns more than half of the voting interest in ANPC because of certain governance matters, management has assessed that Digitel only has significant influence and not control.

Digitel’s investment in DCI does not qualify as investment in joint venture as there is no provision for joint control in the JVA 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 March 24, 2017, 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. This investment is not classified as noncurrent asset held-for-sale as the transfer is assessed as not highly probable because certain aspects of the sale such as pricing are still subject for approval by both DTPI and PNPI management.

On September 3, 2015, PLDT Capital subscribed to an 8% US$5 million Convertible Promissory Note, or Note, issued by Phunware, a Delaware corporation. Phunware provides an expansive mobile delivery platform that creates, markets, and monetizes mobile application experiences across multiple screens. By pioneering the multiscreen as a service platform, Phunware enables companies to engage seamlessly with their customers through mobile devices, from indoor and outdoor location-based marketing and advertising to content management, notifications and analytics, indoor mapping, navigation and wayfinding.

The US$5 million Note was issued to and paid for by PLDT Capital on September 4, 2015. On December 18, 2015, PLDT Capital subscribed to Series F Preferred Shares of Phunware for a total consideration of US$3 million. On the same date, the Note and its related interest were converted to additional Phunware Series F Preferred Shares.

In 2013, Smart, along with other conglomerates Metro Pacific Investments Corporation, or MPIC, and Ayala Corporation, or Ayala, embarked on a venture to bid for the Automated Fare Collection System, or AFCS, project of the Department of Transportation and Communications, or DOTC, and Light Rail Transit Authority. The project aims to upgrade the Light Rail Transit 1 and 2, and Metro Rail Transit ticketing systems by substantially speeding up payments, reducing queuing time and facilitating efficient passenger transfer to other rail lines. The AFCS consortium led by MPIC and Ayala, composed of AC Infrastructure Holdings Corporation, BPI Card Finance Corporation, and Globe for the Ayala Group, and MPIC, Meralco Financial Services Corporation, and Smart for the MPIC Group, bidded for the AFCS project and on January 30, 2014, received a Notice of Award from the DOTC declaring it as the winning bidder.

On February 10, 2014, AFPI, the joint venture company, was incorporated in the Philippines and registered with the Philippine SEC. As part of the agreement, Smart subscribed Php503 million equivalent to 503 million shares at a subscription price of Php1.00 per share representing 20% equity interest. Smart settled Php25 million and Php275 million in January and May 2014, respectively.

On June 30, 2014, MPIC and Ayala Group signed a ten-year concession agreement with the DOTC to build and implement the AFCS project.

On January 20, 2015, the Board of Directors of AFPI approved an additional cash call on unpaid subscription of Php800 million to fund its expenditures, which was paid on March 30, 2015 by the shareholders in proportion to their share subscriptions. Smart contributed an additional Php160 million for its 20% share in AFPI.

On November 17, 2015, the Board of Directors of AFPI approved the increase in authorized capital stock from Php2,550 million shares to Php5,000 million shares with par value of Php1.00 per share. AFPI subsequently issued a total of 612.5 million shares with par value of Php1.00 per share to all of its existing shareholders in proportion to their current shareholdings. Smart subscribed to an additional capital of Php122.5 million representing its proportionate share in the capital increase. On the same date, the Board of Directors likewise approved an additional cash call on unpaid subscription of Php650 million for AFPI’s planned expenditure. Smart contributed an additional Php130 million representing its 20% share.

On November 29, 2016, the Board of Directors of AFPI approved the request for additional funding of Php500 million by the shareholders in proportion to their share subscriptions. On April 27, 2017, the shareholders of AFPI approved the reclassification of unsubscribed common stock to preferred stock with par value of Php1.00 per share. The preferred stock is redeemable at par, at the option of AFPI, has no voting rights and non-participating. It has no conversion features and the dividends are non-cumulative. The Php500 million additional funding shall be in the form of subscription to the newly created preferred stock of AFPI.

The carrying value of Smart’s investment in AFPI amounted to Php374 million, including subscription payable of Php36 million as at March 31, 2017 and Php407 million, including subscription payable of Php36 million as at December 31, 2016. Smart has significant influence over AFPI given its 20% voting interest and its Board representation.

On October 9, 2015, PLDT Capital entered into a Convertible Preferred Stock Purchase Agreement with AppCard for US$5 million. AppCard, a Delaware Corporation, is engaged in the business of developing, marketing, selling and servicing digital loyalty program platforms.

The US$5 million Convertible Series B Preferred Stock was paid on October 9, 2015.

As at March 31, 2017, ACeS Philippines held a 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. In December 2014, AIL suffered a failure of the propulsion system on board the Garuda I Satellite, thus, AIL decided to decommission the operation of Garuda I Satellite in January 2015.

AIL has incurred 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 losses and translation adjustment of AIL amounted to Php16 million each for the three months ended March 31, 2017 and 2016. Share in net cumulative losses amounting to Php829 million and Php2,228 million as at March 31, 2017 and December 31, 2016, 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.

The continuation of AIL’s operation is largely dependent upon the successful operations of the NSPs. However, the NSPs have not been able to generate the amount of the revenue originally expected. AIL’s operations are dependent on its major assets, a single satellite, Garuda I. AIL could not renew the in orbit insurance of the Garuda I Satellite.

The accompanying consolidated financial statements of AIL have been prepared on a going concern basis as at December 31, 2015, on the assumption that the assets can be realized and liabilities can be settled in the normal course of business. The above mentioned conditions raise substantial doubt about the ability of the company and subsidiary to continue as a going concern.

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 table below presents the summarized financial information of Satventures as at March 31, 2017 and December 31, 2016, and for the three months ended March 31, 2017 and 2016:

The table below presents the summarized financial information of Hastings as at March 31, 2017 and December 31, 2016, and for the three months ended March 31, 2017 and 2016:

The following tables present the summarized financial information of our individually immaterial investments in associates as at March 31, 2017 and December 31, 2016, and for the three months ended March 31, 2017 and 2016:

We did not receive any dividends from our associates amounted for the three months ended March 31, 2017 and 2016.

We have no outstanding contingent liabilities or capital commitments with our associates as at March 31, 2017 and December 31, 2016.

On May 30, 2016, the PLDT Board approved the Company’s acquisition of 50% equity interest, including outstanding advances and assumed liabilities, in the telecommunications business of San Miguel Corporation, or SMC, with Globe acquiring the other 50% interest. On the same date, PLDT and Globe executed: (i) an SPA with SMC to acquire the entire outstanding capital, including outstanding advances and assumed liabilities, in VTI (and the other subsidiaries of VTI), which holds SMC’s telecommunications assets through its subsidiaries, or the VTI Transaction; and (ii) separate SPAs with the owners of two other entities, Bow Arken (the parent company of New Century Telecoms, Inc.) and Brightshare (the parent company of eTelco, Inc.), which separately hold additional spectrum frequencies through their respective subsidiaries, or the Bow Arken Transaction and Brightshare Transaction, respectively. We refer to the VTI Transaction, Bow Arken Transaction and Brightshare Transaction collectively as the SMC Transactions.

Consideration for the acquisition is Php52.8 billion representing the purchase price for the equity interest and assigned advances of previous owners to VTI, Bow Arken and Brightshare. The equity interest and assigned advances consideration amounting to Php52.8 billion will be paid in three tranches: 50% was paid upon signing of the SPAs on May 30, 2016, 25% was paid on December 1, 2016 and the final 25% is payable on May 30, 2017, subject to the fulfillment of certain conditions. The second and final payments are secured by irrevocable standby letters of credit. The SPA also provided that PLDT and Globe, through VTI, Bow Arken and Brightshare, assumed liabilities amounting to Php17.2 billion from May 30, 2016. In addition, the SPAs contain a price adjustment mechanism based on the variance in these assumed liabilities to be agreed among PLDT, Globe and previous owners based on the results of confirmatory due diligence procedures jointly performed by PLDT and Globe after May 30, 2016. Discussion on the result of the due diligence procedures is ongoing as at May 12, 2017. See Note 27 – Financial Assets and Liabilities – Commercial Commitments.

As part of the SMC Transactions, PLDT and Globe acquired certain outstanding advances made by the former owners of VTI, Bow Arken and Brightshare to VTI, Bow Arken and Brightshare or their respective subsidiaries. The amounts of the advances outstanding to PLDT since the date of assignment to PLDT amounted to Php11,359 million, of which: (i) Php11,038 million from VTI and its subsidiaries;
(ii) Php238 million from Bow Arken and its subsidiaries; and (iii) Php83 million from Brightshare and its subsidiaries.

On February 28, 2017, PLDT and Globe each subscribed to 2,760,000 new preferred shares to be issued out of the unissued portion of the existing authorized capital stock of VTI, at a subscription price of Php4,000 per subscribed shares (inclusive of a premium over par of Php3,000 per subscribed share) or a total subscription price of Php11,040 million (inclusive of a premium over par of Php8,280 million). PLDT and Globe’s assigned advances from SMC which were subsequently reclassified to deposit for future subscription of each amounting to Php11,040 million were applied as full subscription payment for the subscribed shares.

Also, on the same date, PLDT and Globe each subscribed to 800,000 new preferred shares to be issued out of the unissued portion of the existing authorized capital stock of VTI, at a subscription price of Php4,000 per subscribed share (inclusive of a premium over par of Php3,000 per subscribed share), or a total subscription price of Php3,200 million (inclusive of a premium over par of Php2,400 million). PLDT and Globe each paid Php148 million in cash for the subscribed shares. The remaining balance of the subscription price shall be paid by PLDT and Globe upon call of the VTI Board of Directors.

As at March 31, 2017 and December 31, 2016, the amount of the advances outstanding to PLDT, to cover for the assumed liabilities and working capital requirements of the acquired companies, amounted to Php4,198 million and Php1,306 million, respectively.

PLDT has engaged an independent valuer to determine the fair value adjustments relating to the acquisition. As at May 30, 2016, the fair value of the intangible assets, significantly spectrum, amounting to Php38,398 million and our share on goodwill of Php16,496 million has been determined on a provisional basis as the final results of independent valuation have not been received by the date the financial statement was authorized for issue. Goodwill arising from this acquisition and carrying amount of the identifiable assets and liabilities, including deferred liability, and the related amortization through equity in net earnings will be retrospectively adjusted accordingly when the valuation is finalized.

The table below presents the summarized financial information of VTI as at March 31, 2017 and December 31, 2016, and for the three months ended March 31, 2017:

Notice of Transaction filed with the Philippine Competition Commission, or PCC

On May 30, 2016, prior to closing the transaction, each of PLDT, Globe and SMC submitted notices of the VTI, Bow Arken and Brightshare Transaction (respectively, the VTI Notice, the Bow Arken Notice and the Brightshare Notice and collectively, the Notices) to the PCC pursuant to the Philippine Competition Act, or PCA, and Circular No. 16-001 and Circular No. 16-002 issued by the PCC, or the Circulars. As stated in the Circulars, upon receipt by the PCC of the requisite notices, each of the said transactions shall be deemed approved in accordance with the Circulars.

Subsequently, on June 7, 2016, PLDT and the other parties to the said transactions received separate letters dated June 6 and 7, 2016 from the PCC which essentially stated, that: (a) with respect to VTI Transaction, the VTI Notice is deficient and defective in form and substance, therefore, the VTI Transaction is not “deemed approved” by the PCC, and that the missing key terms of the transaction are critical since the PCC considers certain agreements as prohibited and illegal; and (b) with respect to the Bow Arken and Brightshare Transactions, the compulsory notification under the Circulars does not apply and that even assuming the Circulars apply, the Bow Arken Notice and the Brightshare Notice are deficient and defective in form and substance.

On June 10, 2016, PLDT submitted its response to the PCC’s letter articulating its position that the VTI Notice is adequate, complete and sufficient and compliant with the requirement under the Circulars, and does not contain false material information; as such, the VTI Transaction enjoys the benefit of Section 23 of the PCA. Therefore, the VTI Transaction is deemed approved and cannot be subject to retroactive review by the Commission. Moreover, the parties have taken all necessary steps, including the relinquishment/return of certain frequencies and co-use of the remaining frequencies by Smart and Belltel and Globe and Belltel as discussed above, to ensure that the VTI Transaction will not substantially prevent, restrict or lessen competition to violate the PCA. Nevertheless, in the spirit of cooperation and for transparency, the parties voluntarily submitted to PCC, among others, copies of the SPAs for the Commission’s information and reference.

In a letter dated June 17, 2016, the PCC required the parties to further submit additional documents relevant to the co-use arrangement and the frequencies subject thereto, as well as other definitive agreements relating to the VTI Transaction. It also disregarded the deemed approved status of the VTI Transaction in violation of the Circulars which the PCC itself issued, and insisted that it will conduct a full review, if not investigation of the said transaction under the different operative provisions of the PCA.

On July 12, 2016, PLDT filed before the Court of Appeals, or CA, a Petition for Certiorari and Prohibition (With Urgent Application for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction), or the Petition, against the PCC. The Petition seeks to enjoin the PCC from proceeding with the review of the acquisition by PLDT and Globe of the telecommunication business of SMC and performing any act which challenges or assails the “deemed approved” status of the transaction. On July 19, 2016, the 12^th Division of the CA issued a Resolution directing the Office of the Solicitor General, or the OSG, to file its Comment within a non-extensible period of 10 days from notice and show cause why the Petition should not be granted. On August 11, 2016, the PCC through the OSG, filed its Comment to the Petition (With Opposition to Petitioner’s Application for a Writ of Preliminary Injunction). On August 19, 2016, PLDT filed its Reply to Respondent PCC’s Comment.

On February 17, 2017, the CA issued a Resolution denying PCC’s Motion for Reconsideration dated September 14, 2016, for lack of merit. The Court denied PLDT’s Motion to Cite the PCC in the indirect contempt for being premature. In the same Resolution, as well as in a separate Gag Order attached to the Resolution, the CA granted PLDT’s Urgent Motion for the Issuance of a Gag Order and directed PCC to remove immediately from its website its preliminary statement of concern and submit its compliance within five days from receipt thereof. All the parties were ordered to refrain, cease and desist from issuing public comments and statements that would violate the subjudice rule and subject them to indirect contempt of court. The parties were also required to comment within ten days from receipt of the Resolution, on the Motion for Leave to Intervene and to Admit the Petition-in-Intervention dated February 7, 2017 filed by Citizenwatch, a non-stock and non-profit association. The Petition remains pending resolution with the CA.

On April 18, 2017, the PCC filed before the Supreme Court a Petition to Annul the Writ of Preliminary Injunction issued by the CA’s 12^th Division on August 26, 2016 restraining PCC’s review of PLDT and Globe’s Php69.1 billion joint acquisition of SMC’s telco assets in May 2016. The Petition remains pending resolution with the Supreme Court.

VTI’s Tender Offer for the Minority Stockholders’ Shares in Liberty Telecom Holdings, Inc., or LIB

On August 18, 2016, the Board of Directors of VTI approved the voluntary tender offer to acquire the common shares of LIB, a subsidiary of VTI, which are held by the remaining minority shareholders, and the intention to delist the shares of LIB from the PSE.

On August 24, 2016, VTI, owner of 87.12% of the outstanding common shares of LIB, undertook the tender offer to purchase up to 165.88 million common shares owned by the remaining minority shareholders, representing 12.82% of LIB’s common stock, at a price of Php2.20 per share. The tender offer period ended on October 20, 2016, the extended expiration date, with over 107 million shares tendered, representing approximately 8.3% of LIB’s issued and outstanding common shares. The tendered shares were crossed at the PSE on November 4, 2016, with the settlement on November 9, 2016.

Following the conclusion of the tender offer, VTI now owns more than 95% of the issued and outstanding common shares, and 99.1% of the total issued and outstanding capital stock, of LIB.

The tender offer was undertaken in compliance with the PSE’s requirements for the voluntary delisting of LIB common shares from the PSE. The voluntary delisting of LIB has been granted by the PSE effective November 21, 2016.

On March 1, 2010, PCEV, MPIC and Beacon, entered into an Omnibus Agreement, or OA. Beacon was incorporated in the Philippines and organized with the sole purpose of holding the respective shareholdings in 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, 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.

Beacon is merely a special purpose vehicle created for the main purpose of holding and investing in Meralco using the same Meralco shares as collateral for funding such additional investment. The OA entered into by Beacon, PCEV and MPIC effectively delegates the decision making power of Beacon over the Meralco shares to PCEV and MPIC and that Beacon does not exercise any discretion over the vote to be taken in respect of the Meralco shares but is obligated to vote on the Meralco shares strictly in accordance with the instructions of PCEV and MPIC. Significant influence over the relevant financing and operating activities of Meralco is exercised at the respective Boards of PCEV and MPIC.

PCEV accounts for its investment in Beacon as investment in joint venture since the OA establishes joint control over Beacon.

Beacon’s authorized capital stock of Php5,000 million consists of 3,000 million common shares with a par value of Php1.00 per share and 2,000 million preferred shares with a par value of Php1.00 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 1,157 million common shares of Beacon and approximately 801 million preferred shares of Beacon in consideration of: (1) the transfer of 164 million Meralco shares at a price of Php150.00 per share, or an aggregate amount of Php24,540 million; and (2) Php6,600 million in cash, as further discussed in “Transfer of Meralco Shares to Beacon” section below for further information.

PCEV likewise subscribed to 1,157 million common shares of Beacon on March 30, 2010 in consideration of the transfer of 154 million Meralco common shares at a price of Php150.00 per share, or an aggregate amount of Php23,130 million.

In addition to the subscription to the Beacon shares pursuant to the OA, Beacon purchased 154 million and 164 million Meralco common shares, or the Transferred Shares, from PCEV and MPIC, respectively, for a consideration of Php150.00 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 million Meralco common shares to Beacon on May 12, 2010.

On October 25, 2011, PCEV transferred to Beacon its remaining investment in 69 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 on the same date. The transfers of the Meralco shares were implemented through a special block sale/cross sale in the PSE.

PCEV recognized a deferred gain of Php8,047 million and Php8,145 million on May 12, 2010 and October 25, 2011, respectively, for the difference between the transfer price of the Meralco shares to Beacon and the 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 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 agreed to sell approximately 282 million of its Beacon preferred shares to MPIC for total cash consideration of Php3,563 million. The sale was completed on June 29, 2012. Since Beacon preferred shares were sold to an entity not included in the PLDT Group, 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.

⁽¹⁾

Since Beacon sold the shares to an entity not included in the PLDT Group, PCEV realized portion of the deferred gain which was recognized when the Meralco shares were transferred to Beacon.

On June 24, 2014, MPIC settled portion of the consideration amounting to Php3,000 million and the balance amounting to Php10,243 million was paid on February 27, 2015.

As part of the April 14, 2015 sale, MPIC settled a portion of the consideration amounting to Php1,000 million on April 14, 2015 and Php17,000 million on June 29, 2015, both of which were used by Beacon to partially settle its outstanding loans. MPIC paid Beacon the balance of Php8,487 million on July 29, 2016.

On May 30, 2016, PCEV entered into a Share Purchase Agreement with MPIC to sell its 646 million shares of common stock and 458 million shares of preferred stock of Beacon, representing approximately 25% equity interest in Beacon to MPIC for a total consideration of Php26,200 million. MPIC settled a portion of the consideration amounting to Php17,000 million immediately upon signing of the agreement and the balance of Php9,200 million will be paid in annual installments until June 2020. The remaining balance from MPIC is measured at fair value using a discounted cash flow valuation method, with interest income to be accreted over the term of the receivable.

PCEV’s equity ownership in Beacon after the sale was reduced from 50% to 25%, while MPIC’s interest increased to 75%. PCEV and MPIC agreed that the former shall retain the right to vote 50% of the outstanding capital stock of Beacon until the later of: (i) the date when PCEV ceases to hold at least 20% of the common shares of Beacon; and (ii) the date when MPIC has fully paid the purchase price under the Share Purchase Agreement.

Subsequent to the sale of Beacon shares to MPIC, effective interest in Meralco, through Beacon, was reduced to 8.74% from 17.48%, while MPIC’s effective interest in Meralco, through its direct ownership in Meralco shares and through Beacon, increased to 41.22% as at December 31, 2016 from 32.48% as at December 31, 2015. There is no change in the aggregate joint interest of MPIC and Beacon in Meralco which remains at 49.96% as at March 31, 2017 and December 31, 2016.

