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

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

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

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

Not Applicable
______________________________________
Amendment Designation (if applicable)

Not Applicable
__________________________________________________
(Secondary License Type and File Number)

In accordance with Section 17.1(b) of the Securities Regulation Code and SRC Rule 17.1, we submit herewith two (2) copies of SEC Form 17-C with Management’s Discussion and Analysis and accompanying audited consolidated financial statements as at and for the year ended December 31, 2015.

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.

SECURITIES AND EXCHANGE COMMISSION
CURRENT REPORT UNDER SECTION 17
OF THE SECURITIES REGULATION CODE
AND SRC RULE 17.1

10.

Securities registered pursuant to Sections 8 and 12 of the Securities Regulation Code and Sections 4 and 8 of the Revised Securities Act

⁽¹⁾

^{Represents the total outstanding common shares (net of 2,724,111
Treasury shares).}

Our audited consolidated financial statements as at December 31, 2015 and 2014 and for the years ended December 31, 2015 and 2014 and related notes (pages F-1 to F-151) are filed as part of this report on Form 17-C.

Item 2.

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

In the following discussion and analysis of our financial condition and results of operations, unless the context indicates or otherwise requires, references to “we,” “us,” “our” or “PLDT Group” mean the Philippine Long Distance Telephone Company and its consolidated subsidiaries, and references to “PLDT” mean the Philippine Long Distance Telephone Company, not including its consolidated subsidiaries (please see Note 2 – Summary of Significant Accounting Policies to the accompanying audited 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 audited consolidated financial statements and the related notes. Our audited 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 audited 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 audited consolidated financial statements were made based on the exchange rate of Php47.12 to US$1.00, the volume weighted average exchange rate as at December 31, 2015 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⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

⁽²⁾ EBITDA margin for the year is measured as EBITDA divided by service revenues.

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

⁽⁴⁾ 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 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 (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 the management for each business unit separately for purposes of making decisions about resource allocation and performance assessment. EBITDA is presented also as a supplemental disclosure because our management believes that it is widely used by investors in their analysis of the performance of PLDT and to assist them in their comparison of PLDT’s performance with that of other companies in the technology, media and telecommunications sector. We also present EBITDA because it is used by some investors as a way to measure a company’s ability to incur and service debt, make capital expenditures and meet working capital requirements. Companies in the technology, media and telecommunications sector have historically reported EBITDA as a supplement to financial measures in accordance with PFRS. EBITDA should not be considered as an alternative to net income as an indicator of our performance, as an alternative to cash flows from operating activities, as a measure of liquidity or as an alternative to any other measure determined in accordance with PFRS. Unlike net income, EBITDA does not include depreciation and amortization, 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 year is measured as net income attributable to equity holders of PLDT (net income less net income attributable to noncontrolling interests), excluding foreign exchange gains (losses) – net, gains (losses) on derivative financial instruments – net (excluding hedge costs), asset impairment on noncurrent assets, other non-recurring gains (losses), net of tax effect of aforementioned adjustments, as applicable, and similar adjustments to equity share in net earnings (losses) of associates and joint ventures. The core income results are monitored by the management for each business unit separately for purposes of making decisions about resource allocation and performance assessment. Also, core income is used by the management as a basis of determining the level of dividend payouts to shareholders and basis of granting incentives to employees. Core income should not be considered as an alternative to income before income tax or net income determined in accordance with PFRS as an indicator of our performance. Unlike income before income tax, core income does not include foreign exchange gains and losses, gains and losses on derivative financial instruments, asset impairments and other non-recurring gains and losses. We compensate for these limitations by using core income as only one of several comparative tools, together with PFRS-based measurements, to assist in the evaluation of operating performance. Such PFRS-based measurements include income before income tax and net income. Our calculation of core income may be different from the calculation methods used by other companies and, therefore, comparability may be limited.
Overview

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

Wireless wireless telecommunications services provided by Smart Communications, Inc., or Smart, and Digital Mobile Philippines, Inc., or DMPI, which owns the Sun Cellular business and is a wholly-owned subsidiary of Digital Telecommunications Philippines, Inc., or Digitel, our cellular service providers; 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 subsidiary and Primeworld Digital Systems, Inc., or PDSI, our wireless broadband service providers; ACeS Philippines Cellular Satellite Corporation, or ACeS Philippines, our satellite operator; WiFun, Inc., our WiFi-enabler; 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, PDSI, Bonifacio Communications Corporation, PLDT Global and certain subsidiaries and Digitel, all of which together account for approximately 5% of our consolidated fixed line subscribers; and information and communications technology infrastructure and services for internet applications, internet protocol, or IP-based solutions and multimedia content delivery provided by ePLDT, Inc., or ePLDT, IP Converge Data Services, Inc., or IPCDSI, Rack IT, ABM Global Solutions, Inc., or AGS, and its subsidiaries, or AGS Group, and Curo Teknika, Inc.; 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 provided by Pilipinas Global Network Limited and its subsidiaries; and bills printing and other value-added services, or VAS, related services provided by ePDS, Inc., or ePDS; 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 December 31, 2015, 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 years ended December 31, 2015 and 2014 are set forth below.

The following table shows the reconciliation of our consolidated EBITDA to our consolidated net income for the years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

The following table shows the reconciliation of our consolidated core income to our consolidated net income for the years ended December 31, 2015 and 2014:

The table below shows the contribution by each of our business segments to our consolidated revenues, expenses, other income (expenses), income before income tax, provision for income tax, net income/segment profit, EBITDA, EBITDA margin and core income for the years ended December 31, 2015 and 2014. In each of the years ended December 31, 2015 and 2014, we generated majority of our revenues from our operations within the Philippines.


										Inter-segment
	Wireless			Fixed Line			Others			Transactions			Consolidated
				(in millions)
For the years ended December 31, 2015
Revenues		115,513			68,865			–			(13,275	)		171,103
Expenses		95,358			58,459			5,183			(14,566	)		144,434
Other income (expenses)		(1,958	)		(2,557	)		5,775			(1,291	)		(31	)
Income before income tax		18,197			7,849			592			–			26,638
Provision for income tax		2,763			1,656			144			–			4,563
Net income/Segment profit		15,434			6,193			448			–			22,075
EBITDA		44,237			24,749			(59	)		1,291			70,218
EBITDA margin⁽¹⁾		40	%		38	%		–			–			43	%
Core income		22,512			6,539			6,161			–			35,212
For the years ended December 31, 2014⁽²⁾
Revenues		118,879			66,178			–			(14,222	)		170,835
Expenses		89,102			56,855			56			(15,556	)		130,457
Other income (expenses)		(724	)		217			5,611			(1,334	)		3,770
Income before income tax		29,053			9,540			5,555			–			44,148
Provision for income tax		7,158			2,818			82			–			10,058
Net income/Segment profit		21,895			6,722			5,473			–			34,090
EBITDA		50,917			24,555			(56	)		1,334			76,750
EBITDA margin⁽¹⁾		44	%		38	%		–			–			47	%
Core income		25,176			6,691			5,543			–			37,410
Increase (Decrease)
Revenues		(3,366	)		2,687			–			947			268
Expenses		6,256			1,604			5,127			990			13,977
Other income (expenses)		(1,234	)		(2,774	)		164			43			(3,801	)
Income before income tax		(10,856	)		(1,691	)		(4,963	)		–			(17,510	)
Provision for income tax		(4,395	)		(1,162	)		62			–			(5,495	)
Net income/Segment profit		(6,461	)		(529	)		(5,025	)		–			(12,015	)
EBITDA		(6,680	)		194			(3	)		(43	)		(6,532	)
Core income		(2,664	)		(152	)		618			–			(2,198	)

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

⁽²⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

We reported consolidated revenues of Php171,103 million in 2015, an increase of Php268 million as compared with Php170,835 million in 2014, primarily due to higher revenues from data and other network, local exchange and miscellaneous services from our fixed line business, higher wireless broadband revenues, and an increase in our non-service revenues, partially offset by lower revenues from cellular and other services from our wireless business, and lower revenues from international and national long distance services from our fixed line business.

The following table shows the breakdown of our consolidated revenues by business segment for the years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Consolidated expenses increased by Php13,977 million, or 11%, to Php144,434 million in 2015 from Php130,457 million in 2014, as a result of higher expenses related to asset impairment, cost of sales, and operating expenses related to compensation and employee benefits, professional and other contracted services, repairs and maintenance, taxes and licenses, and other operating expenses, partially offset by lower expenses related to selling and promotions, rent, communication, training and travel, interconnection costs, insurance and security services, and amortization of intangible assets.

The following table shows the breakdown of our consolidated expenses by business segment for the years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Consolidated other expenses amounted to Php31 million in 2015, a change of Php3,801 million, or 101%, from consolidated other income of Php3,770 million in 2014, primarily due to the combined effects of the following: (i) higher foreign exchange losses by Php2,654 million on account of revaluation of net foreign currency-denominated liabilities due to higher depreciation of the Philippine peso relative to the U.S. dollar; (ii) higher net financing costs by Php939 million due to higher outstanding loan balance and weighted average interest rate, a higher weighted average foreign exchange rate and a decrease in capitalized interest, partly offset by lower financing charges; (iii) a decrease in equity share in net earnings of associates by Php600 million due to lower share in net earnings of Asia Outsourcing Beta Limited, or Beta, and share in net losses of Cignal TV, Inc., or Cignal TV, in 2015, partially offset by higher net earnings of Beacon Electronic Asset Holdings, Inc., or Beacon; (iv) a decrease in other income by Php176 million due to gain on fair value adjustment of investment property and gain on purchase price adjustment in 2014 in relation to the acquisition of Digitel, partially offset by higher realized portion of deferred gain on the sale of Meralco shares; (v) higher interest income by Php47 million due to higher weighted average peso and dollar interest rates, increase in principal amount of dollar temporary cash investments and the depreciation of the Philippine peso to the U.S. dollar; and (vi) gains on derivative financial instruments of Php420 million in 2015 as against losses on derivative financial instruments of Php101 million in 2014 on account of a higher mark-to-market gain on long-term currency swaps and forward purchase contracts due to the depreciation of the Philippine peso relative to the U.S. dollar 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 years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Consolidated net income decreased by Php12,015 million, or 35%, to Php22,075 million in 2015, from Php34,090 million in 2014. The decrease was mainly due to the combined effects of the following: (i) an increase in consolidated expenses by Php13,977 million; (ii) a decrease in consolidated other income – net by Php3,801 million; (iii) a decrease in consolidated provision for income tax by Php5,495 million; and (iv) an increase in consolidated revenues by Php268 million. Our consolidated basic and diluted EPS decreased to Php101.85 in 2015 from consolidated basic and diluted EPS of Php157.51 in 2014. Our weighted average number of outstanding common shares was approximately 216.06 million in each of 2015 and 2014.

The following table shows the breakdown of our consolidated net income by business segment for the years ended December 31, 2015 and 2014:

Our consolidated EBITDA amounted to Php70,218 million in 2015, a decrease of Php6,532 million, or 9%, as compared with Php76,750 million in 2014, primarily due to higher cost of sales and provision for doubtful accounts, as well as higher operating expenses driven by compensation and employee benefits, professional and other contracted services, and other operating expenses, partially offset by lower selling and promotions, rent, communication, training and travel, and interconnection costs, as well as higher consolidated revenues.

The following table shows the breakdown of our consolidated EBITDA by business segment for the years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Our consolidated core income amounted to Php35,212 million in 2015, a decrease of Php2,198 million, or 6%, as compared with Php37,410 million in 2014 primarily due to higher consolidated operating expenses and lower other income, partially offset by lower provision for income tax and higher consolidated revenues. Our consolidated basic and diluted core EPS, decreased to Php162.70 in 2015 from Php172.88 in 2014.

The following table shows the breakdown of our consolidated core income by business segment for the years ended December 31, 2015 and 2014:

We generated revenues from our wireless business of Php115,513 million in 2015, a decrease of Php3,366 million, or 3%, from Php118,879 million in 2014.

The following table summarizes our total revenues from our wireless business for the years ended December 31, 2015 and 2014 by service segment:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Our wireless service revenues in 2015 decreased by Php4,321 million, or 4%, to Php110,716 million as compared with Php115,037 million in 2014, mainly as a result of lower revenues from voice and text messaging services, as well as other services, partially offset by higher revenues from mobile internet and broadband revenues. As a percentage of our total wireless revenues, service revenues accounted for 96% and 97% in 2015 and 2014, respectively.

Our cellular service revenues in 2015 amounted to Php97,738 million, a decrease of Php5,042 million, or 5%, from Php102,780 million in 2014. Cellular service revenues accounted for 88% and 89% of our wireless service revenues in 2015 and 2014, respectively.

We have focused on segmenting the market by offering sector-specific, value-driven packages for our subscribers. Our cellular services include SMS and voice, as well as a variety of data and multi-media services that cater to the growing use of smartphones by our subscribers. We offer a variety of packages that include load buckets which provide a fixed number of messages, calls of preset duration and data allowance with prescribed validity. Smart and Sun Cellular 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.

In September 2014, we launched Free Mobile Internet, the first of many promotions designed to stimulate data usage. Free Mobile Internet provided subscribers with up to 30MB of data usage per day, free of charge, exclusive of video streaming, voice over internet protocol and messaging applications. The promotion ran until February 28, 2015 and was subsequently replaced by our Internet for All promotion, whereby Smart, TNT (formerly Talk ‘N Text) and Sun Cellular prepaid subscribers could enjoy up to 30MB of data usage per day when they register to top prepaid offers. This promotion was valid until June 15, 2015. In conjunction with this, we also offered Smart Big Bytes, a volume-based data offering, which can be used by Smart Prepaid and Postpaid, as well as SmartBro Prepaid and Postpaid subscribers, varying from up to 5MB of data usage per day, to up to 18GB of data usage for 30 days, plus bonus access to the more popular apps depending on the availed prepaid buckets.

On March 18, 2015, Smart became the first telecommunications provider to launch Internet.org in the Philippines and in Southeast Asia. This Facebook-led initiative aims to make mobile internet services available to two-thirds of the world who are not yet connected. Bannering the Internet.org app launch in the Philippines is TNT, which targets the larger mass segment of the population. With Internet.org on their mobile phones, cellular subscribers of Smart, TNT and Sun Cellular nationwide may enjoy free access to a buffet of 24 websites featuring informative and practical content, including Facebook and Facebook Messenger. Subscribers may download the Internet.org app from the Google Play Store.

On June 19, 2015, we introduced “Smart Life” where we aim to provide our customers with “Entertainment On-the-Go, Urban Comfort On-the-Go, Peace of Mind On-the-Go” via digital services like iFlix, Viewstream for video, Deezer or Spinnr for music and PLDT HOME’s FAM CAM.

On July 7, 2015, we continued to build on the “Smart Life” by offering Free Instagram to Smart Prepaid subscribers. Subscribers are able to enjoy free Instagram browsing and posting for up to 30MB per day when they register to top prepaid offers. This promotion was valid until January 31, 2016.

On September 8, 2015, we announced a partnership with Uber, the world’s largest ride-sharing technology company as part of our “Urban Comfort On-the-Go” portfolio. Under the partnership, Smart will install free in-car Smart WiFi for Uber passengers, a first in Southeast Asia. We have also introduced exclusive voice and data packages, bundles and add-ons for Uber partner drivers.

In addition, we announced last October 29, 2015 a partnership with Airbnb, the world’s leading community-driven hospitality company. The exclusive partnership offers a complete and more convenient travel experience for millions of Filipinos, whether their destination is within the Philippines or overseas. From October 29, 2015 until January 2016, all Smart subscribers received a Php2,500 Airbnb discount for a minimum booking of Php8,000 at any Airbnb accommodation partner within the Philippines and abroad.

In November 2015, Smart made available the latest variants of the iPhone series to its customers. Subscribers can get iPhone 6s and iPhone 6s Plus for free starting at Plan 2000 and Plan 2499, respectively. iPhone Plan 2000 comes with 150 minutes of voice calls, 200 SMS, 10GB consumable data with all-month surf and Choose Your VAS subscription, while iPhone Plan 2499 comes with 300 minutes of voice calls, 300 SMS, 15GB consumable data with all-month surf and Choose Your VAS subscription.

The following table shows the breakdown of our cellular service revenues for the years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

⁽²⁾ Refers to other non-subscriber-related revenues consisting primarily of inbound international roaming fees, share in revenues from Smart Money, PLDT’s WeRoam and PLDT Landline Plus, or PLP, services, a small number of leased line contracts, and revenues from and other Smart subsidiaries.

The following table shows other key measures of our cellular business as at and for the years ended December 31, 2015 and 2014:

Revenues generated from our prepaid cellular services amounted to Php71,781 million in 2015, a decrease of Php7,343 million, or 9%, as compared with Php79,124 million in 2014. Prepaid cellular service revenues accounted for 75% and 79% of cellular voice and data revenues in 2015 and 2014, respectively. The decrease in revenues from our prepaid cellular services was primarily due to lower voice and text messaging revenues, as well as lower prepaid cellular subscriber base, partially offset by an increase in mobile internet revenues. Revenues generated from postpaid cellular service amounted to Php23,673 million in 2015, an increase of Php2,020 million, or 9%, as compared with Php21,653 million earned in 2014, and accounted for 25% and 21% of cellular voice and data revenues in 2015 and 2014, respectively. The increase in our postpaid cellular service revenues was primarily due to our growing postpaid subscriber base.

Cellular revenues from our voice services, which include all voice traffic and voice VAS, such as voicemail and outbound international roaming, decreased by Php5,584 million, or 11%, to Php45,481 million in 2015 from Php51,065 million in 2014 primarily due to lower international and domestic voice revenues, and preference for alternative calling options and other over-the-top, or OTT, services such as Viber, Facebook Messenger, etc. Cellular voice services accounted for 47% and 50% of our cellular service revenues in 2015 and 2014, respectively.

The following table shows the breakdown of our cellular voice revenues for the years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Domestic voice service revenues decreased by Php2,376 million, or 6%, to Php34,504 million in 2015 from Php36,880 million in 2014, due to lower domestic outbound and inbound voice service revenues by Php1,871 million and Php505 million, respectively.

Revenues from our domestic inbound voice service decreased by Php505 million, or 12%, to Php3,819 million in 2015 from Php4,324 million in 2014 due to lower traffic originating from other mobile carriers. Domestic inbound call volumes decreased by 137 million minutes, or 12%, to 983 million minutes in 2015 from 1,120 million minutes in 2014.

Revenues from domestic outbound voice service decreased by Php1,871 million, or 6%, to Php30,685 million in 2015 from Php32,556 million in 2014 mainly due to lower standard and bucket voice revenues. Domestic outbound call volumes, however, increased by 5,117 million minutes, or 11%, to 53,522 million minutes in 2015 from 48,405 million minutes in 2014 resulting in lower yield. The increase was primarily attributable to higher unlimited and bucket voice traffic, partially offset by lower standard voice traffic.

International voice service revenues decreased by Php3,208 million, or 23%, to Php10,977 million in 2015 from Php14,185 million in 2014 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 a higher weighted average exchange rate of the Philippine peso to the U.S. dollar. International inbound and outbound calls totaled 2,482 million minutes in 2015, a decrease of 759 million minutes, or 23%, from 3,241 million minutes in 2014.

Cellular revenues from our data services, which include all text messaging-related services, as well as VAS, mobile internet and other data revenues, increased by Php261 million, or 1%, to Php49,973 million in 2015 from Php49,712 million in 2014 primarily due to higher mobile internet revenues, partially offset by lower text messaging revenues. Cellular data services accounted for 51% and 48% of our cellular service revenues in 2015 and 2014, respectively.

The following table shows the breakdown of our cellular data service revenues for the years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

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

⁽³⁾ Includes revenues from Smart Pasa Load , Sun Cellular Give-a-load and Dial*SOS, net of allocated discounts; Music (Spinnr and Deezer, music subscription mainly ring back tunes and music downloads, net of allocated discounts and content provider costs); Gaming (games subscriptions, downloads, and purchases, net of allocated discounts and content provider costs); Videos (video subscriptions, downloads and video and movie streaming via iFlix and Fox, net of allocated discounts and content provider costs); Infotainment (subscriptions and downloads of broadcast materials that are intended both to entertain and to inform, as well as info-on-demand, net of allocated discounts and content provider costs); financial services ( revenues from Smart Money Clicks via Smart Menu and mobile banking); Communicate, (revenues from group chat, text and voice messaging services net of allocated discounts and content provider costs); and Other VAS ( includes revenues from application program interface (API) downloads, info-on-demand and voice text services, net of allocated discounts and content provider costs).

Text messaging-related services contributed revenues of Php37,958 million in 2015, a decrease of Php1,836 million, or 5%, as compared with Php39,794 million in 2014, and accounted for 76% and 80% of our total cellular data service revenues in 2015 and 2014, respectively. The decrease in revenues from text messaging-related services resulted mainly from lower outbound standard and bucket-priced/unlimited SMS, as well as lower international text messaging revenues. Text messaging revenues from various bucket-priced/unlimited SMS offers totaled Php24,680 million in 2015, a decrease of Php431 million, or 2%, as compared with Php25,111 million in 2014. Bucket-priced/unlimited text messages decreased by 46,668 million, or 12%, to 342,653 million in 2015 from 389,321 million in 2014.

Standard text messaging revenues, which include inbound and outbound standard SMS revenues, decreased by Php752 million, or 7%, to Php10,742 million in 2015 from Php11,494 million in 2014, mainly due to a decrease in outbound standard SMS revenues primarily as a result of increased preference for messaging through various mobile apps, social networking sites and other OTT services, partly offset by an increase in domestic inbound SMS revenues. Inbound standard text messages increased by 4,953 million, or 24%, to 25,197 million in 2015 from 20,244 million in 2014, partially offset by the decline in outbound standard text messages by 2,098 million, or 18%, to 9,813 million in 2015 from 11,911 million in 2014.

International text messaging revenues amounted to Php2,536 million in 2015, a decrease of Php653 million, or 20%, from Php3,189 million in 2014. The decline in revenues was mainly due to lower international SMS rates driven by enhanced bucket offers combined with the impact of lower international text messages which declined by 70 million, or 8%, to 812 million in 2015 from 882 million in 2014, partly offset by the favorable effect of a higher weighted average exchange rate of the Philippine peso to the U.S. dollar.

Mobile internet service revenues increased by Php2,168 million, or 26%, to Php10,421 million in 2015 from Php8,253 million in 2014 as a result of higher traffic for mobile internet browsing mainly due to prevalent use of mobile apps, social networking sites and other OTT services. Mobile internet usage includes traffic generated from various promotions, such as Free Mobile Internet, Internet for All and Free Instagram. Other data offerings, such as Smart Big Bytes, Smart Life Entertainment bundles and Internet.org, were also introduced during the year to boost data usage.

Revenues from our other cellular services, which include non-subscriber-related revenues consisting of inbound international roaming fees and share in revenues from PLDT WeRoam and PLP, increased by Php281 million, or 14%, to Php2,284 million in 2015 from Php2,003 million in 2014 primarily due to higher share of Smart in PayMaya’s peer-to-peer (P2P) transaction fees and other subscriber-related income, partially offset by lower revenues from inbound roaming. Other cellular services accounted for 2% of our cellular service revenues in each of 2015 and 2014.

As at December 31, 2015, our cellular subscribers totaled 64,938,074 a decrease of 4,918,986, or 7%, from the cellular subscriber base of 69,857,060 as at December 31, 2014. Our cellular prepaid subscriber base decreased by 5,111,187, or 8%, to 61,980,425 as at December 31, 2015 from 67,091,612 as at December 31, 2014, while our cellular postpaid subscriber base increased by 192,201, or 7%, to 2,957,649 as at December 31, 2015 from 2,765,448 as at December 31, 2014. The decrease in cellular subscriber base was primarily due to net decreases in Smart and Sun Cellular subscribers by 1,795,336 and 3,028,450, respectively, and lower TNT subscribers by 95,200. Prepaid subscribers accounted for 95% and 96% of our total subscriber base as at December 31, 2015 and 2014, respectively.

Our net subscriber activations (reductions) for the years ended December 31, 2015 and 2014 were as follows:

⁽¹⁾ Net of 1,400,331 adjustment in the number of subscribers resulting from our periodic clean-up. Excluding the clean-up adjustment, net reductions in 2015 should have been 1,630,815, which registered a decrease of 2,121,877, or 432%, from 491,062 activations in 2014.

⁽²⁾ Net of 218,497 adjustment in the number of subscribers resulting from our periodic clean-up. Excluding the clean-up adjustment, activations in 2015 should have been 221,193, which registered a decrease of 15,853, or 7%, from 237,046 in 2014.

The following table summarizes our average monthly churn rates for the years ended December 31, 2015 and 2014:

The following table summarizes our average monthly cellular ARPUs for the years ended December 31, 2015 and 2014:

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

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

Our average monthly prepaid and postpaid ARPUs per quarter of 2015 and 2014 were as follows:

⁽¹⁾ Gross monthly ARPU is calculated based on the average of the gross monthly ARPUs for the quarter.

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

Our revenues from wireless broadband and other services consist mainly of wireless broadband service revenues from SBI and DMPI, charges for ACeS Philippines’ satellite information and messaging services and service revenues generated by MVNOs of PLDT Global’s subsidiaries.

Revenues from our wireless broadband services increased by Php972 million, or 10%, to Php10,991 million in 2015 from Php10,019 million in 2014, primarily due to an increase in prepaid revenues by Php1,189 million, or 37%, to Php4,362 million in 2015 from Php3,173 million in 2014, partially offset by lower postpaid revenues by Php217 million, or 3%, to Php6,629 million in 2015 from Php6,846 million in 2014 mainly due to the migration of Canopy and WiMax subscribers to TD-LTE and other PLDT fixed broadband plans.

The following table shows information of our wireless broadband revenues for the years ended December 31, 2015 and 2014 and subscriber base as at December 31, 2015 and 2014:

Smart Broadband and Sun Broadband Wireless, which offer a number of wireless broadband services, had a total of 3,932,820 subscribers as at December 31, 2015, a net increase of 946,674 subscribers, or 32%, as compared with 2,986,146 subscribers as at December 31, 2014, primarily due to a net increase in Smart Broadband subscribers by 748,592, or 32%, complemented by an increase in Sun Broadband subscribers by 198,082, or 29%, as at December 31, 2015. Our prepaid wireless broadband subscriber base increased by 940,869 subscribers, or 44%, to 3,083,435 subscribers as at December 31, 2015 from 2,142,566 subscribers as at December 31, 2014, and our postpaid wireless broadband subscriber base also increased by 5,805 subscribers, or 1%, to 849,385 subscribers as at December 31, 2015 from 843,580 subscribers as at December 31, 2014.

Smart Broadband offers internet access through SmartBro Plug-It, a wireless modem and SmartBro Pocket WiFi, a portable wireless router which can be shared by multiple users at a time. Both provide connectivity at varying speeds supported by Smart’s network utilizing either 3G high speed packet access (HSPA), 4G HSPA+ or Long Term Evolution (LTE)-technology. SmartBro Plug-It and SmartBro Pocket WiFi are available in both postpaid and prepaid variants.

Smart Broadband continues to grow the wireless broadband revenues with our new campaign for the SmartBro Pocket WiFi where subscribers can “Share the Smart Life” through various data-sharing plans among several subscribers.

Smart Broadband also has an additional array of surfing packages such as Big Bytes, a volume-based charging offer, Flexitime packages which are time-based charging offers with different validity periods, and Surf Max packages which offer all-day internet surfing. LTE Pocket WiFi is now free at Big Bytes Plan 999.

Smart Broadband also offers PLDT HOMEBro, 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. ULTERA, our latest fixed wireless internet offering designed for the home, utilizes the TD-LTE technology.

DMPI’s Sun Broadband Wireless is an affordable high-speed wireless broadband service utilizing advanced 3.5G HSPA and LTE technology offering various plans and packages to internet users. Sun Broadband has a selection of broadband offerings which includes Non-Stop Surf packages for light or casual browsers, Surf Net Mega packages for the heavy internet users, and Unlimited Surf loads for subscribers who want the most affordable unlimited surfing.

Revenues from our other services decreased by Php246 million, or 21%, to Php936 million in 2015 from Php1,182 million in 2014, primarily due to a decrease in the number of ACeS Philippines’ subscribers, lower revenue contribution from MVNOs of PLDT Global, partially offset by the impact of higher weighted average exchange rate of Php45.51 for the year ended December 31, 2015 from Php44.40 for the year ended December 31, 2014 on our U.S. dollar and U.S. dollar-linked other service revenues.

Revenues from digital platforms and mobile financial services, as reported by Voyager, decreased by Php5 million to Php1,051 million in 2015 from Php1,056 million in 2014 mainly attributable to the decrease in Chikka’s value-added services.

Our wireless non-service revenues consist of proceeds from sales of cellular handsets, cellular SIM-packs and broadband data modems, tablets and accessories. Our wireless non-service revenues increased by Php955 million, or 25%, to Php4,797 million in 2015 from Php3,842 million in 2014, primarily due to increased availments for broadband Pocket WiFi, HOMEBro LTE, broadband tablets accessories and computer packages, as well as higher postpaid cellular activation and retention packages, partly offset by lower quantity of broadband Plug-It modems issued.

Expenses associated with our wireless business amounted to Php95,358 million in 2015, an increase of Php6,256 million, or 7%, from Php89,102 million in 2014. A significant portion of the increase was attributable to higher expenses related to asset impairment, cost of sales, depreciation and amortization, compensation and employee benefits, professional and other contracted services, interconnection costs, taxes and licenses, and other operating expenses, partially offset by lower selling and promotions, rent, communications, training and travel, repairs and maintenance, insurance and security services, and amortization of intangible assets. As a percentage of our total wireless revenues, expenses associated with our wireless business accounted for 83% and 75% in 2015 and 2014, respectively.

The following table summarizes the breakdown of our total wireless-related expenses for the years ended December 31, 2015 and 2014 and the percentage of each expense item in relation to the total:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Depreciation and amortization charges increased by Php843 million, or 5%, to Php17,218 million primarily due to a higher depreciable asset base and accelerated depreciation on service delivery platforms equipment.

Cost of sales increased by Php2,241 million, or 19%, to Php13,873 million primarily due to increased modems and devices issued for Pocket WiFi, HOMEBro LTE, broadband accessories mainly tablets, as well as an increase in handset costs attributable to higher cellular postpaid activation and retention, partially offset by lower quantity of broadband Plug-It modems issued.

Rent expenses decreased by Php351 million, or 3%, to Php10,657 million primarily due to lower leased circuit and dark fiber rental charges, as well as lower site, office building and pole rentals.

Repairs and maintenance expenses decreased by Php89 million, or 1%, to Php8,577 million mainly due to lower site fuel consumption costs and maintenance costs on IT hardware, partially offset by higher maintenance and technical support costs on expanded network and site facilities, an increase in site electricity and higher maintenance costs on IT software.

Interconnection costs increased by Php284 million, or 3%, to Php8,513 million primarily due to an increase in interconnection charges on domestic voice and SMS services, partially offset by lower interconnection cost on international voice and SMS services.

Asset impairment increased by Php2,826 million, or 50%, to Php8,446 million primarily due to higher fixed asset impairment provision, provision for inventory obsolescence and provision for doubtful accounts.

Compensation and employee benefits increased by Php781 million, or 11%, to Php7,725 million primarily due to higher salaries, manpower rightsizing program, or MRP, costs, and provision for pension, partly offset by lower incentives and employee benefits. Employee headcount decreased to 7,505 as at December 31, 2015 as compared with 7,786 as at December 31, 2014.

Selling and promotion expenses decreased by Php800 million, or 9%, to Php7,712 million primarily due to lower costs of events, advertising, commissions and public relations expenses.

Professional and other contracted service fees increased by Php314 million, or 6%, to Php5,613 million primarily due to an increase in facility usage costs, legal and other service fees, partly offset by lower consultancy, audit and contracted service fees.

Taxes and licenses increased by Php180 million, or 6%, to Php3,124 million due to higher business-related taxes and tax settlements in 2015.

Insurance and security services decreased by Php84 million, or 7%, to Php1,190 million primarily due to lower site and office security expenses, as well as lower group health insurance premiums.

Amortization of intangible assets decreased by Php73 million, or 6%, to Php1,076 million primarily due to lower license fees.

Communication, training and travel expenses decreased by Php114 million, or 11%, to Php958 million primarily due to lower fuel costs for vehicles as a result of lower average fuel cost per liter, partially offset by higher travel expenses.

Other expenses increased by Php298 million, or 79%, to Php676 million primarily due to higher various business and operational-related expenses.

The following table summarizes the breakdown of our total wireless-related other income (expenses) for the years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Our wireless business’ other expenses amounted to Php1,958 million in 2015, an increase of Php1,234 million, or 170%, from Php724 million in 2014, primarily due to the combined effects of the following: (i) higher net foreign exchange losses by Php1,158 million on account of the revaluation of net foreign currency-denominated liabilities due to higher depreciation of the Philippine peso relative to the U.S. dollar; (ii) higher net financing costs by Php153 million primarily due to higher outstanding loan balances, higher weighted average interest rates on loans, an increase in accretion on financial liabilities, partly offset by lower financing charges and higher capitalized interest; (iii) higher equity share in net losses of Automated Fare Collection Services, Inc. by Php70 million; (iv) an increase in other income – net by Php22 million mainly due to higher income from consultancy and higher gain on sale of fixed assets, partly offset by lower gain on insurance claims; and (v) higher interest income by Php91 million mainly due to higher weighted average peso and dollar interest rates, increase in principal amount of temporary cash investments and the depreciation of the Philippine peso to the U.S. dollar.

Provision for income tax decreased by Php4,395 million, or 61%, to Php2,763 million in 2015 from Php7,158 million in 2014 primarily due to lower taxable income and recognition of deferred tax assets. The effective tax rates for our wireless business were 15% and 25% in 2015 and 2014, respectively.

As a result of the foregoing, our wireless business’ net income decreased by Php6,461 million, or 30%, to Php15,434 million in 2015 from Php21,895 million in 2014.

Our wireless business’ EBITDA decreased by Php6,680 million, or 13%, to Php44,237 million in 2015 from Php50,917 million in 2014.

Our wireless business’ core income decreased by Php2,664 million, or 11%, to Php22,512 million in 2015 from Php25,176 million in 2014 on account of higher wireless-related operating and other expenses and lower wireless revenues, partially offset by lower provision for income tax.

Revenues generated from our fixed line business amounted to Php68,865 million in 2015, an increase of Php2,687 million, or 4%, from Php66,178 million in 2014.

