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COVER SHEET
1 1 7 7
SEC Registration Number
G L O B E
T E L E C OM ,
I N C .
A N D
S U B S I D I A R
I E S
(Company’s Full Name)
5 t h
F l o o r ,
i o n e e r
M a d i s o n
G l o b e
T e l e c o m
H i g h l a n d s ,
S t r e e t s ,
P l a z a ,
P i o n e e r
P
c o r n e r
M a n d a l u y o n g
C i t y
(Business Address: No. Street City/Town/Province)
Delfin C. Gonzalez, Jr.
730-2000
(Contact Person)
1 2
3 1
Month
Day
(Fiscal Year)
(Company Telephone Number)
1 7 - A
Month
(Form Type)
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
SEC Number
File Number
________________________________________________
GLOBE TELECOM, INC.
(formerly GMCR, Inc.)
________________________________________________
(Company’s Full Name)
5th Floor Globe Telecom Plaza (Pioneer Highlands)
Pioneer corner Madison Sts., 1552 Mandaluyong City
_________________________________________________
(Company’s Address)
(632) 730-2000
______________________________________
(Telephone Number)
DECEMBER 31
______________________________________
(Fiscal Year Ending)
(month & day)
SEC Form 17-A
______________________________________
Form Type
______________________________________
Amendment Designation (if applicable)
31 December 2005
______________________________________
Period Ended Date
__________________________________________________
(Secondary License Type and File Number)
1177
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17 OF THE REVISED SECURITIES
ACT AND SECTION 141 OF CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended December 31, 2005.
2. SEC Identification Number 1177
3. BIR Tax I.D. No. 000-768-480
4. Exact name of registrant as specified in its charter:
Globe Telecom, Inc. (formerly GMCR,Inc.)
5. Philippines
Province, Country or other jurisdiction of
incorporation or organization
6. __________(SEC Use Only)
Industry Classification Code:
7. 5th Floor, Globe Telecom Plaza (Pioneer Highlands)
Pioneer corner Madison Sts., 1552 Mandaluyong City
Address of principal office
1552
Postal Code
8. (632) 730-2000
Registrant's telephone number, including area code
9. Not Applicable
Former name, former address, and former fiscal year, if changed since last report.
10. Securities registered pursuant to Sections 4 and 8 of the RSA
Title of Each Class
Common Stock, P50.00 par value
Preferred Stock, P5.00 par value
Number of Shares of Common Stock Outstanding
131,900,430
158,515,021
* Net of treasury shares
11. Are any or all of these securities listed on the Philippine Stock Exchange.
Yes [ x ]
No [ ]
12. Check whether the registrant:
(a) has filed all reports required to be filed by Section 11 of the Revised Securities Act
(RSA) and RSA Rule 11(a)-1 thereunder and Sections 26 and 141 of The Corporation
Code of the Philippines during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports);
Yes [ x ]
No [ ]
(b) has been subject to such filing requirements for the past 90 days.
Yes [ x ]
No [ ]
13. Aggregate market value of the voting stock held by non-affiliates of the registrant
P20,158 million
2
Globe Telecom, Inc.
TABLE OF CONTENTS
SEC FORM 17-A
PART I - BUSINESS AND GENERAL INFORMATION.......................................................... 4
Item 1.
Item 2.
Item 3.
Item 4.
Business .............................................................................................................. 4
Properties ......................................................................................................... 38
Legal Proceedings ............................................................................................. 39
Submission of Matters to a Vote of Security Holders ......................................... 40
PART II – SECURITIES OF THE REGISTRANT ................................................................... 41
Item 1. Market Information ............................................................................................ 41
Item 2. Holders .............................................................................................................. 41
Item 3. Dividends........................................................................................................... 42
Item 4. Recent Sales of Unregistered or Exempt Securities, including recent issuance of
securities constituting an exempt transaction .................................................................. 44
PART III – FINANCIAL INFORMATION .............................................................................. 48
Item 1. Year Ended 31 December 2005 compared with Year Ended 31 December 2004.. 48
Item 2. Year Ended 31 December 2004 Compared with Year Ended 31 December 2003 76
PART IV-MANAGEMENT AND CERTAIN SECURITY HOLDERS ...................................110
Item 9. Directors and Key Officers of the Registrant.................................................... 110
Item 10. Executive Compensation ............................................................................... 115
Item 11. Security Ownership of Certain Beneficial Owners and Management .............. 117
Item 12. Certain Relationships and Related Transactions ............................................. 118
Item 13. Exhibits and Reports on SEC Form 17-C ....................................................... 122
PART V – CORPORATE GOVERNANCE.............................................................................123
PART VI – REGISTRATION STATEMENT & PROSPECTUS PROVISIONS......................123
SIGNATURES ............................................................................Error! Bookmark not defined.
STATEMENT OF MANAGEMENT’S RESPONSIBILITY........Error! Bookmark not defined.
INDEX TO EXHIBITS................................................................Error! Bookmark not defined.
3
PART I - BUSINESS AND GENERAL INFORMATION
Item 1. Business
This report contains references to Globe Telecom, Inc. and its wholly-owned subsidiaries - Innove
Communications, Inc. (“Innove”) and G-Xchange, Inc. (“GXI”), collectively referred to as ‘Globe
Telecom’ or ‘Globe Group’). Any references in this MD&A to “we”, “us”, “our”, “Company” mean
the Globe Group and references to “Globe” mean Globe Telecom, Inc., the parent company, not
including its wholly owned subsidiaries.
(1) Business Development. Describe the development of the business of the registrant
and its significant subsidiaries during the past three (3) years.
(a) Form and date of organization
In 1928, Congress passed Act No. 3495 granting the Robert Dollar Company, a
corporation organized and existing under the laws of the State of California, a
franchise to operate wireless long distance message services in the Philippines.
The Robert Dollar Company subsequently incorporated in the Philippines as Globe
Wireless Limited and in 1934, Congress passed Act No. 4150 transferring the
franchise and privileges of the Robert Dollar Company to Globe Wireless Limited.
The Company was incorporated on 15 January 1935.
Globe Wireless Limited was subsequently renamed Globe Mackay Cable and Radio
Corporation. Congress, through Republic Act (‘RA’) 4630 enacted in 1965, further
expanded its franchise to allow it to operate international communications systems.
Shortly before the expiration of this franchise, the Batasan Pambansa in 1980
enacted Batas Pambansa 95 granting Globe Mackay Cable and Radio Corporation a
new franchise.
In 1991, Globe Mackay was subsequently merged with the Clavecilla Radio
Corporation. Globe Mackay as the surviving company was renamed GMCR, Inc. and
on 19 March 1992, the Philippine Congress passed RA 7229 approving the merger
and the transfer of the franchise of Clavecilla Radio Corporation to the surviving
company to be renamed GMCR, Inc.
On 20 August 1998, the Philippine Securities and Exchange Commission
(‘Philippine SEC’) approved the change of name to Globe Telecom, Inc. (‘Globe
Telecom’)
On 27 June 2001, Globe Telecom acquired Isla Communication Company, Inc.,
(‘Islacom’). As a result, the financial results of Islacom have been consolidated with
Globe Telecom since 27 June 2001.
On 7 August 2003, the National Telecommunications Commission (“NTC”) granted
Globe Telecom’s application to transfer its wireline business assets and subscribers
to Islacom.
4
On 21 August 2003, the Philippine SEC approved the change in name of Islacom to
Innove Communications, Inc. (‘Innove’). The change in name is pursuant to Globe
Telecom’s strategy to integrate all of its wireline services under its wholly-owned
subsidiary, Innove.
On 23 August 2004, Globe Telecom invested in G-Xchange, Inc. (‘GXI’), a whollyowned subsidiary, which handles the mobile payment and remittance service using
Globe Telecom’s network as transport channel under the G-Cash brand. GXI started
commercial operations on 16 October 2004.
