phi-6k_20191231.htm

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (1): Yes ☐ No ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (7): Yes ☐ No ☒

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ☐ No ☒

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

In accordance with Section 17.1(b) of the Securities Regulation Code and SRC Rule 17.1.1.1.2, we submit herewith two (2) copies of SEC Form 17-C with Management’s Discussion and Analysis and accompanying consolidated financial statements as at and for the year ended December 31, 2019.

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.

Our consolidated financial statements as at and for the years ended December 31, 2019 and 2018 and related notes (pages F-1 to F-177) are filed as part of this report on Form 17-C.

In the following discussion and analysis of our financial condition and results of operations, unless the context indicates or otherwise requires, references to “we,” “us,” “our” or “PLDT Group” mean PLDT Inc. and its consolidated subsidiaries, and references to “PLDT” mean PLDT Inc., not including its consolidated subsidiaries (please see Note 2 – Summary of Significant Accounting Policies to the accompanying 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 consolidated financial statements and the related notes. Our 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 consolidated financial statements is stated in Philippine pesos. Unless otherwise indicated, translations of Philippine peso amounts into U.S. dollars in this report and in the accompanying consolidated financial statements were made based on the exchange rate of Php50.80 to US$1.00, the exchange rate as at December 31, 2019 quoted through the Bankers Association of the Philippines.

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. These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors. When considering forward-looking statements, you should keep in mind the description of risks and other 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 statements in this report after the date hereof. In light of these risks and uncertainties, you should keep in mind that actual results may differ materially from any forward-looking statement made in this report or elsewhere.

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

Core income for the 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 management for each business unit separately for purposes of making decisions about resource allocation and performance assessment. Our core income from telco operations, or telco core income, is used by management as a basis of determining the level of dividend payouts to shareholders and basis of granting incentives to employees. Core income should not be considered as an alternative to income before income tax or net income determined in accordance with PFRS as an indicator of our performance. Unlike net income, core income does not include foreign exchange gains and losses, gains and losses on derivative financial instruments, asset impairments and other non-recurring gains and losses. We compensate for these limitations by using core income as only one of several comparative tools, together with PFRS-based measurements, to assist in the evaluation of operating performance. Such PFRS-based measurements include income before income tax and net income. Our calculation of core income may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

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

As at December 31, 2019, 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 net income to our consolidated EBITDA and our consolidated core income for the years ended December 31, 2019 and 2018 are set forth below.

The following table shows the reconciliation of our consolidated net income to our consolidated EBITDA for the years ended December 31, 2019 and 2018:

The following table shows the reconciliation of our consolidated net income to our consolidated core income for the years ended December 31, 2019 and 2018:

The following table shows the contribution by each of our business segments to our consolidated revenues, expenses, other income (expense), income (loss) before income tax, provision for (benefit from) income tax, net income (loss)/segment profit (loss), EBITDA, EBITDA margin and core income for the years ended December 31, 2019 and 2018. In each of the years ended December 31, 2019 and 2018, majority of our revenues are derived from our operations within the Philippines. Our revenues derived from outside the Philippines consist primarily of revenues from incoming international calls to the Philippines.

	Wireless			Fixed Line			Others⁽¹⁾			Inter-segment Transactions			Consolidated
	(amounts in million Php, except for EBITDA margin)
For the year ended December 31, 2019
Revenues		96,906			89,406			—			(17,125	)		169,187
Expenses		74,359			72,385			101			(17,059	)		129,786
Other income (expenses) - net		(5,023	)		(259	)		(2,112	)		329			(7,065	)
Income (loss) before income tax		17,524			16,762			(2,213	)		263			32,336
Provision for (benefit from) income tax		4,423			5,341			(444	)		230			9,550
Net income (loss)/Segment profit (loss)		13,101			11,421			(1,769	)		33			22,786
EBITDA		52,789			33,162			(101	)		(6,035	)		79,815
EBITDA margin⁽²⁾		58	%		38	%		—			—			49	%
Core income (loss)		13,685			12,531			(1,151	)		46			25,111

For the year ended December 31, 2018
Revenues		89,929			85,222			1,138			(13,375	)		162,914
Expenses		82,246			77,782			4,093			(14,980	)		149,141
Other income (expenses) - net		(625	)		(45	)		12,099			(2,387	)		9,042
Income (loss) before income tax		7,058			7,395			9,144			(782	)		22,815
Provision for (benefit from) income tax		1,333			1,336			1,173			—			3,842
Net income (loss)/Segment profit (loss)		5,725			6,059			7,971			(782	)		18,973
EBITDA		34,235			30,875			(2,688	)		1,605			64,027
EBITDA margin⁽²⁾		41	%		38	%		—			—			42	%
Core income (loss)		9,760			6,925			9,952			(782	)		25,855

Increase (Decrease)
Revenues		6,977			4,184			(1,138	)		(3,750	)		6,273
Expenses		(7,887	)		(5,397	)		(3,992	)		(2,079	)		(19,355	)
Other income (expenses) - net		(4,398	)		(214	)		(14,211	)		2,716			(16,107	)
Income (loss) before income tax		10,466			9,367			(11,357	)		1,045			9,521
Provision for (benefit from) income tax		3,090			4,005			(1,617	)		230			5,708
Net income (loss)/Segment profit (loss)		7,376			5,362			(9,740	)		815			3,813
EBITDA		18,554			2,287			2,587			(7,640	)		15,788
Core income (loss)		3,925			5,606			(11,103	)		828			(744	)

In 2019, we adopted PFRS 16, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under PAS 17, Leases. We applied the modified retrospective approach upon adoption of PFRS 16 on January 1, 2019 and applied the standard to contracts that were previously identified as leases applying PAS 17 and Philippine Interpretation IFRIC 4, Determining whether an Arrangement contains a Lease. Under this approach, the cumulative effect arising from the transition was recognized as an adjustment to the opening balance of retained earnings. Accordingly, comparative information for prior periods were not restated.

See Note 2 – Summary of Significant Accounting Policies – New and Amended Standards and Interpretations to the accompanying consolidated financial statements for further discussions.

We reported consolidated revenues of Php169,187 million in 2019, an increase of Php6,273 million, or 4%, as compared with Php162,914 million in 2018, primarily due to higher revenues from data services in our Wireless and Fixed Line business segments, and higher revenues from voice services in our Fixed Line business segment, partially offset by lower revenues from voice, SMS and home broadband services in our Wireless business segment, and lower non-service revenues in our Wireless and Fixed Line business segments, as well as lower revenues from our Other business segment due to the deconsolidation of VIH in November 2018.

Our consolidated service revenues of Php161,355 million in 2019, increased by Php8,986 million, or 6%, from Php152,369 million in 2018, while our consolidated non-service revenues of Php7,832 million in 2019, decreased by Php2,713 million, or 26%, from Php10,545 million in 2018.

Consolidated service revenues, net of interconnection costs, amounted to Php157,717 million in 2019, an increase of Php10,841 million, or 7%, from Php146,876 million in 2018.

In compliance with Memorandum Circular No. 05-07-2018 issued by the National Telecommunications Commission, or NTC, the interconnection rate for our voice calls was reduced to Php0.50 per minute from Php2.50 per minute, and the rate for SMS was down to Php0.05 per message from Php0.15 per message effective
September 1, 2018.

The following table shows the breakdown of our consolidated revenues by services for the years ended December 31, 2019 and 2018:

	Wireless		Fixed Line		Others		Inter- segment Transactions			Consolidated
			(amounts in million Php)
For the year ended December 31, 2019
Service Revenues
Wireless		90,661						(2,418	)		88,243
Mobile		88,865						(1,042	)		87,823
Home broadband		85						—			85
MVNO and others		1,711						(1,376	)		335
Fixed Line				87,819				(14,707	)		73,112
Voice				26,267				(6,377	)		19,890
Data				60,764				(7,977	)		52,787
Home broadband				28,449				(142	)		28,307
Corporate data and ICT				32,315				(7,835	)		24,480
Miscellaneous				788				(353	)		435
Others						—		—			—
Total Service Revenues		90,661		87,819		—		(17,125	)		161,355
Non-Service Revenues
Sale of computers, phone units, mobile handsets and broadband data modems		6,245		1,223		—		(30	)		7,438
Point-product sales		—		364		—		30			394
Total Non-Service Revenues		6,245		1,587		—		—			7,832
Total Revenues		96,906		89,406		—		(17,125	)		169,187

For the year ended December 31, 2018
Service Revenues
Wireless		83,001						(2,736	)		80,265
Mobile		81,096						(1,192	)		79,904
Home broadband		155						—			155
MVNO and others		1,750						(1,544	)		206
Fixed Line				81,648				(10,628	)		71,020
Voice				25,178				(4,030	)		21,148
Data				55,732				(6,228	)		49,504
Home broadband				26,733				(255	)		26,478
Corporate data and ICT				28,999				(5,973	)		23,026
Miscellaneous				738				(370	)		368
Others						1,094		(10	)		1,084
Total Service Revenues		83,001		81,648		1,094		(13,374	)		152,369
Non-Service Revenues
Sale of computers, phone units, mobile handsets and broadband data modems		6,928		3,064		44		(8	)		10,028
Point-product sales		—		510		—		7			517
Total Non-Service Revenues		6,928		3,574		44		(1	)		10,545
Total Revenues		89,929		85,222		1,138		(13,375	)		162,914

The following table shows the breakdown of our consolidated revenues by business segment for the years ended December 31, 2019 and 2018:

Consolidated expenses decreased by Php19,355 million, or 13%, to Php129,786 million in 2019 from Php149,141 million in 2018, primarily due to lower selling, general and administrative expenses, interconnection costs, provisions and noncurrent asset impairment in our Wireless business segment, lower depreciation and amortization and noncurrent asset impairment in our Fixed Line business segment, and lower expenses in our Other business segment due to the deconsolidation of VIH, partially offset by higher depreciation and amortization in our Wireless business segment and higher interconnection costs in our Fixed Line business segment.

The following table shows the breakdown of our consolidated expenses by business segment for the years ended December 31, 2019 and 2018:

Consolidated other expenses amounted to Php7,065 million in 2019, a change of Php16,107 million as against other income of Php9,042 million in 2018, primarily due to the combined effects of the following: (i) gain on the deconsolidation of VIH in 2018, lower realized gains on fair value of Rocket Internet investment, and higher equity share in net losses of VIH from our Other business segment; (ii) net losses on derivative financial instruments in 2019 as against net gains on derivative financial instruments in 2018 from our Wireless and Fixed Line business segments; and (iii) higher financing costs from our Wireless business segment.

The following table shows the breakdown of our consolidated other income (expenses) – net by business segment for the years ended December 31, 2019 and 2018:

Consolidated net income increased by Php3,813 million, or 20%, to Php22,786 million in 2019, from Php18,973 million in 2018, primarily due to higher net income from our Wireless and Fixed Line business segments, partly offset by net loss from our Other business segment as against net income in 2018. Our consolidated basic and diluted EPS increased to Php103.97 in 2019 from Php87.28 in 2018. Our weighted average number of outstanding common shares was approximately 216.06 million in each of 2019 and 2018.

The following table shows the breakdown of our consolidated net income (loss) by business segment for the years ended December 31, 2019 and 2018:

Our consolidated EBITDA amounted to Php79,815 million in 2019, an increase of Php15,788 million, or 25%, as compared with Php64,027 million in 2018, primarily due to higher EBITDA in our Wireless and Fixed Line business segments, as well as from our Other business segment due to the deconsolidation of VIH.

In 2019, we adopted PFRS 16 resulting to a reduction in rent expense of Php5,281 million, thereby contributing an improvement in EBITDA, which was partially offset by the increase in manpower rightsizing program, or MRP, cost to Php3,296 million in 2019 from Php1,703 million in 2018.

The following table shows the breakdown of our consolidated EBITDA by business segment for the years ended December 31, 2019 and 2018:

Our consolidated core income amounted to Php25,111 million in 2019, a decrease of Php744 million, or 3%, as compared with Php25,855 million in 2018 mainly on account of lower other income primarily due to last year’s gain on deconsolidation of VIH and lower realized gains on fair value of Rocket Internet investment, as well as higher provision for income tax and financing costs, partly offset by higher EBITDA and lower depreciation expense. Our consolidated basic and diluted core EPS decreased to Php115.95 in 2019 from Php119.39 in 2018.

The following table shows the breakdown of our consolidated core income by business segment for the years ended December 31, 2019 and 2018:

Our consolidated core income from telco operations, or telco core income, which excludes results from Voyager, and accelerated depreciation, amounted to Php27,080 million in 2019, an increase of Php3,033 million, or 13%, as compared with Php24,047 million in 2018 mainly due to higher EBITDA, partially offset by higher depreciation on account of depreciation of right-of-use asset resulting from the impact of PFRS 16 adoption, and higher provision for income tax and financing costs.

We generated revenues of Php96,906 million from our Wireless business segment in 2019, an increase of Php6,977 million, or 8%, from Php89,929 million in 2018.

The following table summarizes our total revenues by service from our Wireless business segment for the years ended December 31, 2019 and 2018:

Our wireless service revenues in 2019 increased by Php7,660 million, or 9%, to Php90,661 million as compared with Php83,001 million in 2018, primarily due to higher mobile revenues, partly offset by lower home broadband revenues. As a percentage of our total wireless revenues, service revenues accounted for 94% and 92% in 2019 and 2018, respectively.

Our mobile service revenues amounted to Php88,865 million in 2019, an increase of Php7,769 million, or 10%, from Php81,096 million in 2018. Mobile service revenues accounted for 98% of our wireless service revenues in each of 2019 and 2018. In the third quarter of 2018, the revenue split allocation among voice, SMS and data for our mobile bundled plans was revised to reflect the observed usage behavior pattern of our subscribers based on the network study conducted for our Wireless business segment.

The following table shows the breakdown of our mobile service revenues for the years ended December 31, 2019 and 2018:

Mobile revenues from our data services, which include mobile internet, mobile broadband and other data services, increased by Php14,498 million, or 38%, to Php52,848 million in 2019 from Php38,350 million in 2018 due to increased mobile internet usage driven mainly by enhanced data products and consumer engagement promotions, supported by continuous network improvement and LTE migration, partially offset by lower revenues from mobile broadband. Data services accounted for 59% and 47% of our mobile service revenues in 2019 and 2018, respectively.

The following table shows the breakdown of our mobile data service revenues for the years ended December 31, 2019 and 2018:

Mobile internet service revenues increased by Php15,192 million, or 46%, to Php48,399 million in 2019 from Php33,207 million in 2018, primarily due to the following: (i) promoting of data and content-led products such as Giga Video, Giga Games, Giga Stories for mobile prepaid services, which increased usage of video, gaming and social media by Smart, TNT and Sun subscribers; (ii) launching promotions of products, such as Free Video Everyday and Free IG + FB For All, which increased the number of mobile data users and further stimulated data usage; (iii) increased data usage resulting from events and activities, such as vlogger & creator camps, nationwide grassroots gaming tournaments, and large-scale eSports events, which attracted video creators and gamers;
(iv) adoption of more accessible channels for customers to discover and buy mobile data services, such as *123#, online stores, malls and convenience store chains; (v) introduction of new data-led postpaid plans with the launch of Smart Signature; and (vi) LTE migration initiatives that further increased the number of LTE device users and LTE data users among our subscriber base. Mobile internet services accounted for 54% and 41% of our mobile service revenues in 2019 and 2018, respectively.

Mobile broadband revenues amounted to Php3,547 million in 2019, a decrease of Php1,042 million, or 23%, from Php4,589 million in 2018, primarily due to a decrease in the number of subscribers using pocket wifi as users shift to using mobile internet and fixed DSL/Fiber home broadband. Mobile broadband services accounted for 4% and 6% of our mobile service revenues in 2019 and 2018, respectively.

Revenues from our other data services, which include value-added services, or VAS, domestic leased lines and share in revenue from PLDT WeRoam, increased by Php348 million, or 63%, to Php902 million in 2019 from Php554 million in 2018, primarily due to revenues from VAS related to mobile gaming and other pay with mobile online subscriptions and purchases.

Mobile revenues from our voice services, which include all voice traffic, decreased by Php3,455 million, or 12%, to Php24,597 million in 2019 from Php28,052 million in 2018, mainly on account of lower traffic due to subscribers’ shift to alternative calling options and other OTT services, and the impact of reduction in interconnection rates for voice services, as mandated by the NTC effective September 2018. Mobile voice services accounted for 28% and 35% of our mobile service revenues in 2019 and 2018, respectively.

Domestic voice service revenues decreased by Php1,656 million, or 7%, to Php21,830 million in 2019 from Php23,486 million in 2018, due to lower domestic outbound and inbound voice service revenues.

International voice service revenues decreased by Php1,799 million, or 39%, to Php2,767 million in 2019 from Php4,566 million in 2018, primarily due to lower international inbound and outbound voice service revenues as a result of lower international voice traffic.

Mobile revenues from our SMS services, which include all SMS-related services, decreased by Php3,196 million, or 24%, to Php9,907 million in 2019 from Php13,103 million in 2018 mainly due to the declining SMS volumes as a result of alternative text messaging options, such as OTT services and social media, and the impact of the

reduction in interconnection rates for SMS services. Mobile SMS services accounted for 11% and 16% of our mobile service revenues in 2019 and 2018, respectively.

Mobile revenues from inbound roaming and other services decreased by Php78 million, or 5%, to Php1,513 million in 2019 from Php1,591 million in 2018 due to lower other subscriber-related income.

The following table shows the breakdown of our mobile service revenues by service type for the years ended December 31, 2019 and 2018:

Revenues generated from our mobile prepaid services amounted to Php67,850 million in 2019, an increase of Php7,936 million, or 13%, as compared with Php59,914 million in 2018. Mobile prepaid service revenues accounted for 76% and 74% of mobile service revenues in 2019 and 2018, respectively. The increase in revenues from our mobile prepaid services was primarily driven by a higher mobile prepaid subscriber base combined with higher average daily top-up by mobile prepaid subscribers and sustained growth in mobile internet usages.

Revenues generated from mobile postpaid services amounted to Php19,502 million in 2019, lower by Php89 million as compared with Php19,591 million in 2018, and accounted for 22% and 24% of mobile service revenues in 2019 and 2018, respectively.

The following table shows our mobile subscriber base as at December 31, 2019 and 2018:

Our current policy is to recognize a prepaid subscriber as active only when the subscriber activates and uses the SIM card. A prepaid mobile subscriber is considered inactive if the subscriber does not reload within 90 days after the full usage or expiry of the last reload.

In compliance with Memorandum Circular (MC) No. 05-12-2017 issued jointly by the NTC, Department of Information and Communications Technology, and Department of Trade and Industry, Smart, TNT, and Sun extended the validity of prepaid loads to one year from the date of latest top-up. Beginning January 2018, the one-year validity was implemented particularly on prepaid loads worth Php300 and above. In July 2018, the one-year validity was fully implemented for all prepaid loads, including denominations lower than Php300, regardless of the validity period printed on the physical cards already out in the market.

The average monthly churn rates for Smart Prepaid subscribers were 4.1% and 6.5% in 2019 and 2018, respectively, while the average monthly churn rates for TNT subscribers were 4.0% and 5.8% in 2019 and 2018, respectively. The average monthly churn rates for Sun Prepaid subscribers were 4.5% and 6.1% in 2019 and 2018, respectively.

The average monthly churn rates for Smart Postpaid subscribers were 2.1% and 2.0% in 2019 and 2018, respectively, and 2.0% and 3.5% in 2019 and 2018, respectively, for Sun Postpaid subscribers.

The following table summarizes our average monthly ARPUs for the years ended December 31, 2019 and 2018:

Revenues from our Home Broadband services amounted to Php85 million in 2019, a decrease of Php70 million, or 45%, from Php155 million in 2018, primarily due to a decrease in the number of subscribers.

Revenues from our MVNO and other services amounted to Php1,711 million in 2019, a decrease of Php39 million, or 2%, from Php1,750 million in 2018.

Our wireless non-service revenues consist of sale of mobile handsets, mobile broadband data modems, tablets and accessories. Our wireless non-service revenues decreased by Php683 million, or 10%, to Php6,245 million in 2019 from Php6,928 million in 2018, primarily due to lower issuances and decrease in average selling price per unit of mobile handsets.

Expenses associated with our Wireless business segment amounted to Php74,359 million in 2019, a decrease of Php7,887 million, or 10%, from Php82,246 million in 2018. The decrease was mainly attributable to lower selling, general and administrative expenses, interconnection costs, provisions, asset impairment, and cost of sales and services, partially offset by higher depreciation and amortization. As a percentage of our total wireless revenues, expenses associated with our Wireless business segment accounted for 77% and 91% in 2019 and 2018, respectively.

The following table summarizes the breakdown of our total wireless-related expenses for the years ended December 31, 2019 and 2018 and the percentage of each expense item in relation to the total:

Selling, general and administrative expenses decreased by Php7,684 million, or 19%, to Php32,009 million, primarily due to lower rent resulting mainly from the impact of PFRS 16 adoption, lower taxes and licenses, and professional and other contracted services, partly offset by higher expenses related to repairs and maintenance, compensation and employee benefits, and selling and promotions.

Depreciation and amortization charges increased by Php4,706 million, or 19%, to Php29,484 million, on account of depreciation of right-of-use asset resulting from the impact of PFRS 16 adoption and increase in depreciation of property and equipment due to higher asset base, partly offset by lower depreciation recognized due to shortened life of certain data network platform and other technology equipment resulting from the ongoing transformation projects.

Cost of sales and services decreased by Php665 million, or 7%, to Php9,324 million, primarily due to lower average cost per unit of mobile handsets and lower cost of services, mainly content costs.

Interconnection costs decreased by Php2,058 million, or 46%, to Php2,409 million, primarily due to lower interconnection cost on domestic voice and SMS services, as a result of the impact of reduction in interconnection rates, combined with lower traffic.

Provisions decreased by Php1,162 million, or 53%, to Php1,011 million, primarily due to lower provision for doubtful accounts and lower provision for inventory obsolescence, for both trade inventories and network materials.

Asset impairment decreased by Php1,024 million, or 89%, to Php122 million, primarily due to the impairment of certain network equipment in 2018 as a result of continued network convergence strategy of DMPI.

The following table summarizes the breakdown of our total wireless-related other income (expenses) – net for the years ended December 31, 2019 and 2018:

Our Wireless business segment’s other expenses amounted to Php5,023 million in 2019, an increase of Php4,398 million from Php625 million in 2018, primarily due to the combined effects of the following: (i) higher net financing costs by Php4,557 million mainly attributed to the impact of PFRS 16 adoption; (ii) net losses on derivative financial instruments of Php243 million in 2019 as against net gains on derivative financial instruments of Php449 million in 2018 mainly due to the appreciation of the Philippine peso relative to the U.S. dollar in 2019 as against the depreciation of the Philippine peso relative to the U.S. dollar in 2018; (iii) equity share in net earnings of associates of Php62 million in 2018; (iv) lower interest income by Php16 million; (v) net foreign exchange gains of Php118 million in 2019 as against net foreign exchange losses of Php125 million in 2018, on account of revaluation of net foreign currency-denominated liabilities due to the appreciation of the Philippine peso relative to the U.S. dollar in 2019 as against the depreciation of the Philippine peso relative to the U.S. dollar in 2018; and
(vi) higher other income – net by Php686 million mainly due to higher rental income, income from management services and other miscellaneous income.

Provision for income tax amounted to Php4,423 million in 2019, an increase of Php3,090 million from Php1,333 million in 2018 mainly due to higher taxable income.

As a result of the foregoing, our Wireless business segment’s net income increased by Php7,376 million, or 129%, to Php13,101 million in 2019 from Php5,725 million in 2018.

Our Wireless business segment’s EBITDA increased by Php18,554 million, or 54%, to Php52,789 million in 2019 from Php34,235 million in 2018. EBITDA margin increased to 58% in 2019 from 41% in 2018.

Our Wireless business segment’s core income increased by Php3,925 million, or 40%, to Php13,685 million in 2019 from Php9,760 million in 2018, mainly on account of higher EBITDA, partially offset by higher depreciation expense, net financing costs and provision for income tax.

Revenues generated from our Fixed Line business segment amounted to Php89,406 million in 2019, an increase of Php4,184 million, or 5%, from Php85,222 million in 2018.

The following table summarizes our total revenues by service from our Fixed Line business segment for the years ended December 31, 2019 and 2018:

Our fixed line service revenues increased by Php6,171 million, or 8%, to Php87,819 million in 2019 from Php81,648 million in 2018, primarily due to higher revenues from our data and voice services. In the second quarter of 2018, the revenue split allocation between voice and data for our fixed line bundled plans was revised, in favor of data, to reflect the result of a network usage study of our Fixed Line business segment.

The following table shows information of our data service revenues for the years ended December 31, 2019 and 2018:

Our data services posted revenues of Php60,764 million in 2019, an increase of Php5,032 million, or 9%, from Php55,732 million in 2018, primarily due to higher revenues from corporate data and leased lines, data center and ICT, and home broadband services. The percentage contribution of this service segment to our fixed line service revenues accounted for 69% and 68% in 2019 and 2018, respectively.

Corporate data services amounted to Php26,681 million in 2019, an increase of Php2,690 million, or 11%, as compared with Php23,991 million in 2018, mainly due to the sustained demand for broadband internet and data networking services. Corporate data revenues accounted for 44% and 43% of total data services in 2019 and 2018, respectively.

ICT revenues increased by Php626 million, or 13%, to Php5,634 million in 2019 from Php5,008 million in 2018 mainly due to higher revenues from Data Centers, Cloud, Cybersecurity and managed IT services. The percentage contribution of this service segment to our total data service revenues accounted for 9% in each of 2019 and 2018.

Home broadband data revenues amounted to Php28,449 million in 2019, an increase of Php1,716 million, or 6%, from Php26,733 million in 2018. This growth is driven by increasing demand for broadband services which the company is providing through its existing copper network and a nationwide roll-out of its fiber-to-the-home, or FTTH, network. Home broadband revenues accounted for 47% and 48% of total data service revenues in 2019 and 2018, respectively. In 2019, PLDT’s FTTH nationwide network rollout passed 7.2 million homes.

Revenues from our voice services increased by Php1,089 million, or 4%, to Php26,267 million in 2019 from Php25,178 million in 2018, primarily due to higher revenues from international services of PLDT Global, partly offset by lower revenues from domestic and local exchange services. The decline in local exchange and domestic services was partly due to the continued popularity of services such as Skype, Viber, Line, Facebook Messenger, Google Talk and WhatsApp, offering free OTT calling services, and other similar services, as well as subscribers’ shift to mobile services. The percentage contribution of voice service revenues to our fixed line service revenues accounted for 30% and 31% in 2019 and 2018, respectively.

Miscellaneous service revenues are derived mostly from rentals and management fees. These service revenues increased by Php50 million, or 7%, to Php788 million in 2019 from Php738 million in 2018. The percentage contribution of miscellaneous service revenues to our total fixed line service revenues accounted for 1% in each of 2019 and 2018.

Non-service revenues decreased by Php1,987 million, or 56%, to Php1,587 million in 2019 from Php3,574 million in 2018, primarily due to lower sale of Telpad units, computer bundles, managed ICT equipment and Ultera devices.

Expenses related to our Fixed Line business segment totaled Php72,385 million in 2019, a decrease of Php5,397 million, or 7%, as compared with Php77,782 million in 2018. The decrease was primarily due to lower expenses related to depreciation and amortization, asset impairment, cost of sales and services, and selling, general and administrative expenses, partly offset by higher interconnection costs. As a percentage of our total fixed line revenues, expenses associated with our Fixed Line business segment accounted for 81% and 91% in 2019 and 2018, respectively.

The following table shows the breakdown of our total fixed line-related expenses for the years ended December 31, 2019 and 2018 and the percentage of each expense item in relation to the total:

Selling, general and administrative expenses decreased by Php209 million, or 1%, to Php40,856 million primarily due to lower rent expenses, mainly due to the impact of PFRS 16 adoption, as well as lower selling and promotions expenses, partly offset by higher compensation and employee benefits resulting from higher MRP expenses, professional and other contracted services, taxes and licenses, repairs and maintenance, and communication, training and travel expenses.

Depreciation and amortization charges decreased by Php6,162 million, or 28%, to Php16,141 million mainly on account of lower depreciation due to shortened life of certain network equipments in 2018 resulting from the modernization of facilities to adopt more effective technologies, partly offset by depreciation of right-of-use asset due to the impact of PFRS 16 adoption.

Interconnection costs increased by Php2,432 million, or 47%, to Php7,577 million, primarily due to higher international interconnection costs of PLDT Global, partly offset by lower domestic interconnection costs, mainly due to the impact of reduction in interconnection rate for voice services.

Cost of sales and services decreased by Php411 million, or 9%, to Php4,112 million, primarily due to lower cost of Telpad units, computer bundles, managed ICT equipment and Ultera devices, partly offset by higher cost of services.

Provisions decreased by Php17 million to Php3,530 million, primarily due to lower provision for inventory obsolescence, partly offset by higher provision for doubtful accounts mainly from our Home trade receivables.

Asset impairment decreased by Php1,030 million, or 86%, to Php169 million, primarily due to impairment provision for certain property and equipment of Digitel in 2018.

The following table summarizes the breakdown of our total fixed line-related other income (expenses) – net for the years ended December 31, 2019 and 2018:

Our Fixed Line business segment’s other expenses amounted to Php259 million in 2019, an increase of Php214 million from Php45 million in 2018, primarily due to the combined effects of the following: (i) net losses on derivative financial instruments of Php196 million in 2019 as against net gains on derivative financial instruments of Php355 million in 2018 mainly due to the appreciation of the Philippine peso relative to the U.S. dollar in 2019 as against the depreciation of the Philippine peso relative to the U.S. dollar in 2018; (ii) lower other income – net by Php503 million; (iii) lower interest income by Php132 million; (iv) higher equity share in net earnings of associates by Php397 million; (v) lower net financing costs by Php117 million; and (vi) net foreign exchange gains of Php400 million in 2019 as against net foreign exchange losses of Php58 million in 2018, on account of revaluation of net foreign currency-denominated liabilities due to the appreciation of the Philippine peso relative to the U.S. dollar in 2019 as against the depreciation of the Philippine peso relative to the U.S. dollar in 2018.

Provision for income tax amounted to Php5,341 million in 2019, an increase of Php4,005 million from Php1,336 million in 2018, primarily due to higher taxable income.

As a result of the foregoing, our Fixed Line business segment registered a net income of Php11,421 million in 2019, an increase of Php5,362 million, or 88%, as compared with Php6,059 million in 2018.

Our Fixed Line business segment’s EBITDA increased by Php2,287 million, or 7%, to Php33,162 million in 2019 from Php30,875 million in 2018. EBITDA margin remained stable at 38% for each of 2019 and 2018.

Our Fixed Line business segment’s core income increased by Php5,606 million, or 81%, to Php12,531 million in 2019 from Php6,925 million in 2018, primarily as a result of lower depreciation expenses and higher EBITDA, partly offset by higher provision for income tax.

Revenues generated from our Other business segment, which include revenues from digital platforms and mobile financial services, amounted to nil and Php1,138 million in 2019 and 2018, respectively, due mainly to the deconsolidation of VIH in November 2018.

Expenses related to our Other business segment totaled Php101 million in 2019, a decrease of Php3,992 million, or 98%, from Php4,093 million in 2018, due mainly to the deconsolidation of VIH.

The following table summarizes the breakdown of other income (expenses) – net for Other business segment for the years ended December 31, 2019 and 2018:

Our Other business segment’s other expenses amounted to Php2,112 million in 2019, a change of Php14,211 million as against other income of Php12,099 million in 2018, primarily due to the combined effects of the following: (i) lower other income – net by Php12,770 million mainly due to gain on deconsolidation of VIH of Php12,054 million in 2018 and lower realized gains on fair value of Rocket Internet investment, as well as unrealized loss on fair value of Phunware investment in 2019; (ii) higher equity share in net losses of associates and joint ventures by Php1,783 million mainly due to equity share in net losses of VIH amounting to Php2,268 million in 2019; (iii) lower interest income by Php174 million; (iv) lower net gains on derivative financial instruments by Php127 million; (v) lower net financing costs by Php131 million; and (vi) lower net foreign exchange losses by Php512 million mainly due to the appreciation of the Philippine peso relative to the U.S. dollar in 2019 as against the depreciation of the Philippine peso relative to the U.S. dollar in 2018.

As a result of the foregoing, our Other business segment registered a net loss of Php1,769 million in 2019, a change of Php9,740 million as against net income of Php7,971 million in 2018.

Our Other business segment’s core loss amounted to Php1,151 million in 2019, a change of Php11,103 million as against core income of Php9,952 million in 2018.

The following table shows our consolidated cash flows for the years ended December 31, 2019 and 2018, as well as our consolidated capitalization and other consolidated selected financial data as at December 31, 2019 and December 31, 2018:

Our consolidated cash and cash equivalents and short-term investments totaled Php24,683 million as at December 31, 2019. Principal sources of consolidated cash and cash equivalents in 2019 were cash flows from operating activities amounting to Php73,390 million, proceeds from availment of long-term debt of Php37,500 million, interest received of Php1,723 million, collection of receivables from Metro Pacific Investments Corporation, or MPIC, of Php1,771 million, proceeds from disposal of Rocket Internet shares of Php1,021 million and net proceeds from maturity of short-term investments of Php843 million. These funds were used principally for: (1) purchase of property and equipment, including capitalized interest, of Php89,701 million; (2) debt principal and interest payments of Php20,494 million and Php7,143 million, respectively; (3) cash dividend payments of Php15,592 million; and (4) settlement of obligations under lease liabilities of Php9,543 million.

Our consolidated cash and cash equivalents and short-term investments totaled Php52,819 million as at December 31, 2018. Principal sources of consolidated cash and cash equivalents in 2018 were: (1) cash flows from operating activities amounting to Php61,116 million; (2) proceeds from availment of long-term debt of Php20,500 million;
(3) proceeds from disposal of Rocket Internet shares of Php11,400 million and proceeds from repurchase of Matrixx’s Convertible Series B Preferred Stock of Php237 million; (4) proceeds from sale and collection of receivables from MPIC of Php6,976 million and Php4,451 million, respectively; (5) proceeds from disposal of Hastings PDRs of Php1,664 million; (6) interest received of Php1,115 million; (7) proceeds from collection of derivative financial instruments of Php886 million; and (8) proceeds from disposal of property and equipment of Php345 million. These funds were used principally for: (1) payment for purchase of property and equipment, including capitalized interest, of Php48,771 million; (2) debt principal and interest payments of Php18,740 million and Php6,614 million, respectively; (3) cash dividend payments of Php13,928 million; and (4) payment for purchase of investment in Multisys Technologies Corporation, or Multisys, of Php1,588 million and net decrease in cash resulting from deconsolidation of VIH of Php1,186 million.

Our consolidated net cash flows provided by operating activities increased by Php12,274 million, or 20%, to Php73,390 million in 2019 from Php61,116 million in 2018, primarily due to higher operating income, higher level of collection of receivables, and lower level of settlement of accounts payable and other noncurrent liabilities, partly offset by higher prepayments and higher pension contribution.

Cash flows provided by operating activities of our Wireless business segment increased by Php8,621 million, or 22%, to Php47,917 million in 2019 from Php39,296 million in 2018, primarily due to higher operating income, lower level of settlement of accounts payable and higher level of collection of receivables, partly offset by higher prepayments and higher level of settlement of other noncurrent liabilities. Cash flows provided by operating activities of our Fixed Line business segment increased by Php995 million, or 4%, to Php23,596 million in 2019 from Php22,601 million in 2018 primarily due to higher operating income and lower corporate taxes paid, partially offset by higher pension contribution, lower level of collection of receivables and higher level of settlement of accrued expenses and other current liabilities. Cash flows used in operating activities of our Other business segment increased by Php50 million, or 15%, to Php379 million in 2019 from Php329 million in 2018, primarily due to higher level of settlement of accounts payable, partly offset by lower operating loss, higher level of collection of receivables, and lower level of settlement of accrued expenses and other current liabilities.

Consolidated net cash flows used in investing activities amounted to Php84,170 million in 2019, an increase of Php59,116 million from Php25,054 million in 2018, primarily due to the combined effects of the following:
(1) higher payment for purchase of property and equipment, including capitalized interest, by Php40,930 million; (2) lower proceeds from sale of Rocket Internet shares by Php10,379 million and proceeds from repurchase of Matrixx’s Convertible Series B Preferred Shares of Php237 million in 2018; (3) proceeds from sale of MPIC receivables of Php6,976 million in 2018 and lower collection of MPIC receivables by Php2,680 million; (4) proceeds from disposal of Hastings PDRs of Php1,664 million in 2018; (6) higher interest received by Php608 million; (7) lower net payment for purchase of short-term investment by Php733 million; and (8) payment for purchase of investment in Multisys of Php1,588 million and net decrease in cash resulting from the deconsolidation of VIH of Php1,186 million in 2018.

Our consolidated payment for purchase of property and equipment, including capitalized interest, in 2019 totaled Php89,701 million, an increase of Php40,930 million, or 84%, as compared with Php48,771 million in 2018. Smart Group’s capital spending increased by Php22,218 million, or 70%, to Php54,102 million in 2019 from Php31,884 million in 2018. Smart Group’s capex spending was primarily focused on expansion of LTE (4G) coverage and capacity. PLDT’s capital spending increased by Php18,707 million, or 123%, to Php33,959 million in 2019 from Php15,252 million in 2018. PLDT’s capex spending was used to finance the fixed line modernization program and the continuous facility roll-out and expansion of our domestic and international fiber optic network. The balance represents other subsidiaries’ capital spending.

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

On a consolidated basis, cash flows used in financing activities amounted to Php15,757 million in 2019, a decrease of Php2,387 million, or 13%, from Php18,144 million in 2018, primarily due to the combined effects of the following: (1) higher proceeds from availment of long-term debt by Php17,000 million; (2) higher interest paid by Php529 million; (3) net settlement of derivative financial instruments of Php50 million in 2019 as against net proceeds from collection from derivative financial instruments of Php886 million in 2018; (4) higher cash dividend payments by Php1,664 million; (5) higher payments of long-term debt by Php1,754 million; and (6) settlement of obligations under lease liabilities of Php9,543 million in 2019.

Proceeds from availment of long-term debt for the year ended December 31, 2019 amounted to Php37,500 million, mainly from PLDT’s and Smart’s drawings related to the financing of capital expenditure requirements and refinancing of maturing loan obligations. Payments of principal and interest on our total debt amounted to Php20,494 million and Php7,143 million, respectively, for the year ended December 31, 2019.

Our consolidated long-term debt increased by Php16,280 million, or 9%, to Php192,556 million as at December 31, 2019 from Php176,276 million as at December 31, 2018, primarily due to drawings from our long-term facilities, partly offset by debt amortizations and prepayments. As at December 31, 2019, the long-term debt level of Smart increased by 18% to Php78,152 million from Php65,996 as at December 31, 2018, and PLDT’s long-term debt level increased by 4% to Php114,404 million from Php110,280 million as at December 31, 2018.

See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt to the accompanying consolidated financial statements for a more detailed discussion of our long-term debt.

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

As at December 31, 2019 and 2018, we are in compliance with all of our debt covenants.

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

We believe that our available cash, including cash flow from operations, will provide sufficient liquidity to fund our projected operating, investment, capital expenditures and debt service requirements for the next 12 months; however, we may finance a portion of these from external sources if we consider it prudent to do so.

The following table shows the dividends declared to shareholders from the earnings for the years ended December 31, 2019 and 2018:

Date

Amount

Earnings

Approved⁽¹⁾

Record

Payable

Per share

Total

(in million Php, except per share amount)

2019

Common

Regular Dividend

March 21, 2019

April 4, 2019

April 23, 2019

7,778

August 8, 2019

August 27, 2019

September 10, 2019

7,778

Preferred

Series IV Cumulative Non-convertible

Redeemable Preferred Stock⁽¹⁾

January 29, 2019

February 22, 2019

March 15, 2019

—

May 9, 2019

May 24, 2019

June 15, 2019

—

August 8, 2019

August 27, 2019

September 15, 2019

—

November 7, 2019

November 22, 2019

December 15, 2019

—

Voting Preferred Stock

March 7, 2019

March 27, 2019

April 15, 2019

—

June 11, 2019

June 28, 2019

July 15, 2019

—

September 24, 2019

October 8, 2019

October 15, 2019

—

December 3, 2019

December 18, 2019

January 15, 2020

—

Charged to Retained Earnings

15,615

2018

Common

Regular Dividend

March 27, 2018

April 13, 2018

April 27, 2018

6,050

August 9, 2018

August 28, 2018

September 11, 2018

7,778

Preferred

Series IV Cumulative Non-convertible

Redeemable Preferred Stock⁽¹⁾

January 22, 2018

February 21, 2018

March 15, 2018

—

May 10, 2018

May 25, 2018

June 15, 2018

—

August 9, 2018

August 28, 2018

September 15, 2018

—

November 8, 2018

November 23, 2018

December 15, 2018

—

Voting Preferred Stock

March 8, 2018

March 28, 2018

April 15, 2018

—

June 13, 2018

June 29, 2018

July 15, 2018

—

September 25, 2018

October 9, 2018

October 15, 2018

—

December 4, 2018

December 19, 2018

January 15, 2019

—

Charged to Retained Earnings

13,887

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

Our total assets amounted to Php525,036 million as at December 31, 2019, an increase of Php42,286 million, or 9%, from Php482,750 million as at December 31, 2018, primarily due to higher property and equipment, prepayments and right-of-use of assets resulting from the impact of PFRS 16 adoption, partly offset by lower cash and cash equivalents.

Our total liabilities amounted to Php408,737 million as at December 31, 2019, an increase of Php42,653 million, or 12%, from Php366,084 million as at December 31, 2018, primarily due to higher interest-bearing financial liabilities, lease liabilities on account of the impact of PFRS 16 adoption, and higher accounts payable and accrued expenses and other liabilities.