The following table summarizes our total revenues from our fixed line business for the years ended December 31, 2015 and 2014 by service segment:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Our fixed line business provides local exchange service, national and international long distance services, data and other network services, and miscellaneous services. Our fixed line service revenues increased by Php1,368 million, or 2%, to Php65,475 million in 2015 from Php64,107 million in 2014 due to increases in revenues from our data and other network, local exchange and miscellaneous services, partially offset by lower national and international long distance service revenues.

The following table summarizes the key measures of our local exchange service business as at and for the years ended December 31, 2015 and 2014:

Revenues from our local exchange service increased by Php489 million, or 3%, to Php17,076 million in 2015 from Php16,587 million in 2014, primarily due to higher weighted average postpaid billed lines. The percentage contribution of local exchange revenues to our total fixed line service revenues was 26% in each of 2015 and 2014.

The following table shows our international long distance service revenues and call volumes for the years ended December 31, 2015 and 2014:

Our total international long distance service revenues decreased by Php2,185 million, or 19%, to Php9,219 million in 2015 from Php11,404 million in 2014, primarily due to lower call volumes for both inbound and outbound traffic as a result of popularity of OTT service providers (e.g. Facebook, Skype, Viber, WhatsApp, etc.) over traditional long distance services, as well as lower average settlement rate in dollar terms, partially offset by the increase in average billing rate in dollar terms and the effect of a higher weighted average exchange rate of the Philippine peso to the U.S. dollar to Php45.51 for the year ended December 31, 2015 from Php44.40 for the year ended December 31, 2014. The percentage contribution of international long distance service revenues to our total fixed line service revenues accounted for 14% and 18% in 2015 and 2014, respectively. Correspondingly, our total international long distance service revenues, net of interconnection costs, decreased by Php916 million, or 21%, to Php3,487 million in 2015 from Php4,403 million in 2014.

The following table shows our national long distance service revenues and call volumes for the years ended December 31, 2015 and 2014:

Our national long distance service revenues decreased by Php407 million, or 9%, to Php3,958 million in 2015 from Php4,365 million in 2014, primarily due to a decrease in call volumes. The percentage contribution of national long distance revenues to our fixed line service revenues were 6% and 7% in 2015 and 2014, respectively. Our national long distance service revenues, net of interconnection costs, decreased by Php333 million, or 10%, to Php3,091 million in 2015 from Php3,424 million in 2014.

The following table shows information of our data and other network service revenues for the years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Our data and other network services posted revenues of Php33,748 million in 2015, an increase of Php3,416 million, or 11%, from Php30,332 million in 2014, primarily due to higher domestic data revenues from DSL, Fibr and Shops.Work, international data revenues primarily from i-Gate, and data center and ICT revenues. The percentage contribution of this service segment to our fixed line service revenues was 52% and 47% in 2015 and 2014, respectively.

Domestic data services contributed Php23,816 million in 2015, an increase of Php1,968 million, or 9%, as compared with Php21,848 million in 2014 mainly due to sustained market traction on Broadband such as DSL and Fibr, as a result of higher internet connectivity requirements, and key Private Networking Solutions such as IP-VPN, Metro Ethernet and Shops.Work. The percentage contribution of domestic data service revenues to total data and other network services were 70% and 72% in 2015 and 2014, respectively.

Broadband data services include DSL broadband internet service, which is intended for individual internet users, small and medium enterprises, and large corporations with multiple branches, and Fibr, our most advanced broadband internet connection. Broadband data revenues amounted to Php16,141 million in 2015, an increase of Php2,065 million, or 15%, from Php14,076 million in 2014 as a result of the increase in the number of subscribers by 150,496, or 14%, to 1,255,864 subscribers as at December 31, 2015 from 1,105,368 subscribers as at December 31, 2014. Broadband revenues accounted for 48% and 46% of total data and other network service revenues in 2015 and 2014, respectively.

Leased lines and other data services include: (1) Diginet, our domestic private leased line service providing Smart’s fiber optic and leased line data requirements; (2) Internet Protocol-Virtual Private Network, or IP-VPN, a managed corporate IP network that offers a secure means to access corporate network resources;
(3) Metro Ethernet, our high-speed wide area networking services that enable mission-critical data transfers; and (4) Shops.Work, our connectivity solution for retailers and franchisers that links company branches to their head office. Leased lines and other data service revenues contributed Php7,675 million in 2015, a decrease of Php97 million, or 1%, from Php7,772 million in 2014. The percentage contribution of leased lines and other data service revenues to the total data and other network services were 22% and 26% in 2015 and 2014, respectively.

International leased lines and other data services consist mainly of: (1) i-Gate, our premium dedicated internet access service that provides high speed, reliable and managed connectivity to the global internet, and is intended for enterprises and VAS providers; (2) Fibernet, which provides cost-effective and reliable bilateral point-to-point private networking connectivity, through the use of our extensive international alliances to offshore and outsourcing, banking and finance, and semiconductor industries; and (3) other international managed data services in partnership with other global service providers, which provide data networking services to multinational companies. International data service revenues increased by Php916 million, or 14%, to Php7,328 million in 2015 from Php6,412 million in 2014, primarily due to higher i-Gate revenues and IP-VPN local access services, an increase in revenues from various global service providers and the favorable effect of a higher weighted average exchange rate of the Philippine peso relative to the U.S. dollar. The percentage contribution of international data service revenues to total data and other network service revenues were 22% and 21% in 2015 and 2014, respectively.

Data centers provide colocation or rental services, server hosting, disaster recovery and business continuity services, intrusion detection, security services, such as managed firewalls. As at December 31, 2015, ePLDT Group had a total of 3,150 rack capacity in six locations covering Metro Manila, Subic and Cebu. Data center revenues increased by Php532 million, or 26%, to Php2,604 million in 2015 from Php2,072 million in 2014 mainly due to higher revenues from colocation, cloud and big data services. Cloud services include cloud contact center, cloud IaaS, cloud SaaS, managed security services and cloud professional services and accounted for 22% and 20% of data center revenues in 2015 and 2014, respectively. The percentage contribution of this service segment to our total data and other network service revenues were 8% and 7% in 2015 and 2014, respectively.

Miscellaneous service revenues are derived mostly from rental, outsourcing and facilities management fees, and directory advertising. These service revenues increased by Php55 million, or 4%, to Php1,474 million in 2015 from Php1,419 million in 2014 mainly due to higher outsourcing and management fees, and royalties from directory services. The percentage contribution of miscellaneous service revenues to our total fixed line service revenues was 2% in each of 2015 and 2014.

Non-service revenues increased by Php1,319 million, or 64%, to Php3,390 million in 2015 from Php2,071 million in 2014, primarily due to higher sale of Telpad units, equipment for PLDT UNO, a managed unified communications offering, FabTAB for myDSL retention and computer-bundled sales, partially offset by lower sale of TVolution units and several managed PABX and OnCall solutions.

Expenses related to our fixed line business totaled Php58,459 million in 2015, an increase of Php1,604 million, or 3%, as compared with Php56,855 million in 2014. The increase was primarily due to higher expenses related to compensation and employee benefits, asset impairment, cost of sales, professional and other contracted services, repairs and maintenance, and rent, partly offset by lower expenses related to interconnection costs, depreciation and amortization, taxes and licenses, communication, training and travel, and other operating expenses. As a percentage of our total fixed line revenues, expenses associated with our fixed line business accounted for 85% and 86% in 2015 and 2014, respectively.

The following table shows the breakdown of our total fixed line-related expenses for the years ended December 31, 2015 and 2014 and the percentage of each expense item to the total:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Depreciation and amortization charges decreased by Php703 million, or 5%, to Php14,301 million due to lower depreciable asset base as a result of higher accelerated depreciation in 2014.

Compensation and employee benefits expenses increased by Php2,074 million, or 18%, to Php13,899 million primarily due to higher MRP costs, salaries and employee benefits and provision for pension. Employee headcount decreased to 9,671 as at December 31, 2015 as compared with 9,710 as at December 31, 2014 mainly due to lower PLDT headcount as a result of the MRP in 2015.

Repairs and maintenance expenses increased by Php72 million, or 1%, to Php7,028 million primarily due to higher repairs and maintenance costs on cable and wire facilities, and an increase in site electricity expenses, partially offset by lower office electricity charges and lower maintenance costs on buildings.

Interconnection costs decreased by Php1,364 million, or 17%, to Php6,666 million primarily due to lower international interconnection/settlement costs as a result of a decrease in international inbound calls that terminated to other domestic carriers, and lower international outbound calls, and data and other network interconnection/settlement costs, particularly Fibernet and Infonet.

Professional and other contracted service expenses increased by Php211 million, or 5%, to Php4,382 million primarily due to higher contracted service fees, mailing and courier charges, and legal fees, partially offset by lower consultancy fees.

Rent expenses increased by Php62 million, or 2%, to Php2,768 million primarily due to higher leased circuit, and office building rental charges, partially offset by lower customer premises equipment rental charges.

Cost of sales increased by Php856 million, or 45%, to Php2,759 million primarily due to higher sale of equipment for PLDT UNO and Telpad units, higher computer-bundled sales, FabTAB for myDSL retention, and several managed PABX and OnCall solution.

Selling and promotion expenses decreased by Php90 million, or 4%, to Php2,036 million primarily due to lower cost of events and public relations, partially offset by higher advertising and commissions expenses.

Taxes and licenses decreased by Php143 million, or 9%, to Php1,425 million as a result of lower business-related taxes, partly offset by a higher tax settlement in 2015.

Asset impairment increased by Php860 million to Php1,286 million mainly due to higher provision for uncollectible receivables in 2015, partly offset by fixed asset impairment provision in 2014.

Insurance and security services decreased by Php2 million to Php715 million primarily due to lower insurance and bond premiums, partially offset by higher expenses on office security services and group health insurance premiums.

Communication, training and travel expenses decreased by Php94 million, or 15%, to Php549 million mainly due to lower fuel consumption costs, partly offset by higher training and travel, and communication, and mailing and courier charges.

Other expenses decreased by Php135 million, or 17%, to Php645 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 years ended December 31, 2015 and 2014:

⁽¹⁾ Certain comparative information for 2014 were reclassified to conform with the current presentation.

Our fixed line business’ other expenses amounted to Php2,557 million in 2015, a change of Php2,774 million as against other income of Php217 million in 2014 mainly due to the combined effects of the following: (i) a decrease in other income – net by Php1,790 million due to gain on purchase price adjustment in 2014 in relation to the acquisition of Digitel, gain on fair value adjustment of investment property in 2014 and higher loss on sale of fixed assets in 2015; (ii) higher foreign exchange losses by Php853 million on account of revaluation of net foreign currency-denominated liabilities due to higher depreciation of the Philippine peso relative to the U.S. dollar; (iii) higher financing costs by Php785 million mainly due to higher outstanding loan balances, higher weighted average interest rates on loans, effect of a higher weighted average exchange rate of the Philippine peso to the U.S. dollar and lower capitalized interest; (iv) lower equity share in net earnings of associates by Php25 million mainly due to the share in net losses of Cignal TV; (v) an increase in interest income by Php270 million due to higher weighted average peso and dollar interest rates, increase in principal amount of dollar temporary cash investments and the depreciation of the Philippine peso to the U.S. dollar; and (vi) higher gain on derivative financial instruments by Php409 million on account of mark-to-market gain on long-term currency swaps and forward purchase contracts due to higher level of depreciation of the Philippine peso relative to the U.S. dollar and wider dollar and peso interest rate differentials.

Provision for income tax amounted to Php1,656 million in 2015, a decrease of Php1,162 million, or 41%, from Php2,818 million in 2014 primarily due to lower taxable income and reversal of deferred tax liability. The effective tax rates for our fixed line business were 21% and 30% in 2015 and 2014, respectively.

As a result of the foregoing, our fixed line business contributed a net income of Php6,193 million in 2015, a decrease of Php529 million, or 8%, as compared with Php6,722 million in 2014.

Our fixed line business’ EBITDA increased by Php194 million, or 1%, to Php24,749 million in 2015 from Php24,555 million in 2014.

Our fixed line business’ core income decreased by Php152 million, or 2%, to Php6,539 million in 2015 from Php6,691 million in 2014, primarily as a result of higher fixed line operating expenses and higher other expenses, partially offset by higher fixed line revenues and lower provision for income tax.

Expenses related to our other business totaled Php5,183 million in 2015, an increase of Php5,127 million as compared with Php56 million in 2014 primarily due to recognition of impairment loss on our investment in Rocket Internet SE (formerly Rocket Internet AG), or Rocket, resulting from the decline in Rocket share price to €28.24 with a fair value of Php14,587 million as at December 31, 2015 as compared with our original acquisition cost of Php19,711 million in August 2014.

The following table summarizes the breakdown of other income – net for other business segment for the years ended December 31, 2015 and 2014:

Other income increased by Php164 million, or 3%, to Php5,775 million in 2015 from Php5,611 million in 2014 primarily due to the combined effects of the following: (i) higher other income – net by Php1,549 million due to higher realized portion of deferred gain on the sale of Meralco shares; (ii) an increase in financing costs by Php119 million for the year ended December 31, 2015; (iii) a decrease in interest income by Php196 million; (iv) lower equity share in net earnings of associates by Php505 million mainly due to equity share in net losses of Cignal TV in 2015 and a decrease in the equity share in net earnings of Beta; and (v) foreign exchange losses of Php522 million in 2015 as against foreign exchange gains of Php121 million in 2014.

As a result of the foregoing, our other business segment registered a net income of Php448 million, a decrease of Php5,025 million, or 92%, in 2015 from Php5,473 million in 2014.

Our other business segment’s core income amounted to Php6,161 million in 2015, an increase of Php618 million, or 11%, as compared with Php5,543 million in 2014 mainly as a result of higher other income.

The following table shows our consolidated cash flows for the years ended December 31, 2015 and 2014, as well as our consolidated capitalization and other consolidated selected financial data as at December 31, 2015 and 2014:

Our consolidated cash and cash equivalents and short-term investments totaled Php47,884 million as at December 31, 2015. Principal sources of consolidated cash and cash equivalents in 2015 were cash flows from operating activities amounting to Php69,744 million, proceeds from availment of long-term debt of Php44,367 million, dividends received of Php5,544 million, interest received of Php939 million, proceeds from disposal of property, plant and equipment of Php334 million, net additions to capital expenditures under long-term financing of Php311 million and proceeds from redemption of investment in debt securities of Php292 million. These funds were used principally for: (1) capital outlays, including capitalized interest, of Php43,175 million; (2) dividend payments of Php32,532 million; (3) debt principal and interest payments of Php17,084 million and Php5,407 million, respectively; (4) purchase of investment in associates and joint ventures of Php1,274 million; (5) payment for purchase of available-for-sale investments of Php925 million; (6) net payment for purchase of short-term investments of Php725 million; and (7) settlement of derivative financial instruments of Php638 million.

Our consolidated cash and cash equivalents and short-term investments totaled Php27,302 million as at December 31, 2014. Principal sources of consolidated cash and cash equivalents in 2014 were cash flows from operating activities amounting to Php66,015 million, proceeds from availment of long-term debt of Php41,329 million, dividends received of Php1,855 million, net proceeds from maturity and redemption of investment in debt securities of Php1,602 million, interest received of Php582 million and proceeds from disposal of property, plant and equipment of Php253 million. These funds were used principally for:
(1) dividend payments of Php39,900 million; (2) capital outlays, including capitalized interest, of Php34,759 million; (3) purchase of investments available for sale of Php19,711 million; (4) debt principal and interest payments of Php15,726 million and Php4,736 million, respectively; (5) settlement of derivative financial instruments of Php596 million; (6) deposit for future PDRs of Php300 million; (7) payment for purchase of investment in associates and joint ventures of Php300 million; and (8) payment for acquisition of shares of minority shareholders and purchase of investment in subsidiaries – net of cash acquired of Php202 million.

Our consolidated net cash flows provided by operating activities increased by Php3,729 million, or 6%, to Php69,744 million in 2015 from Php66,015 million in 2014, primarily due to higher level of collection of outstanding receivables, lower level of settlement of accounts payable and lower corporate taxes paid, partially offset by lower operating income, settlement of LTIP in 2015, higher pension contribution and higher prepayments.

Cash flows provided by operating activities of our wireless business decreased by Php2,965 million, or 6%, to Php46,919 million in 2015 from Php49,884 million in 2014 primarily due to lower operating income, settlement of LTIP in 2015, higher pension contribution and higher prepayments, partially offset by lower corporate taxes paid, lower level of settlement of accounts payable and higher level of collection of outstanding receivables. Cash flows provided by operating activities of our fixed line business increased by Php4,411 million, or 24%, to Php22,556 million in 2015 from Php18,145 million in 2014, primarily due to higher level of collection of accounts receivable, lower level of settlement of accounts payable and higher operating income, partially offset by the settlement of LTIP in 2015, higher pension contribution and higher level of settlement of other liabilities. Cash flows provided by operating activities of our other business amounted to Php740 million in 2015 as against cash flows used in operating activities of Php1,818 million in 2014 primarily due to higher level of collection of accounts receivables, lower settlement of accounts payable and higher operating income, partly offset by higher level of settlement of accrued expenses and other liabilities.

Consolidated net cash flows used in investing activities amounted to Php39,238 million in 2015, a decrease of Php12,448 million, or 24%, from Php51,686 million in 2014, primarily due to the combined effects of the following: (1) lower purchase of available-for-sale financial investments by Php18,786 million; (2) higher dividends received by Php3,689 million; (3) higher interest received by Php357 million; (4) higher capital expenditures by Php8,416 million; (5) net proceeds from redemption of investment in debt securities by Php1,310 million; (6) higher payment for purchase of investment in joint ventures and associates by Php974 million; and (7) higher payment for purchase of short-term investments by Php806 million.

Our consolidated capital expenditures, including capitalized interest, in 2015 totaled Php43,175 million, an increase of Php8,416 million, or 24%, as compared with Php34,759 million in 2014, primarily due to Smart Group’s and PLDT’s higher capital spending. Smart Group’s capital spending, which increased by Php7,919 million, or 36%, to Php30,043 million in 2015 from Php22,124 million in 2014, primarily focused on expanding 3G, 4G and LTE coverage and reach, as well as capacity and service enhancements. PLDT’s capital spending, which increased by Php562 million, or 5%, to Php11,259 million in 2015 from Php10,697 million in 2014, was principally used to finance the facility roll-out and expansion of our domestic fiber optic network, cable fortification and resiliency in various locations and acquisition of new platforms to complement introduction of new products and services, as well as the expansion of our data center. The balance represented other subsidiaries’ capital spending.

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

On a consolidated basis, cash flows used in financing activities amounted to Php11,385 million in 2015, a decrease of Php8,512 million, or 43%, from Php19,897 million in 2014, resulting largely from the combined effects of the following: (1) lower cash dividend payments by Php7,368 million; (2) higher proceeds from availment of long-term debt by Php3,038 million; (3) net additions to capital expenditures under long-term financing by Php395 million; (4) higher net payments of long-term debt by Php1,358 million; (5) higher interest payments by Php671 million; and (6) proceeds from issuance of capital stock of Php166 million in 2014.

Proceeds from availment of long-term debt for the year ended December 31, 2015 amounted to Php44,367 million, mainly from PLDT’s and Smart’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 Php17,084 million and Php5,407 million, respectively, for the year ended December 31, 2015.

Our consolidated long-term debt increased by Php30,769 million, or 24%, to Php160,892 million as at December 31, 2015 from Php130,123 million as at December 31, 2014 primarily due to drawings from our term loan facilities and the effect of the depreciation of the Philippine peso relative to the U.S. dollar to Php47.12 as at December 31, 2015 from Php44.74 as at December 31, 2014, partially offset by debt amortizations and prepayments. As at December 31, 2015, the long-term debt levels of PLDT and Smart increased by 19% and 45% to Php94,124 million and Php61,864 million, respectively, while DMPI’s long-term debt level decreased by 43% to Php4,904 million, as compared with December 31, 2014.

On February 25, 2015, PLDT signed a Php2,000 million term loan facility with Bank of the Philippine Islands, or BPI, to finance its capital expenditures and/or refinance its existing loan obligations, the proceeds of which were utilized for its service improvements and expansion programs. The loan is payable over ten years with an annual amortization rate of 1% on the first year up to the ninth year from the initial drawdown date and the balance payable upon maturity on March 24, 2025. The amount of Php2,000 million was fully drawn on March 24, 2015 and remained outstanding as at December 31, 2015.

On February 26, 2015, PLDT signed a US$200 million term loan facility with The Bank of Tokyo-Mitsubishi UFJ, Ltd., as the lender and facility agent, to finance capital expenditure requirements for network expansion and improvement and/or to refinance existing indebtedness, the proceeds of which were utilized for service improvement and network expansion. The loan is comprised of two tranches: Tranche A amounting to US$150 million which carries a floating interest rate and Tranche B amounting to US$50 which carries a floating interest rate on the first year and a fixed interest rate on the second year until maturity of the loan. Both Tranches are payable over seven years commencing on the date which falls 36 months after the date of the agreement, with semi-annual amortizations of 23.75% of the loan amount on the first and second repayment dates and seven semi-annual amortizations of 7.5% of the loan amount starting on the third repayment date with final installment on February 25, 2022. The amount of US$50 million for Tranche B was drawn on March 5, 2015. Three separate drawdowns of US$50 million each for Tranche A were drawn on April 24, 2015, June 15, 2015 and August 24, 2015. The amount of US$198 million, or Php9,320 million, net of unamortized debt issuance cost, remained outstanding as at December 31, 2015.

On March 4, 2015, Smart signed a US$200 million term loan facility agreement with Mizuho Bank Ltd. to finance capital expenditures for its network upgrade and expansion program. The loan is payable over five years in nine equal semi-annual installments commencing on the date which falls 12 months after the date of the loan agreement, with final installment on March 4, 2020. The amount of US$100 million each were drawn on March 23, 2015 and June 2, 2015. The amount of US$197 million, or Php9,299 million, net of unamortized debt issuance cost, remained outstanding as at December 31, 2015.

On June 26, 2015, PLDT signed a Php3,000 million term loan facility with BPI to finance its capital expenditures and/or refinance its existing loan obligations, the proceeds of which were utilized for its service improvements and expansion programs. The loan is payable over ten years with an annual amortization rate of 1% on the first year up to the ninth year from the initial drawdown date and the balance payable upon maturity on June 30, 2025. The amount of Php3,000 million was fully drawn on June 30, 2015 and remained outstanding as at December 31, 2015.

On August 3, 2015, PLDT signed a Php5,000 million term loan facility with Metropolitan Bank and Trust Company, or Metrobank, to partially finance capital expenditures and/or refinance its existing loan obligations, the proceeds of which will be utilized for its service improvements and expansion programs. The loan is payable over ten years with an annual amortization rate of 1% on the first year up to the ninth year from the initial drawdown date and the balance payable upon maturity on September 23, 2015. Two drawdowns of Php2,500 million each were made on September 23, 2015 and November 27, 2015. The amount of Php5,000 million remained outstanding as at December 31, 2015.

On August 11, 2015, Smart signed a Php5,000 million term loan facility agreement with Metrobank to finance capital expenditures for its network upgrade and expansion program. The loan is payable over ten years with an 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 and the balance payable upon maturity on September 1, 2025. The amount of Php5,000 million loan was fully drawn on September 1, 2015. The amount of Php4,975 million, net of unamortized debt issuance cost remained outstanding as at December 31, 2015.

On December 7, 2015, Smart signed a US$100 million term loan facility agreement with Mizuho Bank Ltd. to finance capital expenditures for its network upgrade and expansion program. The loan is payable over seven years in thirteen equal semi-annual installments commencing on the date which falls 12 months after the date of the loan agreement, with final installment on December 7, 2022. No drawdown was made but the loan had incurred US$2 million, or Php77 million, debt issuance cost as at December 31, 2015.

On December 11, 2015, Smart signed a Php5,000 million term loan facility agreement with BPI to finance capital expenditures for its network upgrade and expansion program. The loan is payable over ten years with an 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 and the balance payable upon maturity on December 21, 2025. The amount of Php5,000 million loan was fully drawn on December 21, 2015 and remained outstanding as at December 31, 2015.

On December 16, 2015, Smart signed a Php5,000 million term loan facility agreement with Metrobank to finance capital expenditures for its network upgrade and expansion program. The loan is payable over ten and a half years with an annual amortization rate of 1% of the principal amount on the first year 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. The amount of Php5,000 million loan was fully drawn on December 28, 2015 and remained outstanding as at December 31, 2015.

On December 18, 2015, Smart signed a Php7,000 million term loan facility agreement with China Banking Corporation to finance capital expenditures for its network upgrade and expansion program. The loan is payable over seven years in fourteen semi-annual installments commencing on the sixth month after the initial drawdown, with final installment on December 28, 2022. The amount of Php1,000 million loan was partially drawn on December 28, 2015 and remained outstanding as at December 31, 2015. The amount of Php6,000 million was drawn on February 24, 2016.

Approximately Php97,613 million principal amount of our consolidated outstanding long-term debt as at December 31, 2015 is scheduled to mature over the period from 2016 to 2020. Of this amount, Php53,897 million is attributable to PLDT, Php38,812 million to Smart and Php4,904 million to DMPI.

For a complete discussion of our long-term debt, see Note 21 – Interest-bearing Financial Liabilities – Long-term Debt to the accompanying audited consolidated financial statements.

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

As at December 31, 2015 and 2014, we are in compliance with all of our debt covenants.

See Note 21 – Interest-bearing Financial Liabilities – Debt Covenants to the accompanying audited consolidated financial statements for a detailed discussion of our debt covenants.

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

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

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 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 and approximately 90% of our core earnings for 2014. In 2015, we are paying out dividends of approximately 75% of our core earnings. 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.

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 2015 amounted to Php32,532 million as compared with Php39,900 million paid to shareholders in 2014.

The following table shows the dividends declared to shareholders from the earnings for the years ended December 31, 2015 and 2014:

⁽¹⁾ Payment was moved to September 28, 2015 in view of Proclamation No. 1128, Series of 2015, dated September 15, 2015 declaring September 25, 2015 as a regular holiday.

See Note 20 – Equity to the accompanying audited consolidated financial statements for further details.

For a discussion of our consolidated contractual undiscounted obligations as at December 31, 2015 and 2014, see Note 28 – Financial Assets and Liabilities – Liquidity Risks to the accompanying audited consolidated financial statements.

Our outstanding consolidated commercial commitments, in the form of letters of credit, amounted to Php46 million and Php32 million as at December 31, 2015 and 2014, respectively. 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 28 – Financial Assets and Liabilities to the accompanying audited consolidated financial statements.

The following table sets forth the estimated consolidated fair values of our financial assets and liabilities recognized as at December 31, 2015 and September 30, 2015 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 years ended December 31, 2015 and the nine months ended September 30, 2015:

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 years ended December 31, 2015 and 2014 were 1.4% and 4.1%, respectively. Moving forward, we currently expect inflation to remain low.

PLDT Capital Pte. Ltd., or PLDT Capital, was incorporated as a wholly-owned subsidiary of PLDT Online Investments Pte. Ltd., or PLDT Online, on August 12, 2015. As an investment arm, PLDT Capital is envisioned to be an important pillar in supporting the PLDT Group’s digital pivot through collaboration with world-class pioneering companies in Silicon Valley, USA and around the world.

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

The US$5 million Note was issued and paid 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.

On September 3, 2015, PLDT Capital also entered into a Memorandum of Understanding with Phunware to establish a joint venture that will exclusively market and distribute Phunware’s targeted mobile and multiscreen solutions in the Philippines and the rest of Southeast Asia. Consequently, on November 11, 2015, PLDT Capital incorporated Phunware Southeast Asia Pte. Ltd., which will be the vehicle through which the joint venture will conduct its operations in the region.

On October 9, 2015, PLDT Capital entered into a Convertible Preferred Stock Purchase Agreement with AppCard, Inc., or 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.

On December 18, 2015, PLDT Capital entered into a Stock and Warrant Purchase Agreement with Matrixx Software, Inc., or 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 is entitled to purchase additional Series B Preferred Stock upon occurrence of certain conditions on or before March 15, 2016.

On August 6, 2015, Voyager, through Takatack Holdings Pte. Ltd. (formerly Takatack Pte. Ltd.), acquired 100% equity interest in Takatack Technologies Pte. Ltd., or Takatack Technologies, (formerly Paywhere Pte. Ltd.) for a total cash consideration of US$5 million, of which US$3 million was paid in August 2015 and US$2 million payable in 12 quarterly installments, subject to satisfaction of certain conditions. The acquisition is consistent with the PLDT Group’s focus to build Voyager into a digital economy platforms-enabler, allowing it to build its digital commerce business in the Philippines and other emerging markets. Takatack Technologies is a Singapore-based company behind the online store, TackThis!, a cloud-based e-commerce platform operating on a software as a service model that enables companies to easily set-up and showcase their businesses on various online platforms, among other things.

On June 9, 2015, the PLDT Board of Directors approved the incorporation of Talas, a wholly-owned subsidiary of PLDT. Total subscription in Talas amounted to Php250 million, of which Php62.5 million was paid on May 28, 2015, for purposes of incorporation. Talas is tasked to unify the digital data assets of the PLDT Group which involves the implementation of the Intelligent Data Fabric, exploration of revenue opportunities and the immediate delivery of Big Data capability platform to PLDT and Smart.

eInnovations’ Investment in ECommerce Pay Holding S.à r.l., or MePay Global

On January 6, 2015, PLDT, through eInnovations Holdings Pte. Ltd, or eInnovations, entered into a joint venture agreement with Rocket, pursuant to which the two parties agreed to form MePay Global, of which each partner holds a 50% equity interest. MePay Global is a global joint venture for payment services with a focus on emerging markets.

On July 30, 2015, eInnovations became a 50% shareholder of MePay Global and invested on August 11, 2015 €1.2 million into MePay Global.

On February 3, 2016, eInnovations further contributed, via its subsidiary ePay Investments Pte. Ltd., the intellectual property, platforms and business operations of its market-leading mobile-first platform, PayMaya, as had been agreed in the joint venture agreement. Rocket has contributed from the beginning of the joint venture, among other things, its participations in Paymill Holding GmbH and Payleven Holding GmbH, two of the leading payment platforms for high growth, small-and-medium sized e-commerce businesses across Europe.

On January 20, 2015, PLDT and Rocket entered into a joint venture agreement to further strengthen their existing partnership and to foster the development of internet-based businesses in the Philippines. PLDT, through iCommerce Investments Pte. Ltd., or 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, invested for a 33.33% ownership stake in PHIH. iCommerce has the option to increase its investment to 50%. iCommerce became a shareholder of PHIH on October 14, 2015 and paid approximately €7.4 million on October 27, 2015 for the first installment. The carrying value of the investment in PHIH amounted to €30.6 million, or Php1,595 million, including subscription payable of €22.6 million, or Php1,176 million, as at December 31, 2015.

Sale of Beacon’s Meralco Shares to Metro Pacific Investments Corporation, or MPIC

On April 14, 2015, Beacon and MPIC entered into a Share Purchase Agreement to sell 112.71 million common shares, comprising of approximately 10% interest in Meralco to MPIC at a price of Php235 per share for an aggregate consideration of Php26,487 million. MPIC settled a portion of the consideration amounting to Php1,000 million on April 14, 2015 and Php17,000 million on June 29, 2015, which were used by Beacon to partially settle its outstanding loans. MPIC will pay Beacon the balance of Php8,487 million on or before July 2016. Consequently, PCEV realized a portion of the deferred gain amounting to Php2,838 million.

As a result of the transaction, PCEV’s effective interest in Meralco, through Beacon, was reduced to 17.48% from 22.48%, while MPIC’s effective interest in Meralco, through its direct ownership of Meralco shares and through Beacon, increased to 32.48% from 27.48% as at December 31, 2015 and 2014, respectively. There is no change in the aggregate joint interest of MPIC and Beacon in Meralco which remains at 49.96%.

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 to roll out 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.

For a detailed discussion of the related party transactions, see Note 25 – Related Party Transactions to the accompanying audited consolidated financial statements.

The following table shows the aging of our consolidated receivables as at December 31, 2015:

The following table shows our financial soundness indicators as at December 31, 2015 and 2014:

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

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

Pursuant to the requirements of the Securities Regulation Code, the registrant has duly caused this report for the fourth quarter of 2015 to be signed on its behalf by the undersigned thereunto duly authorized.

The Stockholders and the Board of Directors
Philippine Long Distance Telephone Company
Ramon Cojuangco Building
Makati Avenue, Makati City

We have audited the accompanying consolidated financial statements of Philippine Long Distance Telephone Company and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2015 and 2014, and the consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2015, and a summary of significant accounting policies and other explanatory information.

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
S.CONTOpinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Philippine Long Distance Telephone Company and its subsidiaries as at December 31, 2015 and 2014, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2015 in accordance with Philippine Financial Reporting Standards.