On 3 November 2004, Globe and six other leading Asia Pacific mobile operators
(‘JV partners’) signed an agreement (‘JV agreement’) to form a regional mobile
alliance, Bridge Mobile Alliance (‘BMA’) which operates through a Singaporeincorporated company, Bridge Mobile Pte. Ltd. The joint venture company, where
Globe Telecom has a 12.5% interest, will look at driving commercial and other
benefits for the operators and delivering regional mobile services to their subscribers.
On 17 June 2005, NTC issued a provisional authority (valid for 18 months from date
of approval) to Innove to establish, install telephone, operate and maintain LEC
service, particularly integrated local telephone service with public payphone
facilities and public calling stations in all regions, provinces, cities and
municipalities across the nation that are not yet covered by its existing CPCN and to
charge therefore monthly rates at par with the approved rates of the LEC operators in
the area, subject to certain conditions.
On 28 December 2005, NTC approved Globe Telecom’s application for third
generation (3G) radio frequency spectra to support the upgrade of its CMTS network
to be able to provide 3G services. Globe Telecom has been assigned the 10Megahertz (MHz) of the 3G radio frequency spectrum.
(b) Any bankruptcy, receivership or similar proceeding.
None.
(c) Any material reclassification, merger, consolidation, or purchase or sale of a
significant amount of assets not in the ordinary course of business.
1. Repurchase of common shares and cancellation of treasury shares
On February 1, 2005, the Board of Directors (BOD) approved an offer to
purchase one share for every fifteen shares (1:15) of the outstanding common
stock of Globe Telecom from all stockholders of record as of February 10, 2005
at =
P950.00 per share. The approval allowed Globe Telecom to purchase up to
9,326,924 shares representing 6.67% of Globe Telecom’s outstanding common
shares. Each shareholder is entitled to tender a proportionate number of shares at
the 1:15 ratio for purchase by Globe Telecom upon and subject to the terms and
conditions of the tender offer. Globe Telecom also filed with the SEC the tender
offer report with a copy of the letter to the shareholders, the terms and conditions
of the tender offer and the tender form. Globe Telecom commenced the tender
offer on February 3, 2005 and ended on March 3, 2005.
5
On March 15, 2005, Globe Telecom acquired 8,064,094 shares at a total cost of
=7,675.66 million, including incidental costs.
P
On April 4, 2005, Globe Telecom’s stockholders approved the cancellation of
the 20.06 million treasury shares consisting of the 12 million shares acquired
from Deutsche Telekom (DT) in 2003 and the 8.06 million shares acquired
during the share buyback, and the amendments of the articles of incorporation of
Globe Telecom to reduce accordingly the authorized capital stock of the
corporation from =
P11,250.00 million to P
=10,246.72 million. On April 29, 2005,
Globe Telecom applied for the retirement and cancellation of the existing
treasury shares with the SEC, which the latter approved on October 28, 2005.
Accordingly, Globe Telecom cancelled the existing treasury shares at cost. The
difference between the par value and cost of treasury shares was charged to
“Additional paid in capital” and “Retained earnings” accounts amounting to =
P
5,179.35 million and =
P9,685.80 million, respectively.
2. Sale of DeTeAsia stake in Globe
Globe Telecom’s major shareholders are Ayala Corporation, (‘Ayala’),
Singapore Telecom International Pte. Ltd. (‘STI’), a wholly-owned subsidiary of
Singapore Telecommunications Limited, or SingTel and Asiacom Philippines,
Inc., or Asiacom. Ayala and STI own 60% and 40% of the outstanding shares of
Asiacom, respectively.
DeTeAsia Holding GMBH (‘DTA’ or ‘DeTeAsia’), a wholly-owned subsidiary
of Deutsche Telekom AG (‘DT’), was previously a major shareholder until it
sold its 37.67 million common shares (24.8% of the common outstanding stock)
in Globe Telecom to Ayala, STI and Globe Telecom in the third quarter of 2003.
On 24 October 2003, Globe Telecom closed its purchase of 12 million common
shares from DeTeAsia at a price of P680 per share or a total of P8.19 billion. On
12 November 2003, Ayala and Singtel each sold 3.75 million common shares at
=765 a share through a transaction on the Philippine Stock Exchange.
P
Holdings, based on record and beneficial ownership, as of 31 December
2004(after the transaction), are as follows: Ayala had 48.9 million common
shares (35%) while STI had 63 million common shares (45%).
As of 31 December 2004 (after the transaction), Ayala, STI and Asiacom owned
approximately 17%, 21% and 53% respectively, of our outstanding capital stock.
3. Integration of Globe Telecom and Innove Operations
a. Wireless Operations
In September 2002, Globe Telecom announced the operational integration of
Globe Telecom’s and Innove’s wireless networks to increase the Globe Group’s
business focus and streamline its operations in order to optimize utilization of
the network which will benefit subscribers. A key element of the integration
involved the migration of existing wireless subscribers of Innove to the
improved Touch Mobile (‘TM’) service, allowing them to enjoy superior
coverage and service offerings available through the Globe Telecom-Innove
integrated network.
6
The operational integration enabled the joint use of Innove’s 10 Mhz frequency
resources by Globe Telecom and the use of certain elements of the existing
Innove network. The NTC approved the joint use of Innove’s frequency by the
Globe Group on 1 August 2002. Certain elements of the Innove network which
cannot be redeployed to the Globe Telecom network were shut down in 2002 to
avoid unnecessary duplication. The shut down necessitated Innove’s recognition
of losses on retirement of certain property and equipment and restructuring costs
in 2002. Innove completed the equipment deinstallation activities as well as
pretermination of leases which involved negotiation with the lessors on 31
December 2003.
b. Wireline Operations
On 7 August 2003, the NTC approved the legal rights transfer of Globe
Telecom’s wireline business authorizations, properties, assets and obligations to
Innove.
The NTC also approved the common usage, operations and
maintenance of the network elements of both Globe Telecom and Innove to
ensure smooth transfer of the service and no disruption in interconnection with
other carriers while the transfer was ongoing. On 30 September 2003, the
wireline business of Globe Telecom was integrated into Innove pursuant to
NTC’s approval, hence, making Globe a purely wireless business. With this
transfer, Globe Telecom aims to achieve more focused and streamlined
operations within the whole group in line with its commitment to innovation,
customer focus and operational excellence.
Effective 1 October 2003, all wireline voice and data services were consolidated
under Innove, which remains a wholly-owned subsidiary of Globe.
Operationally, Innove is charged by Globe, through transfer pricing, for the
common use of network facilities.
On 17 June 2005, the NTC granted to Innove a provisional authority (valid for
18 months from date of approval) to establish, install telephone service, operate
and maintain LEC service, particularly integrated local telephone service with
public payphone facilities and public calling stations in all regions, provinces,
cities and municipalities across the nation that are not yet covered by its existing
CPCN and to charge therefore monthly rates at par with the approved rates of the
LEC operators in the area, subject to certain conditions.
7
(2) Business of Issuer
(a) Principal services and their markets indicating their relative contribution to sales or
revenues which contribute 10% or more to sales or revenues. If the relative
contribution to net income of any product or service, or group of related products or
services is substantially different than its relative contribution to sales or revenues,
appropriate information should be given:
Net Operating Revenues by Line of
Business:
Year Ended 31 December
(In Millions of Pesos)
2005
2004 1
%
%
Service Revenues:
Wireless ……………………………..
48,481
82%
47,054
85%
Voice 2………………………………
28,945
49%
27,630
50%
Data 3 ……………………………….
19,536
33%
19,424
35%
Wireline……………………………….
6,416
11%
5,687
10%
Voice 4 …………………………….
4,396
7%
3,945
7%
Data 5……………………………..