Beacon owns 394 million Meralco common shares, representing approximately 34.96% effective ownership in Meralco with a carrying value of Php83,447 million and market value of Php107,972 million based on quoted price of Php274 per share as at March 31, 2017.

The carrying value of PCEV’s investment in Beacon as at March 31, 2017 and December 31, 2016 amounted to Php13,939 million and Php13,593 million, respectively, net of deferred gain of Php4,962 million each.

On May 30, 2016, the Board of Directors of Beacon approved the increase in authorized capital stock of Beacon from 5,000 million to 6,000 million divided into 3,000 million common shares with a par value of Php1.00 per share, 2,000 million Class “A” preferred shares with a par value of Php1.00 per share and 1,000 million new Class “B” preferred shares with a par value of Php1.00 per share.

On the same date, PCEV subscribed to 277 million Beacon Class “B” preferred shares for a total cash consideration of Php3,500 million. MPIC likewise subscribed to 277 million Beacon Class “B” preferred shares for a total cash consideration of Php3,500 million.

The amount raised from the subscription was used to fund the subscription to shares of common stock of Global Business Power Corporation, or Global Power, through Beacon Powergen Holdings, Inc., or Beacon Powergen.

On August 10, 2016, the Philippine SEC approved the increase in Beacon’s authorized capital and issuance of the new class of preferred shares.

Class “B” preferred shares of Beacon are non-voting, not convertible to common shares or any shares of Beacon of any class and have no pre-emptive rights to subscribe to any share or convertible debt, securities or warrants issued or sold by Beacon. The Class “B” preferred shares are entitled to liquidation preference over the common shares of Beacon and, upon the declaration of Beacon’s Board of Directors, yearly cumulative dividends at the rate of 6% of the issue value before any dividends can be paid to holders of common shares of Beacon subject to: (a) availability of unrestricted retained earnings; and
(b) dividend payment will not violate any dividend restrictions imposed by Beacon’s bank creditors.

On September 9, 2016, the Board of Directors of Beacon approved the redemption of 198 million Class “B” preferred shares held by PCEV at an aggregate redemption price equal to the aggregate issue price of Php2,500 million. On the same date, Beacon also declared cash dividends on the said preferred shares amounting to Php21 million. The redemption price and cash dividend were paid on September 30, 2016.

On April 20, 2017, the Board of Directors of Beacon approved the redemption of 79 million Class “B” preferred shares held by PCEV at an aggregate redemption price equal to the aggregate issue price of Php1,000 million. On the same date, Beacon also declared cash dividends on the said preferred shares amounting to Php43 million. The redemption price and cash dividend were paid on April 25, 2017. PCEV accounts for its subscription in Beacon’s Class “B” preferred shares as available-for-sale investments.

On May 27, 2016, Beacon, through a wholly-owned subsidiary, Beacon Powergen, entered into a Share Purchase Agreement with GT Capital Holdings, Inc., to acquire an aggregate 56% of the issued share capital of Global Power for a total consideration of Php22,058 million. Beacon Powergen settled Php11,029 million upon closing and the balance via a vendor financing facility, which was replaced with a long-term bank debt in August 2016.

Global Power is the leading power supplier in Visayas region and Mindoro Island. In 2016, Global Power increased its combined gross maximum capacity to 854 megawatts, or MW, through a 150MW expansion project that is currently undergoing final acceptance. In Luzon, Global Power has 670MW expansion project that is still in the process of Engineering, Procurement and Construction selection.

After the acquisition, PCEV’s effective interest in Global Power, through Beacon, is 14%, while MPIC’s effective interest in Global Power, through Beacon is 42%.

Beacon Powergen’s investment in Global Power has a carrying value of Php22,425 million as at March 31, 2017.

PCEV’s share in the cash dividends for Class “A” preferred shares and common shares was deducted from the carrying value of the investment in joint venture, while PCEV’s share in the cash dividends for Class “B” preferred shares was recognized as dividend income.

On April 25, 2017, PCEV received Php1,043 million representing redemption of the remaining Beacon Class “B” preferred shares amounting to Php1,000 million and corresponding dividends of Php43 million. Also on the same date, PCEV received Php236 million representing dividends declared by Beacon on its Class “A” preferred shares on April 20, 2017.

The table below presents the summarized financial information of Beacon as at March 31, 2017 and December 31, 2016 and, and for the three months ended March 31, 2017 and 2016:

The following table presents the reconciliation between the share in Beacon’s equity and the carrying value of investment in Beacon as at March 31, 2017 and December 31, 2016:

On January 20, 2015, PLDT and Rocket entered into a JVA to further strengthen their existing partnership and to foster the development of internet-based businesses in the Philippines. PLDT, through iCommerce, a subsidiary of Voyager’s eInnovations, and Asia Internet Holding S.à r.l., which is 50%-owned by Rocket, are shareholders in PHIH.

PHIH focuses on creating and developing online businesses in the Philippines, leveraging local market and business model insights, facilitating commercial, strategic and investment partnerships, enabling local recruiting and sourcing, and accelerating the rollout of online startups.

PLDT, through iCommerce, acquired a 33.33% equity interest in PHIH. iCommerce has the option to increase its equity interest to 50%. iCommerce became a shareholder of PHIH on October 14, 2015 and paid approximately €7.4 million on October 27, 2015. As at March 31, 2017, the carrying value of the investment in PHIH amounted to €29.6 million, or Php1,538 million, including subscription payable of €22.6 million, or Php1,176 million, and capitalized professional fees and other start-up costs for the investment in PHIH amounted to Php32 million.

On January 6, 2015, PLDT, through eInnovations, entered into a JVA with Rocket, pursuant to which the two parties agreed to form ECommerce Pay Holding S.à.r.l., or ECommerce Pay, of which each partner holds a 50% equity interest. ECommerce Pay is a global joint venture company for payment services with a focus on emerging markets.

On July 30, 2015, eInnovations became a 50% shareholder of ECommerce Pay and invested €1.2 million in ECommerce Pay on August 11, 2015.

On February 3, 2016, eInnovations further contributed its subsidiary ePay, including the platforms and business operations of its mobile-first platform, PayMaya, as had been agreed in the JVA. Rocket contributed, among other things, its equity in Paymill Holding GmbH and Payleven Holding GmbH, which operated via its subsidiaries, payment platforms for high growth, small-and-medium sized e-commerce businesses.

Consequently, in February 2016, the ownership of ePay and its subsidiaries, or the ePay Group, was transferred from eInnovations to ECommerce Pay and hence eInnovation’s effective interest in ePay went down to 50%. Pending completion of the other expected contributions from Rocket, ePay Group continue to be a subsidiary of PLDT.

Rocket and PLDT via eInnovations agreed to end the joint venture with control and all rights in ePay to be returned to eInnovations via a retransfer of the shares in ePay. In return, eInnovations gave up its 50% ownership and all claims in connection with ECommerce Pay. On July 29, 2016, eInnovations exited ECommerce Pay and the whole ownership of ePay, including the platforms and business operations of its mobile-first platform, PayMaya, was returned to eInnovations.

PLDT and Rocket have decided to unwind the joint venture to better focus on their respective areas of operation and current priorities. Both continue to explore areas of possible future collaboration.

Summarized financial information of other individually immaterial joint ventures

The table below presents the summarized financial information of our individually immaterial investments in joint ventures as at March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016:

Our aggregate share in the revenues, expenses, other expenses – net, net loss, other comprehensive income, and total comprehensive loss of our other investments in joint ventures for the three months ended March 31, 2017 and 2016 are considered immaterial in relation to our consolidated financial statements.

We have no outstanding contingent liabilities or capital commitments with our joint ventures as at March 31, 2017 and December 31, 2016.

On April 23, 2015, PLDT Online subscribed to a convertible note of iFlix, an internet TV service provider in Southeast Asia, for US$15 million, or Php686 million. The convertible note was issued and paid on August 11, 2015. iFlix will use the funds to continue roll out of the iFlix subscription video-on-demand services across the Southeast Asian region, acquire rights to new content, and produce original programming to market to potential customers.

This investment is in line with our strategy to develop new revenue streams and to complement our present business by participating in the digital world beyond providing access and connectivity.

On March 10, 2016, the US$15 million convertible note held by PLDT Online was converted into 20.7 million ordinary shares of iFlix in connection with a new funding round led by Sky Plc, Europe’s leading entertainment company and the Indonesian company, Emtek Group. PLDT Online’s shares account for approximately 7.6% of the total equity stock of iFlix.

On December 18, 2015, PLDT Capital entered into a Stock and Warrant Purchase Agreement with Matrixx, a Delaware corporation. Matrixx provides the IT foundation to move to an all-digital service environment with a new real-time technology platform designed to handle the surge in interactions without forcing the compromises of conventional technology. Under the terms of the agreement, PLDT Capital subscribed to convertible Series B Preferred Stock of Matrixx for a total consideration of US$5 million, or Php237 million, and was entitled to purchase additional Series B Preferred Stock upon occurrence of certain conditions on or before March 15, 2016. PLDT Capital did not exercise its right to purchase additional Series B Preferred Stock of Matrixx.

On August 7, 2014, PLDT and Rocket entered into a global strategic partnership to drive the development of online and mobile payment solutions in emerging markets. Rocket provides a platform for the rapid creation and scaling of consumer internet businesses outside the U.S. and China. Rocket’s prominent brands include the leading Southeast Asian e-Commerce businesses Zalora and Lazada, as well as fast growing brands with strong positions in their markets such as Dafiti, Linio, Jumia, Namshi, Lamoda, Jabong, Westwing, Home24 and HelloFresh in Latin America, Africa, Middle East, Russia, India and Europe. Financial technology and payments comprise Rocket’s third sector where it anticipates numerous and significant growth opportunities.

Pursuant to the terms of the investment agreement, PLDT invested €333 million, or Php19,577 million, in cash, for new shares equivalent to a 10% stake in Rocket as at August 2014. These new shares are of the same class and bear the same rights as the Rocket shares held by the investors as at the date of the agreement namely, Investment AB Kinnevik and Access Industries, in addition to Global Founders GmbH (formerly European Founders Fund GmbH). PLDT made the €333 million investment in two payments (on September 8 and September 15, 2014), which it funded from available cash and new debt.

On August 21, 2014, PLDT assigned all its rights, title and interests as well as all of its obligations related to its investment in Rocket, to PLDT Online, an indirectly wholly-owned subsidiary of PLDT.

On October 1, 2014, Rocket announced the pricing of its initial public offering, or IPO, at €42.50 per share. On October 2, 2014, Rocket listed its shares on Entry Standard of the Frankfurt Stock Exchange under the ticker symbol “RKET.” Our ownership stake in Rocket after the IPO was reduced to 6.6%. In February 2015, due to additional issuances of shares by Rocket, our ownership percentage in Rocket was further reduced to 6.1%, and remained as such as at March 31, 2017 and December 31, 2016.

Based on our judgment, the continuing decline in fair value of our investment in Rocket is considered significant as the cumulative net losses from changes in fair value represents more than 20% decline in value below cost. As a result, total cumulative impairment losses recognized on our investment in Rocket amounted to Php11,045 million and Php10,505 million as at March 31, 2017 and December 31, 2016, respectively. Impairment loss charged in our consolidated income statement amounted to Php540 million and Php1,583 million for the three months ended March 31, 2017 and 2016, respectively. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Impairment of available-for-sale equity investments.

On September 26, 2016, Rocket Internet applied for admission to trading under the regulated market (Prime Standard) of the Frankfurt Stock Exchange. RKET has been admitted to the Prime Standard and is part of the Frankfurt Stock Exchange’s SDAX.

As at May 11, 2017, closing price of Rocket is €18.74 per share resulting to total market value of PLDT’s stake in Rocket of €189 million, or Php10,261 million.

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 4.00%. 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 this investment amounted to US$46 thousand, or Php2 million, and US$47 thousand, or Php2 million, for the three months ended March 31, 2017 and 2016, respectively. The carrying value of this investment amounted to Php251 million and Php248 million as at March 31, 2017 and December 31, 2016, respectively.

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 this investment amounted to US$16 thousand, or Php0.8 million, for the three months ended March 31, 2017 and 2016. The carrying value of this investment amounted to Php101 million and Php100 million as at March 31, 2017 and December 31, 2016, respectively.

In April 2013, Smart purchased, at a premium, PSALM Bonds with face value of Php200 million with yield-to-maturity at 4.25% gross, which matured on April 22, 2017. The bond has a gross coupon rate of 7.75% payable on a quarterly basis, and was recognized as held-to-maturity investment. Premium is amortized using the EIR method. Interest income, net of withholding tax, recognized on this investment amounted to Php1.9 million and Php1.8 million for the three months ended March 31, 2017 and 2016, respectively. The carrying value of this investment amounted to Php200 million and Php202 million as at March 31, 2017 and December 31, 2016, respectively.

In February 2013, Smart purchased at par a seven-year GT Capital Bond with face value of Php150 million maturing on February 27, 2020. The bond has a gross coupon rate of 4.84% payable on a quarterly basis, and was recognized as held-to-maturity investment. Interest income, net of withholding tax, recognized on this investment amounted to Php1.4 million for the three months ended March 31, 2017 and 2016. The carrying value of this investment amounted to Php150 million each as at March 31, 2017 and December 31, 2016.

In March 2014, Smart purchased, at a premium, a NAPOCOR Bond with face value of Php50 million with yield-to-maturity at 4.22% gross, which matured on December 19, 2016. The bond had a gross coupon rate of 7.34% payable on a semi-annual basis, and was recognized as held-to-maturity investment. This investment was a tax-exempt bond. Premium is amortized using the EIR method. Interest income recognized on this investment amounted to Php444 thousand for the three months ended March 31, 2016.

Changes in investment properties account for the three months ended March 31, 2017 and for the year ended December 31, 2016 are as follows:

Investment properties, which consist of land, land improvements and building, are stated at fair values, which have been determined based on appraisal performed by an independent firm of appraisers, an industry specialist in valuing these types of investment properties. None of our investment properties are being leased to third parties that earn rental income.

The valuation for land was based on a market approach valuation technique using price per square meter ranging from Php13 to Php140 thousand. The valuation for building and land improvements were based on a cost approach valuation technique using current material and labor costs for improvements based on external and independent reviewers.

We have determined that the highest and best use of some of the idle or vacant land properties at the measurement date would be to convert the properties for residential or commercial development. The properties are not being used for strategic reasons.

We have no restrictions on the realizability of our investment properties and no contractual obligations to either purchase, construct or develop investment properties or for repairs, maintenance and enhancements.

Repairs and maintenance expenses related to investment properties that do not generate rental income amounted to Php11 million and Php13 million for the three months ended March 31, 2017 and 2016, respectively.

The above investment properties were categorized under Level 3 of the fair value hierarchy. There were no transfers in and out of Level 3 of the fair value hierarchy.

Significant increases (decreases) in price per square meter for land, current material and labor costs of improvements would result in a significantly higher (lower) fair value measurement.

Changes in goodwill and intangible assets for the three months ended March 31, 2017 and for the year ended December 31, 2016 are as follows:

Intangible Assets with Indefinite

Total

Life

Intangible Assets with Finite Life

Intangible Assets

Total

Total Goodwill and

with

Trademark

Franchise

Customer List

Spectrum

Licenses

Others

Finite Life

Intangible Assets

Goodwill

Intangible Assets

(in million pesos)

March 31, 2017 (Unaudited)

Costs:

Balance at beginning of the period

4,505

3,016

4,726

1,205

1,079

1,379

11,405

15,910

63,058

78,968

Additions

–

Translation and other adjustments

–

Balance at end of the period

4,505

3,016

4,726

1,205

1,079

1,438

11,464

15,969

63,058

79,027

Accumulated amortization and impairment:

Balance at beginning of the period

–

961

2,769

991

1,037

1,251

7,009

1,679

8,688

Amortization during the period

–

128

205

–

205

Translation and other adjustments

–

Balance at end of the period

–

1,007

2,897

1,011

1,039

1,282

7,236

1,679

8,915

Net balance at end of the period

4,505

2,009

1,829

194

156

4,228

8,733

61,379

70,112

Estimated useful lives (in years)

–

2 – 9

1 – 10

–

Remaining useful lives (in years)

–

2 – 4

4 – 10

–

December 31, 2016 (Audited)

Costs:

Balance at beginning of the year

4,505

3,016

4,726

1,205

1,079

1,189

11,215

15,720

63,092

78,812

Business combination

–

(34

)

(34

)

Additions

–

175

–

175

Translation and other adjustments

–

Balance at end of the year

4,505

3,016

4,726

1,205

1,079

1,379

11,405

15,910

63,058

78,968

Accumulated amortization and impairment:

Balance at beginning of the year

–

775

2,258

911

924

1,128

5,996

699

6,695

Amortization during the year

–

186

511

113

929

–

929

Impairment during the year

–

980

1,038

Translation and other adjustments

–

Balance at end of the year

–

961

2,769

991

1,037

1,251

7,009

1,679

8,688

Net balance at end of the year

4,505

2,055

1,957

214

128

4,396

8,901

61,379

70,280

Estimated useful lives (in years)

–

2 – 9

1 – 10

–

Remaining useful lives (in years)

–

2 – 4

5 – 10

–

The consolidated goodwill and intangible assets of our reportable segments as at March 31, 2017 and 2016 are as follows:

Intangible asset with indefinite life as at March 31, 2017 and December 31, 2016 pertains to the “Sun Cellular” trademark of DMPI, which was acquired in connection with PLDT’s acquisition of Digitel in 2011. PLDT intends to continue using the “Sun Cellular” brand to a specific market segment. As such, the “Sun Cellular” trademark is viewed to have an indefinite useful life.

Smart’s licensing agreements with various music companies, which grant Smart a right to sell the digital products of the music companies (including through downloading and streaming), were capitalized as intangible assets and amortized accordingly.

PayMaya and Voyager continuously improve their existing products and services through regular technological developments and upgrades to their platforms. Accumulated costs related to such activities are capitalized as intangible assets.

The consolidated future amortization of intangible assets with finite life as at March 31, 2017 is as follows:

Impairment Testing of Goodwill and Intangible Asset with Indefinite Useful Life

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 line and wireless segments. As at March 31, 2017, the PLDT Group’s goodwill comprised of goodwill resulting from acquisition of Takatack Technologies in 2015, PLDT’s additional investment in PG1 in 2014, Smart’s acquisition of WiFun in 2014, 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, Smart’s acquisition of CURE and SBI’s acquisition of Airborne Access Corporation in 2008, and Smart’s acquisition of SBI in 2004. The test for recoverability of PLDT’s, Smart’s and Voyager’s goodwill and intangible assets was applied to the Fixed Line, Wireless and Voyager asset groups, respectively, which represent the lowest level within our business at which we monitor goodwill.

Although revenue streams may be segregated among the companies within the PLDT 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. 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. 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 are 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 share the same facilities to leverage on a Group perspective.

Because of the significant common use of network facilities among fixed line and wireless companies within the Group, management deems that the Wireless and Fixed Line units are considered the lowest CGUs for impairment test of goodwill until 2014.

In 2015, subsequent to the decision of Management to consolidate the various digital businesses under Voyager and assign a separate management from wireless business, the Voyager unit has been considered as a CGU separate from the Wireless unit. As a result, goodwill amounting to Php980 million was allocated to Voyager CGU.

The Wireless, Fixed Line and Voyager units are the lowest CGUs to which goodwill is to be allocated given that the Fixed Line, Wireless and Voyager operations generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Voyager unit is still within the wireless operating segment for purposes of segment reporting and monitoring.

The recoverable amount of the Wireless, Fixed Line and Voyager CGUs 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. The pre-tax discount rates applied to cash flow projections are 10.1%, 9.6% and 15.0% for the Wireless, Fixed Line and Voyager CGUs, respectively. Cash flows beyond the projection period are determined using a 3.0% growth rate for the Wireless and Fixed Line CGUs, which is the same as the long-term average growth rate for the telecommunications industry, while for the Voyager CGU, a 5.0% growth rate was used. Other key assumptions used in the cash flow projections include revenue growth, operating margin and capital expenditures.