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 2, 2016, the PLDT Board of Directors approved the amendment of our dividend policy, reducing our dividend payout rate to 60% of our core earnings per share as regular dividends. This was in view of the elevated capital expenditures to support the build-out of a resilient and reliable data network, lower EBITDA primarily due to higher subsidies to grow the data business and defend market share, and the resources required to support the acquisition of SMC’s telecommunications business. In declaring dividends, we take into consideration the interest of our shareholders, as well as our working capital, capital expenditures and debt servicing requirements. The retention of earnings may be necessary to meet the funding requirements of our business expansion and development programs. However, in the event that no investment opportunities arise, we may consider the option of returning additional cash to our shareholders in the form of special dividends of up to the balance of our core earnings or to undertake share buybacks. We were able to pay out approximately 100% of our core earnings for seven consecutive years from 2007 to 2013, approximately 90% of our core earnings for 2014, 75% of our core earnings for 2015, 60% of our core earnings for 2016, 2017 and 2018, and 60% of our telco core earnings for 2019. The accumulated equity in the net earnings of our subsidiaries, which form part of our retained earnings, are not available for distribution unless realized in the form of dividends from such subsidiaries. Dividends are generally paid in Philippine pesos. In the case of shareholders residing outside the Philippines, PLDT’s transfer agent in Manila, Philippines, as the dividend-disbursing agent, converts the Philippine peso dividends into U.S. dollars at the prevailing exchange rate and remits the dollar dividends abroad, net of any applicable withholding tax.

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

Consolidated cash dividend payments in 2019 amounted to Php15,592 million as compared with Php13,928 million paid to shareholders in 2018.

For a detailed discussion of our consolidated contractual undiscounted obligations as at December 31, 2019 and 2018, see Note 28 – Financial Assets and Liabilities to the accompanying consolidated financial statements.

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. We also monitor the market price risk arising from all financial instruments.

For further discussions of these risks, see Note 28 – Financial Assets and Liabilities to the accompanying consolidated financial statements.

The following table sets forth the estimated consolidated fair values of our financial assets and liabilities recognized as at December 31, 2019 and September 30, 2019 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 year ended December 31, 2019 and the nine months ended September 30, 2019:

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, 2019 and 2018 were 2.5% and 5.2%, respectively. We expect inflation to stay within the 2% to 4% target range of the BSP.

Effective January 23, 2020, SubicTel ceased to operate as a telecommunications service provider, pursuant to the expiration of its franchise issued by the Subic Bay Metropolitan Authority, or SBMA. In order to facilitate continued customer service, arrangements have been made between SubicTel and PLDT where PLDT would make its services available to the affected SubicTel subscribers on voluntary basis. The NTC interposed no objection to the transfer of SubicTel’s subscribers to PLDT, subject to certain conditions. Likewise, the SBMA Board approved the issuance of Certificate of Registration to PLDT to operate within SBMA. On September 24, 2019, the PLDT Board of Directors approved the acquisition of the assets and subscribers of SubicTel for a total consideration of Php675 million.

Effective April 2020, Maratel will cease to operate as a telecommunications service provider, following the expiration of its legislative franchise, R.A. 7970. In order to ensure continued customer service, Maratel will assign its assets and subscribers, or the “Maratel Subscribers”, to PLDT who undertakes to offer its services to Maratel Subscribers subject to conditions as may be imposed by the NTC. The NTC, has yet to respond to Maratel’s notice to transfer its subscribers to PLDT. On November 7, 2019, the PLDT Board of Directors approved the acquisition of the assets and Maratel Subscribers for a total consideration of Php442 million.

On January 2, 2020, PLDT announced that Smart joined forces with Globe Telecom, Inc., or Globe, and Dito Telecommunity Corporation, or Dito, to put up a new company using fresh investments to enable number porting services in line with the new mobile number portability, or MNP, initiative of the government. MNP refers to the ability of a mobile postpaid or prepaid subscriber, who has no existing financial obligation to the current service provider, to retain an existing mobile number despite having moved from one mobile service provider to another, or to change the type subscription from postpaid to prepaid or vice versa.

On January 21, 2020, Telecommunications Connectivity, Inc., or TCI, was incorporated in the Philippines and registered with the Philippine SEC. The primary purpose of the joint venture is to serve as a clearing house for MNP. TCI will ensure smooth implementation of mobile number porting services. Smart subscribed Php10 million representing 33.3% equity interest in TCI, which is equivalent to 10 million shares at a subscription price of Php1.00 per share.

On October 11, 2019, PLDT announced its undertaking of a consent solicitation exercise relating to the 5.2250%
7-Year Fixed Rate Bonds due 2021 and 5.2813% 10-Year Fixed Rate Bonds due 2024, to amend PLDT’s maximum stand-alone Total Debt to EBITDA Ratio stipulated in the Trust Indenture from 3.0:1 to 4.0:1. The proposed amendment seeks to provide the Company with greater flexibility to support, if necessary, higher levels of capital expenditures and general corporate requirements. Moreover, it will align the covenant ratio of PLDT’s outstanding debt capital market issuances with that of the existing bilateral facilities of both PLDT and Smart.

On October 30, 2019, PLDT announced the early closing of the consent solicitation exercise from its original schedule of November 15, 2019 when the Company received the required consents to effect the proposed amendment.

On September 19, 2019, Smart issued Php4,700 million perpetual notes to DMPI under the Notes Facility Agreement dated September 16, 2019.

Proceeds from the issuance of these notes are intended to finance capital expenditures. The notes have no fixed redemption dates, however, Smart may, at its sole option, redeem the notes. The notes are subordinated to and rank junior to all senior loans of Smart.

Effective September 15, 2019, Philcom ceased to operate as a telecommunications service provider, pursuant to the expiration of its legislative franchise, R.A. 7783. In order to facilitate continued customer service, arrangements have been made between Philcom and PLDT where PLDT would make its services available to the affected Philcom subscribers on voluntary basis. The NTC interposed no objection to the transfer of Philcom’s subscribers to PLDT, subject to certain conditions. Consequently, Philcom and PLDT executed a Deed of Assignment on September 13, 2019 wherein all property and equipment of Philcom, accounts receivable, inventories and subscribers were transferred to PLDT after complying with the conditions imposed by NTC.

On May 10, 2019 and June 25, 2019, PCEV’s Board of Directors and stockholders approved the decrease in PCEV’s par value of common stock, from Php21,000 to Php8,700, and authorized capital stock, from Php12,060 million to Php4,996 million.

The decrease in PCEV’s par value of common stock and authorized capital stock was approved by the Philippine SEC on December 19, 2019. Consequently, the partial return of capital representing their proportionate share in the decrease in par value amounting to Php6,825 million and Php4 million were paid to Smart and PCEV’s minority shareholders, respectively.

On April 16, 2018, Rocket Internet announced the buyback of up to 15.5 million Rocket Internet shares through a public share purchase offer, or the Offer, against payment of an offer price in the amount of €24 per share. PLDT Online Investments Pte. Ltd., or PLDT Online, committed to accept the Offer of Rocket Internet for at least 6.8 million shares, or approximately 67.4% of the total number of shares directly held by PLDT Online.

On May 4, 2018, Rocket Internet accepted the tender of PLDT Online of 6.8 million shares and paid the total consideration of €163.2 million, or Php10,059 million, which was settled on May 9, 2018, reducing the equity ownership in Rocket Internet from 6.1% to 2.0%.

On May 23, 2018, Rocket Internet redeemed 10.8 million shares, reducing its share capital to €154 million. As a result of the redemption of shares, PLDT Online’s equity ownership in Rocket Internet increased from 2.0% to 2.1%.

On various dates in the third quarter of 2018, PLDT Online sold 0.7 million Rocket Internet shares for an aggregate amount of €22 million, or Php1,346 million, reducing the equity ownership in Rocket Internet from 2.1% to 1.7%.

On December 6, 2018, Rocket Internet redeemed 1.9 million shares reducing its share capital to €153 million. PLDT Online’s equity ownership in Rocket Internet remained at 1.7%.

On various dates in 2019, PLDT Online sold 0.7 million Rocket Internet shares for an aggregate amount of €18 million, or Php1,021 million, reducing equity ownership in Rocket Internet from 1.7% to 1.3%.

On October 9, 2019, Rocket Internet redeemed 1.7 million shares reducing its share capital to €151 million. PLDT Online’s equity ownership in Rocket Internet remained at 1.3%.

On January 30, 2020, Rocket Internet redeemed 13.5 million shares, reducing its share capital to €137 million. As a result of the redemption of shares, PLDT Online’s equity ownership in Rocket Internet increased from 1.3% to 1.4%.

On February 17, 1994, the Philippine Congress granted a legislative franchise to Digitel under R.A. No. 7678 to install, operate and maintain telecommunications systems throughout the Philippines for public domestic and international telecommunications, and for other purposes. R.A. No. 7678 expired on February 17, 2019 and was not renewed.

On November 8, 2018, the PLDT Board of Directors approved the investment of Php2,150 million in Multisys for a 45.73% equity interest through its wholly-owned subsidiary, PGIH. Multisys is a Philippine software development and IT solutions provider engaged in designing, developing, implementing business system solutions and services covering courseware, webpage development and designing user-defined system programming. PGIH’s investment involves the acquisition of new and existing shares.

On December 3, 2018, PGIH completed the closing of its investment in Multisys. Out of the Php550 million total consideration for the acquisition of existing shares, PGIH paid Php523 million to the owners of Multisys. On June 3, 2019, the balance of the acquisition consideration amounting to Php27 million was fully paid. Further, PGIH invested Php800 million into Multisys as a deposit for future stock subscription pending the approval by the Philippine SEC of the capital increase of Multisys. On February 1, 2019, the Philippine SEC approved the capital increase of Multisys.

The carrying value of the investment in Multisys amounted to Php2,538 million and Php2,388 million, including subscription payable of Php800 million and contingent consideration of Php230 million as at December 31, 2019 and 2018, respectively.

On February 27, 2018, Phunware entered into a definitive Agreement and Plan of Merger, or Merger Agreement, with Stellar Acquisition III, Inc., or Stellar, relating to a business combination transaction for an enterprise value of US$301 million, on a cash-free, debt-free basis. Pursuant to the Merger Agreement, the holders of Phunware common stock will be entitled to the right to receive the applicable portion of the merger consideration in the form of Stellar common shares, which are listed on the Nasdaq Stock Market. As a result, the holders of Phunware preferred stock have requested the automatic conversion of all outstanding preferred shares into common shares effective as of immediately prior to the closing of the transaction on a conversion ratio of one common share per one preferred share. In addition to the right to receive Stellar common shares, each holder of Phunware stock is entitled to elect to receive its pro rata share of warrants to purchase Stellar common shares that are held by the affiliate companies of Stellar’s co-Chief Executive Officers, or Stellar’s Sponsors.

On November 28, 2018, PLDT Capital elected to receive its full pro rata share of the warrants to purchase Stellar common shares held by Stellar’s Sponsors.

On December 26, 2018, Phunware announced the consummation of its business combination with Stellar. Stellar, the new Phunware holding company, changed its corporate name to “Phunware, Inc.,” or PHUN, and Phunware changed its corporate name to “Phunware OpCo, Inc.” Upon closing, PLDT Capital received the PHUN common shares equivalent to its portion of the merger consideration and its full pro rata share of warrants to purchase PHUN common shares.

On March 15, 2019, PLDT Capital exercised its warrants to purchase PHUN common shares for a total consideration of US$1.6 million.

This is a Petition for Mandamus filed on October 23, 2018 by Attys. Joseph Lemuel Baligod Baquiran and Ferdinand C. Tecson against the Respondents NTC, the PCC, Liberty, BellTel, Globe, PLDT and Smart. Briefly, the case involves the 700 MHz frequency, among others, or Subject Frequencies, that was originally assigned to Liberty and which eventually became subject of the Co-Use Agreement between Globe, on the one hand, and PLDT and Smart, on the other.

For updates relating to the above discussion, please see Note 27 – Provisions and Contingencies to the accompanying consolidated financial statements.

For updates on matters relating to the (1) Department of Labor and Employment, or DOLE, Compliance Order to PLDT, see Note 27 – Provisions and Contingencies; (2) Petition against the Philippine Competition Commission, see Note 11 – Investment in Associates and Joint Ventures; and (3) Wilson Gamboa and Jose M. Roy III Petition, see Note 27 – Provisions and Contingencies, to the accompanying consolidated financial statements.

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

The following table shows the aging of our consolidated receivables as at December 31, 2019:

The following table shows our financial soundness indicators as at December 31, 2019 and 2018:

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

Pursuant to the requirements of the Securities Regulation Code, the registrant has duly caused this report for the fourth quarter of 2019 to be signed on its behalf by the undersigned thereunto duly authorized.

	2019			2018			2017
NET INCOME		22,786			18,973			13,466
OTHER COMPREHENSIVE INCOME (LOSS) – NET OF TAX (Note 6)
Fair value changes of financial assets at fair value through other comprehensive income (loss) (Note 25)		127			(29	)		—
Foreign currency translation differences of subsidiaries		23			117			(18	)
Net transactions on cash flow hedges:		(256	)		(271	)		(376	)
Net fair value losses on cash flow hedges (Note 28)		(330	)		(286	)		(411	)
Income tax related to fair value adjustments charged directly to equity (Note 7)		74			15			35
Net gains on available-for-sale financial investments:		—			—			3,364
Unrealized gains from changes in fair value adjustments recognized during the year (Note 12)		—			—			2,826
Impairment recognized in profit or loss		—			—			540
Income tax related to fair value adjustments charged directly to equity (Note 7)		—			—			(2	)
Share in the other comprehensive income of associates and joint ventures accounted for using the equity method (Note 11)		—			—			112
Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent years		(106	)		(183	)		3,082
Revaluation increment on investment properties:		(2	)		(2	)		1
Depreciation of revaluation increment in investment properties transferred to property and equipment (Note 9)		(3	)		(2	)		(2	)
Income tax related to revaluation increment charged directly to equity (Note 7)		1			—			(1	)
Fair value adjustment to property and equipment transferred to investment properties during the year		—			—			4
Actuarial losses on defined benefit obligations:		(6,074	)		(1,222	)		(1,091	)
Remeasurement in actuarial losses on defined benefit obligations (Note 26)		(8,672	)		(1,788	)		(1,566	)
Income tax related to remeasurement adjustments (Note 7)		2,598			566			475
Share in the other comprehensive income of associates and joint ventures accounted for using the equity method (Note 11)		—			—			194
Net other comprehensive loss not to be reclassified to profit or loss in subsequent years		(6,076	)		(1,224	)		(896	)
Total Other Comprehensive Income (Loss) – Net of Tax		(6,182	)		(1,407	)		2,186
TOTAL COMPREHENSIVE INCOME		16,604			17,566			15,652
ATTRIBUTABLE TO:
Equity holders of PLDT		16,343			17,504			15,550
Noncontrolling interests		261			62			102
		16,604			17,566			15,652

	Preferred Stock		Common Stock		Treasury Stock			Treasury Shares under Employee Benefit Trust			Capital in Excess of Par Value			Other Equity Reserves			Retained Earnings			Other Comprehensive (Loss)			Total Equity Attributable to Equity Holders of PLDT			Noncontrolling Interests			Total Equity
Balances as at January 1, 2019 (as previously stated)		510		1,093		(6,505	)		(854	)		130,526			697			12,081			(25,190	)		112,358			4,308			116,666
Effect of adoption of PFRS 16 (Note 2)		—		—		—			—			—			—			(924	)		—			(924	)		—			(924	)
Balances as at January 1, 2019 (as restated)		510		1,093		(6,505	)		(854	)		130,526			697			11,157			(25,190	)		111,434			4,308			115,742
Treasury shares under employee benefit trust (Note 26)		—		—		—			460			(130	)		—			—			—			330			—			330
Other equity reserves (Note 26)		—		—		—			—			—			(421	)		—			—			(421	)		—			(421	)
Cash dividends (Note 20)		—		—		—			—			—			—			(15,615	)		—			(15,615	)		(15	)		(15,630	)
Total comprehensive income (loss):		—		—		—			—			—			—			22,521			(6,178	)		16,343			261			16,604
Net income (Note 8)		—		—		—			—			—			—			22,521			—			22,521			265			22,786
Other comprehensive loss (Note 6)		—		—		—			—			—			—			—			(6,178	)		(6,178	)		(4	)		(6,182	)
Distribution charges on perpetual notes (Note 20)		—		—		—			—			—			—			—			—			—			(236	)		(236	)
Acquisition and dilution of noncontrolling interests		—		—		—			—			(75	)		—			—			—			(75	)		(15	)		(90	)
Balances as at December 31, 2019		510		1,093		(6,505	)		(394	)		130,321			276			18,063			(31,368	)		111,996			4,303			116,299

Balances as at January 1, 2018 (as previously stated)		510		1,093		(6,505	)		(940	)		130,374			827			634			(19,151	)		106,842			4,341			111,183
Effect of adoption of PFRS 9 (Note 2)		—		—		—			—			—			—			4,101			(4,627	)		(526	)		—			(526	)
Effect of adoption of PFRS 15 (Note 2)		—		—		—			—			—			—			2,553			—			2,553			—			2,553
Balances as at January 1, 2018 (as restated)		510		1,093		(6,505	)		(940	)		130,374			827			7,288			(23,778	)		108,869			4,341			113,210
Treasury shares under employee benefit trust (Note 26)		—		—		—			86			—			—			—			—			86			—			86
Other equity reserves (Note 26)		—		—		—			—			—			(130	)		—			—			(130	)		—			(130	)
Cash dividends (Note 20)		—		—		—			—			—			—			(13,887	)		—			(13,887	)		(15	)		(13,902	)
Total comprehensive income (loss):		—		—		—			—			—			—			18,916			(1,412	)		17,504			62			17,566
Net income (Note 8)		—		—		—			—			—			—			18,916			—			18,916			57			18,973
Other comprehensive income (loss) (Note 6)		—		—		—			—			—			—			—			(1,412	)		(1,412	)		5			(1,407	)
Distribution charges on perpetual notes (Note 20)		—		—		—			—			—			—			(236	)		—			(236	)		—			(236	)
Acquisition and dilution of noncontrolling interests		—		—		—			—			152			—			—			—			152			(80	)		72
Balances as at December 31, 2018		510		1,093		(6,505	)		(854	)		130,526			697			12,081			(25,190	)		112,358			4,308			116,666

Balances as at January 1, 2017		510		1,093		(6,505	)		—			130,488			—			3,483			(20,894	)		108,175			362			108,537
Treasury shares under employee benefit trust (Note 26)		—		—		—			(940	)		—			—			—			—			(940	)		—			(940	)
Other equity reserves (Note 26)		—		—		—			—			—			827			—			—			827			—			827
Cash dividends (Note 20)		—		—		—			—			—			—			(16,479	)		—			(16,479	)		(66	)		(16,545	)
Total comprehensive income:		—		—		—			—			—			—			13,807			1,743			15,550			102			15,652
Net income (Note 8)		—		—		—			—			—			—			13,371			—			13,371			95			13,466
Other comprehensive income (Note 6)		—		—		—			—			—			—			436			1,743			2,179			7			2,186
Perpetual notes (Note 20)		—		—		—			—			—			—			—			—			—			4,165			4,165
Distribution charges on perpetual notes (Note 20)		—		—		—			—			—			—			(177	)		—			(177	)		—			(177	)
Acquisition and dilution of noncontrolling interests		—		—		—			—			(114	)		—			—			—			(114	)		(222	)		(336	)
Balances as at December 31, 2017		510		1,093		(6,505	)		(940	)		130,374			827			634			(19,151	)		106,842			4,341			111,183

	2019			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		32,336			22,815			14,569
Adjustments for:
Depreciation and amortization (Notes 9 and 10)*		39,656			47,240			51,915
Interest on loans and other related items – net (Note 5)		7,275			6,783			7,014
Asset impairment (Note 5)		4,833			8,065			8,258
Equity share in net losses (earnings) of associates and joint ventures (Notes 5 and 11)		1,535			87			(2,906	)
Accretion on lease liabilities (Notes 5, 10, 21 and 29)		1,061			—
Pension benefit costs (Notes 5 and 26)		1,018			1,855			1,607
Amortization of intangible assets (Notes 5 and 15)		758			892			835
Incentive plan (Notes 5 and 26)		638			208			827
Losses (gains) on derivative financial instruments – net (Notes 5 and 28)		284			(1,086	)		(533	)
Accretion on financial liabilities (Notes 5 and 21)		122			145			219
Losses (gains) on disposal of property and equipment (Note 9)		88			(12	)		159
Impairment of investments (Note 11)		34			172			2,562
Foreign exchange losses (gains) – net (Notes 5 and 9)		(424	)		771			411
Interest income (Note 5)		(1,745	)		(1,943	)		(1,412	)
Gains on disposal of investments in subsidiaries – net (Note 11)		—			(144	)		—
Gains on deconsolidation of subsidiary (Note 10)		—			(12,054	)		—
Gains on disposal of investment property (Note 14)		—			—			(80	)
Gains on disposal of investments in associates – net (Note 11)		—			—			(6,512	)
Others		994			(1,076	)		(2,443	)
Operating income before changes in assets and liabilities		88,463			72,718			74,490
Decrease (increase) in:
Prepayments		(28,898	)		(4,318	)		(212	)
Other financial and non-financial assets		(198	)		—			162
Trade and other receivables		(1,560	)		(12,175	)		(10,674	)
Inventories and supplies		12			26			(542	)
Contract assets		337			390			—
Increase (decrease) in:
Customers’ deposits		12			(250	)		13
Pension and other employee benefits		(7,965	)		(5,733	)		(5,841	)
Other noncurrent liabilities		2,141			(11	)		38
Accounts payable		18,768			7,729			4,622
Accrued expenses and other current liabilities		4,375			5,184			(1,392	)
Net cash flows generated from operations		75,487			63,560			60,664
Income taxes paid		(2,097	)		(2,444	)		(4,550	)
Net cash flows from operating activities		73,390			61,116			56,114

	2019			2018			2017
CASH FLOWS USED IN INVESTING ACTIVITIES
Interest received		1,723			1,115			1,217
Proceeds from:
Collection of notes receivable		1,771			11,707			2,001
Maturity of short-term investments		1,415			6,102			20,254
Disposal of financial assets at fair value through profit or loss (Note 12)		1,023			11,643			—
Disposal of property and equipment (Note 9)		224			345			484
Disposal of investment properties (Note 14)		11			—			290
Disposal of investments in associates and joint ventures (Note 11)		—			1,710			14,884
Redemption of investment in debt securities		—			105			456
Disposal of investments available-for-sale		—			—			1,000
Dividends received (Note 11)		—			—			833
Payments for:
Acquisition of investments in associates and joint ventures (Note 11)		(20	)		(111	)		(5,633	)
Acquisition of investments in subsidiaries – net of cash acquired		(80	)		(2,814	)		(266	)
Purchase of short-term investments		(572	)		(5,992	)		(18,424	)
Interest capitalized to property and equipment (Notes 5 and 9)		(1,455	)		(1,524	)		(816	)
Purchase of property and equipment (Note 9)		(88,246	)		(47,247	)		(36,616	)
Acquisition of intangible assets (Note 15)		—			(21	)		(137	)
Purchase of investments available-for-sale		—			—			(76	)
Increase in other financial and non-financial assets		36			(72	)		(511	)
Net cash flows used in investing activities		(84,170	)		(25,054	)		(21,060	)
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from:
Availments of long-term debt (Notes 21 and 29)		37,500			20,500			26,255
Derivative financial instruments (Notes 28 and 29)		—			886			218
Issuance of perpetual notes (Note 20)		—			—			4,165
Payments for:
Derivative financial instruments (Notes 28 and 29)		(50	)		—			—
Debt issuance costs (Notes 21 and 29)		(195	)		(38	)		(153	)
Distribution charges on perpetual notes (Note 20)		(236	)		(236	)		(177	)
Interest – net of capitalized portion (Notes 5, 21 and 29)		(7,143	)		(6,614	)		(7,076	)
Obligations under lease liabilities (Notes 10 and 29)		(9,543	)		—			—
Cash dividends (Notes 20 and 29)		(15,592	)		(13,928	)		(16,617	)
Long-term debt (Notes 21 and 29)		(20,494	)		(18,740	)		(39,199	)
Long-term financing for capital expenditures (Note 29)		—			—			(7,735	)
Decrease (increase) in treasury shares under employee benefit trust		(4	)		26			—
Net cash flows used in financing activities		(15,757	)		(18,144	)		(40,319	)
NET EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(748	)		831			(552	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(27,285	)		18,749			(5,817	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR (Note 16)		51,654			32,905			38,722
CASH AND CASH EQUIVALENTS AT END OF THE YEAR (Note 16)		24,369			51,654			32,905

PLDT Inc. (formerly Philippine Long Distance Telephone Company), which we refer to as PLDT or the Parent Company, was incorporated under the old Corporation Law of the Philippines (Act 1459, as amended) on November 28, 1928, following the merger of four telephone companies under common U.S. ownership. Under its amended Articles of Incorporation, PLDT’s corporate term is currently limited through 2028. In 1967, effective control of PLDT was sold by the General Telephone and Electronics Corporation, then a major shareholder since PLDT’s incorporation, to a group of Filipino businessmen. In 1981, in furtherance of the then existing policy of the Philippine government to integrate the Philippine telecommunications industry, PLDT purchased substantially all of the assets and liabilities of the Republic Telephone Company, which at that time was the second largest telephone company in the Philippines. In 1998, certain subsidiaries of First Pacific Company Limited, or First Pacific, and its Philippine affiliates (collectively the First Pacific Group and its Philippine affiliates), acquired a significant interest in PLDT. On March 24, 2000, NTT Communications Corporation, or NTT Communications, through its wholly-owned subsidiary NTT Communications Capital (UK) Ltd., became PLDT’s strategic partner with approximately 15% economic and voting interest in the issued and outstanding common stock of PLDT at that time. Simultaneous with NTT Communications’ investment in PLDT, the latter acquired 100% of Smart Communications, Inc., or Smart. On March 14, 2006, NTT DOCOMO, Inc., or NTT DOCOMO, acquired from NTT Communications approximately 7% of PLDT’s then outstanding common shares held by NTT Communications with NTT Communications retaining ownership of approximately 7% of PLDT’s common shares. Since March 14, 2006, NTT DOCOMO has made additional purchases of shares of PLDT, and together with NTT Communications, beneficially owned approximately 20% of PLDT’s outstanding common stock as at December 31, 2019. 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, 2019. 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, 2019, 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, 2019. See Note 20 – Equity – Preferred Stock – 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 26.9 million ADSs outstanding as at December 31, 2019.

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 largest and most diversified telecommunications company in the Philippines which delivers data and multi-media services nationwide. We have organized our business into business units based on our products and services and have three reportable operating segments which serve as the bases for management’s decision to allocate resources and evaluate operating performance. Our principal activities are discussed in Note 4 – Operating Segment Information.

Our registered office address is Ramon Cojuangco Building, Makati Avenue, Makati City, Philippines. Information on our structure is provided in Note 2 – Summary of Significant Accounting Policies – Basis of Consolidation. Information on other related party relationships of the PLDT Group is provided in Note 25 – Related Party Transactions.

Our consolidated financial statements as at December 31, 2019 and 2018, and for the years ended December 31, 2019, 2018 and 2017 were approved and authorized for issuance by the Board of Directors on March 5, 2020 as reviewed for approval by the Audit Committee on March 4, 2020.

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 financial instruments at fair value through profit or loss, or FVPL, financial instruments at fair value through other comprehensive income, or FVOCI, and investment properties that are measured at fair values.

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

Our consolidated financial statements provide comparative information in respect of the previous period.

Our consolidated financial statements include the financial statements of PLDT and the following subsidiaries (collectively, the “PLDT Group”) as at December 31, 2019 and 2018:

			2019				2018
	Place of		Percentage of Ownership
Name of Subsidiary	Incorporation	Principal Business Activity	Direct		Indirect		Direct		Indirect
Far East Capital Limited, or FECL, and Subsidiary, or FECL Group^(a)	Cayman Islands	Cost effective offshore financing and risk management activities for Smart		—		100.0		—		100.0
PH Communications Holdings Corporation, or PHC	Philippines	Investment company		—		100.0		—		100.0
Connectivity Unlimited Resource Enterprise, or CURE	Philippines	Cellular mobile services		—		100.0		—		100.0
Francom Holdings, Inc., or FHI:	Philippines	Investment company		—		100.0		—		100.0
Chikka Holdings Limited, or Chikka, and Subsidiaries, or Chikka Group^(a)	British Virgin Islands	Content provider, mobile applications development and services		—		100.0		—		100.0
Wifun, Inc., or Wifun	Philippines	Software developer and selling of WiFi access equipment		—		100.0		—		100.0
Telesat, Inc.^(a)	Philippines	Satellite communications services		100.0		—		100.0		—
ACeS Philippines Cellular Satellite Corporation, or ACeS Philippines	Philippines	Satellite information and messaging services		88.5		11.5		88.5		11.5
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 Subsidiaries	British Virgin Islands	Telecommunications services		100.0		—		100.0		—
Smart-NTT Multimedia, Inc.^(a)	Philippines	Data and network services		100.0		—		100.0		—
PLDT-Philcom, Inc., or Philcom, and Subsidiaries, or Philcom Group	Philippines	Telecommunications services		100.0		—		100.0		—
Talas Data Intelligence, Inc., or Talas	Philippines	Business infrastructure and solutions; intelligent data processing and implementation services and data analytics insight generation		100.0		—		100.0		—
ePLDT, Inc., or ePLDT:	Philippines	Information and communications infrastructure for internet-based services, e-commerce, customer relationship management and IT related services		100.0		—		100.0		—
IP Converge Data Services, Inc., or IPCDSI, and Subsidiary, or IPCDSI Group	Philippines	Information and communications infrastructure for internet-based services, e-commerce, customer relationship management and IT related services		—		100.0		—		100.0
Curo Teknika, Inc., or Curo	Philippines	Managed IT outsourcing		—		100.0		—		100.0
ABM Global Solutions, Inc., or AGS, and Subsidiaries, or AGS Group	Philippines	Internet-based purchasing, IT consulting and professional services		—		100.0		—		100.0
ePDS, Inc., or ePDS	Philippines	Bills printing and other related value-added services, or VAS		—		100.0		—		95.0
netGames, Inc.^(a)	Philippines	Gaming support services		—		57.5		—		57.5
MVP Rewards Loyalty Solutions, Inc., or MRSI^(b)	Philippines	Full-services customer rewards and loyalty programs		—		100.0		—		100.0
Digitel:	Philippines	Telecommunications services		99.6		—		99.6		—
Digitel Information Technology Services, Inc.^(a)	Philippines	Internet services		—		99.6		—		99.6
PLDT-Maratel, Inc., or Maratel	Philippines	Telecommunications services		98.0		—		98.0		—
Bonifacio Communications Corporation, or BCC	Philippines	Telecommunications, infrastructure and related VAS		75.0		—		75.0		—
Pacific Global One Aviation Company, Inc., or PG1	Philippines	Air transportation business		65.0		—		65.0		—
Pilipinas Global Network Limited, or PGNL, and Subsidiaries	British Virgin Islands	Internal distributor of Filipino channels and content		64.6		—		64.6		—
Others
PLDT Global Investments Holdings, Inc., or PGIH	Philippines	Investment company		100.0		—		100.0		—
PLDT Digital Investments Pte. Ltd., or PLDT Digital, and Subsidiaries	Singapore	Investment company		100.0		—		100.0		—
Mabuhay Investments Corporation, or MIC^(a)	Philippines	Investment company		67.0		—		67.0		—
PLDT Global Investments Corporation, or PGIC	British Virgin Islands	Investment company		—		100.0		—		100.0
PLDT Communications and Energy Ventures, Inc., or PCEV	Philippines	Investment company		—		99.9		—		99.9

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

The financial statements of our subsidiaries are prepared for the same reporting period as PLDT. We prepare our consolidated financial statements using uniform accounting policies for like transactions and other events with similar circumstances.

Profit or loss and each component of other comprehensive income are attributed to the equity holders of PLDT and to the noncontrolling interests, even if this results in the noncontrolling interests having a deficit balance.

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 and impact is presented as part of other equity reserves.

If PLDT loses control over a subsidiary, it: (a) derecognizes the assets (including goodwill) and liabilities of the subsidiary; (b) derecognizes the carrying amount of any noncontrolling interest; (c) derecognizes the cumulative translation differences recorded in equity; (d) recognizes the fair value of the consideration received; (e) recognizes the fair value of any investment retained; (f) recognizes any surplus or deficit in profit or loss; and (g) reclassifies the Parent Company’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:

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

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

In a letter dated September 10, 2012, Smart informed the NTC that the minimum Cost Recovery Amount, or CRA, to enable PLDT to recover its investment in CURE includes, among others, the total cost of equity investments in CURE, advances from Smart for operating requirements, advances from stockholders and associated funding costs. In a letter dated January 21, 2013, the NTC referred the computation of the CRA to the Commissioners of the NTC.

In a letter dated March 5, 2018, PLDT informed the NTC that it is waiving its right to recover any and all cost related to the 10MHz of 3G radio frequency previously assigned to CURE. Accordingly, CURE will not claim any cost associated with it in the event of subsequent assignment by the NTC to another qualified telecommunication company. With the foregoing, PLDT is deemed to have fully complied with its obligation to divest from CURE as a condition to the sale and transfer of Digitel shares to PLDT.

In 2018, Smart recognized full impairment of its receivable from CURE, due to uncertainty of collectability, and its investments in PHC and FHI, which holds the 97% and 3% interest in CURE, respectively. These transactions were eliminated in our consolidated financial statements.

On April 21, 2017, R.A. No. 10926, which effectively extended Smart’s franchise until 2042, was signed into law by the President of the Republic of the Philippines. The law was published in a newspaper of general circulation on May 4, 2017 and took effect on May 19, 2017.

Decrease in Authorized Capital Stock and Amendment of the Articles of Incorporation of MIC

On May 30, 2017, the Board of Directors of MIC approved the (a) reduction of MIC’s authorized capital stock from Php2,028 million divided into 20 million shares to Php1,602 million by decreasing the par value per share from Php100.00 to Php79.00, or the Decrease in Capital, and (b) the corresponding amendment to the Seventh Article of the Articles of Incorporation of MIC, or the Amendment of Articles. On the same date, the Decrease in Capital and Amendment of Articles were approved by the stockholders representing at least two thirds of the outstanding shares of MIC. The application for approval of the Decrease in Capital and Amendment of Articles was filed with the Philippine Securities and Exchange Commission, or Philippine SEC, on July 11, 2017 and was approved on December 18, 2017.

On September 26, 2017, the Board of Directors of PLDT and SBI, a subsidiary providing wireless broadband services, approved the sale and transfer of SBI’s trademark and subscribers, and all of SBI’s assets, rights and obligations directly or indirectly connected to its HOME Ultera and HOMEBRO Wimax businesses to PLDT. The transfer was effective January 1, 2018. Subscription assets and trademark are amortized over two years and 10 years, respectively, using the straight-line method of accounting.

SBI’s businesses are currently being managed by PLDT pursuant to the Operations Maintenance and Management Agreement between PLDT and SBI effective October 1, 2012. Subsequent to the transfer, SBI will continue to provide broadband services to its existing Canopy subscribers using a portion of Smart’s network. The transfer is in accordance with the said agreement and in order to achieve the expected benefits, as follows:

On December 18, 2017, PLDT settled the partial consideration to SBI amounting to Php1,294 million. The remaining balance of Php1,152 million was fully paid on July 31, 2018.

On December 14, 2017, Voyager Innovations Holdings Pte. Ltd., or VIH, and PLDT Online entered into a Sale and Purchase Agreement whereby VIH sold all of its 10 thousand ordinary shares in iCommerce to PLDT Online for a total purchase price of SG$1.00. On the same date, VIH assigned its loans receivables from iCommerce to PLDT Online amounting to US$8.6 million. In consideration, a total of US$8.9 million, inclusive of interest, was fully paid by PLDT Online to VIH on November 30, 2017.

On March 5, 2018 and August 7, 2018, the Board of Directors of ePLDT approved the additional investment in ePDS amounting to Php134 million and Php66 million, respectively, thereby increasing its equity interest in ePDS from 67% to 95%. On November 7, 2019, ePLDT acquired the 5% minority interest in ePDS for a consideration of Php20 million, thereby increasing its equity interest in ePDS from 95% to 100%. This transaction was eliminated in our consolidated financial statements.

On May 10, 2019 and June 25, 2019, PCEV’s Board of Directors and stockholders, respectively, approved the following resolutions and amendments to the articles of incorporation of PCEV: (a) decrease in the par value of common stock; and (b) decrease in the authorized capital stock as follows:

The decrease in PCEV’s authorized capital was approved by the Philippine SEC on December 19, 2019. Consequently, the partial return of capital representing their proportionate share in the decrease in par value amounting to Php6,825 million and Php4 million were paid to Smart and PCEV’s minority shareholders, respectively.

Effective September 15, 2019, Philcom ceased to operate as a telecommunications service provider, pursuant to the expiration of its legislative franchise, R.A. 7783. In order to facilitate continued customer service, arrangements have been made between Philcom and PLDT where PLDT would make its services available to the affected Philcom subscribers on voluntary basis. The NTC interposed no objection to the transfer of Philcom’s subscribers to PLDT, subject to certain conditions. Consequently, Philcom and PLDT executed a Deed of Assignment on September 13, 2019 wherein all property and equipment of Philcom, accounts receivable, inventories and subscribers were transferred to PLDT for a total consideration of Php2,106 million, after complying with the conditions imposed by NTC. This transaction was eliminated in our consolidated financial statements.

The accounting policies adopted are consistent with those of the previous financial year, except that we have adopted the following new and amended standards and interpretations starting January 1, 2019. Except for the adoption of PFRS 16, Leases, the adoption of these new and amended standards and interpretations did not have significant impact on our financial position or performance.

This Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of PAS 12, Income Taxes. It does not apply to taxes or levies outside the scope of PAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

The entity is required to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty. The entity shall assume that the taxation authority will examine amounts that it has a right to examine and have full knowledge of all related information when making those examination. If an entity concludes that it is not probable that the taxation authority will accept an uncertain tax treatment, it shall reflect the effect of the uncertainty for each uncertain tax treatment using the method the entity expects to better predict the resolution of the uncertainty.

Upon adoption of the Interpretation, we assess whether it has any uncertain tax positions and applies significant judgment in identifying uncertainties over our tax treatments. We determined based on our assessment that it is probable that our income tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. Accordingly, the interpretation did not have an impact on our consolidated financial statement.

PFRS 16 supersedes PAS 17, Leases, Philippine Interpretation to IFRIC 4, Determining whether an Arrangement contains a Lease, Philippine Interpretation to SIC-15, Operating Leases-Incentives and Philippine Interpretation to SIC-27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognize most leases on our consolidated statement of financial position. The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset, or ROU.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the ROU.

Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting under PAS 17. Lessors will continue to classify all leases using the same classification principle as in PAS 17 and distinguish between two types of leases: operating and finance leases. Therefore, PFRS 16 did not have an impact for leases where we are the lessor.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.
A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs.

We applied the modified retrospective approach upon adoption of PFRS 16 on January 1, 2019 and applied the standard to contracts that were previously identified as leases applying PAS 17 and Philippine Interpretation to IFRIC 4. We, therefore did not apply the standard to contracts that were not previously identified as containing a lease applying PAS 17 and Philippine Interpretation to IFRIC 4.

We elected to use the exemptions provided by the standard on lease contracts for which the lease term ends within 12 months as at the date of initial application, and lease contracts for which the underlying asset is of low value.

Our cash flows from operating activities have increased and cash flows from financing cash flows decreased as repayment of the principal portion of the lease liabilities were classified as cash flows from financing activities. In addition, our total assets and total liabilities have increased due to the recognition of right-of-use asset and lease liability. The accounting for operating leases where we act as the lessee will significantly change due to the adoption of PFRS 16.

Set out below are the amounts by which each financial statement line item is affected for the year ended December 31, 2019 as a result of the adoption of PFRS 16. The adoption of PFRS 16 did not have a material impact on other comprehensive income or on our investing cash flows. The first column shows amounts prepared under PFRS 16 and the second column shows what the amounts would have been had PFRS 16 not been adopted.

Upon adoption of PFRS 16, we applied a single recognition and measurement approach for all leases, except for short-term leases and leases of ‘low-value’ assets. Refer to Section Leases – Right-of-Use Assets for the accounting policy beginning January 1, 2019.

We did not change the initial carrying amounts of recognized assets and liabilities at the date of initial application for leases previously classified as finance leases (i.e., the ROU and lease liabilities equal the lease assets and liabilities recognized under PAS 17). The requirements of PFRS 16 was applied to these leases beginning January 1, 2019.

We recognized right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of ‘low-value’ assets. The right-of-use assets were recognized based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.

The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as at December 31, 2018 follows:

Due to the adoption of PFRS 16, our operating profit in 2019 improved, while its interest expense increased. This is due to the change in the accounting for rent expense related to leases that were classified as operating leases under PAS 17.

The adoption of PFRS 16 did not have an impact on equity in 2019, since we elected to measure the right-of-use assets an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in our consolidated statement of financial position immediately before the date of initial application.

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 and included in selling, general and administrative expenses.

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 that is classified as equity is not remeasured and subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument within the scope of PFRS 9 is measured at fair value with the changes in fair value recognized in profit or loss. In accordance with PFRS 9, other contingent consideration that is not within the scope of PFRS 9 is measured at fair value at each reporting date with changes in fair value recognized in profit or loss.

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

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

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

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

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the disposed operation and the portion of the CGU retained.

An associate is an entity in which we have significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but has no control nor joint control over those policies. The existence of significant influence is presumed to exist when we hold 20% or more, but less than 50% of the voting power of another entity. Significant influence is also exemplified when we have one or more of the following: (a) a representation on the board of directors or the equivalent governing body of the investee; (b) participation in policy-making processes, including participation in decisions about dividends or other distributions; (c) material transactions with the investee; (d) interchange of managerial personnel with the investee; or (e) provision of essential technical information.

Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The cost of the investments includes directly attributable transaction costs. The details of our investments in associates are disclosed in Note 11 – Investments in Associates and Joint Ventures – Investments in Associates.

Under the equity method, an investment in an associate is carried at cost plus post acquisition changes in our share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized nor individually tested for impairment. Our consolidated income statements reflect 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 included under “Other income (expenses)” in 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 statements.

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 our consolidated financial statements.

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:

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 11 – Investments in Associates and Joint Ventures – Investments in Joint Ventures.