2,020
4%
1,742
3%
Net Service Revenues……………………
54,897
93%
52,741
95%
Non Service Revenues 6…………………
3,851
7%
2,868
5%
Net Operating Revenues…………………
58,748
100%
55,609
100%
_________________________________________
1
Prior period figures have been restated due to the adoption of various Philippine Accounting Standards (PAS) and
Philippine Financial Reporting Standards (PFRS) on 1 January 2005. (See related discussion in the attached
financial statements)
2
Wireless voice net service revenues include the following:
a) Monthly service fees on postpaid plans & subscription fees on prepaid services;
b) Charges for Globe to Globe and TM to TM and outbound calls in excess of the free minutes for various
Globe Handyphone postpaid plans, including currency exchange rate adjustments, or CERA net of
marketing promotions credited to subscriber billings;
c)
Airtime fees from prepaid reload denominations (for Globe Handyphone Prepaid and TM) for Globe to
Globe and TM to TM and outbound calls recognized upon the earlier of actual usage of the airtime value or
expiration of the unused value of the prepaid reload denomination which occurs between 1 and 60 days after
activation depending on the prepaid value reloaded by the subscriber net of (i) bonus credits* ii) prepaid
reload discounts;
d) Revenues generated from inbound international, national long distance calls and international roaming calls;
and
Revenues from (a) to (d) are net of any interconnection or settlement payouts to international and local carriers.
* Included airtime on SIM cards provided under Globe’s SIM swap program which was concluded last May 2005.
3
Wireless data net service revenues consist of revenues from value-added services such as inbound and outbound
SMS and MMS, content downloading and infotext net of any interconnection or settlement payouts to
international and local carriers and content providers.
4
Wireline voice net service revenues consist of the following:
a) Monthly service fees including CERA;
b) Revenues from local, international and national long distance calls made by postpaid, prepaid wireline
subscribers and payphone customers, net of (i) prepaid and payphone call card discounts (ii) bonus credits
and (iii) marketing promotions credited to subscriber billings;
c)
Revenues from inbound local, international and national long distance calls from other carriers terminating
on our network;
d) Installation charges and other one-time fees associated with the establishment of the service; and
Revenues from (a) and (b) are net of any interconnection or settlement payments to domestic and international
carriers
5
Wireline data net service revenues consist of revenues from:
a) Monthly service fees from International Private Lease (IPL) and domestic lease lines;
b) Monthly service fees on Internet services and charges in excess of free allocations;
c)
One-time connection charges associated with the establishment of service; and
d) Revenues from value-added services.
6
Wireless & wireline non-service revenues consist principally of sales of handsets, phonekits & SIMs (for
wireless) and accessories.
8
Wireless Business
Our Company offers its wireless services including local, national long distance,
international long distance, international roaming and other value-added services
through three brands: Globe Handyphone, Globe Handyphone Prepaid and TM.
Globe Handyphone is the postpaid brand of Globe. This includes all postpaid plans
such as G-Plans and consumable G-Flex Plans, Platinum (for the high-end market),
and GlobeSolutions (for corporate and business needs).
Globe Handyphone Prepaid and TM are the prepaid brands of the Globe Group.
Each brand is positioned at different market segments to better address various
subscribers’ needs.
As of 31 December 2005, Globe’s total wireless subscribers decreased by 1% to 12.4
million from 12.5 million in 2004 due to higher year-on-year consolidated churn
driven by terminations of non-revenue generating subscribers.
Our total wireless subscribers is comprised of 5% postpaid subscribers and 95%
prepaid subscribers, with Globe Handyphone Prepaid subscribers mainly accounting
for 74% of all prepaid wireless subscribers.
Wireless Business — Products and Services
Wireless Voice
(a) Basic Services
Our basic wireless service includes network access throughout the Philippines and
international roaming services through various arrangements with foreign operators.
Our Company offers its wireless voice services including local, national and
international long distance and international roaming through its postpaid and
prepaid wireless brands. Last 1 January 2004, we implemented a flat rate of P6.50
for Globe Handyphone prepaid calls within the Globe network (no peak and off-peak
charges), as well as a flat rate of P7.50 for prepaid and a range of P4.50 to P7.50
(depending on your postpaid plan) calls to other operators, whether mobile or fixed
line networks, and without domestic long distance charges.
On 16 January 2005, TM offered its new “Power Piso” call rates where calls between
its subscribers are charged P1.00 per minute only starting on the 3rd minute of each
call while the first two minutes are charged at the rate of P5.50 per minute.
We also offered our subscribers a number of value promotions during the second and
third quarters of 2005 which addressed key segments and specific consumer needs.
For heavy voice users within our network, we offered Globe CelebRATE! Call (P10
for a 3-minute call). For IDD users, we introduced Budget IDD rates at US$0.20,
starting on the first minute, for IDD calls to selected destinations. (See related
discussion in International Long Distance section below) Additionally, on 17
December 2005, Globe led the market with its launch of the 10 centavos/second call
promo. TM subsequently offered the 10 centavos/second call promo to its
9
subscribers the following month. The promo allowed Globe to Globe and TM to TM
calls on a per-second charging basis aimed at increasing voice usage among its
subscribers.
Our TM subscribers were also offered value promotions such as the TM Todo Tawag
15/15 promotion, launched on 19 August 2005, which allowed TM subscribers to
make 15-minute TM-to-TM voice calls for only P15.
(b) International Roaming
Our subscribers can use their mobile phones while traveling abroad using the
networks of foreign operators with whom we have roaming agreements. Similarly,
subscribers of these foreign networks are able to use the Globe network while in the
Philippines. We had the widest roaming coverage with over 400 roaming partners as
of 31 December 2005 and we were the first network that enabled prepaid subscribers
to make and receive calls while roaming abroad.
(c) International Long Distance
Both Globe and Innove offer ILD services which covers international calls between
the Philippines and over 200 countries. This service generates revenues from both
inbound and outbound international call traffic with pricing based on agreed
international termination rates for inbound traffic revenues and NTC-approved ILD
rates for outbound traffic revenues.
On 1 June 2005, Globe started its IDD CelebRATE! promo aimed at heavy IDD
users among its wireless subscribers. For selected destinations, the promo offered an
IDD rate of US$0.20 per minute after the first 4 minutes, with the first 4 minutes to
be charged the prevailing rate of US$0.40 per minute. This was followed by Globe
Budget IDD last 28 September 2005 offering all wireless subscribers a flat rate of
US$0.20 per minute, starting on the first minute, for IDD calls to 10 destinations,
namely: US, Canada, China, Malaysia, Hong Kong, Singapore, Thailand, South
Korea, Taiwan and Australia. Due to the positive response to this promo, this was
subsequently extended during the fourth quarter of 2005 up to 10 April 2006 and
now include two additional IDD destinations, United Kingdom and Kuwait.
On 14 September 2005, Globelines launched its Lowest IDD rates promotion for its
Globelines and Globelines Broadband subscribers, and Globe1 card users.
Globelines postpaid subscribers were charged US$0.20 per minute for IDD calls to
selected countries. On the other hand, Globe1 card users could make IDD calls for
P4.50 per minute to 10 destinations from any Globelines postpaid and prepaid lines
including payphones nationwide starting November 2005.
Wireless Data
We offer wireless data services on our Short Message Service (‘SMS’) platform that
consists of basic SMS messaging, enhanced SMS services, M-advertising, and MCommerce services. Data services accounted for approximately 40% of total
wireless net service revenues in 2005, largely driven by person-to-person SMS and
international SMS.
10
(a) Basic SMS Messaging
We pioneered the basic SMS messaging service in the Philippines in 1994. The
usage of SMS messaging in the Philippines, which is a convenient and cost-efficient
alternative to voice and e-mail based communications, is significantly higher than in
most other countries. In 2005, subscribers’ SMS usage averaged approximately 12
SMS messages per day, with our network processing over 144 million SMS
messages per day in total.
To encourage brand loyalty and stimulate usage of wireless data services, Globe
launched its series of CelebRATE! text promotions last June 2005 which offered our
subscribers discounted text rates for Globe to Globe and TM to TM text messages.