Based on the assessment of the value in use of the Wireless and Fixed Line CGUs, the recoverable amount of the Wireless and Fixed Line CGUs exceeded their carrying amounts, hence, no impairment was recognized as at March 31, 2017 and December 31, 2016 in relation to goodwill.

With regards to the assessment of value in use for Wireless and Fixed Line CGUs, management believes that no reasonable possible changes in any of the above key assumptions would cause the carrying value of the unit to materially exceed its recoverable amount.

In December 2016, based on the assessment of the Voyager CGU’s recoverable amount compared with the carrying amount of the Voyager CGU’s net assets, we have recognized total impairment loss amounting to Php980 million and, consequently, any adverse change in a key assumption would result in a further impairment loss. See Note 5 – Income and Expenses.

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 Php162 million and Php195 million for the three months ended March 31, 2017 and 2016, respectively.

As at March 31, 2017 and December 31, 2016, 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 payables 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 PLDT Group, dividend receivables and advances from affiliates.

Trade receivables are non-interest-bearing and are generally with settlement term 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 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 three months ended March 31, 2017 and for the year ended December 31, 2016 are as follows:


							Corporate			Foreign						Dealers,
	Total			Retail Subscribers			Subscribers			Administrations			Domestic Carriers			Agents and Others
	(in million pesos)
March 31, 2017 (Unaudited)
Balance at beginning of the period		18,788			12,588			3,827			628			134			1,611
Provisions (reversals) and other adjustments		(2,594	)		(2,698	)		96			57			(48	)		(1	)
Write-offs		(201	)		(186	)		–			–			–			(15	)
Balance at end of the period		15,993			9,704			3,923			685			86			1,595

Individual impairment		10,749			5,536			3,753			94			62			1,304
Collective impairment		5,244			4,168			170			591			24			291

		15,993			9,704			3,923			685			86			1,595

Gross amount of receivables individually impaired, before deducting any impairment allowance		10,749			5,536			3,753			94			62			1,304

December 31, 2016 (Audited)
Balance at beginning of the year		15,921			9,540			4,451			315			86			1,529
Provisions (reversals) and other adjustments		5,305			4,843			(71	)		359			60			114
Write-offs		(2,438	)		(1,795	)		(553	)		(46	)		(12	)		(32	)
Balance at end of the year		18,788			12,588			3,827			628			134			1,611

Individual impairment		14,970			9,789			3,711			87			113			1,270
Collective impairment		3,818			2,799			116			541			21			341

		18,788			12,588			3,827			628			134			1,611

Gross amount of receivables individually impaired, before deducting any impairment allowance		14,970			9,789			3,711			87			113			1,270

The cost of inventories and supplies recognized as expense for the three months ended March 31, 2017 and 2016 are as follows:

Changes in the allowance for inventory obsolescence for the three months ended March 31, 2017 and for the year ended December 31, 2016 are as follows:

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.

PLDT’s number of shares of subscribed and outstanding capital stock as at March 31, 2017 and December 31, 2016 are as follows:

⁽¹⁾

Includes 300 million shares of Series IV Cumulative Non-Convertible Redeemable Preferred Stock subscribed for Php3 billion, of which Php360 million has been paid.

There were no changes in PLDT’s capital account for the three months ended March 31, 2017 and 2016.

On January 26, 2016, the Board of Directors designated 20,000 shares of Non-Voting Serial Preferred Stock as Series KK 10% Cumulative Convertible Preferred Stock to be issued from January 1, 2016 to December 31, 2020, pursuant to the PLDT Subscriber Investment Plan, or SIP.

On November 5, 2013, the Board of Directors designated 50,000 shares of Non-Voting Serial Preferred Stock as Series JJ 10% Cumulative Convertible Preferred Stock to be issued from January 1, 2013 to December 31, 2015, pursuant to the SIP. On June 8, 2015, PLDT issued 870 shares of Series JJ 10% Cumulative Convertible Preferred Stock.

On January 26, 2010, the Board of Directors designated 100,000 shares of Non-Voting Serial Preferred Stock as Series II 10% Cumulative Convertible Preferred Stock to be issued from January 1, 2010 to December 31, 2012, pursuant to the SIP.

The Series II, JJ and KK 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 of PLDT 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 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 par value per share of Common Stock. 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 II, JJ and KK 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 at any time one year after subscription and 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 of PLDT, at a subscription price of Php1.00 per share for a total subscription price of Php150 million pursuant to a subscription agreement between BTFHI and PLDT dated October 15, 2012. 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 March 31, 2017. See Note 1 – Corporate Information and
Note 26 – Provisions and Contingencies – In the Matter of the Wilson Gamboa Case and 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 Series A to FF Shares, from holders of record as of October 10, 2011, and all such shares were redeemed and retired effective on January 19, 2012. In accordance with the terms and conditions of the Series A to FF Shares, the holders of Series A to FF Shares as at January 19, 2012 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 January 19, 2012, or the Redemption Price of Series A to FF Shares.

PLDT has set aside Php4,029 million (the amount required to fund the redemption price for the Series A to FF Shares) in addition to Php4,143 million for unclaimed dividends on Series A to FF Shares, or a total amount of Php8,172 million, to fund the redemption of the Series A to FF 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 Series A to FF Shares, for a period of ten years from January 19, 2012 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, or the Series GG Shares, from the holders of record as of May 22, 2012, and all shall shares were redeemed and retired effective August 30, 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 Php236 thousand (the amount required to fund the redemption price for the Series GG Shares) in addition to Php74 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 Series A to FF Shares. Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund for Series GG Shares or any balance thereof, in trust, for the benefit of holders of Series GG Shares, for a period of ten years from August 30, 2012, or until August 30, 2022. After the said date, any and all remaining balance in the Redemption Trust Fund for Series GG Shares shall be returned to PLDT and revert to its general funds. Any interests on the Redemption Trust Fund for Series GG Shares shall accrue for the benefit of, and be paid from time to time, to PLDT.

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, or Series HH Shares issued in 2007, from the holders of record as of February 14, 2013 and all such shares were redeemed and retired effective May 16, 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 has set aside Php24 thousand (the amount required to fund the redemption price for the Series HH Shares issued in 2007) in addition to Php6 thousand for unclaimed dividends on Series HH Shares issued in 2007, or a total amount of Php30 thousand, to fund the redemption price of Series HH Shares issued in 2007, or the Redemption Trust Fund for Series HH Shares issued in 2007, which forms an integral part of the Redemption Trust Funds previously set aside in the trust account with RCBC, as Trustee, for the purpose of funding the payment of the Redemption Price of Series A to GG Shares. Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund for Series HH Shares issued in 2007 or any balance thereof, in trust, for the benefit of holders of Series HH Shares issued in 2007, for a period of ten years from May 16, 2013, or until May 16, 2023. After the said date, any and all remaining balance in the Redemption Trust Fund for Series HH Shares issued in 2007 shall be returned to PLDT and revert to its general funds. Any interests on the Redemption Trust Fund for Series HH Shares issued in 2007 shall accrue for the benefit of, and be paid from time to time, to PLDT.

On January 28, 2014, 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 2008, or the Series HH Shares issued in 2008, from the holders of record as of February 14, 2014 and all such shares were redeemed and retired effective May 16, 2014. In accordance with the terms and conditions of Series HH Shares issued in 2008, the holders of Series HH Shares issued in 2008 as at February 14, 2014 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, 2014, or the Redemption Price of Series HH Shares issued in 2008.

PLDT has set aside Php2 thousand (the amount required to fund the redemption price of Series HH Shares issued in 2008) in addition to Php1 thousand for unclaimed dividends on Series HH Shares issued in 2008, or a total amount of Php3 thousand, to fund the redemption price of Series HH Shares issued in 2008, or the Redemption Trust Fund for Series HH Shares issued in 2008, which forms an integral part of the Redemption Trust Funds previously set aside in the trust account with RCBC, as Trustee, for the purpose of funding the payment of the Redemption Price of Series A to HH Shares issued in 2007. Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund for Series HH Shares issued in 2008 or any balance thereof, in trust, for the benefit of holders of Series HH Shares issued in 2008, for a period of ten years from May 16, 2014, or until May 16, 2024. After the said date, any and all remaining balance in the Redemption Trust Fund for Series HH Shares issued in 2008 shall be returned to PLDT and revert to its general funds. Any interests on the Redemption Trust Fund for Series HH Shares issued in 2008 shall accrue for the benefit of, and be paid from time to time, to PLDT.

On January 26, 2016, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series II 10% Cumulative Convertible Preferred Stock, or the Series II Shares, from the holder of record as of February 10, 2016, and all such shares were redeemed and retired effective on May 11, 2016. In accordance with the terms and conditions of Series II Shares, the holders of Series II Shares as at February 10, 2016 is 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 11, 2016, or the Redemption Price of Series II Shares.

PLDT has set aside Php4 thousand to fund the redemption price of Series II Shares, or the Redemption Trust Fund for Series II Shares, which forms an integral part of the Redemption Trust Funds previously set aside in the trust account with RCBC, as Trustee, for the purpose of funding the payment of the Redemption Price of Series A to HH Shares issued in 2008. Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund for Series II Shares or any balance thereof, in trust, for the benefit of holder of Series II Shares, for a period of ten years from May 11, 2016, or until May 11, 2026. After the said date, any and all remaining balance in the Redemption Trust Fund for Series II Shares shall be returned to PLDT and revert to its general funds. Any interests on the Redemption Trust Fund for Series II Shares shall accrue for the benefit of, and be paid from time to time, to PLDT.

As at January 19, 2012, August 30, 2012, May 16, 2013, May 16, 2014 and May 11, 2016, notwithstanding that any stock certificate representing the Series A to FF Shares, Series GG Shares, Series HH Shares issued in 2007, Series HH Shares issued in 2008 and Series II Shares, respectively, were not surrendered for cancellation, the Series AA to II Shares 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.

Total amounts of Php4 million and Php3 million were withdrawn from the Trust Account, representing total payments on redemption for the three months ended March 31, 2017 and 2016, respectively. The balances of the Trust Account of Php7,880 million and Php7,883 million were presented as part of the “Current portion of advances and other noncurrent assets” and the related redemption liability of the same amount were presented as part of “Accrued expenses and other current liabilities” in our consolidated statements of financial position as at March 31, 2017 and December 31, 2016, respectively. See Note 23 – Accrued Expenses and Other Current Liabilities and Note 27 – Financial Assets and Liabilities.

PLDT expects to similarly redeem and retire the outstanding shares of Series JJ and KK 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. 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.

As at November 2010, we had acquired a total of approximately 2.72 million shares of PLDT’s common stock at a weighted average price of Php2,388.00 per share for a total consideration of Php6,505 million in accordance with the share buyback program. There were no further buyback transactions subsequent to November 2010.

Our dividends declared for the three months ended March 31, 2017 and 2016 are detailed as follows:

Smart issued Php2,610 million and Php1,590 million perpetual notes under two Notes Facility Agreements dated March 3, 2017 and March 6, 2017, respectively. Proceeds from the issuance of these notes are intended to finance capital expenditures. The notes have no fixed redemption dates and Smart may, at its sole option, redeem the notes in whole but not in part. In accordance with PAS 32, the notes are classified as part of equity in the financial statements of Smart. The notes are subordinated to and rank junior to all senior loans of Smart.

As at March 31, 2017 and December 31, 2016, 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 our financial liabilities amounted to Php686 million and Php631 million as at March 31, 2017 and December 31, 2016, respectively. See Note 27 – Financial Assets and Liabilities.

The following table describes all changes to unamortized debt discount for the three months ended March 31, 2017 and for the year ended December 31, 2016.

March 31, 2017

December 31, 2016

Description

Interest Rates

(Unaudited)

(Audited)

(in millions)

U.S. Dollar Debts:

Export Credit Agencies-Supported Loans:

Exportkreditnamnden, or EKN

1.4100% to 1.9000% and
US$ LIBOR + 0.3000% in
2017 and 2016

US$

Php1,105

US$

Php1,533

China Export and Credit Insurance
Corporation, or Sinosure

US$ LIBOR + 1.0000% to
1.8000% in 2016

–

EKN and AB Svensk Exportkredit, or SEK

3.9550% in 2016

–

1,105

1,533

Fixed Rate Notes

8.3500% in 2017 and 2016

–

228

11,362

Term Loans:

GSM Network Expansion Facilities

US$ LIBOR + 1.1125% in
2017 and US$ LIBOR +
0.8500% to 1.1125% in
2016

279

276

Others

2.8850% and US$ LIBOR + 0.7900% to

832

41,809

905

45,021

1.6000% in 2017 and 2016

US$

860

43,193

US$

1,169

58,192

Philippine Peso Debts:

Corporate Notes

5.3300% to 6.2600% in 2017 and 2016

19,243

21,105

Fixed Rate Retail Bonds

5.2250% to 5.2813% in 2017 and 2016

14,907

14,902

Term Loans:

Unsecured Term Loans

3.9000% to 5.6400%; BSP
overnight rate and
PDST-R2 + 1.00% in 2017
and 3.9000% to 5.6400%;
BSP overnight rate -
0.3500% to BSP
overnight rate and
PDST-R2 + 1.0000% in
2016

97,804

90,833

131,954

126,840

Total long-term debt (Note 27)

175,147

185,032

Less portion maturing within one year (Note 27)

17,172

33,273

Noncurrent portion of long-term debt (Note 27)

Php157,975

Php151,759

The scheduled maturities of our consolidated outstanding long-term debt at nominal values as at March 31, 2017 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 as at March 31, 2017 and December 31, 2016:

Terms

Cancelled

Outstanding Amounts

Date of Loan

Loan Amount

Agreement

Lender(s)

Installments

Final Installment

Dates Drawn

Drawn Amount

Undrawn Amount

Paid in full on

March 31, 2017

December 31, 2016

(Unaudited)

(Audited)

(in millions)

U.S. Dollar Debts

EKN, the Export-Credit Agency of Sweden

DMPI

US$59.2M⁽¹⁾

December 17, 2007

ING Bank, Societe
Generale and Calyon

18 equal semi-annual

March 31, 2017

Various dates in
2008-2009

US$59.1

US$0.1

March 31, 2017

US$–

Php–

US$3

Php168

DMPI

US$51.2M⁽²⁾

December 17, 2007

ING Bank, Societe
Generale and Calyon

18 equal semi-annual

June 30, 2017

Various dates in
2008-2009

51.1

0.1

March 31, 2017

–

146

Smart

US$49M⁽³⁾
Tranche A1:
US$24M;
Tranche A2:
US$24M;
Tranche B:

June 10, 2011

Nordea Bank,
subsequently
assigned to SEK on
July 5, 2011

10 equal semi-annual

Tranche A1
and B: December 29,
2016;
Tranche A2: October
30, 2017

Various dates in
2012 and February
21, 2013

49.0

–

April 28, 2017

5^(*)

236^(*)

5^(*)

233^(*)

US$1M

Smart

US$45.6M⁽³⁾
Tranche A1:
US$25M;
Tranche A2:
US$19M;

February 22, 2013

Nordea Bank,
subsequently
assigned to SEK on
July 3, 2013

10 equal
semi-annual,
commencing 6
months after the
applicable mean

Tranche A1
and B1:
July 16, 2018;
Tranche A2
and B2:

Various dates in
2013-2014

45.6

–

17^(*)

869^(*)

20^(*)

986^(*)

Tranche B1:
US$0.9M;
Tranche B2:

delivery date

April 15, 2019

US$0.7M

US$22

Php1,105

US$31

Php1,533

^(*) Amounts are net of unamortized discount and/or debt issuance cost.
⁽¹⁾ The purpose of this loan is to finance the equipment and service contracts for the Phase 7 North Luzon Expansion and Change-out Project.
⁽²⁾ The purpose of this loan is to finance the equipment and service contracts for the Phase 7 Expansion Project in Visayas and Mindanao.
⁽³⁾ The purpose of this loan is to finance the supply and services contracts for the modernization and expansion project.

Terms

Cancelled

Outstanding Amounts

Loan Amount

Date of Loan Agreement

Lender(s)

Installments

Final Installment

Dates Drawn

Drawn Amount

Undrawn Amount

Paid in full on

March 31, 2017

December 31, 2016

(Unaudited)

(Audited)

(in millions)

Sinosure

DMPI

US$23.8M⁽¹⁾

November 10, 2008

ING Bank

14 equal semi-annual

September 1, 2016

Various dates in

US$

23.8

US$

–

March 1, 2016

US$–

Php–

US$–

Php–

2008-2009

DMPI

US$5.5M⁽²⁾

November 10, 2008

ING Bank

14 equal semi-annual

September 1, 2016

Various dates in

5.5

–

March 1, 2016

–

2008-2009

DMPI

US$4.9M⁽³⁾

November 10, 2008

ING Bank

14 equal semi-annual

September 1, 2016

Various dates in

4.9

–

March 1, 2016

–

2008-2009

DMPI

US$50M⁽⁴⁾

December 16, 2009

China Citic Bank

14 equal semi-annual

December 17, 2017

Various dates in

48.0

2.0

June 16, 2016

–

Corporation Ltd.,
subsequently
assigned to ING
Bank on December 9,
2011

2010

DMPI

US$117M⁽⁵⁾

September 15, 2010

China Development

15 equal semi-annual

April 10, 2018

Various dates in

116.3

1.0

April 11, 2016

–

Bank and The Hong
Kong and Shanghai
Banking Corporation
Limited

2011

US$–

Php–

US$–

Php–

⁽¹⁾ The purpose of this loan is to finance the equipment and service contracts for the Phase 7 Core Expansion Project.

⁽²⁾ The purpose of this loan is to finance the equipment and service contracts for the supply of 3G network in NCR.

⁽³⁾ The purpose of this loan is to finance the equipment and service contracts for the Phase 7 Intelligent Network Expansion Project.

⁽⁴⁾ The purpose of this loan is to finance the equipment, software and related materials for the Phase 2 3G Expansion, transmission for the Phase 2 3G Expansion and Phase 8A NCR and South Luzon BSS Expansion Projects.

⁽⁵⁾ The purpose of this loan is to finance the purchase of equipment and related materials for the expansion of Phase 8A and 8B Core and IN Network Expansion; Phase 8B NCR and SLZ BSS Network Expansion Project and Phase 3 3G Network Roll-out Project. US$20 million was partially prepaid on April 10, 2013 and the remaining balance is now payable over five years in 10 semi-annual installments, with final installment on April 10, 2018.

⁽⁶⁾ The purpose of this loan is to finance the supply of GSM mobile telephone equipment and related services.

^(*) Amounts are net of unamortized debt discount and/or debt issuance cost.
⁽¹⁾ This fixed rate note has a coupon rate of 8.350%. The purpose of this note is to finance service improvements and expansion programs.

^(*) Amounts are net of unamortized debt discount and/or debt issuance cost.
⁽¹⁾ The purpose of this loan is to finance the equipment and service contracts for the modernization and expansion project.
⁽²⁾ The purpose of this loan is to finance the supply contracts for the modernization and expansion project.

Cancelled

Outstanding Amounts

Date of Loan

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Drawn Amount

Undrawn Amount

Paid in full on

March 31, 2017

December 31, 2016

(Unaudited)

(Audited)

(in millions)

Other Term Loans⁽¹⁾

PLDT

US$150M

March 7, 2012

Syndicate of Banks with the Bank of Tokyo as Facility Agent

9 equal semi-annual, commencing on the date which falls 12 months after the date of the loan agreement, with final installment on March 7, 2017

Various dates in
2012

US$

150

US$

–

March 7, 2017

US$

–

Php–

US$

Php830

PLDT

US$300M

January 16, 2013

Syndicate of Banks with Bank of Tokyo as Facility Agent

9 equal semi-annual, commencing on the date which falls 12 months after the date of the loan agreement, with final installment on January 16, 2018

Various dates in
2013

300

–

3,348

100

4,977

Smart

US$35M

January 28, 2013

China Banking
Corporation,
or CBC

10 equal semi-annual, with final installment on January 29, 2018

May 7, 2013

–

January 30, 2017

–

522

Smart

US$50M

March 25, 2013

FEC

9 equal semi-annual, commencing six months after drawdown date, with final installment on March 23, 2018

Various dates in 2013 and 2014

–

7^(*)

357^(*)

11^(*)

531^(*)

Smart

US$80M

May 31, 2013

CBC

10 equal semi-annual, commencing six months after drawdown date, with final installment on May 31, 2018

September 25, 2013

–

1,205

1,194

Smart

US$120M

June 20, 2013

Mizuho Bank Ltd. and Sumitomo Mitsui Banking Corporation with Sumitomo as Facility Agent

8 equal semi-annual, commencing six months after drawdown date, with final installment on June 20, 2018

September 25, 2013

120

–

45^(*)

2,250^(*)

45^(*)

2,226^(*)

Smart

US$100M

March 7, 2014

Bank of Tokyo

9 equal semi-annual, commencing 12 months after drawdown date, with final installment on March 7, 2019

Various dates in 2014 March 2, 2015

90
10

–

44^(*)

2,215^(*)

55^(*)

2,744^(*)

Smart

US$50M

May 14, 2014

Mizuho Bank Ltd.