/s/ Ramon D. Dizon
Ramon D. Dizon
Partner
CPA Certificate No. 46047
SEC Accreditation No. 0077-AR-3 (Group A),

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2015 and 2014
(in million pesos)


	2015			2014
ASSETS

Noncurrent Assets
Property and equipment (Notes 3, 5, 9, 13 and 21)		195,782			191,984
Investments in associates, joint ventures and deposits (Notes 3, 4, 10 and 25)		48,703			42,046
Available-for-sale financial investments (Notes 6, 11 and 28)		15,711			28,086
Investment in debt securities and other long-term investments – net of current portion (Notes 12 and 28)		952			960
Investment properties (Notes 3, 6, 9 and 13)		1,825			1,816
Goodwill and intangible assets (Notes 3, 14 and 15)		72,117			72,842
Deferred income tax assets – net (Notes 3, 4 and 7)		21,941			17,131
Derivative financial assets – net of current portion (Note 28)		145			94
Prepayments – net of current portion (Notes 3, 7, 19, 25 and 26)		3,475			2,924
Advances and other noncurrent assets – net of current portion (Note 28)		3,003			3,218

Total Noncurrent Assets		363,654			361,101

Current Assets
Cash and cash equivalents (Notes 16 and 28)		46,455			26,659
Short-term investments (Note 28)		1,429			643
Trade and other receivables (Notes 3, 5, 17, 25 and 28)		24,898			29,151
Inventories and supplies (Notes 5 and 18)		4,614			3,706
Current portion of derivative financial assets (Note 28)		26			2
Current portion of investment in debt securities and other long-term investments (Notes 12 and 28)		51			295
Current portion of prepayments (Note 19)		5,798			6,406
Current portion of advances and other noncurrent assets (Notes 20 and 28)		8,170			8,332

Total Current Assets		91,441			75,194

TOTAL ASSETS		455,095			436,295

EQUITY AND LIABILITIES

Equity (Note 28)
Non-voting serial preferred stock (Notes 8 and 20)		360			360
Voting preferred stock (Note 20)		150			150
Common stock (Notes 8 and 20)		1,093			1,093
Treasury stock (Notes 8 and 20)		(6,505	)		(6,505	)
Capital in excess of par value (Note 20)		130,517			130,521
Retained earnings (Note 20)		6,195			17,030
Other comprehensive loss (Note 6)		(18,202	)		(8,285	)
Total Equity Attributable to Equity Holders of PLDT (Note 28)		113,608			134,364
Noncontrolling interests (Note 6)		290			304

TOTAL EQUITY		113,898			134,668

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)
As at December 31, 2015 and 2014
(in million pesos)

CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31, 2015, 2014 and 2013
(in million pesos, except earnings per common share amounts which are in pesos)


	2015			2014			2013
REVENUES
Service revenues (Notes 3 and 4)		162,930			164,943			163,932
Non-service revenues (Notes 3, 4 and 5)		8,173			5,892			4,279

		171,103			170,835			168,211

EXPENSES
Depreciation and amortization (Notes 3, 4 and 9)		31,519			31,379			30,304
Compensation and employee benefits (Notes 3, 5 and 26)		21,606			18,749			21,369
Cost of sales (Notes 5, 18 and 25)		16,614			13,512			11,806
Repairs and maintenance (Notes 13, 18 and 25)		15,035			14,988			13,107
Asset impairment (Notes 3, 4, 5, 9, 10, 17, 18 and 28)		14,856			6,046			5,543
Interconnection costs		10,317			10,420			10,610
Selling and promotions (Note 25)		9,747			10,619			9,776
Professional and other contracted services (Note 25)		8,234			7,748			7,173
Rent (Notes 3 and 25)		6,376			6,692			6,041
Taxes and licenses (Note 27)		4,592			4,563			3,925
Insurance and security services (Note 25)		1,797			1,884			1,815
Communication, training and travel (Note 25)		1,349			1,552			1,417
Amortization of intangible assets (Notes 3, 4 and 15)		1,076			1,149			1,020
Other expenses		1,316			1,156			1,609

		144,434			130,457			125,515

		26,669			40,378			42,696

OTHER INCOME (EXPENSES)
Equity share in net earnings of associates and joint ventures (Notes 4 and 10)		3,241			3,841			2,742
Interest income (Notes 4, 5, 12 and 16)		799			752			932
Gains (losses) on derivative financial instruments – net (Notes 4 and 28)		420			(101	)		511
Foreign exchange losses – net (Notes 4, 9 and 28)		(3,036	)		(382	)		(2,893	)
Financing costs – net (Notes 4, 5, 9, 21 and 28)		(6,259	)		(5,320	)		(6,589	)
Other income – net (Notes 3, 4 and 13)		4,804			4,980			4,233

		(31	)		3,770			(1,064	)

INCOME BEFORE INCOME TAX FROM CONTINUING OPERATIONS (Note 4)		26,638			44,148			41,632
PROVISION FOR INCOME TAX (Notes 3, 4 and 7)		4,563			10,058			8,248

NET INCOME FROM CONTINUING OPERATIONS (Note 4)		22,075			34,090			33,384
NET INCOME FROM DISCONTINUED OPERATIONS (Notes 2, 4 and 8)		–			–			2,069

NET INCOME (Note 4)		22,075			34,090			35,453

ATTRIBUTABLE TO:
Equity holders of PLDT (Notes 4 and 8)		22,065			34,091			35,420
Noncontrolling interests (Notes 4 and 8)		10			(1	)		33

		22,075			34,090			35,453

Earnings Per Share Attributable to Common Equity Holders of PLDT (Notes 4 and 8)
Basic		101.85			157.51			163.67
Diluted		101.85			157.51			163.67

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2015, 2014 and 2013
(in million pesos)


	2015			2014			2013
NET INCOME (Note 4)		22,075			34,090			35,453
OTHER COMPREHENSIVE INCOME (LOSS) – NET OF TAX (Note 6)
Foreign currency translation differences of subsidiaries		45			(3	)		794
Net transactions on cash flow hedges:		31			(74	)		(16	)
Net fair value gains (losses) on cash flow hedges (Note 28)		5			(94	)		–
Income tax related to fair value adjustments charged directly to equity (Note 7)		26			20			(16	)
Share in the other comprehensive income (loss) of associates and joint ventures accounted for using the equity method (Note 10)		(14	)		34			(92	)
Net gains (losses) on available-for-sale financial investments:		(8,135	)		8,144			(8	)
Gains (losses) from changes in fair value recognized during the year (Note 11)		(13,258	)		8,144			(7	)
Income tax related to fair value adjustments charged directly to equity (Note 7)		(1	)		–			(1	)
Impairment loss recognized in profit or loss (Notes 3, 4, 5 and 11)		5,124			–			–
Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent years		(8,073	)		8,101			678

Revaluation increment on investment properties:		(1	)		364			(1	)
Depreciation of revaluation increment in investment properties transferred to property and equipment (Note 9)		(2	)		(2	)		(2	)
Fair value adjustment to property and equipment transferred to investment properties during the year (Note 13)		–			476			–
Income tax related to revaluation increment charged directly to equity (Note 7)		1			(110	)		1
Share in the other comprehensive income (loss) of associates and joint ventures (Note 10)		(235	)		(391	)		1,112
Actuarial losses on defined benefit obligations:		(1,598	)		(4,874	)		(9,156	)
Remeasurement in actuarial losses on defined benefit obligations		(2,356	)		(6,952	)		(13,005	)
Income tax related to remeasurement adjustments (Note 7)		758			2,078			3,849
Net other comprehensive loss not to be reclassified to profit or loss in subsequent years		(1,834	)		(4,901	)		(8,045	)
Total Other Comprehensive Income (Loss) – Net of Tax		(9,907	)		3,200			(7,367	)

TOTAL COMPREHENSIVE INCOME		12,168			37,290			28,086

ATTRIBUTABLE TO:
Equity holders of PLDT		12,148			37,287			28,061
Noncontrolling interests		20			3			25

		12,168			37,290			28,086

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, 2015, 2014 and 2013
(in million pesos)

Reserves of a

Total Equity

Other

Disposal Group

Attributable to

Preferred

Common

Capital in Excess of

Comprehensive

Classified as

Equity Holders

Noncontrolling

Total

Stock

Treasury Stock

Par Value

Retained Earnings

Loss

Held-for-Sale

of PLDT

Interests

Equity

Balances as at January 1, 2015

510

1,093

(6,505

)

130,521

17,030

(8,285

)

–

134,364

304

134,668

Total comprehensive income:

–

22,065

(9,917

)

–

12,148

12,168

Net income (Notes 4 and 8)

–

22,065

–

22,065

22,075

Other comprehensive income (loss) (Note 6)

–

(9,917

)

–

(9,917

)

(9,907

)

Cash dividends (Note 20)

–

(32,900

)

–

(32,900

)

(21

)

(32,921

)

Acquisition and dilution of noncontrolling
interests

–

(4)

–

(4)

(13)

(17)

Balances as at December 31, 2015

510

1,093

(6,505

)

130,517

6,195

(18,202

)

–

113,608

290

113,898

Balances as at January 1, 2014

510

1,093

(6,505

)

130,562

22,968

(11,481

)

–

137,147

179

137,326

Total comprehensive income:

–

34,091

3,196

–

37,287

37,290

Net income (Notes 4 and 8)

–

34,091

–

34,091

)

34,090

Other comprehensive income (Note 6)

–

3,196

–

3,196

3,200

Cash dividends (Note 20)

–

(40,029

)

–

(40,029

)

(29

)

(40,058

)

Issuance of capital stock (Note 20)

–

163

Acquisition and dilution of noncontrolling
interests

–

(41)

–

(41)

(12)

(53)

Balances as at December 31, 2014

510

1,093

(6,505

)

130,521

17,030

(8,285

)

–

134,364

304

134,668

Balances as at January 1, 2013

510

1,093

(6,505

)

130,566

25,416

(3,387

)

(2,143

)

145,550

184

145,734

Total comprehensive income:

–

35,420

(7,359

)

–

28,061

28,086

Net income (Notes 4 and 8)

–

35,420

–

35,420

35,453

Other comprehensive loss (Note 6)

–

(7,359

)

–

(7,359

)

(7,367

)

Cash dividends (Note 20)

–

(37,868

)

–

(37,868

)

(46

)

(37,914

)

Discontinued operations

–

(735

)

2,143

1,408

–

1,408

Acquisition and dilution of noncontrolling
interests

–

(4)

–

(4)

Balances as at December 31, 2013

510

1,093

(6,505

)

130,562

22,968

(11,481

)

–

137,147

179

137,326

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2015, 2014 and 2013
(in million pesos)


	2015			2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax and noncontrolling interest from continuing operations (Note 4)		26,638			44,148			41,632
Income before income tax and noncontrolling interest from discontinued operations (Note 2)		–			–			2,124

Income before income tax (Note 4)		26,638			44,148			43,756
Adjustments for:
Depreciation and amortization (Notes 3, 4 and 9)		31,519			31,379			30,457
Asset impairment (Notes 3, 4, 5, 9, 10, 17 and 18)		14,856			6,046			5,545
Interest on loans and other related items – net (Notes 4, 5, 9, 21 and 28)		5,919			4,987			4,669
Foreign exchange losses – net (Notes 4, 9 and 28)		3,036			382			2,889
Pension benefit costs (Notes 3, 5 and 26)		1,875			1,702			434
Amortization of intangible assets (Notes 3, 4 and 15)		1,076			1,149			1,075
Losses on disposal of property and equipment (Note 9)		298			42			86
Accretion on financial liabilities – net (Notes 5, 21 and 28)		231			165			1,541
Losses (gains) on derivative financial instruments – net (Notes 4 and 28)		(420	)		101			(512	)
Interest income (Notes 4, 5, 12 and 16)		(799	)		(752	)		(935	)
Gain on disposal of associates		(2,838	)		(1,448	)		(2,056	)
Equity share in net earnings of associates and joint ventures (Notes 4 and 10)		(3,241	)		(3,841	)		(2,604	)
Incentive plans (Notes 3, 5 and 26)		–			168			1,749
Gain on disposal of investments in subsidiaries (Note 10)		–			–			(2,404	)
Others		(1,968	)		(950	)		(401	)

Operating income before changes in assets and liabilities		76,182			83,278			83,289
Decrease (increase) in:
Trade and other receivables		(1,863	)		(10,547	)		(1,790	)
Inventories and supplies		(1,122	)		(507	)		254
Prepayments		(617	)		(150	)		(663	)
Advances and other noncurrent assets		147			(117	)		(59	)
Increase (decrease) in:
Accounts payable		11,242			5,383			4,299
Accrued expenses and other current liabilities		4,969			6,146			2,615
Pension and other employee benefits		(10,629	)		(5,586	)		(2,611	)
Customers’ deposits		(8	)		(108	)		17
Other noncurrent liabilities		(13	)		4			(29	)

Net cash flows generated from operations		78,288			77,796			85,322
Income taxes paid		(8,544	)		(11,781	)		(11,559	)

Net cash flows from operating activities		69,744			66,015			73,763

CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received (Note 10)		5,544			1,855			438
Interest received		939			582			845
Proceeds from:
Maturity of short-term investments		1,469			110			–
Disposal of property and equipment (Note 9)		334			253			1,546
Maturity of investment in debt securities		292			3,022			241
Disposal of investment properties (Note 13)		8			5			–
Collection of notes receivable		–			25			–
Disposal of investment (Note 2)		–			3			12,075
Sale of net assets held-for-sale		–			–			2,298

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Years Ended December 31, 2015, 2014 and 2013
(in million pesos)


	2015			2014			2013
Payments for:
Purchase of shares of noncontrolling interests – net of cash acquired		(2	)		(63	)		(6	)
Purchase of subsidiaries – net of cash acquired (Note 14)		(151	)		(139	)		–
Acquisition of intangible assets (Note 15)		(318	)		(330	)		(290	)
Interest paid – capitalized to property and equipment (Notes 4, 5, 9 and 21)		(370	)		(442	)		(421	)
Purchase of available-for-sale financial investments		(925	)		(19,711	)		(16	)
Purchase of investments in associates and joint ventures		(1,274	)		(300	)		(7	)
Purchase of short-term investments		(2,194	)		(29	)		(114	)
Deposit for future PDRs subscription (Note 10)		–			(300	)		(5,550	)
Purchase of investment in debt securities		–			(1,420	)		(2,287	)
Additions to property and equipment (Notes 4 and 9)		(42,805	)		(34,317	)		(28,417	)
Increase in notes receivable		–			–			(1,224	)
Increase (decrease) in advances and other noncurrent assets		215			(490	)		(156	)
Net cash flows used in investing activities		(39,238	)		(51,686	)		(21,045	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Availments of long-term debt (Note 21)		44,367			41,329			39,798
Availments of long-term financing for capital expenditures		311			–			868
Issuance of capital stock (Note 20)		–			166			–
Payments for:
Redemption of shares		(1	)		(51	)		(5	)
Obligations under finance leases		(5	)		(6	)		(12	)
Debt issuance costs (Note 21)		(396	)		(293	)		(213	)
Derivative financial instruments (Note 28)		(638	)		(596	)		(453	)
Interest – net of capitalized portion (Notes 5 and 21)		(5,407	)		(4,736	)		(4,959	)
Long-term debt (Note 21)		(17,084	)		(15,726	)		(57,033	)
Cash dividends (Note 20)		(32,532	)		(39,900	)		(37,804	)
Long-term financing for capital expenditures		–			(84	)		–
Net cash flows used in financing activities		(11,385	)		(19,897	)		(59,813	)

NET EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		675			322			704

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		19,796			(5,246	)		(6,391	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR (Note 16)		26,659			31,905			38,296

CASH AND CASH EQUIVALENTS AT END OF THE YEAR (Note 16)		46,455			26,659			31,905

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

The Philippine Long Distance Telephone Company, or PLDT, or the Parent Company, was incorporated under the old Corporation Law of the Philippines (Act 1459, as amended) on November 28, 1928, following the merger of four telephone companies under common U.S. ownership. Under its amended Articles of Incorporation, PLDT’s corporate term is currently limited through 2028. In 1967, effective control of PLDT was sold by the General Telephone and Electronics Corporation, then a major shareholder since PLDT’s incorporation, to a group of Filipino businessmen. In 1981, in furtherance of the then existing policy of the Philippine government to integrate the Philippine telecommunications industry, PLDT purchased substantially all of the assets and liabilities of the Republic Telephone Company, which at that time was the second largest telephone company in the Philippines. In 1998, certain subsidiaries of First Pacific Company Limited, or First Pacific, and its Philippine affiliates (collectively the First Pacific Group and its Philippine affiliates), acquired a significant interest in PLDT. On March 24, 2000, NTT Communications Corporation, or NTT Communications, through its wholly-owned subsidiary NTT Communications Capital (UK) Ltd., became PLDT’s strategic partner with approximately 15% economic and voting interest in the issued and outstanding common stock of PLDT at that time. Simultaneous with NTT Communications’ investment in PLDT, the latter acquired 100% of Smart Communications, Inc., or Smart. On March 14, 2006, NTT DOCOMO, Inc., or NTT DOCOMO, acquired from NTT Communications approximately 7% of PLDT’s then outstanding common shares held by NTT Communications with NTT Communications retaining ownership of approximately 7% of PLDT’s common shares. Since March 14, 2006, NTT DOCOMO has made additional purchases of shares of PLDT, and together with NTT Communications beneficially owned approximately 20% of PLDT’s outstanding common stock as at December 31, 2015. 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 December 31, 2015. 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 December 31, 2015, 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 December 31, 2015. See Note 20 – Equity – Voting Preferred Stock and Note 27 – 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 40 million ADSs outstanding as at December 31, 2015.

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

We are the leading telecommunications service provider in the Philippines. Through our three business segments (Wireless, Fixed Line and Others), we offer the largest and most diversified range of telecommunications services which offers data and multi-media services across the Philippines’ most extensive fiber optic backbone, wireless and fixed line networks. Our principal activities are discussed in Note 4 – Operating Segment Information.

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

Our consolidated financial statements as at December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 were approved and authorized for issuance by the Board of Directors as reviewed and recommended for approval by the Audit Committee on February 29, 2016.

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 have been measured at fair values.

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

Our consolidated financial statements include the financial statements of PLDT and the following subsidiaries (collectively, the “PLDT Group”) as at December 31, 2015 and 2014:

2015

2014

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 Enterprise, or

Philippines

Cellular mobile services

–

100.0

–

100.0

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^(a)

platforms developer

eInnovations Holdings Pte. Ltd.,

Singapore

Investment company

–

100.0

–

100.0

or eInnovations (formerly Smarthub Pte. Ltd.)^(a)(b)(c):

Takatack Holdings Pte. Ltd., or Takatack

Singapore

Investment company

–

100.0

–

100.0

Holdings (formerly Takatack Pte. Ltd.)^(d)

Takatack Technologies Pte. Ltd., or

Singapore

Development and maintenance of

–

100.0

–

Takatack Technologies (formerly

IT-based solutions for

Paywhere Pte. Ltd.)^(e)

communications and e-Commerce

platforms

iCommerce Investments Pte. Ltd., or

Singapore

Investment company

–

100.0

–

iCommerce^(c)

eInnovations Ventures Pte. Ltd., or

Singapore

Investment company

–

100.0

–

eVentures^(f)

ePay Investments Pte. Ltd.,

Singapore

Investment company

–

100.0

–

or ePay^(c)

PayMaya Philippines, Inc.

Philippines

Provide and market certain mobile

–

100.0

–

100.0

or PayMaya (formerly Smart e-Money,

payment services

Inc.)^(g)

PayMaya Operations Philippines, Inc.,

Philippines

Market, sell and distribute payment

–

100.0

–

or PayMaya Ops (formerly mePay

solutions and other related services

Operations Philippines, Inc.)^(h)

3^rd Brand Pte. Ltd., or

Solutions and systems integration

3^rd Brand

Singapore

services

–

85.0

–

85.0

WiFun, Inc., or WiFun⁽ⁱ⁾

Philippines

Software developer and selling of

–

100.0

–

87.0

WiFi access equipment

Telesat, Inc.^(j)

Philippines

Satellite communications services

100.0

–

100.0

–

ACeS Philippines Cellular Satellite Corporation, or

Philippines

Satellite information and messaging

88.5

11.5

88.5

11.5

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.^(j)

Philippines

Data and network services

100.0

–

100.0

–

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

Philippines

Telecommunications services

100.0

–

100.0

–

Philcom Group

Talas Data Intelligence, Inc., or Talas^(k)

Philippines

Business infrastructure and

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

infrastructure for internet-based

Group^(l)

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

–

99.8

–

99.8

Subsidiaries, or AGS Group^(m)

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.⁽ⁿ⁾

Philippines

Gaming support services

–

57.5

–

57.5

iPlus Intelligent Network, Inc.,

Philippines

Managed IT outsourcing

–

or iPlus^(o)

Digitel:

Philippines

Telecommunications services

99.6

–

99.6

–

Digitel Information Technology Services,

Philippines

Internet services

–

99.6

–

99.6

Inc.^(j)

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 Co., Inc.,

Philippines

Air transportation business

65.0

–

65.0

–

or PG1^(p)

Pilipinas Global Network Limited,

British Virgin

Internal distributor of Filipino

64.6

–

64.6

–

or PGNL, and Subsidiaries^(q)

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^(r)

Singapore

Investment company

100.0

–

100.0

–

Mabuhay Investments Corporation,

Philippines

Investment company

67.0

–

67.0

–

or MIC^(j)

PLDT Global Investments Corporation,

British Virgin

Investment company

–

100.0

–

100.0

or PGIC

Islands

PLDT Communications and Energy Ventures, Inc., or

Philippines

Investment company

–

99.9

–

99.9

PCEV

^(a)

On December 18, 2014, the Board of Directors of Smart approved the consolidation of various digital businesses under Voyager, wherein Voyager owns 100% of eInnovations, which in turn, directly owns the Takatack Holdings, 3rd Brand, ePay, iCommerce and eVentures. See Consolidation of Various Digital Businesses of Smart under Voyager below for further discussion.

^(b)

On February 24, 2015, the Accounting and Corporate Regulatory Authority, or ACRA, of Singapore, the national regulator of business entities in Singapore, approved the change in the business name of Smart Hub Pte. Ltd. to eInnovations.

^(c)

OnFebruary 27, 2015, ePay and iCommerce were incorporated in Singapore to provide digital, internet, information, communication and IT-related activities. Both subsidiaries will serve as the holding companies of other digital investments. ePay and iCommerce are 100% owned by eInnovations, each having an initial capitalization of SGD10 thousand.

^(d)

On October 1, 2015, the ACRA of Singapore approved the change in the business name of Takatack Pte. Ltd. to Takatack Holdings Pte. Ltd.

^(e)

On August 6, 2015, Takatack Holdings acquired 100% equity interest in Paywhere Pte. Ltd. On October 1, 2015, the ACRA of Singapore approved the change in the business name of Paywhere Pte. Ltd. to Takatack Technologies Pte. Ltd. See Consolidation of Various Digital Businesses of Smart under Voyager below for further discussion.

^(f)

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, Ltd.

^(g)

Effective September 15, 2015, the Philippine Securities and Exchange Commission, or Philippine SEC, approved the amendment of Smart e-Money, Inc.’s name to PayMaya Philippines, Inc.

^(h)

On February 10, 2015, mePay Operations Philippines, Inc. was incorporated in the Philippines to market, sell and distribute payment solutions and other related services. Effective June 22, 2015, the Philippine SEC approved the amendment of mePay Operations Philippines, Inc. name to PayMaya Operations Philippines, Inc., or PayMaya Ops. PayMaya Ops is 60% and 40% owned by PayMaya and Smart, respectively, with initial capitalization of Php1 million.

⁽ⁱ⁾

On November 18, 2014, Smart acquired an 87% equity interest in WiFun. On November 25, 2015, Smart acquired the remaining 13% noncontrolling shares. See Note 14 – Business Combinations – Smart’s Acquisition of WiFun.

^(k)

On June 16, 2015, Talas was incorporated in the Philippines to implement the Intelligent Data Fabric and immediate delivery of Big Data capability platform of the PLDT Group.

^(l)

On January 28, 2014, IPCDSI acquired a 100% equity interest in Rack I.T. Data Center, Inc., or Rack IT. See Note 14 – Business Combinations – IPCDSI’s Acquisition of Rack IT.

^(m)

In 2014, ePLDT acquired an additional 0.6% equity interest in AGS from its minority shareholders for a total consideration of Php0.6 million, thereby increasing ePLDT’s ownership in AGS from 99.2% to 99.8%.

⁽ⁿ⁾

Ceased commercial operations and under liquidation due to shortened corporate life to August 31, 2015.

^(o)

On April 8, 2014, ePLDT sold its 100% stake in iPlus through a management buyout for a consideration of Php42 million.

^(p)

On March 10, 2014, PLDT acquired an additional 37.5 million shares of PG1, thereby increasing its ownership from 50% to 65%. See Note 10 – Investments in Associates, Joint Ventures and Deposits – Investment in PG1 and Note 14 – Business Combinations – PLDT’s Additional Investment in PG1.

^(q)

In September 2014, PLDT converted a receivable from PGNL amounting to US$5.5 million as additional investment and infused additional cash into PGNL amounting to US$1.3 million thereby increasing its interest in PGNL from 60.0% to 64.6%.

^(r)

On August 1, 2014, PLDT Digital was incorporated to be the holding company of PLDT Online Investments Pte. Ltd., or PLDT Online, an entity that holds an investment in Rocket Internet SE (formerly Rocket Internet AG), or Rocket. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Accounting for Investments in Phunware and Appcard, Note 10 – Investments in Associates, Joint Ventures and Deposits and Note 11 – Available-for-Sale Financial Investments – PLDT Online’s Investment in Rocket.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the PLDT Group obtains control, and continue to be consolidated until the date that such control ceases. We control an investee when we are exposed, or 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 the PLDT Group loses control over a subsidiary, it: (a) derecognizes the assets (including goodwill) and liabilities of the subsidiary; (b) derecognizes the carrying amount of any noncontrolling interest;
(c) derecognizes the cumulative translation differences recorded in equity; (d) recognizes the fair value of the consideration received; (e) recognizes the fair value of any investment retained; (f) recognizes any surplus or deficit in profit or loss; and (g) reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate.

On 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 the PLDT Group to recover its investment in CURE includes, among others, the total cost of equity investments in CURE, advances from Smart for operating requirements, advances from stockholders and associated funding costs. Smart also informed the NTC that the divestment will be undertaken through an auction sale of CURE’s shares of stock to the winning bidder and submitted CURE’s audited financial statements as at June 30, 2012 to the NTC. In a letter dated January 21, 2013, the NTC 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 February 29, 2016, 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 as at December 31, 2015. However, these were not presented separately in our consolidated statements of financial position as the carrying amounts are not material.

On June 24, 2014, PCEV’s Board of Directors approved a program involving the repurchase or buyback program of its common shares, which are owned by its remaining minority stockholders and offered for sale at a price of not more than Php100,000 per share. After the buyback program which ended on June 30, 2015, the number of holders of PCEV common stock decreased to 96.

In 2014, the number of holders of PCEV common stock decreased to 97 and because the number of shareholders decreased below 100, PCEV filed a petition to the Philippine SEC for the suspension of duty to file reports under Section 17 of the Philippine SEC Regulation Code on December 22, 2014.

On December 22, 2015, a year after submission of the petition, PCEV re-filed the notification of suspension of duty to file reports, advising the commission that PCEV will cease filing any reports required under Section 17 of the Philippine SEC Regulation Code beginning January 1, 2016.

On December 18, 2014, the Board of Directors of Smart approved the consolidation of various digital businesses under Voyager. To facilitate the consolidation of these entities, the following were executed: (a) On February 25, 2015, Smart made an additional capital cash infusion to Voyager amounting to Php250 million and converted Php400 million Smart advances to Voyager into additional paid-in capital; (b) On March 4, 2015, Smart sold all of its shares in eInnovations to Voyager for SGD7.6 million; (c) On March 17, 2015, Smart granted an interest-bearing loan to eInnovations amounting to US$13.5 million; and (d) On March 26, 2015, Smart sold all of its shares in PayMaya to ePay for Php603 million.

On August 3, 2015, the Board of Directors of Smart approved the additional equity infusion by Smart to Voyager of Php1,716 million via subscription to additional shares. Of this amount, Smart has invested additional capital of Php1,332 million as at December 31, 2015. The additional equity infusion is intended for Voyager’s various investments, as well as capital expenditures and working capital requirements. Total investment of Smart to Voyager amounted to Php1,988 million as at December 31, 2015.

As at December 31, 2015, Voyager owns 100% of eInnovations, which in turn directly owns the following offshore digital businesses: Takatack Holdings, 3rd Brand, ePay, iCommerce, and eVentures.

PayMaya Ops was incorporated in the Philippines on February 10, 2015 to market, sell and distribute payment solutions and other related services. PayMaya Ops is 60% and 40% owned by PayMaya and Smart, respectively, with an initial capitalization of Php1 million.

On the mobile financial solutions side, Voyager launched PayMaya Visa card with Beep, a three-in-one product – a Beep card with stored Near Field Communication/value for use in Metro Manila’s light rail system, a virtual Visa card which can be used to pay for online/e-commerce transactions and a physical Visa debit card.

Talas is tasked to unify the digital data assets of the PLDT Group which involves the implementation of the Intelligent Data Fabric, exploration of revenue opportunities and the immediate delivery of Big Data capability platform to PLDT and Smart.

PLDT Capital was incorporated as a wholly-owned subsidiary of PLDT Online on August 12, 2015. As an investment arm, PLDT Capital is envisioned to be an important pillar in supporting the PLDT Group’s digital pivot through collaboration with world-class pioneering companies in Silicon Valley, USA and around the world.

Investment in Phunware, Inc., or Phunware;
Investment in AppCard, Inc., or AppCard; and
Investment in Matrixx Software, Inc., or Matrixx

See Note 10 – Investments in Associates, Joint Ventures and Deposits and Note 11 – Available-for-Sale Financial Investments.

The Group applied for the first time certain amendments, which are effective for annual periods beginning on or after January 1, 2015. The adoption of these amendments to the standard as at January 1, 2015 did not have any significant impact on our consolidated financial statements.

Amendments to Philippine Accounting Standards, or PAS, 19, Employee Benefits: Employee Contributions
Annual improvements to PFRS (2010-2012 Cycle)

PFRS 2, Share-based Payment – Definition of Vesting Condition
PFRS 3, Business Combinations – Accounting for Contingent Consideration in a Business Combination
PFRS 8, Operating Segments – Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Assets
PAS 16, Property, Plant and Equipment – Revaluation Method – Proportionate Restatement of Accumulated Depreciation, and PAS 38, Intangible Assets – Revaluation Method — Proportionate Restatement of Accumulated Amortization
PAS 24, Related Party Disclosures – Key Mangement Personnel

PFRS 3, Business Combinations – Scope of Exceptions for Joint Arrangements
PFRS 13, Fair Value Measurement – Portfolio Exception
PAS 40, Investment Property

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 transaction costs. The details of our investments in associates are disclosed in Note 10 – Investments in Associates, Joint Ventures and Deposits – Investments in Associates.

Under the equity method, an investment in an associate is carried 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.

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, Joint Ventures and Deposits – Investments in Joint Ventures.

Adjustments are made in our consolidated financial statements to eliminate our share of unrealized gains and losses on transactions between us and our joint venture. Our investment in 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.

We present assets and liabilities in the statement 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 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 SMHC, FECL Group, PLDT Global and certain of its subsidiaries, DCPL, PGNL and certain of its subsidiaries, Chikka and certain of its subsidiaries, PGIC, eInnovations, Takatack Holdings, Takatack Technologies, iCommerce, eVentures, ePay, 3^rd Brand, Chikka Pte. Ltd., or CPL, ABM Global Solutions Pte. Ltd., or AGSPL, Chikka Communications Consulting (Beijing) Co. Ltd., or CCCBL, ABMGS Sdn. Bhd., or AGS Malaysia, and PT Advance Business Microsystems Global Solutions, or AGS Indonesia) 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 on transaction 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 item (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, eVentures, ePay, 3^rd Brand, CPL and AGSPL, is the Singapore dollar; the functional currency of CCCBL is the Chinese renminbi; the functional currency of AGS 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. On disposal of these subsidiaries, the amount of deferred cumulative translation adjustments recognized in other comprehensive income relating to subsidiaries is recognized in our consolidated income statement.

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

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

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

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

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

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

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

Financial assets are recognized initially at fair value plus transaction costs 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 – 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 – 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 company is provided internally on that basis to the entity’s key management personnel; or (iii) the financial assets contain an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

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 as at December 31, 2015 and 2014. See Note 28 – 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 December 31, 2015 and 2014. See Note 12 – Investment in Debt Securities and Other Long-term Investments, Note 16 – Cash and Cash Equivalents, Note 17 – Trade and Other Receivables and Note 28 – 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 December 31, 2015 and 2014. See Note 12 – Investment in Debt Securities and Other Long-term Investments and Note 28 – 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 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 – 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 or until maturity. Reclassification to the held-to-maturity category is permitted only when the entity has the ability and intention to hold the financial investment to maturity accordingly.

For a financial investment reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortized cost and any previous gain or loss on the asset 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 December 31, 2015 and 2014. See Note 28 – 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 – 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 company is provided internally on that basis to the entity’s key management personnel; or (iii) the financial liabilities contain an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Our financial liabilities at FVPL include long-term principal only-currency swaps and interest rate swaps as at December 31, 2015 and 2014. See Note 28 – 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 December 31, 2015 and 2014. See Note 21 – Interest-bearing Financial Liabilities, Note 22 – Deferred Credits and Other Noncurrent Liabilities, Note 23 – Accounts Payable, and Note 24 – 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. Permanent disconnections are made after a series of collection steps following nonpayment by postpaid subscribers. Such permanent disconnection usually occurs within a predetermined period from the last statement date.

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

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

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

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

Similar to carrier accounts, we recognize impairment losses for the full amount of receivables from dealers, agents and other parties based on our specific assessment of individual balances 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, Note 17 – Trade and Other Receivables and Note 28 – 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 are recognized as impairments. 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 rate. 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 28 – 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 28 – Financial Assets and Liabilities for more details.

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

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in other comprehensive income are transferred to our consolidated income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in other comprehensive income remain in other comprehensive income until the forecast transaction or firm commitment occurs.

We use an interest rate swap agreement to hedge our interest rate exposure on certain outstanding loan balances. See Note 28 – Financial Assets and Liabilities.

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

We use a loan as a hedge of its exposure to foreign exchange risk on its investment in foreign subsidiaries. See Note 28 – Financial Assets and Liabilities for more details.

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

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

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

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

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

Property and equipment, except for land, is stated at cost less accumulated depreciation and amortization and any accumulated impairment losses. 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. Land is stated at cost less any impairment in value.

Depreciation and amortization commence once the property and equipment are available for use and are calculated on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives used in depreciating our property 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.

Construction-in-progress 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.

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 22 – 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 15 – 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 – Asset Impairment, Note 9 – Property and Equipment and Note 15 – 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, Joint Ventures and Deposits 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 assets with indefinite useful lives are not amortized but are tested for impairment annually either individually or at the CGU level, as appropriate. We calculate the amount of impairment as being the difference between the recoverable amount of the intangible asset 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 – Asset Impairment and Note 15 – 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, certain short-term investments and non-financial assets such as investment properties, at fair value at each reporting date. Also, fair values of financial instruments measured at amortized cost are disclosed in Note 28 – Financial Assets and Liabilities.

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 cost of 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 and Sun Cellular, from cellular and local exchange services primarily through wireless, landline and related services, and from data and other network services primarily through broadband and leased line services, which we 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 services include over-the-air reloading channels and prepaid cards provided by Smart Prepaid, Talk ‘N Text Prepaid and Sun Cellular Prepaid. 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.

Nonrecurring upfront fees such as activation fees charged to subscribers for connection to our network are deferred and are recognized as revenue throughout the estimated average 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, content downloading (inclusive of browsing) 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 including more than one deliverable, the deliverables are assigned to one or more separate units of accounting and the arrangement consideration is allocated to each unit of accounting based on their relative fair value to reflect the substance of the transaction. Where fair value is not directly observable, the total consideration is allocated using an appropriate allocation method.