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

Upon loss of joint control over the joint venture, we measure and recognize our retained investment at fair value. Any difference between the carrying amount of the former joint venture upon loss of joint control and the fair value of the remaining investment and proceeds from disposal is recognized in profit or loss. When the remaining investment constitutes significant influence, it is accounted for as an investment in an associate with no remeasurement.

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

The terms of the liquidity that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

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 separate financial statements of each entity are measured using that functional currency.

The functional and presentation currency of the entities under PLDT Group (except for the subsidiaries discussed below) is the Philippine Peso.

Transactions in foreign currencies are initially recorded by entities under our Group at the respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing rate of exchange prevailing at the end of the reporting period. All differences arising on settlement or translation of monetary items are recognized in our consolidated income statement except for foreign exchange differences that qualify as capitalizable borrowing costs for qualifying assets. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The gain or loss arising from transactions of non-monetary items measured at fair value is treated in line with the recognition of this gain or loss on the change in fair value of the items (i.e., translation differences on items whose fair value gain or loss is recognized in other comprehensive income or profit or loss are also recognized in other comprehensive income or profit or loss, respectively).

The functional currency of SMHC, FECL Group, PLDT Global and certain of its subsidiaries, PGNL and certain of its subsidiaries, Chikka and certain of its subsidiaries and PGIC is the U.S. Dollar; the functional currency of iCommerce Investments Pte. Ltd., or iCommerce, Chikka Pte. Ltd., or CPL, and ABM Global Solutions Pte. Ltd., or AGSPL, is the Singaporean dollar; and the functional currency of PT Advance Business Microsystems Global Solutions, or AGS Indonesia, is the Indonesian rupiah. As at the reporting date, the assets and liabilities of these subsidiaries are translated into Philippine Peso at the rate of exchange prevailing at the end of the reporting period, and income and expenses of these subsidiaries are translated monthly using the weighted average exchange rate for the month. The exchange differences arising on translation are recognized as a separate component of other comprehensive income as cumulative translation adjustments. Upon disposal of these subsidiaries, the amount of deferred cumulative translation adjustments recognized in other comprehensive income relating to subsidiaries is recognized in our consolidated income statement.

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

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

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

Financial assets are classified in their entirety based on the contractual cash flows characteristics of the financial assets and our business model for managing the financial assets. We classify our financial assets into the following measurement categories:

In order for us to identify the measurement of our debt financial assets, a solely payments of principal and interest, or SPPI, test needs to be initially performed in order to determine whether the contractual terms of the financial asset gives rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Once a debt financial asset passed the SPPI test, business model assessment, which identifies our objective of holding the financial assets – hold to collect or hold to collect and sell, will be performed. Otherwise, if the debt financial asset failed the test, such will be measured at FVPL.

In making the assessment, we determine whether the contractual cash flows are consistent with a basic lending arrangement, i.e., interest includes consideration only for the time value of money, credit risk and other basic lending risks and costs associated with holding the financial asset for a particular period of time. In addition, interest can include a profit margin that is consistent with a basic lending arrangement. The assessment as to whether the cash flows meet the SPPI test is made in the currency in which the financial asset is denominated. Any other contractual terms that introduce exposure to risks or volatility in the contractual cash flows that is unrelated to a basic lending arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount outstanding.

Our business model is determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. Our business model does not depend on management’s intentions for an individual instrument.

Our business model refers to how we manage our financial assets in order to generate cash flows. Our business model determines whether cash flows will result from collecting contractual cash flows, collecting contractual cash flows and selling financial assets or neither.

A financial asset is measured at amortized cost if: (i) it is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and (ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. These financial assets are initially recognized at fair value plus directly attributable transaction costs and subsequently measured at amortized cost using the effective interest rate, or EIR, method, less any impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortization is included in ‘Interest income’ in our consolidated income statements and is calculated by applying the EIR to the gross carrying amount of the financial asset, except for (i) purchased or originated credit-impaired financial assets and (ii) financial assets that have subsequently become credit-impaired, where, in both cases, the EIR is applied to the amortized cost of the financial asset. Losses arising from impairment are recognized in ‘Asset impairment’ in our consolidated income statements.

Our financial assets at amortized cost include debt instruments at amortized cost, cash and cash equivalents, short-term investments, trade and other receivables, and portions of other financial assets as at December 31, 2019 and 2018. See Note 13 – Debt Instruments at Amortized Cost, Note 16 – Cash and Cash Equivalents, Note 17 – Trade and Other Receivables and Note 28 – Financial Assets and Liabilities.

A financial asset is measured at FVOCI if: (i) it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and (ii) its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. These financial assets are initially recognized at fair value plus directly attributable transaction costs and subsequently measured at fair value. Gains and losses arising from changes in fair value are included in other comprehensive income within a separate component of equity. Impairment losses or reversals, interest income and foreign exchange gains and losses are recognized in profit and loss until the financial asset is derecognized. Upon derecognition, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. This reflects the gain or loss that would have been recognized in profit or loss upon derecognition if the financial asset had been measured at amortized cost. Impairment is measured based on the ECL model.

Our financial assets at FVOCI include receivables from MPIC as at December 31, 2019 and 2018. See Note 25 – Related Party Transactions and Note 28 – Financial Assets and Liabilities.

Financial assets at FVPL are measured at fair value. Included in this classification are derivative financial assets, equity investments held for trading and debt instruments with contractual terms that do not represent solely payments of principal and interest. Financial assets held at FVPL are initially recognized at fair value, with transaction costs recognized in our consolidated income statements as incurred. Subsequently, they are measured at fair value and any gains or losses are recognized in our consolidated income statements.

Additionally, even if the asset meets the amortized cost or the FVOCI criteria, we may choose at initial recognition to designate the financial asset at FVPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency (an accounting mismatch) that would otherwise arise from measuring financial assets on a different basis.

Trading gains or losses are calculated based on the results arising from trading activities of the PLDT Group, including all gains and losses from changes in fair value for financial assets and financial liabilities at FVPL, and the gains or losses from disposal of financial investments.

Our financial assets at FVPL include derivative financial assets and equity investments as at December 31, 2019 and 2018. See Note 12 – Financial Assets at FVPL and Note 28 – Financial Assets and Liabilities.

A financial liability may be designated at FVPL if it eliminates or significantly reduces a measurement or recognition inconsistency (an accounting mismatch) or:

Where a financial liability is designated at FVPL, the movement in fair value attributable to changes in our own credit quality is calculated by determining the changes in credit spreads above observable market interest rates and is presented separately in other comprehensive income.

Our financial liabilities at FVPL include forward foreign exchange contracts, long-term principal only-currency swaps, interest rate swaps and liability from redemption of preferred stock as at December 31, 2019 and 2018. See Note 28 – Financial Assets and Liabilities.

Our other financial liabilities include interest-bearing financial liabilities, lease liabilities, customers’ deposits, dividends payable, certain accounts payable and accrued expenses and deferred credits and other noncurrent liabilities, (except for statutory payables) as at December 31, 2019 and 2018. See Note 21 – Interest-bearing Financial Liabilities and Note 28 – Financial Assets and Liabilities.

We reclassify our financial assets when, and only when, there is a change in the business model for managing the financial assets. Reclassifications shall be applied prospectively and any previously recognized gains, losses or interest shall not be restated. We do not reclassify our financial liabilities.

We recognize ECL for the following financial assets that are not measured at FVPL.

Financial assets migrate through the following three stages based on the change in credit quality since initial recognition:

For credit exposures where there have not been significant increases in credit risk since initial recognition and that are not credit-impaired upon origination, the portion of lifetime ECLs that represent the ECLs that result from default events that are possible within the 12-months after the reporting date are recognized.

For credit exposures where there have been significant increases in credit risk since initial recognition on an individual or collective basis but are not credit-impaired, lifetime ECLs representing the ECLs that result from all possible default events over the expected life of the financial asset are recognized.

Financial assets are credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of those financial assets have occurred. For these credit exposures, lifetime ECLs are recognized and interest revenue is calculated by applying the credit-adjusted EIR to the amortized cost of the financial asset.

Loss allowances are recognized based on 12-month ECL for debt instruments that are assessed to have low credit risk at the reporting date. A financial asset is considered to have low credit risk if:

We consider a debt instruments to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade’, or when the exposure is less than 30 days past due.

The loss allowances recognized in the period is impacted by a variety of factors, as described below:

We write-off a financial asset measured at amortized cost, in whole or in part, when the asset is considered uncollectible, it has exhausted all practical recovery efforts and has concluded that it has no reasonable expectations of recovering the financial asset in its entirety or a portion thereof. We write-off an account when all of the following conditions are met:

The simplified approach, where changes in credit risk are not tracked and loss allowances are measured at amounts equal to lifetime ECL, is applied to ‘Trade and other receivables’ and ‘Contract assets’. We have established a provision matrix for billed trade receivables and a vintage analysis for contract assets and unbilled trade receivables that is based on historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

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 consolidated income statement.

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 consolidated income statement.

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

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of long-term currency swaps, foreign currency options, forward currency contracts and interest rate swap contracts is determined using applicable valuation techniques. See Note 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 “Other income (expense) – Gains (losses) on derivative financial instruments – net” in our consolidated income statements.

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 statements.

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

The change in the fair value of a hedging instrument is recognized in our consolidated income statements as financing cost. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in our consolidated income statements.

For fair value hedges relating to items carried at amortized cost, any adjustment to carrying value is amortized through profit or loss over the remaining term of the hedge using the EIR method. EIR amortization may begin as soon as adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

If the hedged item is derecognized, the unamortized fair value is recognized immediately in our consolidated income statements.

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 an asset or liability with a corresponding gain or loss 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 statements. 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 transaction occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability.

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

We use an interest rate swap agreement to hedge our interest rate exposure and a long-term principal only-currency swap agreement to hedge our foreign exchange exposure on certain outstanding loan balances. See Note 28 – Financial Assets and Liabilities.

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

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

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

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

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

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

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

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

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

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

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

Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Capitalization of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalized until the assets are substantially completed for their intended use or sale.

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

We are legally required under various lease agreements to dismantle the installation in leased sites and restore such sites to their original condition at the end of the lease contract term. We recognize the liability measured at the present value of the estimated costs of these obligations and capitalize such costs as part of the balance of the related item of property and equipment. The amount of asset retirement obligations is 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 economic useful 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 statements.

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 statements 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, or VIU. 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 VIU, 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 statements.

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 statements. 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.

Property and equipment, right-of-use assets, and intangible assets with definite useful lives

For property and equipment and right-of-use assets, we assess for impairment on the basis of impairment indicators such as evidence of internal obsolescence or physical damage. For intangible assets with definite useful lives, we assess for impairment whenever there is an indication that the intangible assets may be impaired. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Impairment of non-financial assets, Note 9 – Property and Equipment, Note 10 – Right-of-Use Assets 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 statements. See Note 11 – Investments in Associates and Joint Ventures for further disclosures relating to impairment of non-financial assets.

Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU, or group of CGUs, to which the goodwill relates. When the recoverable amount of the CGU, or group of CGUs, is less than the carrying amount of the CGU, or group of CGUs, to which goodwill has been allocated, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Impairment of non-financial assets and Note 15 – Goodwill and Intangible Assets – Impairment testing of goodwill and intangible assets with indefinite useful life for further disclosures relating to impairment of non-financial assets.

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

Investment in debt securities consists of time deposits and government securities which are carried at amortized cost using the EIR method. Interest earned from these securities is recognized under “Other income (expenses) – net – Interest income” in our consolidated income statements.

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, financial assets at FVPL, financial assets at FVOCI and non-financial assets such as investment properties, at fair value at each reporting date. The fair values of financial instruments measured at amortized cost are disclosed in Note 28 – Financial Assets and Liabilities. The fair values of investment properties are disclosed in Note 14 – Investment Properties.

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

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

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

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

All assets and liabilities for which fair value is measured or disclosed in our consolidated 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 our consolidated 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 FVPL 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 depict the transfer of promised goods or services to customers in an amount that reflects the consideration which we expect to be entitled to in exchange for those goods or services. PFRS 15 prescribes a five-step model to be followed in the recognition of revenue, wherein we take into consideration the performance obligations which we need to perform in the agreements we have entered into with our customers. Revenue is measured by allocating the transaction price, which includes variable considerations, to each performance obligation on a relative stand-alone selling price basis, taking into account contractually defined terms of payment and excluding value-added tax, or VAT, or overseas communication tax, or OCT, where applicable. Transaction prices are adjusted for the effects of a significant component if we expect, at contract inception, that the period between the transfer of the promised goods or services to the customer and when the customer pays for that good or service will be more than one year.

When allocating the total contract transaction price to identified performance obligations, a portion of the total transaction price may relate to service performance obligations which were not satisfied or are partially satisfied as of end of the reporting period. In determining the transaction price allocated, we do not include nonrecurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of one year or less.

Remaining performance obligations are associated with our wireless and fixed line subscription contracts. As at December 31, 2019, excluding the performance obligations for contracts with original expected duration of less than one year, the aggregate amount of the transaction price allocated to remaining performance obligations was Php22,864 million, of which we expect to recognize approximately 68% in 2020 and 32% in 2021 and onwards. As at December 31, 2018, excluding the performance obligations for contracts with original expected duration of less than one year, the aggregate amount of the transaction price allocated to remaining performance obligations was Php30,753 million, of which we expect to recognize approximately 63% in 2019 and 37% in 2020 and onwards.

When determining our performance obligations, 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 a principal and record revenue on a gross basis if we control the promised goods or services before transferring them or rendering those to the customer. However, if our role is only to arrange for another entity to provide the goods or services, then we are an agent and will need to record revenue at the net amount that we retain for our agency services.

The disclosures of significant accounting judgments, estimates and assumptions relating to revenue from contracts with customers are provided in Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Identifying performance obligations.

Services may be rendered separately or bundled with goods or other services. The specific recognition criteria are as follows:

Postpaid service arrangements include fixed monthly charges (including excess of consumable fixed monthly service fees) generated from cellular voice, short messaging services, or SMS, and data services through the postpaid plans of Smart, Sun Cellular and Infinity brands, from local exchange services primarily through landline and related services, and from fixed line 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 at their stand-alone selling prices and recognized as the additional service is provided or as availed by the subscribers.

Our prepaid service revenues arise from the usage of airtime load from channels and prepaid cards provided by Smart, Sun Cellular, TNT, SmartBro and Sun Broadband brands. Proceeds from over-the-air reloading channels and prepaid cards are initially recognized as contract liability and realized upon actual usage of the airtime value for voice, SMS, mobile data and other VAS, prepaid unlimited and bucket-priced SMS and call subscriptions, net of bonus credits from load packages purchased, such as free additional call minutes, SMS, data allocation or airtime load, or upon expiration, whichever comes earlier.

We also consider recognizing revenue from the expected breakage or expiry of airtime load in proportion to the pattern of rights exercised by the customer if it expects to be entitled to that breakage amount. If we do not expect to be entitled to a breakage amount based on historical experience with the customers, then we recognize the expected breakage amount as revenue when the likelihood of the prepaid customer exercising its remaining rights becomes remote.

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. In general, non-refundable upfront fees, such as activation fees, that do not relate to the transfer of a promised good or service, are deferred and recognized as revenue throughout the estimated average length of the customer relationship, and the related incremental costs incurred are similarly deferred and recognized as expense over the same period, if such costs generate or enhance resources of the entity and are expected to be recovered.

Installation fees for voice services are considered as a single performance obligation together with monthly service fees, recognized over the customer subscription period since the subscriber cannot benefit from the installation services on its own or together with other resources that are readily available to the subscriber. Installation fees for data services are recognized performance of installation. The related incremental costs are recognized in the same manner in our consolidated income statements, if such costs are expected to be recovered.

In revenue arrangements, which involve bundled sales of mobile devices and accessories (non-service component), and telecommunication services (service component), the total transaction price is allocated based on the relative stand-alone selling prices of each distinct performance obligation. Stand-alone selling price is the price at which we sell the good or service separately to a customer. However, if goods or services are not currently offered separately, we use the adjusted market or cost-plus margin method to determine the stand-alone selling price to be used in the transaction price allocation. We adjust the transaction price for the effects of the time value of money if the timing of the payment and delivery of goods or services do not coincide, effects of which are considered as containing a significant financing component.

Revenues from the sale of non-service component are recognized at the point in time when the goods are delivered while revenues from telecommunication services component are recognized over on a straight-line basis over the contract period when the services are provided to subscribers.

The non-service component included in contracts with customers have significant financing component considering the period between the time of the transfer of control over the mobile device and the customer’s payment of the price of the mobile device, which is more than one year.

The transaction price for such contracts is determined by discounting the amount of promised consideration using the appropriate discount rate. We concluded that there is a significant financing component for those contracts where the customer elects to pay in arrears considering the length of time between the transfer of mobile device to the customer and the customer’s payment, as well as the prevailing interest rates in the market adjusted with customer credit spread.

We operate customer engagement and loyalty programs which allows customers to accumulate points when postpaid customers pay their bills on time and in full, purchase products or services, and load or top-up for prepaid customers once registered to the program. Customers may avail of the “MVP Rewards Card” for free, powered by PayMaya, which allows for instant conversion of points into the PayMaya wallet of the customer that can be used for all purchases transacted using the “MVP Rewards Card”. The new customer loyalty program is not treated as separate performance obligation but as a reduction of revenue when earned, which is booked under loyalty expense.

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 statements. Inbound revenue and outbound charges are based on agreed transit and termination rates with other foreign and local carriers.

We assessed that a variable consideration exists in certain interconnection agreements where there is a monthly aggregation period and the rates applied for the total monthly traffic will depend on the total traffic for the month. We also consider whether contracts with carriers contain volume commitment or tiering arrangement whereby the rate being charged will change upon meeting certain volume of traffic. We estimate the amount of variable consideration to which we are entitled and include in the transaction price some or all of an amount of variable consideration estimated arising from these agreements, unless the impact is not material.

Revenues from VAS include streaming and downloading of games, music, video contents, loan services, messaging services, applications and other digital services which are only arranged for by us on behalf of third-party content providers. The amount of revenue recognized is net of content provider’s share in revenue. Revenue is recognized upon service availment. We act as an agent for certain VAS arrangements.

Revenue from server hosting, co-location services and customer support services are recognized at point in time as the services are performed.

A contract asset is initially recognized for revenue earned from installation services because the receipt of consideration is conditional on successful completion of the installation. Upon completion of the installation and acceptance by the customer, the amount recognized as contract assets is reclassified to trade receivables when billed. Contract assets are subject to impairment assessment. Refer to accounting policies on impairment of financial assets in section Financial instruments – initial recognition and subsequent measurement.

A receivable is recognized if an amount of consideration that is unconditional is due from the customer (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in section Financial instruments – initial recognition and subsequent measurement.

A contract liability is the obligation to transfer goods or services to a customer for which we have received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before we transfer goods or services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). Contract liabilities and unearned revenues are recognized as revenue when we perform under the contract.

We often give commissions and incentives to sales agent for meeting certain volume of new connections and corresponding value of plans contracted. These costs are incremental costs to obtain as we would have not incurred these if the contract had not been obtained. These are capitalized as an asset if these are expected to be recovered. Any capitalized incremental costs to obtain would be amortized and recognized as expense over customer subscription period.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We recognize a provision when we have a present obligation, legal or constructive, as a result of a past event, and when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When we expect some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain to be received if the entity settles the obligation. The expense relating to any provision is presented in our consolidated income statements, 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 in our consolidated income statements.

PLDT and certain of its subsidiaries are covered under R.A. 7641 otherwise known as “The Philippine Retirement Law”.

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

Service cost (which includes current service costs, past service costs and gains or losses on curtailments and non-routine settlements) is recognized as part of “Selling, general and administrative expenses – Compensation and employee benefits” account in our consolidated income statements. 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 defined 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 statements 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 and 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 consolidated income statement.

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.

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 consolidated income statement.

The long-term employee benefit liability comprises the present value of the defined benefit obligation (using a discount rate based on government bonds) at the end of the reporting period and is determined using the projected unit credit method. See Note 26 – Employee Benefits – Other Long-term Employee Benefits for more details.

The PLDT provides incentive compensation to key officers, executives and other eligible participants, in the PLDT Group in the form of PLDT Inc. common shares of stock, or Performance Shares, over a three-year vesting period from January 1, 2017 to December 31, 2019. The award of the performance shares is contingent on the achievement of Performance Targets based on PLDT Group’s cumulative consolidated core net income.

The starting point of expense recognition is the date of grant, which is the date when the formal invitation letter was sent to the eligible participants. The fair value of the award (excluding the effect of any service and non-market performance vesting conditions) is determined at the grant date. At each subsequent reporting date until vesting, a best estimate of the cumulative charge to profit or loss at that date is computed. As the share-based payments vests in installments over the service period, the award is treated as expense over the vesting period.

On December 11, 2018, the Executive Compensation Committee, or ECC, of the Board approved Management’s recommended modifications to the Plan, and partial equity and cash settled set-up was implemented for the 2019 TIP Grant. The estimated fair value of remaining unpurchased shares will be given out as cash award. The fair value of the cash award relating to unpurchased shares is determined using the estimate of the fair value of the original award approved in 2017. Please see Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimating pension benefit cost and other employee benefits.

We assess at contract inception whether the contract is, or contains, a lease. That is, if the contract conveys right to control the use of an identified asset for a period of time in exchange for a consideration.

As a Lessee. We apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. We recognize lease liabilities to make lease payments and ROU assets representing the ROU the underlying assets.

We recognize right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless it is reasonably certain that we obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. Refer to the accounting policies in impairment of non-financial assets section.

At the commencement date of the lease, we recognize lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised and payments of penalties for terminating a lease, if the lease term reflects exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, we use the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

We apply the short-term lease recognition exemption to our short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). We also apply the lease of low-value assets recognition exemption to leases that are considered of low value (i.e., below Php250 thousand). Lease payments on short-term leases and leases of low-value assets are recognized as expense in our consolidated income statement on a straight-line basis over the lease term.

As a Lessor. Leases in which we do not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income is accounted for on a straight-line basis over the lease term and is included in revenue in our consolidated income statements due to its opeating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the bases as rental income.

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 statements 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 statements 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.

Current income tax relating to items recognized directly in equity is recognized in equity and not in our consolidated income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred income tax is provided 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 consolidated statements of comprehensive income and not in our consolidated income statements.

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, if applicable. When VAT from sales of goods and/or services (output VAT) exceeds VAT passed on from purchases of goods or services (input VAT), the excess is recognized as payable in our consolidated statements of financial position. When VAT passed on from purchases of goods or services (input VAT) exceeds VAT from sales of goods and/or services (output VAT), the excess is recognized as an asset in our consolidated statements of financial position to the extent of the recoverable amount.

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

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 statements 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 statement of changes in equity and consolidated 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 statement 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 consolidated income statement 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 consolidated financial statements are listed below. We will adopt these standards and amendments to existing standards which are relevant to us when these become effective.

The amendments to PFRS 3 clarify the minimum requirements to be a business, remove the assessment of a market participant’s ability to replace missing elements, and narrow the definition of outputs. The amendments also add guidance to assess whether an acquired process is substantive and add illustrative examples. An optional fair value concentration test is introduced which permits a simplified assessment of whether an acquired set of activities and assets is not a business.

An entity applies those amendments prospectively for annual reporting periods beginning on or after January 1, 2020, with earlier application permitted.

The amendments refine the definition of material in PAS 1 and align the definition used across PFRSs and other pronouncements. They are intended to improve the understanding of the existing requirements rather than to significantly impact an entity’s materiality judgments.

An entity applies those amendments prospectively for annual reporting periods beginning on or after January 1, 2020 with early application permitted.

These amendments have no significant impact on our consolidated financial statements.

PFRS 17 is a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, PFRS 17 will replace PFRS 4, Insurance Contracts. This new standard on insurance contracts applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply.

The overall objective of PFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in PFRS 4, which are largely based on grandfathering previous local accounting policies, PFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of PFRS 17 is the general model, supplemented by:

PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, with comparative figures required.

The standard has no significant impact on our consolidated financial statements.

The amendments address the conflict between the PFRS 10 and PAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves a business as defined in PFRS 3. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture.

On January 13, 2016, the FRSC deferred the original effective date of January 1, 2016 of the said amendments until the International Accounting Standards Board completes its broader review of the research project on equity accounting that may result in the simplification of accounting for such transactions and of other aspects of accounting for associates and joint ventures. We are currently assessing the impact of this amendment.

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.

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Judgments, key 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 within the next reporting period are consistent with those applied in the most recent annual financial statements, except for those that relate to the adoption of PFRS 16. Selected critical judgments and estimates applied in the preparation of the annual consolidated financial statements as discussed below:

In the process of applying our accounting policies, management has made judgments, apart from those involving estimations which have the most significant effect on the amounts recognized in our financial statements.

We identify performance obligations by considering whether the promised goods or services in the contract are distinct goods or services. A good or service is distinct when the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer and our promise to transfer the good or service to the customer is separately identifiable from the other promises in the contract.

Revenues earned from multiple element arrangements offered by our fixed line and wireless businesses are split into separately identifiable performance obligations based on their relative stand-alone selling price in order to reflect the substance of the transaction. The transaction price represents the best evidence of stand-alone selling price for the services we offer since this is the observable price we charge if our services are sold separately. We account for customer contracts in accordance with PFRS 15 and have concluded that the service (telecommunication service) and non-service components (handset or equipment) may be accounted for as separate performance obligations. The handset or equipment is delivered first, followed by the telecommunication service (which is provided over the contract/lock-in period of generally two years). Revenue attributable to the separate performance obligations are based on the allocation of the transaction price relative to the stand-alone selling price.

Installation fees for voice services are considered as a single performance obligation together with monthly service fees, recognized over the customer subscription period since the subscriber cannot benefit from the installation services on its own or together with other resources that are readily available to the subscriber. Installation fees for data services are also not capable of being distinct from the sale of modem since the subscriber obtains benefit from the combined output of the installation services and the device, and is recognized upon delivery of the modem and performance of modem installation.

We enter into contracts with our customers involving multiple deliverable arrangements. We determined that we control the goods before they are transferred to customers, and we have the ability to direct the use of the inventory. The following factors indicate that we control the goods before they are being transferred to customers. Therefore, we determined that we are the principal in these contracts.

Based on the foregoing, we are considered the principal in our contracts with other service providers except for certain VAS arrangements. We have the primary obligation to provide the services to the subscriber.

We recognize revenue from contracts with customers over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services and based on the extent of progress towards completion of the performance obligation. For the telecommunication service which is provided over the contract period of two years, revenue is recognized monthly as we provide the service because control is transferred over time. For the device which is provided at the inception of the contract, revenue is recognized at the time of delivery because control is transferred at a point in time.

We determine the appropriate method of measuring progress which is either through the use of input or output methods. Input method recognizes revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation while output method recognizes revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date.

Revenue from telecommunication services is recognized through the use of input method wherein recognition is over time based on the customer subscription period since the customer simultaneously receives and consumes the benefits as the seller renders the services.

We concluded that the handset component included in contracts with customers has a significant financing component considering the period between the time of the transfer of control over the handset and the customer’s payment of the price of the handset, which is more than one year.

In determining the interest to be applied to the amount of consideration, we concluded that the interest rate is the market interest rate adjusted with credit spread to reflect the customer credit risk that is commensurate with the rate that would be reflected in a separate financing transaction between us and our customer at contract inception.

We assessed that the service and non-service components represent separate performance obligations and thus, the amount of revenues should be recognized based on the allocation of the transaction price to the different performance obligations based on their stand-alone selling prices. The stand-alone selling price is the price at which we sell the good or service separately to a customer. However, if goods or services are not currently offered separately, we use the adjusted market or cost-plus margin method to determine the stand-alone selling price to be used in the revenue allocation.

In terms of allocation of transaction price between performance obligations, we assessed that allocating the transaction price using the stand-alone selling prices of the services and handset will result in more revenue allocated to non-service component. The stand-alone selling price is based on the price in which we regularly sell the non-service and service component in a separate transaction.

We determine our business model at the level that best reflects how we manage groups of financial assets to achieve our business objective. Our business model is not assessed on an instrument-by-instrument basis, but a higher level of aggregated portfolios and is based on observable factors such as:

The business model assessment is based on reasonably expected scenarios without taking ‘worst case’ or ‘stress case’ scenarios into account. If cash flows after initial recognition are realized in a way that is different from our original expectations, we do not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

We have determined that for cash and cash equivalents, short-term investments, investment in debt securities and other long-term investments (Note 13 – Debt Instruments at Amortized Cost), and trade and other receivables, the business model is to collect the contractual cash flows until maturity. For receivables from MPIC, we have determined that its business model is to both collect contractual cash flows and sale of financial assets.

PFRS 9, however, emphasizes that if more than an infrequent number of sales are made out of a portfolio of financial assets carried at amortized cost, we should assess whether and how such sales are consistent with the objective of collecting contractual cash flows.

We define a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when it meets one or more of the following criteria:

For trade receivables and all other financial assets subject to impairment, default occurs when the receivable becomes 90 days past due, except for trade receivables from Corporate subscribers, which are determined to be in default when the receivables become 120 days past due.

The counterparty meets unlikeliness to pay criteria, which indicates the counterparty is in significant financial difficulty. These are instances where:

The criteria above have been applied to all financial instruments, except FVPL, held by us and are consistent with the definition of default used for internal credit risk management purposes. The default definition has been applied consistently to the ECL models throughout our expected loss calculation.

At each reporting date, we assess whether there has been a significant increase in credit risk for financial assets since initial recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial recognition. We consider reasonable and supportable information that is relevant and available without undue cost or effort for this purpose. This includes quantitative and qualitative information and forward-looking analysis.

An exposure will migrate through the ECL stages as asset quality deteriorates. If, in a subsequent period, asset quality improves and also reverses any previously assessed significant increase in credit risk since origination, then the loss allowance measurement reverts from lifetime ECL to 12-month ECL.

Using our judgment and, where possible, relevant historical experience, we may determine that an exposure has undergone a significant increase in credit risk based on particular qualitative indicators that we consider are indicative of such and whose effect may not otherwise be fully reflected in its quantitative analysis on a timely basis.

As a backstop, we consider that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the counterparty.

Exposures that have not deteriorated significantly since origination, or where the deterioration remains within our investment grade criteria, or which are less than 30 days past due, are considered to have a low credit risk. The provision for credit losses for these financial assets is based on a 12-month ECL. The low credit risk exemption has been applied on debt investments that meet the investment grade criteria of the PLDT Group.

Impairment of available-for-sale equity investments – Prior to January 1, 2018

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.

Based on our judgment, the decline in fair value of our investment in Rocket Internet SE, or Rocket Internet, was considered significant as the cumulative net losses from changes in fair value represented more than 20% decline in value below cost. As a result, total cumulative impairment losses recognized on our investment in Rocket Internet amounted to Php11,045 million as at December 31, 2017. Impairment losses charged in our consolidated income statement amounted to Php540 million for the year ended December 31, 2017. See related discussion on Note 12 – Financial Assets at FVPL – Investment of PLDT Online in Rocket Internet.

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, PGNL and certain of its subsidiaries, Chikka and certain of its subsidiaries and PGIC, which uses the U.S. Dollar; (b) iCommerce, CPL and AGSPL, which uses the Singaporean dollar; and (c) AGS Indonesia, which uses the Indonesian rupiah.

Reclassification of certain land and building from investment property to property and equipment

In 2018, ePLDT reclassified certain land and building amounting to Php1,236 million from investment property to property and equipment because of the change in use of the assets. Prior to reclassification, these land and building were previously held for rental to third party lessees up to the end of the lease arrangement in 2018. Management decided not to renew the lease contracts but instead use the land and building for business operations. As such, management believes that the reclassification to property and equipment is appropriate given the change in use of these assets. See Note 14 – Investment Properties.

Determining the lease term of contracts with renewal and terminal options – Company as a Lessee – Beginning January 1, 2019

We determine the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

We, as the lessee, have the option, under some of our lease agreements to lease the assets for additional terms. We apply judgment in evaluating whether it is reasonably certain to exercise the option to renew. That is, we consider all relevant factors that create an economic incentive for us to exercise the renewal. After the commencement date, we reassess the lease term if there is a significant event or change in circumstances that is within our control and affects our ability to exercise or not to exercise the option to renew or to terminate (e.g., a change in business strategy).

We included the renewal period as part of the lease term for leases of cell sites, offices, business centers, warehouse due to the significance of these assets to our operations. These leases have a non-cancellable period (i.e., three to ten years) and there will be a significant negative effect on our provision of services if a replacement is not readily available. Furthermore, the periods covered by termination options are included as part of these lease term only when they are reasonably certain not to be exercised.

Refer to Note 10 – Right-of-Use Assets for information on potential future payments relating to periods following the exercise date of extension and termination options that are not included in the lease term.

Total rent expense amounted to Php1,290 million for the year ended December 31, 2019. Total lease liabilities amounted to Php16,333 million as at December 31, 2019. See Note 2 – Summary of Significant Accounting Policies, Note 5 – Income and Expenses – Selling, General and Administrative Expenses,
Note 10 – Leases and Note 28 – Financial Assets and Liabilities.

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. Total lease expense amounted to Php7,321 million and Php7,016 million for the years ended December 31, 2018 and 2017, respectively. Total finance lease obligations amounted to Php514 thousand as at December 31, 2018. See Note 2 – Summary of Significant Accounting Policies, Note 5 – Income and Expenses – Selling, General and Administrative Expenses, Note 21 – Interest-bearing Financial Liabilities – Obligations under Finance Leases and Note 28 – Financial Assets and Liabilities.

On December 3, 2018, PGIH completed the closing of its investment in Multisys. Out of the Php550 million total consideration for the acquisition of existing shares, PGIH paid Php523 million to the owners of Multisys. Further, PGIH invested Php800 million into Multisys as a deposit for future stock subscription pending the approval by the Philippine SEC of the capital increase of Multisys. On February 1, 2019, the Philippine SEC approved the capital increase of Multisys.

Based on our judgment, at the PLDT Group level, PGIH’s investment in Multisys gives PGIH a joint control in Multisys and thus is accounted for as investment in joint venture using the equity method of accounting in accordance with PAS 38, Intangible Assets – Revauation Method – Proportionate Restatement of Accumulated Amortization. See Note 11 – Investment in Associates and Joint Ventures – Investment in Joint Ventures – Investment of PGIH in Multisys.

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

ePLDT made various investments in PDRs issued by MediaQuest in relation to its direct interest in Satventures, Inc., or Satventures, and Hastings Holdings, Inc., or Hastings, and indirect interest in Cignal TV, Inc., or Cignal TV.

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

On February 15, 2018, ePLDT ceased to have any economic interest in Hastings as a result of the assignment of the Hastings PDRs to PLDT Beneficial Trust Fund.

See related discussion on Note 11 – Investments in Associates and Joint Ventures – Investments in Associates – Investment of ePLDT in MediaQuest PDRs.

PLDT assesses the consequences of changes in the ownership interest in a subsidiary that may result in a loss of control as well as the consequence of losing control of a subsidiary during the reporting period. Whether or not PLDT retains control over the subsidiary depends on an evaluation of a number of factors that indicate if there are changes to one or more of the three elements of control. When PLDT has less than majority of the voting rights or similar rights to an investee, PLDT considers all relevant facts and circumstances in assessing whether it has power over an investee, including, among others, representation on its board of directors, voting rights, and other rights of other investors, including their participation in significant decisions made in the ordinary course of business.

As a result of the subscription of the new investors in VIH, PCEV’s ownership interest was diluted to 48.74% and retained only two out of the five Board of Director seats in the investee. Consequently, as at November 28, 2018, PLDT lost its control on VIH and accounted for its remaining interest as investment in an associate. See Note 11 – Investments in Associates and Joint Ventures – Investments in Associates – Investment of PCEV in VIH.

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

On May 30, 2016, PLDT acquired a 50% equity interest in each of VTI, Bow Arken and Brightshare. See related discussion on Note 11 – Investments in Associates and Joint Ventures – Investments in Joint Ventures. Based on the Memorandum of Agreement, PLDT and Globe Telecom, Inc., or Globe, each have the right to appoint half the members of the Board of Directors of each of VTI, Bow Arken and Brightshare, as well as the (i) co-Chairman of the Board; (ii) co-Chief Executive Officer and President; and (iii) co-Controller where any matter requiring their approval shall be deemed passed or approved if the consents of both co-officers holding the same position are obtained. All decisions of each Board of Directors may only be approved if at least one director nominated by each of PLDT and Globe votes in favor of it.

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

Accordingly, PLDT accounted for the investment in VTI, Bow Arken and Brightshare using the equity method of accounting in accordance with PAS 28. Under the equity method of accounting, the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. See Note 11 – Investment in Associates and Joint Ventures – Investment in Joint Ventures – Investments of PLDT in VTI, Bow Arken and Brightshare.

Accounting for investment in Beacon Electric Asset Holdings, Inc., or Beacon, under equity method

PAS 28 provides that where an entity holds 20% or more of the voting power (directly or through subsidiaries) on an investee, it will be presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. If the ownership interest is less than 20%, the entity will be presumed not to have significant influence unless such influence can be clearly demonstrated.

PCEV entered into Share Purchase Agreement with MPIC on May 30, 2016 and June 13, 2017, to sell its equity interest in Beacon for a total consideration of Php26,200 million and Php21,800 million, respectively. Upon closing of these sale transactions, MPIC settled portion of the considerations and the balances are being paid in annual installments until June 2021. MPIC agreed that for as long as: (a) PCEV owns at least 20% of the outstanding capital stock of Beacon; or (b) the purchase price has not been fully paid by MPIC, PCEV shall retain the right to vote 50% of the outstanding capital stock of Beacon. The unpaid balance from MPIC is measured at fair value using discounted cash flow valuation method, with interest income to be accreted over the term of the receivable.

After full divestment, PCEV continues to hold its representation in the Board of Directors and participate in decision making. PCEV retained 50% proxy voting right and is presumed to still hold joint control over Beacon. The role of the representative of PCEV in the Board of Directors is not to jointly control the business but to ensure security of the payment of its outstanding receivables. Thus, PCEV will remain to hold significant influence over Beacon. See Note 11 – Investments in Associates and Joint Ventures – Investments in Joint Ventures – Investment of PCEV in Beacon.

Our consolidated financial statements include additional information about subsidiaries that have non-controlling interest, or NCI, that are material to us, see Note 6 – Components of Other Comprehensive Loss. We determined material partly-owned subsidiaries as those with balance of NCI greater than 5% of the total equity as at December 31, 2019 and 2018.

Our consolidated financial statements include additional information about associates and joint ventures that are material to us. See Note 11 – Investments in Associates and Joint Ventures. We determined material associates and joint ventures are those investees where our carrying amount of investments is greater than 5% of the total investments in associates and joint ventures as at December 31, 2019 and 2018.

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 our 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.

Leases – Estimating the incremental borrowing rate, or IBR – Beginning January 1, 2019

In calculating the present value of lease payments, we use the IBR at the lease commencement date if the interest rate implicit in the lease is not readily determinable. IBR is the rate of interest that a lessee would have to pay to borrow over a similar term, similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

We use benchmark rates from partner banks based on the tenor of our loan borrowings plus a spread adjustment based on our credit worthiness.

Our lease liabilities amounted to Php16,333 million as at December 31, 2019. See Note 10 – Leases – Lease Liabilities.

A deemed disposal occurs where the proportionate interest of PLDT in a subsidiary is reduced other than by an actual disposal, for example, by the issuance of shares to a third party investor by the subsidiary. When PLDT no longer has control, the remaining interest is measured at fair value as at the date the control was lost. When determining the fair value, PLDT takes into account recent transactions and all the facts and circumstances surrounding the transactions such as timing, transaction size, transaction frequency, and motivations of the investors. When valuing the shares in associates and joint ventures, PLDT carefully assesses the accounting implications of the stipulation in the shareholders’ agreements. PLDT considers whether such a transaction has been made at arm’s length.

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 VIU of the CGUs to which these assets are allocated. The VIU 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 VIU of the relevant CGUs.

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

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

Total asset impairment recognized on noncurrent assets amounted to nil, Php2,122 million and Php3,913 million for the years ended December 31, 2019, 2018 and 2017, respectively. See Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Asset Impairment, Note 9 – Property and Equipment – Impairment of Certain Wireless Network Equipment and Facilities and Note 11 – Investments in Associates and Joint Ventures.

The carrying values of our property and equipment, right-of-use assets, investments in associates and joint ventures, investment properties, goodwill and intangible assets, and prepayments are separately disclosed in Note 9 – Property and Equipment, Note 10 – Leases, Note 11 – Investments in Associates and Joint Ventures, Note 14 – Investment Properties, Note 15 – Goodwill and Intangible Assets and Note 19 – Prepayments, 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 estimation of the useful lives of our property and equipment is also based on our collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives of each assets are reviewed every year-end and 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 decrease the carrying amount of our property and equipment.

In 2018, we shortened the estimated useful lives of certain data network platform and other technology equipment resulting from the transformation projects to improve and simplify the network and systems applications. As a result, we recognized additional depreciation amounting to Php540 million and Php12,434 million for the years ended December 31, 2019 and 2018, respectively.

In 2019, we increased the estimated useful life of information origination and termination equipment due to technology advancement allowing longer economic life of the subscriber equipment. As a result, we recognized a decrease in depreciation amounting to Php1,719 million for the year ended December 31, 2019.

The total depreciation and amortization of property and equipment amounted to Php35,352 million, Php47,240 million and Php51,915 million for the years ended December 31, 2019, 2018 and 2017, respectively. Total carrying values of property and equipment, net of accumulated depreciation and amortization, amounted to Php232,460 million and Php195,964 million as at December 31, 2019 and 2018, 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 statements.

The total amortization of intangible assets with finite lives amounted to Php758 million, Php892 million and Php835 million for the years ended December 31, 2019, 2018 and 2017, respectively. Total carrying values of intangible assets with finite lives amounted to Php1,941 million and Php2,699 million as at December 31, 2019 and 2018, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Selling, General and Administrative Expenses and Note 15 – Goodwill and Intangible Assets.