9 equal semi-annual, commencing 11 months after drawdown date, with final installment on May 14, 2019

July 1, 2014

–

28^(*)

1,386^(*)

28^(*)

1,372^(*)

PLDT

US$100M

August 5, 2014

Philippine National
Bank,
or PNB

Annual amortization rate of 1% of the issue price on the first year up to the fifth year from the initial drawdown date, with final installment on August 11, 2020

Various dates in
2014

100

–

4,921

4,877

PLDT

US$50M

August 29, 2014

Metropolitan Bank and Trust Company, or Metrobank

Semi-annual amortization rate of 1% of the issue price on the first year up to the fifth year from the initial drawdown date and the balance payable upon maturity on September 2, 2020

September 2, 2014

–

2,461

2,451

—

US$

361

Php18,143

US$

437

Php21,724

^(*) Amounts are net of unamortized debt discount and/or debt issuance cost.
⁽¹⁾ Thepurpose of this loan is to finance capital expenditures and/or to refinance existing loan obligations which were utilized for network expansion and improvement programs.

Cancelled

Outstanding Amounts

Date of Loan

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Drawn Amount

Undrawn Amount

Paid in full on

March 31, 2017

December 31, 2016

(Unaudited)

(Audited)

(in millions)

PLDT

US$200M

February 26, 2015

Bank of Tokyo

Commencing 36

Various dates in

US$

200

US$–

US$

198^(*)

Php9,975^(*)

US$198^(*)

Php9,879^(*)

Tranche A:
US$150M;
Tranche B:
US$50M

months after loan
date, with
semi-annual
amortization of
23.75% of the loan
amount on the first
and second
repayment dates and
seven semi-annual
amortizations of
7.5% starting on
the third repayment
date, with final
installment on
February 25, 2022

2015

Smart

US$200M

March 4, 2015

Mizuho Bank Ltd.

9 equal semi-annual

Various dates in

200

–

132^(*)

6,627^(*)

154^(*)

7,663^(*)

installments
commencing on the
date which falls 12
months after the
loan date, with
final installment
on
March 4, 2020

2015

Smart

US$100M

December 7, 2015

Mizuho Bank Ltd.

13 equal

Various dates in

US$

100

–

91^(*)

4,567^(*)

91^(*)

4,521^(*)

semi-annual
installments
commencing on the
date which falls 12
months after the
loan date, with
final installment
on December 7, 2022

2016

PLDT

US$25M

March 22, 2016

NTT Finance

Non-amortizing,

March 30, 2016

–

25^(*)

1,246^(*)

25^(*)

1,234^(*)

Corporation

payable upon
maturity on March
30, 2023

PLDT

US$25M

January 31, 2017

NTT Finance
Corporation

Non-amortizing,
payable upon
maturity on March
27, 2024

March 30, 2017

–

25^(*)

1,251^(*)

–

471

23,666

468

23,297

US$

832

Php41,809

US$

905

Php45,021

Outstanding Amounts

Date of Loan

Loan Amount

Agreement

Facility Agent

Installments

Date of Issuance/

Prepayments

March 31, 2017

December 31, 2016

Drawdown

Amount

Date

(Unaudited)

(Audited)

(in millions)

Philippine Peso Debts

Fixed Rate Corporate Notes⁽¹⁾

Smart

Php5,500M
Series A:
Php1,910M;

March 15, 2012

Metrobank

Series A: 1% annual
amortization
starting March 19,
2013, with the
balance of 96%
payable on March
20, 2017;

Drawn and issued on
March 19, 2012

Php1,376

July 19, 2013

Php2,788^(*)

Php3,930^(*)

Series B:
Php3,590M

Series B: 1% annual
amortization
starting March 19,
2013 with the
balance of 91%
payable on March
19, 2022

PLDT

Php1,500M

July 25, 2012

Metrobank

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 27, 2019

July 27, 2012

1,188

July 29, 2013

288

288

PLDT

Php8,800M
Series A:
Php4,610M;

September 19, 2012

Metrobank

Series A: 1% annual
amortization on the
first up to sixth
year, with the
balance payable on
September 21, 2019;

September 21, 2012

2,055

June 21, 2013

6,475

6,475

Series B:
Php4,190M

Series B: 1% annual
amortization on the
first up to ninth
year, with the
balance payable on
September 21, 2022

Php9,551

Php10,693

Outstanding Amounts

Date of Loan

Loan Amount

Agreement

Facility Agent

Installments

Date of Issuance/

Prepayments

March 31, 2017

December 31, 2016

Drawdown

Amount

Date

(Unaudited)

(Audited)

(in millions)

PLDT

Php6,200M Series A: 7-year notes Php3,775M;

November 20, 2012

BDO Unibank, Inc., or BDO

Series A: 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 22, 2019;

November 22, 2012

Php–

–

Php5,952

Php5,952

Series B: 10-year notes Php2,425M

Series B: 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

Smart

Php1,376M Series A: Php742M;

June 14, 2013

Metrobank

Series A: Annual amortization equivalent to 1% of the principal amount starting June 19, 2014 with the balance of 97% payable on March 20, 2017;

June 19, 2013

–

615

1,335

Series B: Php634M

Series B: Annual amortization equivalent to 1% of the principal amount starting June 19, 2014 with the balance of 92% payable on March 21, 2022

PLDT

Php2,055M Series A: Php1,735M;

June 14, 2013

Metrobank

Series A: Annual amortization rate of 1% of the issue price up to the fifth year and the balance payable upon maturity on September 21, 2019;

June 21, 2013

–

1,973

1,973

Series B: Php320M

Series B: Annual amortization rate of 1% of the issue price up to the eighth year and the balance payable upon maturity on September 21, 2022

PLDT

Php1,188M

July 19, 2013

Metrobank

Annual amortization rate of 1% of the issue on the first year up to the fifth year from the issue date and the balance payable upon maturity on July 27, 2019

July 29, 2013

–

1,152

1,152

9,692

10,412

Php19,243

Php21,105

^(*) Amounts are net of unamortized debt discount and/or debt issuance cost.
⁽¹⁾ The purpose of this loan is to finance capital expenditures and/or refinance existing loan obligations which were utilized for network expansion and improvement programs.

⁽¹⁾ This fixed rate retail corporate bond is comprised of Php12.4 billion and Php2.6 billion due in 2021 and 2024 with a coupon rate of 5.225% and 5.2813%, respectively. The purpose of this loan is to finance capital expenditures and/or refinance existing loan obligations which were utilized for network expansion and improvement programs.

Cancelled

Loan

Date of Loan

Drawn

Undrawn

Outstanding Amounts

March 31,

2017

December 31, 2016

Amount

Agreement

Lender(s)

Terms

Dates Drawn

Amount

Paid in full on

(Unaudited)

(Audited)

(in millions)

Term Loans

Unsecured Term Loans⁽¹⁾

PLDT

Php2,000M

March 20, 2012

RCBC

Annual amortization
rate of 1% on the
fifth year up to
the ninth year from
the initial
drawdown date and
the balance payable
upon maturity on
April 12, 2022

April 12, 2012

Php2,000

Php–

–

Php2,000

Php2,000

PLDT

Php3,000M

April 27, 2012

Land Bank of the
Philippines, or LBP

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

July 18, 2012

3,000

–

January 18, 2017

–

2,880

PLDT

Php2,000M

May 29, 2012

LBP

Annual amortization
rate of 1% on the
first year up to
the fourth year
from drawdown date
and the balance
payable upon
maturity on June
27, 2017

June 27, 2012

2,000

–

1,920

1,920

Smart

Php1,000M

June 7, 2012

LBP

Annual amortization
rate of 1% of the
principal amount
commencing on the
first year of the
initial drawdown up
to the fourth year
and the balance
payable upon
maturity on August
22, 2017

August 22, 2012

1,000

–

February 22, 2017

–

960

PLDT

Php200M

August 31, 2012

Manufacturers Life
Insurance Co.
(Phils.), Inc.

Payable in full
upon maturity on
October 9, 2019

October 9, 2012

200

–

200

200

PLDT

Php1,000M

September 3, 2012

Union Bank of the
Philippines, or
Union Bank

Annual amortization
rate of 1% of the
first year up to
the sixth year from
the initial
drawdown date and
the balance payable
upon maturity on
January 13, 2020

January 11, 2013

1,000

–

960

970

PLDT

Php1,000M

October 11, 2012

Philippine American
Life and General
Insurance Company,
or Philam Life

Payable in full
upon maturity on
December 5, 2022

December 3, 2012

1,000

–

1,000

1,000

Smart

Php3,000M

December 17, 2012

LBP

Annual amortization
rate of 1% of the
principal amount on
the first year up
to the sixth year
commencing on the
first year
anniversary of the
initial drawdown
and the balance
payable upon
maturity on
December 20, 2019

Various dates in
2012-2013

3,000

–

2,880

2,880

PLDT

Php2,000M

November 13, 2013

Bank of the
Philippine Islands,
or BPI

Annual amortization
rate of 1% on the
first year up to
the sixth year from
the initial
drawdown and the
balance payable
upon maturity on
November 22, 2020

Various dates in
2013-2014

2,000

–

1,940

1,940

Smart

Php3,000M

November 25, 2013

Metrobank

Annual amortization
rate of 10% of the
total amount drawn
for the six years
and the final
installment is
payable upon
maturity on
November 27, 2020

November 29, 2013

3,000

–

2,094^(*)

2,093^(*)

Php12,994

Php16,843

⁽¹⁾ The purpose of this loan is to finance the capital expenditures and/or refinance existing loan obligations, which were utilized for service improvements and expansion programs.

Cancelled

Loan

Date of Loan

Drawn

Undrawn

Outstanding Amounts

March 31,

2017

December 31, 2016

Amount

Agreement

Lender(s)

Terms

Dates Drawn

Amount

Paid in full on

(Unaudited)

(Audited)

(in millions)

Smart

Php3,000M

December 3, 2013

BPI

Annual amortization rate of 1%
of the total amount drawn for
the first six years and the
final installment is payable
upon maturity on December 10,
2020

December 10, 2013

Php3,000

Php–

–

Php2,902^(*)

Php2,901^(*)

Smart

Php3,000M

January 29, 2014

LBP

Annual amortization rate of 1%
of the principal amount on the
first year up to the sixth year
commencing on the first year
anniversary of the initial
drawdown and the balance
payable upon maturity on
February 5, 2021

February 5, 2014

3,000

–

2,901^(*)

2,931^(*)

Smart

Php500M

February 3, 2014

LBP

Annual amortization rate of 1%
of the principal amount on the
first year up to the sixth year
commencing on the first year
anniversary of the initial
drawdown and the balance
payable upon maturity on
February 5, 2021

February 7, 2014

500

–

485

490

Smart

Php2,000M

March 26, 2014

Union Bank

Annual amortization rate of 1%
of the principal amount on the
first year up to the sixth year
commencing on the first year
anniversary of the initial
drawdown and the balance
payable upon maturity on March
29, 2021

March 28, 2014

2,000

–

1,940

1,960

PLDT

Php1,500M

April 2, 2014

Philam Life

Payable in full upon maturity on
April 4, 2024

April 4, 2014

1,500

–

1,500

1,500

Smart

Php500M

April 2, 2014

BDO

Annual amortization rate of 1%
of the principal amount on the
first year up to the sixth year
commencing on the first year
anniversary of the initial
drawdown and the balance
payable upon maturity on April
2, 2021

April 4, 2014

500

–

485

490

PLDT

Php1,000M

May 23, 2014

Philam Life

Payable in full upon maturity on
May 28, 2024

May 28, 2014

1,000

–

1,000

1,000

PLDT

Php1,000M

June 9, 2014

LBP

Annual amortization rate of 1%
on the first year up to the
ninth year from initial
drawdown date and the balance
payable upon maturity on June
13, 2024

June 13, 2014

1,000

–

980

980

PLDT

Php1,500M

July 28, 2014

Union Bank

Annual amortization rate of 1%
on the first year up to the
ninth year from initial
drawdown date and the balance
payable upon maturity on July
31, 2024

July 31, 2014

1,500

–

1,470

1,470

PLDT

Php2,000M

February 25, 2015

BPI

Annual amortization rate of 1%
on the first year up to the
ninth year from initial
drawdown date and the balance
payable upon maturity on March
24, 2025

March 24, 2015

2,000

–

1,960

1,980

PLDT

Php3,000M

June 26, 2015

BPI

Annual amortization rate of 1%
on the first year up to the
ninth year from initial
drawdown date and the balance
payable upon maturity on June
30, 2025

June 30, 2015

3,000

–

2,970

2,970

PLDT

Php5,000M

August 3, 2015

Metrobank

Annual amortization rate of 1%
on the first year up to the
ninth year from initial
drawdown date and the balance
payable upon maturity on
September 23, 2025

Various dates in
2015

5,000

–

4,950

4,950

Php23,543

Php23,622

Cancelled

Loan

Date of Loan

Drawn

Undrawn

Outstanding Amounts

March 31,

2017

December 31, 2016

Amount

Agreement

Lender(s)

Terms

Dates Drawn

Amount

Paid in full on

(Unaudited)

(Audited)

(in millions)

Smart

Php5,000M

August 11, 2015

Metrobank

Annual amortization
rate of 1% of the
principal amount on
the first year up
to the ninth year
commencing on the
first year
anniversary of the
initial drawdown
date and the
balance payable
upon maturity on
September 1, 2025

September 1, 2015

Php5,000

Php–

–

Php4,928^(*)

Php4,928^(*)

Smart

Php5,000M

December 11, 2015

BPI

December 21, 2015

5,000

–

4,928^(*)

4,927^(*)

Smart

Php5,000M

December 16, 2015

Metrobank

Annual amortization
rate of 1% of the
principal amount up
to the tenth year
commencing on the
first year
anniversary of the
initial drawdown
and the balance
payable upon
maturity on June
29, 2026

December 28, 2015

5,000

–

4,928^(*)

4,927^(*)

Smart

Php7,000M

December 18, 2015

CBC

Annual amortization
rate of 1% of the
principal amount on
the third year up
to the sixth year
from the initial
drawdown date, with
balance payable
upon maturity on
December 28, 2022

December 28, 2015
and
February 24,
2016

7,000

–

6,975^(*)

6,973^(*)

PLDT

Php3,000M

July 1, 2016

Metrobank

Annual amortization
rate of 1% on the
first year up to
the ninth year from
initial drawdown
date and the
balance payable
upon maturity on
February 22, 2027

February 20,
2017

3,000

–

2,985^(*)

–

PLDT

Php6,000M

July 1, 2016

Metrobank

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
August 30, 2023

August 30,
2016 and November
10, 2016

6,000

–

5,972^(*)

5,971^(*)

PLDT

Php8,000M

July 14, 2016

Security Bank

Semi-annual
amortization rate
of 1% of the total
amount drawn
starting from the
end of the first
year after the
initial drawdown
date until the
ninth year and the
balance payable on
maturity on March
1, 2027

February 27,
2017

8,000

–

7,960^(*)

–

PLDT

Php6,500M

September 20, 2016

BPI

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
November 2, 2023

November 2, 2016
and December 19,
2016

6,500

–

6,469^(*)

6,483^(*)

Smart

Php3,000M

September 28, 2016

BDO

October 5, 2016

3,000

–

2,986^(*)

2,985

Smart

Php5,400M

September 28, 2016

UBP

Annual amortization
rate of 1% of the
principal amount on
the first year up
to the sixth year
commencing on the
first year
anniversary of the
initial drawdown
date and the
balance payable
upon maturity on
October 24, 2023

October 24, 2016
and
November 21, 2016

5,400

–

5,374^(*)

5,374

PLDT

Php5,300M

October 14, 2016

BPI

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
December 19, 2023

December 19,
2016

5,300

–

5,274^(*)

5,300

Smart

Php2,500M

October 27, 2016

CBC

Annual amortization
rate of 10% of the
amount drawn
starting on the
third year up to
the sixth year,
with balance
payable upon
maturity on
December 8, 2023

December 8,
2016

2,500

–

2,488^(*)

2,500

61,267

50,368

Php97,804

Php90,833

Cancelled

Loan

Date of Loan

Drawn

Undrawn

Outstanding Amounts

March 31,

2017

December 31, 2016

Amount

Agreement

Lender(s)

Terms

Dates Drawn

Amount

Paid in full on

(Unaudited)

(Audited)

(in millions)

Smart

Php4,000M

October 28, 2016

Security Bank

Semi-annual
amortization rate
of 1% of the total
amount drawn from
first year up to
the ninth year and
the balance payable
upon maturity

April 5, 2017

Php4,000

Php–

–

Php–

Php–

Smart

Php1,000M

December 16, 2016

PNB

Annual amortization
rate of 1% of the
amount drawn
starting on the
first anniversary
of the advance up
to the ninth
anniversary of the
advance and the
balance payable
upon maturity

–

Smart

Php2,000M

December 22, 2016

LBP

Annual amortization
rate of 1% of the
amount drawn
starting on the
first anniversary
of the advance up
to the ninth
anniversary of the
advance and the
balance payable
upon maturity

–

PLDT

Php3,500M

December 23, 2016

LBP

Annual amortization
rate of 1% on the
first year up to
the ninth year
after the drawdown
date and the
balance payable
upon maturity on
April 5, 2027

April 5, 2017

3,500

–

Smart

Php1,500M

April 18, 2017

PNB

Annual amortization
rate of 1% of the
amount drawn
starting on the
first anniversary
of the advance up
to the sixth year
anniversary of the
advance and the
balance payable
upon maturity

–

Php–

Php–

PLDT’s debt instruments contain restrictive covenants, including covenants that require us to comply with specified financial ratios and other financial tests, such as total debt to EBITDA and interest cover ratio, 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 could negatively affect our ability to comply with these financial ratio covenants and other financial tests are depreciation of the Philippine peso relative to the U.S. dollar, poor operating performance of PLDT and its subsidiaries, impairment or similar charges in respect of investments or other long-lived assets that may be recognized by PLDT and its 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 relative to the U.S. dollar, the lowering of PLDT’s credit ratings or the credit ratings of the Philippines, increase in reference interest rates, and general market conditions. Of our total consolidated debts, approximately 25% and 31% were denominated in U.S. dollars as at March 31, 2017 and December 31, 2016, respectively. Considering our consolidated hedges and U.S. dollar cash balances allocated for debt, the unhedged portion of the consolidated debt amounts were approximately 9% and 8% as at March 31, 2017 and December 31, 2016, respectively, and therefore, these financial ratios and other tests are expected to be negatively affected by any weakening of the Philippine peso relative to the U.S. dollar. 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) selling, leasing, transferring or 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.

PLDT’s debt instruments 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 Smart’s consolidated debt to consolidated EBITDA and debt service coverage ratio. 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.

The loan agreements with suppliers, banks (foreign and local alike) and other financial institutions provide for certain restrictions and requirements with respect to, among others, maintenance of percentage of ownership of specific shareholders, incurrence of additional long-term indebtedness or guarantees and creation of property encumbrances.

As at March 31, 2017 and December 31, 2016, we were in compliance with all of our debt covenants. See Note 27 – Financial Assets and Liabilities – Derivative Financial Instruments.

The consolidated future minimum payments for finance leases and the long-term portion of obligations under finance leases (which cover various office equipment and vehicles) amounted to Php1 million and nil as at March 31, 2017 and December 31, 2016, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 3 – Management’s Use of Accounting Estimates, Judgments and Assumptions – Leases, Note 9 – Property and Equipment, and Note 27 – Financial Assets and Liabilities.

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.