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

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

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

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

We have separate and distinct retirement plans for PLDT and majority of our 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 26 – 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 26 – Employee Benefits – Defined Contribution Plans for more details.

Our liability arising from the 2012 to 2014 Long-term Incentive Plan, or the 2012 to 2014 LTIP, is determined using the projected unit credit method. Employee benefit costs include current service cost, net interest on the net defined benefit obligation, and remeasurements of the net defined benefit obligation. Past service costs and actuarial gains and losses are recognized immediately in our profit or loss. See Note 26 – Employee Benefits – Other Long-term Employee Benefits for more details.

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

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date. The arrangement is assessed for whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets 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 PFRS 9, Financial Instruments, 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.

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

PFRS 10, Consolidated Financial Statements, and PAS 28, Investments in Associates and Joint Ventures – Investment entities: Applying the consolidation Exception (Amendments)
PAS 27, Separate Financial Statements — Equity Method in Separate Financial Statements (Amendments)
PFRS 11, Joint Arrangements — Accounting for Acquisitions of Interests (Amendments)
PAS 1, Presentation of Financial Statements — Disclosure Initiative (Amendments)
PFRS 14, Regulatory Deferral Accounts
PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture — Bearer Plants
PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets — Clarification of Acceptable Methods of Depreciation and Amortization (Amendments)
Annual Improvements to PFRSs (2012 – 2014 Cycle)

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations — Changes in Methods of Disposal
PFRS 7, Financial Instruments: Disclosures — Servicing Contracts
PFRS 7, Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements
PAS 19, Employee Benefits — regional market issue regarding discount rate
PAS 34, Interim Financial Reporting — disclosure of information ‘elsewhere in the interim financial report’

In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments. The new standard (renamed as PFRS 9) 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 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 its credit losses. We are currently assessing the impact of adopting this standard.

In addition, the International Accounting Standards Board has issued the following new standards that have not yet been adopted locally by the SEC and FRSC. We are currently assessing the impact of these new standards and plans to adopt them on their required effective dates once adopted locally.

International Financial Reporting Standards (IFRS) 15, Revenue from Contracts with Customers (effective January 1, 2018)
IFRS 16, Leases (effective January 1, 2019)

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, eVentures, ePay, 3^rd Brand, CPL and AGSPL, which use the Singapore dollar; (c) CCCBL, which uses the Chinese renminbi; (d) AGS 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 Php6,376 million, Php6,692 million and Php6,041 million for the years ended December 31, 2015, 2014 and 2013, respectively, while that from discontinued operations amounted to Php86 million for the year ended December 31, 2013. Total finance lease obligations amounted to Php1 million and Php6 million as at December 31, 2015 and 2014, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 21 – Interest-bearing Financial Liabilities – Obligations under Finance Leases and Note 28 – 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 inter-change of managerial personnel, provision of essential technical information and material transactions among PLDT, Smart, Satventures, Hastings and Cignal TV, thus accounted for as investments in associates using the equity method.

The carrying value of our investments in PDRs issued by MediaQuest amounted to Php12,749 million and Php9,575 million as at December 31, 2015 and 2014, respectively. See related discussion on Note 10 – Investment in Associates, Joint Ventures and Deposits – Investments in Associates – Investment in MediaQuest PDRs.

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 decline in fair value of our investment in Rocket as at December 31, 2015 is considered significant as the cumulative net losses from changes in fair value amounting to Php5,124 million represents 26% decline in value below cost. As a result, we recognized in profit or loss impairment of investment in Rocket Internet amounting to Php5,124 million. See related discussion on Note 5 – Income and Expenses and Note 11 – Available-for-Sale Financial Investments.

In 2015, PLDT Capital made subscriptions to preferred shares of Phunware and AppCard, see Note 10 Investment in Associates, Joint Ventures and Deposits. The investment in Phunware allows PLDT Capital to designate one director in the five-seat board (20% interest) of Phunware for as long as PLDT Capital beneficially owns at least a certain percentage of Phunware’s preferred shares. Likewise, PLDT Capital was assigned one board seat out of the five board members of AppCard for so long as PLDT Capital, together with its affiliates, continues to own at least a certain percentage of AppCard’s capital stock.

Based on our judgment, at the PLDT Group Level, PLDT Capital’s investments on preferred shares give PLDT a significant influence over Phunware and AppCard as evidenced by the board seat assigned to us. This gives us the authority to participate in the financial and operating policy decisions of Phunware and AppCard but not control nor joint control of those policies. Hence, the investments are accounted for as investment in associates.

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 15 – 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, joint ventures and deposits, 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.

Total asset impairment on noncurrent assets amounted to Php10,954 million, Php3,844 million and Php2,143 million for the years ended December 31, 2015, 2014 and 2013, respectively.

See Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Asset Impairment and Note 9 – Property and Equipment – Impairment of Certain Wireless Network Equipment and Facilities.

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, 15 and 19, 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 Php31,519 million, Php31,379 and Php30,304 million for the years ended December 31, 2015, 2014 and 2013, respectively, while that from discontinued operations amounted to Php153 million for the year ended December 31, 2013. Total carrying values of property and equipment, net of accumulated depreciation and amortization, amounted to Php195,782 million and Php191,984 million as at December 31, 2015 and 2014, 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 Php1,076 million, Php1,149 million and Php1,020 million for the years ended December 31, 2015, 2014 and 2013, respectively, while that from discontinued operations amounted to Php55 million for the year ended December 31, 2013. Total carrying values of intangible assets with finite lives amounted to Php5,219 million and Php6,173 million as at December 31, 2015 and 2014, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 4 – Operating Segment Information and Note 15 – Goodwill and Intangible Assets.

Our consolidated financial statements and financial performance reflect acquired businesses after the completion of the respective acquisition. We account for the acquired businesses using the acquisition method, which requires extensive use of accounting judgments and estimates to allocate the purchase price to the fair market values of the acquiree’s identifiable assets and liabilities and contingent liabilities, if any, at the acquisition date. Any excess in the purchase price over the estimated fair market values of the net assets acquired is recorded as goodwill in our consolidated statement of financial position. Thus, the numerous judgments made in estimating the fair market value to be assigned to the acquiree’s assets and liabilities can materially affect our financial performance and position. See Note 14 – Business Combinations.

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

For taxable year 2015, Smart shifted to itemized deduction method in computing its taxable income due to decline in gross margin and based on the most recent approved forecast, Smart expects itemized deduction method to be more favorable moving forward. Unrecognized deferred tax assets and liabilities, which were previously valued using the OSD method, are now fully recognized.

Based on the above assessment, our consolidated unrecognized deferred income tax assets amounted to Php10,759 million and Php10,248 million as at December 31, 2015 and 2014, respectively. Total consolidated benefit from deferred income tax amounted to Php4,710 million, Php1,024 million and Php4,401 million for the years ended December 31, 2015, 2014 and 2013, respectively, while provision for deferred income tax from discontinued operations amounted to Php30 million for the year ended December 31, 2013. Total consolidated net deferred income tax assets amounted to Php21,941 million and Php17,131 million as at December 31, 2015 and 2014, 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 Php3,391 million, Php2,023 million and Php3,171 million for the years ended December 31, 2015, 2014 and 2013, respectively. Trade and other receivables, net of allowance for doubtful accounts, amounted to Php24,898 million and Php29,151 million as at December 31, 2015 and 2014, respectively. See Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Asset Impairment, Note 17 – Trade and Other Receivables and Note 28 – 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. See Note 26 – 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 Php1,882 million, Php1,702 million and Php856 million for the years ended December 31, 2015, 2014 and 2013, respectively, while net consolidated pension benefit costs from discontinued operations amounted to Php9 million for the year ended December 31, 2013. The prepaid benefit costs amounted to Php306 million and Php65 million as at December 31, 2015 and 2014, respectively. The accrued benefit costs amounted to Php10,197 million and Php13,131 million as at December 31, 2015 and 2014, respectively. See Note 5 – Income and Expenses – Compensation and Employee Benefits, Note 19 – Prepayments and Note 26 – Employee Benefits – Defined Benefit Pension Plans.

To ensure the proper execution of our strategic and operational business plans while taking into account the acquisition of Digitel in 2011 and other recent market developments, the 2012 to 2014 LTIP, covering the period from January 1, 2012 to December 31, 2014, was approved by the Board of Directors with the endorsement of the Executive Compensation Committee, or ECC, on March 22, 2012. The awards in the 2012 to 2014 LTIP were contingent upon the successful achievement of certain profit targets, intended to align the execution of the business strategies of the expanded PLDT Group, including Digitel, over the three-year period 2012 to 2014. In addition, the 2012 to 2014 LTIP allowed for the participation of a number of senior executives and certain newly hired executives and ensured the continuity of management in line with the succession planning of the PLDT Group. LTIP costs recognized for the years ended December 31, 2014 and 2013 amounted to Php168 million and Php1,638 million, respectively. Total outstanding liability and fair value of the 2012 to 2014 LTIP amounted to Php33 million and Php3,297 million as at December 31, 2015 and 2014, respectively. The LTIP liability amounting to Php3,264 million as at December 31, 2014 was paid in 2015. See Note 5 – Income and Expenses – Compensation and Employee Benefits, Note 24 – Accrued Expenses and Other Current Liabilities and Note 26 – Employee Benefits – Other Long-term Employee Benefits.

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 Php1,437 million and Php2,068 million as at December 31, 2015 and 2014, respectively. See Note 22 – 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 27 – 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 December 31, 2015 amounted to Php3,277 million and Php165,572 million, respectively, while the total fair values of noncurrent financial assets and noncurrent financial liabilities as at December 31, 2014 amounted to Php3,315 million and Php139,207 million, respectively. See Note 28 – 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 chief operating decision maker, which we refer to as our Management Committee, to make decisions about how resources are to be allocated to each of the segments and to assess their performances, and for which discrete financial information is available.

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

Wireless – wireless telecommunications services provided by Smart and DMPI, which owns the Sun Cellular business and is a wholly-owned subsidiary of Digitel, our cellular 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; Chikka Group, our wireless content operators; ACeS Philippines, our satellite operator; WiFun, our WiFi-enabler and certain subsidiaries of PLDT Global, our mobile virtual network operations 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, PDSI, BCC, PLDT Global and certain subsidiaries and Digitel, all of which together account for approximately 5% of our consolidated fixed line subscribers; information and communications technology, infrastructure and services for internet applications, internet protocol-based solutions and multimedia content delivery provided by ePLDT, IPCDSI Group, Rack IT, AGS Group and Curo; business infrastructure and solutions, intelligent data processing and implementation services and data analytics insight generation provided by Talas; distribution of Filipino channels and content services provided by PGNL and its subsidiaries; and bills printing and other VAS-related services provided by ePDS; and

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

See Note 2 – Summary of Significant Accounting Policies and Note 14 – Business Combinations, 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 (loss) for the year; earnings before interest, taxes and depreciation and amortization, or EBITDA; EBITDA margin; and core income. Net income (loss) for the year is measured consistent with net income (loss) in our consolidated financial statements.

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

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

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

The 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 as at and for the years ended December 31, 2015, 2014 and 2013 are as follows:


										Inter-segment
	Wireless			Fixed Line			Others			Transactions			Consolidated
	(in million pesos)
*December 31, 2015*
Revenues
External customers		113,985			57,118			–			–			171,103
Service revenues (Note 3)		109,188			53,742			–			–			162,930
Non-service revenues (Notes 3 and 5)		4,797			3,376			–			–			8,173
Inter-segment transactions		1,528			11,747			–			(13,275	)		–
Service revenues (Note 3)		1,528			11,733			–			(13,261	)		–
Non-service revenues (Notes 3 and 5)		–			14			–			(14	)		–

Total revenues		115,513			68,865			–			(13,275	)		171,103

Results
Depreciation and amortization (Notes 3 and 9)		17,218			14,301			–			–			31,519
Asset impairment (Notes 3, 5, 9, 10, 11, 17, 18 and 28)		8,446			1,286			5,124			–			14,856
Equity share in net earnings (losses) of associates and joint ventures (Note 10)		(81	)		38			3,284			–			3,241
Interest income (Notes 5, 12 and 16)		308			620			99			(228	)		799
Financing costs – net (Notes 5, 9, 21 and 28)		1,799			4,509			179			(228	)		6,259
Provision for income tax (Notes 3 and 7)		2,763			1,656			144			–			4,563
Net income / Segment profit		15,434			6,193			448			–			22,075
EBITDA		44,237			24,749			(59	)		1,291			70,218
EBITDA margin		40	%		38	%		–			–			43	%
Core income		22,512			6,539			6,161			–			35,212
Assets and liabilities
Operating assets		217,317			190,856			18,504			(42,226	)		384,451
Investments in associates, joint ventures and deposits (Notes 3 and 10)		2,208			12,922			33,573			–			48,703
Deferred income tax assets – net (Notes 3 and 7)		8,249			13,692			–			–			21,941
Total assets		227,774			217,470			52,077			(42,226	)		455,095

Operating liabilities		171,131			182,085			12,149			(27,872	)		337,493
Deferred income tax liabilities – net (Notes 3 and 7)		3,146			412			146			–			3,704
Total liabilities		174,277			182,497			12,295			(27,872	)		341,197

Other segment information
Capital expenditures, including capitalized interest (Notes 5, 9, 21 and 22)		30,311			12,864			–			–			43,175
*December 31, 2014*
Revenues
External customers		117,297			53,538			–			–			170,835
Service revenues (Note 3)		113,455			51,488			–			–			164,943
Non-service revenues (Notes 3 and 5)		3,842			2,050			–			–			5,892
Inter-segment transactions		1,582			12,640			–			(14,222	)		–
Service revenues (Note 3)		1,582			12,619			–			(14,201	)		–
Non-service revenues (Notes 3 and 5)		–			21			–			(21	)		–

Total revenues		118,879			66,178			–			(14,222	)		170,835

Results
Depreciation and amortization (Notes 3 and 9)		16,375			15,004			–			–			31,379
Asset impairment (Notes 3, 5, 9, 10, 11, 17, 18 and 28)		5,620			426			–			–			6,046
Equity share in net earnings (losses) of associates and joint ventures (Note 10)		(11	)		63			3,789			–			3,841
Interest income (Notes 5, 12 and 16)		217			350			295			(110	)		752
Financing costs – net (Notes 5, 9, 21 and 28)		1,646			3,724			60			(110	)		5,320
Provision for income tax (Notes 3 and 7)		7,158			2,818			82			–			10,058
Net income / Segment profit		21,895			6,722			5,473			–			34,090
EBITDA		50,917			24,555			(56	)		1,334			76,750
EBITDA margin		44	%		38	%		–			–			47	%
Core income		25,176			6,691			5,543			–			37,410
Assets and liabilities
Operating assets		200,981			199,098			34,791			(57,752	)		377,118
Investments in associates, joint ventures and deposits (Notes 3 and 10)		492			11,956			29,598			–			42,046
Deferred income tax assets – net (Notes 3 and 7)		3,504			13,627			–			–			17,131

Total assets		204,977			224,681			64,389			(57,752	)		436,295

Operating liabilities		143,463			169,706			13,867			(29,836	)		297,200
Deferred income tax liabilities – net (Notes 3 and 7)		3,367			1,015			45			–			4,427

Total liabilities		146,830			170,721			13,912			(29,836	)		301,627

Other segment information
Capital expenditures, including capitalized interest (Notes 5, 9, 21 and 22)		23,048			11,711			–			–			34,759

*December 31, 2013*
Revenues
External customers		117,615			50,596			–			–			168,211
Service revenues (Note 3)		114,971			48,961			–			–			163,932
Non-service revenues (Notes 3 and 5)		2,644			1,635			–			–			4,279
Inter-segment transactions		1,708			11,935			–			(11,935	)		–
Service revenues (Note 3)		1,708			11,873			–			(11,873	)		–
Non-service revenues (Notes 3 and 5)		–			62			–			(62	)		–

Total revenues		119,323			62,531			–			(11,935	)		168,211

Results
Depreciation and amortization (Notes 3 and 9)		16,358			13,946			–			–			30,304
Asset impairment (Notes 3, 5, 9, 10, 11, 17, 18 and 28)		3,918			1,625			–			–			5,543
Equity share in net earnings of associates and joint ventures (Note 10)		(54	)		(86	)		2,882			–			2,742
Interest income (Notes 5, 12 and 16)		324			392			249			(33	)		932
Financing costs – net (Notes 5, 9, 21 and 28)		3,232			3,390			–			(33	)		6,589
Provision for income tax (Notes 3 and 7)		8,862			(698	)		84			–			8,248
Net income / Segment profit		21,921			7,809			3,508			146			35,453
Continuing operations		21,921			7,809			3,508			146			33,384
Discontinued operations (Notes 2 and 8)		–			–			–			–			2,069
EBITDA from continuing operations		54,703			21,238			(5	)		1,496			77,432
EBITDA margin		47	%		35	%		–			–			47	%
Core income		26,499			9,061			3,110			146			38,717
Continuing operations		26,499			9,061			3,110			146			38,816
Discontinued operations		–			–			–			–			(99	)

Assets and liabilities
Operating assets		195,212			172,293			15,522			(38,880	)		344,147
Investments in associates, joint ventures and deposits (Notes 3 and 10)		–			11,685			29,625			–			41,310
Deferred income tax assets – net (Notes 3 and 7)		999			13,182			–			–			14,181

Total assets		196,211			197,160			45,147			(38,880	)		399,638

Operating liabilities		133,977			143,891			1,220			(21,213	)		257,875
Deferred income tax liabilities – net (Notes 3 and 7)		3,591			819			27			–			4,437

Total liabilities		137,568			144,710			1,247			(21,213	)		262,312

Other segment information
Capital expenditures, including capitalized interest (Notes 5, 9, 21 and 22)		17,092			11,746			–			–			28,838

The following table shows the reconciliation of our consolidated EBITDA to our consolidated net income for the years ended December 31, 2015, 2014 and 2013:

The following table shows the reconciliation of our consolidated core income to our consolidated net income for the years ended December 31, 2015, 2014 and 2013:

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 years ended December 31, 2015, 2014 and 2013:


	2015						2014						2013
Basic				Diluted			Basic			Diluted			Basic			Diluted

Core EPS from continuing operations		162.70			162.70			172.88			172.88			179.38			179.38
Core EPS from discontinued operations		–			–			–			–			(0.45	)		(0.45	)

Consolidated core EPS		162.70			162.70			172.88			172.88			178.93			178.93
Add (deduct) adjustments:
Gains on derivative financial instruments – net, excluding hedge costs (Note 28)		2.47			2.47			0.55			0.55			2.65			2.65
Core income adjustment on equity share in net earnings (losses) of associates and joint ventures		(0.83	)		(0.83	)		(0.37	)		(0.37	)		0.27			0.27
Foreign exchange losses – net (Note 28)		(11.85	)		(11.85	)		(1.40	)		(1.40	)		(9.61	)		(9.61	)
Asset impairment (Notes 3, 5, 9 and 11)		(50.64	)		(50.64	)		(14.15	)		(14.15	)		(9.92	)		(9.92	)
Casualty losses due to typhoon “Yolanda”		–			–			–			–			(3.58	)		(3.58	)
Retroactive effect of adoption of Revised PAS 19		–			–			–			–			(5.10	)		(5.10	)
Total adjustments		(60.85	)		(60.85	)		(15.37	)		(15.37	)		(25.29	)		(25.29	)
Adjustments to discontinued operations		–			–			–			–			10.03			10.03

EPS from continuing operations attributable to common equity holders of PLDT (Note 8)		101.85			101.85			157.51			157.51			154.09			154.09
EPS from discontinued operations attributable to common equity holders of PLDT (Note 8)		–			–			–			–			9.58			9.58

Consolidated EPS attributable to common equity holders of PLDT (Note 8)		101.85			101.85			157.51			157.51			163.67			163.67

The following table presents our revenues from external customers by category of products and services for the years ended December 31, 2015, 2014 and 2013:

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 years ended December 31, 2015, 2014 and 2013.

Non-service revenues for the years ended December 31, 2015, 2014 and 2013 consist of the following:

Compensation and employee benefits for the years ended December 31, 2015, 2014 and 2013 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 years ended December 31, 2015, 2014 and 2013 consist of the following:

Asset impairment for the years ended December 31, 2015, 2014 and 2013 consist of the following:

Interest income for the years ended December 31, 2015, 2014 and 2013 consist of the following:

Financing costs – net for the years ended December 31, 2015, 2014 and 2013 consist of the following:

Changes in other comprehensive income under equity of our consolidated statements of financial position for the years ended December 31, 2015, 2014 and 2013 are as follows:


																Share in the other
																comprehensive
				Net gains (losses)												income of
	Foreign			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, 2015		489			8,211			(34	)		603			(18,207	)		653			(8,285	)		2			(8,283	)
Other comprehensive income (loss)		35			(8,135	)		31			(1	)		(1,598	)		(249	)		(9,917	)		10			(9,907	)
Balances as at December 31, 2015		524			76			(3	)		602			(19,805	)		404			(18,202	)		12			(18,190	)

Balances as at January 1, 2014		496			67			40			239			(13,333	)		1,010			(11,481	)		(2	)		(11,483	)
Other comprehensive income (loss)		(7	)		8,144			(74	)		364			(4,874	)		(357	)		3,196			4			3,200

Balances as at December 31, 2014		489			8,211			(34	)		603			(18,207	)		653			(8,285	)		2			(8,283	)

Balances as at January 1, 2013		441			75			44			240			(4,177	)		(10	)		(3,387	)		6			(3,381	)
Other comprehensive income (loss)		802			(8	)		(16	)		(1	)		(9,156	)		1,020			(7,359	)		(8	)		(7,367	)
Discontinued operations (Note 2)		(747	)		–			12			–			–			–			(735	)		–			(735	)

Balances as at December 31, 2013		496			67			40			239			(13,333	)		1,010			(11,481	)		(2	)		(11,483	)

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 December 31, 2015 and 2014 are as follows:

The components of our consolidated net deferred income tax assets and liabilities as at December 31, 2015 and 2014 are as follows:

Changes in our consolidated net deferred income tax assets (liabilities) as at December 31, 2015 and 2014 are as follows:

The analysis of our consolidated net deferred income tax assets as at December 31, 2015 and 2014 are as follows:

The analysis of our consolidated net deferred income tax liabilities as at December 31, 2015 and 2014 are as follows:

Provision for (benefit from) corporate income tax for the years ended December 31, 2015, 2014 and 2013 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 years ended December 31, 2015, 2014 and 2013 are as follows:

We review the carrying amounts of deferred income tax assets at the end of each reporting period. 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 period. This forecast is based on the past results and future expectations on revenues and expenses as well as future tax planning strategies. However, there is no assurance that we will generate sufficient taxable income to allow all or part of our deferred income tax assets to be utilized.

For taxable year 2014, Smart opted to use OSD method in computing its taxable income. In line with this, certain deferred income tax assets and liabilities of Smart, for which the related income and expenses are not considered in determining gross income for income tax purposes, are not recognized as deferred income tax assets and liabilities in the consolidated statements of financial position. This is because the manner by which they expect to recover or settle the underlying assets and liabilities would not result in any future tax consequence. Deferred income tax assets and liabilities, for which the related income and expenses are considered in determining gross income for income tax purposes, are recognized only to the extent of their future tax consequence assuming OSD method was applied, which results in such deferred income tax assets and liabilities being reduced by the 40% allowable deduction that are provided for under the OSD method. Accordingly, the deferred income tax assets and liabilities that were not recognized due to the OSD method amounted to Php4,259 million as at December 31, 2014.

Accordingly, Smart’s deferred income tax assets and liabilities that were recognized as at December 31, 2015 and 2014 amounted to Php6,014 million and Php503 million, respectively. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Recognition of Deferred Income Tax Assets.

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 December 31, 2015 and 2014 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. DMPI’s deferred income tax assets that were recognized amounted to Php1,821 million and Php1,461 million as at December 31, 2015 and 2014, respectively. Digitel and DMPI’s unrecognized deferred income tax assets amounted to Php9,874 million and Php9,564 million as at December 31, 2015 and 2014, 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 December 31, 2015 are as follows:

The excess MCIT totaling Php398 million as at December 31, 2015 can be deducted against future RCIT liability. The excess MCIT that was deducted against RCIT amounted to nil, Php33 million and Php9 million for the years ended December 31, 2015, 2014 and 2013, respectively. The amount of expired portion of excess MCIT amounted to Php91 million, Php61 million and Php11 million for the years ended December 31, 2015, 2014 and 2013, respectively.

NOLCO totaling Php11,323 million as at December 31, 2015 can be claimed as deduction against future taxable income. The NOLCO claimed as deduction against taxable income amounted to Php14 million, Php130 million and Php6,643 million for the years ended December 31, 2015, 2014 and 2013, respectively. The amount of expired portion of excess NOLCO amounted to nil, Php39 million and Php23 million for the years ended December 31, 2015, 2014 and 2013, 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.

On June 14, 2012, the PEZA through its Resolution No. 12-312, approved the transfer of all rights, obligations and assets of IPCDSI under its Registration Agreement with the PEZA dated April 24, 2006 and Supplemental Agreements with the PEZA dated November 13, 2007 and June 29, 2011 subject to submission by IPCDSI of certain requirements. At the same time, the PEZA registration of IPCDSI as an Economic Information Technology (IT) Enterprise was cancelled effective June 1, 2012.

The Registration Agreement dated April 24, 2006 provided that the IPCDSI’s IT operations shall be covered by the 5% gross income tax incentive, in lieu of national and local taxes, including additional deductions for training expenses. IPCDSI shall also be entitled to following incentives: (a) duty and tax exemption on importation; (b) exemption from wharfage dues and export tax, impost or fees; and (c) VAT zero rating of local purchases subject to compliance with BIR and PEZA requirements.

Supplemental agreements dated November 13, 2007 and June 29, 2011 provided the approval of PEZA registration which granted the non-pioneer status and tax incentives under R.A. 7916 for the additional activity on the expansion project in RCBC Plaza and on the new project in Bonifacio Technology Center Building, respectively. Further, the expansion project shall be entitled to three years Income Tax Holiday, or ITH incentive, subject to required conditions, starting from its commercial operations on June 1, 2012, while the new project shall be entitled to four years ITH incentive, subject to required conditions, starting from its commercial operations on October 23, 2011. Both projects were subjected to 5% gross income tax upon the expiration of ITH incentive on October 23, 2015.

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

Consolidated tax incentives that were availed from registration with Economic Zone and BOI amounted to Php55 million, Php40 million and Php39 million for the years ended December 31, 2015, 2014 and 2013, respectively.

The following table presents information necessary to calculate the EPS for the years ended December 31, 2015, 2014 and 2013:

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 year.

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 year 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 years ended December 31, 2015 and 2014 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 January 1, 2014
Cost		175,695			115,625			152,885			26,441			48,595			966			11,091			2,943			47,045			581,286
Accumulated depreciation, impairment and amortization		(118,991	)		(95,197	)		(105,874	)		(15,439	)		(42,061	)		(966	)		(9,834	)		(259	)		–			(388,621	)

Net book value		56,704			20,428			47,011			11,002			6,534			–			1,257			2,684			47,045			192,665

Year Ended December 31, 2014
Net book value at beginning of the year		56,704			20,428			47,011			11,002			6,534			–			1,257			2,684			47,045			192,665
Additions		1,788			472			9,233			181			2,246			–			544			5			20,430			34,899
Disposals/Retirements		(14	)		(21	)		(173	)		(36	)		(57	)		–			–			–			(1	)		(302	)
Translation differences charged directly to cumulative translation adjustments		–			1			–			–			1			–			–			–			–			2
Acquisition through business combinations (Note 14)		–			–			–			–			502			–			–			–			192			694
Impairment losses recognized during the year (Note 5)		(1	)		(227	)		(3,606	)		–			(10	)		–			–			–			–			(3,844	)
Reclassifications (Note 13)		(57	)		(202	)		23			(1	)		(162	)		–			114			508			(972	)		(749	)
Transfers and others		5,683			4,431			3,960			333			2,125			–			92			4			(16,628	)		–
Depreciation of revaluation increment on investment properties transferred to property and equipment charged to other comprehensive income		–			–			–			(2	)		–			–			–			–			–			(2	)
Depreciation and amortization (Notes 2, 3 and 4)		(9,944	)		(4,807	)		(11,243	)		(1,337	)		(3,363	)		–			(684	)		(1	)		–			(31,379	)
Net book value at end of the year (Note 3)		54,159			20,075			45,205			10,140			7,816			–			1,323			3,200			50,066			191,984

As at December 31, 2014
Cost		182,019			118,149			161,246			26,844			51,017			966			11,830			3,461			50,066			605,598
Accumulated depreciation, impairment and amortization		(127,860	)		(98,074	)		(116,041	)		(16,704	)		(43,201	)		(966	)		(10,507	)		(261	)		–			(413,614	)

Net book value (Note 3)		54,159			20,075			45,205			10,140			7,816			–			1,323			3,200			50,066			191,984

Year Ended December 31, 2015
Net book value at beginning of the period (Note 3)		54,159			20,075			45,205			10,140			7,816			–			1,323			3,200			50,066			191,984
Additions		2,258			540			10,276			239			2,309			–			519			15			27,076			43,232
Disposals/Retirements		(6	)		(96	)		(37	)		(214	)		(227	)		–			–			(33	)		(23	)		(636	)
Translation differences charged directly to cumulative translation adjustments		1			4			–			–			2			–			–			–			–			7
Reclassifications (Note 13)		(42	)		611			121			484			(666	)		–			41			(4	)		(2,041	)		(1,496	)
Transfers and others		4,185			2,456			7,773			300			2,358			–			594			2			(17,668	)		–
Impairment losses recognized during the year (Notes 3 and 5)		(2,343	)		–			(3,358	)		–			(87	)		–			–			–			–			(5,788	)
Depreciation of revaluation increment on investment properties transferred to property and equipment charged to other comprehensive income		–			–			–			(2	)		–			–			–			–			–			(2	)
Depreciation and amortization (Notes 2, 3 and 4)		(9,975	)		(4,059	)		(11,902	)		(1,452	)		(3,336	)		–			(793	)		(2	)		–			(31,519	)
Net book value at end of the year (Note 3)		48,237			19,531			48,078			9,495			8,169			–			1,684			3,178			57,410			195,782

As at December 31, 2015
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 (Note 3)		48,237			19,531			48,078			9,495			8,169			–			1,684			3,178			57,410			195,782

Substantially all of our telecommunications equipment were purchased outside the Philippines. Our significant sources of financing for such purchases are foreign loans requiring repayment in currencies other than the Philippine peso, which are principally in U.S. dollars. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

Interest capitalized to property and equipment that qualified as borrowing costs amounted to Php370 million, Php442 million and Php421 million for the years ended December 31, 2015, 2014 and 2013, 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 Php5,553 million and Php6,124 million as at December 31, 2015 and 2014, respectively. The average interest capitalization rates used were approximately 4% for the years ended December 31, 2015, 2014 and 2013.

Our undepreciated capitalized net foreign exchange losses that qualified as borrowing costs amounted to Php274 million and Php143 million as at December 31, 2015 and 2014, respectively. Our net foreign exchange differences, which qualified as borrowing costs amounted to Php144 million, Php71 million and Php80 million for the years ended December 31, 2015, 2014 and 2013, 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 Php3 million and Php10 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Obligations under Finance Leases.

In 2014, SBI and PDSI recognized impairment losses equivalent to the net book values of our Canopy and Wimax equipment. Canopy and Wimax technologies have become less preferable as telecommunications operators shift to LTE which offers improved speed and more compatibility with 2G and 3G technologies. The business plan for fixed wireless is to roll-out TD-LTE sites in 2014 and 2015 and migrate all existing Canopy and Wimax subscribers to the new technology as network coverage for TD-LTE increases. Total impairment losses recognized for the year ended December 31, 2014 amounted to Php2,394 million and Php1,223 million for SBI and PDSI, respectively.

In 2014, PLDT implemented a massive fiber optic footprint and backbone expansion which increased bandwidth connectivity between different regions of the country and provided subscribers with opportunities for better services. In relation to this expansion, PLDT recognized an impairment provision equivalent to the net book value of certain transmission facilities replaced by the program amounting to Php227 million for the year ended December 31, 2014.

In December 2015, DMPI recognized an impairment loss of Php5,789 million pertaining to network assets affected by the convergence program of Smart and DMPI. Network assets impaired in 2015 consist mainly of core and transport equipment in Metro Manila and Cebu which were not included in the initial program as management’s strategy then was to minimize the risk of service disruption for Sun subscribers in critical and high traffic areas. We decided on a change in strategy for the network convergence, that is, to integrate fully the network of the two companies as management believes that the converged network will be resilient enough to address any risks of service disruption in said critical and high traffic areas.

See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Asset Impairment.

^(*) On February 26, 2015, AFPI through its Board of Directors and stockholders amended its corporate name to AF Payments, Inc.

Changes in the cost of investments and deposits for the years ended December 31, 2015 and 2014 are as follows:

Changes in the accumulated impairment losses for the years ended December 31, 2015 and 2014 are as follows:

Changes in the accumulated equity share in net earnings of associates and joint ventures for the years ended December 31, 2015 and 2014 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.

On March 5, 2013, PLDT’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 26 – 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 March 4, 2014, PLDT’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 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.

The carrying value of investment in MediaQuest PDRs amounted to Php12,749 million and Php9,575 million as at December 31, 2015 and 2014, respectively. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions.

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, and Beta, 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 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. As a result of the sale, PGIC received a cash distribution of US$42 million from Beta.

The carrying value of investment in common shares amounted to Php654 million and Php545 million as at December 31, 2015 and 2014, respectively. The carrying value of PGIC’s investment in Beta’s preferred shares amounting to Php265 million and Php233 million were presented as part of investment in debt securities and other long-term investments in our consolidated statements of financial position as at December 31, 2015 and 2014, respectively. See related discussion on Note 12 – Investment in Debt Securities and Other Long-term Investments.

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

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 Telecoms, Inc., or Globe, for the Ayala Group, and MPIC, Meralco Financial Services Corporation, and Smart for the MPIC Group, bid 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 for 503 million shares equivalent to a 20% equity interest in AFPI at a subscription price of Php1.00 per share.

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 divided into 2,550 million shares with par value of Php1.00 per share to Php5,000 million divided into 5,000 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.

The carrying value of Smart’s investment in AFPI amounted to Php533 million, including subscription payable of Php166 million as at December 31, 2015 and Php492 million, including subscription payable of Php203 million as at December 31, 2014. Smart has significant influence over AFPI given its 20% voting interest and its Board representation.