We review the carrying amounts of deferred income tax assets at the end of each reporting period and reduce these to the extent that these are no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. Our assessment on the recognition of deferred income tax assets on deductible temporary differences is based on the level and timing of forecasted taxable income of the subsequent reporting periods. This forecast is based on our past results and future expectations on revenues and expenses as well as future tax planning strategies. Based on this, management expects that we will generate sufficient taxable income to allow all or part of our deferred income tax assets to be utilized.

Based on the above assessment, our consolidated unrecognized deferred income tax assets amounted to Php2,294 million and Php3,227 million as at December 31, 2019 and 2018, respectively. Total consolidated provision from deferred income tax amounted to Php6,267 million and Php1,375 million for the years ended December 31, 2019 and 2018, respectively, while total consolidated benefit from deferred income tax amounted to Php2,738 million for the year ended December 31, 2017. Total consolidated recognized net deferred income tax assets amounted to Php23,623 million and Php27,697 million as at December 31, 2019 and 2018, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 4 – Operating Segment Information and Note 7 – Income Taxes.

ECLs are derived from unbiased and probability-weighted estimates of expected loss, and are measured as follows:

We leverage existing risk management indicators (e.g. internal credit risk classification and restructuring triggers), credit risk rating changes and reasonable and supportable information which allow us to identify whether the credit risk of financial assets has significantly increased.

The ECL is measured on either a 12-month or lifetime basis depending on whether a significant increase in credit risk has occurred since initial recognition or whether an asset is considered to be credit-impaired. We consider the probability of our counterparty to default its obligation and the expected loss at default after considering the effects of collateral, any potential value when realized and time value of money.

The assumptions underlying the ECL calculation are monitored and reviewed on a quarterly basis.

We use a simplified approach for calculating ECL on trade and other receivables and contract assets. We consider historical days past due for groupings of various customer segments that have similar loss patterns and remaining time to maturities.

We use historical observed default rates and adjust these historical credit loss experience with forward-looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed.

There have been no significant changes in estimation techniques or significant assumptions made during the reporting period.

We incorporate forward-looking information into both our assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and our measurement of ECL.

To do this, management considered a range of relevant forward-looking macro-economic assumptions for the determination of unbiased general industry adjustments and any related specific industry adjustments that support the calculation of ECLs.

The macro-economic factors are aligned with information used by us for other purposes such as strategic planning and budgeting.

We have identified and documented key drivers of credit risk and credit losses of each portfolio of financial instruments and, using an analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses.

Predicted relationship between the key indicators and default and loss rates on various portfolios of financial assets have been developed based on analyzing historical data over the past 3 to 8 years. The methodologies and assumptions including any forecasts of future economic conditions are reviewed regularly.

We have not identified any uncertain event that it has assessed to be relevant to the risk of default occurring but where we are not able to estimate the impact on ECL due to lack of reasonable and supportable information.

Total provision for expected credit losses for trade and other receivables amounted to Php4,071 million, Php4,192 million and Php3,438 million for the years ended December 31, 2019, 2018 and 2017, respectively. Trade and other receivables, net of allowance for expected credit losses, amounted to Php22,436 million and Php24,056 million as at December 31, 2019 and 2018, respectively.

Total provision for expected credit losses for contract assets amounted to Php291 million and Php223 million for the years ended December 31, 2019 and 2018, respectively. Contract assets, net of allowance for expected credit losses, amounted to Php2,747 million and Php3,268 million as at December 31, 2019 and 2018, respectively. See Note 5 – Income and Expenses and Note 17 – Trade and Other Receivables.

A broad range of forward-looking information were considered as economic inputs such as the gross domestic product, inflation rate, unemployment rates and other economic indicators. For expected credit loss provisions modelled on a collective basis, a grouping of exposures is performed on the basis of shared risk characteristics, such that risk exposures within a group are homogeneous. In performing this grouping, there must be sufficient information for the PLDT Group to be statistically credible. Where sufficient information is not available internally, then we have considered benchmarking internal/external supplementary data to use for modelling purposes. The characteristics and any supplementary data used to determine groupings are outlined below.

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 amounted to Php3,438 million for the year ended December 31, 2017. Trade and other receivables, net of allowance for doubtful accounts, amounted to Php33,761 million as at December 31, 2017. See Note 4 – Operating Segment Information and Note 5 – Income and Expenses.

The cost of defined benefit and present value of the pension obligation are determined using the projected unit credit method. An actuarial valuation includes making various assumptions which consists, among other things, discount rates, rates of compensation increases and mortality rates. Further, our accrued benefit cost is affected by the fair value of the plan assets. Key assumptions used to estimate fair value of the unlisted equity investments included in the plan assets consist of revenue growth rate, direct costs, capital expenditures, discount rates and terminal growth 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 Php1,018 million, Php1,855 million and Php1,610 million for the years ended December 31, 2019, 2018 and 2017, respectively. The prepaid benefit costs amounted to Php342 million and Php393 million as at December 31, 2019 and 2018, respectively. The accrued benefit costs amounted to Php8,985 million and Php7,182 million as at December 31, 2019 and 2018, respectively. See Note 5 – Income and Expenses – Compensation and Employee Benefits, Note 19 – Prepayments and Note 26 – Employee Benefits.

On September 26, 2017, the Board of Directors of PLDT approved the TIP which intends to provide incentive compensation to key officers, executives and other eligible participants who are consistent performers and contributors to the Company’s strategic and financial goals. The incentive compensation will be in the form of Performance Shares, PLDT common shares of stock, which will be released in three annual grants on the condition, among others, that pre-determined consolidated core net income targets are successfully achieved over three annual performance periods from January 1, 2017 to December 31, 2019. On September 26, 2017, the Board of Directors approved the acquisition of 860 thousand Performance Shares to be awarded under the TIP. On March 7, 2018, the ECC of the Board approved the acquisition of additional 54 thousand shares, increasing the total Performance Shares to 914 thousand. Metropolitan Bank and Trust Company, or Metrobank, through its Trust Banking Group, is the appointed Trustee of the trust established for purposes of the TIP. The Trustee is designated to acquire the PLDT common shares in the open market through the facilities of the PSE, and administer their distribution to the eligible participants subject to the terms and conditions of the TIP.

On December 11, 2018, the Executive Compensation Committee, or ECC, of the Board approved Management’s recommended modifications to the Plan, and partial equity and cash settled set-up will be implemented for the 2019 TIP Grant. The estimated fair value of remaining unpurchased shares will be given out as cash award. The fair value of the cash award relating to unpurchased shares is determined using the estimate of the fair value of the original award approved in 2017.

As at March 5, 2020, a total of 757 thousand PLDT common shares have been acquired by the Trustee, of which 302 thousand and 204 thousand PLDT common shares have been released to the eligible participants on March 28, 2019 for the 2018 annual grant and on April 5, 2018 for the 2017 annual grant, respectively. The TIP is administered by the ECC of the Board. The expense accrued for the TIP amounted to Php638 million, Php208 million and Php827 million for the years ended December 31, 2019, 2018 and 2017, respectively. The accrued incentive payable, representing the cash settled set-up amounted to Php795 million as at December 31, 2019. See Note 5 – Income and Expenses – Compensation and Employee Benefits 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 or 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 or 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 Php1,767 million and Php1,656 million as at December 31, 2019 and 2018, 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.

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.

When the fair value of financial assets and financial liabilities recorded in our consolidated statements of financial position cannot be measured based on quoted prices in active markets, their fair value is measured 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, 2019 amounted to Php1,657 million and Php173,457 million, respectively, while the total fair values of noncurrent financial assets and noncurrent financial liabilities as at December 31, 2018 amounted to Php2,168 million and Php143,392 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 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. We have three reportable operating segments as follows:

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

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

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

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

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 period is measured as core income divided by the weighted average number of outstanding common shares. See Note 8 – Earnings Per Common Share for the weighted average number of common shares.

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

The segment revenues, net income, and other segment information of our reportable operating segments for the years ended December 31, 2019, 2018 and 2017, and as at December 31, 2019 and 2018 are as follows:

	Wireless			Fixed Line			Others			Inter- segment Transactions			Consolidated
	(in million pesos, except for EBITDA margin)
December 31, 2019
Revenues
External customers		94,488			74,699			—			—			169,187
Service revenues		88,243			73,112			—			—			161,355
Non-service revenues		6,245			1,587			—			—			7,832
Inter-segment transactions		2,418			14,707			—			(17,125	)		—
Service revenues		2,418			14,707			—			(17,125	)		—
Non-service revenues		—			—			—			—			—
Total revenues		96,906			89,406			—			(17,125	)		169,187

Results
Depreciation and amortization		29,484			16,141			—			(5,969	)		39,656
Asset impairment		1,133			3,699			1			—			4,833
Interest income		703			680			362			—			1,745
Equity share in net earnings (losses) of associates and joint ventures		—			568			(2,103	)		—			(1,535	)
Financing costs		6,422			5,078			—			(2,947	)		8,553
Provision for (benefit from) income tax		4,423			5,341			(444	)		230			9,550
Net income (loss) / Segment profit (loss)		13,101			11,421			(1,769	)		33			22,786
EBITDA		52,789			33,162			(101	)		(6,035	)		79,815
EBITDA margin		58	%		38	%		—			—			49	%
Core income (loss)		13,685			12,531			(1,151	)		46			25,111

Assets and liabilities
Operating assets		287,059			198,477			7,943			(45,929	)		447,550
Investments in associates and joint ventures		10			73,386			9,897			(29,430	)		53,863
Deferred income tax assets – net		13,102			11,791			(711	)		(559	)		23,623
Total assets		300,171			283,654			17,129			(75,918	)		525,036
Operating liabilities		221,755			229,855			833			(46,289	)		406,154
Deferred income tax liabilities		1,986			384			252			(39	)		2,583
Total liabilities		223,741			230,239			1,085			(46,328	)		408,737

Other segment information
Capital expenditures, including capitalized interest (Note 9)		30,718			42,153			—			—			72,871

December 31, 2018
Revenues
External customers		87,193			74,593			1,128			—			162,914
Service revenues		80,265			71,020			1,084			—			152,369
Non-service revenues		6,928			3,573			44			—			10,545
Inter-segment transactions		2,736			10,629			10			(13,375	)		—
Service revenues		2,736			10,628			10			(13,374	)		—
Non-service revenues		—			1			—			(1	)		—
Total revenues		89,929			85,222			1,138			(13,375	)		162,914

Results
Depreciation and amortization		24,778			22,303			159			—			47,240
Asset impairment		3,319			4,746			—			—			8,065
Equity share in net earnings (losses) of associates and joint ventures		62			171			(320	)		—			(87	)
Interest income		719			812			536			(124	)		1,943
Financing costs		1,865			5,195			131			(124	)		7,067
Provision for income tax		1,333			1,336			1,173			—			3,842
Net income (loss) / Segment profit (loss)		5,725			6,059			7,971			(782	)		18,973
EBITDA		34,235			30,875			(2,688	)		1,605			64,027
EBITDA margin		41	%		38	%		—			—			42	%
Core income (loss)		9,760			6,925			9,952			(782	)		25,855

Assets and liabilities
Operating assets		230,182			199,557			30,962			(61,075	)		399,626
Investments in associates and joint ventures		—			43,426			12,001			—			55,427
Deferred income tax assets – net		16,879			12,479			(1,119	)		(542	)		27,697
Total assets		247,061			255,462			41,844			(61,617	)		482,750
Operating liabilities		168,837			206,812			16,773			(29,319	)		363,103
Deferred income tax liabilities		2,321			482			367			(189	)		2,981
Total liabilities		171,158			207,294			17,140			(29,508	)		366,084

Other segment information
Capital expenditures, including capitalized interest (Note 9)		20,676			14,944			—			—			35,620

December 31, 2017
Revenues
External customers		91,311			66,396			1,226			—			158,933
Service revenues		86,128			62,818			1,226			—			150,172
Non-service revenues		5,183			3,578			—			—			8,761
Inter-segment transactions		1,301			11,945			13			(13,259	)		—
Service revenues		1,301			11,939			13			(13,253	)		—
Non-service revenues		—			6			—			(6	)		—
Total revenues		92,612			78,341			1,239			(13,259	)		158,933

Results
Depreciation and amortization	36,776		15,001		138		—		51,915
Asset impairment	6,104		2,098		56		—		8,258
Equity share in net earnings (losses) of associates and joint ventures	(129	)	44		2,991		—		2,906
Interest income	305		695		655		(243	)	1,412
Financing costs	2,247		5,106		214		(197	)	7,370
Provision for (benefit from) income tax	(2,787	)	3,680		210		—		1,103
Net income (loss) / Segment profit (loss)	(2,215	)	7,474		8,825		(618	)	13,466
EBITDA	36,395		29,478		(1,307	)	1,608		66,174
EBITDA margin	42	%	39	%	—		—		44	%
Core income (loss)	9,812		8,846		9,628		(618	)	27,668

Assets and liabilities
Operating assets	211,983		174,217		34,504		(37,856	)	382,848
Investments in associates and joint ventures	—		44,867		1,263		—		46,130
Deferred income tax assets – net	18,826		11,994		—		(354	)	30,466
Total assets	230,809		231,078		35,767		(38,210	)	459,444
Operating liabilities	153,622		196,451		13,624		(18,802	)	344,895
Deferred income tax liabilities	2,656		286		424		—		3,366
Total liabilities	156,278		196,737		14,048		(18,802	)	348,261

Other segment information
Capital expenditures, including capitalized interest (Note 9)	27,305		12,994		—		—		40,299

The following table shows the reconciliation of our consolidated net income to our consolidated EBITDA for the years ended December 31, 2019, 2018 and 2017:

The following table shows the reconciliation of our consolidated net income to our consolidated core income for the years ended December 31, 2019, 2018 and 2017:

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, 2019, 2018 and 2017:

	2019						2018						2017
	Basic			Diluted			Basic			Diluted			Basic			Diluted
Consolidated core EPS		115.95			115.95			119.39			119.39			127.79			127.79
Add (deduct) adjustments:
Foreign exchange gains (losses) – net		1.73			1.73			(3.57	)		(3.57	)		(1.74	)		(1.74	)
Core income adjustment on equity share in net earnings (losses) of associates and joint ventures		1.05			1.05			(0.11	)		(0.11	)		(0.28	)		(0.28	)
Impairment of investments		(0.16	)		(0.16	)		(0.80	)		(0.80	)		(11.86	)		(11.86	)
Gains (losses) on derivative financial instruments – net, excluding hedge costs		(0.75	)		(0.75	)		4.08			4.08			2.34			2.34
Unrealized losses in fair value of investments		(3.12	)		(3.12	)		(5.34	)		(5.34	)		—			—
MRP		(10.73	)		(10.73	)		(5.52	)		(5.52	)		—			—
Investment written-off		—			—			(1.68	)		(1.68	)		—			—
Noncurrent asset impairment		—			—			(9.82	)		(9.82	)		(13.12	)		(13.12	)
Depreciation due to shortened life of property and equipment		—			—			(14.06	)		(14.06	)		(41.52	)		(41.52	)
Others		—			—			4.71			4.71			—			—
Total adjustments		(11.98	)		(11.98	)		(32.11	)		(32.11	)		(66.18	)		(66.18	)
Consolidated EPS attributable to common equity holders of PLDT (Note 8)		103.97			103.97			87.28			87.28			61.61			61.61

The following table presents our revenues from external customers by category of products and services for the years ended December 31, 2019, 2018 and 2017:

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, 2019, 2018 and 2017.

We derived our revenue from the transfer of goods and services over time and at a point in time in the following major product lines. This is consistent with the revenue information that is disclosed for each reportable segments under PFRS 8, Operating Segments. See Note 4 – Operating Segment Information.

Set out is the disaggregation of PLDT Group’s revenue from contracts with customers for the years ended December 31, 2019 and 2018:

Revenue Streams	Wireless		Fixed Line		Others		Inter- segment Transactions			Consolidated
	(in million pesos)
December 31, 2019
Type of good or service
Service revenue		90,661		87,819		—		(17,125	)		161,355
Non-service revenue		6,245		1,587		—		—			7,832
Total revenue from contracts with customers		96,906		89,406		—		(17,125	)		169,187

Timing of revenue recognition
Transferred over time		90,661		87,819		—		(17,125	)		161,355
Transferred at a point time		6,245		1,587		—		—			7,832
Total revenue from contracts with customers		96,906		89,406		—		(17,125	)		169,187

December 31, 2018
Type of good or service
Service revenue		83,001		81,648		1,094		(13,374	)		152,369
Non-service revenue		6,928		3,574		44		(1	)		10,545
Total revenue from contracts with customers		89,929		85,222		1,138		(13,375	)		162,914

Timing of revenue recognition
Transferred over time		83,001		81,648		1,094		(13,374	)		152,369
Transferred at a point time		6,928		3,574		44		(1	)		10,545
Total revenue from contracts with customers		89,929		85,222		1,138		(13,375	)		162,914

The decrease in trade and other receivables of Php1,219 million as at December 31, 2019 was primarily due to decline in wireless postpaid subscriber base.

The decrease of Php582 million in contract assets as at December 31, 2019 is the result of fewer postpaid new connections during the year.

The increase of Php1,301 million in contract liabilities and unearned revenues as at December 31, 2019 is due to lower realized revenues.

Set out below is the movement in the allowance for expected credit losses of contracts assets for the years ended December 31, 2019 and 2018.

Changes in the contract liabilities and unearned revenues accounts for the years ended December 31, 2019 and 2018 are as follows:

The contract liabilities and unearned revenues accounts as at December 31, 2019 and 2018 are as follows:

Contract liabilities and unearned revenues account pertains to long-term advances for equipment included in certain postpaid bundled plans. As at December 31, 2019, the noncurrent and current portion of contract liabilities and unearned revenues amounted to Php604 million and Php7,879 million, respectively, while as at December 31, 2018, the noncurrent and current portion of contract liabilities and unearned revenues amounted to Php532 million and Php6,650 million, respectively.

Selling, general and administrative expenses for the years ended December 31, 2019, 2018 and 2017 consist of the following:

Compensation and employee benefits for the years ended December 31, 2019, 2018 and 2017 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 and services for the years ended December 31, 2019, 2018 and 2017 consist of the following:

Asset impairment for the years ended December 31, 2019, 2018 and 2017 consist of the following:

Other income (expenses) – net for the years ended December 31, 2019, 2018 and 2017 consist of the following:

Interest income for the years ended December 31, 2019, 2018 and 2017 consist of the following:

Financing costs for the years ended December 31, 2019, 2018 and 2017 consist of the following:

The 2018 and 2017 comparative information were restated to reflect the adjustments on transactions between our wholly-owned subsidiaries resulting to a decrease in service revenue and interconnection costs amounting to Php1,838 million in 2018 and Php993 million in 2017. The adjustments had no impact on our net income, EBITDA, EPS and the consolidated statements of financial position as at December 31, 2018 and 2017 and consolidated statements of cash flows for the years then ended.

Changes in other comprehensive loss under equity of our consolidated statements of financial position for the years ended December 31, 2019, 2018 and 2017 are as follows:

	Foreign currency translation differences of subsidiaries			Net loss on available -for-sale financial investments – net of tax			Net transactions on cash flow hedges – net of tax			Revaluation increment on investment properties – net of tax			Actuarial losses on defined benefit plans – net of tax			Share in the other comprehensive income (loss) of associates and joint ventures accounted for using the equity method			Fair value changes of financial instrument at FVOCI			Total other comprehensive loss attributable to equity holders of PLDT			Share of noncontrolling interests			Total other comprehensive loss – net of tax
	(in million pesos)
Balances as at January 1, 2019		695			(9	)		(640	)		618			(25,689	)		—			(165	)		(25,190	)		19			(25,171	)
Other comprehensive income (loss)		27			—			(256	)		(2	)		(6,074	)		—			127			(6,178	)		(4	)		(6,182	)
Balances as at December 31, 2019		722			(9	)		(896	)		616			(31,763	)		—			(38	)		(31,368	)		15			(31,353	)
Balances as at January 1, 2018		583			4,300			(369	)		620			(24,467	)		182			—			(19,151	)		14			(19,137	)
Effect of adoption of PFRS 9 (Note 2)		—			(4,309	)		—			—			—			(182	)		(136	)		(4,627	)		—			(4,627	)
Balances as at January 1, 2018 (as restated)		583			(9	)		(369	)		620			(24,467	)		—			(136	)		(23,778	)		14			(23,764	)
Other comprehensive income (loss)		112			—			(271	)		(2	)		(1,222	)		—			(29	)		(1,412	)		5			(1,407	)
Balances as at December 31, 2018		695			(9	)		(640	)		618			(25,689	)		—			(165	)		(25,190	)		19			(25,171	)
Balances as at January 1, 2017		608			936			7			619			(23,376	)		312			—			(20,894	)		7			(20,887	)
Other comprehensive income (loss)		(25	)		3,364			(376	)		1			(1,091	)		306			—			2,179			7			2,186
Recycled to retained earnings		—			—			—			—			—			(436	)		—			(436	)		—			(436	)
Balances as at December 31, 2017		583			4,300			(369	)		620			(24,467	)		182			—			(19,151	)		14			(19,137	)

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, 2019 and 2018 are as follows:

The components of our consolidated net deferred income tax assets and liabilities as at December 31, 2019 and 2018 are as follows:

Changes in our consolidated net deferred income tax assets (liabilities) as at December 31, 2019 and 2018 are as follows:

The analysis of our consolidated net deferred income tax assets as at December 31, 2019 and 2018 are as follows:

The analysis of our consolidated net deferred income tax liabilities as at December 31, 2019 and 2018 are as follows:

Provision for income tax for the years ended December 31, 2019, 2018 and 2017 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, 2019, 2018 and 2017 are as follows:

The breakdown of our consolidated deductible temporary differences, carryforward benefits of unused tax credits from excess of MCIT over RCIT, and NOLCO (excluding those not recognized due to the adoption of the OSD method) for which no deferred income tax assets were recognized and the equivalent amount of unrecognized deferred income tax assets as at December 31, 2019 and 2018 are as follows:

DMPI recognized deferred income tax assets to the extent that it is probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. Digitel’s unrecognized deferred income tax assets amounted to Php1,362 million and Php1,421 million as at December 31, 2019 and 2018, 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, 2019 are as follows:

The excess MCIT totaling Php1,435 million as at December 31, 2019 can be deducted against future RCIT liability. The excess MCIT that was deducted against RCIT amounted to Php206 million, Php488 million and Php15 million for the years ended December 31, 2019, 2018 and 2017, respectively. The amount of expired portion of excess MCIT amounted to Php10 million, Php1 million and Php72 million for the years ended December 31, 2019, 2018 and 2017, respectively.

NOLCO totaling Php4,762 million as at December 31, 2019 can be claimed as deduction against future taxable income. The NOLCO claimed as deduction against taxable income amounted to Php9,530 million, Php1,094 million and Php4,241 million for the years ended December 31, 2019, 2018 and 2017, respectively. The amount of expired NOLCO amounted to Php973 million, Php1,272 million and Php354 million for the years ended December 31, 2019, 2018 and 2017, respectively.

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

SubicTel and ClarkTel are registered with Subic Bay Freeport Enterprise and Clark Special Economic Zone Enterprise, or Economic Zones, respectively, under 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.

Our consolidated income derived from non-registered activities within the Economic Zones is subject to the RCIT rate at the end of the reporting period.

The following table presents information necessary to calculate the EPS for the years ended December 31, 2019, 2018 and 2017:

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 year, all outstanding options are exercised and convertible preferred shares are converted to common shares, and appropriate adjustments to our consolidated net income are effected for the related income and expenses on preferred shares. Outstanding stock options will have a dilutive effect only when the average market price of the underlying common share during the period exceeds the exercise price of the stock option.

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

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

Changes in property and equipment account for the years ended December 31, 2019 and 2018 are as follows:

	Cable and wire facilities			Central office equipment			Cellular facilities			Buildings and improvements			Vehicles, aircraft, furniture and other network equipment			Information origination and termination equipment			Land and land improvements			Property under construction			Total
	(in million pesos)
As at December 31, 2017
Cost		207,220			119,642			209,504			27,076			58,964			17,595			3,458			50,585			694,044
Accumulated depreciation, impairment and amortization		(159,765	)		(101,680	)		(159,323	)		(18,022	)		(51,083	)		(13,473	)		(267	)		(3,524	)		(507,137	)
Net book value		47,455			17,962			50,181			9,054			7,881			4,122			3,191			47,061			186,907
Year ended December 31, 2018
Net book value at beginning of the year		47,455			17,962			50,181			9,054			7,881			4,122			3,191			47,061			186,907
Additions (Note 4)		1,278			565			758			120			1,158			2,107			—			52,504			58,490
Disposals/Retirements		(10	)		(27	)		(60	)		(140	)		(95	)		—			—			(9	)		(341	)
Reclassifications (Note 14)		19			(1	)		—			127			(23	)		—			1,117			—			1,239
Transfers and others		10,409			8,237			37,881			265			1,465			1,176			—			(59,433	)		—
Translation differences charged directly to cumulative translation adjustments		—			3			—			1			(3	)		—			—			—			1
Deconsolidation of a subsidiary		—			—			(65	)		(794	)		(273	)		—			—			—			(1,132	)
Impairment losses recognized during the year (Note 5)		(299	)		(292	)		(858	)		(480	)		(29	)		—			—			—			(1,958	)
Depreciation of revaluation increment on investment properties transferred to property and equipment charged to other comprehensive income		—			—			—			(2	)		—			—			—			—			(2	)
Depreciation and amortization		(11,381	)		(10,480	)		(17,499	)		(2,162	)		(3,382	)		(2,334	)		(2	)		—			(47,240	)
Net book value at end of the year		47,471			15,967			70,338			5,989			6,699			5,071			4,306			40,123			195,964
As at December 31, 2018
Cost		217,773			128,321			217,164			26,546			58,711			20,823			4,576			40,123			714,037
Accumulated depreciation, impairment and amortization		(170,302	)		(112,354	)		(146,826	)		(20,557	)		(52,012	)		(15,752	)		(270	)		—			(518,073	)
Net book value		47,471			15,967			70,338			5,989			6,699			5,071			4,306			40,123			195,964
Year ended December 31, 2019
Net book value at beginning of the year		47,471			15,967			70,338			5,989			6,699			5,071			4,306			40,123			195,964
Additions (Note 4)		1,315			989			557			176			3,804			2,987			3			63,040			72,871
Disposals/Retirements		(24	)		—			(99	)		(4	)		(109	)		—			—			(77	)		(313	)
Reclassifications (Note 14)		12			(8	)		(94	)		(886	)		15			1			—			(140	)		(1,100	)
Transfers and others		10,507			7,587			31,378			1,343			1,247			4,696			21			(56,779	)		—
Translation differences charged directly to cumulative translation adjustments		(1	)		(1	)		—			(3	)		2			—			—			—			(3	)
Adjustments		—			—			—			(20	)		—			—			—			—			(20	)
Depreciation of revaluation increment on investment properties transferred to property and equipment charged to other comprehensive income		—			—			—			(2	)		—			—			—			—			(2	)
Depreciation and amortization (Note 3)		(8,084	)		(3,857	)		(17,025	)		(1,102	)		(3,410	)		(1,782	)		(3	)		—			(35,263	)
Net book value at end of the year		51,196			20,677			85,055			5,491			8,248			10,973			4,327			46,167			232,134
As at December 31, 2019
Cost		192,535			135,340			220,238			26,762			62,097			28,224			4,597			46,167			715,960
Accumulated depreciation, impairment and amortization		(141,339	)		(114,663	)		(135,183	)		(21,271	)		(53,849	)		(17,251	)		(270	)		—			(483,826	)
Net book value		51,196			20,677			85,055			5,491			8,248			10,973			4,327			46,167			232,134

Interest capitalized to property and equipment that qualified as borrowing costs amounted to Php1,455 million, Php1,524 million and Php816 million for the years ended December 31, 2019, 2018 and 2017, respectively. See Note 5 – Income and Expenses – Financing Costs – Net. The average interest capitalization rate used was approximately 5% for each of the years ended December 31, 2019, 2018 and 2017, respectively.

Our net foreign exchange differences, which qualified as borrowing costs, amounted to nil, Php411 million and Php106 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The cost of fully depreciated property and equipment that are still being used in the Group’s operations amounted to Php149,119 million and Php171,867 million as at December 31, 2019 and 2018, respectively.

As at December 31, 2019 and 2018, the estimated useful lives of our property and equipment are estimated as follows:

In December 2017, Smart and DMPI recognized an impairment loss of Php3,913 million pertaining to network improvement project involving spectrum refarm and long-term evolution rollout. These assets include Radio Access Network, or RAN, equipment such as base transceiver sets, base station controllers, access radios, antennas, radio network controllers, power and related support facilities, among others, including software licenses and implementation services affecting the Quezon City and Marikina areas.

In 2018, Digitel and DMPI recognized an impairment loss amounting to Php1,096 million and Php862 million, respectively, as a result of the full migration of fixed line subscribers to PLDT network for Digitel and continued network convergence strategy for DMPI.

See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Impairment of non-financial assets and Estimating useful lives of Property and equipment.

On January 28, 2020, the Board of Directors authorized the President and Chief Executive Officer, the Chief Financial Officer, the Property and Facilities Management Head, and any other Officer who may be designated by the President and Chief Executive Officer, for and on behalf of Smart to: (a) negotiate and agree the terms and conditions of any contract or agreement for the sale of the Smart Towers Property;
(b) execute, sign and deliver the agreements; and (c) do or cause to be done all other acts and deeds which are necessary and proper for the implementation of the sale and of the Smart Towers Property.

We have lease contracts for various items of sites, buildings, leased circuits and other equipment used in our operations. We considered in the lease term the non-cancellable period of the lease together with the periods covered by an option to extend and option to terminate the lease.

As at December 31, 2019, the estimated useful life of our ROU assets are estimated as follows:

	2019
	Site			International Leased Circuits			Poles			Domestic Leased Circuits			Office Buildings			Co-located Sites			Total
	(in million pesos)
Costs:
Balances at beginning of the year (as previously stated)		—			—			—			—			—			—			—
Effect of adoption of PFRS 16 (Note 2)		8,580			3,779			607			551			296			11			13,824
Balances at beginning of the year (as restated)		8,580			3,779			607			551			296			11			13,824
Additions		3,906			562			100			489			415			2			5,474
Asset retirement obligation		1,679			—			—			—			124			—			1,803
Modifications		319			—			19			174			91			(2	)		601
Terminals		(72	)		—			—			—			(20	)		—			(92	)
Disposals		—			—			—			—			—			—			—
Balances at end of the year		14,412			4,341			726			1,214			906			11			21,610

Accumulated depreciation and amortization
Balances at beginning of the year (as previously reported)		—			—			—			—			—			—			—
Effect of adoption of PFRS 16 (Note 2)		—			—			—			—			—			—			—
Balances at beginning of the year (as restated)		—			—			—			—			—			—			—
Termination		44			—			—			—			14			—			58
Modifications		—			—			—			3			—			1			4
Charges from asset retirement obligation		(1,297	)		—			—			—			(92	)		—			(1,389	)
Depreciation		(2,673	)		(834	)		(340	)		(186	)		(358	)		(2	)		(4,393	)
Disposals		—			—			—			—			(0	)		—			—
Balances at end of the year		(3,926	)		(834	)		(340	)		(183	)		(436	)		(1	)		(5,720	)
Net book value at end of the year		10,486			3,507			386			1,031			470			10			15,890

The following amounts are recognized in our consolidated income statement for the year ended December 31, 2019:

We had total cash outflows for leases of Php5,399 million for the year ended December 31, 2019. We also had non-cash additions to ROU assets and lease liabilities of Php5,413 million and Php5,577 million, respectively, as at December 31, 2019. The future cash outflows relating to leases that have not yet commenced are disclosed in Note 27 – Provisions and Contingencies.

We have several lease contracts that include extension and termination options. These options are negotiated by us to provide flexibility in managing the leased-asset portfolio and align with our business needs. We exercise significant judgement in determining whether these extension and termination options are reasonably certain to be exercised, see Note 3 Managements Use of Accounting Judgments, Estimates and Assumptions – Determining the lease term of contracts with renewal and terminal options – Company as a Lessee – Beginning January 1, 2019.

Changes in the cost of investments for the years ended December 31, 2019 and 2018 are as follows:

Changes in the accumulated impairment losses for the years ended December 31, 2019 and 2018 are as follows:

Changes in the accumulated equity share in net earnings (losses) of associates and joint ventures for the years ended December 31, 2019 and 2018 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 incorporated in the Philippines. The Cignal TV PDRs confer an economic interest in common shares of Cignal TV indirectly owned by MediaQuest, and when issued, will provide ePLDT with a 40% economic interest in Cignal TV. Cignal TV operates a direct-to-home, or DTH, Pay-TV business under the brand name “Cignal TV”, which is the largest DTH Pay-TV operator in the Philippines.

In June 2013, ePLDT’s Board of Directors approved additional investments in PDRs of MediaQuest:

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

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

On May 21, 2015, ePLDT’s Board of Directors approved an additional Php800 million investment in Hastings PDRs and settlement of the Php200 million balance of the Php500 million Hastings PDR investment in 2014. Subsequently, on June 1, 2015, the Board of Trustees of the PLDT Beneficial Trust Fund and the Board of Directors of MediaQuest approved the issuance of Php3,250 million Hastings PDRs. This provided ePLDT with 70% economic interest in Hastings. See Note 26 – Employee Benefits – Unlisted Equity Investments – Investment in MediaQuest.

In 2017, an impairment test was carried out for ePLDT’s investment in MediaQuest PDRs where it showed that an impairment provision must be recognized. In determining the provision, the recoverable amount of the Print business and Pay TV were determined based on VIU calculations. The VIU calculations were derived from cash flow projections over a period of three to five years based on the 2018 financial budgets approved by the Board of Directors and calculated terminal value.

Using the detailed projections of Print business for five years and applying a terminal value thereafter, ePLDT calculated a recoverable amount of Php1,664 million. Consequently, ePLDT recognized a provision for impairment of its investment in MediaQuest PDRs in relation to its Print business amounting to Php1,784 million for the year ended December 31, 2017, representing the difference between the recoverable amount and the carrying value of the Print business as at December 31, 2017. No impairment provision was recognized for the Pay TV business.

On January 22, 2018, ePLDT’s Board of Directors approved the assignment of the Hastings PDRs, representing a 70% economic interest in Hastings to the PLDT Beneficial Trust Fund for a total consideration of Php1,664 million. The assignment was completed on February 15, 2018 and subsequently ePLDT ceased to have any economic interest in Hastings. See Note 26 – Employee Benefits – Unlisted Equity Investments – Investment in MediaQuest.

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 multimedia content to its customers across the PLDT Group’s broadband and mobile networks.

ePLDT’s aggregate value of investment in MediaQuest PDRs amounted to Php9,747 million and Php9,262 million as at December 31, 2019 and 2018, respectively. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Accounting for investment in MediaQuest through PDRs.

The table below presents the summarized financial information of Satventures as at December 31, 2019 and 2018, and for the years ended December 31, 2019, 2018 and 2017:

On February 27, 2018, the Board of Directors of PCEV approved the consolidation of the various Digital Investments under PCEV, which was carried out through the following transactions:

On October 4, 2018, PLDT, as the ultimate Parent Company of PCEV, VIH, Vision Investment Holdings Pte. Ltd., or Vision, an entity indirectly controlled by KKR and Cerulean Investment Limited, or Cerulean, an entity indirectly owned and controlled by Tencent, entered into subscription agreements under which Vision and Cerulean, or the Lead Investors, will separately subscribe to and VIH will allot and issue to the Lead Investors a total of up to US$175 million Convertible Class A Preferred Shares of VIH, with an option for VIH to allot and issue up to US$50 million Convertible Class A Preferred Shares to such follower investors as may be agreed among VIH, PLDT and the Lead Investors, or the upsize option.

On November 26, 2018, PLDT, IFC and IFC EAF, a fund managed by IFC Asset Management Company, entered into subscription agreements under which IFC and IFC EAF, the follower investors, will separately subscribe to and VIH will allot and issue to the follower investors a total of up to US$40 million Convertible Class A Preferred Shares of VIH pursuant to the upsize option.

The foregoing investment in VIH is not subject to the compulsory merger notification regime under the Philippine Competition Act and its implementing Rules and Regulations. In addition, the Bangko Sentral ng Pilipinas has confirmed that it interposes no objection to the investment.

On November 28, 2018, VIH received the US$175 million funding from KRR and Tencent. Subsequently, VIH received the US$40 million funding from IFC and IFC EAF. As a result of the foregoing, PCEV’s ownership was reduced to 48.74% and retained only two out of the five Board seats in VIH, which resulted in the loss of control over VIH. Consequently, VIH was deconsolidated and the fair market value of the investment amounting to Php10,748 million was recorded as an investment in associate and PCEV recognized gain on deconsolidation amounting to Php12,054 million, which was presented as part of “Other income (expenses) – net” account in our consolidated income statement.

The summarized financial information of VIH as at and for the years ended December 31, 2019 and 2018 is shown below:

The carrying value of PCEV’s investment in VIH amounted to Php8,219 million and Php10,487 million as at December 31, 2019 and 2018, respectively.

Digitel has 60% and 40% interest in ANPC and 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 and 2017, Digitel recorded a reversal of impairment loss amounting to Php92 million and Php201 million, respectively, following improvement in DCI’s operations.

Though Digitel owns more than half of the voting interest in ANPC, management has assessed that Digitel only has significant influence, and not control, due to certain governance matters.

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

Following PLDT’s acquisition of a controlling stake in Digitel, PNPI, on November 4, 2011, sent a notice to exercise its Call Right under Section 6.3 of the JVA, which provides for a Call Right exercisable by PNPI following the occurrence of a Digitel change in control. As at March 5, 2020, Digitel is ready to conclude the transfer of its investment in DCI and ANPC, subject to PNPI’s ability to meet certain regulatory and valuation requirements. This investment is not classified as noncurrent asset held-for-sale at report date as the transfer is assessed as not highly probable because certain conditions have not yet been met by both Digitel and PNPI.

On February 5, 2013, PLDT entered into a Subscription and Shareholders’ Agreement with Asia Outsourcing Alpha Limited, or Alpha, wherein PLDT, through its indirect subsidiary PGIC, acquired from Alpha approximately 20% equity interest in Beta for a total cost of approximately US$40 million, which consists of preferred shares of US$39.8 million and ordinary shares of US$0.2 million. On various dates in 2013 and 2014, PGIC has bought and transferred-in a net in total of 27 ordinary shares and 9,643 preferred shares to certain employees of Beta for a total net payment of US$51 thousand. In 2014, Beta has divested its healthcare BPO business. PGIC received a total cash distribution of US$41.8 million from Beta through redemption of 35.3 million preferred shares and repayment of loan from PGIC. The equity interest of PGIC in Beta remained at 20% after the transfer with economic interest of 18.32%.

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

On July 22, 2016, Asia Outsourcing Gamma Limited, or AOGL, entered into a SPA with Relia, Inc., one of the largest BPO companies in Japan, relating to the acquisition of AOGL’s Customer Relationship Management, or CRM, business under the legal entity SPi CRM, Inc. and Infocom Technologies, Inc., wholly-owned subsidiaries of SPi Technologies, Inc., for a total purchase consideration of US$190.9 million. AOGL is a wholly-owned subsidiary of Beta and the direct holding company of SPi Technologies, Inc. and Subsidiaries. The transaction was completed on September 30, 2016. As a result of the sale, PGIC received a cash distribution of US$11.2 million from Beta through redemption of its preferred shares and portion of its ordinary shares.

On May 19, 2017, AOGL entered into a SPA with Partners Group, a global private markets investment manager, relating to the acquisition of SPi Global, a wholly-owned subsidiary of AOGL, for an enterprise value of US$330 million. The transaction was completed on August 25, 2017. As a result of the sale, PGIC received a total cash distribution of US$57.05 million from Beta on various dates in 2017 and 2018 through redemption of a portion of its ordinary shares. The remaining balance of US$2.29 million is held in escrow and will be released in 2020 subject to indemnity claims of the buyer.

The carrying value of investment in common shares in Beta amounted to Php35 million and Php36 million as at December 31, 2019 and 2018, respectively. The economic interests of PGIC in Beta remained at 18.32% as at December 31, 2019 and 2018.

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 MPIC and Ayala Corporation, or Ayala, embarked on a venture to bid for the Automated Fare Collection System, or AFCS, a project of the Department of Transportation and Communications, or DOTC, and Light Rail Transit Authority, to upgrade the Light Rail Transit 1 and 2, and Metro Rail Transit ticketing systems.

In 2014, AFPI, the joint venture company, was incorporated in the Philippines and registered with the Philippine SEC. Smart subscribed to Php503 million equivalent to 503 million shares at a subscription price of Php1.00 per share representing 20% equity interest. MPIC and Ayala Group signed a ten-year concession agreement with the DOTC to build and implement the AFCS project.

In March 2019, Smart infused additional capital of Php70 million as additional subscription of preferred shares.

The summary of investments in AFPI made by Smart as at December 31, 2019 and 2018 is shown below:

Smart’s investment in AFPI has been fully impaired as at December 31, 2019. Share in net cumulative losses were not recognized as it does not have any legal or constructive obligation to pay for such losses and have not made any payments on behalf of AFPI.

As at December 31, 2019, ACeS Philippines held a 36.99% equity interest in AIL, a company incorporated under the laws of Bermuda. AIL owns the Garuda I Satellite and the related system control equipment in Batam, Indonesia. In December 2014, AIL suffered a failure of the propulsion system on board the Garuda I Satellite, thus, AIL decided to decommission the operation of Garuda I Satellite in January 2015.

AIL has incurred significant operating losses, negative operating cash flows, and significant levels of debt. The financial condition of AIL was partly due to the National Service Providers’, or NSPs, inability to generate the amount of revenues originally expected as the growth in subscriber numbers has been significantly lower than budgeted. These factors raised substantial doubt about AIL’s ability to continue as a going concern. On this basis, we recognized a full impairment provision of Php1,896 million in respect of our investment in AIL in 2003.

Share in net cumulative losses were not recognized as we do not have any legal or constructive obligation to pay for such losses and have not made any payments on behalf of AIL.

The following tables present the summarized financial information of our individually immaterial investments in associates for the years ended December 31, 2019, 2018 and 2017:

We did not receive any dividends from our associates for the years ended December 31, 2019 and 2018, while dividends received from our associates amounted to Php833 million for the year ended December 31, 2017.