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 three months ended March 31, 2017 and for the year ended December 31, 2016:

Accounts payable are non-interest-bearing and are normally settled within 180 days.

For terms and conditions pertaining to related parties, see Note 24 – Related Party Transactions.

For detailed discussion on the PLDT Group’s liquidity risk management processes, see Note 27 – Financial Assets and Liabilities – Liquidity Risk.

Accrued utilities and related expenses pertain to costs incurred for electricity and water consumption, repairs and maintenance, selling and promotions, professional and other contracted services, rent, insurance and security services.

Accrued taxes and related expenses pertain to licenses, permits and other related business taxes, which are normally settled within a year.

Unearned revenues represent advance payments for leased lines, installation fees, monthly service fees and unused and/or unexpired portion of prepaid loads.

Other accrued expenses and other current liabilities are non-interest-bearing and are normally settled within a year. This pertains to other costs incurred for operations-related expenses pending receipt of invoice and statement of accounts from suppliers. The account also includes the unpaid portion of PLDT’s investments in VTI, Bow Arken and Brightshare. See Note 10 – Investments in Associates and Joint Ventures – Investments of PLDT in VTI, Bow Arken and Brightshare.

Parties are considered to be related if one party has the ability, directly and indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities. Transactions with related parties are on an arm’s length basis, similar to transactions with third parties.

Settlement of outstanding balances of related party transactions at year-end are expected to be settled with cash. The PLDT Group has not recorded any impairment of receivables relating to amounts owed by related parties as at March 31, 2017 and December 31, 2016. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

The following table provides the summary of outstanding balances as at March 31, 2017 and December 31, 2016 transactions that have been entered into with related parties:

March 31,

December 31,

2017

2016

Classifications

Terms

Conditions

(Unaudited)

(Audited)

(in million pesos)

Indirect investment in

joint ventures through

PCEV:

Meralco

Accrued expenses

Electricity charges

Unsecured

237

327

and other current

– immediately upon

liabilities (Note

receipt of invoice

23)

Pole rental – 45

days upon receipt

of invoice

Unsecured

–

Meralco Industrial

Accrued expenses

Outside and inside

Engineering Services

and other current

plant – 20 days

Corporation, or

liabilities (Note

upon receipt of

MIESCOR

23)

invoice

Unsecured

–

Advances and other noncurrent assets –

Due on 2018 to

net of current

2020;

MPIC

portion (Note 10)

non-interest-bearing

Unsecured

6,514

6,514

Trade and other

Due on June 1,

receivables

2017;

(Notes 10 and 16)

non-interest-bearing

Unsecured

1,934

1,838

Transactions with major

stockholders, directors

and officers:

NTT Finance

Interest-bearing

Non-amortizing,

Unsecured

2,511

1,244

Corporation

financial

payable upon

liabilities (Note

maturity on March

20)

30, 2023

Accrued expenses

1^st

and other current

month of each

NTT World Engineering

liabilities (Note

quarter;

Marine Corporation

23)

non-interest-bearing

Unsecured

NTT Communications

Accrued expenses

30 days upon

Unsecured

and other current

receipt of invoice;

liabilities (Note

non-interest-bearing

23)

NTT Worldwide

Accrued expenses

30 days upon

Unsecured

Telecommunications

and other current

receipt of invoice;

Corporation

liabilities (Note

non-interest-bearing

23)

JGSHI and Subsidiaries

Accounts payable

Immediately upon

Unsecured

and accrued

receipt of invoice

expenses and other current liabilities (Notes 22 and 23)

NTT DOCOMO

Accrued expenses

30 days upon

Unsecured

and other current

receipt of invoice;

liabilities (Note

non-interest-bearing

23)

Accrued expenses and other current

Malayan Insurance

liabilities (Note

Immediately upon

Co., Inc., or Malayan

23)

receipt of invoice

Unsecured

Others:

Various

Trade and other

30 days upon

Unsecured

1,998

1,830

receivables

receipt of invoice

(Note 16) and

Prepayments (Note 19)

The following table provides the summary of transactions that have been entered into with related parties for the three months ended March 31, 2017 and 2016 in relation with the table above.

In the ordinary course of business, Meralco provides electricity to PLDT and certain subsidiaries’ offices within its franchise area. Total electricity costs, which were presented as part of repairs and maintenance in our consolidated income statements, amounted to Php566 million and Php596 million for the three months ended March 31, 2017 and 2016, respectively. Under these agreements, the outstanding obligations, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php237 million and Php327 million as at March 31, 2017 and December 31, 2016, respectively.

PLDT and Smart have a 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 were presented as part of rent in our consolidated income statements, amounted to Php87 million and Php93 million for the three months ended March 31, 2017 and 2016, respectively. Under these agreements, the outstanding obligations, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php61 million and nil as at March 31, 2017 and December 31, 2016, respectively.

See also Note 10 – Investments in Associates and Joint Ventures – 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, which will expire on February 28, 2018. Under the agreement, MIESCOR assumes full and overall responsibility for the implementation and completion of any assigned project such as cable and civil works that are required for the provisioning and restoration of lines and recovery of existing plant.

Total fees under this agreement, which were presented as part of repairs and maintenance in our consolidated income statements, amounted to Php3 million and Php6 million for the three months ended March 31, 2017 and 2016, respectively. Total amounts capitalized to property and equipment amounted to Php4 million and Php2 million for the three months ended March 31, 2017 and 2016, respectively. Under these agreements, the outstanding obligations, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php377 thousand and Php25 thousand as at March 31, 2017 and December 31, 2016, respectively.

PLDT also has an existing Customer Line Installation, Repair, Rehabilitation and Maintenance Activities (formerly One Area One Partner for Outside Plant Subscriber Line Rehabilitation, Repair, Installation and Related Activities) agreement with MIESCOR, which will expire on December 31, 2017. Under the agreement, MIESCOR is responsible for the subscriber main station installation, repairs and maintenance of outside and inside plant network facilities in the areas awarded to them.

Total fees under this agreement, which were presented as part of repairs and maintenance in our consolidated income statements, amounted to Php6 million and Php38 million for the three months ended March 31, 2017 and 2016, respectively. Total amounts capitalized to property and equipment amounted to Php10 million and Php17 million for the three months ended March 31, 2017 and 2016, respectively. There were no outstanding obligations under this agreement as at March 31, 2017 and December 31, 2016.

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 for ten years commencing on January 1, 2002, or the 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 of up to US$15 million per year during the Minimum Purchase Period, or the 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 the 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.

In December 2014, AIL suffered a failure of the propulsion system on board the Garuda I Satellite, thus, AIL decided to decommission the operation of Garuda I Satellite in January 2015.

Subsequently, AIL and Inmarsat entered into a 12-month transitional period, wherein AIL shall continue to utilize Inmarsat system through I4F1 Satellite. On December 31, 2015, end of the transition period, AIL then terminated all satellite phone service subscriptions with Inmarsat.

Total fees under the Amended ATPA, which were presented as part of cost of sales in our consolidated income statements, amounted to nil for the three months ended March 31, 2017 and 2016. Under the Amended ATPA, the outstanding obligations of PLDT, which were presented as part of accounts payable and accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to nil as at March 31, 2017 and December 31, 2016, respectively.

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 March 31, 2017 and December 31, 2016, and for the three months ended March 31, 2017 and 2016 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 which provides for payment of technical service fees equivalent to a rate of 0.5% of the consolidated net revenues of Smart. Effective February 1, 2014, the parties agreed to reduce the technical service fee rate from 0.5% to 0.4% of the consolidated net revenues of Smart. The agreement, which expired on February 23, 2016 was renewed until February 23, 2018 and is subject to further renewal upon mutual agreement of the parties. Total service fees charged to operations under this agreement, which were presented as part of professional and other contracted services in our consolidated income statements, amounted to Php45 million and Php48 million for the three months ended March 31, 2017 and 2016, respectively. Under this agreement, the outstanding obligations, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to nil as at March 31, 2017 and December 31, 2016.

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 were presented as part of repairs and maintenance in our consolidated income statements, amounted to Php4 million each for the three months ended March 31, 2017 and 2016. Under this agreement, the outstanding obligations of PLDT, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php29 million and Php35 million as at March 31, 2017 and December 31, 2016, respectively;

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 were presented as part of professional and other contracted services in our consolidated income statements, amounted to Php22 million and Php15 million for the three months ended March 31, 2017 and 2016, respectively. Under this agreement, the outstanding obligations of PLDT, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php15 million and Php52 million as at March 31, 2017 and December 31, 2016, 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 were presented as part of rent in our consolidated income statements, amounted to Php2 million each for the three months ended March 31, 2017 and 2016. Under this agreement, the outstanding obligations of PLDT, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php4 million and Php2 million as at March 31, 2017 and December 31, 2016, 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 were presented as part of selling and promotions in our consolidated income statements, amounted to Php2 million and Php3 million for the three months ended March 31, 2017 and 2016, respectively. Under this agreement, the outstanding obligations of PLDT, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php5 million and Php3 million as at March 31, 2017 and December 31, 2016, 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 were presented as part of rent in our consolidated income statements, amounted to Php28 million and Php75 million for the three months ended March 31, 2017 and 2016, respectively. Under these agreements, the outstanding obligations, which were presented as part of accounts payable and accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php2 million and Php287 thousand as at March 31, 2017 and December 31, 2016, respectively.

There were also other transactions such as airfare, electricity, marketing expenses and bank fees, which were presented as part of selling and promotions, communication, training and travel, repairs and maintenance and professional and other contracted services, in our consolidated income statements, amounted to Php20 million and Php4 million for the three months ended March 31, 2017 and 2016, respectively. Under these agreements, the outstanding obligations for these transactions, which were presented as part of accounts payable and accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php3 million and Php2 million as at March 31, 2017 and December 31, 2016, respectively.

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 were presented as part of professional and other contracted services in our consolidated income statements, amounted to Php24 million and Php23 million for the three months ended March 31, 2017 and 2016, respectively. Under this agreement, the outstanding obligations of PLDT, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php11 million and Php41 million as at March 31, 2017 and December 31, 2016, respectively.

PLDT and certain of its subsidiaries have insurance policies with Malayan covering directors, officers, liability to employees and material damages for buildings, building improvements, equipment and motor vehicles. The premiums are directly paid to Malayan. Total fees under these contracts, which were presented as part of insurance and security services in our consolidated income statements, amounted to Php52 million and Php54 million for the three months ended March 31, 2017 and 2016, respectively. Under this agreement, the outstanding obligations, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php3 million and Php11 million as at March 31, 2017 and December 31, 2016, respectively.

Gotuaco acts as the broker for certain insurance companies to cover certain insurable properties of the PLDT Group. Insurance premiums are remitted to Gotuaco and the broker’s fees are settled between Gotuaco and the insurance companies. Total fees under these contracts, which were presented as part of insurance and security services in our consolidated income statement, amounted to Php43 million for the three months ended March 31, 2017. Under this agreement, the outstanding obligations, which were presented as part of accrued expenses and other current liabilities in our consolidated statement of financial position, amounted to Php517 thousand and Php597 thousand as at March 31, 2017 and December 31, 2016, respectively. Under this agreement, outstanding prepayments, which were presented as part of prepayments in our consolidated statement of financial position, amounted to nil and Php712 thousand as at March 31, 2017 and December 31, 2016, respectively.

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 SPA 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 March 31, 2017 and 2016.

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.

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 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. In June 2014, Smart and TV5 agreed to amend the liquidation schedule under the original advertising placement agreement by extending the term of expiry from 2015 to 2018. Total prepayment under the advertising placement agreements amounted to Php377 million and Php414 million as at March 31, 2017 and December 31, 2016, respectively.

In May 2015, PLDT, Smart and DMPI entered into a four-year agreement with Dakila commencing with the launch of the OTT video-on-demand service, or iflix service, in the Philippines on June 18, 2015. iflix service is provided by iFlix Sdn Bhd and Dakila is the authorized reseller of the iflix service in the Philippines. Under the agreement, PLDT, Smart and DMPI were appointed by Dakila to act as its internet service providers with an authority to resell and distribute the iflix service to their respective subscribers on a monthly and annual basis. Content cost recognized for the three months ended March 31, 2017 and 2016 amounted to Php130 million and Php24 million, respectively.

Telecommunications services provided by PLDT and certain of its subsidiaries and other transactions with various related parties

PLDT and certain of its subsidiaries provide telephone, data communication and other services to various related parties. The revenues under these services amounted to Php146 million and Php191 million for the three months ended March 31, 2017 and 2016, respectively. The expenses under these services amounted to Php167 million and Php24 million for the three months ended March 31, 2017 and 2016, respectively.

The outstanding receivables of PLDT and certain of its subsidiaries, which were presented as part of trade and other receivables, advances and other noncurrent assets – net of current portion in our consolidated statements of financial position, from these transactions amounted to Php1,612 million and Php1,416 million as at March 31, 2017 and December 31, 2016, respectively.

See Note 10 – Investments in Associates and Joint Ventures – Investment in MediaQuest PDRs and Sale of PCEV’s Beacon Shares to MPIC and Note 18 – Prepayments for other related party transactions.

The compensation of key officers of the PLDT Group by benefit type for the three months ended March 31, 2017 and 2016 are as follows:

Effective January 2014, each of the directors, including the members of the advisory board of PLDT, was entitled to a director’s fee in the amount of Php250 thousand for each board meeting attended. Each of the members or advisors of the audit, executive compensation, governance and nomination, and technology strategy committees was entitled to a fee in the amount of Php125 thousand for each committee meeting attended.

Total fees paid for board meetings and board committee meetings amounted to Php20 million and Php13 million for the three months ended March 31, 2017 and 2016, respectively.

Except for the fees mentioned above, the directors are not compensated, directly or indirectly, for their services as such.

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 period related to key management personnel.

PLDT has 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 all of our permanent and regular employees. Certain subsidiaries of PLDT have not yet drawn up a specific retirement plan for its permanent or regular employees. For the purpose of complying with Revised PAS 19, pension benefit expense has been actuarially computed based on defined benefit plan.

PLDT’s actuarial valuation is performed every year-end. Based on the latest actuarial valuation, the actual present value of accrued (prepaid) benefit costs for the three months ended March 31, 2017 and for the year ended December 31, 2016 and net periodic benefit costs and average assumptions used in developing the valuation for the three months ended March 31, 2017 and 2016 are as follows:

Actual net losses on plan assets amounted to Php392 million and Php2,649 million for the three months ended March 31, 2017 and 2016, respectively.

Based on the latest actuarial valuation, our expected contribution to the defined benefit plan in 2017 will amount to Php1,783 million.

The following table sets forth the expected future settlements by the Plan of maturing defined benefit obligation as at March 31, 2017:

The average duration of the defined benefit obligation at the end of the reporting period is 10 to 20 years.

The weighted average assumptions used to determine pension benefits for the three months ended March 31, 2017 and 2016 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 sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as at March 31, 2017 and December 31, 2016, assuming if all other assumptions were held constant:

The Board of Trustees, which manages the beneficial trust fund, is composed of: (i) 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 nor 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 Plan’s 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 period 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 PSE. 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.

The following table sets forth the fair values, which are equal to the carrying values, of PLDT’s plan assets recognized as at March 31, 2017 and December 31, 2016:

Investment in shares of stocks is valued using the latest bid price at the reporting date. Investments in corporate bonds, mutual funds and government securities are valued using the market values at reporting date. Investment properties are valued using the latest available appraised values.

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.

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 through Satventures (Cignal TV PDRs). On the same date, MediaQuest Board of Directors approved the investment in Cignal TV PDRs by ePLDT, which gave 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.

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 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 and Cignal TV PDRs were subsequently issued on September 27, 2013, providing ePLDT an effective 64% economic interest in Cignal TV.

Also, 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 Php1.95 billion. The underlying shares of these additional PDRs are the shares of stocks of Hastings held by MediaQuest (Hastings PDRs). Hastings is a wholly-owned subsidiary of MediaQuest, which holds all the print-related investments of MediaQuest, including equity interests in the three leading newspapers: The Philippine Star, Philippine Daily Inquirer, and Business World. From June 2013 to October 2013, MediaQuest received from ePLDT an amount aggregating to Php1.95 billion representing deposits for future PDRs subscription.

On February 19, 2014, ePLDT’s Board of Directors approved an additional Php500 million investment in Hastings PDRs. On March 11, 2014, MediaQuest received from ePLDT an amount aggregating to Php300 million representing deposits for future PDRs subscription. As at December 31, 2014, total deposit for PDRs subscription amounted to Php2,250 million.

On May 21, 2015, ePLDT’s Board of Directors approved an additional Php800 million investment in Hastings PDRs and settlement of the Php200 million balance of the Php500 million Hastings PDR investment in 2014. Subsequently, on May 30, 2015, the Board of Trustees of the Beneficial Trust Fund and the Board of Directors of MediaQuest approved the issuance of Php3,250 million Hastings PDRs. This provided ePLDT with 70% economic interest in Hastings. See Note 10 – Investments in Associates and Joint Ventures – Investment in MediaQuest PDRs.

In 2016, the Board of Trustees of the Beneficial Trust Fund approved additional investment in MediaQuest amounting to Php5,500 million to fund MediaQuest’s investment requirements. The full amount was fully drawn by MediaQuest during 2016.

In 2017, the Board of Trustees approved additional investment in MediaQuest amounting to Php2.5 billion, of which Php500 million has already been drawn as at March 31, 2017.

PAS 19 requires employee benefit plan assets to be measured at fair value. The fair values of the investments in MediaQuest were measured using an income approach valuation technique using cash flows projections based on financial budgets and forecasts approved by MediaQuest’s Board of Directors, covering a five-year period from 2017 to 2021.

Other key assumptions used in the cash flow projections include revenue growth, operating margin and capital expenditures. The pre-tax discount rates applied to cash flow projections range from 10% to 11%. Cash flows beyond the five-year period are determined using 3.0% to 4.5% growth rates.

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. The cumulative change in the fair market values of this investment amounted to Php320 million each as at March 31, 2017 and December 31, 2016.

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. Total cash dividend income amounted to Php2 million each for the three months ended March 31, 2017 and 2016. Dividend receivables amounted to Php2 million each as at March 31, 2017 and December 31, 2016.

Dividends earned on PLDT common shares amounted Php1 million and Php2 million for the three months ended March 31, 2017 and 2016, respectively.

Preferred shares represent 300 million unlisted preferred shares of PLDT at Php10 par value as at March 31, 2017 and December 31, 2016, 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. Dividends earned on this investment amounted to Php12 million each for the three months ended March 31, 2017 and 2016.

Investment in corporate bonds includes various long-term peso and dollar denominated bonds with maturities ranging from August 2019 to June 2024 and fixed interest rates from 4.38% to 6.94% per annum. Total investment in corporate bonds amounted to Php109 million and Php106 million as at March 31, 2017 and December 31, 2016, respectively.

Investment in government securities includes Fixed Rate Treasury Notes bearing interest rates ranging from 5.87% to 5.88% per annum. These securities are fully guaranteed by the government of the Republic of the Philippines. Total investment in government securities amounted to Php22 million and Php23 million as at March 31, 2017 and December 31, 2016, respectively.

Investment properties include one condominium unit (a bare 58 square meter unit) located in Ayala-FGU Building along Alabang-Zapote Road in Muntinlupa City. A similar unit of a larger floor area (127 square meters) located on the same building was sold in April 2016. Total fair value of investment properties amounted to Php4 million each as at March 31, 2017 and December 31, 2016.

The asset allocation of the Plan is set and reviewed from time to time by the Plan Trustees taking into account the membership profile, the liquidity requirements of the Plan and risk appetite of the Plan sponsor. This considers the expected benefit cash flows to be matched with asset durations.

The allocation of the fair value of the assets for the PLDT pension plan as at March 31, 2017 and December 31, 2016 are as follows:

Investment in mutual funds includes a local equity fund, which aims to out-perform benchmarks in various indices as part of its investment strategy. Total investment in mutual funds amounted to Php2 million and Php3 million as at March 31, 2017 and December 31, 2016, respectively.

Smart’s 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 March 31, 2017 and December 31, 2016, Smart and certain of its subsidiaries were in compliance with the requirements of R.A. 7641.