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 is an expansive mobile delivery platform that creates, markets, and monetizes mobile application experiences across multiple screens. Through its pioneering 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.

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.

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.

Digitel has no control over ANPC despite owning more than half of voting interest because of certain governance matters, and management has assessed that Digitel only has significant influence.

Digitel’s investment in DCI does not qualify as investment in joint venture as there is no provision for joint control in the joint venture agreement among Digitel, PNPI and ANPC.

Following PLDT’s acquisition of a controlling stake in Digitel, PNPI, on November 4, 2011, sent a notice to exercise its Call Right under Section 6.3 of the JVA, which provides for a Call Right exercisable by PNPI following the occurrence of a Digitel change in control. As at February 29, 2016, 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.

As at December 31, 2015, ACeS Philippines held 36.99% equity interest in AIL, a company incorporated under the laws of Bermuda. AIL owns the Garuda I Satellite and the related system control equipment in Batam, Indonesia. 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 income of AIL amounted to Php70 million and Php361 million for the years ended December 31, 2015 and 2013, respectively, while unrecognized share in net loss amounted to Php19 million for the year ended December 31, 2014. Share in net cumulative losses amounting to Php2,075 million and Php1,852 million as at December 31, 2015 and 2014, respectively, were not recognized as we do not have any legal or constructive obligation to pay for such losses and have not made any payments on behalf of AIL.

See Note 25 – Related Party Transactions – Air Time Purchase Agreement between PLDT and AIL Related Agreements and Note 28 – Financial Assets and Liabilities – Liquidity Risk – Unconditional Purchase Obligations for further details as to the contractual relationships with respect to AIL.

The following tables present our share in the summarized financial information of our investments in associates in conformity with PFRS for equity investees in which we have significant influence as at December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013:

We have no outstanding contingent liabilities or capital commitments with our associates as at December 31, 2015 and 2014.

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.

Alongside 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 at the same time. The transfers of the Meralco shares was 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, which sale was completed on June 29, 2012. Beacon preferred shares were sold to an entity not included in 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.

Beacon has entered into Share Purchase Agreements with MPIC with the following details:

⁽¹⁾

Since Beacon sold the shares to an entity not included in the PLDT Group, PCEV realized portion of the deferred gain which was recorded 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 was paid on February 27, 2015 amounting to Php10,243 million.

On 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, which were used by Beacon to partially settle its outstanding loans. MPIC will pay Beacon the balance of Php8,487 million on or before July 2016.

PCEV’s effective interest in Meralco, through Beacon, was reduced to 17.48% from 22.48%, while MPIC’s effective interest in Meralco, through its direct ownership of Meralco shares and through Beacon, increased to 32.48% from 27.48% as at December 31, 2015 and 2014, respectively. There is no change in the aggregate joint interest of MPIC and Beacon in Meralco which remains at 49.96% as at December 31, 2015 and 2014.

The carrying value of PCEV’s investment in Beacon, net of deferred gain of Php9,924 and Php12,762 million, was Php32,304 million and Php29,053 million as at December 31, 2015 and 2014, respectively.

As at December 31, 2015, Beacon effectively owns 394 million Meralco common shares representing approximately 34.96% effective ownership in Meralco with a carrying value of Php87,831 million and market value of Php126,099 million based on quoted price of Php320 per share. As at December 31, 2014, Beacon effectively owns 507 million Meralco common shares representing approximately 44.96% effective ownership in Meralco with a carrying value of Php112,819 million and market value of Php129,733 million based on quoted price of Php256 per share.

PCEV’s share in the cash dividends was deducted from the carrying value of the investment in a joint venture.

Beacon has outstanding loans amounting to Php12,260 million and Php35,195 million as at December 31, 2015 and 2014, respectively, which were secured by a pledge over the Meralco shares and were not guaranteed by PLDT. The loans were not included in our consolidated long-term debt.

On January 20, 2015, PLDT and Rocket entered into a joint venture agreement 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.

On January 6, 2015, PLDT, through eInnovations, entered into a joint venture agreement with Rocket, pursuant to which the two parties agreed to form MePay Global, of which each partner holds a 50% equity interest. MePay Global is a global joint venture for payment services with a focus on emerging markets.

On July 30, 2015, eInnovations became a 50% shareholder of MePay Global, and invested on August 11, 2015 €1.2 million into MePay Global.

On February 3, 2016, eInnovations further contributed, via its subsidiary ePay the intellectual property, platforms and business operations of its market-leading mobile-first platform, PayMaya, as had been agreed in the joint venture agreement. Rocket has contributed from the beginning of the joint venture, among other things, its participations in Paymill Holding GmbH and Payleven Holding GmbH, two of the leading payment platforms for high growth, small-and-medium sized e-commerce businesses across Europe.

The table below presents the summarized financial information of Beacon as at December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013:

The following table presents the reconciliation between the share in Beacon’s equity and the carrying value of investment in Beacon as at December 31, 2015 and 2014:

The table below presents our aggregate share in the statements of financial position of our investments in individually immaterial joint ventures as at December 31, 2015 and 2014:

Our aggregate share in the revenues, expenses, other expenses – net, net loss, other comprehensive income, and total comprehensive loss of our investments in individually immaterial joint ventures for the years ended December 31, 2015, 2014 and 2013 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 December 31, 2015 and 2014.

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 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 is entitled to purchase additional Series B Preferred Stock upon occurrence of certain conditions on or before March 15, 2016.

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 (one on September 8 and one on September 15, 2014), which it funded from available cash and new debt. In accordance with PLDT’s right to appoint one member of Rocket’s nine-person supervisory board, on August 22, 2014, PLDT’s President and Chief Executive Officer, Napoleon L. Nazareno, was appointed to the supervisory board.

Concurrently with the investment, PLDT and Rocket agreed pursuant to a joint venture agreement to jointly develop mobile and online payments in emerging markets. The partnership will leverage PLDT’s experience and intellectual property in mobile payments and remittance platforms, together with Rocket’s global technology platform, to provide products and services for the “unbanked, uncarded and unconnected” population in emerging markets.

PLDT’s investment terms reflect its long-term commitment to Rocket and its unique ability to combine PLDT’s world-class mobile money expertise and resources with Rocket’s global platform to develop future value-enhancing growth opportunities.

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%. Total costs directly attributable to the acquisition of Rocket shares and recognized as part of the cost of investment amounted to Php134 million.

Our cumulative unrealized gain on investment in Rocket amounting to Php8,144 million was recognized in our consolidated other comprehensive income as at December 31, 2014.

Our cumulative net losses from changes in fair value amounting to Php5,124 million as at December 31, 2015 represents a 26% decline in fair value below cost. We assessed that the decline in fair value as at December 31, 2015 is significant and consequently recognized impairment of investment in Rocket amounting to Php5,124 million in our consolidated income statements.

As at February 26, 2016, closing price of Rocket is €20.38 per share resulting to total market value of PLDT’s stake in Rocket of €206 million, or Php10,679 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$187 thousand, or Php8.6 million, US$187 thousand, or Php8 million, and US$42 thousand, or Php2 million for the years ended December 31, 2015, 2014 and 2013, respectively. The carrying value of this investment amounted to Php236 million and Php224 million as at December 31, 2015 and 2014, 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$66 thousand, or Php3 million, for the years ended December 31, 2015 and 2014 and US$38 thousand, or Php2 million for the year ended December 31, 2013. The carrying value of this investment amounted to Php94 million and Php89 million as at December 31, 2015 and 2014, respectively.

See Note 10 – Investments in Associates, Joint Ventures and Deposits – Investment of PGIC in Beta for the detailed discussion of our investment.

In April 2013, Smart purchased, at a premium, PSALM Bonds with face value of Php200 million maturing on April 22, 2017 with yield-to-maturity at 4.25% gross. The bond has a gross coupon 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 Php7.2 million, Php7 million and Php9 million for the years ended December 31, 2015, 2014 and 2013, respectively. The carrying value of this investment amounted to Php207 million and Php212 million as at December 31, 2015 and 2014, respectively.

In August 2013, Smart purchased, at a premium, PSALM Bonds with face value of Php100 million with yield-to-maturity at 3.25% gross. The bond has a gross coupon rate of 6.88% 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 Php827 thousand, Php2.6 million and Php2.0 million for the years ended December 31, 2015, 2014 and 2013, respectively. The carrying value of this investment amounted to Php101 million as at December 31, 2014. This investment matured on April 22, 2015.

In January 2014, Smart purchased, at a premium, additional PSALM Bonds with face value of Php60 million with yield-to-maturity at 3.00% gross. The bond has a gross coupon rate of 6.88% 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 Php289 million and Php1.6 million for the years ended December 31, 2015 and 2014, respectively. The carrying value of this investment amounted to Php60 million as at December 31, 2014. This investment matured on April 22, 2015.

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 Php5.8 million for the years ended December 31, 2015 and 2014 and Php5 million for the year ended December 31, 2014. The carrying value of this investment amounted to Php150 million as at December 31, 2015 and 2014.

In March 2014, Smart purchased, at a premium, a NAPOCOR Bond with face value of Php50 million maturing on December 19, 2016 with yield-to-maturity at 4.22% gross. The bond has a gross coupon rate of 7.34% payable on a semi-annual basis, and was recognized as held-to-maturity investment. This investment is a tax-exempt bond. Premium is amortized using the EIR method. Interest income recognized on this investment amounted to Php1.8 million and Php1 million for the years ended December 31, 2015 and 2014, respectively. The carrying value of this investment amounted to Php51 million and Php52 million as at December 31, 2015 and 2014, respectively.

In June 2014, Smart purchased, at a premium, HDMF Bonds with face value of Php100 million with yield-to-maturity at 2.75% gross. The bond has a gross coupon rate of 6.25% payable on a semi-annual basis, and was recognized as held-to-maturity investment. This investment is a tax-exempt bond. Premium is amortized using the EIR method. Interest income recognized on this investment amounted to Php468 thousand and Php1 million for the years ended December 31, 2015 and 2014, respectively. The carrying value of this investment amounted to Php101 million as at December 31, 2014. This investment matured on March 12, 2015.

In January 2014, Smart purchased, at a premium, a Philippine RTB with face value of Php32 million with yield-to-maturity at 2.38% gross. The bond has a gross coupon rate of 5.88% 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 Php303 thousand and Php684 thousand for the years ended December 31, 2015 and 2014, respectively. The carrying value of this investment amounted to Php33 million as at December 31, 2014. This investment matured on August 19, 2015.

Changes in investment properties account for the years ended December 31, 2015 and 2014 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 Php29 million, Php53 million and Php57 million for the years ended December 31, 2015, 2014 and 2013, 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.

On January 28, 2014, IPCDSI and a third party entered into a sale and purchase agreement for the sale of 100% ownership in Rack IT to IPCDSI for a total purchase price of Php164 million, of which Php25 million was paid on April 21, 2015 upon completion of certain closing conditions. Rack IT is engaged in the business of providing data center services, encompassing all the information technology and facility-related components or activities that support the projects and operations of a data center facility. Rack IT started commercial operations on February 20, 2015.

The fair values of the identifiable assets and liabilities of Rack IT at the date of acquisition are as follows:

The excess of purchase price consideration over the net assets acquired amounting to Php107 million was added to the fair value of property and equipment and deferred income tax liability since Rack IT is still under construction when it was acquired by IPCDSI.

The fair value and gross amount of trade and other receivables amounted to Php15 million and it is expected that the full contractual amounts can be collected.

Our consolidated net income would have decreased by Php17 million for the year ended December 31, 2014 had the acquisition of Rack IT actually taken place on January 1, 2014. Total net loss of Rack IT included in our consolidated income statement from January 28, 2014 to December 31, 2014 amounted to Php14 million.

On January 28, 2014, PLDT’s Board of Directors approved the purchase of 37.5 million shares of PG1 owned by JSL which effectively increased PLDT’s ownership in PG1 from 50% to 65% for a total consideration of Php23 million. PLDT consolidated PG1’s financial statements effective March 10, 2014, completion date of the purchase.

The fair values of the identifiable assets and liabilities of PG1 at the date of acquisition are as follows:

The goodwill of Php3 million pertains to the fair value of PG1’s air transportation business.

The fair value and gross amount of trade and other receivables amounted to Php6 million and it is expected that the full contractual amounts can be collected.

Our consolidated net income would have decreased by Php14 million for the year ended December 31, 2014 had the acquisition of PG1 actually taken place on January 1, 2014. Total revenues and net loss of PG1 included in our consolidated income statement from March 10, 2014 to December 31, 2014 amounted to Php7 million and Php79 million, respectively.

On November 18, 2014, Smart acquired an 87% equity interest in WiFun for total cash consideration of Php70 million, of which Php35 million was paid in December 2014, Php6 million was paid on April 6, 2015 and Php29 million is payable upon capital call of WiFun. WiFun was incorporated in the Philippines in 2013 and is engaged in the business of selling software solutions, telecommunications equipment and gadgets, and providing WiFi access.

On November 25, 2015, Smart acquired the remaining noncontrolling shares for a total purchase price of Php10 million, of which Php7 million was paid in November 2015 and the remaining 30% balance will be paid upon fulfillment of certain conditions.

The fair values of the identifiable assets and liabilities of WiFun at the date of acquisition are as follows:

The goodwill of Php34 million pertains to the fair value of the expected synergies arising from the acquisition of WiFun by Smart. WiFun is expected to complement SBI’s broadband internet service.

Our consolidated net income would have decreased by Php6 million for the year ended December 31, 2014 had the acquisition of WiFun actually taken place in January 1, 2014. Total net loss of WiFun included in our consolidated income statement from November 18, 2014 to December 31, 2014 amounted to Php1 million.

On August 6, 2015, Voyager, through Takatack Holdings acquired 100% equity interest in Takatack Technologies for a total cash consideration of US$5 million, of which US$3 million was paid in August 2015 and US$2 million payable in 12 quarterly installments, subject to satisfaction of certain conditions. The acquisition is consistent with the PLDT Group’s focus to build Voyager into a digital economy platforms-enabler, allowing it to build its digital commerce business in the Philippines and other emerging markets. Takatack Technologies is a Singapore-based company behind the online store, TackThis!, a cloud-based e-commerce platform operating on a software as a service model that enables companies to easily set-up and showcase their businesses on various online platforms, among other things.

The purchase price consideration has been allocated to the identifiable assets and liabilities on the basis of provisional values at the date of acquisition. The corresponding carrying amounts immediately before the acquisition are as follows:

⁽¹⁾

Converted to Philippine Peso using the exchange rate at the time of purchase of Php33.23 to SGD1.00.

The transactions resulted in a Php229 million goodwill pertaining to the projected global rollout of the
e-commerce business.

Our consolidated net income would have decreased by Php7 million for the year ended December 31, 2015 had the acquisition of Takatack Technologies actually taken place on January 1, 2015.

Changes in goodwill and intangible assets for the years ended December 31, 2015 and 2014 are as follows:

Intangible Assets with

Total

Indefinite Life

Intangible Assets with Finite Life

Intangible Assets

Total

Total Goodwill and

Customer

with

Trademark

List

Franchise

Spectrum

Licenses

Others

Finite Life

Intangible Assets

Goodwill

Intangible Assets

(in million pesos)

December 31, 2015

Costs:

Balance at beginning of the year

4,505

4,726

3,016

1,205

972

1,177

11,096

15,601

62,863

78,464

Business combinations (Note 14)

–

229

Additions

–

107

122

–

122

Translation and other adjustments

–

)

–

)

Balance at end of the year

4,505

4,726

3,016

1,205

1,079

1,189

11,215

15,720

63,092

78,812

Accumulated amortization and impairment:

Balance at beginning of the year

–

1,748

589

830

645

1,111

4,923

699

5,622

Amortization during the year (Note 3)

–

510

186

279

1,076

–

1,076

Translation and other adjustments

–

)

–

)

Balance at end of the year

–

2,258

775

911

924

1,128

5,996

699

6,695

Net balance at end of the year (Note 3)

4,505

2,468

2,241

294

155

5,219

9,724

62,393

72,117

Estimated useful lives (in years)

–

2 – 18

1 – 10

–

Remaining useful lives (in years)

–

1 – 7

2 – 4

–

December 31, 2014

Costs:

Balance at beginning of the year

4,505

4,726

3,016

1,205

936

1,199

11,082

15,587

62,826

78,413

Business combinations (Note 14)

–

Additions

–

Translation and other adjustments

–

(22

)

(22

)

(22

)

–

(22

)

Balance at end of the year

4,505

4,726

3,016

1,205

972

1,177

11,096

15,601

62,863

78,464

Accumulated amortization and impairment:

Balance at beginning of the year

–

1,237

403

750

287

1,119

3,796

699

4,495

Amortization during the year (Note 3)

–

511

186

358

1,149

–

1,149

Translation and other adjustments

–

(22

)

(22

)

(22

)

–

(22

)

Balance at end of the year

–

1,748

589

830

645

1,111

4,923

699

5,622

Net balance at end of the year (Note 3)

4,505

2,978

2,427

375

327

6,173

10,678

62,164

72,842

Estimated useful lives (in years)

–

1 – 9

1 – 18

1 – 10

–

Remaining useful lives (in years)

–

The consolidated goodwill and intangible assets of our reportable segments as at December 31, 2015 and 2014 are as follows:

In April 2013, Smart entered into a three-year licensing agreement with MCA Music, Inc., an affiliate of the Universal Music Group, the world’s largest music company with wholly-owned record operations in 77 countries. On July 15, 2015, Smart extended the licensing agreement for another three years.

In July 2013, Smart entered into an 18-month licensing agreement with Ivory Music and Video, Inc., a domestic corporation and one of the major labels in the Philippine music industry. The agreement, which expired on December 31, 2014 was renewed for another two years commencing on January 1, 2015.

In February 2014, Smart entered into a two-year licensing agreement with Universal Records Philippines, Inc., or Universal Records, and PolyEast Records, Inc., or PolyEast Records. The agreement granted Smart an exclusive right to sell digital products of Universal Records and PolyEast Records such as downloading and streaming of digital audio and video. On September 1, 2015, Smart extended the licensing agreement for another two years.

In August 2015, Smart entered into an asset purchase agreement with Wifi Nation Philippines, Inc., or Wifi Nation, for a total consideration of Php15 million. Under the terms of the agreement, Smart acquired the assigned assets of Wifi Nation such as all its rights, titles and interests in its technology platform, patents, patent applications, contracts, intellectual property rights, and the business and trade name “Wifi Nation”. Smart recognized intangible assets of Php15 million for the technology applications, amortized over the remaining life of the customer contracts acquired. Amortization amounted to Php6 million for the year ended December 31, 2015.

The consolidated future amortization of intangible assets with finite life as at December 31, 2015 is as follows:

The organizational structure of PLDT and its subsidiaries is designed to monitor financial operations based on fixed line and wireless segmentation. Management provides guidelines and decisions on resource allocation, such as continuing or disposing of asset and operations by evaluating the performance of each segment through review and analysis of available financial information on the fixed line and wireless segments. As at December 31, 2015, 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 in 2008, and Smart’s acquisition of SBI in 2004. The test for recoverability of the PLDT’s and Smart’s goodwill was applied to the fixed line and wireless asset group, 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.

Given the significant common use of network facilities among fixed line and wireless companies within the PLDT Group, Management views that the wireless and fixed line operating segments are the lowest CGU to which goodwill is to be allocated and which are expected to benefit from the synergies.

The recoverable amount of the wireless and fixed line segments had been determined using the value in use approach calculated using cash flow projections based on the financial budgets approved by the Board of Directors, covering a three-year period from 2016 to 2018. The pre-tax discount rate applied to cash flow projections is 10.8% and 10.5% for the wireless and fixed line segments, respectively. Cash flows beyond the three-year period are determined using a 3.0% growth rate for the wireless and fixed line segments, which is the same as the long-term average growth rate for the telecommunications industry.

Based on the assessment of the value-in-use of the wireless and fixed line segments, the recoverable amount of the CGUs exceeded their carrying amounts, which as a result, no impairment was recognized as at December 31, 2015 and 2014 in relation to goodwill resulting from the additional investment in PG1 and the acquisition of WiFun, IPCDSI, Digitel, ePDS, PDSI, Chikka, CURE and SBI.

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 28 – Financial Assets and Liabilities.

Interest income earned from cash in banks and temporary cash investments amounted to Php579 million, Php476 million and Php740 million for the years ended December 31, 2015, 2014 and 2013, respectively.

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 25 – Related Party Transactions.

See Note 25 – Related Party Transactions for the summary of transactions with related parties and Note 28 – 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 years ended December 31, 2015 and 2014 are as follows:


							Corporate			Foreign						Dealers,
	Total			Retail Subscribers			Subscribers			Administrations			Domestic Carriers			Agents and Others
	(in million pesos)
December 31, 2015
Balance at beginning of the year		15,571			8,133			4,326			548			93			2,471
Provisions (reversals) and other adjustments		3,043			2,920			297			(233	)		4			55
Write-offs		(2,693	)		(2,505	)		(172	)		–			(11	)		(5	)
Reclassifications		–			992			–			–			–			(992	)
Balance at end of the year		15,921			9,540			4,451			315			86			1,529

Individual impairment		8,593			2,677			4,121			306			86			1,403
Collective impairment		7,328			6,863			330			9			–			126

		15,921			9,540			4,451			315			86			1,529

Gross amount of receivables individually impaired, before deducting any impairment allowance		8,593			2,677			4,121			306			86			1,403

December 31, 2014
Balance at beginning of the year		14,524			7,149			5,849			119			80			1,327
Provisions and other adjustments		1,956			1,462			(1,100	)		430			13			1,151
Write-offs		(909	)		(478	)		(423	)		(1	)		–			(7	)
Balance at end of the year		15,571			8,133			4,326			548			93			2,471

Individual impairment		9,586			2,541			4,081			526			93			2,345
Collective impairment		5,985			5,592			245			22			–			126

		15,571			8,133			4,326			548			93			2,471

Gross amount of receivables individually impaired, before deducting any impairment allowance		9,586			2,541			4,081			526			93			2,345

The cost of inventories and supplies recognized as expense for the years ended December 31, 2015, 2014 and 2013 are as follows:

Changes in the allowance for inventory obsolescence for the years ended December 31, 2015 and 2014 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 26 – Employee Benefits.

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 2021. Total prepayment under the advertising placement agreements amounted to Php533 million and Php758 million as at December 31, 2015 and 2014, respectively. See Note 25 – Related Party Transactions.

In May 2015, PLDT, Smart and DMPI entered into a four-year agreement with Dakila commencing on 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. Further, as agreed by all parties, the fees will be subject to a guaranteed minimum fess of US$2 million on the first year, US$4 million on the second year, US$6 million on the third year and US$8 million on the fourth year. The guaranteed minimum fee on the fourth year is subject to certain conditions as defined in the agreement. Total prepayment related to the agreement in 2015 amounted to US$3.1 million, or Php138.2 million. Total unamortized cost under prepayment amounted to Php88 million as at December 31, 2015.

PLDT’s number of shares of subscribed and outstanding capital stock as at December 31, 2015 and 2014 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.

The changes in PLDT’s capital account are the issuance of 870 shares or Php8,700 of Series JJ 10% Cumulative Convertible Preferred Stock and the redemption of 200 shares or Php2,000 of Series HH 10% Cumulative Convertible Preferred Stock for the years ended December 31, 2015 and 2014, respectively.

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 such case averaged over a period of 30 consecutive trading days prior to the conversion date, but in no case shall the conversion price be less than the price set by the Board of Directors which, as at December 31, 2015 was Php5.00 each per share. The number of shares of Common Stock issuable at any time upon conversion of 10% Cumulative Convertible Preferred Stock is determined by dividing Php10.00 by the then applicable conversion price.

In case the shares of Common Stock outstanding are at anytime subdivided into a greater or consolidated into a lesser number of shares, then the minimum conversion price per share of Common Stock will be proportionately decreased or increased, as the case may be, and in the case of a stock dividend, such price will be proportionately decreased, provided, however, that in every case the minimum conversion price shall not be less than the par value per share of Common Stock. In the event the relevant effective date for any such subdivision or consolidation of shares of stock dividend occurs during the period of 30 trading days preceding the presentation of any shares of 10% Cumulative Convertible Preferred Stock for conversion, a similar adjustment will be made in the sales prices applicable to the trading days prior to such effective date utilized in calculating the conversion price of the shares presented for conversion.

In case of any other reclassification or change of outstanding shares of Common Stock, or in case of any consolidation or merger of PLDT with or into another corporation, the Board of Directors shall make such provisions, if any, for adjustment of the minimum conversion price and the sale price utilized in calculating the conversion price as the Board of Directors, in its sole discretion, shall deem appropriate.

At PLDT’s option, the Series 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 December 31, 2015. See Note 1 – Corporate Information and
Note 27 – 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 SIP Preferred Shares, and all such shares were redeemed and retired effective on January 19, 2012, or the Redemption Date. The record date for the determination of the holders of outstanding SIP Preferred Shares subject to Redemption, or Holders of SIP Preferred Shares, was fixed on October 10, 2011, or the Record Date. In accordance with the terms and conditions of the SIP Preferred Shares, the Holders of SIP Preferred Shares as of the Record Date are entitled to payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to the Redemption Date, or the Redemption Price.

PLDT has set aside Php5.9 billion (the amount required to fund the redemption price for the SIP Preferred Shares) in addition to Php2.3 billion for unclaimed dividends on SIP Preferred Shares, or a total amount of Php8.2 billion, to fund the redemption of the SIP Preferred Shares, or the Redemption Trust Fund, in a trust account, or the Trust Account, in the name of Rizal Commercial Banking Corporation, or RCBC, as Trustee. Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund or any balance thereof, in trust, for the benefit of Holders of SIP Preferred Shares, for a period of ten years from the Redemption Date, or until January 19, 2022. After the said date, any and all remaining balance in the Trust Account shall be returned to PLDT and revert to its general funds. Any interests on the Redemption Trust Fund shall accrue for the benefit of, and be paid from time to time, to PLDT.

On May 8, 2012, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series GG 10% Cumulative Convertible Preferred Stock and all such shares were redeemed and retired effective on August 30, 2012. The record date for purposes of determining the holders of the outstanding Series GG Shares subject to redemption, or Holders of Series GG Shares, was fixed on May 22, 2012. In accordance with the terms and conditions of the Series GG Shares, the Holders of the Series GG Shares as at May 22, 2012 are entitled to the payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to August 30, 2012, or the Redemption Price of Series GG Shares.

PLDT has set aside Php247 thousand (the amount required to fund the redemption price for the Series GG Shares) in addition to Php63 thousand for unclaimed dividends on Series GG Shares, or a total amount of Php310 thousand, to fund the redemption price for the Series GG Shares, or the Redemption Trust Fund for Series GG Shares, which forms an integral part of the Redemption Trust Fund previously set aside in the trust account with RCBC, as Trustee, for the purpose of funding the payment of the Redemption Price of PLDT Series A to FF 10% Cumulative Convertible Preferred Stock.

As at January 19, 2012 and August 30, 2012, notwithstanding that any stock certificate representing the Series A to FF 10% Cumulative Convertible Preferred Stock and Series GG 10% Cumulative Convertible Preferred Stock, respectively, were not surrendered for cancellation, the Series A to GG 10% Cumulative Convertible Preferred Stock were no longer deemed outstanding and the right of the holders of such shares to receive dividends thereon ceased to accrue and all rights with respect to such shares ceased and terminated, except only the right to receive the Redemption Price of such shares, but without interest thereon.

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 and all such shares were redeemed and retired effective on May 16, 2013. The record date for purpose of determining the holders of the outstanding Series HH Shares issued in 2007 subject to redemption, or Holders of Series HH Shares issued in 2007, was fixed on February 14, 2013. In accordance with the terms and conditions of Series HH Shares issued in 2007, the Holders of Series HH Shares issued in 2007 as at February 14, 2013 are entitled to the payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to May 16, 2013, or the Redemption Price of Series HH Shares issued in 2007.

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, and all such shares were redeemed and retired effective on May 16, 2014. The record date for the purpose of determining the holders of the outstanding Series HH Shares issued in 2008 subject to redemption or Holders of Series HH Shares issued in 2008, was fixed on February 14, 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.

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 which were issued in 2010, and all such shares will be redeemed and retired effective on May 11, 2016. The record date for the purpose of determining the holders of the outstanding Series II Shares issued in 2010 subject to redemption or Holders of Series II Shares issued in 2010, was fixed on February 10, 2016. In accordance with the terms and conditions of Series II Shares issued in 2010, the Holders of Series II Shares issued in 2010 as at February 10, 2016 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 11, 2016, or the Redemption Price of Series II Shares issued in 2010.

Total amounts of Php15 million, Php30 million and Php64 million were withdrawn from the Trust Account, representing total payments on redemption for the years ended December 31, 2015, 2014 and 2013, respectively. The balances of the Trust Account of Php7,906 million and Php7,922 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 statement of financial position as at December 31, 2015 and 2014, respectively. See Note 24 – Accrued Expenses and Other Current Liabilities and Note 28 – Financial Assets and Liabilities.

PLDT expects to similarly redeem 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. The share buyback program reflects PLDT’s commitment to capital management as an important element in enhancing shareholders value. This also reinforces initiatives that PLDT has already undertaken, such as the declaration of special dividends on common stock in addition to the regular dividend payout equivalent to 75% of our core EPS, after having determined that PLDT has the capacity to pay additional returns to shareholders. Under the share buyback program, PLDT reacquired shares on an opportunistic basis, directly from the open market through the trading facilities of the PSE and NYSE.

We had acquired a total of approximately 2.72 million shares of PLDT’s common stock at a weighted average price of Php2,388.00 per share for a total consideration of Php6,505 million in accordance with the share buyback program as at December 31, 2015 and 2014.

On November 9, 2011, the PSE approved the listing of an additional 27.7 million common shares of PLDT, which were issued on October 26, 2011 at the issue price of Php2,500.00 per share, as consideration for the acquisition by PLDT of certain assets of Digitel from JGSHI.

On January 27, 2012, a total of 1.61 million PLDT common shares were issued for settlement of the purchase price of 2,518 million common shares of Digitel tendered by the noncontrolling Digitel stockholders under the mandatory tender offer conducted by PLDT, and which opted to receive payment of the purchase price in the form of PLDT common shares.

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

Our dividends declared for the years ended December 31, 2015, 2014 and 2013 are detailed as follows:

Payment was moved to September 28, 2015 in view of Proclamation No. 1128, Series of 2015, dated September 15, 2015, declaring September 25, 2015 a regular holiday.

The following table shows the reconciliation of our consolidated retained earnings available for dividend declaration as at December 31, 2015:

As at December 31, 2015, our consolidated unappropriated retained earnings amounted to Php6,195 million while the Parent Company’s unappropriated retained earnings amounted to Php17,381 million. The difference of Php11,186 million pertains to the effect of PAS 27 in our investments in subsidiaries, associates and joint ventures accounted for under the equity method.

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 Php676 million and Php511 million as at December 31, 2015 and 2014, respectively. See Note 28 – Financial Assets and Liabilities.

The following table describes all changes to unamortized debt discount for the years ended December 31, 2015 and 2014.

Description

Interest Rates

2015

2014

(in millions)

U.S. Dollar Debts:

Export Credit Agencies-Supported Loans:

Exportkreditnamnden, or EKN

1.4100% to 1.9000% and
US$ LIBOR + 0.3000% to
0.3500% in 2015 and 2014

US$

Php2,911

US$

Php4,187

China Export and Credit Insurance
Corporation, or Sinosure

US$ LIBOR + 0.5500% to
1.8000% in 2015 and 2014

2,484

3,679

EKN and AB Svensk Exportkredit, or SEK

3.9550% in 2015 and 2014

1,528

1,974

Finnvera, Plc, or Finnvera

2.9900% in 2015 and
2.9900% and US$ LIBOR +
1.3500% in 2014

–

223

147

6,923

225

10,063

Fixed Rate Notes

8.3500% in 2015 and 2014

228

10,733

227

10,170

Term Loans:

GSM Network Expansion Facilities

US$ LIBOR + 0.8500% to
1.1125% in 2015 and US$
LIBOR +
0.8500% to 1.8500% in 2014

1,722

3,354

Others

US$ LIBOR + 0.7900% to
1.9000% in 2015 and US$
LIBOR +
0.9500% to 1.9000% in 2014

1,024

48,242

828

37,045

US$

1,435

67,620

US$

1,355

60,632

Philippine Peso Debts:

Corporate Notes

5.3300% to 6.2600% in
2015 and 5.3300% to
6.3981% in 2014

21,320

21,534

Fixed Rate Retail Bonds

5.2250% to 5.2813% in
2015 and 2014

14,883

14,865

Term Loans:

Unsecured Term Loans

4.4850% to 5.7895%; BSP
overnight rate — 0.3500%
to BSP overnight rate in
2015 and 3.9250% to
6.3462%, PDST-F +
0.3000%;
BSP overnight rate -
0.3500% to BSP overnight
rate in 2014

57,069

33,092

93,272

69,491

Total long-term debt (Note 28)

160,892

130,123

Less portion maturing within one year (Note 28)

16,910

14,724

Noncurrent portion of long-term (Note 28)

Php143,982

Php115,399

The scheduled maturities of our consolidated outstanding long-term debt at nominal values as at December 31, 2015 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 December 31, 2015 and 2014:

Terms

Cancelled

Date of Loan

Loan Amount

Agreement

Lender(s)

Installments

Final Installment

Dates Drawn

Drawn Amount

Undrawn Amount

Paid in full on

Outstanding Amounts

2 0

1 5

2 0

1 4

(in millions)

U.S. Dollar Debts

EKN, the Export-Credit Agency of Sweden

DMPI

US$18.7M⁽¹⁾

April 4, 2006

Nordea Bank AB
(publ), or Nordea
Bank

18 equal semi-annual

April 30, 2015

Various dates in
2006-2007

US$18.7

US$–

April 30, 2015

US$–

Php–

US$1

Php48

DMPI

US$43.2M⁽²⁾

December 20, 2006

ING Bank N.V., or
ING Bank

14 equal semi-annual

May 30, 2014

Various dates in
2007-2008

42.9

0.3

May 30, 2014

–

DMPI

US$59.2M ⁽³⁾

December 17, 2007

ING Bank, Societe
Generale and Calyon

18 equal semi-annual

March 30, 2017

Various dates in
2008-2009

59.1

0.1

–

477

755

DMPI

US$51.2M⁽⁴⁾

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

–

415

656

Smart

US$49M⁽⁵⁾
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

–

14^(*)

674^(*)

24^(*)

1,065^(*)

US$1M

Smart

US$45.6M⁽⁵⁾
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

–

29^(*)

1,345^(*)

37^(*)

1,663^(*)

Tranche B1:
US$0.9M;
Tranche B2:

delivery date

April 15, 2019

US$0.7M

US$62

Php2,911

US$94

Php4,187

⁽*⁾ Amounts are net of unamortized discount and/or debt issuance cost;
⁽¹⁾ The purpose of this loan is to finance the supply of GSM mobile telephone equipment and related services;
⁽²⁾ The purpose of this loan is to finance the equipment and service contracts for the GSM Expansion in Visayas and Mindanao;
⁽³⁾ The purpose of this loan is to finance the equipment and service contracts for the Phase 7 North Luzon Expansion and Change-out Project;
⁽⁴⁾ The purpose of this loan is to finance the equipment and service contracts for the Phase 7 Expansion Project in Visayas and Mindanao; and
⁽⁵⁾ The purpose of this loan is to finance the supply and services contracts for the modernization and expansion project.