For our Globe Handyphone subscribers, we launched the Globe Txt NonStop offer
that allowed heavy SMS users the option to send unlimited Globe to Globe and TM
to TM text messages for P15 for 1 day, P25 for 2 days and P50 for 5 days. This offer
was later supplemented with a P100 option for 10 days of unlimited text messaging.
Beginning 7 February 2006, our Txt NonStop promo, now branded as “UnlimiTXT”,
has now been made a permanent offer to all our subscribers.
For our TM subscribers, we launched the TM Todo Text promotion which provided
unlimited text messaging service for P10 for 1 day, P25 for 3 days and P50 for 7
days. To encourage subscribers to try the promotion, TM came up with its TM Todo
Text Sampler which allowed new TM subscribers free unlimited texting for 5 days
for a minimum P25 load. On 18 December 2005, TM also introduced the 75
centavos/text promo to all its subscribers. This new promotional rate will only be
applied after the free text allocation of the subscriber has been fully consumed. Due
to the positive subscribers’ response to these promos, the TM Todo Text and 75
centavos/text promotions have been extended to 15 April 2006.
(b) Enhanced SMS Services
We offer a full range of value-added services covering the areas of information and
entertainment (‘infotainment’), messaging and mobile banking. These value-added
services allow subscribers to download icons and ring tones, perform mobile
banking, do Wireless Application Protocol (‘WAP’) browsing, send and receive
Multimedia Messaging Service (‘MMS’) pictures and video or participate in
interactive TV, mobile chat and play games, among others.
Our premium SMS service offerings are organized under the brand myGlobe,
wherein we classify information and service offerings in user-friendly, easy-tounderstand content categories, largely according to areas of interest. With the
introduction of General Packet Radio Service (GPRS) in 2001, value-added services
took on a whole new wave of innovations that expanded access, content and
applications. In 2002, the myGlobe service portal was expanded into a WAP site that
allowed easy access to a whole range of content via WAP.
Subscribers with basic SMS handsets are able to download icons and ring tones,
receive regular news and infotainment updates and perform mobile banking by
sending the appropriate keywords to a quick-access number or shortcode. On the
other hand, subscribers with MMS/GPRS enabled handsets can access more services
11
and data content by WAP/WEB browsing and sending and receiving MMS pictures
and video.
In 2004, Globe made a breakthrough by launching the first live TV streaming in the
market with myGlobe G-TV. This enabled subscribers with streaming-capable
phones to watch local shows as they are broadcast on national television through tieups with ABS-CBN and GMA. Likewise, to enable lower-end GPRS handsets to
avail of streaming, Globe introduced G-Video, a downloadable player that allows
basic GPRS handsets to stream canned content. Expanding its multimedia offerings,
Globe also broke ground in the market with the first ever Celebrity Video Greetings,
which gave subscribers an option to send video clip greetings created by top
celebrities to other Globe subscribers.
Other promos launched to drive usage of wireless data services include Visibility
service, which provides data access via GPRS, EDGE, Wi-Fi and dial-up transport
channels on a pay-per-use arrangement or four universal access plans, and GPRS
Discounted Off-Peak Rate promotion which allows subscribers to avail of a 33%
discount (P0.10 per kilobyte) on Globe’s GPRS rates when used from 12 midnight to
8 am. This service was launched in the fourth quarter of 2005.
(c) M-Advertising
In 2005, we partnered with well-recognized consumer businesses that allowed
subscribers to receive promotional messages from participating businesses and
companies. Subscribers are able to collect or redeem discounted or free promotional
goods/services linked to major film releases, sports, entertainment events and
promotions, through this mobile service.
(d) M-Commerce service
Last 16 October 2004, Globe launched G-Cash, the first cashless and cardless
integrated payments service in the world. G-Cash, Globe’s flagship mobile
commerce service, was born from a simple goal of transforming a mobile phone into
a wallet enabling Globe and TM subscribers access to a cashless and cardless
method of making money-transfers from person to person (or from mobile phone to
mobile phone) by simply sending a text message.
From G-Cash’s initial thrust towards money-transfers, purchase of goods and
services from retail outlets, and sending and receiving domestic and international
remittances, the service, over a span of one year, created a whole new series of
creative possibilities in the field of mobile commerce. Today, G-Cash allows Globe
and TM subscribers to pay for the following using their mobile phone’s text
messaging service:







utility bills
interest and amortization of loans
insurance premiums
donations to various institutions and organizations
sales commissions
school tuition fees
micro tax payments (for annual business registration)
12
In addition, G-Cash also tallied impressive statistics in 2005, its first full-year in
service. Registered subscribers have exceeded 1.2 million with over 500 partners
both nationwide and abroad providing Globe and TM subscribers access to 4,500
outlets offering the G-Cash service. Locally, its merchant partners include shopping
mall chains, bookstores, drug stores, convenience stores, universities, rural banks,
cooperatives, restaurants, insurance companies, remittance companies, pawnshops,
and utility companies. G-Cash is also already accepted across 14 countries in Asia,
Middle East, Europe and North America.
G-Cash has also won five prestigious awards to date. Aside from the GSM
Association Awards in France (February 2005), G-Cash also received the Asian
Mobile News Awards in Singapore (June 2005), the Global Messaging Award in
London (June 2005), the Philippines’ very own Mobile Communications
Effectiveness Award (August 2005), and the Agora Awards for World Class
Excellence in Philippine Marketing (November 2005).
Wireline Business
Innove, a wholly-owned subsidiary, provides our wireline voice and data
communications services under the brand names, Globelines and GlobeQUEST,
respectively. With its newly-awarded nationwide LEC license, Innove is now
allowed to expand its network throughout the whole nation.
Innove is adopting a “customer-centric” market approach, which allows it to develop
products and services based on specific business requirements and to better serve the
varied needs of its customers. In line with this, Innove’s organization is designed
around four (4) focused groups to cover the fixed line and wireless business
segments – (a) Consumer Broadband (formerly Residential), (b) SME (small and
medium-scale businesses) and two new segments under the Enterprise Business
Group (EBG) called (c) EBG Solutions, which is the corporate wireless group and
(d) EBG GlobeQuest, which is the corporate wireline group. The EBG was
developed in response to the corporate customers’ preferences for integrated mobile
and fixed line communications solutions.
As of 31 December 2005, Innove increased its total wireline voice subscribers by
12% to 362,143 from 323,094 in 2004. For 2005 and 2004, 62% of total subscribers
were postpaid while 38% were prepaid while business/residential mix was 18:82 for
both years.
With our growing broadband business, consumer broadband subscribers registered a
remarkable year-on-year increase of 189% to 22,479 by the end of 2005.
13
Wireline Business – Products and Services
Wireline Voice
Under Globelines, we offer our wireline voice subscribers basic telephone services
for local, national long distance and international long distance within our service
areas. In addition, we also offer a variety of value-added services and special
features including voicemail, caller ID, call forwarding, three-way calling, call
waiting, as well as bundled dial-up internet access without having to subscribe to a
separate internet service provider.
On the other hand, our business subscribers can subscribe to the telephone services
that best complement their business needs such as direct lines, trunk lines, virtual
PABX service, ISDN, as well as other value-added services to enhance their
connectivity.
Specific products and services offered under the Globelines brand are as follows:
• GlobelinesBroadband
With Globelines Broadband, Globelines subscribers have access to high-speed
Internet connections in Makati and extensive areas in Marikina, Pasig,
Mandaluyong and San Juan. This service is also available in Cavite, Batangas,
Cebu, Negros Occidental and Oriental, Panay, Leyte, Samar and Bohol.
• Globelines Prepaid
We launched Globelines Prepaid in 2001 to serve our subscribers who require the
convenience and affordability of a prepaid service which allows them to budget
their calls and control their phone expenses.
• Globe Payphone and Telcard
We offer public telephone service in our service areas through Globe Payphone.
The service was established to expand our services to the mass market, primarily
targeting people without access to personal phones.
Globe Payphone users have the option to pay via coins or via our prepaid
payphone cards, Globe Telcard, which may be purchased from the internet, our
GPS centers, leading distributors and retail outlets.