Smart’s and certain of its subsidiaries’ actuarial valuation is performed every year-end. Based on the latest actuarial valuation, the actual present value of prepaid benefit costs for the three months ended March 31, 2017 and for the year ended December 31, 2016 and the net periodic benefit costs and average assumptions used in developing the valuation for the three months ended March 31, 2017 and 2016 are as follows:

Smart’s net consolidated pension benefit costs amounted to Php243 million and Php374 million for the three months ended March 31, 2017 and 2016, respectively.

Based on the latest actuarial valuation, Smart and certain of its subsidiaries expect to contribute the amount of approximately Php331 million to its defined benefit plan in 2017.

The following table sets forth the expected future settlements by the Plan of maturing defined benefit obligation as at March 31, 2017:

The average duration of the defined benefit obligation at the end of the reporting period is 12 to 20 years.

The weighted average assumptions used to determine pension benefits for the three months ended March 31, 2017 and 2016 are as follows:

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 March 31, 2017 and December 31, 2016:

Investments in domestic fixed income include Philippine peso denominated bonds, such as government securities and corporate debt securities, and a local fixed income fund. The Philippine peso denominated bonds earned between 2.80% and 11.25% interest for the three months ended March 31, 2017 and 2016. Total investments in domestic fixed income amounted to Php1,484 million and Php1,390 million as at March 31, 2017 and December 31, 2016, respectively.

Investments in international equities include mutual funds managed by ING International and a U.S. dollar denominated global equity fund. Total investment in international equities amounted to Php584 million and Php475 million as at March 31, 2017 and December 31, 2016, respectively.

Investments in domestic equities include direct equity investments in common shares listed in the PSE. These investments earn on stock price appreciation and dividend payments. Total investment in domestic equities amounted to Php540 million and Php379 million as at March 31, 2017 and December 31, 2016, respectively. This includes investment in PLDT shares with fair value of Php27 million and Php11 million as at March 31, 2017 and December 31, 2016, respectively.

Investments in Philippine foreign currency bonds include U.S. dollar denominated fixed income instruments issued by the Philippine government and local corporations, and a U.S. dollar denominated fixed income fund. The investments under this category earned between 3.7% and 10.63% interest for the three months ended March 31, 2017 and 2016, respectively. Total investment in Philippine foreign currency bonds amounted to Php413 million and Php478 million as at March 31, 2017 and December 31, 2016, respectively.

Investments in international fixed income include mutual funds which are invested in diversified portfolios of high-yield foreign currency denominated bonds. Total investments in international fixed income amounted to Php167 million and Php163 million as at March 31, 2017 and December 31, 2016, respectively.

This pertains to the fund’s excess liquidity in Philippine peso and U.S. dollars including investments in time deposits, money market funds and other deposit products of banks with duration or tenor less than a year.

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 Plan Trustees invests a portion of the fund in readily tradeable and liquid investments which can be sold at any given time to fund liquidity requirements.

Price risk pertains mainly to fluctuations in market prices of equity securities listed in the PSE. In order to effectively manage price risk, the Plan Trustees continuously assesses these risks by closely monitoring the market value of the securities and implementing prudent investment strategies.

The allocation of the fair value of Smart and certain of its subsidiaries pension plan assets as at March 31, 2017 and December 31, 2016 is as follows:

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, or LGU. As at March 31, 2017, PLDT has no contested 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 for the years 2006 to 2011 and for the years 2012 to 2014 filling separate cases in court.

On March 10, 2017 pursuant to City Ordinance No, 20-816 entitled an Ordinance Granting Tax Relief Through Condonation of Penalties on Real Property Tax, Business and franchise Tax. PLDT has reached a full and final settlement of the above with the City of Tuguegarao covering the years 2006 to 2016.

The Province of Cagayan issued a tax assessment against Smart for alleged local franchise tax. In 2011, Smart appealed the assessment to the RTC of Makati 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). The RTC issued a Temporary Restraining Order and a writ of preliminary injunction. On April 30, 2012, the RTC rendered a decision nullifying the tax assessment. The Province of Cagayan was also directed to cease and desist from imposing local franchise taxes on Smart’s gross receipts. The Province of Cagayan then appealed to the CTA. In a Decision promulgated on July 25, 2013, the CTA ruled that the franchise tax assessment is null and void for lack of legal and factual justifications. Cagayan’s Motion for Reconsideration was denied. Cagayan then appealed before the CTA En Banc. The CTA En Banc issued a Decision dated December 8, 2015 affirming the nullity of the tax assessment.

In 2015, the City of Manila issued assessments for alleged business tax deficiencies and cell sites regulatory fees and charges. Smart protested the assessments. After Manila denied the protest, Smart appealed to the RTC of the City of Manila, arguing that it is not liable for local business taxes on income realized from its telecommunications operations and that the assessments were a clear circumvention of Manila City Ordinance No. 8299 exempting Smart from the payment of local franchise tax. The assessment for regulatory fees was contested for being void, as they were made without a valid and legal basis. In the Decision promulgated on March 9, 2016, the RTC declared the local business tax and cell site regulatory fee assessments as invalid and void. The City of Manila filed a Petition for Review with the Court of Tax Appeals seeking to reverse the Decision. Smart has already filed its Comment to the Petition and awaiting for further orders from the Court.

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.

In DMPI vs. City of Cotabato, DMPI filed a Petition in 2010 for Prohibition and Mandamus against the City of Cotabato due to their threats to close its cell sites due to alleged real property tax delinquencies. The RTC denied the petition. DMPI appealed with the CTA. The CTA ordered the City of Cotabato to file their Comment.

In the DMPI vs. City of Davao, DMPI filed in 2011 a Petition for Prohibition and Mandamus and 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. Davao’s Legal Officer and City Assessor confirmed that DMPI’s machinery is exempt from real property tax. On March 20, 2015, the Court has approved DMPI’s Motion which prayed for the dismissal of the case.

In the DMPI vs. City Government of Malabon, DMPI filed a Petition for Prohibition and Mandamus against the LGU to prevent the auction sale of DMPI sites in its jurisdiction for alleged real property tax liabilities. DMPI was able to secure a TRO to defer the sale. The judicial dispute resolution for the case has been terminated. The Pre-Trial Conference is set on June 15, 2017. The parties are still exploring options to settle the matter amicably.

In DMPI vs. Municipality of San Mateo, DMPI filed in 2011 a petition for Prohibition and Mandamus with Preliminary Injunction and TRO against the Tower Fee Ordinance of the Municipality of San Mateo. In 2014, the RTC ruled in favor of DMPI and declared the ordinance void and without legal force and effect. The Municipality of San Mateo appealed with the CA. The case has been submitted for resolution.

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 CA after the lower court granted DMPI’s petition and ruled as unconstitutional the provision of the ordinance imposing the Php200 thousand per cell site per annum. On May 5, 2015, the Appeal was dismissed and the ruling issued by the trial court was affirmed.

DMPI vs. City of Trece Martires – In 2010, DMPI petitioned to declare void the City of Trece Martires ordinance of imposing tower fee of Php150 thousand for each cell site annually. Application for the issuance of a preliminary injunction by DMPI is pending resolution.

Globe Telecom, et al. vs. City of Lipa – In 2006, Globe filed a Protest of Assessment questioning the act of the City of Lipa in assessing tower fees for its sites amounting to Php105 thousand per year. Smart, Digitel and DMPI submitted a joint memorandum in June 2013 pertaining to the issue. However, the Sangguniang Panglungsod has since repealed the ordinance, and issued instead Tax Ordinance No. 177, which imposes a one-time regulatory fee of Php50 thousand for every tower to be constructed in the City of Lipa. The Joint Motion to Dismiss filed by Smart and DMPI on June 8, 2015 is pending resolution.

ACeS Philippines has a pending case with the Supreme Court (ACeS Philippines Satellite Corporation vs. Commissioner of Internal Revenue Supreme Court G.R. No. 226680) for alleged 2006 deficiency withholding tax. On July 23, 2014, the CTA Second Division affirmed the assessment of the Commissioner of Internal Revenue for deficiency basic withholding tax, surcharge plus deficiency interest and delinquency interest until full payment. On November 18, 2014, ACeS Philippines filed a Petition for Review with the CTA En Banc. On August 16, 2016, the CTA En Banc also affirmed the assessment with finality. Hence, on October 19, 2016, ACeS Philippines filed a petition before the Supreme Court assailing the decision of the CTA. ACeS Philippines intends to file a formal request for compromise of tax liabilities before the BIR while the case is pending before the Supreme Court. No outstanding Letter of Authority for other years.

Since 1990 up to the present, PLDT and ETPI have been engaged in legal proceedings involving a number of issues in connection with their business relationship. Among PLDT’s claims against ETPI are ETPI’s alleged uncompensated bypass of PLDT’s systems from July 1, 1998 to November 28, 2003; unpaid access charges from July 1, 1999 to November 28, 2003; and non-payment of applicable rates for Off-Net and On-Net traffic from January 1, 1999 to November 28, 2003 arising from ETPI’s unilateral reduction of its rates for the Philippines-Hong Kong traffic stream through Hong Kong REACH-ETPI circuits. ETPI’s claims against PLDT, on the other hand, involve an alleged Philippines-Hong Kong traffic shortfall for the period July 1, 1998 to November 28, 2003; unpaid share of revenues generated from PLDT’s activation of additional growth circuits in the Philippines-Singapore traffic stream for the period July 1, 1999 to November 28, 2003; underreporting of ETPI share of revenues under the terms of a Compromise Agreement for the period January 1, 1999 to November 28, 2003 (which ETPI is seeking to retroact to February 6, 1990); lost revenues arising from PLDT’s blocking of incoming traffic from Hong Kong from November 1, 2001 up to November 2003; and lost revenues arising from PLDT’s circuit migration from January 1, 2001 up to December 31, 2001.

While the parties have entered into Compromise Agreements in the past (one in February 1990 and another in March 1999), said agreements have not put to rest the issues between them. To avoid protracted litigation and to preserve their business relationship, PLDT and ETPI agreed to submit their differences and issues to voluntary arbitration. On April 16, 2008, PLDT and ETPI signed an Arbitration Settlement Agreement and submitted their respective Statement of Claims and Answers. Subsequent to such submissions, PLDT and ETPI agreed to suspend the arbitration proceedings. ETPI’s total claim against PLDT is about Php2.9 billion while PLDT’s total claim against ETPI is about Php2.8 billion.

In an agreement, Globe and PLDT have agreed that they shall cause ETPI, within a reasonable time after May 30, 2016, to dismiss Civil Case No. 17694 entitled Eastern Telecommunications Philippines, Inc. vs. Philippine Long Distance Telephone Company, and all related or incidental proceedings (including the voluntary arbitration between ETPI and PLDT), and PLDT, in turn, simultaneously, shall withdraw its counterclaims against ETPI in the same entitled case, all with prejudice.

In Wilson P. Gamboa vs. Finance Secretary Margarito B. Teves, et. al. (G.R. No. 176579) (the “Gamboa Case”), the Supreme Court held 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 only to voting common shares, and not to the “total outstanding capital stock (common and non-voting preferred shares)”. It directed the Philippine SEC “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 October 9, 2012, the Supreme Court issued a Resolution denying with finality all Motions for Reconsideration of the respondents. The Supreme Court decision became final and executory on October 18, 2012.

On May 20, 2013, the Philippine SEC issued SEC Memorandum Circular No. 8, Series of 2013 - Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by Corporations Engaged in Nationalized and Partly-Nationalized Activities (the “Guidelines”), which provides that 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.

On June 10, 2013, Jose M. Roy III filed before the Supreme Court a Petition for Certiorari against the Philippine SEC, Philippine SEC Chairman and PLDT, claiming: (1) that the Philippine SEC Guidelines violates the decision of the Supreme Court in the Gamboa Case, which according to the Petitioner required that (a) the 60-40 ownership requirement be imposed on “each class of shares” and (b) Filipinos must have full beneficial ownership of 60% of the outstanding capital stock of those corporations subject to that
60-40 Filipino-foreign ownership requirement; and (2) that the PLDT Beneficial Trust Fund is not a Filipino-owned entity and consequently, the corporations owned by PLDT Beneficial Trust Fund, including BTFHI, which owns 150 million voting preferred shares in PLDT, cannot be considered a Filipino-owned corporation, or the Petition. PLDT and Philippine SEC sought the dismissal of the Petition.

In respect of ensuring Filipino ownership and control of public utilities, the Court noted that this is already achieved by the requirements under MC No. 8. According to the Court, “since Filipinos own at least 60% of the outstanding shares of stock entitled to vote directors, which is what the Constitution precisely requires, then the Filipino stockholders control the corporation – i.e., they dictate corporate actions and decisions...”

Petitioner Jose M. Roy III filed a Motion for Reconsideration of the Supreme Court Decision dated November 22, 2016. On April 18, 2017, the Supreme Court denied with finality Petitioner’s Motion for Reconsideration.

Arbitration Case between Smart and Harris Caprock Communications, Inc. (U.S.A.), or HCC, and Caprock Communications International Limited (United Kingdom), or CCI, together Claimants

In December 2011, Smart engaged the services of HCC and CCI, a wholly-owned subsidiary of HCC, for the expansion of its SmartLink GSM. Subsequently, the parties executed three agreements: (i) Agreement for Bandwidth and Teleport Services with CCI dated May 21, 2012, or the “Bandwidth Agreement;
(ii) Agreement for Warehousing and Installation Services with CCI dated August 27, 2012, or the Installation Agreement; and (iii) Agreement for the Sale and Purchase of Equipment with HCC dated September 27, 2012.

HCC failed to deliver the equipment in accordance with the delivery schedule and delivered defective equipment. Claimants also failed to activate Phase 1 of the satellite beams and installed only 13 units of antennas and beams. Thus, Smart issued a Termination Notice dated December 15, 2012 for all the three agreements. In their letter dated December 18, 2012, Claimants requested Smart to keep the contracts alive. Thus, Smart issued its commercial response on December 29, 2012. Claimants requested Smart to withdraw the termination notice; otherwise, they will claim damages, premised on their position that Smart cannot terminate the contracts for convenience. Smart did not withdraw the termination notice. The parties failed to reach an amicable settlement with Claimants claiming US$35 million in damages, while Smart wanted reimbursement of its deposit.

On October 19, 2016, a Singapore International Arbitration Center – Arbitral Tribunal issued a Final Partial Award adjudging Smart liable to the Claimants in the amount of US$6.5 million, consisting of equipment delivered to Smart, liability to third parties, performance bond, monthly service fees, loss of profit, installation fees, excluding interest.

In an Order dated December 23, 2016, the Arbitral Tribunal issued its Final Award on Costs, awarding Claimants the amount of US$1.6 million, representing arbitration costs, legal fees and other expenses. On December 29, 2016, Smart paid the amount of US$8.5 million, or Php424 million, to Claimants as settlement, based on external counsel’s opinion on the imprudence of pursuing further legal proceedings.

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, 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 consolidated financial assets and financial liabilities as at March 31, 2017 and December 31, 2016:

Financial

Available-for-sale

liabilities carried

Total financial

Loans

instruments

Derivatives used

financial

at amortized

assets and

and receivables

HTM investments

at FVPL

for hedging

investments

cost

liabilities

(in million pesos)

Assets as at March 31, 2017 (Unaudited)

Noncurrent:

Available-for-sale financial investments

–

10,803

–

10,803

Investment in debt securities and other long-term investments – net of current portion

100

150

–

250

Derivative financial assets – net of current portion

–

349

–

349

Advances and other noncurrent assets – net of current portion

9,173

–

9,173

Current:

Cash and cash equivalents

31,628

–

31,628

Short-term investments

8,325

–

8,325

Trade and other receivables

24,046

–

24,046

Current portion of derivative financial assets

–

240

–

248

Current portion of investment in debt securities and other long-term investments

252

200

–

452

Current portion of advances and other noncurrent assets

7,913

–

7,913

Total assets

81,437

350

589

10,803

–

93,187

Liabilities as at March 31, 2017 (Unaudited)

Noncurrent:

Interest-bearing financial liabilities – net of current portion

–

157,976

Derivative financial liabilities – net of current portion

–

Customers’ deposits

–

2,428

Deferred credits and other noncurrent liabilities

–

9,485

Current:

Accounts payable

–

47,500

Accrued expenses and other current liabilities

–

76,040

Current portion of interest-bearing financial liabilities

–

17,172

Dividends payable

–

7,592

Current portion of derivative financial liabilities

–

Total liabilities

–

318,193

318,291

Net assets (liabilities)

81,437

350

493

10,803

(318,193

)

(225,104

)

Assets as at December 31, 2016 (Audited)

Noncurrent:

Available-for-sale financial investments

–

12,189

–

12,189

Investment in debt securities and other long-term investments – net of current portion

224

150

–

374

Derivative financial assets – net of current portion

–

499

–

499

Advances and other noncurrent assets – net of current portion

9,152

–

9,152

Current:

Cash and cash equivalents

38,722

–

38,722

Short-term investments

2,736

–

2,738

Trade and other receivables

24,436

–

24,436

Current portion of derivative financial assets

–

176

–

242

Current portion of investment in debt securities and other long-term investments

124

202

–

326

Current portion of advances and other noncurrent assets

7,916

–

7,916

Total assets

83,310

352

675

12,189

–

96,594

Liabilities as at December 31, 2016 (Audited)

Noncurrent:

Interest-bearing financial liabilities – net of current portion

–

151,759

Derivative financial liabilities – net of current portion

–

Customers’ deposits

–

2,431

Deferred credits and other noncurrent liabilities

–

13,720

Current:

Accounts payable

–

50,975

Accrued expenses and other current liabilities

–

74,868

Current portion of interest-bearing financial liabilities

–

33,273

Dividends payable

–

1,544

Current portion of derivative financial liabilities

–

209

–

225

Total liabilities

–

211

–

328,570

328,797

Net assets (liabilities)

83,310

352

464

12,189

(328,570

)

(232,203

)

The following table sets forth our consolidated offsetting of financial assets and liabilities recognized as at March 31, 2017 and December 31, 2016:

There are no financial instruments subject to an enforceable master netting arrangement as at March 31, 2017 and December 31, 2016.

The following table sets forth our consolidated carrying values and estimated fair values of our financial assets and liabilities recognized as at March 31, 2017 and December 31, 2016 other than those whose carrying amounts are reasonable approximations of fair values:

Below are the list of our consolidated financial assets and liabilities carried at fair value that are classified using a fair value hierarchy as required for our complete sets of consolidated financial statements as at March 31, 2017 and December 31, 2016. 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 March 31, 2017 and December 31, 2016, we have no financial instruments measured at fair values using inputs that are not based on observable market data (Level 3). As at March 31, 2017 and December 31, 2016, there were no transfers into and out of Level 3 fair value measurements.

As at March 31, 2017 and December 31, 2016, 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.

The valuation techniques considered various inputs including the credit quality of counterparties.

Available-for-sale financial investments: Fair values of available-for-sale financial investments, which consist of listed shares, were determined using quoted prices. For investments where there is no active market and fair value cannot be determined, investments are carried at cost less any accumulated impairment losses.

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.

As at March 31, 2017 and December 31, 2016, we have taken into account the counterparties’ credit risks (for derivative assets) and our own non-performance risk (for derivative liabilities) and have included a credit or debit valuation adjustment, as appropriate, by assessing the maximum credit exposure and taking into account market-based inputs which considers the risk of default occurring and corresponding losses once the default event occurs. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognized at fair value.