We have no outstanding contingent liabilities or capital commitments with our associates as at December 31, 2019 and 2018.

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

The consideration in the amount of Php52.8 billion representing the purchase price for the equity interest and assigned advances of previous owners to VTI, Bow Arken and Brightshare was paid in three tranches: 50% upon signing of the SPAs on May 30, 2016, 25% on December 1, 2016 and the final 25% on May 30, 2017. The SPAs also provide that PLDT and Globe, through VTI, Bow Arken and Brightshare, would assume liabilities amounting to Php17.2 billion from May 30, 2016. In addition, the SPAs contain a price adjustment mechanism based on the variance in these assumed liabilities to be agreed among PLDT, Globe and previous owners on the results of the confirmatory due diligence procedures jointly performed by PLDT and Globe. On May 29, 2017, PLDT and Globe paid the previous owners the net amount of Php2.6 billion in relation to the aforementioned price adjustment based on the result of the confirmatory due diligence. See Note 28 – Financial Assets and Liabilities – Commercial Commitments.

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

On February 28, 2017, PLDT and Globe each subscribed to 2.8 million new preferred shares to be issued out of the unissued portion of the existing authorized capital stock of VTI, at a subscription price of Php4 thousand per subscribed share (inclusive of a premium over par of Php3 thousand per subscribed share) or a total subscription price for each of Php11,040 million (inclusive of a premium over par of Php8,280 million). PLDT and Globe’s assigned advances from SMC which were subsequently reclassified to deposit for future subscription of each amounting to Php11,040 million were applied as full subscription payment for the subscribed shares.

Also, on the same date, PLDT and Globe each subscribed to 800 thousand new preferred shares of the authorized capital stock of VTI, at a subscription price of Php4 thousand per subscribed share (inclusive of a premium over par of Php3 thousand per subscribed share), or a total subscription price for each Php3,200 million (inclusive of a premium over par of Php2,400 million). PLDT and Globe each paid Php148 million in cash for the subscribed shares. The remaining balance of the subscription price of PLDT and Globe were fully paid as at December 29, 2017.

On December 15, 2017, PLDT and Globe each subscribed to 600 thousand new preferred shares of the authorized capital stock of VTI, at a subscription price of Php5 thousand per subscribed share (inclusive of a premium over par of Php4 thousand per subscribed share), for a total subscription price of Php3,000 million (inclusive of a premium over par of Php2,400 million). PLDT and Globe each paid Php10 million in cash for the subscribed shares upon execution of the agreement. The remaining balance of the subscription price was paid via conversion of advances amounting to Php2,990 million as at December 31, 2017.

The amount of the advances outstanding to PLDT, to cover for the assumed liabilities and working capital requirements of the acquired companies, amounted to Php13 million and Php51 million as at December 31, 2019 and 2018, respectively.

PLDT has engaged an independent valuer to determine the fair value adjustments relating to the acquisition. As at May 30, 2016, our share in the fair value of the intangible assets, which includes spectrum, amounted to Php18,885 million and goodwill of Php17,824 million has been determined based on the final results of an independent valuation. Goodwill arising from this acquisition and carrying amount of the identifiable assets and liabilities, including deferred tax liability, and the related amortization through equity in net earnings were retrospectively adjusted accordingly.

The table below presents the summarized financial information of VTI, Bow Arken and Brightshare as at December 31, 2019 and 2018, and for the years ended December 31, 2019, 2018 and 2017:

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

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

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

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

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

On August 26, 2016, the CA issued a Writ of Preliminary Injunction enjoining and directing the respondent PCC, their officials and agents, or persons acting for and in their behalf, to cease and desist from conducting further proceedings for the pre-acquisition review and/or investigation of the SMC Transactions based on its Letters dated June 7, 2016 and June 17, 2016 during the pendency of the case and until further orders are issued by the CA. On September 14, 2016, the PCC filed a Motion for Reconsideration of the CA’s Resolution. During this time, Globe moved to have its Petition consolidated with the PLDT Petition. In a Resolution promulgated on October 19, 2016, the CA: (i) accepted the consolidation of Globe’s petition versus the PCC (CA G.R. SP No. 146538) into PLDT’s petition versus the PCC (CA G.R. SP No. 146528) with the right of replacement; (ii) admitted the Comment dated October 4, 2016 filed by the PCC; (iii) referred to the PCC for Comment (within 10 days from receipt of notice) PLDT’s Urgent Motion for the Issuance of a Gag Order dated September 30, 2016 and to cite the PCC for indirect contempt; and (iv) ordered all parties to submit simultaneous memoranda within a non-extendible period of 15 days from notice. On November 11, 2016, PLDT filed its Memorandum in compliance with the CA’s Resolution.

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

On April 18, 2017, the PCC filed before the Supreme Court a Petition to Annul the Writ of Preliminary Injunction issued by the CA’s 12^th Division on August 26, 2016 restraining PCC’s review of the SMC Transactions. In compliance with the Supreme Court’s Resolution issued on April 25, 2017, PLDT on July 3, 2017 filed its Comment dated July 1, 2017 to the PCC’s Petition. The Supreme Court issued a Resolution dated July 18, 2017 noting PLDT’s Comment and requiring the PCC to file its Consolidated Reply. The PCC filed a Motion for Extension of Time and prayed that it be granted until October 23, 2017 to file its Consolidated Reply. The PCC filed its Consolidated Reply to the: (1) Comment filed by PLDT; and
(2) Motion to Dismiss filed by Globe on November 7, 2017. The same was noted by Supreme Court in a Resolution dated November 28, 2017.

During the intervening period, the CA rendered its Decision in October 18, 2017, granting the Petitions filed by PLDT and Globe. In its Decision, the CA: (i) permanently enjoined the PCC from conducting further proceedings for the pre-acquisition review and/or investigation of the SMC Transactions based on its Letters dated June 7, 2016 and June 17, 2016; (ii) annulled and set aside the Letters dated June 7, 2016 and June 17, 2016; (iii) precluded the PCC from conducting a full review and/or investigation of the SMC Transactions;
(iv) compelled the PCC to recognize the SMC Transactions as deemed approved by operation of law; and
(v) denied the PCC’s Motion for Partial Reconsideration dated March 6, 2017, and directed the PCC to permanently comply with the CA’s Resolution dated February 17, 2017 requiring PCC to remove its preliminary statement of concern from its website. The CA clarified that the deemed approved status of the SMC Transactions does not, however, remove the power of PCC to conduct post-acquisition review to ensure that no anti-competitive conduct is committed by the parties.

On November 7, 2017, PCC filed a Motion for Additional Time to file a Petition for Review on Certiorari before the Supreme Court. The Supreme Court granted PCC’s motion in its Resolution dated November 28, 2017.

On December 13, 2017, PLDT, through counsel, received the PCC’s Petition for Review on Certiorari filed before the Supreme Court assailing the CA’s Decision dated October 18, 2017. In this Petition, the PCC raised procedural and substantive issues for resolution. Particularly, the PCC assailed the issuance of the writs of certiorari, prohibition, and mandamus considering that the determination of the sufficiency of the Notice pursuant to the Transitory Rules involves the exercise of administrative and discretionary prerogatives of the PCC. On the substantive aspect, the PCC argued that the CA committed grave abuse of discretion in ruling that the SMC Transactions should be accorded the deemed approved status under the Transitory Rules. The PCC maintained that the Notice of the SMC Transaction was defective because it failed to provide the key terms thereof.

In the Supreme Court Resolution dated November 28, 2017, which was received by PLDT on December 27, 2017, the Supreme Court decided to consolidate the PCC’s Petition to Annul the Writ of Preliminary Injunction issued by the CA’s 12^th Division with that of its Petition for Review on Certiorari assailing the decision of the CA on the merits.

On February 13, 2018, PLDT received Globe’s Motion for Leave to File and Admit the Attached Rejoinder, which was denied by the Supreme Court in a Resolution dated March 13, 2018.

On February 27, 2018, PLDT received notice of the Supreme Court’s Resolution dated January 30, 2018 directing PLDT and Globe to file their respective Comments to the Petition for Review on Certiorari without giving due course to the same.

On April 5, 2018, PLDT filed its Comment on the Petition for Review on Certiorari. On April 11, 2018, PLDT received Globe’s Comment/Opposition [Re: Petition for Review on Certiorari dated December 11, 2017] dated March 4, 2018.

On April 24, 2018, PCC’s Motion to Expunge [Respondent PLDT’s Comment on the Petition for Review on Certiorari] dated April 18, 2018 was received. On May 9, 2018, PLDT filed a Motion for Leave to File and Admit the Attached Comment on the Petition for Review on Certiorari dated May 9, 2018.

On June 5, 2018, PLDT received the Supreme Court’s Resolution dated April 24, 2018 granting the motion for extension of PLDT and noting its Comment on the Petition for Review on Certiorari filed in compliance with the Supreme Court’s Resolution dated January 30, 2018 and requiring the PCC to file a Consolidated Reply to the comments within ten days from notice. On June 20, 2018, PLDT, through counsel, received PCC’s Urgent Omnibus Motion for: (1) Partial Reconsideration of the Resolution dated April 24, 2018; and (2) Additional Time dated June 11, 2018.

PCC filed its Consolidated Reply Ad Cautelam dated July 16, 2018, which was received on July 19, 2018.

On July 26, 2018, PLDT received a Resolution dated June 19, 2018 where the Supreme Court resolved to grant PLDT’s Motion for Leave to File and Admit the Attached Comment, and PCC’s Motion for Extension to file a Comment/Opposition on/to PLDT’s Motion for Leave to File and Admit the Attached Comment.

On August 14, 2018, PLDT received a Resolution dated July 3, 2018 where the Supreme Court resolved to deny the PCC’s motion to reconsider the Resolution dated April 24, 2018 and grant its motion for extension of time to file its reply to PLDT’s and Globe’s Comments, with a warning that no further extension will be given.

On August 16, 2018, PLDT received a Resolution dated June 5, 2018 where the Supreme Court noted without action the Motion to Expunge by PCC in view of the Resolution dated April 24, 2018 granting the motion for extension of time to file a comment on the petition in G.R. No. 234969.

On October 4, 2018, PLDT received a Resolution dated August 7, 2018 where the Supreme Court noted the PCC’s Consolidated Reply Ad Cautelam.

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

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

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

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

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

On January 20, 2015, PLDT and Rocket Internet entered into a JVA designed to foster the development of internet-based businesses in the Philippines. PLDT, through its subsidiary, Voyager, and Asia Internet Holding S.à r.l., or AIH, which is 50%-owned by Rocket Internet, were the initial shareholders of the joint venture company PHIH. iCommerce, former subsidiary of VIH, replaced Voyager in agreement as shareholder of PHIH on October 14, 2015 and held a 33.33% equity interest in PHIH.

The objective of PHIH was the creation and development of online businesses in the Philippines, the leveraging of local market and business model insights, the facilitation of commercial, strategic and investment partnerships, and the acceleration of the rollout of online startups in the Philippines. In accordance with the underlying agreements, iCommerce paid approximately €7.4 million to PHIH as contribution to capital. Payment of another contribution by iCommerce to the PHIH capital of approximately €2.6 million was requested in 2016 and remained outstanding.

On September 15, 2017, AIH initiated arbitral proceedings via the German Arbitration Institute (DIS), or DIS, against iCommerce for not settling the €2.6 million contribution. AIH required the payment of €2.6 million plus interest and all costs of the arbitral proceedings.

On December 14, 2017, VIH and PLDT Online entered into a Sale and Purchase Agreement whereby VIH sold all of its 10 thousand shares in iCommerce to PLDT Online for a total purchase price of SG$1.00. On the same date, VIH assigned its loans receivables from iCommerce to PLDT Online amounting to US$8.6 million. In consideration, a total of US$8.9 million, inclusive of interest, was fully paid by PLDT Online to VIH on November 30, 2017.

On April 19, 2018, iCommerce, together with PLDT and Voyager, executed a Settlement Agreement with AIH to terminate the arbitral proceedings and to settle disputes over rights and obligations in connection with the PHIH agreements. On the same date, iCommerce executed a Share Transfer Agreement with AIH to transfer its PHIH shares to AIH. As a result, iCommerce gave up its 33.33% equity interest for zero value and its claims over the remaining cash of PHIH. iCommerce, AIH and PHIH waived all other claims in connection with PHIH, including any claims against iCommerce.

On separate letters dated April 26, 2018, iCommerce and AIH informed the DIS that both parties have concluded an out-of-court settlement with AIH requesting for the termination of the arbitral proceedings.

On May 7, 2018, iCommerce received the order of the DIS for the termination of the arbitral proceedings and the administrative fees to be paid in relation to the arbitral proceedings. With the foregoing, iCommerce has completed the exit from the joint venture.

As a result, iCommerce recognized a loss on investment written-off amounting to Php362 million for the difference between the book value of investment in PHIH and the subscription payable. Such loss is recorded as part of “Other income (expenses) – Others – net” in our consolidated income statement.

On March 1, 2010, PCEV, MPIC and Beacon, entered into an Omnibus Agreement, or OA, where 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 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.

PCEV accounted for its investment in Beacon as investment in joint venture since the OA established joint control over Beacon until its full divestment on June 27, 2017.

On May 30, 2016, MPIC settled a portion of the consideration amounting to Php17,000 million immediately upon signing of the Share Purchase Agreement dated May 30, 2016 and the balance of Php9,200 million will be paid in annual installments until June 2020.

On June 27, 2017, MPIC settled a portion of the consideration amounting to Php12,000 million upon closing of the sale under the Share Purchase Agreement dated June 13, 2017 and the balance of Php9,800 million will be paid in annual installments from June 2018 to June 2021.

Subsequent to its full divestment in June 2017, PCEV continued to hold its representation in the Board of Directors of Beacon and participate in the decision making. As set forth in the Share Purchase Agreement dated June 30, 2017: (i) PCEV shall be entitled to nominate one director to the Board of Directors of Beacon (“Seller’s Director”) and MPIC agrees to vote its shares in Beacon in favor of such Seller’s Director; and
(ii) MPIC shall cede to PCEV the right to vote all of the shares. The parties agreed that with respect to decisions or policies affecting dividend payouts to be made by Beacon, PCEV shall exercise its voting rights, and shall vote, in accordance with the recommendation of MPIC on such matter. Based on the foregoing, PCEV’s previously joint control over Beacon has become a significant influence.

Beginning January 1, 2018, the unpaid balance from MPIC is measured at FVOCI using discounted cash flow valuation method in accordance with the new classification under PFRS 9 with interest income to be accreted over the term of the receivable.

On December 5, 2017, the Board of Directors of PCEV approved the proposed sale of 50% of PCEV’s receivable from MPIC, with an option on the part of PCEV to upsize to 75%, consisting of the proceeds from the sale of its shares in Beacon, which are due in 2019 to 2021.

On March 2, 2018, PCEV entered into a Receivables Purchase Agreement, or RPA, with various financial institutions, or the Purchasers, to sell a portion of its receivables from MPIC due in 2019 to 2021 amounting to Php5,550 million for a total consideration of Php4,852 million, which was settled on March 5, 2018. Under the terms of the RPA, the Purchasers will have exclusive ownership of the purchased receivables and all of its rights, title, and interest.

On March 23, 2018, PCEV entered into another RPA with a financial institution to sell a portion of its receivables from MPIC due in 2019 amounting to Php2,230 million for a total consideration of Php2,124 million, which was settled on April 2, 2018.

PCEV’s remaining receivables from MPIC amounted to Php2,919 million, net of Php2 million allowance for ECL, and Php4,353 million, net of Php2 million allowance for ECL as at December 31, 2019 and 2018, respectively.

The following table explains the changes in the allowance for ECLs between the beginning and the end of the year.

The following tables present the summarized financial information of our individually immaterial investments in associates for the years ended December 31, 2019, 2018 and 2017:

We have no outstanding contingent liabilities or capital commitments with our joint ventures as at December 31, 2019 and 2018.

In 2019, Smart along with Globe and Dito Telecommunity, Inc. entered into an agreement to form a joint venture that will address the requirements of Republic Act No. 11202, or the Mobile Number Portability, or MNP, Act. The newly enacted law allows mobile phone users to switch networks or change their subscription from prepaid to postpaid or vice versa, without changing their mobile numbers.

In the same year, TCI was incorporated in the Philippines on December 26, 2019 and registered with the Philippine SEC on January 17, 2020. The primary purpose of the joint venture is to serve as a clearing house for MNP. TCI will ensure smooth implementation of mobile number porting services. Smart subscribed Php10 million representing 33.3% equity interest in TCI, which is equivalent to 10 million shares at a subscription price of Php1.00 per share.

On August 7, 2014, PLDT and Rocket Internet entered into a global strategic partnership to drive the development of online and mobile payment solutions in emerging markets. Rocket Internet provides a platform for the rapid creation and scaling of consumer internet businesses outside the U.S. and China. Rocket Internet’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 Internet’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 Internet as at August 2014. These new shares are of the same class and bear the same rights as the Rocket Internet shares held by the investors as at the date of the agreement namely, Investment AB Kinnevik and Access Industries, in addition to Global Founders GmbH (formerly European Founders Fund GmbH). PLDT made the €333 million investment in two payments (on September 8 and September 15, 2014), which it funded from available cash and new debt.

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

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

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

On April 16, 2018, Rocket Internet announced the buyback of up to 15 million shares through a public share purchase offer, or the Offer, against payment of an offer price in the amount of €24 per share. PLDT Online committed to accept the Offer of Rocket Internet for at least 7 million shares, or approximately 67.4% of the total number of shares directly held by PLDT Online.

On May 4, 2018, Rocket Internet accepted the tender of PLDT Online of 7 million shares and paid the total consideration of €163 million, or Php10,059 million, which was settled on May 9, 2018, reducing the equity ownership in Rocket Internet from 6.1% to 2.0%.

On May 23, 2018, Rocket Internet redeemed 10.8 million shares reducing its share capital to €154 million. As a result of the redemption of shares, PLDT Online’s equity ownership in Rocket Internet increased from 2.0% to 2.1%.

On various dates in the third quarter of 2018, PLDT Online sold 0.7 million Rocket Internet shares for an aggregate amount of €22 million, or Php1,346 million, reducing equity ownership in Rocket Internet from 2.1% to 1.7%.

On December 6, 2018, Rocket Internet redeemed 1.9 million shares reducing its share capital to €153 million. PLDT Online’s equity ownership in Rocket Internet remained at 1.7%

On various dates in 2019, PLDT Online sold 0.7 million Rocket internet shares for an aggregate amount of €18 million, or Php1,021 million, reducing equity ownership in Rocket Internet from 1.7% to 1.3%.

On October 9, 2019, Rocket Internet redeemed 1.7 million shares reducing its share capital to €151 million. PLDT Online’s equity ownership in Rocket Internet remained at 1.3%

On January 30, 2020, Rocket Internet redeemed 13.5 million shares reducing its share capital to €137 million. As a result of the redemption of shares, PLDT Online’s equity ownership in Rocket Internet increased from 1.3% to 1.4%.

Further details on investment in Rocket Internet for the years ended December 31, 2019, 2018 and 2017, and as at December 31, 2019 and 2018 are as follows:

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

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

On March 10, 2016, the US$15 million convertible note held by PLDT Online was converted into 20.7 million ordinary shares of iflix in connection with a new funding round led by Sky Plc, Europe’s leading entertainment company, and the Indonesian company, Emtek Group. The conversion resulted on a valuation gain amounting to U$19 million, or Php898 million, increasing the fair value of PLDT Online’s investment amounting to US$34 million, or Php1,584 million.

On August 4, 2017, PLDT Online subscribed to a convertible note of iflix for US$1.5 million, or Php75 million, in a new funding round led by Hearst Entertainment. The convertible note was paid on August 8, 2017. The note is zero coupon, senior and unsubordinated, non-redeemable, transferable and convertible into Series B Preferred Shares subject to occurrence of a conversion event. iflix will use the funds to invest in its local content strategy and for its regional and international expansion.

On December 15, 2018, the US$1.5 million convertible note held by PLDT Online was converted into 1.0 million Series B Preferred Shares of iflix upon the occurrence of the cut-off date. After the conversion of all outstanding convertible notes, PLDT Online’s equity ownership in iflix was reduced from 7.3% to 5.3%.

In 2019, due to additional issuances of shares by iflix, PLDT Online’s equity ownership in iflix was reduced from 5.3% to 4.9%.

The fair value of PLDT Online’s investment amounted to Php599 million and Php844 million as at December 31, 2019 and 2018, respectively.

On September 3, 2015, PLDT Capital subscribed to an 8% US$5 million Convertible Promissory Note, or Note, issued by Phunware, a Delaware corporation. Phunware provides an expansive mobile delivery platform that creates, markets, and monetizes mobile application experiences across multiple screens. The US$5 million Note was issued to and paid for by PLDT Capital on September 4, 2015.

On December 18, 2015, PLDT Capital subscribed to Series F Preferred Shares of Phunware for a total consideration of US$3 million. On the same date, the Note and its related interest were converted to additional Phunware Series F Preferred Shares.

On February 27, 2018, Phunware entered into a definitive Agreement and Plan of Merger, or Merger Agreement, with Stellar Acquisition III, Inc., or Stellar, relating to a business combination transaction for an enterprise value of US$301 million, on a cash-free, debt-free basis. Pursuant to the Merger Agreement, the holders of Phunware common stock will be entitled to the right to receive the applicable portion of the merger consideration in the form of Stellar common shares, which are listed on the Nasdaq Stock Market. As a result, the holders of Phunware preferred stock have requested the automatic conversion of all outstanding preferred shares into common shares effective as of immediately prior to the closing of the transaction on a conversion ratio of one common share per one preferred share. In addition to the right to receive Stellar common shares, each holder of Phunware Stock is entitled to elect to receive its pro rata share of warrants to purchase Stellar common shares that are held by the affiliate companies of Stellar’s co-Chief Executive Officers, or Stellar’s Sponsors.

On November 28, 2018, PLDT Capital elected to receive its full pro rata share of the warrants to purchase Stellar common shares held by Stellar’s Sponsors.

On March 15, 2019, PLDT Capital exercised its warrants to purchase PHUN common shares for a total consideration of US$1.6 million.

The fair value amount of PLDT Capital’s investment amounted to Php61 million and Php497 million as at December 31, 2019 and 2018, respectively.

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

On December 20, 2018, Matrixx entered into a Repurchase Agreement with PLDT Capital to repurchase all of its capital stock held by PLDT Capital including a warrant to purchase capital stock for US$5 million. The transaction closed on the same day.

In February 2013, Smart purchased at par a seven-year GT Capital Bond with face value of Php150 million, which matured on February 27, 2020. The bond has a gross coupon rate of 4.84% payable on a quarterly basis, and was recognized as HTM investment. Starting January 1, 2018, the bond was classified as debt instrument at amortized cost under PFRS 9. Interest income, net of withholding tax, recognized on this investment amounted to Php5.8 million for each of the years ended December 31, 2019, 2018 and 2017. The carrying value of this investment amounted to Php150 million as at December 31, 2019 and 2018.

In May 2013, PLDT invested US$2.0 million in a five-year time deposit with Security Bank at a gross coupon rate of 3.5%, which matured on May 31, 2018. Interest income, net of withholding tax, recognized on this investment amounted to US$25 thousand, or Php1.3 million, for the year ended December 31, 2018.

Changes in investment properties account for the years ended December 31, 2019 and 2018 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.

The valuation for land was based on a market approach valuation technique using price per square meter ranging from Php30 to Php32 thousand. The valuation for building and land improvements was 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 Php65 million, Php38 million and Php27 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Rental income relating to investment properties that are being leased and included as part of revenues amounted to Php235 million, Php234 million and Php174 million for the years ended December 31, 2019, 2018 and 2017, respectively.

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

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

Changes in goodwill and intangible assets account for the years ended December 31, 2019 and 2018 are as follows:

	Intangible Assets with Indefinite Life		Intangible Assets with Finite Life											Total Intangible Assets									Total Goodwill
	Trademark		Franchise		Customer List		Licenses		Spectrum		Others			with Finite Life			Total Intangible Assets			Goodwill			and Intangible Assets
	(in million pesos)
December 31, 2019
Costs:
Balances at beginning and end of the year		4,505		3,016		4,726		1,079		1,205		775			10,801			15,306			62,033			77,339
Additions		—		—		—		—		—		—			—			—			9			9
Balances at end of the year		4,505		3,016		4,726		1,079		1,205		775			10,801			15,306			62,042			77,348
Accumulated amortization and impairment:
Balance at beginning of the year		—		1,334		3,790		1,051		1,152		775			8,102			8,102			654			8,756
Amortization during the year (Notes 4 and 5)		—		186		511		8		53		—			758			758			—			758
Balances at end of the year		—		1,520		4,301		1,059		1,205		775			8,860			8,860			654			9,514
Net balances at end of the year		4,505		1,496		425		20		—		—			1,941			6,446			61,388			67,834
Estimated useful lives (in years)		—		16	2 – 9			18		15	1 – 10				—			—			—			—
Remaining useful lives (in years)		—		8		1		3		—		—			—			—			—			—
December 31, 2018
Costs:
Balances at beginning of the year		4,505		3,016		4,726		1,079		1,205		1,562			11,588			16,093			63,058			79,151
Additions		—		—		—		—		—		21			21			21			—			21
Disposals		—		—		—		—		—		(372	)		(372	)		(372	)		—			(372	)
Deconsolidation		—		—		—		—		—		(460	)		(460	)		(460	)		(1,025	)		(1,485	)
Translation and other adjustments		—		—		—		—		—		24			24			24			—			24
Balances at end of the year		4,505		3,016		4,726		1,079		1,205		775			10,801			15,306			62,033			77,339
Accumulated amortization and impairment:
Balances at beginning of the year		—		1,147		3,280		1,044		1,071		1,347			7,889			7,889			1,679			9,568
Disposals		—		—		—		—		—		(372	)		(372	)		(372	)		—			(372	)
Amortization during the year (Notes 4 and 5)		—		187		510		7		81		107			892			892			—			892
Deconsolidation		—		—		—		—		—		(331	)		(331	)		(331	)		(1,025	)		(1,356	)
Translation and other adjustments		—		—		—		—		—		24			24			24			—			24
Balances at end of the year		—		1,334		3,790		1,051		1,152		775			8,102			8,102			654			8,756
Net balances at end of the year		4,505		1,682		936		28		53		—			2,699			7,204			61,379			68,583
Estimated useful lives (in years)		—		16	2 – 9			18		15	1 – 10				—			—			—			—
Remaining useful lives (in years)		—		9	1 – 2			4		1		—			—			—			—			—

The consolidated goodwill and intangible assets of our reportable segments as at December 31, 2019 and 2018 are as follows:

Intangible asset with indefinite life pertains to the “Sun Cellular” trademark of DMPI, resulting from PLDT’s acquisition of Digitel in 2011. PLDT intends to continue using the “Sun Cellular” brand to cater to a specific market segment. As such, the “Sun Cellular” trademark is viewed to have an indefinite useful life.

VIH’s subsidiary, PayMaya, continuously improves its existing products and services through regular technological development and upgrades of their platforms. Accumulated costs related to such technical activities are capitalized as intangible assets. VIH were deconsolidated in PCEV Group as at November 30, 2018. Thus, the related intangible assets of VIH were also deconsolidated.

The consolidated future amortization of intangible assets as at December 31, 2019 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, 2019, the PLDT Group’s goodwill comprised of goodwill resulting from acquisition of PLDT’s additional investment in PG1 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, SBI’s acquisition of Airborne Access Corporation in 2008, and Smart’s acquisition of SBI in 2004.

Although revenue streams may be segregated among the companies within the PLDT Group, the cost items and cash flows are difficult to carve out due largely to the significant portion of shared and common used network/platform. The same is true for Sun, wherein Smart 2G/3G network, cellular base stations and fiber optic backbone are shared for areas where Sun has limited connectivity and facilities. On the other hand, PLDT has the largest fixed line network in the Philippines. PLDT’s transport facilities are installed nationwide to cover both domestic and international IP backbone to route and transmit IP traffic generated by the customers. In the same manner, PLDT has the most Internet Gateway facilities which are composed of high capacity IP routers and switches that serve as the main gateway of the Philippines to the Internet connecting to the World Wide Web. With PLDT’s network coverage, other fixed line subsidiaries share the same facilities to leverage on a Group perspective.

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

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

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

In 2018, the Wireless and Fixed Line units are the lowest CGUs to which goodwill is to be allocated given that the Fixed Line and Wireless operations generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

The recoverable amount of the Wireless and Fixed Line CGUs have been determined using the value-in-use approach calculated using cash flow projections based on the financial budgets approved by the Board of Directors. The post-tax discount rates applied to cash flow projections are 8.22% for the Wireless and Fixed Line CGUs. Cash flows beyond the projection period are determined using a 2.00% growth rate for the Wireless and Fixed Line CGUs, which is the same as the long-term average growth rate for the telecommunications industry. Other key assumptions used in the cash flow projections include revenue growth and capital expenditures.

Based on the assessment of the VIU of the Wireless and Fixed Line CGUs, the recoverable amount of the Wireless and Fixed Line CGUs exceeded their carrying amounts, hence, no impairment was recognized in relation to goodwill and intangible assets with indefinite useful life as at December 31, 2019 and 2018.

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

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 Php1,022 million, Php957 million and Php612 million for the years ended December 31, 2019, 2018 and 2017, 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 to affiliates.

Trade and other receivables are non-interest-bearing and generally have settlement terms of 30 to 180 days.

For terms and conditions relating to related party receivables, see Note 25 – Related Party Transactions.

See Note 28 – Financial Assets and Liabilities 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.

The following table explains the changes in the allowance for expected credit losses as at December 31, 2019 and 2018:

	2019
		Retail Subscribers						Corporate Subscribers						Foreign Administrations						Domestic Carriers					Dealers, Agents and Others						Total
		Stage 2			Stage 3			Stage 2			Stage 3			Stage 2			Stage 3			Stage 2		Stage 3			Stage 2			Stage 3			Stage 2			Stage 3
		Lifetime ECL						Lifetime ECL						Lifetime ECL						Lifetime ECL					Lifetime ECL						Lifetime ECL						Total
		(in million pesos)
Balances at beginning of the year			893			8,931			603			3,906			5			914			3		74			91			1,083			1,595			14,908			16,503
Provisions (Note 5)			418			2,725			211			661			(2	)		64			1		12			10			(29	)		638			3,433			4,071
Reclassifications and reversals			(366	)		793			(80	)		201			—			(604	)		—		—			(3	)		4			(449	)		394			(55	)
Write-offs			(12	)		(2,683	)		(1	)		(895	)		—			—			—		—			—			(13	)		(13	)		(3,591	)		(3,604	)
Translation adjustments			(7	)		—			(1	)		(3	)		—			—			—		—			—			—			(8	)		(3	)		(11	)
Balances at end of the year			926			9,766			732			3,870			3			374			4		86			98			1,045			1,763			15,141			16,904

	2018
		Retail Subscribers						Corporate Subscribers						Foreign Administrations						Domestic Carriers					Dealers, Agents and Others						Total
		Stage 2			Stage 3			Stage 2			Stage 3			Stage 2			Stage 3			Stage 2		Stage 3			Stage 2			Stage 3			Stage 2			Stage 3
		Lifetime ECL						Lifetime ECL						Lifetime ECL						Lifetime ECL					Lifetime ECL						Lifetime ECL						Total
		(in million pesos)
Balances at beginning of the year (as restated)			787			7,925			474			3,212			7			925			1		75			147			1,206			1,416			13,343			14,759
Provisions (Note 5)			20			3,109			172			820			44			(13	)		2		2			9			27			247			3,945			4,192
Reclassifications and reversals			86			6			(48	)		201			(46	)		2			—		(3	)		(5	)		(146	)		(13	)		60			47
Business combination/dissolution			—			—			—			—			—			—			—		—			(57	)		—			(57	)		—			(57	)
Write-offs			—			(2,109	)		—			(328	)		—			—			—		—			(3	)		(4	)		(3	)		(2,441	)		(2,444	)
Translation adjustments			—			—			5			1			—			—			—		—			—			—			5			1			6
Balances at end of the year			893			8,931			603			3,906			5			914			3		74			91			1,083			1,595			14,908			16,503

The significant changes in the balances of trade and other receivables and contract assets are disclosed in Note 5 – Income and Expenses, while the information about the credit exposures are disclosed in Note 28 – Financial Assets and Liabilities.

The cost of inventories and supplies recognized as expense for the years ended December 31, 2019, 2018 and 2017 are as follows:

Changes in the allowance for inventory obsolescence and write-down for the years ended December 31, 2019 and 2018 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.

PLDT’s number of shares of subscribed and outstanding capital stock as at December 31, 2019 and 2018 are as follows:

There were no changes in PLDT’s capital account for the years ended December 31, 2019 and 2018.

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 PLDT Subscriber Investment Plan, or SIP. On June 8, 2015, PLDT issued 870 shares of Series JJ 10% Cumulative Convertible Preferred Stock.

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 SIP.

The Series JJ and KK 10% Cumulative Convertible Preferred Stock, or SIP shares, earns cumulative dividends at an annual rate of 10%. After the lapse of one year from the last day of the year of issuance of a particular Series of 10% Cumulative Convertible Preferred Stock, any holder of such series may convert all or any of the shares of 10% Cumulative Convertible Preferred Stock held by him into fully paid and non-assessable shares of Common Stock of PLDT, at a conversion price equivalent to 10% below the average of the high and low daily sales price of a share of Common Stock of PLDT on the PSE, or if there have been no such sales on the PSE on any day, the average of the bid and the ask prices of a share of Common Stock of PLDT at the end of such day on such Exchange, in each case averaged over a period of 30 consecutive trading days prior to the conversion date, but in no case shall the conversion price be less than the par value per share of Common Stock. The number of shares of Common Stock issuable at any time upon conversion of 10% Cumulative Convertible Preferred Stock is determined by dividing Php10.00 by the then applicable conversion price.

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

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

At PLDT’s option, the Series 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, 2019. 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 Series A to FF Shares, from holders of record as of October 10, 2011, and all such shares were redeemed and retired effective on January 19, 2012. In accordance with the terms and conditions of the Series A to FF Shares, the holders of Series A to FF Shares as at January 19, 2012 are entitled to payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to January 19, 2012, or the Redemption Price of Series A to FF Shares.

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

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

PLDT has set aside Php236 thousand (the amount required to fund the redemption price for the Series GG Shares) in addition to Php74 thousand for unclaimed dividends on Series GG Shares, or a total amount of Php310 thousand, to fund the redemption price for the Series GG Shares, or the Redemption Trust Fund for Series GG Shares, which forms an integral part of the Redemption Trust Fund previously set aside in the trust account with RCBC, as Trustee, for the purpose of funding the payment of the Redemption Price of Series GG Shares. Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund for Series GG Shares or any balance thereof, in trust, for the benefit of holders of Series GG Shares, for a period of ten years from August 30, 2012, or until August 30, 2022. After the said date, any and all remaining balance in the Redemption Trust Fund for Series GG Shares shall be returned to PLDT and revert to its general funds. Any interests on the Redemption Trust Fund for Series GG Shares shall accrue for the benefit of, and be paid from time to time, to PLDT.

On January 29, 2013, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series HH 10% Cumulative Convertible Preferred Stock which were issued in 2007, or Series HH Shares issued in 2007, from the holders of record as of February 14, 2013 and all such shares were redeemed and retired effective May 16, 2013. In accordance with the terms and conditions of Series HH Shares issued in 2007, the holders of Series HH Shares issued in 2007 as at February 14, 2013 are entitled to the payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to May 16, 2013, or the Redemption Price of Series HH Shares issued in 2007.

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

On January 28, 2014, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series HH 10% Cumulative Convertible Preferred Stock which were issued in 2008, or the Series HH Shares issued in 2008, from the holders of record as of February 14, 2014 and all such shares were redeemed and retired effective May 16, 2014. In accordance with the terms and conditions of Series HH Shares issued in 2008, the holders of Series HH Shares issued in 2008 as at February 14, 2014 are entitled to the payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to May 16, 2014, or the Redemption Price of Series HH Shares issued in 2008.

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

On January 26, 2016, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series II 10% Cumulative Convertible Preferred Stock, or the Series II Shares, from the holder of record as of February 10, 2016, and all such shares were redeemed and retired effective on May 11, 2016. In accordance with the terms and conditions of Series II Shares, the holders of Series II Shares as at February 10, 2016 is entitled to the payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to May 11, 2016, or the Redemption Price of Series II Shares.

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

As at January 19, 2012, August 30, 2012, May 16, 2013, May 16, 2014 and May 11, 2016, notwithstanding that any stock certificate representing the Series A to FF Shares, Series GG Shares, Series HH Shares issued in 2007, Series HH Shares issued in 2008 and Series II Shares, respectively, were not surrendered for cancellation, the Series A to II Shares were no longer deemed outstanding and the right of the holders of such shares to receive dividends thereon ceased to accrue and all rights with respect to such shares ceased and terminated, except only the right to receive the Redemption Price of such shares, but without interest thereon.

Total amounts of Php11 million, Php8 million and Php13 million were withdrawn from the Trust Account, representing total payments on redemption for the years ended December 31, 2019, 2018 and 2017, respectively. The balance of the Trust Account of Php7,851 million and Php7,862 million were presented as part of “Current portion of other financial assets” as at December 31, 2019 and 2018, respectively, and the related redemption liability were presented as part of “Accrued expenses and other current liabilities” in our consolidated statements of financial position. See related disclosures below under Perpetual Notes, Note 24 – Accrued Expenses and Other Current Liabilities and Note 28 – Financial Assets and Liabilities.

PLDT expects to similarly redeem and retire the outstanding shares of Series JJ and KK 10% Cumulative Convertible Preferred Stock as and when they become eligible for redemption.

The Board of Directors approved a share buyback program of up to five million shares of PLDT’s common stock, representing approximately 3% of PLDT’s then total outstanding shares of common stock in 2008. Under the share buyback program, PLDT reacquired shares on an opportunistic basis, directly from the open market through the trading facilities of the PSE and NYSE.

As at November 2010, we had acquired a total of approximately 2.72 million shares of PLDT’s common stock at a weighted average price of Php2,388 per share for a total consideration of Php6,505 million in accordance with the share buyback program. There were no further buyback transactions subsequent to November 2010.

Our dividends declared for the years ended December 31, 2019, 2018 and 2017 are detailed as follows:

Date

Amount

Class

Approved

Record

Payable

Per Share

Total

(in million pesos, except per share amounts)

Cumulative Convertible Preferred Stock

Series JJ

May 12, 2017

June 1, 2017

June 30, 2017

1.00

—

Cumulative Non-Convertible

Redeemable Preferred Stock

Series IV*

February 7, 2017

February 24, 2017

March 15, 2017

—

May 12, 2017

May 26, 2017

June 15, 2017

—

August 10, 2017

August 25, 2017

September 15, 2017

—

November 9, 2017

November 28, 2017

December 15, 2017

—

Voting Preferred Stock

March 7, 2017

March 30, 2017

April 15, 2017

—

June 13, 2017

June 27, 2017

July 15, 2017

—

September 26, 2017

October 10, 2017

October 15, 2017

—

December 5, 2017

December 20, 2017

January 15, 2018

—

Common Stock

Regular Dividend

March 7, 2017

March 21, 2017

April 6, 2017

28.00

6,049

August 10, 2017

August 25, 2017

September 8, 2017

49.00

10,371

16,420

Charged to retained earnings

16,479

Smart issued Php2,610 million and Php1,590 million perpetual notes on March 3, 2017 and March 6, 2017, respectively, under two Notes Facility Agreements dated March 1, 2017 and March 2, 2017, respectively. The transaction costs amounting to Php35 million were accounted as a deduction from the perpetual notes. Smart paid distributions amounting to Php236 million each as at December 31, 2019 and 2018 and Php177 million as at December 31, 2018 and Php177 million as at December 31, 2017.

On July 18, 2017, Smart issued Php1,100 million perpetual notes to RCBC, Trustee of PLDT’s Redemption Trust Fund, under the Notes Facility Agreement dated July 18, 2017. The transaction costs amounting to Php5 million were accounted as a deduction from the perpetual notes. Smart paid distributions amounting to Php57 million each as at December 31, 2019 and 2018. This transaction was eliminated in our consolidated financial statements.

On September 19, 2019, Smart issued Php4,700 million perpetual notes to DMPI under the Notes Facility Agreement dated September 16, 2019. The transaction cost amounting to Php35 million was accounted as a deduction from the perpetual notes. Smart paid distributions amounting to Php70 million as at December 31, 2019. This transaction was eliminated in our consolidated financial statements.

Proceeds from the issuance of these notes are intended to finance capital expenditures. The notes have no fixed redemption dates. However, Smart may, at its sole option, redeem the notes. In accordance with PAS 32, Financial Instruments: Presentation, the notes are classified as part of equity in the financial statements. The notes are subordinated to and rank junior to all senior loans of Smart.

The following table shows the reconciliation of our consolidated retained earnings available for dividend declaration as at December 31, 2019:

As at December 31, 2019, our consolidated unappropriated retained earnings amounted to Php18,063 million while the Parent Company’s unappropriated retained earnings amounted to Php35,182 million. The difference of Php17,119 million pertains to the effect of PAS 27 in our investments in subsidiaries, associates and joint ventures accounted for under equity method.

As at December 31, 2018, our consolidated unappropriated retained earnings amounted to Php12,081 million while the Parent Company’s unappropriated retained earnings amounted to Php32,553 million. The difference of Php20,472 million pertains to the effect of PAS 27 in our investments in subsidiaries, associates and joint ventures accounted for under 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 Php491 million and Php418 million as at December 31, 2019 and 2018, respectively. See Note 28 – Financial Assets and Liabilities.