• Public Calling Offices
We offer communications services to the public through our seven public calling
offices (‘PCOs’) in the provinces of Mindoro Occidental, Palawan and North
Cotabato. Through these PCOs, the public may place and receive telephone calls,
telegrams and fax messages for set fees. In areas where demand is low, the NTC
authorized the Company to construct PCOs instead of installing wirelines to satisfy
our roll-out requirements under our licenses.
14

Globe1 Card
A PIN-based prepaid call card services that enables users to make local, domestic
and international calls from any Globelines (postpaid and prepaid), payphones,
Globe Handyphone and TM.
Wireline Data
Under GlobeQUEST, we offer end-to-end corporate data solutions including
international and domestic data services, wholesale and corporate internet access
services, data center services and segment-specific solutions customized to the needs
of vertical industries.
Specific products and services offered under GlobeQUEST brand are as follows :
GlobeQUEST Broadband Internet offers our clients a complete range of Internet
services at broadband speeds over Innove’s Internet backbone which is the largest in
the Philippines. These services cater to both wholesale and corporate customers, and
includes:




Burstable GIX – this flexible package allows customers to start with
minimum bandwidth required and scale up to high speed level depending on
the actual growth of their internet traffic. Primarily used by wholesale
customers and large enterprises, this service provides the pricing flexibility
that supports the ever-changing business requirements of these companies.
Internet Direct – offers guaranteed service levels delivered over leased line
facilities, especially offered to run mission-critical applications.
Corporate DSL services – has three main variants: Basic, Pro, and Pro+.
These variants differ in service level guarantees, and value-added services
packaged with it.
Universal Access services – These are subscription plans available for
corporate users, which enables WiFi and dial up access through a single user
account.
WIZ (Wireless Internet Zone), powered by GlobeQUEST, is Innove’s brand for its
WiFi (Wireless Fidelity)-enabled network providing broadband access on 802.11
frequency in strategic locations called “hotspots” such as airports, hotels, coffee
shops and business lounges. WIZ has more than 200 hotspots to date, including
deployment to “hotzones” such as Ayala Center Greenbelt and Glorietta malls, Ayala
Center Cebu, Alabang Town Center, NCCC Mall in Davao, Supercat Terminals in
the Visayas, Mactan International Airport and Davao International Airport.
WIZ also provides the infrastructure and internet access to Innove’s WorldPass,
Globe’s Handyphone through Wiz On (text to 2333) service, and to GlobeQUESTowned Universal Access and DSL corporate customers. WIZ also provides
international roaming service with its partners, GoRemote, iPass, T-Systems among
others.
GlobeQUEST Private Networks offers a variety of dedicated communications
services that allow customers to run various data applications, access LANs or
15
corporate intranets and extranets with integrated voice services on high speed,
efficient and reliable connections. These include domestic and international leased
lines, frame relay, IPVPN, and remote access services. International data services are
offered in partnership with global network service providers.
GlobeQUEST DataCentres optimizes the security of mission-critical information and
applications through secure data centers operated and supported by a team of IT
experts. In August 2005, GlobeQUEST took over the operations of Global Data Hub
in Pasong Tamo, which brought its data centers to six (6) commercially available
data centers, namely: MK1 (Valero Data Center), MK2 (Pasong Tamo), MD1
(Sheridan), MD2 (Pioneer), Cebu and Laguna DataCentres.
These offer
complementary services to GlobeQUEST network services, ensuring that corporate
customers are given end-to-end capabilities and solutions.
GlobeQUEST Corporate Voice provides a full suite of telephony services, from basic
direct lines to ISDN services, 1800-, IDD and NDD access, as well, as managed
voice solutions which enables companies to access advanced telecommunications
technology, such as managed IP communications. With the advent of VOIP
technology, GlobeQUEST is introducing new functionalities on their Corporate
Voice portfolio which will drive the voice business.
GlobeQUEST BroadBand Access is a network access solution that provides our
customers ultra-high speed fiber optic network connectivity, over a fully redundant
and diverse DWDM-based fiber backbone, designed for wholesale and corporate
customers with huge bandwidth requirements, mission-critical applications and
rapidly growing needs, which demand uninterrupted access for their business
operations. This service offering ranges from high speed leased lines to Ethernet
services and even Escon or fibre channel connections for disaster-recovery service
connectivity. Today, these services are heavily used by service providers, call
centers and BPO (Business Process Outsourcing) companies as well as banking and
manufacturing institutions.
Carrier Services
We also offer all our subscribers carrier services including national and international
long distance services. Our carrier services business is a support group to our
wireless and wireline businesses. International long distance and national long
distance service revenues attributable to the wireless and wireline businesses are
reported under the income statements of the respective businesses.
National Long Distance
Through the Globe/Innove Domestic Toll Service, Globe Handyphone, TM and
Globelines subscribers may make national long distance calls to any subscriber of a
Philippine communications provider located anywhere in the country. We were
granted inter-exchange carrier status by the NTC. As an interexchange carrier, we
are allowed to haul traffic from an originating carrier passing through our
transmission network and terminating to the network of another carrier, thus entitling
us to IXC or hauling fee. We receive settlement payments from other local
communications providers who send national long distance traffic to our network,
and we pay settlement charges to local providers when we send national long
distance traffic to their networks. These payments are based upon individual
16
domestic interconnect contracts that we negotiate with the local communications
providers. Our national long distance facilities consist of five domestic toll switches
which were supplied by Fujitsu Ltd and Lucent Technologies. The switches use
digital technology and contain a total of approximately 7,000 circuits dedicated to
domestic traffic. Additional capacity can be obtained through the expansion of
existing circuits and installation of additional trunks.
International Long Distance
We offer international long distance service between the Philippines and over 200
destinations. We generally charge our Globelines, Globe Handyphone and TM
subscribers $0.40 per minute for IDD anywhere at any time. We receive settlement
payments from foreign communications providers who send international traffic to
our international gateway facilities. These payments are based upon individual
international termination rate agreements that we negotiate with foreign
communications providers. We have developed an international carrier relations
team specifically dedicated to manage our relationships with foreign carriers.
(ii) Percentage of sales or revenues and net income contributed by foreign sales (broken
down into major markets such as Western Europe, Southeast Asia, etc.) for each of
the last three years.
Globe operates its telecommunications services in the Philippines although it earns
minimal revenue from the roaming usage of its subscribers abroad.
(iii) Distribution methods of the products or services
Wireless — Sales and Distribution
To ensure that all our subscribers’ needs are properly addressed and met, we have
established various sales and distribution channels to manage the different
subscribers’ needs.
(a) Independent Dealers
We utilize a number of independent dealers who have their own networks
throughout the Philippines to sell our prepaid wireless services to customers. These
dealers include major distributors of wireless phone handsets who usually have their
own retail networks, direct sales force and sub-dealers in the Philippines.
We compensate our dealers based on the type, volume and value of reload
denominations for a period. This takes the form of fixed discounts for prepaid
airtime cards and SIM packs, and discounted selling price for its phonekits.
Additionally, we also have dealers who offer prepaid reloading services to Globe
and TM subscribers nationwide. In 2003, we launched our Globe AutoloadMax
service and established a distribution network of dealers and institutions to offer
prepaid reloading services. As of 31 December 2005 we have over 1.1 million
registered sub-distributors and retailers.
17
(b) Business Centers
To reduce our dependency on independent dealers, we have built 89 wireless
business centers, Link and Hub shops in major cities across the country. We have
also increased the service offerings at our business centers, allowing customers to
subscribe for wireless services, reload prepaid credits, make G-Cash transactions,
purchase handsets, accessories and obtain handset repairs, try out the
communications devices, ask questions about our services and pay bills. In our Hub
shops, we sell state-of-the-art communications devices and high-technology
communications-related products. As of 31 December 2005, we have 6 Hub shops
located in strategic areas in Makati City, San Juan and Mandaluyong City.