The table below sets out the information about our consolidated derivative financial instruments as at March 31, 2017 and December 31, 2016:

March 31, 2017

December 31, 2016

(Unaudited)

(Audited)

Original Notional
Amount

Trade Date

Underlying
Transaction in
U.S. Dollar

Termination
Date

Weighted Average
Hedge Cost

Weighted Average
Foreign Exchange
Rate in Php

Notional

Net Mark-to-market
Gains (Losses)

Notional

Net Mark-to-market
Gains
(Losses)

(in millions)

Transactions not designated as hedges:

PLDT

Long-term currency swaps

US$

262

2001 and 2002

300 Notes 2017

March 6, 2017

3.42

49.85

US$

–

Php–

US$

202

Php1

Forward foreign
exchange contracts

158

Various dates in
2015 and 2016

U.S. dollar
liabilities

Various dates in
2016

–

48.50

–

February 15, 2017

U.S. dollar
liabilities

March 3, 2017

–

49.95

–

April 2017

U.S. dollar
liabilities

Various dates in
2017

–

49.96

–

Smart

Forward foreign
exchange contracts

107

Various dates in
2015 and 2016

U.S. dollar
liabilities

Various dates in
2016

–

46.96

–

Various dates in
2016 and 2017

U.S. dollar
liabilities

Various dates in
2017

–

49.07

April 2017

U.S. dollar
liabilities

Various dates in
2017

–

49.93

–

Foreign exchange options

5^(a)

August 10, 2016

U.S. dollar
liabilities

November 14, 2016

–

46.82
46.90
47.98

–

39^(b)

Various dates in
2016 and 2017

U.S. dollar
liabilities

Various dates in
2017

–

49.61
50.30
51.18

51.50

4^(c)

Various dates in
2017

U.S. dollar
liabilities

Various dates in
2017

–

50.00
50.60

–

51.70

DMPI

Interest rate swaps

October 7, 2008

59 loan facility

March 31, 2017

3.88

–

)

October 7, 2008

51 loan facility

June 30 2017

3.97

–

)

Php6

Php50


											March 31, 2017					December 31, 2016
											(Unaudited)					(Audited)
	Original Notional Amount		Trade Date	Underlying Transaction in U.S. Dollar	Termination Date	Weighted Average Hedge Cost			Weighted Average Foreign Exchange Rate in Php		Notional		Net Mark-to-market Gains (Losses)			Notional		Net Mark-to-market Gains (Losses)

	(in millions)			(in millions)									(in millions)
*Transactions designated as hedges:*
PLDT
Interest rate swaps^(d)		30	January 23, 2015	150 term loan	March 7, 2017		2.11	%		–	US$	–	Php–			US$	8	Php–
		240	2013 and December 31, 2016	300 term loan	January 16, 2018	2.17%			–		67		13			100		9
		100	August 2014	100 PNB	August 21, 2020		3.46	%		–		98		(39	)		98		(50	)
		50	September 2014	50 Metrobank	September 2, 2020		3.47	%		–		49		(23	)		49		(29	)
		150	April and June 2015	200 term loan	February 25, 2022	2.70%			–		150		9			150		(35)
Long-term currency swaps^(e)		140	October 2015 to June 2016	300 term loan	January 16, 2018	2.20%			46.67		63		194			94		230
		4	January 2017	100 PNB	August 11, 2020		1.01	%		49.79		4		5			–		–
		4	April 2017	200 Bank of Tokyo	August 26, 2019		1.61	%		49.55		–		–			–		–
Smart
Interest rate swaps^(f)		45	May 8, 2013	60 Bank of Tokyo	June 6, 2016		1.53	%		–		–		–			–		–
		38	May 9, 2013	50 FEC	August 19, 2016		1.43	%		–		–		–			–		–
		44	May 16, 2013	50 Bank of Tokyo	May 30, 2017		1.77	%		–		6		1			6		1
		110	Various dates in 2013 and 2014	120 Term loan	June 20, 2018	2.22%			–		45		13			45		9
		85	Various dates in 2014 and 2015	100 Bank of Tokyo	March 7, 2019	2.23%			–		39		9			49		6
		50	October 2, 2014	50 Mizuho	May 14, 2019		2.58	%		–		28		2			28		–
		200	Various dates in 2015	200 Mizuho	March 4, 2020	2.10%			–		133		48			156		39
		30	February 2016	100 Mizuho	December 7, 2021		2.03	%		–		30		23			30		22
Long-term currency swaps^(g)		100	Various dates in 2015	200 Mizuho	March 5, 2018	2.21%			46.66		40		126			60		155
		45	Various dates in 2016	100 Mizuho	December 7, 2018	1.93%			46.55		36		110			36		107
		6	Various dates in 2017	80 CBC	May 31, 2018	1.10%			49.80		6		2			–		–
		3	April 2017	80 CBC	May 31, 2018		1.50	%		49.63		–		–			–		–
														493					464

													Php499					Php514

(a)

If the Philippine peso to U.S. dollar spot exchange rate on the maturity date settles between Php46.90 to Php47.98, Smart will purchase the U.S. dollar for Php46.90. However, if on maturity, the exchange rate settles above Php47.98, Smart will purchase the U.S. dollar for Php46.90 plus the excess above Php47.98, and if the exchange rate is lower than Php46.90, Smart will purchase the U.S. dollar at the prevailing Philippine peso to U.S. dollar spot exchange rate, subject to a floor of Php46.82.

(b)

If the Philippine peso to U.S. dollar spot exchange rate on the maturity date settles between Php50.30 to Php51.18, Smart will purchase the U.S. dollar for Php50.30. However, if on maturity, the exchange rate settles above Php51.18, Smart will purchase the U.S. dollar for Php50.30 plus the excess above Php51.18, and if the exchange rate is lower than Php50.30, Smart will purchase the U.S. dollar at the prevailing Philippine peso to U.S. dollar spot exchange rate, subject to a floor of Php49.61.

(c)

If the Philippine peso to U.S. dollar spot exchange rate on the maturity date settles between Php50.60 to Php51.70, Smart will purchase the U.S. dollar for Php50.60. However, if on maturity, the exchange rate settles above Php51.70, Smart will purchase the U.S. dollar for Php50.60 plus the excess above Php51.70, and if the exchange rate is lower than Php50.60, Smart will purchase the U.S. dollar at the prevailing Philippine peso to U.S. dollar spot exchange rate, subject to a floor of Php50.00.

(d)

PLDT’s interest rate swap agreements outstanding as at March 31, 2017 and December 31, 2016 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements. The mark-to-market losses amounting to Php31 million and Php82 million were recognized in our consolidated statements of other comprehensive income as at December 31, 2016, respectively. Interest accrual on the interest rate swaps amounting to Php9 million and Php23 million were recorded as at March 31, 2017 and 2016, respectively. There were no ineffective portion in the fair value recognized in our consolidated income statements for the three months ended March 31, 2017 and 2016.

(e)

PLDT’s long-term principal only-currency swap agreements entered into in 2015 to 2017 were designated as cash flow hedges, wherein effective portion of the movements in the fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements. The mark-to-market gains amounting to Php211 million and Php275 million were recognized in our consolidated statements of other comprehensive income as at March 31, 2017 and 2016, respectively. Hedge cost accrual on the long-term principal only-currency swaps amounting to Php13 million and Php45 million were recognized as at March 31, 2017 and December 31, 2016, respectively. The amounts recognized as other comprehensive income are transferred to profit or loss when the hedged loan is revalued for changes in the foreign exchange rate. The ineffective portion of the movements in the fair value amounting to Php6 million and Php8 million were recognized in our consolidated income statements for the three months ended March 31, 2017 and 2016, respectively.

(f)

Smart’s interest rate swap agreements outstanding as at March 31, 2017 and December 31, 2016 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements. The mark-to-market gains amounting to Php94 million and Php79 million were recognized in our consolidated statements of other comprehensive income as at March 31, 2017 and December 31, 2016, respectively. Reduction on interest arising from the interest rate swaps amounting to Php2 million and addition on interest arising from the interest rate swaps amounting to Php2 million were recognized for the three months ended March 31, 2017 and 2016, respectively. There were no ineffective portion in the fair value recognized in our consolidated income statements for the three months ended March 31, 2017 and 2016.

(g)

Smart’s long-term principal only-currency swap agreements outstanding as at March 31, 2017 and December 31, 2016 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements. The mark-to-market gains amounting to Php252 million and Php284 million were recognized in our consolidated statements of other comprehensive income as at March 31, 2017 and December 31, 2016, respectively. Hedge cost accrual on the long-term principal only-currency swaps amounting to Php14 million and Php22 million were recognized as at March 31, 2017 and December 31, 2016, respectively. The amounts recognized as other comprehensive income are transferred to profit or loss when the hedged loan is revalued for changes in the foreign exchange rate. The ineffective portion of the movements in the fair value amounting to Php7 million and Php9 million were recognized in our consolidated income statements for the three months ended March 31, 2017 and 2016, respectively.

Movements of our consolidated mark-to-market gains for the three months ended March 31, 2017 and for the year ended December 31, 2016 are summarized as follows:

Our consolidated analysis of gains (losses) on derivative financial instruments for the three months ended March 31, 2017 and 2016 are as follows:

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 requirements, 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.

Our cash position remains sufficient to support our planned capital expenditure requirements and service our debt and financing obligations; however, we may be required to finance a portion of our future capital expenditures from external financing sources. We have cash and cash equivalents, and short-term investments amounting to Php31,628 million and Php8,325 million, respectively, as at March 31, 2017, which we can use to meet our short-term liquidity needs. 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 March 31, 2017 and December 31, 2016:

Less than

More than

Total

1 year

1-3 years

3-5 years

5 years

(in million pesos)

March 31, 2017 (Unaudited)

Loans and receivables:

92,327

82,853

5,776

3,534

164

Advances and other noncurrent assets

17,287

7,913

5,676

3,534

164

Cash equivalents

26,324

–

Short-term investments

8,325

–

Investment in debt securities and other long-term investments

352

252

100

–

Retail subscribers

16,754

–

Corporate subscribers

9,455

–

Foreign administrations

6,081

–

Domestic carriers

490

–

Dealers, agents and others

7,259

–

HTM investments:

350

200

150

–

Investment in debt securities and other long-term investments

350

200

150

–

Available-for-sale financial investments

10,803

–

1,000

–

9,803

Total

103,480

83,053

6,926

3,534

9,967

December 31, 2016 (Audited)

Loans and receivables:

95,924

86,338

4,951

4,483

152

Advances and other noncurrent assets

17,278

7,916

4,727

4,483

152

Cash equivalents

32,338

–

Short-term investments

2,736

–

Investment in debt securities and other long-term investments

348

124

224

–

Retail subscribers

20,290

–

Corporate subscribers

9,333

–

Foreign administrations

5,819

–

Domestic carriers

354

–

Dealers, agents and others

7,428

–

HTM investments:

352

202

–

150

–

Investment in debt securities and other long-term investments

352

202

–

150

–

Financial instruments at FVPL:

–

Short-term investments

–

Available-for-sale financial investments

12,189

–

1,000

–

11,189

Total

108,467

86,542

5,951

4,633

11,341

The following table discloses a summary of maturity profile of our financial liabilities based on our consolidated contractual undiscounted obligations outstanding as at March 31, 2017 and December 31, 2016:

Payments Due by Period

Less than

More than

Total

1 year

1-3 years

3-5 years

5 years

(in million pesos)

March 31, 2017 (Unaudited)

Debt⁽¹⁾:

216,240

6,280

62,363

53,667

93,930

Principal

175,833

6,144

43,121

42,490

84,078

Interest

40,407

136

19,242

11,177

9,852

Lease obligations:

18,874

11,007

3,605

1,985

2,277

Operating lease

18,873

11,007

3,604

1,985

2,277

Finance lease

–

Other obligations:

133,818

121,775

9,596

487

1,960

Derivative financial liabilities⁽²⁾:

114

–

Interest rate swap

100

–

Long-term currency swap

–

Various trade and other obligations:

133,704

121,757

9,500

487

1,960

Suppliers and contractors

52,875

43,437

8,983

455

–

Utilities and related expenses

41,220

41,186

–

Liability from redemption of preferred shares

7,880

–

Dividends

7,592

–

Employee benefits

6,613

–

Customers’ deposits

2,428

–

436

1,960

Carriers and other customers

2,077

–

Others

13,019

12,972

–

Total contractual obligations

368,932

139,062

75,564

56,139

98,167

December 31, 2016 (Audited)

Debt⁽¹⁾:

223,130

21,883

64,751

51,414

85,082

Principal

185,663

21,138

46,931

40,886

76,708

Interest

37,467

745

17,820

10,528

8,374

Lease obligations:

18,456

10,734

3,581

1,972

2,169

Operating lease

18,456

10,734

3,581

1,972

2,169

Other obligations:

134,057

117,717

1,793

12,593

1,954

Derivative financial liabilities⁽²⁾:

247

106

141

–

Interest rate swap

147

141

–

Long-term currency swap

100

–

Various trade and other obligations:

133,810

117,611

1,652

12,593

1,954

Suppliers and contractors

60,494

46,820

1,113

12,561

–

Utilities and related expenses

40,166

40,118

–

Liability from redemption of preferred shares

7,883

–

Employee benefits

6,191

–

Customers’ deposits

2,431

–

445

1,954

Carriers and other customers

2,422

–

Dividends

1,544

–

Others

12,679

12,633

–

Total contractual obligations

375,643

150,334

70,125

65,979

89,205

⁽¹⁾

Consists of long-term debt, including current portion; gross of unamortized debt discount and debt issuance costs.

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 March 31, 2017 and December 31, 2016 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.

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 Php133,704 million and Php133,810 million as at March 31, 2017 and December 31, 2016, 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 Php6,619 million and Php6,788 million as at March 31, 2017 and December 31, 2016, respectively, which includes standby letters of credit issued in relation with PLDT’s acquisition of VTI, Bow Arken and Brightshare as at December 31, 2016. These commitments will expire within one year. See Note 10 – Investments in Associates and Joint Ventures – Investments of PLDT in VTI, Bow Arken and Brightshare.

We have not made any pledges as collateral with respect to our financial liabilities as at March 31, 2017 and December 31, 2016.

Foreign currency exchange risk is the risk that the fair value of future cash flows of a financial instrument 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, a substantial portion 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 purchase contracts, currency swap contracts and currency option contracts to manage the foreign currency risks associated with our foreign currency-denominated loans. We accounted for these instruments as either cash flow hedges, wherein changes in the fair value are recognized in our consolidated other comprehensive income until the hedged transaction affects our consolidated income statement or transactions not designated as hedges, wherein changes in the fair value are recognized directly as income or expense for the period.

The following table shows our consolidated foreign currency-denominated monetary financial assets and liabilities and their Philippine peso equivalents as at March 31, 2017 and December 31, 2016:

March 31, 2017

December 31, 2016

(Unaudited)

(Audited)

U.S. Dollar

Php⁽¹⁾

U.S. Dollar

Php⁽²⁾

(in millions)

Noncurrent Financial Assets

Investment in debt securities and other long-term investments

100

348

Derivative financial assets – net of current portion

349

499

Advances and other noncurrent assets – net of current portion

–

Total noncurrent financial assets

451

865

Current Financial Assets

Cash and cash equivalents

294

14,771

419

20,847

Short-term investments

163

8,207

2,720

Trade and other receivables – net

167

8,402

158

7,853

Current portion of derivative financial assets

248

242

Current portion of investment in debt securities and other long-term

investments

251

–

Current portion of advances and other noncurrent assets

–

Total current financial assets

634

31,887

637

31,670

Total Financial Assets

643

32,338

654

32,535

Noncurrent Financial Liabilities

Interest-bearing financial liabilities – net of current portion

584

29,336

680

33,831

Derivative financial liabilities – net of current portion

–

Other noncurrent liabilities

–

Total noncurrent financial liabilities

584

29,360

680

33,838

Current Financial Liabilities

Accounts payable

212

10,627

191

9,477

Accrued expenses and other current liabilities

165

8,287

171

8,513

Current portion of interest-bearing financial liabilities

281

14,130

496

24,671

Current portion of derivative financial liabilities

225

Total current financial liabilities

660

33,124

863

42,886

Total Financial Liabilities

1,244

62,484

1,543

76,724

⁽¹⁾

The exchange rate used to convert the U.S. dollar amounts into Philippine peso was Php50.22 to US$1.00, the Philippine peso-U.S. dollar exchange rate as quoted through the Philippine Dealing System as at March 31, 2017.

⁽²⁾

The exchange rate used to convert the U.S. dollar amounts into Philippine peso was Php49.77 to US$1.00, the Philippine peso-U.S. dollar exchange rate as quoted through the Philippine Dealing System as at December 31, 2016.

As at May 11, 2017, the Philippine peso-U.S. dollar exchange rate was Php49.93 to US$1.00. Using this exchange rate, our consolidated net foreign currency-denominated financial liabilities would have decreased in Philippine peso terms by Php174 million as at March 31, 2017.

Approximately 25% and 31% of our total consolidated debts (net of consolidated debt discount) were denominated in U.S. dollars as at March 31, 2017 and December 31, 2016, respectively. Consolidated foreign currency-denominated debt decreased to Php43,193 million as at March 31, 2017 from Php58,192 million as at December 31, 2016. See Note 20 – Interest-bearing Financial Liabilities. The aggregate notional amount of our consolidated outstanding long-term principal only-currency swap contracts were US$149 million and US$392 million as at March 31, 2017 and December 31, 2016, respectively. Consequently, the unhedged portion of our consolidated debt amounts was approximately 19% (or 9%, net of our consolidated U.S. dollar cash balances allocated for debt) and 19% (or 8%, net of our consolidated U.S. dollar cash balances allocated for debt) as at March 31, 2017 and December 31, 2016, respectively.

Approximately, 18% of our consolidated service revenues were denominated in U.S. dollars and/or were linked to U.S. dollars for the three months ended March 31, 2017 as compared with approximately 16% for the three months ended March 31, 2016. Approximately, 10% of our consolidated expenses were denominated in U.S. dollars and/or linked to the U.S. dollar for the three months ended March 31, 2017 as compared with approximately 8% for the three months ended March 31, 2016. In this respect, the higher weighted average exchange rate of the Philippine peso against the U.S. dollar increased our revenues and expenses, and consequently, affects our cash flow from operations in Philippine peso terms. In view of the anticipated continued decline in dollar-denominated/dollar-linked revenues, which provide a natural hedge against our foreign currency exposure, we are progressively refinancing our dollar-denominated debts in Philippine pesos.

The Philippine peso depreciated by 0.90% against the U.S. dollar to Php50.22 to US$1.00 as at March 31, 2017 from Php49.77 to US$1.00 as at December 31, 2016. 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 Php397 million for the three months ended March 31, 2017, while net consolidated foreign exchange gains of Php970 million for the three months ended March 31, 2016.

Management conducted a survey among our banks to determine the outlook of the Philippine peso-U.S. dollar exchange rate until June 30, 2017. Our outlook is that the Philippine peso-U.S. dollar exchange rate may weaken/strengthen by 0.76% as compared to the exchange rate of Php50.22 to US$1.00 as at March 31, 2017. If the Philippine peso-U.S. dollar exchange rate had weakened/strengthened by 0.76% as at March 31, 2017, with all other variables held constant, profit after tax for the three months ended March 31, 2017 would have been approximately Php162 million lower/higher and our consolidated stockholders’ equity as at March 31, 2017 would have been approximately Php144 million lower/higher, 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. 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 March 31, 2017 and December 31, 2016. 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

–

352

–

352

Interest rate

4.0000

3.5000

–

Philippine Peso

–

350

–

350

351

Interest rate

2.1500% to 4.2500%

–

4.8400

–

Cash in Bank

U.S. Dollar

–

829

–

829

Interest rate

0.0100% to 0.5000%

–

Philippine Peso

–

3,522

–

3,522

Interest rate

0.0010% to 1.6250%

–

Other Currencies

–

Interest rate

0.0100% to 0.5000%

–

Temporary Cash
Investments

U.S. Dollar

260

–

260

13,038

–

13,038

260

13,038

Interest rate

0.2500% to 4.7500%

–

Philippine Peso

264

–

264

13,286

–

13,286

264

13,286

Interest rate

0.1250% to 5.000%

–

Short-term
Investments

U.S. Dollar

164

–

164

8,239

–

8,239

164

8,239

Interest rate

1.2500% to 4.0000%

–

Philippine Peso

–

Interest rate

1.7500

–

786

–

791

39,707

–

39,707

791

39,708

Liabilities:

Long-term Debt

Fixed Rate

U.S. Dollar
Fixed Loans

–

3,630

3,614

3,688

Interest rate

1.9000

1.4100% to 2.8850%

1.4100% to
2.8850%

2.8850%

–

Philippine Peso

306

454

1,609

2,472

124,122

396

123,726

2,321

116,543

Interest rate

5.5808

3.9500% to 6.2600%

3.9000% to 6.2600%

3.9000% to 5.9058%

–

Variable Rate

U.S. Dollar

341

218

793

39,836

257

39,579

793

39,836

Interest rate

1,1125% to 1.3500%
over LIBOR

0.7900% to 1.6000%
over LIBOR

0.7900% to 1.4500%
over LIBOR

0.7900% to 1.0500%
over LIBOR

–

Philippine Peso

–

159

–

164

8,245

8,228

164

8,245

Interest rate

–

BSP overnight rate
to 1.0000% over
PDST-R2

BSP overnight rate
to 1.0000%
over PDST-R2

BSP overnight rate
to 1.0000% over
PDST-R2

–

122

452

407

846

1,674

3,501

175,833

686

175,147

3,351

168,312

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

–

348

–

348

350

Interest rate

4.0000%

3.5000% to 4.0000%

–

Philippine Peso

–

352

–

352

353

Interest rate

4.2180% to 4.2500%

–

4.8400

–

Cash in Bank

U.S. Dollar

–

850

–

850

Interest rate

0.0100% to 0.5000%

–

Philippine Peso

–

3,652

–

3,652

Interest rate

0.0010% to 1.6250%

–

Other Currencies

–

Interest rate

0.0100% to 0.5000%

–

Temporary Cash Investments

U.S. Dollar

366

–

366

18,239

–

18,239

366

18,239

Interest rate

0.2500% to 4.7500%

–

Philippine Peso

283

–

283

14,099

–

14,099

283

14,099

Interest rate

0.1250% to 5.000%

–

Short-term
Investments

U.S. Dollar

–

2,738

–

2,738

Interest rate

1.6500% to 4.0000%

–

802

–

809

40,300

–

40,300

809

40,303

Liabilities:

Long-term Debt

Fixed Rate

U.S. Dollar Notes

228

–

228

11,366

11,362

233

11,606

Interest rate

8.3500%

–

U.S. Dollar Fixed Loans

3,726

3,706

3,813

Interest rate

1.9000%

1.4100% to 2.8850%

2.8850

–

Philippine Peso

153

287

405

1,485

2,389

118,881

303

118,578

2,267

112,818

Interest rate

5.2854% to 5.5808%

3.9000% to 6.2600%

–

Variable Rate

U.S. Dollar

440

100

241

872

43,410

286

43,124

872

43,410

Interest rate

0.3000% to 1.6000% over LIBOR

0.7900% to 1.6000% over LIBOR

0.7900% to 1.4500% over LIBOR

0.7900% to 1.0500% over LIBOR

–

Philippine Peso

–

161

–

166

8,280

8,262

166

8,280

Interest rate

–

BSP overnight rate to 1.0000% over PDST-R2

–

425

544

398

822

1,541

3,730

185,663

631

185,032

3,615

179,927

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.