Terms

Cancelled

Date of Loan

Dates

Loan Amount

Agreement

Lender(s)

Installments

Final Installment

Drawn

Drawn Amount

Undrawn Amount

Paid in full on

Outstanding Amounts

2 0

1 5

2 0

1 4

(in millions)

Sinosure

DMPI

US$12.7M⁽¹⁾

May 4, 2006

Societe Generale
and Calyon

14 equal semi-annual

October 6, 2014

Various dates in
2007-2008

US$

12.2

US$

0.5

October 6, 2014

US$–

Php–

US$

–

Php–

DMPI

Various dates in

US$12M⁽²⁾

June 1, 2006

ING Bank

14 equal semi-annual

June 1, 2014

2006-2007

10.0

2.0

June 2, 2014

–

DMPI

Various dates in

US$21M⁽³⁾

May 24, 2007

ING Bank

14 equal semi-annual

May 24, 2015

2008

20.8

0.2

May 22, 2015

–

DMPI

US$12.1M⁽⁴⁾

May 24, 2007

ING Bank

14 equal semi-annual

May 24, 2015

Various dates in
2008

12.1

–

May 22, 2015

–

DMPI

US$23.8M⁽⁵⁾

November 10, 2008

ING Bank

14 equal semi-annual

September 1, 2016

Various dates in
2008-2009

23.8

–

160

304

DMPI

US$5.5M⁽⁶⁾

November 10, 2008

ING Bank

14 equal semi-annual

September 1, 2016

Various dates in
2008-2009

5.5

–

DMPI

US$4.9M⁽⁷⁾

November 10, 2008

ING Bank

14 equal semi-annual

September 1, 2016

Various dates in
2008-2009

4.9

–

DMPI

US$50M⁽⁸⁾

December 16, 2009

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

14 equal semi-annual

December 17, 2017

Various dates in
2010

48.0

2.0

–

639

909

DMPI

US$117M⁽⁹⁾

September 15, 2010

China Development
Bank and The Hong
Kong and Shanghai
Banking Corporation
Limited

15 equal semi-annual

April 10, 2019

Various dates in
2011

116.3

1.0

–

1,615

2,227

US$53

Php2,484

US$

Php3,679

⁽¹⁾ The purpose of this loan is to finance the supply of the equipment and software for the expansion of GSM services in NCR;

⁽²⁾ The purpose of this loan is to finance the equipment and service contracts for the upgrading of GSM Phase 5 Core Intelligent Network Project;

⁽³⁾ The purpose of this loan is to finance the equipment for the Phase 6 South Luzon Change Out and Expansion Project;

⁽⁴⁾ The purpose of this loan is to finance the equipment for the Phase 6 NCR Expansion Project;

⁽⁵⁾ The purpose of this loan is to finance the equipment and service contracts for the Phase 7 Core Expansion Project;

⁽⁶⁾ The purpose of this loan is to finance the equipment and service contracts for the supply of 3G network in NCR;

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

⁽⁸⁾ 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;

⁽⁹⁾ 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;and

⁽¹⁰⁾ 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⁾ The purpose of this loan is to finance the Phase 10 (Extension) GSM equipment and services contract;
⁽²⁾ The purpose of this loan is to finance the GSM equipment and services contracts; and
⁽³⁾ The purpose of this loan is to finance the equipment and service contracts for the Phase 5 Mobile Messaging Core Network.

⁽*⁾ Amounts are net of unamortized debt discount and/or debt issuance cost;and
⁽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 Phase 10 GSM equipment and service contracts;
⁽²⁾ The purpose of this loan is to finance the equipment and service contracts for the modernization and expansion project; and
⁽³⁾ The purpose of this loan is to finance the supply contracts for the modernization and expansion project.

Cancelled

Date of Loan

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Drawn Amount

Undrawn Amount

Paid in full on

Outstanding Amounts

2 0

1 5

2 0

1 4

(in millions)

Other Term Loans⁽¹⁾

PLDT

US$150M

March 7, 2012

Syndicate of Banks
with the Bank of
Tokyo Mitsubishi
UFJ, Ltd., or 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$–

–

US$50

Php2,356

US$84

Php3,729

PLDT

US$25M

March 16, 2012

Citibank, N.A.

17 equal
quarterly-installments,
commencing 12 months
from the initial
drawdown date, with
final installment on
May 30, 2017

May 29, 2012

–

May 29, 2015

–

658

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

–

167

7,853

233

10,439

Smart

US$35M

January 28, 2013

China Banking
Corporation

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

May 7, 2013

–

825

1,096

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

–

18^(*)

833^(*)

25^(*)

1,102^(*)

Smart

US$80M

May 31, 2013

China Banking
Corporation

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

September 25, 2013

–

1,885

2,505

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

–

74^(*)

3,501^(*)

104^(*)

4,640^(*)

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

–
–

77^(*)
–

3,625^(*)
–

88^(*)
–

3,958^(*)
–

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

–

38^(*)

1,813^(*)

49^(*)

2,207^(*)

PLDT

US$100M

August 5, 2014

Philippine National
Bank

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

–

4,665

100

4,474

US$581

Php27,356

US$778

Php34,808

⁽*⁾ Amounts are net of unamortized debt discount and/or debt issuance cost; and
⁽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

Date of Loan

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Drawn Amount

Undrawn Amount

Paid in full on

Outstanding Amounts

2 0

1 5

2 0 1

(in millions)

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

US$50

US$–

–

US$

Php2,344

US$50

Php2,237

PLDT

US$200M
Tranche A:
US$150M;
Tranche B:
US$50M

February 26, 2015

Bank of Tokyo

Commencing 36
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

Various dates in
2015

200

–

198^(*)

9,320^(*)

–

Smart

US$200M

March 4, 2015

Mizuho Bank Ltd.

9 equal semi-annual
installments
commencing on the
date which falls 12
months after the
loan date, with
final installment
on March 4, 2020

Various dates in
2015

200

–

197^(*)

9,299^(*)

–

Smart

US$100M

December 7, 2015

Mizuho Bank Ltd.

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

–

(2)⁽²⁾

(77)⁽²⁾

–

443

20,886

2,237

US$

1,024

Php48,242

US$828

Php37,045

⁽*⁾ Amounts are net of unamortized debt discount and/or debt issuance cost; and

⁽*⁾ Amounts are net of unamortized debt discount and/or debt issuance cost; and
⁽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.

Date of Loan

Date of Issuance/

Loan Amount

Agreement

Facility Agent

Installments

Drawdown

Prepayments

Outstanding Amounts

Amount

Date

2 0

1 5

2 0

1 4

(in millions)

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

Php2,055

June 21, 2013

Php6,543

Php6,610

Series B:
Php4,190M

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

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

–

6,014

6,076

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
sixth 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

–

1,349

1,362

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 and the
balance payable
upon maturity on
September 21, 2019;

June 21, 2013

–

1,993

2,014

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

–

1,164

1,176

17,063

17,238

Php21,320

Php21,534

⁽*⁾ Amounts are net of unamortized debt discount and/or debt issuance cost; and

⁽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.

Loan

Date of Loan

Drawn

Cancelled

Outstanding Amounts

Undrawn

Amount

Agreement

Lender(s)

Terms

Dates Drawn

Amount

Paid in full on

2 0

1 5

2 0

1 4

(in millions)

Term Loans

Unsecured Term Loans⁽¹⁾

Smart

Php1,000M

July 16, 2009

Metrobank

16 equal
consecutive
quarterly
installments
commencing on the
fifth quarter from
the date of the
first drawdown,
with final
installment on
August 1, 2014

August 3, 2009

Php1,000

Php–

August 1, 2014

Php–

Php–

PLDT

Php2,000M

September 18, 2009

Bank of the
Philippine Islands,
or BPI

17 equal quarterly
installments, with
final installment
on October 27, 2014

Various dates in
2009

2,000

–

October 27, 2014

–

PLDT

Php1,000M

November 23, 2009

BPI

17 equal quarterly
installments, with
final installment
on December 18,
2014

December 18, 2009

1,000

–

December 18, 2014

–

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

2,000

–

2,000

2,000

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

–

2,910

2,940

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

–

1,940

1,960

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

–

970

980

DMPI

Php1,500M

June 27, 2012

BPI, BPI Asset
Management and
Trust Group and
ALFM Peso Bond
Fund, Inc.

Annual amortization
rate of 1% of the
principal amount
with the balance
payable upon
maturity on June
29, 2019

Various dates in
2012

1,500

–

July 1, 2015

–

1,470

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

–

980

990

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

–

2,910

2,940

PLDT

Php2,000M

November 13, 2013

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

–

1,960

1,980

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

–

2,391^(*)

2,688^(*)

Php17,261

Php19,148

⁽*⁾ Amounts are net of unamortized debt discount and/or debt issuance cost; and

⁽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

Amount

Agreement

Lender(s)

Terms

Dates Drawn

Amount

Paid in full on

2 0

1 5

2 0

1 4

(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–

–

Php2,929^(*)

Php2,957^(*)

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

–

2,959^(*)

2,987

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

–

495

500

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

–

1,980

2,000

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

–

495

500

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

–

990

1,000

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

–

1,485

1,500

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

–

2,000

–

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

–

3,000

–

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

–

5,000

–

Php23,833

Php13,944

⁽*⁾ Amounts are net of unamortized debt discount and/or debt issuance cost.

Cancelled

Loan

Date of Loan

Drawn

Undrawn

Outstanding Amounts

Amount

Agreement

Lender(s)

Terms

Dates Drawn

Amount

Paid in full on

2 0

1 5

2 0

1 4

(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–

–

Php4,975^(*)

Php–

Smart

Php5,000M

December 11, 2015

BPI

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
December 21, 2025

December 21, 2015

5,000

–

5,000

–

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

–

5,000

–

Smart

Php7,000M

December 18, 2015

China Banking
Corporation

14 semi-annual
installments
commencing on the
sixth month after
initial drawdown
and the balance
payable upon
maturity on
December 28, 2022

December 28, 2015
February 24,
2016

1,000
6,000

–
–

1,000
–

–
–

15,975

–

Php57,069

Php33,092

⁽*⁾ Amounts are net of unamortized debt discount and/or debt issuance cost.

Our debt instruments contain restrictive covenants, including covenants that require us to comply with specified financial ratios and other financial tests, calculated in conformity with PFRS at relevant measurement dates, principally at the end of each quarterly period. We have complied with all of our maintenance financial ratios as required under our loan covenants and other debt instruments.

The principal factors that 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, the lowering of PLDT’s credit ratings or the credit ratings of the Philippines, increase in reference interest rates, and general market conditions. Since approximately 42% and 47% of PLDT’s total consolidated debts as at December 31, 2015 and 2014, respectively, were denominated in foreign currencies, principally in U.S. dollars, many of these financial ratios and other tests are negatively affected by any weakening of the Philippine peso. See Note 28 – 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.

Furthermore, certain of DMPI’s debt instruments contain provisions wherein DMPI may be declared in default in case of a change in control in DMPI.

PLDT’s debt instruments and guarantees for DMPI loans also contain customary and other default provisions that permit the lender to accelerate amounts due or terminate their commitments to extend additional funds under the debt instruments. These default provisions include: (a) cross-defaults that will be triggered only if the principal amount of the defaulted indebtedness exceeds a threshold amount specified in these debt instruments; (b) failure by PLDT to meet certain financial ratio covenants referred to above; (c) the occurrence of any material adverse change in circumstances that a lender reasonably believes materially impairs PLDT’s ability to perform its obligations under its debt instrument with the lender; (d) the revocation, termination or amendment of any of the permits or franchises of PLDT in any manner unacceptable to the lender; (e) the nationalization or sustained discontinuance of all or a substantial portion of PLDT’s business; and (f) other typical events of default, including the commencement of bankruptcy, insolvency, liquidation or winding up proceedings by PLDT.

Smart’s debt instruments contain certain restrictive covenants that require Smart to comply with specified financial ratios and other financial tests at semi-annual measurement dates. Smart’s loan agreements include compliance with financial tests such as consolidated debt to consolidated equity, consolidated debt to consolidated EBITDA and debt service coverage ratios. Previously, Smart was required to comply with certain consolidated debt to consolidated equity ratio under Variable Loan Agreement 2014 debt with Marubeni Corporation as original lender and under the 2014 (A) Debt under Metrobank as Facility Agent. On August 16, 2012 and September 3, 2012, the approvals to amend the covenant from “the ratio of Consolidated Debt to Consolidated Equity” to “the ratio of Consolidated Debt to Consolidated EBITDA” were obtained. The agreements also contain customary and other default provisions that permit the lender to accelerate amounts due under the loans or terminate their commitments to extend additional funds under the loans. These default provisions include: (a) cross-defaults and cross-accelerations that permit a lender to declare a default if Smart is in default under another loan agreement. These cross-default provisions are triggered upon a payment or other default permitting the acceleration of Smart debt, whether or not the defaulted debt is accelerated; (b) failure by Smart to comply with certain financial ratio covenants; and (c) the occurrence of any material adverse change in circumstances that the lender reasonably believes materially impairs Smart’s ability to perform its obligations or impair the guarantors’ ability to perform their obligations under its loan agreements.

DMPI’s liabilities are guaranteed up to a certain extent by Digitel and PLDT. In addition, the loan agreements contain covenants which, among others, restrict the incurrence of loans or debts not in the ordinary course of business, merger or disposition of any substantial portion of Digitel and DMPI’s assets, distribution of capital or profits, redemption of any of its issued shares, and reduction of Digitel and DMPI’s registered and paid-up capital.

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 December 31, 2015 and 2014, we were in compliance with all of our debt covenants. See Note 28 – Financial Assets and Liabilities – Derivative Financial Instruments.

The consolidated future minimum payments for finance leases and long-term portion of obligations under finance leases amounted to Php1 million and nil as at December 31, 2015 and 2014, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 3 – Management’s Use of Accounting Estimates, Judgments and Assumptions, Note 9 – Property and Equipment, and Note 28 – Financial Assets and Liabilities.

The PLDT Group has various long-term lease contracts for a period of three years covering various office equipment and vehicles. In particular, IPCDSI and PLDT Global have finance lease obligations in the aggregate amounts of Php1 million and Php6 million as at December 31, 2015 and 2014, respectively. See Note 28 – 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 years ended December 31, 2015 and 2014:

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

For terms and conditions pertaining to related parties, see Note 25 – Related Party Transactions.

For explanation on the PLDT Group’s liquidity risk management processes, see Note 28 – 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 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.

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 occurs in cash. The PLDT Group has not recorded any impairment of receivables relating to amounts owed by related parties as at December 31, 2015 and 2014. 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 December 31, 2015 and 2014 transactions that have been entered into with related parties:

Classifications

Terms

Conditions

2015

2014

(in million pesos)

Indirect investment in

joint ventures through

PCEV:

Meralco

Accrued expenses

Electricity charges

Unsecured

383

367

and other current

– immediately upon

liabilities (Note

receipt of invoice

24)

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

24)

invoice

Unsecured

–

Indirect investment in

associate through ACeS

Philippines:

Accounts payable and accrued expenses and other current liabilities

30 days upon

AIL

(Notes 23 and 24)

receipt of invoice

Unsecured

Transactions with major

stockholders, directors

and officers:

Asia Link B.V., or

Accounts payable

15 days from end of

ALBV

(Note 23)

quarter

Unsecured

297

Accrued expenses

1^st

and other current

month of each

NTT World Engineering

liabilities (Note

quarter;

Marine Corporation

24)

non-interest-bearing

Unsecured

NTT Communications

Accrued expenses

30 days upon

Unsecured

and other current

receipt of invoice;

liabilities (Note

non-interest-bearing

24)

NTT Worldwide

Accrued expenses

30 days upon

Unsecured

Telecommunications

and other current

receipt of invoice;

Corporation

liabilities (Note

non-interest-bearing

24)

JGSHI and Subsidiaries

Accounts payable

Immediately upon

Unsecured

and accrued

receipt of invoice

expenses and other current liabilities (Notes 23 and 24)

NTT DOCOMO

Accrued expenses

30 days upon

Unsecured

and other current

receipt of invoice;

liabilities (Note

non-interest-bearing

24)

Accrued expenses and other current

Malayan Insurance

liabilities (Note

Immediately upon

Co., Inc., or Malayan

24)

receipt of invoice

Unsecured

Others:

Trade and other receivables

30 days upon

Unsecured;

Various

(Note 17)

receipt of invoice

no impairment

1,588

2,444

The following table provides the summary of transactions that have been entered into with related parties for the years ended December 31, 2015, 2014 and 2013 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 Php2,328 million, Php2,929 million and Php3,049 million for the years ended December 31, 2015, 2014 and 2013, 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 Php383 million and Php367 million as at December 31, 2015 and 2014, respectively.

In 2009, PLDT and Smart renewed their respective Pole Attachment Contracts with Meralco, wherein Meralco leases its pole spaces to accommodate PLDT’s and Smart’s cable network facilities. Total fees under these contracts, which were presented as part of rent in our consolidated income statements, amounted to Php264 million, Php298 million and Php250 million for the years ended December 31, 2015, 2014 and 2013, 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 Php4 million and Php45 million as at December 31, 2015 and 2014, respectively.

See also Note 10 – Investments in Associates, Joint Ventures and Deposits – Investment in Beacon – Beacon’s Acquisition of Additional Meralco Shares for additional transactions involving Meralco.

PLDT has an existing Outside and Inside Plant Contracted Services Agreement with MIESCOR, a subsidiary of Meralco, 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 Php45 million, Php24 million and Php33 million for the years ended December 31, 2015, 2014 and 2013, respectively. Total amounts capitalized to property and equipment amounted to Php3 million, Php7 million and Php2 million for the years ended December 31, 2015, 2014 and 2013, 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 Php6 million and nil as at December 31, 2015 and 2014, respectively.

PLDT also has an existing One Area One Partner for Outside Plant Subscriber Line Rehabilitation, Repair, Installation and Related Activities agreement with MIESCOR, from January 1, 2011 and extended until March 31, 2017. Under the agreement, MIESCOR is responsible for the customer line installation, repair, rehabilitation and maintenance activities of cables and cabinets 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 Php120 million, Php57 million and Php35 million for the years ended December 31, 2015, 2014 and 2013, respectively. Total amounts capitalized to property and equipment amounted to Php92 million, Php76 million and Php46 million for the years ended December 31, 2015, 2014 and 2013, respectively. There were no outstanding obligations under this agreement as at December 31, 2015 and 2014.

Since 2012, PLDT has insurance policies with RSIC, a wholly-owned subsidiary of Meralco, covering material damages for buildings, building improvements and equipment. Total fees under the related contracts, which were presented as part of insurance and security services in our consolidated income statements, amounted to Php3 million each for the years ended December 31, 2015, 2014 and 2013. There were no outstanding obligations for these contracts as at December 31, 2015 and 2014.

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.

Total fees under the Amended ATPA, which were presented as part of cost of sales in our consolidated income statements, amounted to Php16 million, Php25 million and Php50 million for the years ended December 31, 2015, 2014 and 2013, respectively. 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 Php4 million and Php50 million as at December 31, 2015 and 2014, respectively. See
Note 5 – Income and Expenses – Cost of Sales.

Material transactions to which PLDT or any of its subsidiaries is a party, in which a director, key officer or owner of more than 10% of the outstanding common stock of PLDT, or any member of the immediate family of a director, key officer or owner of more than 10% of the outstanding common stock of PLDT, had a direct or indirect material interest as at December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 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 Php203 million, Php222 million and Php289 million for the years ended December 31, 2015, 2014 and 2013, respectively. Under this agreement, the outstanding obligations, which were presented as part of accounts payable in our consolidated statements of financial position, amounted to Php46 million and Php297 million as at December 31, 2015 and 2014, respectively.

PLDT is a party to the following agreements with NTT Communications and/or its affiliates:

Service Agreement. On February 1, 2008, PLDT entered into an agreement with NTT World Engineering Marine Corporation wherein the latter provides offshore submarine cable repair and other allied services for the maintenance of PLDT’s domestic fiber optic network submerged plant. The fees under this agreement, which were presented as part of repairs and maintenance in our consolidated income statements, amounted to Php60 million, Php26 million and Php14 million for the years ended December 31, 2015, 2014 and 2013, 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 Php50 million and Php29 million as at December 31, 2015 and 2014, 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 Php77 million, Php75 million and Php73 million for the years ended December 31, 2015, 2014 and 2013, 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 Php10 million and Php12 million as at December 31, 2015 and 2014, 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 Php10 million, Php12 million and Php10 million for the years ended December 31, 2015, 2014 and 2013, 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 Php2 million and Php7 million as at December 31, 2015 and 2014, 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 Php14 million for the year ended December 31, 2015 and Php15 million each for the years ended December 31, 2014 and 2013. 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 Php3 million and Php10 million as at December 31, 2015 and 2014, 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 Php303 million, Php332 million and Php284 million for the years ended December 31, 2015, 2014 and 2013, 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 each as at December 31, 2015 and 2014.

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 Php22 million, Php51 million and Php31 million for the years ended December 31, 2015, 2014 and 2013, 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 Php2 million and Php1 million as at December 31, 2015 and 2014, 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 Php90 million, Php67 million and Php73 million for the years ended December 31, 2015, 2014 and 2013, 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 Php9 million as at December 31, 2015 and 2014, respectively.

PLDT and certain of its subsidiaries have insurance policies with Malayan covering directors, officers, employees liability and material damages for buildings, building improvements, equipment and motor vehicles. The premiums are directly paid to Malayan. Total fees under these contracts, which were presented as part of insurance and security services in our consolidated income statements, amounted to Php203 million, Php206 million and Php231 million for the years ended December 31, 2015, 2014 and 2013, 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 Php5 million each as at December 31, 2015 and 2014. A director of PLDT has direct/indirect interests in or serves as a director/officer of Malayan as at December 31, 2015 and 2014.

Cooperation Agreement with First Pacific and certain affiliates, or the FP Parties, NTT Communications and NTT DOCOMO

In connection with the transfer by NTT Communications of approximately 12.6 million shares of PLDT’s common stock to NTT DOCOMO pursuant to a Stock Sale and Purchase Agreement dated January 31, 2006 between NTT Communications and NTT DOCOMO, the FP Parties, NTT Communications and NTT DOCOMO entered into a Cooperation Agreement, dated January 31, 2006. Under the Cooperation Agreement, the relevant parties extended certain rights of NTT Communications under the Stock Purchase and Strategic Investment Agreement dated September 28, 1999, as amended, and the Shareholders Agreement dated March 24, 2000, to NTT DOCOMO, including:

certain contractual veto rights over a number of major decisions or transactions; and

rights relating to the representation on the Board of Directors of PLDT and Smart, respectively, and any committees thereof.

Moreover, key provisions of the Cooperation Agreement pertain to, among other things:

Restriction on Ownership of Shares of PLDT by NTT Communications and NTT DOCOMO. Each of NTT Communications and NTT DOCOMO has agreed not to beneficially own, directly or indirectly, in the aggregate with their respective subsidiaries and affiliates, more than 21% of the issued and outstanding shares of PLDT’s common stock. If such event does occur, the FP Parties, as long as they own in the aggregate not less than 21% of the issued and outstanding shares of PLDT’s common stock, have the right to terminate their respective rights and obligations under the Cooperation Agreement, the Shareholders Agreement and the Stock Purchase and Strategic Investment Agreement.

Limitation on Competition. NTT Communications, NTT DOCOMO and their respective subsidiaries are prohibited from investing in excess of certain thresholds in businesses competing with PLDT in respect of customers principally located in the Philippines and from using their assets in the Philippines in such businesses. Moreover, if PLDT, Smart or any of Smart’s subsidiaries intend to enter into any contractual arrangement relating to certain competing businesses, PLDT is required to provide, or to use reasonable efforts to procure that Smart or any of Smart’s subsidiaries provide, NTT Communications and NTT DOCOMO with the same opportunity to enter into such agreement with PLDT or Smart or any of Smart’s subsidiaries, as the case may be.

Business Cooperation. PLDT and NTT DOCOMO agreed in principle to collaborate with each other on the business development, roll-out and use of a W-CDMA 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 December 31, 2015 and 2014.

Change in Control. Each of NTT Communications, NTT DOCOMO and the FP Parties agreed that to the extent permissible under applicable laws and regulations of the Philippines and other jurisdictions, subject to certain conditions, to cast its vote as a shareholder in support of any resolution proposed by the Board of Directors of PLDT for the purpose of safeguarding PLDT from any Hostile Transferee. A “Hostile Transferee” is defined under the Cooperation Agreement to mean any person (other than NTT Communications, NTT DOCOMO, First Pacific or any of their respective affiliates) determined to be so by the PLDT Board of Directors and includes, without limitation, a person who announces an intention to acquire, seeking to acquire or acquires 30% or more of PLDT common shares then issued and outstanding from time to time or having (by itself or together with itself) acquired 30% or more of the PLDT common shares who announces an intention to acquire, seeking to acquire or acquires a further 2% of such PLDT common shares: (a) at a price per share which is less than the fair market value as determined by the Board of Directors of PLDT, as advised by a professional financial advisor; (b) which is subject to conditions which are subjective or which could not be reasonably satisfied; (c) without making an offer for all PLDT common shares not held by it and/or its affiliates and/or persons who, pursuant to an agreement or understanding (whether formal or informal), actively cooperate to obtain or consolidate control over PLDT; (d) whose offer for the PLDT common shares is unlikely to succeed; or (e) whose intention is otherwise not bona fide; provided that, no person will be deemed a Hostile Transferee unless prior to making such determination, the Board of Directors of PLDT has used reasonable efforts to discuss with NTT Communications and NTT DOCOMO in good faith whether such person should be considered a Hostile Transferee.

Termination. If NTT Communications, NTT DOCOMO or their respective subsidiaries cease to own, in the aggregate, full legal and beneficial title to at least 10% of the shares of PLDT’s common stock then issued and outstanding, their respective rights and obligations under the Cooperation Agreement and the Shareholders Agreement will terminate and the Strategic Arrangements (as defined in the Stock Purchase and Strategic Investment Agreement) will terminate. If the FP Parties and their respective subsidiaries cease to have, directly or indirectly, effective voting power in respect of shares of PLDT’s common stock representing at least 18.5% of the shares of PLDT’s common stock then issued and outstanding, their respective rights and obligations under the Cooperation Agreement, the Stock Purchase and Strategic Investment Agreement, and the Shareholders Agreement will terminate.

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

PLDT and certain of its subsidiaries provide telephone, data communication and other services to various related parties at arm’s length similar to transactions with other customers. The revenues under these services amounted to Php864 million, Php761 million and Php717 million for the years ended December 31, 2015, 2014 and 2013, respectively.

The outstanding receivables of PLDT and certain of its subsidiaries, which were presented as part of trade and other receivables in our consolidated statements of financial position, from these transactions amounted to Php1,588 million and Php2,444 million as at December 31, 2015 and 2014, respectively.

See Note 10 – Investments in Associates, Joint Ventures and Deposits – Investment in MediaQuest PDRs and Note 19 – Prepayments – Agreement between PLDT and Smart with TV5 for other related party transactions.

The compensation of key officers of the PLDT Group by benefit type for the years ended December 31, 2015, 2014 and 2013 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 Php55 million, Php45 million and Php32 million for the years ended December 31, 2015, 2014 and 2013, 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.

Our actuarial valuation is performed every year-end. Based on the latest actuarial valuation, the actual present value of accrued (prepaid) benefit costs, net periodic benefit costs and average assumptions used in developing the valuation as at and for the years ended December 31, 2015, 2014 and 2013 are as follows:

Actual net losses on plan assets amounted to Php3,485 million, Php4,655 million and Php9,973 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Based on the latest actuarial valuation, our expected contribution to the defined benefit plan in 2016 will amount to Php1,411 million.

The following table sets forth the expected future settlements by the Plan of maturing defined benefit obligation as at December 31, 2015:

The average duration of the defined benefit obligation at the end of the reporting period is 9 to 21 years.

The weighted average assumptions used to determine pension benefits for the years ended December 31, 2015, 2014 and 2013 are as follows:

We have adopted mortality rates in accordance with the 1994 Group Annuity Mortality Table developed by the U.S. Society of Actuaries, which provides separate rates for males and females.

The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as at the end of the reporting period, assuming if all other assumptions were held constant:

The Board of Trustees performed an asset-liability matching study of our retirement plan. 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 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.

For the year ended December 31, 2015, PLDT contributed a total of Php7,086 million to the beneficial trust fund.

The following table sets forth the fair values, which are equal to the carrying values, of PLDT’s plan assets recognized as at December 31, 2015 and 2014:

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

MediaQuest was registered with the Philippine SEC on June 29, 1999 primarily to purchase, subscribe for or otherwise acquire and own, hold, use, manage, sell, assign, transfer, mortgage, pledge, exchange, or otherwise dispose of real and personal property or every kind and description, and to pay thereof in whole or in part, in cash or by exchanging, stocks, bonds and other evidences of indebtedness or securities of this any other corporation. Its investments include common shares of stocks of various communication, broadcasting and media entities.

The Board of Trustees of the Beneficial Trust Fund approved additional investments in MediaQuest amounting to Php750 million each on November 5, 2012 and January 25, 2013 to fund the latter’s operational and capital expenditure requirements. Subsequently, on March 1, 2013, the Board of Directors of MediaQuest approved its application of the additional investment to additional paid in capital on the existing subscribed shares of stock.

On May 8, 2012, the Board of Trustees of the Beneficial Trust Fund approved the issuance by MediaQuest of PDRs amounting to Php6 billion. The underlying shares of these PDRs are the shares of stocks of Cignal TV held by MediaQuest through Satventures (Cignal TV PDRs). On the same date, MediaQuest Board of Directors approved the investment in Cignal TV PDRs by ePLDT, which will give ePLDT a 40% economic interest in Cignal TV. In June 2012, MediaQuest received a deposit for future PDRs subscription of Php4 billion from ePLDT. Additional deposits of Php1 billion each were received on July 6, 2012 and August 9, 2012.

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.

In November 2013, the Board of Trustees of the Beneficial Trust Fund and the Board of Directors of MediaQuest approved the additional investment of Hastings in The Philippine Star Group. See Note 10 – Investments in Associates, Joint Ventures and Deposits – Investment in MediaQuest PDRs.

In 2014, the Board of Trustees of the Beneficial Trust Fund approved additional investments in MediaQuest amounting to Php6,300 million to fund the latter’s investment requirements. Of the Php6,300 million, a total of Php5,500 million had already been drawn by MediaQuest as at December 31, 2014.

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.

In 2015, the Board of Trustees of the Beneficial Trust Fund approved additional investments in MediaQuest amounting to Php5,090 million to fund the latter’s investment requirements. Said amount was fully drawn by MediaQuest as at December 31, 2015.

The fair values of the investments in MediaQuest PDRs 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 2016 to 2020.

The pre-tax discount rates applied to cash flow projections range from 10% to 12%. Cash flows beyond the five-year period are determined using 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 value of this investment amounted to Php285 million and Php249 million as at December 31, 2015 and 2014, respectively.

BTFHI was incorporated for the primary purpose of acquiring voting preferred shares in PLDT and while the owner, holder of possessor thereof, to exercise all the rights, powers, and privileges of ownership or any other interest therein.

On October 26, 2012, BTFHI subscribed to a total of 150 million shares of Voting Preferred Stock of PLDT at a subscription price of Php1.00 per share for a total subscription price of Php150 million. Total cash dividend income amounted to Php10 million each for the years ended December 31, 2015 and 2014, and Php12 million for the year ended December 31, 2013. Dividend receivables amounted to Php2 million each as at December 31, 2015 and 2014.

Dividends earned on PLDT common shares amounted to Php2 million for the year ended December 31, 2015 and Php5 million each for the years ended December 30, 2014 and 2013.

Preferred shares represent 300 million unlisted preferred shares of PLDT at Php10 par value as at December 31, 2015 and 2014, 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 Php49 million each for the years ended December 31, 2015, 2014 and 2013.

Investment in mutual funds includes various U.S. dollar and Euro denominated equity funds, which aims to out-perform benchmarks in various international indices as part of its investment strategy. Total investment in mutual funds amounted to Php61 million and Php63 million as at December 31, 2015 and 2014, respectively.

Investment in government securities includes retail treasury bonds and FXTN bearing interest ranging from 5.88% to 7% per annum. These securities are fully guaranteed by the government of the Republic of the Philippines. Total investment in government securities amounted to Php41 million and Php42 million as at December 31, 2015 and 2014, respectively.

Investment properties include two condominium units (bare, separate 127 and 58 square meter units) located in Ayala-FGU Building along Alabang-Zapote Road in Muntinlupa City. Total fair value of investment properties amounted to Php10 million each as at December 31, 2015 and 2014.

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 cashflows to be matched with asset durations.

The allocation of the fair value of the assets for the PLDT pension plan as at December 31, 2015 and 2014 are as follows:

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 December 31, 2015 and 2014, 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, net periodic benefit costs and average assumptions used in developing the valuation as at and for the years ended December 31, 2015, 2014 and 2013 are as follows:

Actual net gains on plan assets amounted to Php52 million, Php102 million and Php93 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Based on the latest actuarial valuation, Smart and certain of its subsidiaries expect to contribute the amount of approximately Php327 million to its defined benefit plan in 2016.

The following table sets forth the expected future settlements by the Plan of maturing defined benefit obligation as at December 31, 2015:

The average duration of the defined benefit obligation at the end of the reporting period is 15 years.