The following table describes all changes to unamortized debt discount for the years ended December 31, 2019 and 2018:

The scheduled maturities of our consolidated outstanding long-term debt at nominal values as at December 31, 2019 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, 2019 and 2018:

					Drawn		Cancelled Undrawn				Outstanding Amounts
	Date of				Amount		Amount				2019				2018
Loan Amount	Loan Agreement	Lender(s)	Terms	Dates Drawn	U.S. Dollar				Paid in full on		U.S. Dollar		Php		U.S. Dollar			Php
					(in millions)						(in millions)
U.S. Dollar Debts
Other Term Loans⁽¹⁾
PLDT
US$300M	January 16, 2013	Syndicate of Banks with MUFG Bank, Ltd. as Facility Agent	9 equal semi-annual installment, 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		—	January 16, 2018			—		—		—			—
Smart
US$50M	March 25, 2013	FEC	9 equal semi-annual installment, commencing six months after drawdown date, with final installment on March 23, 2018	Various dates in 2013 and 2014		32		18	March 23, 2018			—		—		—			—
Smart
US$80M	May 31, 2013	China Banking Corporation, or CBC	10 equal semi-annual installment, commencing six months after drawdown date, with final installment on May 31, 2018	September 25, 2013		80		—	May 31, 2018			—		—		—			—
Smart
US$120M	June 20, 2013	Mizuho Bank Ltd. and Sumitomo Mitsui Banking Corporation, or Sumitomo, with Sumitomo as Facility Agent	8 equal semi-annual installment, commencing six months after drawdown date, with final installment on June 20, 2018	September 25, 2013		120		—	June 20, 2018			—		—		—			—
Smart
US$100M	March 7, 2014	MUFG Bank, Ltd.	9 equal semi-annual installment, commencing 12 months after drawdown date, with final installment on March 7, 2019	Various dates in 2014 March 2, 2015	90 10			—	March 7, 2019			—		—		11	^(*)		583	^(*)
Smart
US$50M	May 14, 2014	Mizuho Bank Ltd.	9 equal semi-annual installment, commencing 11 months after drawdown date, with final installment on May 14, 2019	July 1, 2014		50		—	May 14, 2019			—		—		6	^(*)		291	^(*)
PLDT
US$100M	August 5, 2014	Philippine National Bank, or PNB	Annual amortization rate of 1% of the issue price on the first-year up to the fifth-year from the initial drawdown date, with final installment on August 11, 2020	Various dates in 2014		100		—		—		95		4,826		96			5,046
PLDT
US$50M	August 29, 2014	Metrobank	Annual amortization rate of 1% of the issue price payable semi- annually starting 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		50		—		—		48		2,426		48			2,536
												143		7,252		161			8,457

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of

Amount

2019

2018

Loan

Amount

Loan

Agreement

Lender(s)

Terms

Dates

Drawn

U.S. Dollar

Paid in

full on

U.S.

Dollar

Php

U.S.

Dollar

Php

(in millions)

PLDT

US$200M

Tranche A:

US$150M;

Tranche B:

US$50M

February 26,

2015

MUFG Bank, Ltd.

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

—

^(*)

3,797

^(*)

104

^(*)

5,492

^(*)

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

—

March 4, 2020

^(*)

1,128

^(*)

3,490

^(*)

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

Various dates

in 2016

100

—

^(*)

2,324

^(*)

3,198

^(*)

PLDT

US$25M

March 22, 2016

NTT Finance

Corporation

Non-amortizing,

payable upon maturity

on March 30, 2023

March 30, 2016

—

^(*)

1,265

^(*)

1,307

^(*)

PLDT

US$25M

January 31, 2017

NTT Finance

Corporation

Non-amortizing,

payable upon maturity

on March 27, 2024

March 30, 2017

—

^(*)

1,263

^(*)

1,306

^(*)

Smart

US$140M

March 4, 2020

PNB

Quarterly amortization rates equivalent to:

(a) 2.5% of the total amount drawn payable

on the first interest payment date up to the 28th interest payment date; (b) 5% of the total amount drawn payable on the 29th interest payment date up to the 32nd interest payment date; and (3) 2.5% of the total amount drawn payable on the 37th interest payment date up to maturity.

—

192

9,777

281

14,792

Payments

Outstanding Amounts

Date of

Loan

Date of

Issuance/

Amount

2019

2018

Loan Amount

Agreement

Facility Agent

Installments

Drawdown

Php

Date

Php

(in millions)

Philippine Peso Debts

Fixed Rate Corporate Notes⁽¹⁾

PLDT

Php1,500M

July 25, 2012

Metrobank

Annual amortization rate

of 1% of the issue price

on the first-year up to the

sixth-year from issue

date and the balance

payable upon maturity

on July 27, 2019

July 27, 2012

1,188

282

July 29, 2013

April 29, 2019

—

282

PLDT

Php8,800M

Series A:

Php4,610M;

September 19,

2012

Metrobank

Series A: 1% annual

amortization on the first

up to sixth-year, with the

balance payable on

September 21, 2019;

September 21, 2012

2,055

2,741

June 21, 2013

September 23, 2019

3,599

6,340

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

3,549

February 22, 2019

2,255

5,828

Series B:

10-year notes

Php2,425M

Series B: Annual amortization

rate of 1% of the issue price

on the first-year up to the

ninth-year from issue date

and the balance payable

upon maturity on November

22, 2022

PLDT

Php2,055M

Series A:

Php1,735M;

June 14, 2013

Metrobank

Series A: Annual

amortization rate of 1%

of the issue price up to

the fifth-year and the

balance payable upon

maturity on September

21, 2019;

June 21, 2013

1,644

September 23, 2019

298

1,932

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

1,129

April 29, 2019

—

1,129

6,152

15,511

Drawn

Cancelled

Undrawn

Outstanding Amounts

Date of Loan

Amount

Paid in

2019

2018

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

full on

Php

(in millions)

Term Loans

Unsecured Term Loans⁽¹⁾

PLDT

Php2,000M

March 20,

2012

RCBC

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

April 12, 2012

2,000

—

1,940

1,960

PLDT

Php200M

August 31,

2012

Manufacturers Life

Insurance Co.

(Phils.), Inc.

Payable in full upon maturity on October 9, 2019

October 9, 2012

200

—

April 10, 2019

—

200

PLDT

Php1,000M

September 3,

2012

Union Bank of the

Philippines,

or Union Bank

Annual amortization rate of 1% on 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

—

January 13, 2020

940

950

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

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

—

December 20,

2019

—

2,820

PLDT

Php2,000M

November 13,

2013

Bank of the

Philippine Islands,

or BPI

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

November 22, 2020

Various dates in

2013-2014

2,000

—

1,880

1,900

Smart

Php3,000M

November 25, 2013

Metrobank

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

November 29,

2013

3,000

—

1,199

^(*)

1,497

^(*)

6,959

10,327

Drawn

Cancelled

Undrawn

Outstanding Amounts

Date of Loan

Amount

Paid in

2019

2018

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

full on

Php

(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

3,000

—

2,818

^(*)

2,846

^(*)

Smart

Php3,000M

January 29,

2014

LBP

February 5, 2014

3,000

—

2,847

^(*)

2,875

^(*)

Smart

Php500M

February 3,

2014

LBP

February 7, 2014

500

—

475

480

Smart

Php2,000M

March 26,

2014

Union Bank

March 28, 2014

2,000

—

1,900

1,920

PLDT

Php1,500M

April 2, 2014

Philam Life

Payable in full upon maturity on April 4, 2024

April 4, 2014

1,500

—

1,500

Smart

Php500M

April 2, 2014

BDO

April 4, 2014

500

—

475

480

PLDT

Php1,000M

May 23,

2014

Philam Life

Payable in full upon maturity on May 28, 2024

May 28, 2014

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

—

950

960

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

—

1,425

1,440

PLDT

Php2,000M

February 25,

2015

BPI

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

March 24, 2015

2,000

—

1,920

1,940

PLDT

Php3,000M

June 26,

2015

BPI

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

June 30, 2015

3,000

—

2,880

2,910

18,190

18,351

Drawn

Cancelled

Undrawn

Outstanding Amounts

Date of Loan

Amount

Paid in

2019

2018

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

full on

Php

(in millions)

PLDT

Php5,000M

August 3, 2015

Metrobank

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

Various dates in

2015

5,000

—

4,800

4,850

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

5,000

—

4,785

^(*)

4,833

^(*)

Smart

Php5,000M

December 11, 2015

BPI

December 21, 2015

5,000

—

4,784

^(*)

4,832

^(*)

Smart

Php5,000M

December 16, 2015

Metrobank

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

December 28, 2015

5,000

—

4,784

^(*)

4,831

^(*)

Smart

Php7,000M

December 18, 2015

CBC

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

December 28,

2015 and

February 24,

2016

7,000

—

5,593

^(*)

6,289

^(*)

PLDT

Php3,000M

July 1, 2016

Metrobank

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

February 20,

2017

3,000

—

2,929

^(*)

2,957

^(*)

PLDT

Php6,000M

July 1, 2016

Metrobank

Annual amortization rate of 1% on the first-year up to the sixth-year from initial drawdown date and the balance payable upon maturity on August 30, 2023

August 30,

2016 and

November 10,

2016

6,000

—

5,804

^(*)

5,859

^(*)

PLDT

Php8,000M

July 14, 2016

Security Bank

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

February 27,

2017

8,000

—

7,651

^(*)

7,807

^(*)

PLDT

Php6,500M

September 20, 2016

BPI

Annual amortization rate of 1% on the first- year up to the sixth-year from initial drawdown date and the balance payable upon maturity on November 2, 2023

November 2,

2016 and

December 19,

2016

6,500

—

6,286

^(*)

6,346

^(*)

47,416

48,604

Drawn

Cancelled

Undrawn

Outstanding Amounts

Date of Loan

Amount

Paid in

2019

2018

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

full on

Php

(in millions)

Smart

Php3,000M

September 28, 2016

BDO

October 5, 2016

3,000

—

2,910

2,940

Smart

Php5,400M

September 28, 2016

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 date and the balance payable upon maturity on October 24, 2023

October 24,

2016 and

November 21,

2016

5,400

—

5,229

^(*)

5,281

^(*)

PLDT

Php5,300M

October 14, 2016

BPI

Annual amortization rate of 1% on the first-year up to the sixth-year from initial drawdown date and the balance payable upon maturity on December 19, 2023

December 19, 2016

5,300

—

5,125

^(*)

5,175

^(*)

Smart

Php2,500M

October 27, 2016

CBC

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

December 8, 2016

2,500

—

2,250

2,500

Smart

Php4,000M

October 28,

2016

Security Bank

Semi-annual amortization rate of 1% of the total amount drawn from first-year up to the ninth-year and the balance payable upon maturity on April 5, 2027

April 5, 2017

4,000

—

1,935

^(*)

1,953

^(*)

Smart

Php1,000M

December 16,

2016

PNB

Annual amortization rate of 1% of the amount drawn starting on the first anniversary of the advance up to the ninth anniversary of the advance and the balance payable upon maturity on December 7, 2027

December 7, 2017

1,000

—

980

990

Smart

Php2,000M

December 22,

2016

LBP

January 22, 2018

2,000

—

1,980

2,000

PLDT

Php3,500M

December 23,

2016

LBP

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

April 5, 2017

3,500

—

3,417

^(*)

3,450

^(*)

Smart

Php1,500M

April 18,

2017

PNB

Annual amortization rate of 1% of the amount drawn starting on the first anniversary of the advance up to the sixth- year anniversary of the advance and the balance payable upon maturity on January 3, 2025

January 3, 2018

1,500

—

1,485

1,500

25,311

25,789

Drawn

Cancelled

Undrawn

Outstanding Amounts

Date of Loan

Amount

Paid in

2019

2018

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

full on

Php

(in millions)

PLDT

Php2,000M

May 24, 2017

Security Bank

Semi-annual amortization rate of Php10 million starting on October 5, 2017 and every six months thereafter with the balance payable upon maturity on April 5, 2027

May 29, 2017

2,000

—

1,950

1,970

PLDT

Php3,500 M

July 5, 2017

LBP

Annual amortization rate of 1% on the first- year up to the ninth-year after the drawdown date and the balance payable upon maturity on July 12, 2027

July 10, 2017

3,500

—

3,430

3,465

PLDT

Php1,500M

August 29, 2017

LBP

Annual amortization rate equivalent to 1% of the total loan payable on the first-year up to the ninth-year after the drawdown date and the balance payable upon maturity on April 3, 2028

April 2, 2018

1,500

—

1,485

1,500

Smart

Php1,000M

September 28, 2017

Union Bank

Annual amortization rate of 1% of the amount drawn starting on the first-year anniversary of the advance up to the ninth- year anniversary of the advance and the balance payable upon maturity on February 21, 2028

February 19, 2018

1,000

—

990

1,000

PLDT

Php2,000M

April 19, 2018

LBP

Annual amortization rate equivalent to 1% of the total loan payable on the first-year up to the ninth-year after the drawdown date and the balance payable upon maturity on April 25, 2028

April 25, 2018

2,000

—

1,980

2,000

PLDT

Php1,000M

April 20, 2018

LBP

Annual amortization rate equivalent to 1% of the total loan payable on the first-year up to the ninth-year after the drawdown date and the balance payable upon maturity on May 3, 2028

May 3, 2018

1,000

—

990

1,000

PLDT

Php2,000M

May 9, 2018

BPI

Annual amortization rate equivalent to 1% of the amount drawn starting on the first- year anniversary of the advance up to the ninth-year anniversary of the advance and the balance payable upon maturity on May 10, 2028

May 10, 2018

2,000

—

1,980

2,000

PLDT

Php3,000M

May 9, 2018

BPI

May 10, 2018

3,000

—

August 10,

2018

—

12,805

12,935

Drawn

Cancelled

Undrawn

Outstanding Amounts

Date of Loan

Amount

Paid in

2019

2018

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

full on

Php

(in millions)

Smart

Php2,000M

May 25, 2018

BPI

Annual amortization rate equivalent to 1% of the amount drawn starting on the first- year anniversary of the advance up to the fifth-year anniversary of the advance and the balance payable upon maturity on May 28, 2024

May 28, 2018

2,000

—

1,969

^(*)

1,986

^(*)

Smart

Php1,500M

June 27, 2018

Development

Bank of the

Philippines,

or DBP

Annual amortization rate equivalent to 1% of the amount drawn starting on the third- year anniversary of the advance up to the fifth-year anniversary of the advance and the balance payable upon maturity on June 28, 2024

June 28, 2018

1,500

—

1,500

Smart

Php3,000M

July 31, 2018

BPI

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

May 10, 2028

August 10, 2018

3,000

—

2,950

^(*)

2,978

^(*)

Smart

Php5,000M

January 11, 2019

DBP

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

May 7, 2029

May 6, 2019

September 2, 2019

2,000

3,000

—

4,978

^(*)

—

PLDT

Php8,000M

February 18, 2019

Union Bank

Annual amortization rate equivalent to 1% of the amount drawn starting on the first-year anniversary up to the ninth-year anniversary of the initial drawdown date and the balance payable upon maturity on July 11, 2029

July 11, 2019

September 6,

2019

October 1,

2019

November 5,

2019

3,000

2,000

1,000

2,000

—

7,978

^(*)

—

Smart

Php4,000M

February 21, 2019

PNB

Annual amortization rate equivalent to 1% of the amount drawn starting on the first-year anniversary up to the seventh-year anniversary of the initial drawdown date and the balance payable upon maturity on March 11, 2027

March 11, 2019

4,000

—

3,972

^(*)

—

PLDT

Php2,000M

April 11, 2019

Bank of China Limited, Manila Branch

Annual amortization rate equivalent to 1% of the amount of loan payable on the first-year anniversary up to the sixth-year anniversary of the initial drawdown date and the balance payable upon maturity on September 7, 2026

September 6, 2019

2,000

—

1,985

^(*)

—

PLDT

Php2,000M

July 1, 2019

PNB

Annual amortization rate equivalent to 1% of the total amount drawn from the facility on the first-year anniversary up to the sixth-year anniversary of the initial drawdown date and the balance payable upon maturity on September 7, 2026

September 6, 2019

2,000

—

1,985

^(*)

—

Smart

Php8,000M

September 25, 2019

CBC

Annual amortization rate equivalent to 10% of the total amount drawn starting on the third-year anniversary up to the ninth-year anniversary of the initial drawdown date and the balance payable upon maturity on October 2, 2029

October 2, 2019

8,000

—

7,942

^(*)

—

35,260

6,465

Drawn

Cancelled

Undrawn

Outstanding Amounts

Date of Loan

Amount

Paid in

2019

2018

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

full on

Php

(in millions)

Smart

Php4,000M

December 9, 2019

DBP

Annual amortization rate equivalent to 1% of the total amount drawn starting on the third-year anniversary up to the ninth-year anniversary of the initital drawdown date and the balance payable upon maturity on December 12, 2029

December 12, 2019

4,000

—

3,970

^(*)

—

PLDT

Php4,500M

December 12, 2019

BPI

Annual amortization rate equivalent to 1% of the advance on the first year up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on December 18, 2029

December 15, 2019

4,500

—

4,500

—

Smart

Php3,000M

January 20, 2020

BDO

Annual amortization rate equivalent to 1% of the total amount drawn starting on the first-year anniversary up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on January 24, 2030

January 24, 2020

3,000

—

PLDT

Php5,000M

January 29, 2020

BDO

Annual amortization rate equivalent to 1% of the toal amount drawn starting on the first-year anniversary up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on January 31, 2030

January 31, 2020

5,000

—

8,470

—

154,410

122,470

PLDT’s debt instruments contain restrictive covenants, including covenants that require us to comply with specified financial ratios tests, such as total debt to EBITDA and interest cover ratio, at relevant measurement dates, principally at the end of each quarterly period. We have complied with all of our maintenance financial ratios as required under our loan covenants and other debt instruments.

The principal factors that could negatively affect our ability to comply with these financial ratio covenants and other financial tests are depreciation of the Philippine Peso relative to the U.S. Dollar, poor operating performance of PLDT and its subsidiaries, impairment or similar charges in respect of investments or other long-lived assets that may be recognized by PLDT and its subsidiaries, and increases in our interest expense. Interest expense may increase as a result of various factors including issuance of new debt, the refinancing of lower cost indebtedness by higher cost indebtedness, depreciation of the Philippine Peso relative to the U.S. Dollar, the lowering of PLDT’s credit ratings or the credit ratings of the Philippines, increase in reference interest rates, and general market conditions. Of our total consolidated debts, approximately 9% and 13% were denominated in U.S. Dollars as at December 31, 2019 and 2018, respectively. Therefore, the financial ratio and other tests are expected to be negatively affected by any weakening of the Philippine Peso relative to the U.S. Dollar. 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.

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

Smart’s debt instruments contain certain restrictive covenants that require Smart to comply with specified financial ratios and other financial tests at semi-annual measurement dates. Smart’s loan agreements include compliance with financial tests such as Smart’s consolidated debt to consolidated EBITDA, debt service coverage ratio and interest coverage ratio. The agreements also contain customary and other default provisions that permit the lender to accelerate amounts due under the loans or terminate their commitments to extend additional funds under the loans. These default provisions include: (a) cross-defaults and cross-accelerations that permit a lender to declare a default if Smart is in default under another loan agreement. These cross-default provisions are triggered upon a payment or other default permitting the acceleration of Smart debt, whether or not the defaulted debt is accelerated; (b) failure by Smart to comply with certain financial ratio covenants; and (c) the occurrence of any material adverse change in circumstances that the lender reasonably believes materially impairs Smart’s ability to perform its obligations or impair the guarantors’ ability to perform their obligations under its loan agreements.

The loan agreements with 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, 2019 and 2018, we were in compliance with all of our debt covenants.

On October 11, 2019, PLDT announced its undertaking of a consent solicitation exercise relating to the 5.2250% 7-Year Fixed Rate Bonds due 2021 and 5.2813% 10-Year Fixed Rate Bonds due 2024, to amend PLDT’s maximum stand-alone Total Debt to EBITDA Ratio stipulated in the Trust Indenture from 3.0:1 to 4.0:1. The proposed amendment seeks to provide PLDT with greater flexibility to support, if necessary, higher levels of capital expenditures and general corporate requirements. Moreover, it will align the covenant ratio of PLDT’s outstanding debt capital market issuances with that of the existing bilateral facilities of both PLDT and Smart.

The consolidated future minimum payments for finance leases and the long-term portion of obligations under finance leases (which covers leasehold improvements and various office equipment and vehicles) amounted to nil and Php514 thousand as at December 31, 2019 and 2018, respectively. See Note 2 – Summary of Significant Accounting Policies, Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Leases and Note 9 – Property and Equipment.

Under the terms of certain loan agreements and other debt instruments, PLDT may not create, incur, assume, permit or suffer to exist any mortgage, pledge, lien or other encumbrance or security interest over the whole or any part of its assets or revenues or suffer to exist any obligation as lessee for the rental or hire of real or personal property in connection with any sale and leaseback transaction.

Accrual of capital expenditures under long-term financing represents 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. See Note 21 – Interest-bearing Financial Liabilities.

The following table summarizes the changes to provision for asset retirement obligations for the years ended December 31, 2019 and 2018:

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

In 2019, one of our major suppliers entered into Trade Financing Arrangements, or TFA, to sell a portion of its Philippine Peso receivables from the Parent Company amounting to Php1,799 million and from Smart amounting to Php3,200 million. Under the terms of the TFA, the Purchaser will have exclusive ownership of the purchased receivables and all of its rights, title and interest. The amount was reclassified from “Accounts Payable – Suppliers and contractors” to “Accounts Payable – Others” amounted to Php4,999 million for the year ended December 31, 2019.

Advances to suppliers and contractors are non-interest-bearing and are to be applied to contractors’ subsequent progress billings for our projects.

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

For detailed discussion 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. These liabilities are non-interest bearing and are normally settled within a year.

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

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

Other accrued expenses and other current liabilities are non-interest-bearing and are normally settled within a year. This pertains to other costs incurred for operations-related expenses pending receipt of invoice and statement of accounts from suppliers.

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

Settlement of outstanding balances of related party transactions at year-end are expected to be settled with cash.

The following table provides the summary of outstanding balances as at December 31, 2019 and 2018 transactions that have been entered into with related parties:

Classifications

Terms

Conditions

2019

2018

(in million pesos)

Indirect investment in joint

ventures through PCEV:

Meralco

Accounts payable and accrued

expenses and other current

liabilities (Notes 23 and 24)

Electricity charges – immediately

upon receipt of invoice

Unsecured

415

518

Accrued expenses and other

current liabilities (Note 24)

Pole rental – 45 days upon receipt of

billing

Unsecured

—

209

Meralco Industrial Engineering

Services Corporation, or

MIESCOR

Accrued expenses and other

current liabilities (Note 24)

30 days upon receipt of invoice

Unsecured

MPIC

Financial assets at FVOCI –

net of current portion (Note 11)

Due on April 2020 to June 2021 for

2019 and due on January 2020 to

June 2021 for 2018;

non-interest-bearing

Unsecured

162

2,749

Current portion of financial assets

at FVOCI (Note 11)

Due on March 2020 for 2019 and due

on December 2019 for 2018;

non-interest-bearing

Unsecured

2,757

1,604

Transactions with major

stockholders, directors

and officers:

NTT Finance Corporation

Interest-bearing financial liabilities

(Note 21)

Non-amortizing, payable upon

maturity on March 30, 2023 and

March 27, 2024

Unsecured

2,540

2,628

NTT World Engineering

Marine Corporation

Accrued expenses and other

current liabilities (Note 24)

1st month of each quarter;

non-interest-bearing

Unsecured

147

NTT Communications

Accounts payable and accrued

expenses and other current

liabilities (Notes 23 and 24)

30 days upon receipt of invoice;

non-interest-bearing

Unsecured

NTT Worldwide

Telecommunications

Corporation

Accrued expenses and other

current liabilities (Note 24)

30 days upon receipt of invoice;

non-interest-bearing

Unsecured

NTT DOCOMO

Accrued expenses and other

current liabilities (Note 24)

30 days upon receipt of invoice;

non-interest-bearing

Unsecured

JGSHI and Subsidiaries

Accounts payable and accrued

expenses and other current

liabilities (Notes 23 and 24)

Immediately upon receipt of invoice

Unsecured

Lease liabilities –

net of current portion (Note 10)

Due after December 31, 2020

Unsecured

154

—

Current portion of lease liabilities

(Note 10)

Due on or before December 31, 2020

Unsecured

—

Malayan Insurance Co., Inc.

or Malayan

Prepayments (Note 19)

Immediately upon receipt of invoice

Unsecured

Accounts payable and accrued

expenses and other current

liabilities (Notes 23 and 24)

Immediately upon receipt of invoice

Unsecured

Gotuaco del Rosario and

Associates, or Gotuaco

Accounts payable and accrued

expenses and other current

liabilities (Notes 23 and 24)

Immediately upon receipt of invoice

Unsecured

Prepayments (Note 19)

Immediately upon receipt of invoice

Unsecured

—

Others:

Cignal Cable Corporation,

or Cignal Cable

(formerly Dakila Cable

TV Corp.)

Prepayments (Note 19)

Immediately upon receipt of invoice

Unsecured

—

169

Various

Trade and other receivables

(Note 17)

30 days upon receipt of invoice

Unsecured

2,082

2,094

Accounts payable (Note 23)

Immediately upon receipt of billing

Unsecured

571

684

Accrued expenses and other

current liabilities (Note 24)

Immediately upon receipt of billing

Unsecured

Lease liabilities –

net of current portion (Note 10)

Due after December 31, 2020

Unsecured

218

—

Current portion of lease liabilities

(Note 10)

Due on or before December 31, 2020

Unsecured

—

The following table provides the summary of transactions that have been entered into with related parties for the years ended December 31, 2019, 2018 and 2017 in relation with the table above.

	Classifications	2019		2018		2017
		(in million pesos)
Indirect investment in joint ventures through PCEV:
Meralco	Repairs and maintenance		2,689		2,771		2,397
	Depreciation and amortization		218		—		—
	Rent		29		583		298
MIESCOR	Repairs and maintenance		—		33		117
	Construction-in-progress		—		33		81
Transactions with major stockholders, directors and officers:
NTT Finance Corporation	Financing costs		103		100		56
NTT World Engineering Marine Corporation	Repairs and maintenance		169		17		47
NTT Communications	Professional and other contracted services		95		95		88
	Rent		—		5		4
NTT Worldwide Telecommunications Corporation	Selling and promotions		5		5		8
NTT DOCOMO	Professional and other contracted services		70		96		94
JGSHI and Subsidiaries	Rent		429		236		118
	Repairs and maintenance		38		111		69
	Communication, training and travel		10		20		2
	Miscellaneous expenses		101		7		—
Malayan	Insurance and security services		295		182		179
Gotuaco	Insurance and security services		165		163		126
Asia Link B.V., or ALBV	Professional and other contracted services		—		34		190
First Pacific Investment Management Limited, or FPIML	Professional and other contracted services		156		135		—
Others:
TV5	Selling and promotions		33		409		149
Cignal Cable	Cost of services		224		372		514
Various	Revenues		2,401		2,355		2,059
	Expenses		2,015		1,935		1,223

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 Php2,689 million, Php2,771 million and Php2,397 million for the years ended December 31, 2019, 2018 and 2017, 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 Php415 million and Php518 million as at December 31, 2019 and 2018, respectively.

PLDT and Smart have 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 depreciation and amortization in our consolidated income statements, amounted to Php218 million for the year ended December 31, 2019 and nil for the years ended December 31, 2018 and 2017. Total fees under these contracts, which were presented as part of rent in our consolidated income statements, amounted to Php29 million, Php583 million and Php298 million for the years ended December 31, 2019, 2018 and 2017, 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 Php66 thousand and Php209 million as at December 31, 2019 and 2018, respectively.

PLDT has an existing Outside and Inside Plant Contracted Services Agreement with MIESCOR, a subsidiary of Meralco, which expired on December 31, 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 nil, Php96 thousand and Php3 million for the years ended December 31, 2019, 2018 and 2017, respectively. Total amounts capitalized to property and equipment amounted to nil, Php14 million and Php5 million for the years ended December 31, 2019, 2018 and 2017, 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 Php185 thousand each as at December 31, 2019 and 2018.

PLDT also has an existing Customer Line Installation, Repair, Rehabilitation and Maintenance Activities agreement with MIESCOR, which expired on December 31, 2018. Under the agreement, MIESCOR is responsible for the subscriber main station installation, repairs and maintenance of outside and inside plant network facilities in the areas awarded to them.

Total fees under this agreement, which were presented as part of repairs and maintenance in our consolidated income statements, amounted to nil, Php33 million and Php114 million for the years ended December 31, 2019, 2018 and 2017, respectively. Total amounts capitalized to property and equipment amounted to nil, Php19 million and Php76 million for the years ended December 31, 2019, 2018 and 2017, 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 Php3 million each as at December 31, 2019 and 2018.

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, 2019 and 2018, and for the years ended December 31, 2019, 2018 and 2017 are as follows:

On March 22, 2016, PLDT signed a US$25 million term loan facility agreement with NTT Finance Corporation to finance its capital expenditure requirements for network expansion and service improvement and/or refinancing existing indebtedness. The loan is payable upon maturity on March 30, 2023. The loan was fully drawn on March 30, 2016. Total interest under this agreement, which were presented as part of financing costs in our consolidated income statements, amounted to Php51.5 million, Php50 million and Php28 million for the years ended December 31, 2019, 2018 and 2017, respectively. The amounts of US$25 million, or Php1,270 million, and US$25 million, or Php1,314 million, remained outstanding as at December 31, 2019 and 2018, respectively.

Another US$25 million term loan facility was signed with NTT Finance Corporation on January 31, 2017 to finance its capital expenditure requirements for network expansion and service improvement and/or refinancing existing indebtedness. The loan is payable upon maturity on March 27, 2024. The loan was fully drawn on March 30, 2017. Total interest under this agreement, which were presented as part of financing costs in our consolidated income statements, amounted to Php51.5 million, Php50 million and Php28 million for the years ended December 31, 2019, 2018 and 2017, respectively. The amount of US$25 million, or Php1,270 million, and US$25 million, or Php1,314 million, remained outstanding as at December 31, 2019 and 2018, respectively.

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

On June 5, 2006, in accordance with the Cooperation Agreement dated January 31, 2006, an Advisory Services Agreement was entered into by NTT DOCOMO and PLDT. 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 Php70 million, Php96 million and Php94 million for the years ended December 31, 2019, 2018 and 2017, 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 Php6 million and Php12 million as at December 31, 2019 and 2018, 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 Php429 million, Php236 million and Php118 million for the years ended December 31, 2019, 2018 and 2017, 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 Php31 million and Php10 million as at December 31, 2019 and 2018, respectively. Under these agreements, the outstanding obligations, which were presented as part of lease liabilities in our consolidated statements of financial position, amounted to Php174 million and nil as at December 31, 2019 and 2018, respectively.

There were also other transactions such as communication, training and travel, repairs and maintenance and miscellaneous expenses in our consolidated income statements, amounting to Php149 million, Php138 million and Php71 million for the years ended December 31, 2019, 2018 and 2017, respectively. Under these agreements, the outstanding obligations for these transactions, which were presented as part of accrued expenses and other current liabilities in our consolidated statements of financial position, amounted to Php3 million each as at December 31, 2019 and 2018.

PLDT and certain of its subsidiaries have insurance policies with Malayan covering directors, officers, liability to employees and material damages for buildings, building improvements, equipment and motor vehicles. The premiums are directly paid to Malayan. Total fees under these contracts, which were presented as part of insurance and security services in our consolidated income statements, amounted to Php295 million, Php182 million and Php179 million for the years ended December 31, 2019, 2018 and 2017, respectively. Under this agreement, outstanding prepayments, which were presented as part of prepayments in our consolidated statements of financial position, amounted to Php19 million each as at December 31, 2019 and 2018, while 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 Php5 million and Php6 million as at December 31, 2019 and 2018, respectively.

Gotuaco acts as the broker for certain insurance companies to cover certain insurable properties of the PLDT Group. Insurance premiums are remitted to Gotuaco and the broker’s fees are settled between Gotuaco and the insurance companies. Total fees under these contracts, which were presented as part of insurance and security services in our consolidated income statement, amounted to Php165 million, Php163 million and Php126 million for the years ended December 31, 2019, 2018 and 2017, respectively. Under this agreement, the outstanding prepayments, which were presented as part of prepayments in our consolidated statements of financial position, amounted to Php6 million and nil as at December 31, 2019 and 2018, respectively, while 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 Php1 million and

Smart had a 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 expired on February 23, 2018. 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 nil, Php34 million and Php190 million for the years ended December 31, 2019, 2018 and 2017, respectively. There were no outstanding obligations under this agreement as at December 31, 2019 and 2018.

On March 1, 2018, Smart entered into an Advisory Services Agreement with FPIML, a subsidiary of the First Pacific Group and its Philippine affiliates. The agreement shall be effective for a period of one-year subject to a 12-month automatic renewal unless either party notifies the other party of its intent not to renew the agreement. FPIML provides advisory and related services in connection with the operation of Smart’s business of providing mobile communications services, high-speed internet connectivity, and access to digital services and content. The agreement provides that Smart shall pay monthly service fee of $250 thousand and any additional fee shall be mutually agreed upon by both parties on a monthly basis. Total professional fees under this agreement, which were presented as part of professional and other contracted services in our consolidated income statements, amounted to Php156 million and Php135 million for the years ended December 31, 2019 and 2018, respectively. There were no outstanding payable under this agreement as at December 31, 2019 and 2018.

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

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

NTT Communications and NTT DOCOMO together beneficially owned approximately 20% of PLDT’s outstanding common stock as at December 31, 2019 and 2018.

In 2010, PLDT and Smart entered into advertising placement agreements with TV5, a subsidiary of MediaQuest, which is a wholly-owned investee company of PLDT Beneficial Trust Fund for the airing and telecast of advertisements and commercials of PLDT and Smart on TV5’s television network for a period of five years. The costs of telecast of each advertisement shall be applied and deducted from the placement amount only after the relevant advertisement or commercial is actually aired on TV5’s television network. In June 2014, Smart and TV5 agreed to amend the liquidation schedule under the original advertising placement agreement by extending the term of expiry from 2015 to 2018. Total selling and promotions under the advertising placement agreements amounted to Php33 million, Php409 million and Php149 million for the years ended December 31, 2019, 2018 and 2017, respectively. There were no prepayments under this advertising placement agreements as at December 31, 2019 and 2018.

In May 2015, PLDT, Smart and DMPI entered into a four-year agreement with Cignal Cable commencing with the launch of the OTT video-on-demand service, or iflix service, in the Philippines on June 18, 2015. iflix service is provided by iFlix Sdn Bhd and Cignal Cable is the authorized reseller of the iflix service in the Philippines. Under the agreement, PLDT, Smart and DMPI were appointed by Cignal Cable to act as its internet service providers with an authority to resell and distribute the iflix service to their respective subscribers on a monthly and annual basis. Content cost recognized for the years ended December 31, 2019, 2018 and 2017 amounted to Php224 million, Php372 million and Php514 million, respectively. Under this agreement, outstanding prepayments, which were presented as part of prepayments in our consolidated statements of financial position, amounted to nil and Php169 million as at December 31, 2019 and 2018, respectively. There were no outstanding obligations under this agreement as at December 31, 2019 and 2018.

PLDT and certain of its subsidiaries provide telephone, data communication and other services to various related parties. The revenues under these services amounted to Php2,401 million, Php2,355 million and Php2,059 million for the years ended December 31, 2019, 2018 and 2017, respectively. The expenses under these services amounted to Php2,015 million, Php1,935 million and Php1,223 million for the years ended December 31, 2019, 2018 and 2017, 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 amounted to Php2,082 million and Php2,094 million as at December 31, 2019 and 2018, respectively. Under these agreements, the outstanding obligations, which were presented as part of accounts payable in our consolidated statements of financial position amounted to Php571 million and Php684 million as at December 31, 2019 and 2018, respectively, accrued expenses and other current liabilities amounted to Php65 million and Php9 million as at December 31, 2019 and 2018, respectively, and lease liabilities amounted to Php310 million and nil as at December 31, 2019 and 2018, respectively.

See Note 11 – Investments in Associates and Joint Ventures – Investment of ePLDT in MediaQuest PDRs and Sale of PCEV’s Receivables from MPIC for other related party transactions.

On September 24, 2019, the Board of Directors approved and adopted the MRPT Policy in compliance with the Philippine SEC Memorandum Circular No. 10, Series of 2019, or the Rules on MRPT for Publicly-Listed Companies.

This MRPT Policy applies to the PLDT Group and covers related party transactions that meet the Materiality Threshold of 10% of PLDT’s total consolidated assets. It defines the processes, controls and safeguards for the proper handling, including review, approval and disclosure, of such related party transactions in accordance with applicable laws and regulations.

Related party transactions involving an amount below the Materiality Threshold shall be covered by our Guidelines on the Proper Handling of Related Party Transactions.

The compensation of key officers of the PLDT Group by benefit type for the years ended December 31, 2019, 2018 and 2017 are as follows:

The amounts disclosed in the table above are the amounts recognized as expenses during the period related to key management personnel.

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 Php123 million, Php63 million and Php72 million for the years ended December 31, 2019, 2018 and 2017, 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.

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

PLDT’s actuarial valuation is performed every year-end. Based on the latest actuarial valuation, the actual present value of accrued (prepaid) benefit costs, net periodic benefit costs and average assumptions used in developing the valuation as at and for the years ended December 31, 2019, 2018 and 2017:

Actual net losses on plan assets amounted to Php2,855 million, Php3,218 million and Php1,825 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Based on the latest actuarial valuation, our expected contribution to the defined benefit plan in 2020 will amount to Php1,589 million.

The following table sets forth the expected future settlements by the Plan of maturing defined benefit obligation as at December 31, 2019:

The average duration of the defined benefit obligation at the end of the reporting period is 6 to 19 years.

The weighted average assumptions used to determine pension benefits for the years ended December 31, 2019, 2018 and 2017 are as follows:

We have adopted mortality rates in accordance with the 2017 Philippine Intercompany Mortality Table developed by the U.S. Society of Actuaries, which provides separate rates for males and females and the disability rates based on the 1952 Disability Study of the U.S. Society of Actuaries for Period 2, Benefit 5 adjusted to suit local experience.

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, 2019, assuming if all other assumptions were held constant:

The Board of Trustees, which manages the beneficial trust fund, is composed of: (i) a member of the Board of Directors of PLDT, who is not a beneficiary of the Plan; (ii) a member of the Board of Directors or a senior officer of PLDT, who is a beneficiary of the Plan; (iii) a senior member of the executive staff of PLDT; and (iv) two persons who are not executives nor employees of PLDT.

Benefits are payable in the event of termination of employment due to: (i) compulsory, optional, or deferred retirement; (ii) death while in active service; (iii) physical disability; (iv) voluntary resignation; or
(v) involuntary separation from service. For a plan member with less than 15 years of credited services, retirement benefit is equal to 100% of final compensation for every year of service. For those with at least 15 years of service, retirement benefit is equal to 125% of final compensation for every year of service, with such percentage to be increased by an additional 5% for each completed year of service in excess of 15 years, but not to exceed a maximum of 200%. In case of voluntary resignation after attainment of age 40 and completion of at least 15 years of credited service, benefit is equal to a percentage of his vested retirement benefit, in accordance with percentages prescribed in the retirement plan.

The Board of Trustees of the beneficial trust fund uses an investment approach with the objective of maximizing the long-term expected return of plan assets.

The majority of the Plan’s investment portfolio consists of listed and unlisted equity securities while the remaining portion consists of passive investments like temporary cash investments and fixed income investments.

The plan assets are primarily exposed to financial risks such as liquidity risk and price risk.

Liquidity risk pertains to the plan’s ability to meet its obligation to the employees upon retirement. To effectively manage liquidity risk, the Board of Trustees invests at least the equivalent amount of actuarially computed expected compulsory retirement benefit payments for the period to liquid/semi-liquid assets such as treasury notes, treasury bills, savings and time deposits with commercial banks.

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

The following table sets forth the fair values, which are equal to the carrying values, of PLDT’s plan assets recognized as at December 31, 2019 and 2018:

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

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.

Investments in MediaQuest are carried at fair value. The VIU calculations were derived from cash flow projections over a period of three to five years based on the 2019 financial budgets approved by the MediaQuest’s Board of Directors and calculated terminal value. Other key assumptions used in the cash flow projections include revenue growth rate, direct costs and capital expenditures. The pre-tax discount rates applied to cash flow projections range from 11.27% to 11. 93%. Cash flows beyond the five-year period are determined using 0% to 4.1% growth rates.

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

On January 25, 2013, the Board of Trustees of the PLDT 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 PLDT Beneficial Trust Fund and the MediaQuest Board of Directors approved the issuance of additional MediaQuest PDRs amounting to Php1.95 billion. The underlying shares of these additional PDRs are the shares of stocks of Hastings held by MediaQuest (Hastings PDRs). Hastings is a wholly-owned subsidiary of MediaQuest, which holds all the print-related investments of MediaQuest, including equity interests in the three leading newspapers: The Philippine Star, Philippine Daily Inquirer, and Business World. From June 2013 to October 2013, MediaQuest received from ePLDT an amount aggregating to Php1.95 billion representing deposits for future PDRs subscription.

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

On May 21, 2015, ePLDT’s Board of Directors approved an additional Php800 million investment in Hastings PDRs and settlement of the Php200 million balance of the Php500 million Hastings PDR investment in 2014. Subsequently, on May 30, 2015, the Board of Trustees of the PLDT 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. In February 2018, ePLDT entered into a Deed of Assignment with the Board of Trustees of the PLDT Beneficial Trust Fund transferring the Hastings PDRs for Php1,664 million. See Note 11 – Investments in Associates and Joint Ventures – Investment of ePLDT in MediaQuest PDRs.

In 2016 and 2017, the Board of Trustees of the PLDT Beneficial Trust Fund approved additional investment in MediaQuest amounting to Php5,500 million and Php2,500 million, respectively, to fund MediaQuest’s investment requirements. The full amount was fully drawn by MediaQuest during 2016 and 2017.

In 2018, the Board of Trustees of the PLDT Beneficial Trust Fund approved the additional investment in MediaQuest amounting to Php2,700 million to fund MediaQuest’s investment requirements. The full amount was fully drawn by MediaQuest during 2018. Loss on changes in fair value of the investments for the year ended December 31, 2018 amounting to Php3,038 million was recognized in the statements of changes in net assets available for plan benefits under “Net fair value gain (loss) on investments.”