Approximately 27% and 28% of our consolidated debts were variable rate debts as at March 31, 2017 and December 31, 2016, respectively. Consolidated variable rate debt decreased to Php48,081 million as at March 31, 2017 from Php51,690 million as at December 31, 2016. Considering the aggregate notional amount of our consolidated outstanding long-term interest rate swap contracts of US$647 million and US$724 million as at March 31, 2017 and December 31, 2016, respectively, approximately 91% and 92% of our consolidated debts were fixed as at March 31, 2017 and December 31, 2016, respectively.

Management conducted a survey among our banks to determine the outlook of the U.S. dollar and Philippine peso interest rates until June 30, 2017. Our outlook is that the U.S. dollar and Philippine peso interest rates may move 15 basis points, or bps, higher/lower, as compared to levels as at March 31, 2017. If U.S. dollar interest rates had been 15 bps higher/lower as compared to market levels as at March 31, 2017, with all other variables held constant, profit after tax for the three months ended March 31, 2017 and our consolidated stockholders’ equity as at March 31, 2017 would have been approximately Php9 million and Php46 million, respectively, 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 15 bps higher/lower as compared to market levels as at March 31, 2017, with all other variables held constant, profit after tax for the three months ended March 31, 2017 and our consolidated stockholders’ equity as at March 31, 2017 would have been approximately Php101 thousand and Php2 million, respectively, 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 statements of financial position, including derivative financial instruments as at March 31, 2017 and December 31, 2016:

Includes bank insurance, security deposits and customer deposits. We have no collateral held as at March 31, 2017.

Includes bank insurance, security deposits and customer deposits. We have no collateral held as at December 31, 2016.

The table below provides information regarding the credit quality by class of our financial assets according to our credit ratings of counterparties as at March 31, 2017 and December 31, 2016:

Neither past due

nor impaired

Past due but

Total

Class A⁽¹⁾

Class B⁽²⁾

not impaired Impaired

(in million pesos)

March 31, 2017 (Unaudited)

Loans and receivables:

97,631

60,243

10,252

10,942

16,194

Advances and other noncurrent assets

17,287

15,323

1,762

201

Cash and cash equivalents

31,628

29,133

2,495

–

Short-term investments

8,325

–

Investment in debt securities and other long-term investments

352

–

Retail subscribers

16,754

2,525

3,307

1,218

9,704

Corporate subscribers

9,455

883

1,227

3,422

3,923

Foreign administrations

6,081

770

1,338

3,288

685

Domestic carriers

490

286

Dealers, agents and others

7,259

2,880

2,727

1,595

HTM investments:

350

–

Investment in debt securities and other long-term investments

350

–

Financial instruments at FVPL⁽³⁾:

–

Forward foreign exchange contracts

–

Available-for-sale financial investments

10,803

8,809

1,994

–

Derivatives used for hedging:

589

–

Interest rate swap

464

–

Long-term currency swap

125

–

Total

109,381

69,999

12,246

10,942

16,194

December 31, 2016 (Audited)

Loans and receivables:

102,308

63,664

10,000

9,646

18,998

Advances and other noncurrent assets

17,278

15,312

1,751

210

Cash and cash equivalents

38,722

36,902

1,820

–

Short-term investments

2,736

–

Investment in debt securities and other long-term investments

348

–

Retail subscribers

20,290

2,770

3,639

1,293

12,588

Corporate subscribers

9,333

888

1,202

3,416

3,827

Foreign administrations

5,819

910

1,382

2,899

628

Domestic carriers

354

103

134

Dealers, agents and others

7,428

3,695

150

1,972

1,611

HTM investments:

352

–

Investment in debt securities and other long-term investments

352

–

Financial instruments at FVPL⁽³⁾:

–

Forward foreign exchange contracts

–

Short-term currency swaps

–

Short-term investments

–

Available-for-sale financial investments

12,189

10,197

1,992

–

Derivatives used for hedging:

675

–

Long-term currency swap

559

–

Interest rate swap

116

–

Total

115,592

74,956

11,992

9,646

18,998

⁽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 March 31, 2017 and December 31, 2016 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)

March 31, 2017 (Unaudited)

Loans and receivables:

97,631

70,495

3,766

1,177

5,999

16,194

Advances and other noncurrent assets

17,287

17,085

–

201

Cash and cash equivalents

31,628

–

Short-term investments

8,325

–

Investment in debt securities and other long-term investments

352

–

Retail subscribers

16,754

5,832

919

249

9,704

Corporate subscribers

9,455

2,110

1,386

385

1,651

3,923

Foreign administrations

6,081

2,108

542

255

2,491

685

Domestic carriers

490

118

102

134

Dealers, agents and others

7,259

2,937

817

437

1,473

1,595

HTM investments:

350

–

Investment in debt securities and other long-term investments

350

–

Financial instruments at FVPL:

–

Forward foreign exchange contracts

–

Available-for-sale financial investments

10,803

–

Derivatives used for hedging:

589

–

Interest rate swap

464

–

Long-term currency swap

125

–

Total

109,381

82,245

3,766

1,177

5,999

16,194

December 31, 2016 (Audited)

Loans and receivables:

102,308

73,664

4,095

602

4,949

18,998

Advances and other noncurrent assets

17,278

17,063

–

210

Cash and cash equivalents

38,722

–

Short-term investments

2,736

–

Investment in debt securities and other long-term investments

348

–

Retail subscribers

20,290

6,409

1,106

146

12,588

Corporate subscribers

9,333

2,090

1,333

353

1,730

3,827

Foreign administrations

5,819

2,292

730

156

2,013

628

Domestic carriers

354

159

134

Dealers, agents and others

7,428

3,845

878

1,044

1,611

HTM investments:

352

–

Investment in debt securities and other long-term investments

352

–

Financial instruments at FVPL:

–

Forward foreign exchange contracts

–

Short-term currency swaps

–

Short-term investments

–

Available-for-sale financial investments

12,189

–

Derivatives used for hedging:

675

–

Long-term currency swap

559

–

Interest rate swap

116

–

Total

115,592

86,948

4,095

602

4,949

18,998

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. On August 5, 2014, the PLDT Board of Directors approved an amendment to our dividend policy, increasing the dividend payout rate to 75% from 70% of our core EPS as regular dividends. In declaring dividends, we take 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 view of our elevated capital expenditures to build-out a robust, superior network to support the continued growth of data traffic, plans to invest in new adjacent businesses that will complement the current business and provide future sources of profits and dividends, and management of our cash and gearing levels, the PLDT Board of Directors approved on August 2, 2016, the amendment of our dividend policy, reducing the regular dividend payout to 60% of core EPS. As part of the dividend policy, 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.

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.

No changes were made in our objectives, policies or processes for managing capital during the three months ended March 31, 2017 and 2016.

The following table shows the reconciliation of liabilities arising from financing activities:


Company’s Email Address	Company’s Telephone Number/s	Mobile Number

jacabal@pldt.com.ph	(02) 816-8534


No. of Stockholders	Annual Meeting Month/Day	Fiscal Year Month/Day

11,767 as at March 31, 2017	Every 2^nd Tuesday in June	December 31


6.	Industry Classification Code:(SEC Use Only)
7.	Ramon Cojuangco Building, Makati Avenue, Makati City		0721

	Address of registrant’s principal office	Postal Code


	Three months ended March 31,						Increase (Decrease)
	2017			2016			Amount			%
Consolidated Statements of Cash Flows
Net cash provided by operating activities		15,131			17,780			(2,649	)		(15	)
Net cash used in investing activities		(9,681	)		(15,180	)		5,499			(36	)
Capital expenditures		1,770			14,570			(12,800	)		(88	)
Net cash used in financing activities		(12,756	)		(3,163	)		(9,593	)		303
Operational Data
Number of mobile subscribers		63,142,478			68,190,230			(5,047,752	)		(7	)
Prepaid		60,421,068			64,651,175			(4,230,107	)		(7	)
Postpaid		2,721,410			3,539,055			(817,645	)		(23	)
Number of broadband subscribers		1,770,805			1,545,077			225,728			15
Fixed Line broadband		1,506,578			1,296,402			210,176			16
Wireless home broadband		264,227			248,675			15,552			6
Number of fixed line subscribers		2,487,601			2,339,001			148,600			6
Number of employees:		17,885			17,042			843			5
Fixed Line		10,667			9,835			832			8
LEC		7,263			7,060			203			3
Others		3,404			2,775			629			23
Wireless		7,218			7,207			11			–


Title of Each ClassNumber of Shares of Common Stock Outstanding
Common Capital Stock, Php5 par value		216,055,775 shares as at March 31, 2017


Condition and Results of Operations			1
Financial Highlights and Key Performance Indicators			2
Performance Indicators			3
Overview			4
Management’s Financial Review			5
Results of Operations			6
Wireless			10
Revenues			10
Expenses			16
Other Income (Expenses)			18
Provision for Income Tax			18
Net Income			18
EBITDA			19
Core Income			19
Fixed Line			19
Revenues			19
Expenses			23
Other Income (Expenses)			24
Provision for Income Tax			25
Net Income			25
EBITDA			25
Core Income			25
Others			25
Expenses			25
Other Income (Expenses)			25
Net Loss			25
Core Income			26
Liquidity and Capital Resources			26
Operating Activities			27
Investing Activities			27
Financing Activities			27
Change in Financial Conditions			29
Off-Balance Sheet Arrangements			29
Equity Financing			29
Contractual Obligations and Commercial Commitments			30
Quantitative and Qualitative Disclosures about Market Risks			30
Impact of Inflation and Changing Prices			31
PART II – OTHER INFORMATION			33
Related Party Transactions			38
ANNEX – Aging of Accounts Receivable			A-1
Financial Soundness Indicators			A-2
SIGNATURES			S-1


	March 31,			December 31,		Increase (Decrease)
	2017		2016			Amount			%
Consolidated Statements of Financial Position
Total assets		467,456			475,119	(Php7,663)				(2	)
Property and equipment		197,306			203,188		(5,882	)		(3	)
Cash and cash equivalents and short-term investments		39,953			41,460		(1,507	)		(4	)
Total equity attributable to equity holders of PLDT		109,954			108,175		1,779			2
Long-term debt, including current portion		175,147			185,032		(9,885	)		(5	)
Net debt⁽³⁾to equity ratio		1.23x			1.33x		–			–


			Weighted average rates
Exchange Rates – per US$	Month end rates		during the year
March 31, 2017		50.22		50.01
December 31, 2016		49.77		47.48
March 31, 2016		45.99		47.26
December 31, 2015		47.12		45.51


													Change
	2017			%			2016			%			Amount			%
							(in millions)
Wireless		23,162			59			27,931			65			(4,769	)		(17	)
Fixed line		19,049			49			17,935			42			1,114			6
Inter-segment transactions		(3,023	)		(8	)		(3,087	)		(7	)		64			(2	)

Consolidated		39,188			100			42,779			100			(3,591	)		(8	)


									Decrease
	2017		%		2016		%		Amount			%
					(in millions)
Voice Services:
Domestic		6,029		77		8,221		78		(2,192	)		(27	)
International		1,806		23		2,304		22		(498	)		(22	)

Total		7,835		100		10,525		100		(2,690	)		(26	)


	2017		2016
	(in %)
Smart		5.1		7.1
Postpaid		2.4		3.9
Prepaid		5.3		7.3
TNT		5.7		5.4
Sun		7.1		9.5
Postpaid		3.3		7.2
Prepaid		7.7		10.0


	Gross⁽¹⁾				Increase (Decrease)						Net⁽²⁾				Increase (Decrease)
	2017		2016		Amount			%			2017		2016		Amount			%
Prepaid
Smart		114		122		(8	)		(7	)		104		112		(8	)		(7	)
TNT		77		87		(10	)		(11	)		71		80		(9	)		(11	)
Sun		84		87		(3	)		(3	)		78		80		(2	)		(3	)
Postpaid
Smart		1,001		955		46			5			965		938		27			3
Sun		416		479		(63	)		(13	)		413		475		(62	)		(13	)


					Increase
	2017		2016		Amount		%
Total local exchange service revenues(in millions)		4,580		4,357		223		5
Number of fixed line subscribers		2,487,601		2,339,001		148,600		6
Number of fixed line LEC employees		7,263		7,060		203		3
Number of fixed line subscribers per employee		343		331		12		4


	Fair Values
	March 31,		December 31,
	2017		2016
	(in millions)
Noncurrent Financial Assets
Investments in debt securities and other long-term investments – net of current portion		252		377
Advances and other noncurrent assets – net of current portion		8,966		7,743

Total noncurrent financial assets		9,218		8,120

Noncurrent Financial Liabilities
Interest-bearing financial liabilities		151,142		146,654
Customers’ deposits		1,722		1,879
Deferred credits and other noncurrent liabilities		8,627		12,457

Total noncurrent financial liabilities		161,491		160,990


Yes [ X ]No [ ]


					3160		6190		Over 91
Type of Accounts Receivable	Total		Current		Days		Days		Days
			(in millions)
Retail subscribers		16,754		6,431		1,061		258		9,004
Corporate subscribers		9,455		1,925		1,702		726		5,102
Foreign administrations		6,081		881		822		554		3,824
Domestic carriers		490		49		66		152		223
Dealers, agents and others		7,259		2,937		802		443		3,077

Total		40,039		12,223		4,453		2,133		21,230

Less: Allowance for doubtful accounts.		15,993
Total Receivables — net		24,046


	2017			2016
Current Ratio⁽¹⁾		0.49:1.0			0.50:1.0
Net Debt to Equity Ratio⁽²⁾		1.23:1.0			1.07:1.0
Net Debt to EBITDA Ratio⁽³⁾		2:22:1.0			1.67:1.0
Total Debt to EBITDA Ratio⁽⁴⁾		2.87:1.0			2.39:1.0
Asset to Equity Ratio⁽⁵⁾		4.25:1.0			4.43:1.0
Interest Coverage Ratio⁽⁶⁾		3.68:1.0			4.54:1.0
Profit Margin⁽⁷⁾		13	%		15	%
Return on Assets⁽⁸⁾		4	%		4	%
Return on Equity⁽⁹⁾		17	%		17	%
EBITDA Margin⁽¹⁰⁾		44	%		41	%


Date Incurred	Expiry Date	MCIT			NOLCO
		(in million pesos)
December 31, 2014	December 31, 2017		73			4,160
December 31, 2015	December 31, 2018		93			2,570
December 31, 2016	December 31, 2019		159			1,614
March 31, 2017	December 31, 2020		226			3,227

			551			11,571

Consolidated tax benefits			551			3,471
Consolidated unrecognized deferred income tax assets			(269	)		(2,420	)
Consolidated recognized deferred income tax assets			282			1,051


Cable and wire facilities		10 – 15 years
Central office equipment		3 – 15 years
Cellular facilities		3 – 10 years
Buildings		25 years
Vehicles, aircraft, furniture and other network equipment		3 – 7 years
Information origination and termination equipment		3 – 5 years
Leasehold improvements		3 – 5 years
Land improvements		10 years


Additional Information:
Cash and cash equivalents	852	2,182
Current financial liabilities*	–	–
Noncurrent financial liabilities*	–	–


	Land		Land Improvements			Building			Total
	(in million pesos)
March 31, 2017 (Unaudited)
Balance at beginning and end of the period		1,567		8			315			1,890
December 31, 2016 (Audited)
Balance at beginning of the period		1,496		9			320			1,825
Transfers from property and equipment		65		–			1			66
Additions		6		–			–			6
Net losses from fair value adjustments charged to profit or loss		–		(1	)		(6	)		(7	)

Balance at end of the period		1,567		8			315			1,890


Year	(in million pesos)
2017⁽¹⁾		620
2018		826
2019		797
2020		653
2021 and onwards		5,837

		8,733


	U.S. Dollar Debt				Php Debt		Total
Year	U.S. Dollar		Php		Php		Php
			(in millions)
2017⁽¹⁾		161		8,074		3,008		11,082
2018		259		12,990		2,098		15,088
2019		110		5,522		14,531		20,053
2020		210		10,564		8,699		19,263
2021		45		2,279		19,839		22,118
2022 and onwards		80		4,037		84,192		88,229

(Note 27)		865		43,466		132,367		175,833


	Increase (Decrease)
	(in million pesos)
Discount rate		1	%	(2,521	)
		(1	%)	2,951
Future salary increases		1	%	2,899
		(1	%)	(2,526	)


Type	Fair Value Assumptions	Fair Value Hierarchy
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 counterparties’ credit spread.	Level 3

Fixed Rate Loans:
U.S. dollar notes	Quoted market price.	Level 1

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.	Level 1 Level 2

Other loans in all other currencies	Estimated fair value is based on the discounted value of future cash flows using the applicable Commercial Interest Reference Rate and PDST-R2 rates for similar types of loans plus PLDT’s credit spread.	Level 3

Variable Rate Loans	The carrying value approximates fair value because of recent and regular repricing based on market conditions.	Level 2


	December 31, 2016 (Audited)
			Collateral and
	Gross		Other Credit		Net
	Maximum Exposure		Enhancements*		Maximum Exposure
	(in million pesos)
Loans and receivables:
Advances and other noncurrent assets		17,068		–		17,068
Cash and cash equivalents		38,722		270		38,452
Short-term investments		2,736		–		2,736
Investment in debt securities and other long-term investments		348		–		348
Retail subscribers		7,702		46		7,656
Corporate subscribers		5,506		188		5,318
Foreign administrations		5,191		–		5,191
Domestic carriers		220		–		220
Dealers, agents and others		5,817		1		5,816
HTM investments:
Investment in debt securities and other long-term investments		352		–		352
Financial instruments at FVPL:
Forward foreign exchange contracts		54		–		54
Short-term currency swaps		12		–		12
Short-term investments		2		–		2
Available-for-sale financial investments		12,189		–		12,189
Derivatives used for hedging:
Long-term currency swap		559		–		559
Interest rate swap		116		–		116

Total		96,594		505		96,089