The weighted average assumptions used to determine pension benefits for the years ended December 31, 2015, 2014 and 2013 are as follows:

The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as at December 31, 2015, assuming if all other assumptions were held constant:

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 December 31, 2015 and 2014:

Investments in domestic fixed income include Philippine peso denominated bonds, such as government securities, corporate debt securities and a fixed income fund managed by BPI Asset Management and Trust Group which is invested in a diversified portfolio of Philippine peso-denominated fixed income instruments. The investments under this category, exclusive of the mutual fund, earned between 4.19% and 9.13% interest for the years ended December 31, 2015 and 2014. Total investments in domestic fixed income amounted to Php1,411 million and Php1,240 million as at December 31, 2015 and 2014, respectively.

Investments in international equities include mutual funds managed by ING International and an offshore investment in a global mutual fund managed by Franklin Templeton, which are all invested in diversified portfolios of global equities. Total investment in international equities amounted to Php460 million and Php367 million as at December 31, 2015 and 2014, respectively.

Investments in domestic equities include direct equity investments in common shares and convertible preferred shares listed in the PSE and a local equity fund managed by BPI Asset Management and Trust Group which is invested in a diversified portfolio of stocks listed in the PSE. These investments earn on stock price appreciation and dividend payments. Total investment in domestic equities amounted to Php424 million and Php615 million as at December 31, 2015 and 2014, respectively. This includes investment in PLDT shares with fair value of Php31 million and Php46 million as at December 31, 2015 and 2014, respectively.

Investments in Philippine foreign currency bonds include investments in U.S. dollar denominated fixed income instruments issued by the Philippine government, local corporations and financial institutions. The investments under this category earned between 4.20% and 7.38% interest for the years ended December 31, 2015 and 2014. Total investment in Philippine foreign currency bonds amounted to Php352 million and Php427 million as at December 31, 2015 and 2014, respectively.

Investments in international fixed income include mutual funds managed by ING International which are invested in diversified portfolios of high-yield foreign currency denominated bonds. Total investments in international fixed income amounted to nil and Php106 million as at December 31, 2015 and 2014, 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 December 31, 2015 and 2014 is as follows:

To ensure the proper execution of our strategic and operational business plans while taking into account the acquisition of Digitel in 2011 and other recent market developments, the 2012 to 2014 LTIP, covering the period from January 1, 2012 to December 31, 2014, was approved by the Board of Directors with the endorsement of the ECC on March 22, 2012. The awards in the 2012 to 2014 LTIP were contingent upon the successful achievement of certain profit targets, intended to align the execution of the business strategies of the expanded Group, including Digitel, over the three-year period 2012 to 2014. In addition, the 2012 to 2014 LTIP allowed for the participation of a number of senior executives and certain newly hired executives and ensured the continuity of management in line with the succession planning of the PLDT Group. LTIP costs recognized for the years ended December 31, 2014 and 2013 amounted to Php168 million and Php1,638 million, respectively. Total outstanding liability and fair value of the 2012 to 2014 LTIP amounted to Php33 million and Php3,297 million as at December 31, 2015 and 2014, respectively. The LTIP liability amounting to Php3,264 million as at December 31, 2014 was paid in 2015. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimating Pension Benefit Costs and Other Employee Benefits and Note 5 – Income and Expenses – Compensation and Employee Benefits.

Net periodic benefit costs computed for the years ended December 31, 2014 and 2013 are 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 December 31, 2015, 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 by filing a Petition with the Regional Trial Court, or RTC, of the City of Makati on July 8, 2011. In an order dated October 12, 2012, the RTC, following a Motion to Dismiss filed by the City of Tuguegarao, dismissed the petition for lack of jurisdiction. Upon denial of its Motion for Reconsideration, PLDT filed a Petition for Review before the Court of Tax Appeals, or CTA, which dismissed the said Petition and upheld the decision of the RTC. On July 28, 2014, PLDT filed a Motion for Reconsideration which was also denied by the CTA. PLDT filed a Petition before the CTA En Banc on November 3, 2014. The case is still pending before the CTA En Banc.

PLDT also contested the imposition of local business tax in addition to local franchise tax also by the City of Tuguegarao for the years 2012 to 2014. The case was filed on January 14, 2015 before the Second Judicial Region of Tuguegarao City. The case is scheduled for trial after mediation proceedings failed.

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 Court of Tax Appeals. In a Decision promulgated on July 25, 2013, the Court of Tax Appeals 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 Court of Tax Appeals En Banc. The CTA En Banc issued a Decision dated December 8, 2015 affirming the nullity of the tax assessment.

In October 2013, the City of Bacoor issued local franchise tax assessments against Smart based on the gross sales of handsets and gross receipts derived from franchise operations (prepaid and postpaid receipts), after Smart had paid the local business taxes assessed on the same gross receipts within the same taxable period. Smart protested the assessments and eventually appealed the assessment to the RTC of the City of Makati, arguing that Smart cannot be held liable for local franchise tax because Smart is exempt from paying the local franchise tax as such is covered under the “in lieu of all taxes” clause in Section 9 of its legislative franchise, Republic Act No. 7924 (Series 1992). Smart also argued that even if it is liable for local franchise tax, the City of Bacoor cannot collect local business tax on the same gross receipts derived from franchise operations realized within the same taxing jurisdiction by the same taxing authority and within the same period. Smart has argued that the gross sales of handsets should not be subject to the local franchise tax because the sale of handsets and accessories is not considered a sale derived from franchise operations. During mediation, the Treasurer of the City of Bacoor agreed that the gross sales of handsets and accessories would be subject to local business tax, but not to the local franchise tax, while the gross receipts from prepaid and postpaid services would be subject to the local franchise tax, but not to the local business tax. Accordingly, the RTC dismissed the Appeal based on the Joint Motion to Dismiss signed by the parties.

In 2015, the City of Manila issued two Letters of Assessment, the first for alleged business tax deficiencies and the second for regulatory fees and charges for cell site. Smart protested the assessments and subsequently 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 were contested for being void, as they were made without a valid and legal basis. The case is now submitted for the Court’s decision after the parties filed their respective Memoranda on February 2, 2016.

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. DMPI filed a Motion for Reconsideration after the Court dismissed the case for DMPI’s failure to prove that DMPI is exempt from payment of real property tax. The Motion is pending resolution.

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 in 2011 a Petition for Prohibition and Mandamus against the City of Malabon to prevent the auction sale of DMPI sites in its jurisdiction for alleged real property tax liabilities. DMPI was able to secure a TRO to defer the sale. As at February 29, 2016, there is an ongoing mediation and the parties are exploring the possibility of settling 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 Court of Appeals. 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 Court of Appeals 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 Telecoms, 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.

Since 1990, PLDT and ETPI have been engaged in legal proceedings involving a number of issues in connection with their business relationship. While they have entered into Compromise Agreements in the past (one in February 1990, and another one in March 1999), these agreements have not put to rest their issues against each other. Accordingly, to avoid further protracted litigation and improve their business relationship, both PLDT and ETPI have agreed in April 2008 to submit their differences and issues to voluntary arbitration. For this arbitration (after collating various claims of one party against the other) ETPI, on one hand, initially submitted its claims of about Php2.9 billion against PLDT; while PLDT, on the other hand, submitted its claims of about Php2.8 billion against ETPI. Pursuant to an agreement between PLDT and ETPI, the arbitration proceedings have been suspended.

On June 29, 2011, the Supreme Court of the Philippines, or the Court, promulgated a Decision in the case of Wilson P. Gamboa vs. Finance Secretary Margarito B. Teves, et. al. (G.R. No. 176579) (the “Gamboa Case”), holding that “the term ‘capital’ in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors and thus only to voting common shares, and not to the total outstanding capital stock (common and non-voting preferred shares)”. This decision reversed earlier opinions issued by the Philippine SEC that non-voting preferred shares are included in the computation of the 60%-40% Filipino-alien equity requirement of certain economic activities, such as telecommunications (which is a public utility under Section 11, Article XII of the 1987 Constitution).

Although PLDT is not a party to the Gamboa Case, in its decision, the Court 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 1987 Constitution, to impose the appropriate sanctions under the law.” Although the parties to the Gamboa Case filed Motions for Reconsideration of the decision and argued their positions before the Court, the Court ultimately denied the motions on October 9, 2012.

Meanwhile, on July 5, 2011, the Board of Directors of PLDT approved the amendments to the Seventh Article of Amended Articles of Incorporation of PLDT, or the Amendments to the Articles, which subclassified its authorized preferred capital into preferred shares with full voting rights, or Voting Preferred Shares, and serial preferred shares without voting rights. The Amendments to the Articles were subsequently approved by the stockholders of PLDT and the Philippine SEC.

On October 15, 2012, PLDT and BTFHI, a Filipino corporation and a wholly-owned company of The Board of Trustees for the Account of the Beneficial Trust Fund created pursuant to the PLDT’s Benefit Plan, entered into a Subscription Agreement, pursuant to which PLDT issued 150 million Voting Preferred Shares to BTFHI at Php1.00 per share reducing the percentage of PLDT’s voting stock held by foreigners from 56.62% (based on Voting Common Stock) as at October 15, 2012 to 18.37% (based on Voting Common and Preferred Stock) as at April 15, 2013.

On May 20, 2013, the Philippine SEC issued SEC Memorandum Circular No. 8, Series of 2013, or the Philippine SEC Guidelines, which we believe was intended to fulfill the Court’s directive to the Philippine SEC in the Gamboa Case. The Philippine SEC Guidelines provided 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.” PLDT believes it was, and continues to be, compliant with the Philippine SEC Guidelines. As at February 24, 2016, PLDT’s foreign ownership was 30.14% of its outstanding shares entitled to vote (Common and Voting Preferred Shares), and 16.56% of its total outstanding capital stock. Therefore, we believe that as at February 29, 2016, PLDT is in compliance with the requirement of Section 11, Article XII of the 1987 Constitution.

On June 10, 2013, Jose M. Roy III filed a petition for certiorari with the Supreme Court against the Philippine SEC, Philippine SEC Chairperson Teresita Herbosa and PLDT, claiming: (1) that the Philippine SEC Guidelines violates the Court’s decision in the Gamboa Case (on the basis 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 corporations subject to the foreign ownership requirements); 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, cannot be considered Filipino-owned corporations.

PLDT raised several procedural and substantive arguments against the petition, including in particular, that (a) the Philippine SEC Guidelines merely implemented the dispositive portion of the decision in the Gamboa Case, and that the dispositive portion of the Gamboa Case that defines “capital” is properly reflected in the Philippine SEC Guidelines, and (b) the fundamental requirements which need to be satisfied in order for PLDT Beneficial Trust Fund and BTFHI to be considered Filipino (for PLDT Beneficial Trust Fund’s Trustees to be Filipinos and for 60% of the Fund to accrue to the benefit of Philippine nationals) are satisfied with respect to the PLDT Beneficial Trust Fund, and therefore, PLDT Beneficial Trust Fund and BTFHI are Filipino shareholders for purposes of classifying their 150 million Voting Preferred Shares in PLDT. As a result, more than 60% of PLDT’s total voting stock is Filipino-owned and PLDT is compliant with the Constitutional ownership requirements.

In 2013, the Philippine SEC and Chairperson Teresita Herbosa also raised a number of arguments for dismissal of the petition for being procedurally flawed and for lack of merit.

In May 2014, the petitioner filed a consolidated reply and a motion for the issuance of a temporary restraining order to prevent PLDT from holding its 2014 annual stockholders meeting. The temporary restraining order was denied and PLDT held its 2014 annual meeting on June 10, 2014 as scheduled.

On February 10, 2015, PLDT filed a consolidated memorandum setting forth its arguments against the petition.

As at February 29, 2016, the resolution of the petition remains pending with the Supreme Court.

Other disclosures required by PAS 37 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 December 31, 2015 and 2014:

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 December 31, 2015

Noncurrent:

Available-for-sale financial investments

–

15,711

–

15,711

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

595

357

–

952

Derivative financial assets – net of current portion

–

145

–

145

Advances and other noncurrent assets – net of current portion

2,580

–

2,580

Current:

Cash and cash equivalents

46,455

–

46,455

Short-term investments

744

–

685

–

1,429

Trade and other receivables

24,898

–

24,898

Current portion of derivative financial assets

–

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

–

Current portion of advances and other noncurrent assets

7,936

–

7,936

Total assets

83,208

408

695

161

15,711

–

100,183

Liabilities as at December 31, 2015

Noncurrent:

Interest-bearing financial liabilities – net of current portion

–

143,982

Derivative financial liabilities – net of current portion

–

659

–

736

Customers’ deposits

–

2,430

Deferred credits and other noncurrent liabilities

–

19,788

Current:

Accounts payable

–

51,542

Accrued expenses and other current liabilities

–

66,844

Current portion of interest-bearing financial liabilities

–

16,911

Dividends payable

–

1,461

Current portion of derivative financial liabilities

–

284

–

306

Total liabilities

–

681

361

–

302,958

304,000

Net assets (liabilities)

83,208

408

(200

)

15,711

(302,958

)

(203,817

)

Assets as at December 31, 2014

Noncurrent:

Available-for-sale financial investments

–

28,086

–

28,086

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

546

414

–

960

Derivative financial assets – net of current portion

–

Advances and other noncurrent assets – net of current portion

2,758

–

2,758

Current:

Cash and cash equivalents

26,659

–

26,659

Short-term investments

–

625

–

643

Trade and other receivables

29,151

–

29,151

Current portion of derivative financial assets

–

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

–

295

–

295

Current portion of advances and other noncurrent assets

7,953

–

7,953

Total assets

67,085

709

625

28,086

–

96,601

Liabilities as at December 31, 2014

Noncurrent:

Interest-bearing financial liabilities – net of current portion

–

115,400

Derivative financial liabilities – net of current portion

–

1,426

–

1,460

Customers’ deposits

–

2,438

Deferred credits and other noncurrent liabilities

–

19,643

Current:

Accounts payable

–

39,416

Accrued expenses and other current liabilities

–

65,981

Current portion of interest-bearing financial liabilities

–

14,729

Dividends payable

–

1,070

Current portion of derivative financial liabilities

–

209

–

254

Total liabilities

–

1,471

243

–

258,677

260,391

Net assets (liabilities)

67,085

709

(846

)

(147

)

28,086

(258,677

)

(163,790

)

The following table sets forth our consolidated carrying values and estimated fair values of our financial assets and liabilities recognized as at December 31, 2015 and 2014 other than those whose carrying amounts are reasonable approximations of fair values:

The following table sets forth our consolidated offsetting of financial assets and liabilities recognized as at December 31, 2015 and 2014:

There are no financial instruments subject to an enforceable master netting arrangement as at December 31, 2015 and 2014.

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 December 31, 2015 and 2014. 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 December 31, 2015 and 2014, we have no financial instruments measured at fair values using inputs that are not based on observable market data (Level 3). As at December 31, 2015 and 2014, there were no transfers into and out of Level 3 fair value measurements.

As at December 31, 2015 and 2014, 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:

PDST-F was replaced by PDST-R2 on April 1, 2015 per BAP Memo dated January 8, 2015.

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. Interest rate swap agreements were designated as cash flow hedges by PLDT and Smart as at December 31, 2015 and 2014.

As at December 31, 2015 and 2014, 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 December 31, 2015 and 2014:

Movements of our consolidated mark-to-market losses for the years ended December 31, 2015 and 2014 are summarized as follows:

Our consolidated analysis of gains (losses) on derivative financial instruments for the years ended December 31, 2015 and 2014 are as follows:

Due to the amounts of PLDT’s foreign currency hedging requirements and the large interest differential between the Philippine peso and the U.S. dollar, the costs to book long-term hedges can be significant. In order to manage such hedging costs, PLDT utilizes structures that include currency option contracts, and fixed-to-floating coupon-only swaps that may not qualify for hedge accounting.

On various dates from September to December 2015, PLDT entered into short-term U.S. dollar forward foreign exchange purchase contracts to hedge U.S. dollar liabilities. The total forward foreign exchange purchase contracts amounted to US$22 million with U.S. dollar forward purchase average exchange rate of Php46.97 resulting to total mark-to-market gains of Php5.7 million as at December 31, 2015. There were no outstanding forward foreign exchange contracts as at December 31, 2014.

PLDT has entered into a long-term principal only-currency swap agreements with various foreign counterparties to hedge the currency risk on its fixed rate notes maturing in 2017. Under the swaps, PLDT effectively exchanges the principal of its U.S. dollar-denominated fixed rate notes into Philippine peso-denominated loan exposures at agreed swap exchange rates. The outstanding swap contracts have an agreed average swap exchange rates of Php49.85 for the years ended December 31, 2015 and 2014. The semi-annual fixed swap cost payments that PLDT is required to make to its counterparties averaged about 3.42% per annum for the years ended December 31, 2015 and 2014.

On various dates from August to November 2012, the long-term principal only-currency swap agreements maturing in 2017 were partially terminated, with a total aggregate settlement of Php256 million. As a result of these unwinding transactions, the total notional amount of US$300 million of the long-term currency swaps that we entered to hedge the 2017 fixed rate notes was reduced to US$202 million with mark-to-market losses of Php655 million and Php1,402 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

On various dates from October to December 2015, PLDT entered into long-term principal only-currency swap agreements with various counterparties to hedge the currency risk on a portion of its floating rate loan maturing in 2018. The total notional amount of the currency swaps was at US$90 million. Under the swaps, PLDT effectively exchanges the principal of its U.S. dollar-denominated fixed rate notes into Philippine peso-denominated loan exposures at agreed swap exchange rates. The swap contracts have an agreed average swap exchange rates of Php46.72. The semi-annual fixed swap cost payments that PLDT is required to make to its counterparties averaged about 2.26% per annum. The outstanding notional amounts under these agreements amounted to US$90 million with mark-to-market gains of Php17.7 million as at December 31, 2015. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

The long-term principal only-currency swap agreements entered into in 2015 were designated as cash flow hedges, wherein effective portion of the movements in the fair value is recognized in our consolidated other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statement. The mark-to-market gains of the long-term principal only-currency swap with aggregate outstanding notional amount of US$90 million amounted to Php17.7 million and were recognized in our consolidated other comprehensive income as at December 31, 2015. There were no ineffective portion of the movements in the fair value for the twelve months ended December 31, 2015.

On various dates in 2013 and 2015, PLDT entered into five-year and three-year interest rate swap agreements with a total notional amount of US$240 million to hedge its interest rate exposure on a portion of the outstanding balance of the US$300 million Loan Facility maturing in January 2018 into fixed interest rate. Under these agreements, PLDT is entitled to receive a floating rate of equivalent to the three-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on the applicable interest payment date) and in exchange, will pay a weighted average fixed rate of 2.17%. The outstanding notional amounts under these agreements amounted to US$167 million and US$93 million with mark-to-market gains of Php10 million and Php9 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

In August 2014, PLDT entered into six-year interest rate swap agreements with a total notional amount of US$100 million to hedge its interest rate exposure on the outstanding balance of the US$100 million Loan Facility maturing in August 2020 into fixed interest rate. Under these agreements, PLDT is entitled to receive a floating rate of equivalent to the three-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of three months commencing on November 12, 2014) and in exchange, will pay a weighted average fixed rate of 3.46%. The outstanding notional amounts under these agreements amounted to US$99 million and US$100 million with mark-to-market losses of Php86 million and Php50 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

In September 2014, PLDT entered into a six-year interest rate swap agreements with a total notional amount of US$50 million to hedge its interest rate exposure on the outstanding balance of the US$50 million Loan Facility maturing in September 2020 into fixed interest rate. Under these agreements, PLDT is entitled to receive a floating rate of equivalent to the three-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of three months commencing on December 2, 2014) and in exchange, will pay a weighted average fixed rate of 3.47%. The outstanding notional amounts under these agreements amounted to US$50 million each with mark-to-market losses of Php47 million and Php30 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

On January 23, 2015, PLDT entered into a two-year interest rate swap agreement with a total notional amount of US$30 million to hedge its interest rate exposure on a portion of the outstanding balance of the US$150 million Loan Facility maturing in March 2017 into fixed interest rate. Under this agreement, PLDT is entitled to receive a floating rate of equivalent to the three-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of three months commencing on March 10, 2015) and in exchange, will pay a fixed rate of 2.11%. The outstanding notional amount under this agreement amounted to US$23 million with mark-to-market gain of Php2 million as at December 31, 2015. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

In April and June 2015, PLDT entered into seven-year interest rate swap agreements with a total notional amount of US$150 million to hedge its interest rate exposure on a portion of the outstanding balance of the US$200 million Loan Facility maturing in February 2022 into fixed interest rate. Under these agreements, PLDT is entitled to receive a floating rate of equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on the applicable interest payment date) and in exchange will pay a weighted average fixed rate of 2.70%. The outstanding notional amounts under these agreements amounted to US$150 million with mark-to-market loss of Php95 million as at December 31, 2015. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

The interest rate swap agreements outstanding as at December 31, 2015 and 2014 were designated as cash flow hedges, wherein effective portion of the movements in the fair value is recognized in our consolidated other comprehensive income while any ineffective portion is recognized immediately in our consolidated income statement. The mark-to-market gains/losses of the interest rate swaps with aggregate outstanding notional amounts of US$489 million and US$243 million amounted to losses of Php216 million and Php71 million as at December 31, 2015 and 2014, respectively. The mark-to-market losses amounting to Php172 million and Php51 million were recognized in our consolidated other comprehensive income as at December 31, 2015 and 2014, respectively. Interest accrual on the interest rate swaps amounting to Php44 million and Php20 million were recorded as at December 31, 2015 and 2014, respectively. The ineffective portion of the movements in the fair value amounting to Php0.2 million each were recognized in our consolidated income statements for the twelve months ended December 31, 2015 and 2014, respectively.

On various dates in 2015, Smart entered into long-term principal only-currency swap agreements with various counterparties to hedge the currency risk on a portion of its fixed rate loan maturing in 2020. The total notional amount of the currency swaps was at US$100 million. Under the swaps, Smart effectively exchanges the principal of its U.S. dollar-denominated fixed rate loan into Philippine peso-denominated loan exposures at agreed swap exchange rates. The swap contracts have an agreed average swap exchange rates of Php46.659. The semi-annual fixed swap cost payments that Smart is required to make to its counterparties averaged about 2.21% per annum. The outstanding notional amount under these agreements amounted to US$100 million with mark-to-market gains of Php7 million as at December 31, 2015. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

The long-term principal only-currency swap agreements outstanding as at December 31, 2015 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statement. The mark-to-market gains of the long-term principal only-currency swap with aggregate notional amount of US$100 million amounted to Php7 million and were recognized in our consolidated other comprehensive income as at December 31, 2015. There were no ineffective portions of the movements in the fair value instruments that were recognized in our consolidated income statements for the twelve months ended December 31, 2015.

In March 2015, Smart entered into short-term U.S. dollar forward foreign exchange sale contracts with a total notional amount of US$29 million as at March 31, 2015 to hedge the loan proceeds from the partial drawdown of the US$200 million Mizuho Facility with average exchange rate of Php44.801. The mark-to-market gains recognized in the profit or loss were Php1 million as at March 31, 2015. In April 2015, all outstanding forward foreign exchange sale contracts matured and the proceeds of which amounted to Php1,299 million.

In May 2015, Smart entered into short-term U.S. dollar forward foreign exchange sale contracts with a total notional amount of US$18 million as at June 30, 2015 to hedge the loan proceeds from the partial drawdown of the US$200 million Mizuho Facility with average exchange rate of Php44.891. The mark-to-market losses recognized in the profit or loss were Php5 million as at June 30, 2015. In July 2015, all outstanding forward foreign exchange sale contracts matured and the proceeds of which amounted to Php786 million.

On various dates in 2015, Smart entered into short-term U.S. dollar forward foreign exchange purchase contracts with a total notional amount of US$43 million to hedge its outstanding U.S. dollar liabilities for the year with average exchange rate of Php46.947. The outstanding notional amounts under these contracts amounted to US$13 million with mark-to-market gains of Php4 million as at December 31, 2015. There were no outstanding forward foreign exchange contracts as at December 31, 2014.

In January 2016, Smart entered into short-term U.S. dollar forward foreign exchange purchase contracts with a total notional amount of US$3 million to hedge its outstanding U.S. dollar liabilities for the year with average exchange rate of Php47.33.

On May 8, 2013, Smart entered into a three-year interest rate swap agreement with a total notional amount of US$45 million to hedge its interest rate exposure on the outstanding balance of the US$60 million Loan Facility maturing in June 2016 into fixed interest rate. Under this agreement, Smart is entitled to receive a floating rate of equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on December 6, 2013) and in exchange, will pay a fixed rate of 1.53%. The outstanding notional amounts under this agreement amounted to US$7 million and US$22 million with mark-to-market gain of Php244 thousand and mark-to-market loss of Php2 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

On May 9, 2013, Smart entered into a three-year interest rate swap agreement with a total notional amount of US$38 million to hedge its interest rate exposure on the outstanding balance of the US$50 million Loan Facility maturing in August 2016 into fixed interest rate. Under this agreement, Smart is entitled to receive a floating rate of equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on February 19, 2014) and in exchange, will pay a fixed rate of 1.43%. The outstanding notional amounts under this agreement amounted to US$13 million and US$25 million with mark-to-market gain of Php474 thousand and mark-to-market loss of Php3 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

On May 16, 2013, Smart entered into a four-year interest rate swap agreement with a total notional amount of US$44 million to hedge its interest rate exposure on the outstanding balance of the US$50 million Loan Facility maturing in May 2017 into fixed interest rate. Under this agreement, Smart is entitled to receive a floating rate of equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on November 29, 2013) and in exchange, will pay a fixed rate of 1.77%. The outstanding notional amounts under this agreement amounted to US$17 million and US$28 million with mark-to-market gain of Php2 million and mark-to-market loss of Php2 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

On various dates in 2013 and 2014, Smart entered into three-to-five-year interest rate swap agreements with a total notional amount of US$110 million to hedge its interest rate exposure on a portion of the outstanding balance of the US$120 million Loan Facility maturing in June 2018 into fixed interest rate. Under these agreements, Smart is entitled to receive a floating rate of equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on the applicable interest payment date) and in exchange, will pay a weighted average fixed rate of 2.22%. The outstanding notional amounts under these agreements amounted to US$75 million and US$105 million with mark-to-market gains of Php6 million and mark-to-market losses of Php19 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

On various dates in 2014 and 2015, Smart entered into four-to-five-year interest rate swap agreements with a total notional amount of US$85 million to hedge its interest rate exposure on a portion of the outstanding balance of the US$100 million Loan Facility maturing in March 2019 into fixed interest rate. Under these agreements, Smart is entitled to receive a floating rate of equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on the applicable interest payment date) and in exchange, will pay a weighted average fixed rate of 2.23%. The outstanding notional amounts under these agreements amounted to US$68 million and US$65 million with mark-to-market losses of Php9 million and Php27 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

On October 2, 2014, Smart entered into a four-year interest rate swap agreement with a total notional amount of US$50 million to hedge its interest rate exposure on the US$50 million Loan Facility maturing in May 2019 into fixed interest rate. Under this agreement, Smart is entitled to receive a floating rate of equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on May 14, 2015) and in exchange, will pay a fixed rate of 2.58%. The outstanding notional amounts under this agreement amounted to US$39 million and US$50 million with mark-to-market losses of Php10 million and Php23 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

On various dates in 2015, Smart entered into five-year interest rate swap agreements with a total notional amount of US$200 million to hedge its interest rate exposure on the US$200 million Loan Facility maturing in March 2020 into fixed interest rate. Under these agreements, Smart is entitled to receive a floating rate of equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on the applicable interest payment date) and in exchange, will pay a weighted average fixed rate of 2.10%. The outstanding notional amount under these agreements amounted to US$200 million with mark-to-market gains of Php323 thousand as at December 31, 2015. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

The interest rate swap agreements outstanding as at December 31, 2015 and 2014 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated other comprehensive income while any ineffective portion is recognized immediately in our consolidated income statement. The mark-to-market losses of the interest rate swaps with aggregate notional amounts of US$419 million and US$295 million amounted to Php10 million and Php76 million as at December 31, 2015 and 2014, respectively. The mark-to-market gains amounting to Php14 million and mark-to-market losses amounting to Php66 million were recognized in our consolidated other comprehensive income as at December 31, 2015 and 2014, respectively. Interest accrual on the interest rate swaps amounting to Php24 million and Php10 million were recognized as at December 31, 2015 and 2014, respectively. There were no ineffective portions of the movements in the fair value instruments that were recognized in our consolidated income statements for the twelve months ended December 31, 2015 and 2014.

In February 2016, Smart entered into five-year interest rate swap agreements with a total notional amount of US$30 million to hedge its interest rate exposure on the US$100 million Loan Facility maturing in December 2022 into fixed interest rate. Under these agreements, Smart is entitled to receive a floating rate of equivalent to the six-month US$ LIBOR rate plus a margin at the end of each Calculation Period (comprising of successive periods of six months commencing on June 7, 2017) and in exchange, will pay a weighted average fixed rate of 2.03%. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

On October 7, 2008, DMPI entered into an eight-year interest rate swap agreement with a total notional amount of US$54.1 million to hedge its interest rate exposure on the US$59.2 million Loan Facility maturing in March 2017 into fixed interest rate. Under this agreement, DMPI is entitled to receive a floating rate of equivalent to the US$ LIBOR rate as at the last Calculation Date and in exchange, will pay a fixed rate of 3.88%. The outstanding notional amounts under this agreement amounted to US$10 million and US$17 million with mark-to-market losses of the interest rate swap of Php14 million and Php37 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

On October 7, 2008, DMPI entered into an eight-year interest rate swap agreement with a total notional amount of US$46.5 million to hedge its interest rate exposure on the US$51.2 million Loan Facility maturing in June 2017 into fixed interest rate. Under this agreement, DMPI is entitled to receive a floating rate of equivalent to the US$ LIBOR rate as at the last Calculation Date and in exchange, will pay a fixed rate of 3.97%. The outstanding notional amounts under this agreement amounted to US$9 million and US$14 million with mark-to-market losses of the interest rate swap of Php12 million and Php32 million as at December 31, 2015 and 2014, respectively. See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt.

The mark-to-market losses of the interest rate swaps with aggregate notional amounts of US$19 million and US$31 million amounted to Php26 million and Php69 million as at December 31, 2015 and 2014, respectively.

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 Php46,455 million and Php1,429 million, respectively, as at December 31, 2015, which we can use to meet our short-term liquidity needs. See Note 16 – 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 December 31, 2015 and 2014:

Less than

More than

Total

1 year

1-3 years

3-5 years

5 years

(in million pesos)

December 31, 2015

Loans and receivables:

91,978

88,602

2,697

516

163

Advances and other noncurrent assets

10,717

7,936

2,102

516

163

Cash equivalents

39,103

–

Short-term investments

744

–

Investment in debt securities and other long-term investments

595

–

595

–

Retail subscribers

19,750

–

Corporate subscribers

9,263

–

Foreign administrations

5,514

–

Domestic carriers

540

–

Dealers, agents and others

5,752

–

HTM investments:

408

207

150

–

Investment in debt securities and other long-term investments

408

207

150

–

Financial instruments at FVPL:

685

–

Short-term investments

685

–

Available-for-sale financial investments

15,711

–

15,711

Total

108,782

89,338

2,904

666

15,874

December 31, 2014

Loans and receivables:

76,041

72,536

1,303

1,086

1,116

Advances and other noncurrent assets

10,912

7,953

1,070

773

1,116

Cash equivalents

19,843

–

Short-term investments

–

Investment in debt securities and other long-term investments

546

–

233

313

–

Retail subscribers

17,053

–

Foreign administrations

8,420

–

Corporate subscribers

7,941

–

Domestic carriers

823

–

Dealers, agents and others

10,485

–

HTM investments:

709

295

264

–

150

Investment in debt securities and other long-term investments

709

295

264

–

150

Financial instruments at FVPL:

625

–

Short-term investments

625

–

Available-for-sale financial investments

28,086

–

28,086

Total

105,461

73,456

1,567

1,086

29,352

The following table discloses a summary of maturity profile of our financial liabilities based on our consolidated contractual undiscounted obligations outstanding as at December 31, 2015 and 2014:

Payments Due by Period

Less than

More than

Total

1 year

1-3 years

3-5 years

5 years

(in million pesos)

December 31, 2015

Debt⁽¹⁾:

195,603

1,716

78,007

41,890

73,990

Principal

161,568

1,411

61,847

34,355

63,955

Interest

34,035

305

16,160

7,535

10,035

Lease obligations:

17,920

10,161

3,640

2,003

2,116

Operating lease

17,919

10,160

3,640

2,003

2,116

Finance lease

–

Unconditional purchase obligations⁽²⁾

150

Other obligations:

139,148

110,874

23,378

3,012

1,884

Derivative financial liabilities⁽³⁾:

6,067

6,050

–

Long-term currency swap

5,670

–

5,670

–

Interest rate swap

397

380

–

Various trade and other obligations:

133,081

110,864

17,328

3,005

1,884

Suppliers and contractors

66,229

46,487

16,788

2,954

–

Utilities and related expenses

38,155

–

Liability from redemption of preferred shares

7,906

–

Employee benefits

6,262

–

Carriers and other customers

3,014

–

Customers’ deposits

2,430

–

495

1,884

Dividends

1,461

–

Others

7,624

7,579

–

Total contractual obligations

352,821

122,778

105,072

46,952

78,019

December 31, 2014

Debt⁽¹⁾:

157,607

575

71,798

27,100

58,134

Principal

130,634

377

57,918

21,107

51,232

Interest

26,973

198

13,880

5,993

6,902

Lease obligations:

18,190

9,446

4,302

2,132

2,310

Operating lease

18,184

9,446

4,296

2,132

2,310

Finance lease

–

Unconditional purchase obligations⁽²⁾

211

Other obligations:

122,486

98,452

17,073

5,160

1,801

Derivative financial liabilities⁽³⁾:

2,057

131

1,926

–

Long-term currency swap

1,712

–

1,712

–

Interest rate swap

345

131

214

–

Various trade and other obligations:

120,429

98,321

15,147

5,160

1,801

Suppliers and contractors

55,288

35,857

14,356

5,075

–

Utilities and related expenses

35,049

35,021

Employee benefits

8,234

–

Liability from redemption of preferred shares

7,922

–

Carriers and other customers

2,799

–

Customers’ deposits

2,438

–

574

1,784

Dividends

1,070

–

Others

7,629

7,418

211

–

Total contractual obligations

298,494

108,545

93,218

34,437

62,294

⁽¹⁾

Consists of long-term debt, including current portion; gross of unamortized debt discount and debt issuance costs.

⁽²⁾

Based on the Amended ATPA with AIL. See Note 25 – Related Party Transactions – Air Time Purchase Agreement between PLDT and AIL Related Party Agreements.