In 2019, the Board of Trustees of the PLDT Beneficial Trust Fund approved the additional investment in MediaQuest amounting to Php3,100 million to fund MediaQuest’s investment requirements. As at December 31, 2019, MediaQuest has fully drawn the total amount of Php3,100 million. Loss on changes in fair value of the investment for the year ended December 31, 2019 amounting to Php3,072 million was recognized in the statements of changes in net assets available for plan benefits under “Net fair value gain (loss) on investments.”

TMBLA was incorporated for the primary purpose of accumulating the savings of its stockholders and lending funds to them for housing programs. The beneficial trust fund has a direct subscription in shares of stocks of TMBLA in the amount of Php112 million. The related unpaid subscription of Php32 million is included in unlisted equity investments. The cumulative change in the fair market values of this investment amounted to Php464 million and Php394 million as at December 31, 2019 and 2018, 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 for each of the year ended December 31, 2019, 2018 and 2017. Dividend receivables amounted to Php2 million each as at December 31, 2019 and 2018.

SMPHI was incorporated primarily to engage in the real estate business. As at December 31, 2017, its assets consist mainly of investment in land. SMPHI received short-term, non-interest-bearing advances from the beneficial trust fund mainly to finance expenses to maintain its investment property. On May 25, 2018, the shares of stocks of SMPHI was sold to a third party for Php142 million.

Bancholders was incorporated primarily to purchase, own, invest in or acquire shares of stock, bonds, bills, warrants and other negotiable instruments, securities or evidences of indebtedness of any other corporation and to own, hold and dispose the same, without engaging in the business of or acting as an investment company or as securities broker or dealer. The cumulative change in the fair market value of this investment amounted to losses of Php93 million as at December 31, 2017. On April 21, 2017, the Board of Directors of Bancholders approved the amendment of its Articles of Incorporation, shortening its corporate term, to end on June 30, 2018. This amendment was subsequently approved by the Philippine SEC on July 11, 2017. As at December 31, 2018, the investment account has been closed to receivables pending the completion of Bancholders’s liquidation procedure.

Dividends earned on PLDT common shares amounted to Php2 million for each of the years ended December 31, 2019, 2018 and 2017.

Preferred shares represent 300 million unlisted preferred shares of PLDT at Php10 par value, net of subscription payable of Php2,640 million as at December 31, 2019 and 2018. 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 for each of the years ended December 31, 2019, 2018 and 2017.

Investment in corporate bonds includes various long-term peso and dollar denominated bonds with maturities ranging from February 2020 to May 2027 and fixed interest rates from 3.95% to 7.06% per annum. Total investment in corporate bonds amounted to Php145 million and Php133 million as at December 31, 2019 and 2018, respectively.

Investment in government securities includes Fixed Rate Treasury Notes bearing interest rate of 5.88% per annum and zero-rated U.S. Treasury Bills. These securities are fully guaranteed by the governments of the Republic of the Philippines and United States of America. Total investment in government securities amounted to Php22 million and Php31 million as at December 31, 2019 and 2018, respectively.

Investment in mutual funds includes a local equity fund, which aims to out-perform benchmarks in various indices as part of its investment strategy. Total investment in mutual funds amounted to Php9 million and Php4 million as at December 31, 2019 and 2018, respectively.

The allocation of the fair value of the assets for the PLDT pension plan as at December 31, 2019 and 2018 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 their compliance with R.A. 7641. As at December 31, 2019 and 2018, 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, 2019, 2018 and 2017 are as follows:

	2019			2018		2017
	(in million pesos)
Changes in the present value of defined benefit obligations:
Present value of defined benefit obligations at beginning of the year		2,804			2,490		2,177
Service costs		239			314		269
Interest costs on benefit obligation		174			—		113
Actuarial gains – experience		100			—		(6	)
Actuarial losses – economic assumptions		13			—		29
Actual benefits paid/settlements		(37	)		—		(92	)
Curtailment and others		(480	)		—		—
Present value of defined benefit obligations at end of the year		2,813			2,804		2,490
Changes in fair value of plan assets:
Fair value of plan assets at beginning of the year		3,159			2,862		2,414
Actual contributions		281			297		335
Interest income on plan assets		190			—		131
Return on plan assets (excluding amount included in net interest)		100			—		74
Actual benefits paid/settlements		(37	)		—		(92	)
Others		(609	)		—		—
Fair value of plan assets at end of the year		3,084			3,159		2,862
Funded status – net		271			355		372
Accrued benefit costs		—			23		13
Prepaid benefit costs (Note 19)		271			378		385

Components of net periodic benefit costs:
Service costs		239			314		269
Interest costs – net		(6	)		—		(18	)
Curtailment/settlement gain		(55	)		—		—
Net periodic benefit costs (Note 5)		178			314		251

Smart’s net consolidated pension benefit costs amounted to Php178 million, Php314 million and Php251 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Actual net gains on plan assets amounted to Php290 million, nil and and Php205 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Based on the latest actuarial valuation, Smart and certain of its subsidiaries expect to contribute the amount of approximately Php337 million to the plan in 2020.

The following table sets forth the expected future settlements by the Plan of maturing defined benefit obligation as at December 31, 2019:

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

The weighted average assumptions used to determine pension benefits for the years ended December 31, 2019, 2018 and 2017 are as follows:

The fund is being managed and invested by BPI Asset Management and Trust Corporation, 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, 2019 and 2018:

Investments in domestic fixed income include Philippine Peso denominated bonds, such as government securities and corporate debt securities, with fixed interest rates from 2.8% to 12.0% per annum. Total investments in domestic fixed income amounted to Php1,993 million and Php1,854 million as at December 31, 2019 and 2018, respectively.

Investments in international equities include exchange traded funds, mutual funds and, unit investment trust funds managed by BlackRock Fund Advisors, State Street Global Advisors, WisdomTree Investments Advisors, Wellington Management Company, and BPI Asset Management and Trust Corporation. Total investments in international equities amounted to Php1,114 million and Php550 million as at December 31, 2019 and 2018, respectively.

Investments in domestic equities include direct equity investments in common shares listed in the PSE. These investments earn on stock price appreciation and dividend payments. Total investment in domestic equities amounted to Php649 million and Php333 million as at December 31, 2019 and 2018, respectively. This includes investment in PLDT shares with fair value of Php13 million and Php15 million as at December 31, 2019 and 2018, respectively.

Investments in Philippine foreign currency bonds include U.S. Dollar denominated fixed income instruments issued by the Philippine government and local corporations with fixed interest rates from 3.70% to 10.63% per annum. Total investment in Philippine foreign currency bonds amounted to Php516 million and Php165 million as at December 31, 2019 and 2018, respectively.

Investments in international fixed income include mutual fund invested in PIMCO GIS Global Bond Fund. Total investments in international fixed income amounted to Php142 million and nil as at December 31, 2019 and 2018, 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 asset allocation of the Plan is set and reviewed from time to time by the Plan Trustees taking into account the membership profile, the liquidity requirements of the Plan and risk appetite of the Plan sponsor. This considers the expected benefit cash flows to be matched with asset durations.

The 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 invest 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 assess 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, 2019 and 2018 is as follows:

On September 26, 2017, the Board of Directors of PLDT approved the TIP, which intends to provide incentive compensation to key officers, executives and other eligible participants who are consistent performers and contributors to the Company’s strategic and financial goals. The incentive compensation will be in the form of Performance Shares, PLDT common shares of stock, which will be released in three annual grants on the condition, among others, that pre-determined consolidated core net income targets are successfully achieved over three annual performance periods from January 1, 2017 to December 31, 2019. On September 26, 2017, the Board of Directors approved the acquisition of 860 thousand Performance Shares to be awarded under the TIP. On March 7, 2018, the ECC of the Board approved the acquisition of additional 54 thousand shares, increasing the total Performance Shares to 914 thousand. Metrobank, through its Trust Banking Group, is the appointed Trustee of the trust established for purposes of the TIP. The Trustee is designated to acquire the PLDT common shares in the open market through the facilities of the PSE, and administer their distribution to the eligible participants subject to the terms and conditions of the TIP.

On December 11, 2018, the Executive Compensation Committee, or ECC, of the Board approved Management’s recommended modifications to the Plan, and partial equity and cash settled set-up will be implemented for the 2019 TIP Grant. The estimated fair value of remaining unpurchased shares will be given out as cash award. The fair value of the cash award relating to unpurchased shares is determined using the estimate of the fair value of the original award approved in 2017.

As at March 5, 2020, a total of 757 thousand PLDT common shares have been acquired by the Trustee, of which 302 thousand and 204 thousand PLDT common shares have been released to the eligible participants on March 28, 2019 for the 2018 annual grant and on April 5, 2018 for the 2017 annual grant, respectively. The TIP is administered by the ECC of the Board. The expense accrued for the TIP amounted to Php638 million, Php208 million and Php827 million for the years ended December 31, 2019, 2018 and 2017, respectively. The accrued incentive payable, representing the cash settled set-up amounted to Php795 million as at December 31, 2019. 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.

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 LGUs. As at December 31, 2019, PLDT has no contested LGU assessments for franchise taxes based on gross receipts received or collected for services within their respective territorial jurisdiction.

The Province of Cagayan issued a tax assessment against Smart for alleged local franchise tax. In 2011, Smart appealed the assessment to the Regional Trial Court, or 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 TRO 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, or CTA. In a Decision promulgated on July 25, 2013, the CTA ruled that the franchise tax assessment is null and void for lack of legal and factual justifications. Cagayan’s Motion for Reconsideration was denied. Cagayan then appealed before the CTA En Banc. The CTA En Banc issued a Decision dated December 8, 2015 affirming the nullity of the tax assessment. On January 26, 2016, the Province of Cagayan filed a Partial Motion for Reconsideration, praying among others, that the Court enter a new decision declaring as valid and legal the tax assessment issued by Province of Cagayan to Smart. The CTA En Banc then issued a Resolution dated June 22, 2016 denying the Partial Motion for Reconsideration filed by the Province of Cagayan for lack of merit. On July 31, 2016, the Decision dated December 8, 2015 became final and executory and recorded in the book of entries of judgement of the CTA.

In 2016, Cagayan issued another local franchise tax assessment against Smart covering years 2011-2015. Using the same grounds in the first case, Smart appealed the assessment with the RTC of Tuguegarao where the case is pending. The RTC then directed the parties to file their respective Memorandum within 30 days from date of receipt. Smart filed its Memorandum on November 7, 2018.

In 2015, the City of Manila issued assessments for alleged business tax deficiencies and cell sites regulatory fees and charges. Smart protested the assessments. After Manila denied the protest, Smart appealed to the RTC of the City of Manila, arguing that it is not liable for local business taxes on income realized from its telecommunications operations and that the assessments were a clear circumvention of Manila City Ordinance No. 8299 exempting Smart from the payment of local franchise tax. The assessment for regulatory fees was contested for being void, as they were made without a valid and legal basis. In the Decision promulgated on March 9, 2016, the RTC declared the local business tax and cell site regulatory fee assessments as invalid and void. The City of Manila filed a Petition for Review with the CTA seeking to reverse the Decision. Through a Decision dated December 18, 2017, the Court dismissed the Petition for lack of jurisdiction. On January 2018, Smart received a copy of the City of Manila’s Motion for Reconsideration, which was denied by the CTA in a Resolution dated May 17, 2018. The City of Manila filed a Petition for Review dated June 1, 2018 before the CTA En Banc. Smart filed its Comment on October 23, 2018. Petition for review is submitted for decision pursuant to Resolution dated November 15, 2018. The Petition for Review filed by the City of Manila was denied by the Court of Tax Appeals En Banc in a Decision dated November 6, 2019. The CTA En Banc affirmed the: (1) Decision of CTA Division dated December 18, 2017, dismissing the petition of the City of Manila for lack of jurisdiction; and (2) Resolution of CTA Division dated May 17, 2018, dismissing the Motion for Reconsideration of the City of Manila for lack of merit.

Digitel is discussing with various local government units as to settlement of its franchise tax and real property tax liabilities.

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 brought about by the alleged real property tax delinquencies. The RTC denied the petition. DMPI appealed with the CTA. On December 29, 2017, the CTA dismissed DMPI’s Petition for Review on the ground of lack of jurisdiction. On January 12, 2018, DMPI filed its Motion for Reconsideration. The CTA issued a resolution directing respondent City of Cotabato to file comment/opposition within 10 days and thereafter, the incident will be submitted for resolution. A Withdrawal of Counsel and Entry of Appearance were filed on May 7, 2018 and May 24, 2018, respectively. On May 7, 2018, the CTA promulgated a resolution denying DMPI’s Motion for Reconsideration for lack of merit. A notice for Entry of Judgment was issued by the CTA on August 23, 2018. A dialogue between DMPI and the City of Cotabato was conducted for possible amicable settlement. On January 30, 2019, DMPI filed its Compliance, informing the CTA that it paid the real property tax amounting to Php3 million on December 20, 2018. The CTA noted DMPI’s compliance in a Resolution dated February 12, 2019.

In the DMPI vs. City Government of Malabon, DMPI filed a Petition for Prohibition and Mandamus against the City of Malabon to prevent the auction sale of DMPI sites in its jurisdiction due to the alleged real property tax liabilities. DMPI was able to secure a TRO to defer the sale. Through a Compromise Judgment dated October 6, 2017, the RTC of Malabon approved the compromise agreement executed by the parties.

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

ACeS Philippines has a pending case with the Supreme Court (ACeS Philippines Satellite Corporation vs. Commissioner of Internal Revenue Supreme Court G.R. No. 226680) for alleged 2006 deficiency withholding tax. On July 23, 2014, the CTA Second Division affirmed the assessment of the Commissioner of Internal Revenue for deficiency basic withholding tax, surcharge plus deficiency interest and delinquency interest amounting to Php87 million. On November 18, 2014, ACeS Philippines filed a Petition for Review with the CTA En Banc. On August 16, 2016, the CTA En Banc also affirmed the assessment with finality. Hence, on October 19, 2016, ACeS Philippines filed a petition before the Supreme Court assailing the decision of the CTA. ACeS Philippines intends to file a formal request for compromise of tax liabilities before the BIR while the case is pending before the Supreme Court. On February 23, 2017 and March 15, 2017, respectively, the Company paid and filed a formal request for compromise of tax liabilities amounting to Php27 million before the BIR while the case is pending before the Supreme Court. No outstanding Letter of Authority for other years.

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

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

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

In Wilson P. Gamboa vs. Finance Secretary Margarito B. Teves, et. al. (G.R. No. 176579) (the “Gamboa Case”), the Supreme Court held 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).” It directed the Philippine SEC “to apply this definition of the term ‘capital’ in determining the extent of allowable foreign ownership in PLDT, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.” On October 9, 2012, the Supreme Court issued a Resolution denying with finality all Motions for Reconsideration of the respondents. The Supreme Court decision became final and executory on October 18, 2012.

On May 20, 2013, the Philippine SEC issued SEC Memorandum Circular No. 8, Series of 2013 - Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by Corporations Engaged in Nationalized and Partly-Nationalized Activities, or MC No. 8, which provides that the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.

On June 10, 2013, Jose M. Roy III filed before the Supreme Court a Petition for Certiorari against the Philippine SEC, Philippine SEC Chairman and PLDT, or the Petition, claiming: (1) that MC No. 8 violates the decision of the Supreme Court in the Gamboa Case, which according to the Petitioner required that (a) the 60-40 ownership requirement be imposed on “each class of shares” and (b) Filipinos must have full beneficial ownership of 60% of the outstanding capital stock of those corporations subject to that 60-40 Filipino-foreign ownership requirement; and (2) that the PLDT Beneficial Trust Fund is not a Filipino-owned entity and consequently, the corporations owned by PLDT Beneficial Trust Fund, including BTFHI, which owns 150 million voting preferred shares in PLDT, cannot be considered a Filipino-owned corporation. PLDT and Philippine SEC sought the dismissal of the Petition.

In July 16, 2013, Wilson C. Gamboa, Jr. et. al. filed a Motion for Leave to file a Petition-in-Intervention dated July 16, 2013, which the Supreme Court granted on August 6, 2013. The Petition-in-Intervention raised identical arguments and issues as those in the Petition.

The Supreme Court, in its November 22, 2016 decision, dismissed the Petition and Petition-In-Intervention and upheld the validity of MC No. 8. In the course of discussing the Petition, the Supreme Court expressly rejected petitioners’ argument that the 60% Filipino ownership requirement for public utilities must be applied to each class of shares. According to the Court, the position is “simply beyond the literal text and contemplation of Section 11, Article XII of the 1987 Constitution” and that the petitioners’ suggestion would “effectively and unwarrantedly amend or change” the Court’s ruling in the Gamboa Case. In categorically rejecting the petitioners’ claim, the Court declared and stressed that its ruling in the Gamboa Case “did NOT make any definitive ruling that the 60% Filipino ownership requirement was intended to apply to each class of shares.” On the contrary, according to the Court, “nowhere in the discussion of the term “capital” in Section 11, Article XII of the 1987 Constitution in the Gamboa Decision did the Court mention the 60% Filipino equity requirement to be applied to each class of shares.”

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

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

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

Petitioner Jose M. Roy III filed a Motion for Reconsideration of the Supreme Court Decision dated November 22, 2016. On April 18, 2017, the Supreme Court denied with finality Petitioner’s Motion for Reconsideration. On August 5, 2017, PLDT received a copy of the Entry of Judgment.

Department of Labor and Employment, or DOLE, Compliance Order, or Order, to PLDT

In a series of orders including a Compliance Order issued by the DOLE Regional Office on July 3, 2017, which was partly affirmed by DOLE Secretary Silvestre Bello, III, or DOLE Secretary, in his resolutions dated January 10, 2018 and April 24, 2018, the DOLE had previously ordered PLDT to regularize 7,344 workers from 38 of PLDT’s third party service contractors. PLDT questioned these “regularization orders” before the CA, which led to the July 31, 2018 Decision.

In sum, the CA: (i) granted PLDT’s prayer for an injunction against the regularization orders; (ii) set aside the regularization orders insofar as they declared that there was labor-only contracting of the following functions: (a) janitorial services, messengerial and clerical services; (b) information technology, or IT, firms and services; (c) IT support services, both hardware and software, and applications development; (d) back office support and office operations; (e) business process outsourcing or call centers; (f) sales; and (g) medical, dental engineering and other professional services; and (iii) remanded to the DOLE for further proceedings, the matters of: (a) determining which contractors, and which individuals deployed by these contractors, are performing installation, repair and maintenance of PLDT lines; and (b) properly computing monetary awards for benefits such as unpaid overtime or 13th month pay, which in the regularization orders amounted to Php51.8 million.

The CA agreed with PLDT’s contention that the DOLE Secretary’s regularization order was “tainted with grave abuse of discretion” because it did not meet the “substantial evidence” standards set out by the Supreme Court in landmark jurisprudence. The Court also said that the DOLE’s appreciation of evidence leaned in favor of the contractor workers, and that the DOLE Secretary had “lost sight” of distinctions involving the labor law concepts of “control over means and methods,” and “control over results.”

On August 20, 2018, PLDT filed a motion seeking a partial reconsideration of that part of the CA decision, which ordered a remand to the Office of the Regional Director of the DOLE-National Capital Region of the matter of the regularization of individuals performing installation, repair and maintenance, or IRM, services. In its motion, PLDT argued that the fact-finding process contemplated by the Court’s remand order is actually not part of the visitorial power of the DOLE (i.e., the evidence that will need to be assessed cannot be gleaned by in the ‘normal course’ of a labor inspection) and is therefore, outside the jurisdiction of the DOLE Secretary.

PLDT also questioned that part of the CA ruling which seems to conclude that all IRM jobs are “regular.” It argued that the law recognizes that some work of this nature can be project-based or seasonal in nature. Instead of the DOLE, PLDT suggested that the National Labor Relations Commission – a tribunal with better fact-finding powers – take over from the DOLE to determine whether the jobs are in fact IRM, and if so, whether they are “regular” or can be considered project-based or seasonal.

Both adverse parties, the PLDT rank-and-file labor union Manggagawa sa Komunikasyon ng Pilipinas, or MKP, and the DOLE filed Motions for Reconsideration.

On February 14, 2019, the CA issued a Resolution denying all Motions for Reconsideration and upheld its July 31, 2018 Decision. After filing a Motion for Extension of Time on March 7, 2019, PLDT filed on April 5, 2019 a Petition for Review with the Supreme Court, questioning only one aspect of the CA decision i.e. its order remanding to the DOLE the determination of which jobs fall within the scope of “installation, repair and maintenance,” without however a qualification as to the “project” or “seasonal” nature of those engagements. The Supreme Court has consolidated PLDT’s Petition with the separate Petitions for Review filed by the DOLE and MKP. The consolidated case remains pending with the Supreme Court as of the date of the report.

The Petition prayed that: (a) a Temporary Restraining Order, or TRO, /Writ of Preliminary Injunction, or WPI, be issued to enjoin and restrain Globe, PLDT and Smart from utilizing and monopolizing the Subject Frequencies and the NTC from bidding out or awarding the frequencies returned by PLDT, Smart and Globe; (b) the NTC’s conditional assignment of the Subject Frequencies be declared unconstitutional, illegal and void; (c) alternatively, Liberty and its successors-in-interest be divested of the Subject Frequencies and the same be reverted to the State; (d) Liberty be declared to have transgressed Section 11 (1), Article XVI of the Constitution; (e) Liberty and its parent company be declared to have contravened paragraph 2 of Section 10, Article XII of the 1987 Constitution; (f) Liberty’s assignment of the Subject Frequencies to BellTel be declared illegal and void; (g) the Co-Use Agreement be declared invalid; (h) the NTC be found to have unlawfully neglected the performance of its positive duties; (i) the PCC be found to have unlawfully neglected the performance of its positive duties; (j) a Writ of Mandamus be issued commanding the NTC to revoke the Co-Use Agreement, recall the Subject Frequencies in favor of the State, and make the same available to the best qualified telecommunication players; (k) a Writ of Mandamus be issued commanding the PCC to conduct a full review of PLDT’s and Globe’s acquisition of all issued and outstanding shares of Vega Telecom; (l) an Investigation of NTC be ordered for possible violation of Section 3 (e) of R.A. 3019 and other applicable laws; and (m) the said TRO/WPI be made permanent.

Essentially, petitioners contend that the NTC’s assignments of the Subject Frequencies of Liberty were void for failing to comply with Section 4 (c) of R.A. 7925 which essentially states that “the radio frequency spectrum is a scarce public resource xxx.” Even assuming the assignments were valid, Liberty should be deemed divested of the same by operation of law (with the Subject Frequencies reverted to the State), considering that it underutilized or never utilized the Subject Frequencies in violation of the terms and conditions of the assignment. Assuming further that the NTC’s assignments of the Subject Frequencies were valid and that Liberty was not divested of the same by operation of law, still, Liberty did not validly assign the Subject Frequencies to BellTel because of the absence of Congressional approval. Petitioners conclude that since the assignments of the Subject Frequencies from the NTC to Liberty, and from Liberty to BellTel, were all illegal and void, it follows that the Subject Frequencies could not serve as the object of the Co-Use Agreement between PLDT, Smart and Globe.

On November 23, 2018, PLDT filed an Entry of Appearance on behalf of PLDT and Smart. On January 17, 2019, PLDT and Smart filed their Comment. Essentially, the Comment raised the following arguments: first, that the requisites for judicial review and for a mandamus petition are lacking; second, that there was no need for Liberty to obtain prior Congressional approval before it assigned the Subject Frequencies to BellTel; and third, that the Co-Use Agreement is valid and approved by the NTC, and did not violate the Constitution or any laws.

On January 15, 2019, PLDT received a copy of BellTel’s Comment/Opposition dated January 10, 2019. On February 12, 2019, PLDT received a copy of Globe Telecom, Inc.’s, or Globe’s Comment/Opposition dated January 21, 2019. In a Resolution dated March 19, 2019, the Supreme Court noted the aforesaid filings. As at the date of the report, however, PLDT has not received any pleadings from the OSG on behalf of the public respondents.

On June 18, 2019, the Supreme Court issued a Resolution consolidating this case with G.R. No. 230798 (Philippine Competition Commission vs. CA [Twelfth Division] and PLDT; Globe, intervenor) and G.R. No. 234969 (Philippine Competition Commission vs. PLDT and Globe). The consolidated cases were assigned to the Court in charge of G.R. No. 230798, the case with the lowest docket number.

Other disclosures required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, were not provided as it may prejudice our position in on-going claims, litigations and assessments. See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Provision for legal contingencies and tax assessments.

We have various financial assets such as trade and non-trade receivables, cash and short-term deposits. Our principal financial liabilities, other than derivatives, comprise of bank loans, 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, interest rate swaps and forward foreign exchange contracts and options 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, 2019 and 2018:

		Financial instruments at amortized cost			Financial instruments at FVPL		Financial instruments at FVOCI		Total financial instruments
	(in million pesos)
Assets as at December 31, 2019
Noncurrent:
Financial assets at fair value through profit or loss			—			3,369		—		3,369
Derivative financial assets – net of current portion			—			1		—		1
Financial assets at fair value through other comprehensive income – net of current portion			—			—		162		162
Other financial assets – net of current portion			1,986			—		—		1,986
Current:
Cash and cash equivalents			24,369			—		—		24,369
Short-term investments			314			—		—		314
Trade and other receivables			22,436			—		—		22,436
Current portion of derivative financial assets			—			41		—		41
Current portion of debt instruments at amortized cost			150			—		—		150
Current portion of financial assets at fair value through other comprehensive income			—			—		2,757		2,757
Current portion of other financial assets			1,220			6,866		—		8,086
Total assets			50,475			10,277		2,919		63,671

Liabilities as at December 31, 2019
Noncurrent:
Interest-bearing financial liabilities – net of current portion			172,834			—		—		172,834
Lease liabilities – net of current portion			13,118			—		—		13,118
Derivative financial liabilities – net of current portion			—			25		—		25
Customers' deposits			2,205			—		—		2,205
Deferred credits and other noncurrent liabilities			2,179			—		—		2,179
Current:
Accounts payable			76,384			—		—		76,384
Accrued expenses and other current liabilities			73,299			7,851		—		81,150
Current portion of interest-bearing financial liabilities			19,722			—		—		19,722
Current portion of lease liabilities			3,215			—		—		3,215
Dividends payable			1,584			—		—		1,584
Current portion of derivative financial liabilities			—			88		—		88
Total liabilities			364,540			7,964		—		372,504
Net assets (liabilities)			(314,065	)		2,313		2,919		(308,833	)

		Financial instruments at amortized cost			Financial instruments at FVPL		Financial instruments at FVOCI		Total financial instruments
	(in million pesos)
Assets as at December 31, 2018
Noncurrent:
Financial assets at fair value through profit or loss			—			4,763		—		4,763
Debt instruments at amortized cost			150			—		—		150
Derivative financial assets – net of current portion			—			140		—		140
Financial assets at fair value through other comprehensive income – net of current portion			—			—		2,749		2,749
Other financial assets – net of current portion			2,275			—		—		2,275
Current:
Cash and cash equivalents			51,654			—		—		51,654
Short-term investments			1,165			—		—		1,165
Trade and other receivables			24,056			—		—		24,056
Current portion of derivative financial assets			—			183		—		183
Current portion of financial assets at fair value through other comprehensive income			—			—		1,604		1,604
Current portion of other financial assets			175			6,833		—		7,008
Total assets			79,475			11,919		4,353		95,747

Liabilities as at December 31, 2018
Noncurrent:
Interest-bearing financial liabilities – net of current portion			155,835			—		—		155,835
Customers' deposits			2,194			—		—		2,194
Deferred credits and other noncurrent liabilities			3,088			—		—		3,088
Current:
Accounts payable			72,818			—		—		72,818
Accrued expenses and other current liabilities			68,920			7,862		—		76,782
Current portion of interest-bearing financial liabilities			20,441			—		—		20,441
Dividends payable			1,533			—		—		1,533
Current portion of derivative financial liabilities			—			80		—		80
Total liabilities			324,829			7,942		—		332,771
Net assets (liabilities)			(245,354	)		3,977		4,353		(237,024	)

The following table sets forth our consolidated offsetting of financial assets and liabilities recognized as at December 31, 2019 and 2018:

There are no financial instruments subject to an enforceable master netting arrangement as at December 31, 2019 and 2018.

The following table sets forth our consolidated carrying values and estimated fair values of our financial assets and liabilities recognized as at December 31, 2019 and 2018 other than those whose carrying amounts are reasonable approximations of fair values:

Below is 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, 2019 and 2018. This classification provides a reasonable basis to illustrate the nature and extent of risks associated with those financial statements.

	2019								2018
	Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾		Total		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾		Total
	(in million pesos)
Noncurrent Financial Assets
Listed equity securities
Financial assets at FVPL		2,442		304		623		3,369		3,625		154		984		4,763
Derivative financial assets – net of current portion		—		1		—		1		—		140		—		140
Financial assets at FVOCI – net of current portion		—		162		—		162		—		2,749		—		2,749
Current Financial Assets
Current portion of derivative financial assets		—		41		—		41		—		183		—		183
Current portion of FVOCI		—		2,757		—		2,757		—		1,604		—		1,604
Current portion of other financial assets		—		6,866		—		6,866		—		6,833		—		6,833
Total		2,442		10,131		623		13,196		3,625		11,663		984		16,272

Noncurrent Financial Liabilities
Derivative financial liabilities – net of current portion		—		25		—		25		—		—		—		—
Current Financial Liabilities
Accrued expenses and other current liabilities		—		7,851		—		7,851		—		7,862		—		7,862
Current portion of derivative financial liabilities		—		88		—		88		—		80		—		80
Total		—		7,964		—		7,964		—		7,942		—		7,942

As at December 31, 2019 and 2018, there were no transfers into and out of Level 3 fair value measurements.

As at December 31, 2019 and 2018, there were no transfers between Level 1 and Level 2 fair value measurements.

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

Forward foreign exchange contracts, foreign currency swaps and interest rate swaps: The fair values were computed as the present value of estimated future cash flows using market U.S. Dollar and Philippine Peso interest rates as at valuation date.

The valuation techniques considered various inputs including the credit quality of counterparties.

Due to the short-term nature of the transactions, the fair value of cash and cash equivalents, short-term investments, trade and other receivables, accounts payable, accrued expenses and other current liabilities and dividends payable approximate their carrying values as at the end of the reporting period.

Our derivative financial instruments are accounted for as either cash flow hedges or transactions not designated as hedges. Cash flow hedges refer to those transactions that hedge our exposure to variability in cash flows attributable to a particular risk associated with a recognized financial asset or liability and exposures arising from forecast transactions. Changes in the fair value of these instruments representing effective hedges are recognized directly in other comprehensive income until the hedged item is recognized in our consolidated income statement. For transactions that are not designated as hedges, any gains or losses arising from the changes in fair value are recognized directly to income for the period.

As at December 31, 2019 and 2018, 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, 2019 and 2018:

											2019					2018
	Original Notional Amount		Trade Date	Underlying Transaction in U.S. Dollar	Termination Date	Weighted Average Hedge Cost			Weighted Average Foreign Exchange Rate		Notional Amount		Net Mark- to- market Gains (Losses) in Php			Notional Amount		Net Mark- to- market Gains (Losses) in Php
	(in millions)			(in millions)							(in millions)
Transactions not designated as hedges:
PLDT
Forward foreign exchange contracts	US$114		Various dates in 2017 and 2018	U.S. Dollar Liabilities	Various dates in 2018		—		Php51.68			—		—			—		—
	US$18		Various dates in 2019 and January and February 2020	U.S. Dollar Liabilities	Various dates in January 2020 to June 2020		—		Php51.04		US$22			(12	)	US$34			(22	)
	EUR9		Various dates in August 2018	EUR Assets	December 14, 2018		—		US$1.17			—		—			—		—
	EUR11		Various dates in 2018	EUR Assets	December 14, 2018		—		Php62.95			—		—			—		—
	EUR5		Various dates in July and August 2019	EUR Assets	January 2020		—		Php58.65		EUR5			8			—		—
Foreign exchange options	EUR36	^(a)	Various dates in 2018	EUR Assets	Various dates in November and December 2018		—		EUR1.161			—		—			—		—
									EUR1.185
Smart
Forward foreign exchange contracts	US$120		Various dates in 2017 and 2018	U.S. Dollar Liabilities	Various dates in 2018		—		Php52.13			—		—			—		—
	US$144		Various dates in 2018 and 2019	U.S. Dollar Liabilities	Various dates in 2019		—		Php52.73			—		—		US$54			(38	)
	US$41		Various dates in 2019	U.S. Dollar Liabilities	Various dates in 2020		—		Php51.44		US$41			(22	)		—		—
	US$16		Various dates in January and March 2020	U.S. Dollar Liabilities	Various dates in March and May 2020		—		Php50.79			—		—			—		—
Foreign exchange options^(b)	US$4		Various dates in 2017 and 2018	U.S. Dollar Liabilities	Various dates in 2018		—		Php50.64			—		—			—		—
									Php51.58
									Php52.48
PCEV
Forward foreign exchange contracts	US$22		Various dates in 2019	U.S. Dollar Cash Conversion	Various dates in 2019		—		Php52.24			—		—					—
														(26	)				(60	)
Transactions designated as hedges:
PLDT
Interest rate swaps^(c)	US$240		Various dates in 2013 and 2015	300 Term Loan	January 16, 2018		2.17	%		—		—		—			—		—
	US$100		August 2014	100 PNB	August 11, 2020		3.46	%		—	US$95			(6	)	US$96			55
	US$50		September 2014	50 Metrobank	September 2, 2020		3.47	%		—	US$48			(5	)	US$48			25
	US$150		April and June 2015	200 Term Loan	February 25, 2022		2.70	%		—	US$56			2		US$79			66
Long-term currency swaps^(d)	US$140		October 2015 to June 2016	300 Term Loan	January 16, 2018		2.20	%	Php46.67			—		—			—		—
	US$4		January 2017	100 PNB	August 11, 2020		1.01	%	Php49.79		US$1			1		US$2			7
	US$6		April and June 2017	200 MUFG Bank, Ltd.	August 26, 2019		1.63	%	Php49.51			—		—		US$3			9
	US$2		January 2018	200 MUFG Bank, Ltd.	August 26, 2019		1.59	%	Php49.86			—		—		US$1			3
	US$6		February 2018	200 MUFG Bank, Ltd.	February 26, 2020		1.82	%	Php51.27		US$1			(2	)	US$5			6
	US$22		November 2018 to June 2019	200 MUFG Bank, Ltd.	February 25, 2022		2.28	%	Php52.08		US$17			(30	)	US$11			17
														(40	)				188
Smart

Interest rate swaps^(e)	US$110	Various dates in 2013 and 2014	120 Term Loan	June 20, 2018	2.22	%		—		—	—			—	—
	US$85	Various dates in 2014 and 2015	100 Bank of Tokyo	March 7, 2019	2.23	%		—		—	—		US$10		3
	US$50	October 2, 2014	50 Mizuho	May 14, 2019	2.58	%		—		—	—		US$5		2
	US$200	Various dates in 2015	200 Mizuho	March 4, 2020	2.10	%		—	US$22		4		US$67		52
	US$30	February 2016	100 Mizuho	December 7, 2021	2.03	%		—	US$12		5		US$18		24
Long-term currency swaps^(f)	US$100	Various dates in 2015	200 Mizuho	March 5, 2018	2.21	%	Php46.66			—	—			—	—
	US$45	Various dates in 2016	100 Mizuho	December 7, 2018	1.93	%	Php46.55			—	—			—	—
	US$11	Various dates in 2017	80 CBC	May 31, 2018	1.28	%	Php49.66			—	—			—	—
	US$18	Various dates in 2017, 2018 and 2019	100 Mizuho	December 7, 2020	1.77	%	Php50.98		US$9		(3	)	US$16		28
	US$13	Various dates in 2018 and 2019	200 Mizuho	March 4, 2020	2.06	%	Php51.93		US$4		(6	)	US$9		6
	US$6	February 2019	2015 Mizuho US$100M	December 7, 2021	2.22	%	Php51.83		US$4		(5	)		—	—
											(5	)			115
											(71	)			243

Movements of our consolidated mark-to-market gains (losses) for the years ended December 31, 2019 and 2018 are summarized as follows:

Our consolidated analysis of gains (losses) on derivative financial instruments for the years ended December 31, 2019, 2018 and 2017 are as follows:

The main risks arising from our financial instruments are liquidity risk, foreign currency exchange risk, interest rate risk and credit risk. The importance of managing those risks has significantly increased in light of the considerable change and volatility in both the Philippine and international financial markets. Our Board of Directors reviews and approves policies for managing each of these risks, which 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 will not be 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 and managed funds. 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 Php24,369 million and Php314 million, respectively, as at December 31, 2019, which we can use to meet our short-term liquidity needs. See Note 16 – Cash and Cash Equivalents.

The following table summarizes the maturity profile of our financial assets based on our consolidated undiscounted claims outstanding as at December 31, 2019 and 2018:

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in million pesos)
December 31, 2019
Financial instruments at amortized cost:		60,971		58,687		1,768		338		178
Other financial assets		3,504		1,220		1,768		338		178
Debt instruments at amortized cost		150		150		—		—		—
Temporary cash investments		17,663		17,663		—		—		—
Short-term investments		314		314		—		—		—
Retail subscribers		17,178		17,178		—		—		—
Corporate subscribers		13,005		13,005		—		—		—
Foreign administrations		1,896		1,896		—		—		—
Domestic carriers		889		889		—		—		—
Dealers, agents and others		6,372		6,372		—		—		—
Financial instruments at FVPL:		10,235		6,866		—		—		3,369
Financial assets at fair value through profit or loss		3,369		—		—		—		3,369
Other financial assets		6,866		6,866		—		—		—
Financial instruments at FVOCI:		2,919		2,757		162		—		—
Financial assets at fair value through other comprehensive income		2,919		2,757		162		—		—
Total		74,125		68,310		1,930		338		3,547

December 31, 2018
Financial instruments at amortized cost:		90,232		87,526		2,190		349		167
Other financial assets		2,686		130		2,040		349		167
Debt instruments at amortized cost		150		—		150		—		—
Temporary cash investments		45,672		45,672		—		—		—
Short-term investments		1,165		1,165		—		—		—
Retail subscribers		19,444		19,444		—		—		—
Corporate subscribers		11,073		11,073		—		—		—
Foreign administrations		4,225		4,225		—		—		—
Domestic carriers		270		270		—		—		—
Dealers, agents and others		5,547		5,547		—		—		—
Financial instruments at FVPL:		11,596		6,833		—		—		4,763
Financial assets at fair value through profit or loss		4,763		—		—		—		4,763
Other financial assets		6,833		6,833		—		—		—
Financial instruments at FVOCI:		4,353		1,604		2,749		—		—
Financial assets at fair value through other comprehensive income		4,353		1,604		2,749		—		—
Total		106,181		95,963		4,939		349		4,930

The following table summarizes the maturity profile of our financial liabilities based on our consolidated contractual undiscounted obligations outstanding as at December 31, 2019 and 2018:

	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in million pesos)
December 31, 2019
Debt^(1):		243,226		19,014		66,052		54,146		104,014
Principal		193,047		15,221		44,253		40,288		93,285
Interest		50,179		3,793		21,799		13,858		10,729
Lease obligations:		37,299		13,454		10,254		6,864		6,727
Various trade and other obligations:		153,255		148,839		2,405		38		1,973
Suppliers and contractors		70,169		68,051		2,118		—		—
Utilities and related expenses		51,875		51,843		32		—		—
Employee benefits		8,673		8,673		—		—		—
Liability from redemption of preferred shares		7,851		7,851		—		—		—
Customers’ deposits		2,205		—		194		38		1,973
Dividends		1,584		1,584		—		—		—
Carriers and other customers		1,387		1,387		—		—		—
Others		9,511		9,450		61		—		—
Total contractual obligations		433,780		181,307		78,711		61,048		112,714

December 31, 2018
Debt^(1):		218,791		13,892		72,007		51,098		81,794
Principal		176,694		13,292		49,747		41,401		72,254
Interest		42,097		600		22,260		9,697		9,540
Lease obligations:		22,674		12,727		4,066		2,616		3,265
Operating lease		22,674		12,727		4,066		2,616		3,265
Various trade and other obligations:		145,892		140,548		3,207		176		1,961
Suppliers and contractors		72,064		69,099		2,828		137		—
Utilities and related expenses		48,189		48,128		61		—		—
Employee benefits		7,955		7,955		—		—		—
Liability from redemption of preferred shares		7,862		7,862		—		—		—
Customers’ deposits		2,194		—		194		39		1,961
Carriers and other customers		1,815		1,815		—		—		—
Dividends		1,533		1,533		—		—		—
Others		4,280		4,157		123		—		—
Total contractual obligations		387,357		167,167		79,280		53,890		87,020

See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt for a detailed discussion of our debt.

Our consolidated future minimum lease commitments payable with non-cancellable leases as at December 31, 2019 and 2018 are as follows:

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 Php153,255 million and Php145,892 million as at December 31, 2019 and 2018, respectively. See Note 23 – Accounts Payable and Note 24 – Accrued Expenses and Other Current Liabilities.

Our outstanding consolidated commercial commitments, in the form of letters of credit, amounted to nil and Php20 million as at December 31, 2019 and 2018, respectively. These commitments will expire within one year. See Note 11 – Investments in Associates and Joint Ventures – Investments of PLDT in VTI, Bow Arken and Brightshare.

We have not made any pledges as collateral with respect to our financial liabilities as at December 31, 2019 and 2018.

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

The revaluation of our foreign currency-denominated financial assets and liabilities as a result of the appreciation or depreciation of the Philippine Peso is recognized as foreign exchange gains or losses as at the end of the reporting period. The extent of foreign exchange gains or losses is largely dependent on the amount of foreign currency denominated financial assets and liabilities. While a certain percentage of our revenues are either linked to or denominated in U.S. Dollars, a substantial portion of our capital expenditures, a portion of our indebtedness and related interest expense 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. Further details of the risk management strategy is recognized in our hedge designation documentation. We use forward foreign exchange purchase contracts, currency swap contracts and currency option contracts to manage the foreign currency risks associated with our foreign currency-denominated financial liabilities. 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 year.