Our Link centers offered both sales and after-sales services to our customers. In
2005, eight (8) Link centers were opened. As of 31 December 2005, we have a total
of 70 Link centers located in Metro Manila and selected cities nationwide.
(c) Others
We also distribute prepaid products (phonekits, SIM kits and prepaid air time cards
and credits) through consumer distribution channels such as convenience stores, gas
stations, drugstores, bookstores, photoshops and fastfood outlets.
We also have a dedicated direct sales force to manage our corporate accounts and
high-end customers - GlobeSolutions for Corporate Managed Accounts, SME for
Corporate Non-Managed Accounts, Direct Sales, VIP Sales and OFW Sales teams.
Overall, we plan to continue developing our direct sales capabilities through retail
business centers and our internal corporate sales staff. This strategy enables us to
better control product pricing, ensure the quality of staffing and service and
integrate store marketing with media advertising.
Wireline – Sales and Distribution
(a) Globelines Payments and Services (‘GPS’) Centers
To better serve our wireline subscribers from various service areas such as Metro
Manila, the Visayas area and the fast growing provinces of Cavite, Batangas and
Central Mindanao, we have set up GPS centers in strategic locations in our service
areas nationwide.
Our GPS centers allow subscribers to subscribe for wireline services, make G-Cash
transactions, ask questions about our services, and pay bills. As of 31 December
2005, we had a total of 41 GPS centers set up to cater to the various needs of our
wireline subscribers.
18
(b) Others
We also sell our wireline data services through our internal corporate sales team
composed of account managers based in Manila, Cebu and Davao. Sales to large
businesses are managed by specialized account managers who are each dedicated to
managing large business customers based on identified target segments. They are
the appointed single point of contact (‘SPOC’) for any service or concern the
corporate customer may have, backed up by a strong team of pre-sales engineers,
segment marketing managers, and project managers. The Customer Support Group
and Fault Management Control Center handles after-sales support for non-technical
and technical concerns, respectively. The organization is structured to ensure
responsiveness and a delightful customer experience.
GlobeQUEST launched its Channels program in 2003 to develop a network of
resellers to address the rest of the market. We currently have 20 performing
channels managed by a Channels sales manager under the Corporate Sales team.
We also launched the Premium Business Partner program to develop a network of
system integrators (SI) to support our sales team and our overall value proposition.
Since its launch in October 2004, this program has included the top SI’s in the
country. Other SI’s have signed up to be part of the program, opening up a larger
network of potential resellers.
(iv) Status of any publicly announced new product or service (e.g. whether in the
planning stage, whether prototypes exist), the degree to which product design has
progressed or whether further engineering is necessary. Indicate if completion of
development of the product would require a material amount of the resources of the
registrant, and the estimated amount;
The following products and services were launched and offered during the year up
to February 2006:
On 6 January 2005, Globe Kababayan launched its “Quick Remit and Load Card”
service that enables OFWs to remit cash and reload credits to Globe Handyphone
and TM phones. The “Quick Remit and Load Card” service allows OFWs to do
away with queuing at overseas remittance centers and making over-the-counter
payments of cable fees. This service complements G-Cash’s international
remittance service. Additionally, OFWs need not wait for days-off to remit money
or reload credits to Globe Handyphone and TM phones as the service can be availed
anytime and anywhere. The “Quick Remit and Load Card” is manufactured and
distributed internationally by Paysetter, Inc. and is available in P1,200, P3,200 and
P5,200 denominations.
On 16 January 2005, TM offered its new “Power Piso” call rates where TM to TM
calls are charged P1.00 per minute only starting on the third minute of each call.
The first two (2) minutes are charged the current P5.50 per minute rate. The “Power
Piso” campaign is part of TM’s new repositioning to “TM, Ang Bagong Touch
Mobile” that is focused on giving more peso value to its mass consumers by making
its services more affordable. Additionally, starting 16 January 2005, TM subscribers
can access selected Value Added Services (VAS) content for only P1 per download.
This is a permanent service available to TM subscribers. Initial VAS content include
daily job openings, jokes and tips. Other VAS services are offered at the regular
rate of P2.50 per download.
19
On 30 January 2005, Globe launched its MyGlobe Tracker service which allows
Globe Handyphone postpaid and prepaid subscribers to track the location of friends,
family and celebrities through their mobile phones using location-based
technologies and applications that act on or react to geographic triggers. These
services provide the general location or vicinity of a subscriber. Currently, five
types of services are available to Globe subscribers on MyGlobe Tracker:
(a)
(b)
(c)
(d)
(e)
myFriend Tracker – Subscribers can locate friends and get information on
their location;
myFamily Tracker - Parents can get information on the location of their
children;
myChat Tracker – Subscribers can get a list of chatters in their area;
Celebrity Tracker – Subscribers can get alerts from celebrities in their area;
Nginig Tracker – Subscribers can get information on paranormal readings
within their area. This is based on the ABS-CBN show “NGINIG”.
Registration for the above services is free while location requests range from P2.50
to P5 (SMS) and P5 to P10 (MMS).
On 21 February 2005, Globe launched its G2P service – a new postpaid plan
where subscribers can have both a postpaid plan and prepaid line with just one
number and one SIM. To better manage their budgets, Globe G2P subscribers can
also shift from postpaid to prepaid and vice versa, by simply sending an SMS. The
G2P subscriber also gets a prepaid wallet with a P50 balance for voice calls.
Additionally the G2P subscriber will have continuous connections when his
postpaid line is temporarily disconnected by using his prepaid wallet.
On 21 March 2005, Globelines offered its “One Country One Rate” promotion to
its postpaid subscribers. The “One Country One Rate” campaign is an extension of
the initial promotion which was originally launched on 14 January 2005.
Subscribers are allowed to make long distance calls from any Globelines Postpaid
Phone nationwide to any Globelines phone (Prepaid & Postpaid) for free. This
promotion has been extended and is now a permanent feature for all Globelines
customers effective 20 June 2005.
On 22 March 2005, Globe started offering its Globe Iridium Satellite service.
Globe subscribers can now access voice and SMS services through Iridium’s
satellite network that can reach the polar regions, oceans and other remote areas not
accessible by conventional modes of mobile telecommunications. The Iridium SIM
will have a new number but calls to the Globe Handyphone can be forwarded to the
Iridium number if the subscriber requests for it. Subscribers will be charged
satellite rates + 15% administrative charge + 10% VAT. Activation and rental fees
apply.
On 15 April 2005, Globe launched its BPI Express Connect service with full
Mobile Banking convenience. Globe subscribers can now perform financial
transactions such as:
> Funds transfer;
> CheckFree payments;
> Express Cash reloading;
> Globe Prepaid and TM phone reloading;
20
> Account balance inquiry;
> An option to directly connect to Express Phonebanking.
This menu-based service is easier to use because subscribers do not need to
memorize and key-in words and commands. Transactions may now be done using
a menu-driven user-interface which is part of the BPI Express Connect menu found
in Globe Handyphone SIMs.
On 16 April 2005, Globelines introduced Worldpass – an all-in-one Internet
account that allows connections via Broadband from any Globelines terminal, dialup from any computer and landline anywhere in the country, or mobile access via
Wi-Fi from any GlobeQUEST WIZ Hotspot, using any Wi-Fi enabled gadget
(laptop, PDA or cellphone). Worldpass will be offered at rates starting from P350
up to P2,500 with options for dial-up or Wi-Fi. Worldpass rates start at P250
(consumable monthly fee) while excess minutes are charged at P0.50 per minute for
dial-up and P2 per minute for Wi-Fi.
On 12 May 2005, Globe launched its myGlobe Message Eraser application for its
subscribers with selected compatible phones. The Message Eraser is an application
that erases messages being sent to a recipient belonging to a user-specified list.
With this application, subscribers have the convenience of automatically deleting
confidential messages, such as G-Cash and Mobile Banking commands, from their
Sent Items folder. The application also features instant message deletion, scheduled
message deletion, number list deletion and contact list importing.