See Note 21 – 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 December 31, 2015 and 2014 are as follows:

See Note 21 – Interest-bearing Financial Liabilities – Obligations under Finance Leases for the detailed discussion of our long-term finance lease obligations.

See Note 25 – Related Party Transactions – Air Time Purchase Agreement between PLDT and AIL Related Agreements for a detailed discussion of PLDT’s obligation under the Original and the Amended ATPA.

Under the Amended ATPA, PLDT’s aggregate remaining minimum obligation is approximately Php150 million and Php211 million as at December 31, 2015 and 2014, respectively.

PLDT Group has various obligations to suppliers for the acquisition of phone and network equipment, contractors for services rendered on various projects, foreign administrations and domestic carriers for the access charges, shareholders for unpaid dividends distributions, employees for benefits and other related obligations, and various business and operational related agreements. Total obligations under these various agreements amounted to approximately Php133,081 million and Php120,429 million as at December 31, 2015 and 2014, respectively. See Note 23 – Accounts Payable.

We have not made any pledges as collateral with respect to our financial liabilities as at December 31, 2015 and 2014.

Foreign currency exchange risk is the risk that the fair value of future cash flows of a financial instruments will fluctuate because of changes in foreign exchange rates.

The revaluation of our foreign currency-denominated financial assets and liabilities as a result of the appreciation or depreciation of the Philippine peso is recognized as foreign exchange gains or losses as at the end of the reporting period. The extent of foreign exchange gains or losses is largely dependent on the amount of foreign currency debt. While a certain percentage of our revenues are either linked to or denominated in U.S. dollars, 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 sale and purchase contracts, currency swap contracts and foreign currency option contracts to manage the foreign currency risks associated with our foreign currency-denominated loans. We also enter into forward foreign exchange sale contracts to manage foreign currency risks associated with our U.S. dollar-linked and U.S. dollar-denominated revenues. 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 December 31, 2015 and 2014:


	2015				2014
	U.S. Dollar		Php⁽¹⁾ U.S. Dollar				Php⁽²⁾
			(in millions)
Noncurrent Financial Assets
Investment in debt securities and other long-term investments		26		1,206		7		313
Derivative financial assets – net of current portion		3		145		2		94
Advances and other noncurrent assets – net of current portion		–		16		–		17

Total noncurrent financial assets		29		1,367		9		424

Current Financial Assets
Cash and cash equivalents		379		17,874		149		6,665
Short-term investments		24		1,156		14		625
Trade and other receivables – net		142		6,690		210		9,414
Current portion of derivative financial assets		1		26		–		2
Current portion of advances and other noncurrent assets		–		19		–		10

Total current financial assets		546		25,765		373		16,716

Total Financial Assets		575		27,132		382		17,140

Noncurrent Financial Liabilities
Interest-bearing financial liabilities – net of current portion		1,104		52,040		1,046		46,812
Derivative financial liabilities – net of current portion		16		736		33		1,460
Other noncurrent liabilities		–		6		–		–

Total noncurrent financial liabilities		1,120		52,782		1,079		48,272

Current Financial Liabilities
Accounts payable		99		4,685		121		5,438
Accrued expenses and other current liabilities		153		7,216		153		6,856
Current portion of interest-bearing financial liabilities		341		16,058		316		14,124
Current portion of derivative financial liabilities		7		306		6		254

Total current financial liabilities		600		28,265		596		26,672

Total Financial Liabilities		1,720		81,047		1,675		74,944

⁽¹⁾

The exchange rate used to convert the U.S. dollar amounts into Philippine peso was Php47.12 to US$1.00, the Philippine peso-U.S. dollar exchange rate as quoted through the Philippine Dealing System as at December 31, 2015.

⁽²⁾

The exchange rate used to convert the U.S. dollar amounts into Philippine peso was Php44.74 to US$1.00, the Philippine peso-U.S. dollar exchange rate as quoted through the Philippine Dealing System as at December 31, 2014.

As at February 26, 2016, the Philippine peso-U.S. dollar exchange rate was Php47.56 to US$1.00. Using this exchange rate, our consolidated net foreign currency-denominated financial liabilities would have increased in Philippine peso terms by Php504 million as at December 31, 2015.

Approximately 42% and 47% of our total consolidated debts (net of consolidated debt discount) were denominated in U.S. dollars as at December 31, 2015 and 2014, respectively. Consolidated foreign currency-denominated debt increased to Php67,620 million as at December 31, 2015 from Php60,632 million as at December 31, 2014. See Note 21 – Interest-bearing Financial Liabilities. The aggregate notional amount of PLDT’s outstanding long-term principal only-currency swap contracts were US$392 million and US$202 million as at December 31, 2015 and 2014, respectively. Consequently, the unhedged portion of our consolidated debt amounts was approximately 30% (or 17%, net of our consolidated U.S. dollar cash balances) and 40% (or 34%, net of our consolidated U.S. dollar cash balances) as at December 31, 2015 and 2014, respectively.

Approximately, 18% of our consolidated service revenues were denominated in U.S. dollars and/or were linked to U.S. dollars for the year ended December 31, 2015 as compared with approximately 20% and 21% for the years ended December 31, 2014 and 2013, respectively. Approximately, 9% of our consolidated expenses were denominated in U.S. dollars and/or linked to the U.S. dollar for the year ended December 31, 2015 as compared with approximately 10% and 11% for the years ended December 31, 2014 and 2013, respectively. 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 debt in Philippine pesos.

The Philippine peso depreciated by 5.32% against the U.S. dollar to Php47.12 to US$1.00 as at December 31, 2015 from Php44.74 to US$1.00 as at December 31, 2014. As at December 31, 2014, the Philippine peso depreciated by 0.77% against the U.S. dollar to Php44.74 to US$1.00 from Php44.40 to US$1.00 as at December 31, 2013. 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 Php3,036 million, Php382 million and Php2,893 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Management conducted a survey among our banks to determine the outlook of the Philippine peso-U.S. dollar exchange rate until March 31, 2016. Our outlook is that the Philippine peso-U.S. dollar exchange rate may weaken/strengthen by 1.87% as compared to the exchange rate of Php47.12 to US$1.00 as at December 31, 2015. If the Philippine peso-U.S. dollar exchange rate had weakened/strengthened by 1.87% as at December 31, 2015, with all other variables held constant, profit after tax for the year end 2015 would have been approximately Php570 million lower/higher and our consolidated stockholders’ equity as at year end 2015 would have been approximately Php515 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. On a limited basis, we enter into interest rate swap agreements in order to manage our exposure to interest rate fluctuations. We make use of hedging instruments and structures solely for reducing or managing financial risk associated with our liabilities and not for trading purposes.

The following tables set out the carrying amounts, by maturity, of our financial instruments that are expected to have exposure on interest rate risk as at December 31, 2015 and 2014. 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

–

596

–

596

605

Interest rate

–

4.0000% to 10.0000%

3.5000

–

Philippine Peso

–

407

–

407

418

Interest rate

–

4.2500

–

4.8400

–

Cash in Bank

U.S. Dollar

–

1,651

–

1,651

Interest rate

0.0100% to 1.0000%

–

Philippine Peso

–

3,880

–

3,880

Interest rate

0.0010% to 2.0000%

–

Other Currencies

–

Interest rate

0.0100% to 0.5000%

–

Temporary Cash Investments

U.S. Dollar

315

–

315

14,829

–

14,829

315

14,829

Interest rate

0.2500% to 4.7500%

–

Philippine Peso

515

–

515

24,274

–

24,274

515

24,274

Interest rate

0.2500% to 4.6875%

–

Short-term
Investments

U.S. Dollar

–

1,156

–

1,156

Interest rate

2.1622% to 3.9940%

–

Philippine Peso

–

273

–

273

Interest rate

1.5000%

–

978

–

999

47,090

–

47,090

1,000

47,110

Liabilities:

Long-term Debt

Fixed Rate

U.S. Dollar Notes

–

228

–

228

10,761

10,732

247

11,617

Interest rate

–

8.3500

–

U.S. Dollar Fixed Loans

126

5,945

5,904

134

6,298

Interest rate

1.9000%

1.4100% to 3.9550%

2.8850

–

Philippine Peso

–

205

337

1,243

1,806

85,100

171

84,929

1,803

84,965

Interest rate

–

4.4850% to 6.2600%

4.5500% to 6.2600%

–

Variable Rate

U.S. Dollar

542

217

273

1,091

51,397

413

50,984

1,091

51,396

Interest rate

0.8500% to 1.0000% over LIBOR

0.3000% to 1.8000% over LIBOR

0.7900% to 1.8000% over LIBOR

0.7900% to 1.4500% over LIBOR

0.9500% over LIBOR

–

Philippine Peso

–

102

178

8,365

8,343

177

8,365

Interest rate

–

BSP overnight rate - 0.3500% to BSP overnight rate

–

1,030

282

729

1,358

3,429

161,568

676

160,892

3,452

162,641

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

–

546

–

546

558

Interest rate

–

10.0000

3.5000 to 4.000%

–

Philippine Peso

–

709

–

709

706

Interest rate

2.9310%

4.2188

4.2500

–

4.8371

–

Cash in Bank

U.S. Dollar

–

1,044

–

1,044

Interest rate

0.0100% to 0.5000%

–

Philippine Peso

–

3,675

–

3,675

Interest rate

0.0010% to 1.5500%

–

Other Currencies

–

Interest rate

0.0100% to 0.5000%

–

Temporary Cash Investments

U.S. Dollar

–

3,929

–

3,929

Interest rate

0.2500% to 1.5000%

–

Philippine Peso

356

–

356

15,914

–

15,914

356

15,914

Interest rate

0.5000% to 5.0000%

–

Short-term
Investments

U.S. Dollar

–

625

–

625

Interest rate

4.9570%

–

Philippine Peso

–

Interest rate

1.3750%

–

571

592

26,483

–

26,483

592

26,492

Liabilities:

Long-term Debt

Fixed Rate

U.S. Dollar Notes

–

228

–

228

10,218

10,170

263

11,738

Interest rate

–

8.3500

–

U.S. Dollar Fixed Loans

–

112

4,998

4,924

111

4,972

Interest rate

2.9900%

1.4100% to 3.9550%

–

Philippine Peso

–

184

331

823

1,369

61,240

173

61,067

1,403

62,780

Interest rate

–

3.9250% to 6.2600%

3.9250% to 6.3462%

4.4850% to 6.3462%

–

Variable Rate

U.S. Dollar

546

213

116

143

1,022

45,728

190

45,538

1,022

45,728

Interest rate

0.3500% to 0.5500% over LIBOR

0.3000% to 1.9000% over LIBOR

0.9500% to 1.8000% over LIBOR

1.4000% to 1.4500% over LIBOR

–

Philippine Peso

–

179

189

8,450

8,424

189

8,450

Interest rate

–

BSP overnight rate - 0.3500% to BSP overnight rate

–

642

653

471

1,145

2,920

130,634

511

130,123

2,988

133,668

Fixed rate financial instruments are subject to fair value interest rate risk while floating rate financial instruments are subject to cash flow interest rate risk.

Repricing of floating rate financial instruments is mostly done on intervals of three months or six months. Interest on fixed rate financial instruments is fixed until maturity of the particular instrument.

Management conducted a survey among our banks to determine the outlook of the U.S. dollar and Philippine peso interest rates until March 31, 2016. Our outlook is that the U.S. dollar and Philippine peso interest rates may move 10 basis points, or bps, and 18 bps higher/lower, respectively, as compared to levels as at December 31, 2015. If U.S. dollar interest rates had been 10 bps higher/lower as compared to market levels as at December 31, 2015, with all other variables held constant, profit after tax for the year end 2015 and our consolidated stockholders’ equity as at year end 2015 would have been approximately Php32 million and Php6 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 18 bps higher/lower as compared to market levels as at December 31, 2015, with all other variables held constant, profit after tax for the year end 2015 and our consolidated stockholders’ equity as at year end 2015 would have been approximately Php14 million and Php19 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 December 31, 2015 and 2014:

Includes bank insurance, security deposits and customer deposits. We have no collateral held as at December 31, 2015.

Includes bank insurance, security deposits and customer deposits. We have no collateral held as at December 31, 2014.

The table below provides information regarding the credit quality by class of our financial assets according to our credit ratings of counterparties as at December 31, 2015 and 2014:

Neither past due

nor impaired

Past due but

Total

Class A⁽¹⁾

Class B⁽²⁾

not impaired Impaired

(in million pesos)

December 31, 2015

Loans and receivables:

99,330

57,471

12,033

13,704

16,122

Advances and other noncurrent assets

10,717

10,204

307

201

Cash and cash equivalents

46,455

41,509

4,946

–

Short-term investments

744

–

Investment in debt securities and other long-term investments

595

–

Retail subscribers

19,750

1,549

3,449

5,212

9,540

Corporate subscribers

9,263

1,162

1,316

2,334

4,451

Foreign administrations

5,514

933

1,744

2,522

315

Domestic carriers

540

100

266

Dealers, agents and others

5,752

687

171

3,365

1,529

HTM investments:

408

–

Investment in debt securities and other long-term investments

408

–

Financial instruments at FVPL⁽³⁾:

695

–

Short-term investments

685

–

Forward foreign exchange contracts

–

Available-for-sale financial investments

15,711

14,721

990

–

Derivatives used for hedging:

161

–

Interest rate swaps

–

Long-term currency swap

–

Total

116,305

73,456

13,023

13,704

16,122

December 31, 2014

Loans and receivables:

82,857

43,730

11,083

12,272

15,772

Advances and other noncurrent assets

10,912

8,978

1,732

201

Cash and cash equivalents

26,659

23,952

2,707

–

Short-term investments

–

Investment in debt securities and other long-term investments

546

–

Retail subscribers

17,053

2,115

2,894

3,911

8,133

Foreign administrations

8,420

2,825

535

4,512

548

Corporate subscribers

7,941

1,008

654

1,953

4,326

Domestic carriers

823

158

482

Dealers, agents and others

10,485

4,198

2,403

1,413

2,471

HTM investments:

709

–

Investment in debt securities and other long-term investments

709

–

Available-for-sale financial investments

28,086

28,024

–

Financial instruments at FVPL⁽³⁾:

625

–

Short-term investments

625

–

Derivatives used for hedging:

–

Interest rate swaps

–

Total

112,373

73,184

11,145

12,272

15,772

⁽¹⁾

This includes low risk and good paying customer accounts with no history of account treatment for a defined period and no overdue accounts as at report date; and deposits or placements to counterparties with good credit rating or bank standing financial review.

⁽²⁾

This includes medium risk and average paying customer accounts with no overdue accounts as at report date, and new customer accounts for which sufficient credit history has not been established; and deposits or placements to counterparties not classified as Class A.

⁽³⁾

Gross receivables from counterparties, before any offsetting arrangements.

The aging analysis of past due but not impaired class of financial assets as at December 31, 2015 and 2014 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)

December 31, 2015

Loans and receivables:

99,330

69,504

5,436

1,306

6,962

16,122

Advances and other noncurrent assets

10,717

10,511

–

201

Cash and cash equivalents

46,455

–

Short-term investments

744

–

Investment in debt securities and other long-term investments

595

–

Retail subscribers

19,750

4,998

2,064

499

2,649

9,540

Corporate subscribers

9,263

2,478

1,165

335

834

4,451

Foreign administrations

5,514

2,677

314

290

1,918

315

Domestic carriers

540

188

141

Dealers, agents and others

5,752

858

1,830

120

1,415

1,529

HTM investments:

408

–

Investment in debt securities and other long-term investments

408

–

Financial instruments at FVPL:

695

–

Short-term investments

685

–

Forward foreign exchange contracts

–

Available-for-sale financial investments

15,711

–

Derivatives used for hedging:

161

–

Interest rate swaps

–

Long-term currency swap

–

Total

116,305

86,479

5,436

1,306

6,962

16,122

December 31, 2014

Loans and receivables:

82,857

54,813

5,285

1,149

5,838

15,772

Advances and other noncurrent assets

10,912

10,710

–

201

Cash and cash equivalents

26,659

–

Short-term investments

–

Investment in debt securities and other long-term investments

546

–

Retail subscribers

17,053

5,009

1,949

325

1,637

8,133

Foreign administrations

8,420

3,360

932

468

3,112

548

Corporate subscribers

7,941

1,662

951

234

768

4,326

Domestic carriers

823

248

166

219

Dealers, agents and others

10,485

6,601

1,287

101

2,471

HTM investments:

709

–

Investment in debt securities and other long-term investments

709

–

Available-for-sale financial investments

28,086

–

Financial instruments at FVPL:

625

–

Short-term investments

625

–

Derivatives used for hedging:

–

Interest rate swaps

–

Total

112,373

84,329

5,285

1,149

5,838

15,772

The main consideration for the impairment assessment include whether any payments of principal or interest are overdue by more than 90 days or whether there are any known difficulties in the cash flows of counterparties, credit rating downgrades, or infringement of the original terms of the contract. Our impairment assessments are classified into two areas: individually assessed allowance and collectively assessed allowances.

We determine the allowance appropriate for each individually significant loan or advance on an individual basis. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance once a financial difficulty has arisen, projected receipts and the expected dividend payout should bankruptcy ensue, the availability of other financial support, the realizable value of collateral, if any, and the timing of the expected cash flows. We also recognize an impairment for accounts specifically identified to be doubtful of collection when there is information on financial incapacity after considering the other contractual obligations between us and the subscriber. The impairment losses are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.

Allowances are assessed collectively for losses on loans and advances that are not individually significant and for individually significant loans and advances where there is no objective evidence of individual impairment. Allowances are evaluated on each reporting date with each portfolio receiving a separate review.

The collective assessment takes account of impairment that is likely to be present in the portfolio even though there is no objective evidence of the impairment in an individual assessment. Impairment losses are estimated by taking into consideration the following information: historical losses on the portfolio, current economic conditions, the approximate delay between the time a loss is likely to have been incurred and the time it is identified as requiring an individually assessed impairment allowance, and expected receipts and recoveries once impaired. The impairment allowance is then reviewed by credit management to ensure alignment with our policy.

We aim to achieve an optimal capital structure in pursuit of our business objectives which include maintaining healthy capital ratios and strong credit ratings, and maximizing shareholder value.

In recent years, our cash flow from operations has allowed us to substantially reduce debts and, in 2005, resume payment of dividends on common shares. Since 2005, our strong cash flow has enabled us to make investments in new areas and pay higher dividends.

Our approach to capital management focuses on balancing the allocation of cash and the incurrence of debt as we seek new investment opportunities for new businesses and growth areas. 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. Further, in the event no investment opportunities arise, we may consider the option of returning additional cash to our shareholders in the form of special dividends or share buybacks. Philippine corporate regulations prescribe, however, that we can only pay out dividends or make capital distribution up to the amount of our unrestricted retained earnings.

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 years ended December 31, 2015, 2014 and 2013.


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

11,829 as at January 31, 2016	Every 2^nd Tuesday in June	December 31


	Years ended December 31,						Increase (Decrease)
	2015			2014			Amount			%
Consolidated Statements of Cash Flows
Net cash provided by operating activities		69,744			66,015			3,729			6
Net cash used in investing activities		(39,238	)		(51,686	)		12,448			(24	)
Capital expenditures		43,175			34,759			8,416			24
Net cash used in financing activities		(11,385	)		(19,897	)		8,512			(43	)
Operational Data
Number of cellular subscribers		64,938,074			69,857,060			(4,918,986	)		(7	)
Number of fixed line subscribers		2,303,454			2,207,889			95,565			4
Number of broadband subscribers:		5,188,684			4,091,514			1,097,170			27
Fixed Line		1,255,864			1,105,368			150,496			14
Wireless		3,932,820			2,986,146			946,674			32
Number of employees:		17,176			17,496			(320	)		(2	)
Fixed Line		9,671			9,710			(39	)		–
LEC		7,039			7,405			(366	)		(5	)
Others		2,632			2,305			327			14
Wireless		7,505			7,786			(281	)		(4	)


Title of Each Class		Number of Shares of Common Stock Outstanding


Common Stock		216,055,775⁽¹⁾
Amount of Debt Outstanding		Php160,892 million as at December 31, 2015


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			9
Revenues			9
Expenses			16
Other Expenses			17
Provision for Income Tax			17
Net Income			17
EBITDA			18
Core Income			18
Fixed Line			18
Revenues			18
Expenses			21
Other Income (Expenses)			23
Provision for Income Tax			23
Net Income			23
EBITDA			23
Core Income			23
Others			24
Other Income – Net			24
Net Income			24
Core Income			24
Liquidity and Capital Resources			25
Operating Activities			26
Investing Activities			26
Financing Activities			26
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			31
Related Party Transactions			33
ANNEX – Aging of Accounts Receivable			A-1
Financial Soundness Indicators			A-2
SIGNATURES			S-1


	December 31,				Increase (Decrease)
	2015		2014		Amount			%
Consolidated Statements of Financial Position
Total assets		455,095		436,295		18,800			4
Property, plant and equipment		195,782		191,984		3,798			2
Cash and cash equivalents and short-term investments		47,884		27,302		20,582			75
Total equity attributable to equity holders of PLDT		113,608		134,364		(20,756	)		(15	)
Long-term debt, including current portion		160,892		130,123		30,769			24
Net debt⁽⁴⁾to equity ratio		0.99x		0.77x		–			–


			Weighted average rates
Exchange Rates – per US$	Yearend rates		during the year
December 31, 2015		47.12		45.51
December 31, 2014		44.74		44.40
December 31, 2013		44.40		42.44


	2015			2014⁽¹⁾
	(in millions)
Consolidated EBITDA		70,218			76,750
Add (deduct) adjustments:
Equity share in net earnings of associates and joint ventures		3,241			3,841
Interest income		799			752
Gains (losses) on derivative financial instruments – net		420			(101	)
Asset impairment		(10,954	)		(3,844	)
Foreign exchange losses – net		(3,036	)		(382	)
Amortization of intangible assets		(1,076	)		(1,149	)
Financing costs – net		(6,259	)		(5,320	)
Provision for income tax		(4,563	)		(10,058	)
Depreciation and amortization		(31,519	)		(31,379	)
Other income – net		4,804			4,980
Total adjustments		(48,143	)		(42,660	)
Consolidated net income		22,075			34,090


													Change
	2015			%			2014⁽¹⁾			% Amount						%
							(in millions)
Wireless		115,513			68			118,879			69			(3,366	)		(3	)
Fixed line		68,865			40			66,178			39			2,687			4
Inter-segment transactions		(13,275	)		(8	)		(14,222	)		(8	)		947			(7	)

Consolidated		171,103			100			170,835			100			268			–


					Decrease
	2015		2014⁽¹⁾		Amount			%
			(in millions)
Voice services:
Domestic
Inbound		3,819		4,324		(505	)		(12	)
Outbound		30,685		32,556		(1,871	)		(6	)

		34,504		36,880		(2,376	)		(6	)

International
Inbound		9,608		12,302		(2,694	)		(22	)
Outbound		1,369		1,883		(514	)		(27	)

		10,977		14,185		(3,208	)		(23	)

Total		45,481		51,065		(5,584	)		(11	)


	2015		2014
	(in %)
Prepaid
Smart		6.5		5.8
TNT		5.7		5.8
Sun Cellular		11.4		9.7
Postpaid
Smart		2.8		2.7
Sun Cellular		3.7		1.8


	Gross⁽¹⁾				Decrease						Net⁽²⁾				Decrease
	2015		2014		Amount			%			2015		2014		Amount			%
Prepaid
Smart		126		143		(17	)		(12	)		115		129		(14	)		(11	)
TNT		91		97		(6	)		(6	)		84		88		(4	)		(5	)
Sun Cellular		71		72		(1	)		(1	)		66		66		–			–
Postpaid
Smart		1,048		1,088		(40	)		(4	)		1,035		1,078		(43	)		(4	)
Sun Cellular		448		481		(33	)		(7	)		445		477		(32	)		(7	)


							Change
	2015			2014⁽¹⁾ Amount							%
Other Income (Expenses):				(in millions)
Financing costs – net		(1,799	)		(1,646	)		(153	)			9
Foreign exchange losses – net		(1,622	)		(464	)		(1,158	)			250
Equity share in net losses of associates		(81	)		(11	)		(70	)			636
Loss on derivative financial instruments – net		–			(34	)		34		(100)
Interest income		308			217			91				42
Other income – net		1,236			1,214			22				2

Total		(1,958	)		(724	)		(1,234	)			170


	For the years ended December 31,
	2015			2014
	(in millions)
Cash Flows
Net cash flows provided by operating activities		69,744			66,015
Net cash flows used in investing activities		(39,238	)		(51,686	)
Capital expenditures		43,175			34,759
Net cash flows used in financing activities		(11,385	)		(19,897	)
Net increase (decrease) in cash and cash equivalents		19,796			(5,246	)
				December 31,

		2015			2014

	(in millions)
Capitalization
Long-term portion of interest-bearing financial liabilities – net of current portion:
Long-term debt		143,982			115,399
Obligations under finance lease		–			1

		143,982			115,400

Current portion of interest-bearing financial liabilities:
Long-term debt maturing within one year		16,910			14,724
Obligations under finance lease maturing within one year		1			5

		16,911			14,729

Total interest-bearing financial liabilities		160,893			130,129
Total equity attributable to equity holders of PLDT		113,608			134,364

		274,501			264,493

Other Selected Financial Data
Total assets		455,095			436,295
Property, plant and equipment		195,782			191,984
Cash and cash equivalents		46,455			26,659
Short-term investments		1,429			643


	Fair Values
	December 31,		September 30,
	2015		2015
	(Audited)		(Unaudited)
	(in millions)
Noncurrent Financial Assets
Investments in debt securities and other long-term investments – net of current portion		972		1,250
Advances and other noncurrent assets – net of current portion		2,305		2,436

Total noncurrent financial assets		3,277		3,686

Noncurrent Financial Liabilities
Interest-bearing financial liabilities		145,731		137,837
Customers’ deposits		1,868		1,897
Deferred credits and other noncurrent liabilities		17,973		15,279

Total noncurrent financial liabilities		165,572		155,013


					3160		6190		Over 91
Type of Accounts Receivable	Total		Current		Days		Days		Days
			(in millions)
Retail subscribers		19,750		5,908		1,494		559		11,789
Corporate subscribers		9,263		2,391		1,767		779		4,326
Foreign administrations		5,514		1,365		782		704		2,663
Domestic carriers		540		186		53		67		234
Dealers, agents and others		5,752		858		1,823		120		2,951

Total		40,819		10,708		5,919		2,229		21,963

Less: Allowance for doubtful accounts.		15,921
Total Receivables — net		24,898


	2015			2014
Current Ratio⁽¹⁾		0.58:1.0			0.53:1.0
Net Debt to Equity Ratio⁽²⁾		0.99:1.0			0.77:1.0
Net Debt to EBITDA Ratio⁽³⁾		1.61:1.0			1.34:1.0
Total Debt to EBITDA Ratio⁽⁴⁾		2.29:1.0			1.69:1.0
Asset to Equity Ratio⁽⁵⁾		4.01:1.0			3.25:1.0
Interest Coverage Ratio⁽⁶⁾		5.20:1.0			9.24:1.0
Profit Margin⁽⁷⁾		13	%		20	%
Return on Assets⁽⁸⁾		5	%		8	%
Return on Equity⁽⁹⁾		18	%		25	%
EBITDA Margin⁽¹⁰⁾		43	%		47	%


	2015		2014
Noncurrent Liabilities
Interest-bearing financial liabilities – net of current portion (Notes 3, 9, 21 and 28)		143,982		115,400
Deferred income tax liabilities – net (Notes 4 and 7)		3,704		4,427
Derivative financial liabilities – net of current portion (Note 28)		736		1,460
Customers’ deposits (Note 28)		2,430		2,438
Pension and other employee benefits (Notes 3, 5 and 26)		10,197		13,131
Deferred credits and other noncurrent liabilities (Notes 3, 5, 9, 22 and 28)		21,482		21,924

Total Noncurrent Liabilities		182,531		158,780

Current Liabilities
Accounts payable (Notes 23, 25, 27 and 28)		52,679		40,923
Accrued expenses and other current liabilities (Notes 3, 20, 21, 24, 25, 26 and 28)		84,286		82,678
Current portion of interest-bearing financial liabilities (Notes 3, 9, 21 and 28)		16,911		14,729
Provision for claims and assessments (Notes 3 and 27)		897		897
Dividends payable (Notes 20 and 28)		1,461		1,070
Current portion of derivative financial liabilities (Note 28)		306		254
Income tax payable (Note 7)		2,126		2,296

Total Current Liabilities		158,666		142,847
TOTAL LIABILITIES		341,197		301,627

TOTAL EQUITY AND LIABILITIES		455,095		436,295


Date Incurred	Expiry Date	MCIT			NOLCO
		(in million pesos)
December 31, 2013	December 31, 2016		232			1,925
December 31, 2014	December 31, 2017		81			5,970
December 31, 2015	December 31, 2018		85			3,428
			398			11,323

Consolidated tax benefits			398			3,397
Consolidated unrecognized deferred income tax assets			(398	)		(2,159	)
Consolidated recognized deferred income tax assets			–			1,238


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


	2015		2014
Closing price per share at year-end (in Euros)		28.24		51.39
Total market value as at year-end (in million Euros)		285		519
Total market value as at year-end (in million pesos)		14,587		27,855
Net gains (losses) from changes in fair value recognized during the year (in million pesos)	(13,268)		8,144


	Land			Land Improvements			Building			Total
	(in million pesos)
December 31, 2015
Balance at beginning of the year		1,479			10			327			1,816
Net gains (losses) from fair value adjustments charged to profit or loss		18			(1	)		(7	)		10
Transfers from property and equipment		5			–			–			5
Disposals		(6	)		–			–			(6	)
Balance at end of the year (Note 4)		1,496			9			320			1,825

December 31, 2014
Balance at beginning of the year		984			10			228			1,222
Net gains (losses) from fair value adjustments charged to profit or loss		660			(1	)		(26	)		633
Movement charged directly to other comprehensive income		338			–			123			461
Disposals		(6	)		–			–			(6	)
Transfers (to) from property and equipment		(497	)		1			2			(494	)

Balance at end of the year (Note 4)		1,479			10			327			1,816


	Fair Values
	Recognized on Acquisition
	(in million pesos)
Assets:
Property and equipment (Note 9)		192
Other noncurrent assets		2
Trade and other receivables		15
Prepayments and other current assets		15
		224

Liabilities:
Deferred income tax liability		46
Accounts payable		14

Fair value of net assets acquired		164
Cash paid		164
		164

Cash flows from investing activity:
Cash paid		(164	)
Cash acquired		–

		(164	)


			Fair Values
	Previous		Recognized on
	Carrying Values		Acquisition
	(in million pesos)
Assets:
Subscription receivable		29		29
Cash and cash equivalents		22		22
Inventory		7		7
Other assets		1		1
		59		59

Liabilities:
Accounts payable and other liabilities		9		9
Due to related party		4		4

		13		13

		46		46
Goodwill from the acquisition (Note 15)		–		34

Total identifiable net assets acquired				80
Noncontrolling interests				(10	)

Fair value of net assets acquired				70

Cash paid				41
Subscriptions payable				29

				70
Cash flows from investing activity:
Cash paid				(35	)
Cash acquired				22

				(13	)


					Fair Values
	Previous Carrying Values				Recognized on Acquisition
	In S.G. Dollar		In Php⁽¹⁾		In S.G. Dollar			In Php⁽¹⁾
			(in millions)
Assets:
Property and equipment (Note 9)		–		0.1		–			0.1
Cash and cash equivalents		0.1		2.7		0.1			2.7
Trade receivables		0.1		5.1		0.1			5.1
Prepayments and other current assets		–		0.4		–			0.4

		0.2		8.3		0.2			8.3

Liabilities:
Accounts payable and other liabilities		0.1		4.6		0.1			4.6
Total identifiable net assets acquired		0.1		3.7		0.1			3.7
Goodwill from the acquisition (Note 14)						6.9			229.5

Purchase consideration transferred						7.0			233.2

Cash paid						4.4			147.6
Accounts payable – others						2.6			85.6

						7.0			233.2

Cash flow from investing activity:
Cash paid						4.4			147.5
Cash acquired						(0.1	)		(2.7	)

						4.3			144.8


Year	(in million pesos)
2016		911
2017		798
2018		798
2019		771
2020 and onwards		1,941

(Note 3)		5,219


	(in million pesos)
Consolidated unappropriated retained earnings as at December 31, 2014		17,030
Effect of PAS 27 Adjustments and other adjustments		5,548

Parent Company’s unappropriated retained earnings at beginning of the year		22,578
Less: Cumulative unrealized income – net of tax:
Unrealized foreign exchange gains – net (except those attributable to cash and cash equivalents)		(563	)
Fair value adjustments of investment property resulting to gain		(862	)
Fair value adjustments (mark-to-market gains)		(1,727	)

Parent Company’s unappropriated retained earnings available for dividends as at January 1, 2015		19,426

Parent Company’s net income attributable to equity holders of PLDT for the year		27,703
Less: Fair value adjustment of investment property resulting to gain		2
Fair value adjustments (mark-to-market gains)		(533	)

		27,172

Add: Realized income during the year
Realized foreign exchange gains		40

Less: Cash dividends declared during the year
Preferred stock (Note 8)		(59	)
Common stock		(32,841	)
Charged to retained earnings		(32,900	)

Parent Company’s unappropriated retained earnings available for dividends as at December 31, 2015		13,738


	U.S. Dollar Debt				Php Debt		Total
Year	U.S. Dollar		Php		Php		Php
			(in millions)
2016		341		16,062		1,147		17,209
2017		511		24,068		8,682		32,750
2018		259		12,210		1,089		13,299
2019		94		4,456		13,272		17,728
2020		195		9,187		7,440		16,627
2021 and onwards		45		2,120		61,835		63,955

(Note 28)		1,445		68,103		93,465		161,568


Components of net periodic benefit costs:
Service costs	1,113		986		970
Interest costs (income) – net	531		481		(65	)
Curtailment/settlement gain	(29	)	(6	)	(275	)
Net periodic benefit costs (Notes 3 and 5)	1,615		1,461		630


	2015			2014
Investments in listed and unlisted equity securities		96	%		95	%
Temporary cash investments		3	%		4	%
Investments in mutual funds		1	%		1	%
		100	%		100	%


	Increase (Decrease)
	(in million pesos)
Discount rate		1	%	(48	)
		(1	%)	183
Future salary increases		1	%	175
		(1	%)	(48	)


	2015			2014
Investments in debt and fixed income securities and others		71	%		66	%
Investments in listed and unlisted equity securities		29	%		34	%
		100	%		100	%