Pilipino Telephone Corporation's saw is net earnings soar by 125 percent, from P7.9 billion in the first 9 months of 2008 to P17.8 billion in the same period this year, due to the sale of its mobile phone business to its parent Smart Communications

The sale of its cellular assets, subscriber base and Talk 'N Text trademark to parent firm, Smart Communications, Inc., resulted in a one-time net gain of P7.6 billion.

Add to that, Piltel registered a P1.2 billion mark-to-market gain on the derivative asset linked to its Exchangeable Note Agreement with the Lopez Group. The company used its P2.0 billion First Philippine Utilities Corporation-issued Exchangeable Note to acquire 20% shares in Manila Electric Company (Meralco).

Likewise, Piltel's reported net income benefited when its statutory tax rate went down from 35% in 2008 to 30% this year and it shifted to the optional standard deduction method of computing net taxable income.

Its core net income, before exceptional items, rose by 8% from P7.9 billion to P8.5 billion in the same period. Core Earnings from Continuing Operations was at P1.1 billion while Core Earnings from Discontinued Operations was P7.4 billion.

After acquiring 20% of Meralco's shares this July, Piltel now includes the electrical utility's financial results under the equity accounting method. From July 15 to September 30, 2009, the equity share in Meralco's earnings accounted for P361.3 million of Piltel's revenues.

Notably, Piltel's January to September, 2009 financial report reflects the results of its GSM cellular business only until August 16, 2009 when it finalized the sale and transfer of its telecom concerns to Smart. Accordingly, Net income from this business was reported as "Net income from discontinued operations."

"This quarter marks the transformation of Piltel from a cellular operator to a holding company whose primary asset and source of income will be its 20% holding in Meralco," according to Piltel President and CEO Napoleon L Nazareno.

Piltel, which Smart now owns 99.5%, registered a stockholders' equity increase, from P21.0 billion at the end of 2008 to P32.4 billion.

Meralco's revenues consist primarily of income from the transmission, generation and distribution of electricity, the first two of which are "pass-through" charges.

Meralco's electricity revenues for the first nine months of 2009 totaled P139.2 billion, a 1% decline from the P141.1 billion from the same period in 2008. Net of transmission and generation charges however, Meralco's gross distribution income registered an 18% growth, from P21.5 billion in the first nine months of 2008 to P25.3 billion in 2009.

This increase in distribution income arose from a 1% growth in sales volume to 2.4 kilowatt-hours, a 2.8% increase in customer base, now at 4.7 million, and the approval of the performance-based regulation setting mechanism (PBR) in May 2009 which allowed Meralco to increase the rate it charges to customers. As a result, Core Net Income grew 67% to P5.9 billion, while Reported Net Income improved by 42% to P5.3 billion.