The impact of the hedging instruments on our consolidated statements of financial position as at December 31, 2019 and 2018 are as follows:

The impact of the hedged items on our consolidated statements of financial position as at December 31, 2019 and 2018 are as follows:

The effect of the cash flow hedge on our consolidated income statements and statements of other comprehensive income as at December 31, 2019 and 2018 are as follows:

The following table shows our consolidated foreign currency-denominated monetary financial assets and liabilities and their Philippine Peso equivalents as at December 31, 2019 and 2018:

	2019				2018
	U.S. Dollar		Php⁽¹⁾		U.S. Dollar		Php⁽²⁾
	(in millions)
Noncurrent Financial Assets
Derivative financial assets – net of current portion		—		1		3		140
Other financial assets – net of current portion		—		13		—		12
Total noncurrent financial assets		—		14		3		152
Current Financial Assets
Cash and cash equivalents		122		6,181		717		37,688
Short-term investments		6		285		22		1,138
Trade and other receivables – net		777		39,472		261		13,741
Current portion of derivative financial assets		1		41		3		183
Current portion of other financial assets		—		11		—		11
Total current financial assets		906		45,990		1,003		52,761
Total Financial Assets		906		46,004		1,006		52,913
Noncurrent Financial Liabilities
Interest-bearing financial liabilities – net of current portion		126		6,389		336		17,668
Derivative financial liabilities – net of current portion		—		25		—		—
Other noncurrent liabilities		—		15		—		12
Total noncurrent financial liabilities		126		6,429		336		17,680
Current Financial Liabilities
Accounts payable		676		34,325		415		21,797
Accrued expenses and other current liabilities		208		10,555		170		8,961
Current portion of interest-bearing financial liabilities		210		10,687		110		5,780
Current portion of derivative financial liabilities		2		88		2		80
Total current financial liabilities		1,096		55,655		697		36,618
Total Financial Liabilities		1,222		62,084		1,033		54,298

As at March 4, 2020, the Philippine Peso-U.S. Dollar exchange rate was Php50.58 to US$1.00. Using this exchange rate, our consolidated net foreign currency-denominated financial liabilities would have decreased in Philippine Peso terms by Php70 million as at December 31, 2019.

Approximately 9% and 13% of our total consolidated debts (net of consolidated debt discount) were denominated in U.S. Dollars as at December 31, 2019 and 2018, respectively. Our consolidated foreign currency-denominated debt decreased to Php17,029 million as at December 31, 2019 from Php23,352 million as at December 31, 2018. See Note 21 – Interest-bearing Financial Liabilities. The aggregate notional amount of our consolidated outstanding long-term principal only-currency swap contracts were US$37 million and US$47 million as at December 31, 2019 and 2018, respectively. Consequently, the unhedged portion of our consolidated debt amounts was approximately 8% (or 8%, net of our consolidated U.S. Dollar cash balances allocated for debt) and 12% (or 8%, net of our consolidated U.S. Dollar cash balances allocated for debt) as at December 31, 2019 and 2018, respectively.

Approximately 15% and 16% of our consolidated revenues were denominated in U.S. Dollars and/or were linked to U.S. Dollars for the years ended December 31, 2019 and 2018, respectively. Approximately 11% and 8% of our consolidated expenses were denominated in U.S. Dollars and/or linked to the U.S. Dollar for the years ended December 31, 2019 and 2018, 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 debts in Philippine Pesos.

The Philippine Peso appreciated by 3.35% against the U.S. Dollar to Php50.80 to US$1.00 as at December 31, 2019 from Php52.56 to US$1.00 as at December 31, 2018. 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 gain of Php408 million for the years ended December 31, 2019, while we recognized net consolidated foreign exchange losses of Php771 million and Php411 million for the years ended December 31, 2018 and 2017, respectively.

Management conducted a survey among our banks to determine the outlook of the Philippine Peso-U.S. Dollar exchange rate until March 31, 2020. Our outlook is that the Philippine Peso-U.S. Dollar exchange rate may weaken/strengthen by 0.59% as compared to the exchange rate of Php50.80 to US$1.00 as at December 31, 2019. If the Philippine Peso-U.S. Dollar exchange rate had weakened/strengthened by 0.59% as at December 31, 2019, with all other variables held constant, profit after tax for the year ended December 31, 2019 would have been approximately Php62 million lower/higher and our consolidated stockholders’ equity as at December 31, 2019 would have been approximately Php58 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 with floating interest rates.

Our policy is to manage interest cost through a mix of fixed and variable rate debts. We evaluate the fixed to floating ratio of our loans in line with movements of relevant interest rates in the financial markets. Based on our assessment, new financing will be priced either on a fixed or floating rate basis. We enter into interest rate swap agreements in order to manage our exposure to interest rate fluctuations. Further details of the risk management strategy is recognized in our hedge designation documentation. We make use of hedging instruments and structures solely for reducing or managing financial risk associated with our debt obligations and not for trading purposes.

The impact of the hedging instruments on our consolidated statements of financial position as at December 31, 2019 and 2018 are as follows:

The impact of the hedged items on our consolidated statements of financial position as at December 31, 2019 and 2018 are as follows:

The effect of the cash flow hedge on our consolidated income statements and statements of other comprehensive income as at December 31, 2019 and 2018 are as follows:

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, 2019 and 2018. Financial instruments that are not subject to interest rate risk were not included in the table.

	In U.S. Dollars															Discount/				Fair Value
	Below 1 year		1-2 years			2-3 years		3-5 years		Over 5 years		Total		In Php		Debt Issuance Cost In Php		Carrying Value In Php		In U.S. Dollar		In Php
																(in millions)
Assets:
Debt Instruments at Amortized Cost
Philippine Peso		3		—			—		—		—		3		150		—		150		3		150
Interest rate	4.8371%			—			—		—		—		—		—		—		—		—		—
Cash in Bank
U.S. Dollar		31		—			—		—		—		31		1,586		—		1,586		31		1,586
Interest rate	0.0100% to 1.0000%			—			—		—		—		—		—		—		—		—		—
Philippine Peso		83		—			—		—		—		83		4,228		—		4,228		83		4,228
Interest rate	0.05000% to 1.2500%			—			—		—		—		—		—		—		—		—		—
Other Currencies		2		—			—		—		—		2		92		—		92		2		92
Interest rate	0.1000% to 0.5000%			—			—		—		—		—		—		—		—		—		—
Temporary Cash Investments
U.S. Dollar		72		—			—		—		—		72		3,645		—		3,645		72		3,645
Interest rate	0.7000% to 4.7500%			—			—		—		—		—		—		—		—		—		—
Philippine Peso		276		—			—		—		—		276		14,018		—		14,018		276		14,018
Interest rate	0.1250% to 5.0000%			—			—		—		—		—		—		—		—		—		—
Short-term Investments
Philippine Peso		1		—			—		—		—		1		29		—		29		1		29
Interest rate	1.5000% to 3.0000%			—			—		—		—		—		—		—		—		—		—
Other Currencies		6		—			—		—		—		6		285		—		285		6		285
Interest rate	0.0000%			—			—		—		—		—		—		—		—		—		—
		474		—			—		—		—		474		24,033		—		24,033		474		24,033

Liabilities:
Long-term Debt
Fixed Rate
U.S. Dollar Fixed Loans		—		15			4		—		—		19		952		—		952		19		945
Interest rate		—		2.8850	%	2.8850%			—		—		—		—		—		—		—		—
Philippine Peso		42		376			302		673		1,697		3,090		156,996		408		156,588		3,024		153,644
Interest rate	4.4850% to 5.5000%		3.9000% to 6.7339%			3.9000% to 6.7339%		3.9000% to 6.7339%		4.2500% to 6.7339%			—		—		—		—		—		—
Variable Rate
U.S. Dollar Loans		165		76			26		50		—		317		16,124		47		16,077		317		16,123
Interest rate	0.7900% to 1.4500% over LIBOR		0.7900% to 0.9500% over LIBOR			0.7900% to 0.9500% over LIBOR		1.0500% over LIBOR			—		—		—		—		—		—		—
Philippine Peso		93		69			3		70		139		374		18,975		36		18,939		374		18,975
Interest rate	1.0000% over PHP BVAL		0.5000% to 1.0000% over PHP BVAL			0.5000% to 0.6000% over PHP BVAL		0.5000% to 0.6000% over PHP BVAL		0.6000% over PHP BVAL			—		—		—		—		—		—
		300		536			335		793		1,836		3,800		193,047		491		192,556		3,734		189,687

	In U.S. Dollars																	Discount/				Fair Value
	Below 1 year			1-2 years			2-3 years		3-5 years			Over 5 years		Total		In Php		Debt Issuance Cost In Php		Carrying Value In Php		In U.S. Dollar		In Php
																		(in millions)
Assets:
Debt Instruments at Amortized Cost
Philippine Peso		—			3			—		—			—		3		150		—		150		3		148
Interest rate		—			4.8371	%		—		—			—		—		—		—		—		—		—
Cash in Bank
U.S. Dollar		30			—			—		—			—		30		1,580		—		1,580		30		1,580
Interest rate	0.0100% to 0.2500%				—			—		—			—		—		—		—		—		—		—
Philippine Peso		57			—			—		—			—		57		3,017		—		3,017		57		3,017
Interest rate	0.05000% to 1.2500%				—			—		—			—		—		—		—		—		—		—
Other Currencies		—			—			—		—			—		—		4		—		4		—		4
Interest rate	0.1000% to 0.5000%				—			—		—			—		—		—		—		—		—		—
Temporary Cash Investments
U.S. Dollar		675			—			—		—			—		675		35,467		—		35,467		675		35,467
Interest rate	2.7000% to 3.0000%				—			—		—			—		—		—		—		—		—		—
Philippine Peso		194			—			—		—			—		194		10,204		—		10,204		194		10,204
Interest rate	0.2500% to 7.0500%				—			—		—			—		—		—		—		—		—		—
Short-term Investments
U.S. Dollar		22			—			—		—			—		22		1,138		—		1,138		22		1,138
Interest rate	2.5000% to 3.0000%				—			—		—			—		—		—		—		—		—		—
Philippine Peso		1			—			—		—			—		1		27		—		27		1		27
Interest rate	3.5000%				—			—		—			—		—		—		—		—		—		—
		979			3			—		—			—		982		51,587		—		51,587		982		51,585

Liabilities:
Long-term Debt
Fixed Rate
U.S. Dollar Fixed Loans		2			15			7		4			—		28		1,483		1		1,482		28		1,502
Interest rate		1.4100	%		2.8850	%	2.8850%			2.8850	%		—		—		—		—		—		—		—
Philippine Peso		234			123			319		730			1,232		2,638		138,637		278		138,359		2,319		121,868
Interest rate	4.9110% to 5.6038%			3.9000% to 6.7339%			3.9000% to 6.7339%		3.9000% to 6.7339%			4.2500% to 6.7339%			—		—		—		—		—		—
Variable Rate
U.S. Dollar Loans		17			286			38		52			25		418		21,964		94		21,870		418		21,965
Interest rate	0.9500% to 1.1000% over LIBOR			0.7900% to 1.4500% over LIBOR			0.7900% to 0.9500% over LIBOR		0.7900% to 1.0500% over LIBOR			1.0500% over LIBOR			—		—		—		—		—		—
Philippine Peso		—			94			64		2			118		278		14,610		45		14,565		278		14,610
Interest rate*		—		0.5000% to 1.0000% over PHP BVAL			0.5000% to 1.0000% over PHP BVAL		0.5000% to 0.6000% over PHP BVAL			0.5000% to 0.6000% over PHP BVAL			—		—		—		—		—		—
		253			518			428		788			1,375		3,362		176,694		418		176,276		3,043		159,945

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

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

Approximately 18% and 21% of our consolidated debts were variable rate debts as at December 31, 2019 and 2018, respectively. Our consolidated variable rate debt decreased to Php35,098 million as at December 31, 2019 from Php36,575 million as at December 31, 2018. Considering the aggregate notional amount of our consolidated outstanding long-term interest rate swap contracts of US$233 million and US$323 million as at December 31, 2019 and 2018, respectively, approximately 88% and 89% of our consolidated debts were fixed as at December 31, 2019 and 2018, respectively.

Management conducted a survey among our banks to determine the outlook of the U.S. Dollar and Philippine Peso interest rates until March 31, 2020. Our outlook is that the U.S. Dollar and Philippine Peso interest rates may move 5 basis points, or bps, higher/lower each, as compared to levels as at December 31, 2019. If Philippine Peso interest rates had been 5 bps higher/lower as compared to market levels as at December 31, 2019, with all other variables held constant, profit after tax for the year ended December 31, 2019 and our consolidated stockholders’ equity as at December 31, 2019 would have been approximately Php2 million lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and loss/gain on derivative transactions.

Credit risk is the risk that we will incur a loss arising from our customers, clients or counterparties that fail to discharge their contracted obligations. We manage and control credit risk by setting limits on the amount of risk we are willing to accept for individual counterparties and by monitoring exposures in relation to such limits.

We trade only with recognized and creditworthy third parties. It is our policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an on-going basis to reduce our exposure to bad debts.

We established a credit quality review process to provide regular identification of changes in the creditworthiness of counterparties. Counterparty limits are established and reviewed periodically based on latest available financial data on our counterparties’ credit ratings, capitalization, asset quality and liquidity. Our credit quality review process allows us to assess the potential loss as a result of the risks to which we are exposed and allow us to take corrective actions.

The gross carrying amount of financial assets not subject to impairment also represents our maximum exposure to credit risk as at December 31, 2019 and 2018 are as follows:

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, 2019 and 2018. The maximum exposure is shown gross before both the effect of mitigation through use of master netting and collateral arrangements. The extent to which collateral and other credit enhancements mitigate the maximum exposure to credit risk is described in the footnotes to the table.

For financial assets recognized on our consolidated statements of financial position, the gross exposure to credit risk equal their carrying amount.

Maximum exposure to credit risk after collateral held or other credit enhancements

Collateral held as security for financial assets depends on the nature of the instrument. Debt investment securities are generally unsecured. Estimates of fair value are based on the value of collateral assessed at the time of borrowing and are regularly updated according to internal lending policies and regulatory guidelines. Generally, collateral is not held over loans and advances to us except for reverse repurchase agreements. Collateral usually is not held against investment securities, and no such collateral was held as at December 31, 2019 and 2018.

Our policies regarding obtaining collateral have not significantly changed during the reporting period and there has been no significant change in the overall quality of the collateral held by us during the year.

We have not identified significant risk concentrations arising from the nature, type or location of collateral and other credit enhancements held against our credit exposures.

An analysis of the maximum exposure to credit risk for the components of our consolidated statements of financial position, including derivative financial instruments as at December 31, 2019 and 2018:

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, 2019 and 2018:

			Neither past due nor credit impaired				Past due but not
	Total		Class A⁽¹⁾		Class B⁽²⁾		credit impaired		Impaired
	(in million pesos)
December 31, 2019
Financial instruments at amortized cost:		67,677		35,550		7,934		6,991		17,202
Other financial assets		3,504		1,747		1,452		7		298
Debt instruments at amortized cost		150		150		—		—		—
Cash and cash equivalents		24,369		24,111		258		—		—
Short-term investments		314		314		—		—		—
Retail subscribers		17,178		3,280		1,634		1,572		10,692
Corporate subscribers		13,005		3,652		2,041		2,695		4,617
Foreign administrations		1,896		460		414		645		377
Domestic carriers		889		374		40		386		89
Dealers, agents and others		6,372		1,462		2,095		1,686		1,129
Financial instruments at FVPL:		10,277		10,160		117		—		—
Financial assets at FVPL		3,369		3,252		117		—		—
Other financial assets		6,866		6,866		—		—		—
Interest rate swap		31		31		—		—		—
Forward foreign exchange contracts		8		8		—		—		—
Currency swap		2		2		—		—		—
Long-term currency swap		1		1		—		—		—
Financial instruments at FVOCI:		2,919		2,919		—		—		—
Financial instruments at FVOCI:		2,919		2,919		—		—		—
Total		80,873		48,629		8,051		6,991		17,202

			Neither past due nor credit impaired				Past due but not
	Total		Class A⁽¹⁾		Class B⁽²⁾		credit impaired		Impaired
	(in million pesos)
December 31, 2018
Financial instruments at amortized cost:		96,214		62,722		9,351		7,402		16,739
Other financial assets		2,686		1,221		1,226		3		236
Debt instruments at amortized cost		150		150		—		—		—
Cash and cash equivalents		51,654		51,410		244		—		—
Short-term investments		1,165		1,165		—		—		—
Retail subscribers		19,444		4,125		3,577		1,918		9,824
Corporate subscribers		11,073		2,806		1,519		2,239		4,509
Foreign administrations		4,225		593		850		1,863		919
Domestic carriers		270		29		49		115		77
Dealers, agents and others		5,547		1,223		1,886		1,264		1,174
Financial instruments at FVPL:		11,919		11,806		113		—		—
Financial assets at FVPL		4,763		4,650		113		—		—
Other financial assets		6,833		6,833		—		—		—
Interest rate swap		227		227		—		—		—
Long-term currency swap		83		83		—		—		—
Currency swap		13		13		—		—		—
Financial instruments at FVOCI:		4,353		4,353		—		—		—
Financial instruments at FVOCI:		4,353		4,353		—		—		—
Total		112,486		78,881		9,464		7,402		16,739

The aging analysis of past due but not impaired class of financial assets as at December 31, 2019 and 2018 are as follows:

					Past due but not credit impaired
	Total		Neither past due nor credit impaired		1-60 days		61-90 days		Over 91 days		Impaired
	(in million pesos)
December 31, 2019
Financial assets at amortized cost:		67,677		43,484		2,006		1,247		3,738		17,202
Other financial assets		3,504		3,199		—		—		7		298
Debt instruments at amortized cost		150		150		—		—		—		—
Cash and cash equivalents		24,369		24,369		—		—		—		—
Short-term investments		314		314		—		—		—		—
Retail subscribers		17,178		4,914		994		150		428		10,692
Corporate subscribers		13,005		5,693		705		770		1,220		4,617
Foreign administrations		1,896		874		41		26		578		377
Domestic carriers		889		414		103		240		43		89
Dealers, agents and others		6,372		3,557		163		61		1,462		1,129
Financial instruments at FVPL:		10,277		10,277		—		—		—		—
Financial assets at FVPL		3,369		3,369		—		—		—		—
Other financial assets		6,866		6,866		—		—		—		—
Interest rate swap		31		31		—		—		—		—
Forward foreign exchange contracts		8		8		—		—		—		—
Currency swap		2		2		—		—		—		—
Long-term currency swap		1		1		—		—		—		—
Financial instruments at FVOCI:		2,919		2,919		—		—		—		—
Financial instruments at FVOCI:		2,919		2,919		—		—		—		—
Total		80,873		56,680		2,006		1,247		3,738		17,202

December 31, 2018
Financial assets at amortized cost:		96,214		72,073		3,262		398		3,742		16,739
Other financial assets		2,686		2,447		—		—		3		236
Debt instruments at amortized cost		150		150		—		—		—		—
Cash and cash equivalents		51,654		51,654		—		—		—		—
Short-term investments		1,165		1,165		—		—		—		—
Retail subscribers		19,444		7,702		1,747		62		109		9,824
Corporate subscribers		11,073		4,325		957		101		1,181		4,509
Foreign administrations		4,225		1,443		139		131		1,593		919
Domestic carriers		270		78		52		21		42		77
Dealers, agents and others		5,547		3,109		367		83		814		1,174
Financial instruments at FVPL:		11,919		11,919		—		—		—		—
Financial assets at FVPL		4,763		4,763		—		—		—		—
Other financial assets		6,833		6,833		—		—		—		—
Interest rate swap		227		227		—		—
Long-term currency swap		83		83		—		—		—		—
Currency swap		13		13		—		—		—		—
Financial instruments at FVOCI:		4,353		4,353		—		—		—		—
Financial instruments at FVOCI:		4,353		4,353		—		—		—		—
Total		112,486		88,345		3,262		398		3,742		16,739

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, although we amended our dividend policy to reduce the regular dividend payout to 60% of core EPS in 2016. In declaring dividends, we take into consideration the interest of our shareholders, as well as our working capital, capital expenditures and debt servicing requirements. The retention of earnings may be necessary to meet the funding requirements of our business expansion and development programs.

However, in view of our elevated capital expenditures to build-out a robust, superior network to support the continued growth of data traffic, plans to invest in new adjacent businesses that will complement the current business and provide future sources of profits and dividends, and management of our cash and gearing levels, the PLDT Board of Directors approved on August 2, 2016, the amendment of our dividend policy, reducing the regular dividend payout to 60% of core EPS. As part of the dividend policy, in the event no investment opportunities arise, we may consider the option of returning additional cash to our shareholders in the form of special dividends or share buybacks. Philippine corporate regulations prescribe, however, that we can only pay out dividends or make capital distribution up to the amount of our unrestricted retained earnings.

Some of our debt instruments contain covenants that impose maximum leverage ratios. In addition, our credit ratings from the international credit ratings agencies are based on our ability to remain within certain leverage ratios.

No changes were made in our objectives, policies or processes for managing capital during the years ended December 31, 2019, 2018 and 2017.

The following table shows the changes in liabilities arising from financing activities for the years ended December 31, 2019, 2018 and 2017:

	January 1, 2019		Cash flows			Foreign exchange movement			Others			December 31, 2019
	(in million pesos)
Interest-bearing financial liabilities (Note 21)		176,276		16,811			(653	)		122			192,556
Lease liabilities (Note 10)		14,727		(9,543	)		—			11,149			16,333
Derivative financial liabilities		80		(50	)		—			83			113
Accrued interests and other related costs (Note 24)		1,347		(7,143	)		—			7,327			1,531
Dividends (Note 20)		1,533		(15,592	)		—			15,643			1,584
		193,963		(15,517	)		(653	)		34,324			212,117

	January 1, 2018		Cash flows			Foreign exchange movement			Others			December 31, 2018
	(in million pesos)
Interest-bearing financial liabilities (Note 21)		172,611		1,722			1,723			220			176,276
Derivative financial liabilities		149		886			—			(955	)		80
Accrued interests and other related costs (Note 24)		1,176		(6,614	)		—			6,785			1,347
Dividends		1,575		(13,928	)		—			13,886			1,533
		175,511		(17,934	)		1,723			19,936			179,236


	January 1, 2016		Cash flows			Foreign exchange movement			Others			December 31, 2017
	(in million pesos)
Interest-bearing financial liabilities		185,032		(13,097	)		417			259			172,611
Long-term financing for capital expenditures (Note 21)		13,673		(7,735	)		—			(358	)		5,580
Accrued interests and other related costs (Note 24)		1,412		(7,076	)		—			6,840			1,176
Dividends (Note 20)		1,544		(16,617	)		—			16,648			1,575
		201,661		(44,525	)		417			23,389			180,942

Others include the effect of accretion of long-term borrowings, effect of recognition and accretion of lease liabilities, effect of accrued but not yet paid interest on interest-bearing loans and borrowings and accrual of dividends that were not yet paid at the end of the period.

The following table shows our significant non-cash investing activities and corresponding transaction amounts for the year ended December 31, 2019:

The following table shows our significant non-cash financing activities and corresponding transaction amounts for the year ended December 31, 2019:

Registrant: PLDT Inc.


Signature and Title:	/s/ Manuel V. Pangilinan
	Manuel V. Pangilinan
	Chairman of the Board
	President and Chief Executive Officer


Signature and Title:	/s/ Anabelle Lim-Chua
	Anabelle Lim-Chua
	Senior Vice President
	(Principal Financial Officer)


Signature and Title:	/s/ June Cheryl A. Cabal-Revilla
	June Cheryl A. Cabal-Revilla
	Senior Vice President
	(Principal Accounting Officer)

Very truly yours,


/s/ Florentino D. Mabasa, Jr.
Florentino D. Mabasa, Jr.
Assistant Corporate Secretary

	Company’s Email Address		Company’s Telephone Number/s		Mobile Number
	jacabal@pldt.com.ph		(02) 8816-8534

Name of Contact Person		Email Address		Telephone Number/s		Mobile Number
June Cheryl A. Cabal-Revilla		jacabal@pldt.com.ph		(02) 8816-8534


6.	____________ (SEC Use Only)
	Industry Classification Code


7.	Ramon Cojuangco Building, Makati Avenue, Makati City	1200
	Address of principal office	Postal Code

Attention:		Mr. Vicente Graciano P. Felizmenio, Jr.
		Director – Markets and Securities Regulations Dept.


Title of Each Class		Number of Shares of Common Stock Outstanding

Common Stock		216,055,775⁽¹⁾
Amount of Debt Outstanding		Php192,556 million as at December 31, 2019

PART I -	FINANCIAL INFORMATION	1
Item 1.	Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
	Financial Highlights and Key Performance Indicators	2
	Performance Indicators	3
	Overview	4
	Management’s Financial Review	4
	Results of Operations	5
	Wireless	10
	Revenues	10
	Service Revenues	10
	Non-Service Revenues	13
	Expenses	13
	Other Income (Expenses)	14
	Provision for Income Tax	14
	Net Income (Loss)	15
	EBITDA	15
	Core Income	15
	Fixed Line	15
	Revenues	15
	Service Revenues	16
	Non-Service Revenues	17
	Expenses	17
	Other Income (Expenses)	18
	Provision for Income Tax	18
	Net Income	18
	EBITDA	18
	Core Income	18
	Others	18
	Expenses	18
	Other Income (Expenses)	19
	Net Income	19
	Core Income	19
	Liquidity and Capital Resources	19
	Operating Activities	20
	Investing Activities	21
	Financing Activities	21
	Changes in Financial Conditions	23
	Off-Balance Sheet Arrangements	23
	Equity Financing	23
	Contractual Obligations and Commercial Commitments	23
	Quantitative and Qualitative Disclosures about Market Risks	24
	Impact of Inflation and Changing Prices	24
PART II –	OTHER INFORMATION	25
	Related Party Transactions	28
ANNEX –	Aging of Accounts Receivable	A-1
	Financial Soundness Indicators	A-2
	SIGNATURES	S-1

	Years ended December 31,						Increase (Decrease)
	2019			2018⁽¹⁾			Amount			%
(amounts in million Php, except for EBITDA margin and earnings per common share)
Consolidated Income Statement
Revenues		169,187			162,914			6,273			4
Expenses		129,786			149,141			(19,355	)		(13	)
Other income (expenses) – net		(7,065	)		9,042			(16,107	)		(178	)
Income before income tax		32,336			22,815			9,521			42
Net income		22,786			18,973			3,813			20
Core income		25,111			25,855			(744	)		(3	)
Telco core income		27,080			24,047			3,033			13
EBITDA		79,815			64,027			15,788			25
EBITDA margin⁽²⁾		49	%		42	%		—			—
Reported earnings per common share:
Basic		103.97			87.28			16.69			19
Diluted		103.97			87.28			16.69			19
Core earnings per common share⁽³⁾:
Basic		115.95			119.39			(3.44	)		(3	)
Diluted		115.95			119.39			(3.44	)		(3	)

	December 31,				Increase (Decrease)
	2019		2018		Amount			%
(amounts in million Php, except for net debt to equity ratio)
Consolidated Statements of Financial Position
Total assets		525,036		482,750		42,286			9
Property and equipment		232,134		195,964		36,170			18
Cash and cash equivalents and short-term investments		24,683		52,819		(28,136	)		(53	)
Total equity attributable to equity holders of PLDT		111,996		112,358		(362	)		—
Long-term debt, including current portion		192,556		176,276		16,280			9
Net debt⁽⁴⁾ to equity ratio	1.50x		1.10x			—			—

	Years ended December 31,						Change
	2019			2018			Amount			%
(amounts in million Php, except for operational data)
Consolidated Statements of Cash Flows
Net cash provided by operating activities		73,390			61,116			12,274			20
Net cash used in investing activities		(84,170	)		(25,054	)		(59,116	)		(236	)
Payment for purchase of property and equipment, including capitalized interest		(89,701	)		(48,771	)		(40,930	)		(84	)
Net cash used in financing activities		(15,757	)		(18,144	)		2,387			13
Operational Data
Number of mobile subscribers		73,118,155			60,499,017			12,619,138			21
Prepaid		70,721,789			58,178,978			12,542,811			22
Postpaid		2,396,366			2,320,039			76,327			3
Number of broadband subscribers		2,161,484			2,025,563			135,921			7
Fixed Line broadband		1,931,333			1,812,037			119,296			7
Fixed Wireless broadband		230,151			213,526			16,625			8
Number of fixed line subscribers		2,765,209			2,710,972			54,237			2
Number of employees:		18,784			17,222			1,562			9
Fixed Line		12,877			10,890			1,987			18
LEC		10,878			8,772			2,106			24
Others		1,999			2,118			(119	)		(6	)
Wireless		5,907			6,332			(425	)		(7	)

Exchange Rates – per US$	Month end rates		Weighted average rates during the year
December 31, 2019		50.80		51.79
December 31, 2018		52.56		52.68
December 31, 2017		49.96		50.41

	Gross⁽¹⁾				Increase (Decrease)						Net⁽²⁾				Increase (Decrease)
	2019		2018		Amount			%			2019		2018		Amount			%
	(amounts in Php)
Prepaid
Smart		132		130		2			2			116		118		(2	)		(2	)
TNT		77		79		(2	)		(3	)		69		71		(2	)		(3	)
Sun		84		89		(5	)		(6	)		75		81		(6	)		(7	)
Postpaid
Smart		824		836		(12	)		(1	)		806		819		(13	)		(2	)
Sun		418		403		15			4			411		401		10			2

					Increase
	2019		2018		Amount		%
	(amounts in million Php)
Data service revenues		60,764		55,732		5,032		9
Corporate data and ICT		32,315		28,999		3,316		11
Home broadband		28,449		26,733		1,716		6

	Fair Values
	December 31,		September 30,
	2019		2019
	(amounts in million Php)
Noncurrent Financial Assets
Other financial assets – net of current portion		1,657		2,557
Total noncurrent financial assets		1,657		2,557
Noncurrent Financial Liabilities
Interest-bearing financial liabilities		169,965		156,800
Customers’ deposits		1,539		1,513
Deferred credits and other noncurrent liabilities		1,953		3,020
Total noncurrent financial liabilities		173,457		161,333

Type of Accounts Receivable	Total		Current		31-60 Days		61-90 Days		Over 91 Days
	(amounts in million Php)
Retail subscribers		17,178		7,603		845		183		8,547
Corporate subscribers		13,005		5,709		1,822		857		4,617
Foreign administrations		1,896		891		41		31		933
Domestic carriers		889		239		261		77		312
Dealers, agents and others		6,372		2,799		766		150		2,657
Total		39,340		17,241		3,735		1,298		17,066
Less: Allowance for doubtful accounts		16,904
Total Receivables - net		22,436

	2019			2018
Current Ratio⁽¹⁾	0.37:1.0			0.52:1.0
Acid Test Ratio⁽²⁾	0.23:1.0			0.40:1.0
Solvency Ratio⁽³⁾	0.35:1.0			0.43:1.0
Net Debt to Equity Ratio⁽⁴⁾	1.50:1.0			1.10:1.0
Net Debt to EBITDA Ratio⁽⁵⁾	2.10:1.0			1.93:1.0
Total Debt to EBITDA Ratio⁽⁶⁾	2.41:1.0			2.75:1.0
Asset to Equity Ratio⁽⁷⁾	4.69:1.0			4.30:1.0
Interest Coverage Ratio⁽⁸⁾	4.63:1.0			4.19:1.0
Profit Margin⁽⁹⁾		13	%		12	%
Return on Assets⁽¹⁰⁾		5	%		4	%
Return on Equity⁽¹¹⁾		20	%		17	%
EBITDA Margin⁽¹²⁾		49	%		42	%

	2019	2018
ASSETS
Noncurrent Assets
Property and equipment (Notes 9 and 22)	232,134	195,964
Right-of-use assets (Note 10)	15,890	—
Investments in associates and joint ventures (Note 11)	53,863	55,427
Financial assets at fair value through profit or loss (Note 12)	3,369	4,763
Debt instruments at amortized cost – net of current portion (Note 13)	—	150
Investment properties (Notes 6 and 14)	778	777
Goodwill and intangible assets (Note 15)	67,834	68,583
Deferred income tax assets – net (Note 7)	23,623	27,697
Derivative financial assets – net of current portion (Note 28)	1	140
Prepayments – net of current portion (Notes 19 and 25)	48,933	23,338
Financial assets at fair value through other comprehensive income – net of current portion (Notes 6 and 25)	162	2,749
Contract assets – net of current portion (Note 5)	750	1,083
Other financial assets – net of current portion (Note 28)	1,986	2,275
Other non-financial assets – net of current portion	136	230
Total Noncurrent Assets	449,459	383,176
Current Assets
Cash and cash equivalents (Note 16)	24,369	51,654
Short-term investments (Note 28)	314	1,165
Trade and other receivables (Note 17)	22,436	24,056
Inventories and supplies (Note 18)	3,412	2,878
Current portion of contract assets (Note 5)	1,997	2,185
Current portion of derivative financial assets (Note 29)	41	183
Current portion of debt instruments at amortized cost (Note 13)	150	—
Current portion of prepayments (Note 19)	11,298	8,380
Current portion of financial assets at fair value through other comprehensive income (Notes 6 and 25)	2,757	1,604
Current portion of other financial assets (Notes 20 and 28)	8,086	7,008
Current portion of other non-financial assets	717	461
Total Current Assets	75,577	99,574
TOTAL ASSETS	525,036	482,750

EQUITY AND LIABILITIES
Equity
Non-voting serial preferred stock (Note 20)	360	360
Voting preferred stock (Note 20)	150	150
Common stock (Note 20)	1,093	1,093
Treasury stock (Note 20)	(6,505)	(6,505)
Treasury shares under employee benefit trust (Note 26)	(394)	(854)
Capital in excess of par value (Note 20)	130,321	130,526
Other equity reserves (Note 26)	276	697
Retained earnings (Note 20)	18,063	12,081
Other comprehensive loss (Note 6)	(31,368)	(25,190)
Total Equity Attributable to Equity Holders of PLDT (Note 28)	111,996	112,358
Noncontrolling interests (Note 6)	4,303	4,308
TOTAL EQUITY	116,299	116,666

	2019		2018
Noncurrent Liabilities
Interest-bearing financial liabilities – net of current portion (Notes 21 and 28)		172,834		155,835
Lease liabilities – net of current portion (Note 10)		13,100		—
Deferred income tax liabilities (Note 7)		2,583		2,981
Derivative financial liabilities – net of current portion (Note 28)		25		—
Customers’ deposits (Note 28)		2,205		2,194
Pension and other employee benefits (Note 26)		8,985		7,182
Deferred credits and other noncurrent liabilities (Note 22)		4,557		5,284
Total Noncurrent Liabilities		204,289		173,476
Current Liabilities
Accounts payable (Note 23)		77,845		74,610
Accrued expenses and other current liabilities (Notes 24 and 27)		100,815		95,724
Current portion of interest-bearing financial liabilities (Notes 21, 25 and 28)		19,722		20,441
Current portion of lease liabilities (Note 10)		3,215		—
Dividends payable (Notes 20 and 29)		1,584		1,533
Current portion of derivative financial liabilities (Note 28)		88		80
Income tax payable		1,179		220
Total Current Liabilities		204,448		192,608
TOTAL LIABILITIES		408,737		366,084
TOTAL EQUITY AND LIABILITIES		525,036		482,750

	Prior to Amendments						After Amendments
	Authorized Capital (Php)		Number of Shares		Par Value (Php)		Authorized Capital (Php)		Number of Shares		Par Value (Php)
	(in millions)						(in millions)
Common Stock		12,060		1		21,000		4,996		1		8,700
Class I Preferred Stock		67		33		2		67		33		2
Class II Preferred Stock		50		50		1		50		50		1
Total Authorized Capital Stock		12,177		84				5,113		84

	Increase
	(Decrease)
	(in million pesos)
Assets:
Right-of-use assets (Note 10)		13,824
Deferred income tax assets – net (Note 7)		(107	)
Prepayments – net of current portion		(461	)
Current portion of prepayments		(10	)
Total Assets		13,246

Liabilities:
Lease liabilities – net of current portion (Note 10)		11,880
Deferred credits and other noncurrent liabilities		(50	)
Accrued expenses and other current liabilities		(507	)
Current portion of lease liabilities (Note 10)		2,847
Total Liabilities		14,170

Net impact on equity:
Retained earnings		(924	)
Noncontrolling interests		—

							Increase
	PFRS 16			PAS 17			(Decrease)
	(in million pesos)
Expenses:
Rent (Notes 3 and 5)		1,290			6,571			(5,281	)
Depreciation (Note 10)		4,393			—			4,393
Financing costs (Note 5)		1,061			—			1,061
Net impact on profit for the period		6,744			6,571			173
Tax effect		(2,023	)		(1,971	)		(52	)
Net impact on profit for the period – net of tax		4,721			4,600			121

Attributable to:
Equity holders of PLDT		4,721			4,600			121
Noncontrolling interests		—			—			—

	(in million pesos)
Net cash flows from operating activities:
Interest paid (Note 10)		1,061
Operating lease payments		(5,399	)

Net cash flows from financing activities:
Payment of principal portion of lease liabilities (Note 10)		(4,338	)

	(in million pesos)
Operating lease commitments as at December 31, 2018		21,401
Incremental borrowing rate as at January 1, 2019 (in percentage)	7%-9%
Discounted operating lease commitments as at January 1, 2019		10,068
Less: Commitments relating to leases of low-value assets		(3	)
Commitments relating to short-term leases		(49	)
Commitments relating to service contracts		(304	)
Add: Payments in optional extension periods not recognized as at December 31, 2018		4,994
Prepayment and accrued (PAS 13)		21
Lease liabilities as at January 1, 2019		14,727

Date Incurred	Expiry Date	MCIT				NOLCO
					(in million pesos)
December 31, 2017	December 31, 2020		6				2,161
December 31, 2018	December 31, 2021		725				2,396
December 31, 2019	December 31, 2022		704				205
			1,435				4,762
Consolidated tax benefits			1,435				1,429
Consolidated unrecognized deferred income tax assets			(27	)			(997	)
Consolidated recognized deferred income tax assets			1,408				432

Cable and wire facilities		10 – 15 years
Central office equipment		2 – 15 years
Cellular facilities		3 – 10 years
Buildings		25 – 50 years
Vehicles, aircraft, furniture and other network equipment		3 – 15 years
Information origination and termination equipment		3 – 7 years
Leasehold improvements		3 – 10 years or the term of the lease, whichever is shorter
Land improvements		10 years

Sites		1 – 30 years
International leased circuits		5 – 7 years
Poles		1 – 10 years
Domestic leased circuits		5 – 10 years
Office buildings		1 – 15 years
Co-located sites		7 years

	(in million pesos)
Depreciation expense of right-of-use assets		4,393
Interest expense on lease liabilities		1,061
Variable lease payments (included in cost of sales)		708
Expenses relating to short-term leases (included in cost of sales)		354
Expenses relating to leases of low-value assets (included in selling, general and administrative expenses)		228
Total amount recognized in consolidated income statement		6,744

	(in million pesos)
Balances at beginning of the year (as previously stated)		—
Effect of adoption of PFRS 16 (Note 2)		14,727
Balances at beginning of the year (as restated)		14,727
Additions		5,577
Accretion expenses		1,061
Lease modifications		456
Foreign exchange loss – net		(11	)
Termination		(96	)
Settlement of obligations		(5,399	)
Balances at end of the year		16,315

Date	Transaction	Number of Shares	Total Consideration (Php)
		(in millions)	(in millions)
March 30, 2010	PCEV subscription to Beacon Common Shares⁽¹⁾	1,157 Beacon Common Shares		23,130
October 25, 2011	PCEV transfer of remaining Meralco Common Shares to Beacon⁽²⁾	69 Meralco Common Shares		15,136
	PCEV subscription to Beacon Preferred Shares	1,199 Beacon Class “A” Preferred Shares		15,136
January 20, 2012	PCEV subscription to Beacon Common Shares	135 Beacon Common Shares		2,700
May 30, 2016	PCEV subscription to Beacon Class “B” Preferred Shares	277 Beacon Class “B” Preferred Shares		3,500
September 9, 2016	Beacon redemption of Class “B” Preferred Shares held by PCEV	198 Beacon Class “B” Preferred Shares		2,500
April 20, 2017	Beacon redemption of Class “B” Preferred Shares held by PCEV	79 Beacon Class “B” Preferred Shares		1,000

Date	Number of Shares Sold		% of Meralco Shareholdings Sold			Price Per Share (Php)		Total Price (Php)			Deferred Gain Realized⁽¹⁾ (Php)
	(in millions)									(in million pesos)
June 24, 2014		56.35		5	%		235.00		13,243			1,418
April 14, 2015		112.71		10	%		235.00		26,487			2,838

Date	Number of Shares Sold	Selling Price (Php)		Deferred Gain Realized (Php)
	(in millions)
June 6, 2012	282 Preferred Shares		3,563		2,012
May 30, 2016	646 Common shares and 458 Preferred Shares	26, 200			4,962
June 13, 2017	646 Common shares and 458 Preferred Shares		21,800		4,962

	2019
	Stage 1			Stage 2		Stage 3
	12-Month ECL			Lifetime ECL		Lifetime ECL		Total
	(in million pesos)
Balances as at beginning of the year		2			—		—		2
Provisions		1			—		—		1
Financial assets derecognized during the year		(1	)		—		—		(1	)
Balances at end of the year		2			—		—		2

	2018
	Stage 1			Stage 2		Stage 3
	12-Month ECL			Lifetime ECL		Lifetime ECL		Total
	(in million pesos)
Balances as at beginning of the year		4			—		—		4
Financial assets derecognized during the year		(2	)		—		—		(2	)
Balances at end of the year		2			—		—		2

	Land			Land Improvements			Building			Total
	(in million pesos)
December 31, 2019
Balances at beginning of the year		596			7			174			777
Net gains (losses) from fair value adjustments charged to profit or loss		23			(6	)		(5	)		12
Disposals during the year		(11	)		—			—			(11	)
Balances at end of the year		608			1			169			778
December 31, 2018
Balances at beginning of the year		1,322			8			305			1,635
Net gains (losses) from fair value adjustments charged to profit or loss		389			(1	)		(10	)		378
Transfers to property and equipment		(1,115	)		—			(121	)		(1,236	)
Balances at end of the year		596			7			174			777

Year	(in million pesos)
2020		619
2021		194
2022		191
2023		186
2024 and onwards		751
		1,941