On 17 May 2005, Globe announced its Regional Concierge service for its Bridge
Mobile Alliance partners. Roamers from Bridge Member Operators (BMO)
traveling in any of the Bridge Mobile Alliance destinations will enjoy the following
privileges:



SIM Replacement Assistance (lost/faulty SIM cards);
Handset and SIM purchase/rental program;
Free IDD calls back to BMO's Customer Service Hotline;
Listed below are the BMO’s and destination countries:
Singtel (Singapore)
TCC (Taiwan)
Telkomsel (Indonesia)
Maxis (Malaysia)
Telecom (Philippines)
Optus (Australia)
Airtel/Bharti (India)
CSL (Hong Kong)
Globe
On 1 June 2005, Globe started its CelebRate IDD Promo for its G-Plan subscribers.
Instead of the current rate of US$0.40 cents for IDD calls, G-Plan subscribers
enjoyed discounted rates of US$0.20 for IDD calls after the first 4 minutes. G-Plan
subscribers were charged US$0.40 for the first 4 minutes of the IDD call. The
promo has been extended to 31 August 2005 with additional countries included.
On 6 June 2005, Globelines launched its Globelines IDD Promo that allowed all
Globelines Postpaid subscribers to enjoy a discounted rate of US$0.20/minute (after
the first four minutes) for an IDD call. Subscribers could call USA, Canada, China,
21
Malaysia, Hong Kong and Singapore at discounted rates. The promo applied to IDD
voice calls only and expired last 5 July 2005.
On 12 June 2005, Globe Handyphone Prepaid Plus started its CelebRate Call and
Text Promo that allowed subscribers to make intranet voice calls and send text
messages at discounted rates for 30 days. For a P50 registration fee (for each
service) to either the Call or Text Promo, subscribers were allowed discounted
Globe-to-Globe call rates of P2.50 (after the first minute charged at the regular rate
of P5.00) and Globe-to-Globe text rates of P0.50 per text. This promo expired last
12 July 2005.
On 13 July 2005, a variant of the CelebRate Call and Text was launched which
offered discounted call and text rates for a P25 registration fee which is good for 10
days. Additionally, new subscribers to the promo can enjoy discounted text rates,
without the registration fee, for seven days. The promo ran from 13 July to 11
August 2005.
On 20 June 2005, Globe Telecom offered International AutoloadMax service in
Bridge Mobile destinations and prepaid subscribers of a BMO. The service allows
prepaid customers or their family and friends to top-up their own prepaid service
or top-up the prepaid service of another mobile user of a Bridge Alliance Member
(see list of Bridge Mobile operators in earlier section) at any Globe Business
Centers and HUB stores nationwide. Other Bridge Mobile Alliance partners also
offer Prepaid Top-up (except CSL-Hong Kong) to its prepaid roamers.
Starting 1 July 2005, Globelines upgraded its Broadband Explore P1,995 package
from 384 kbps to 512 kbps initially in the National Capital Region and Luzon. With
this upgrade, Globelines Explore subscribers enjoy higher bandwidths at no
additional cost.
Starting 1 July 2005, all Globe Prepaid Call and Text cards released from this date
have built-in expiration periods (call card expiry). The expiration date is printed at
the back of each new card. Globe Prepaid Call and Text cards are available in
denominations of P100, P300 and P500. The P1,000 denomination call cards have
been discontinued. However, stocks may still be available in the market.
On 4 July 2005, Globe announced that subscribers can now get G-Cash using VISA,
Mastercard and JCB credit cards as cash-in facility. G-Cash can then be used to
purchase goods and services, pay bills, make local and international remittances or
donations.
Last 13 July 2005, Globe launched its Globe1 Card – a PIN-based prepaid call card
service that enables users to make local, domestic and international calls from
Globelines landline (postpaid and prepaid) or payphone, Globe Handyphone
(postpaid and prepaid) and TM and is available in P100 and P300 denominations. All
call charges are deducted from the card's stored value.
On 17 July 2005, TM launched its Emergency Text service that allows TM
subscribers to send one free emergency text message per day even with zero prepaid
credit balance. The recipient of the "Please send me load" message may send prepaid
load credits via Share-A-Load (SAL) by simply replying to the Emergency Text
received.
22
On 7 August 2005, Globe improved on its Hong Kong Share-A-Load service by
offering its G-Cash remittance service to OFW SmarTone subscribers in Hong
Kong. Globe Handyphone and TM subscribers in the Philippines can now receive GCash in P500, P1,000, P3,000 and P5,000 denominations which are charged to the
OFW’s SmarTone subscriptions in Hong Kong dollars with a corresponding
transaction fee.
On 12 August 2005, Globe announced that it had completed the first video call over
its 3G trial network. 3G is third generation technology that allows high speed data
transmission, enabling users to enjoy features that require speed such as video ondemand and video call conference. Globe Telecom was the first Philippine operator
to be given a 3G trial permit and frequencies from the NTC.
On 19 August 2005, TM launched its Todo Tawag 15/15 promotion which allowed
TM subscribers to make 15-minute TM-to-TM voice calls for only P15.
On 8 September 2005, TM also launched the Todo Text promo which allows
unlimited texting for only P10 for 1 day. This promotion has been extended until 15
April 2006.
On 14 September 2005 Globelines announced that its postpaid subscribers can call
10 countries for only US$0.20 per minute. Subscribers who have activated their IDD
can already avail of the budget IDD rate when calling Australia, Canada, China,
Hong Kong, Malaysia, Singapore, South Korea, Taiwan, Thailand and USA.
Additionally, with the Globe1 Card, consumers can call these countries at US$0.10
per minute using a Globelines postpaid, prepaid landline or payphone until 13
November 2005.
On 15 September 2005, Innove launched its G-POS (Point of Sale) Service at the
Stores Asia Expo 2005 Retail Suppliers Exhibition held concurrently with the
National Retailers Conference at the Edsa Shangri-La Hotel. G-POS allows stores to
use their existing POS system instead of using a cellular phone to handle G-Cash
transactions such as merchant payments, bills payments, cash and m-currency
conversions and AutoLoadMax reloads through GlobeQuest Store Express.
GlobeQuest Store Express is a solution specifically designed to address the various
connectivity requirements of the retail industry and to meet both the network and
information technology requirements of retail companies, regardless of size and
retail format.
Starting 20 September 2005, Globelines Broadband subscribers can call 51
countries1 for only US$0.05 per minute using Voice Over Internet Protocol (VoIP)
technology.
1
The 51 countries are Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia,
Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Hong Kong, Hungary, Iceland,
Ireland, Israel, Italy, Japan, South Korea, Luxembourg, Malaysia, Mexico, Monaco, Mongolia, Netherlands, New
Zealand, Norway, Peru, Poland, Portugal, Puerto Rico, Russia, Saudi Arabia, Singapore, Slovenia, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey, United Kingdom, USA and Venezuela.
On 20 September 2005, Globe introduced its 3G Roaming service for subscribers
traveling abroad in Asia-Pacific countries with 3G networks. With the 3G Roaming
service, subscribers traveling abroad have the benefits of faster data access and soon,
23
advanced connectivity with video calling. The 3G technology allows subscribers to
access and download heavy data files such as music tracks and videos from the
Internet. It also enables video sharing, through which users can send and save video
clips with overall faster access of GPRS. These services are on top of regular voice,
SMS and MMS roaming services. Globe international roaming subscribers can now
roam in 3G networks of three countries using the following operator networks and
3G-enabled phones - NTT DoCoMo and Vodafone in Japan, Sunday in Hong Kong,
and SingTel in Singapore.
On 28 September 2005, Globe Handyphone and TM offered its postpaid and prepaid
subscribers the CelebRate Budget IDD promotion. Subscribers can make IDD calls
to United States, Canada, China, Malaysia, Hong Kong, Singapore, South Korea,
Thailand, Taiwan, and Australia for US$0.20 per minute starting on the first minute.
On 28 September 2005, Globe launched its Visibility service that provides data
access via GPRS, EDGE, WiFi and dial-up transport channels. Visibility services are
available via pay-per-use or through four universal access plans. Mobile Office,
Remote Office and free email are also available for universal access plan subscribers.
The 4 universal access plans are as follows:
UNIVERSAL
ACCESS
PLAN
(in Pesos)
Universal
Access Value
(MSF)
One
Time
Charge (OTC)
GPRS Rate /
kb
WiFi Rate /
minute
Dial-Up Rate /
minute
UNLIMITED
GPRS/EDGE/WiFi/
DIAL UP
PLAN 1500
(Consumable)
2,500
UNLIMITED
GPRS/EDGE W/
PER MINUTE
WiFi/DIAL UP
1,700
PLAN 0
(Pay-PerUse)
1,500
-
2,000
2,000
-
1,500
Unlimited
Unlimited
0.105
0.15
Unlimited
2.00
1.40
2.00
Unlimited
0.50
0.35
0.50
Initially, Visibility is only available to all Innove and GlobeSolutions corporate
subscribers.
On 12 October 2005, Globe introduced its MyGlobe QuikVoice service which
simplifies the sending of voice messages via MMS. Subscribers can download the
software for free from the myGlobe WAP site. Once the software is downloaded and
installed on compatible handset models, the subscriber needs a few keystrokes to
send voice messages. The software is also capable of replaying recorded messages
on various formats.
On 27 October 2005, Globe launched the following CelebRate offerings to its
postpaid and prepaid subscribers, including those with Globe Gizmo, Kapamilya,
Globe Kababayan and Traveler's SIMs:

The TXTNONSTOP promotion for Globe-to-Globe unlimited text for only
P15 for 1 day, P25 for two days, or P50 for 5 days.
24

The P10-per-3 minute call promotion for Globe-to-Globe calls where
subscribers only needs to dial 235 + the 10-digit Globe number to avail of
the service.
Both promos have been extended until 15 April 2006.
On 11 November 2005, Globe initiated its GPRS Discounted Off-Peak Rates
promotion for its postpaid and prepaid subscribers that featured a 33% discount on
GPRS rates for WAP and Web browsing during off-peak hours (12 midnight to 8
AM). During the promotion, off-peak browsing was charged at P0.10 per kilobyte
(kb) from the current rate of P0.15 per kb. The promotion ended last 12 December
2005.
On 12 November 2005, Globe started its Citibank Charge a Load service for
subscribers who are Citibank NA Philippine branch credit card customers to allow
them to charge prepaid reload credits to their credit card accounts. Once enrolled to
the service, a subscriber can reload his or another subscriber’s account.
On 23 November 2005, Globe offered its G-Cash School Payment Assistant service
that allows subscribers to use their G-Cash to pay school tuition and miscellaneous
fees. The subscriber simply has to send instructions, via SMS, to pay the G-Cash
school partner and subsequently receive a request to encode the G-Cash PIN to
process and complete the transaction.
On 25 November 2005, Globelines Broadband launched its GLBB PC Bundle
promotion which offered an P850 / month amortization rate for a personal computer
(PC) with a monthly service fee (MSF) of P1,495 to access the Express Unlimited
broadband offer of Globelines. Different packages were offered to various customer
segments with MSF rates ranging from P1,495 to P8,800 for the “Taipan” SME
package. This promo expired last 31 December 2005.
On 1 December 2005, Innove launched its WorldPass Prepaid service which allows
users to access the internet at reduced rates via dial-up using any landline or WiFi
using his preferred access device or broadband connection via Globelines Broadband
kiosks. WorldPass Prepaid vouchers can be purchased in Globelines centers, retail
outlets and online at myAyala.com and are available in P20, P50 and P100
denominations.
On 17 December 2005, Globe introduced its 10 centavos per second promotional
rate for its postpaid and prepaid subscribers applicable for Globe to Globe and TM to
TM calls. Subscribers can avail of the promotional rate by dialing 232 plus the 10
digit Globe number without the need for registration. This promotional rate
subsequently included TM subscribers and has been extended to 15 May 2006.
On 18 December 2005, TM unveiled a new promotional rate for TM-to-TM text,
P0.75 per message sent. The free text allocation needs to be consumed first before a
subscriber is charged with the new promotional rate. This promotion has also been
extended to 15 April 2006.
On 7 February 2006, Globe made its TXT NONSTOP promo into a permanent offer
to all subscribers including AMAX Retailer SIMs and G2P-Prepaid Mode
subscribers. Now branded as “UNLIMITXT”, subscribers can continue to avail of
25
unlimited text messaging service for P15 for one day, P25 for 2 days and P50 for 5
days.
(v) Competition. Describe the industry in which the registrant is selling or expects to
sell its products or services, and where applicable, any recognized trends within that
industry. Describe the part of the industry and the geographic area in which the
business competes or will compete. Identify the principal method of competition
(price, service, warranty or product performance). Name the principal competitors
that the registrant has or expects to have in its area of competition. Indicate the
relative size and financial and market strengths of the registrant’s competitors.
State why the registrant believes that it can effectively compete with other companies
in its area of competition.
Wireless Market
The Philippine wireless market has experienced rapid growth in recent years.
Accordingly, the number of wireless subscribers increased from 1.7 million as of 31
December 1998 to approximately 34.7 million as of 31 December 2005. Wireless
penetration rates have surged from 1% in 1996 to about 40% in 2005. Over the past
years, the great majority of cellular growth has taken place specifically within the
digital GSM segment.
Wireless subscriber growth in the Philippines has been driven by the unique
demographics and topography of the Philippines. Over 50% of the population in the
Philippines is below the age of 25. The Philippines comprises more than 7,100
islands. This young and technologically-adept population coupled with the wide
geographic expanse of the country has favored wireless, rather than wireline
communication systems.
With mass market appeal, the increasing affordability of wireless handsets and
services, and the wide coverage of wireless networks has substantially driven the
growth of wireless subscribers in the Philippines. The popularity of wireless
communication has also been driven in part by the continued growth of the prepaid
service which permits customers who do not meet the credit standards for postpaid
service or who have different needs, from that of postpaid subscribers, to avail of
wireless service.
Wireless data services, primarily SMS or text messaging, have further contributed to
the popularity of wireless communication in the Philippines. SMS usage in the
Philippines is significantly higher than in most other countries. In order to attract
new subscribers or to stimulate usage by existing subs, Philippine operators have
introduced various unlimited SMS promos, free SMS allocations per month based on
postpaid plans availed of or based on prepaid load denominations.
Seven wireless operators in the Philippines, including Globe Telecom, have been
granted licenses to provide nationwide wireless service. Wireless operators are free
to choose the network technology that they wish to deploy. The table below sets
forth the technology deployed, the date of commercial launch and the reported
number of subscribers as of the most recent date available for each wireless operator:
26
Year of
Commercial
Launch
Wireless
Operators
Globe
1994
Innove*
1993
Smart**
1994
Piltel**
1991
Bayantel
Not applicable
Extelcom
1991
Digitel
2003
GSM
Operating
Spectrum
Subscribers
Wireless System
Wireless
Technology
9,293,829 1
3,109,746 1
15,424,196 2
4,984,425 2
Not
applicable
No data
available
1,800,000 3
Digital
Digital
Digital
Analog/Digital
Digital
GSM
GSM
ETACS/GSM
AMPS/CDMA
GSM
20MHz
10MHz
15MHz
11MHz
10MHz
Analog
AMPS
10MHz
Digital
GSM
10MHz
* Wholly-owned subsidiary of Globe Telecom, Inc.
** Affiliate of PLDT.
__________________________
Sources:
(1) Globe disclosures for the year ended 31 December 2005.
(2) Disclosures of PLDT as of 31 December, 2005. SMART decommissioned its analog network last 31 December
2002.
(3) Based on publicly available information.
Since 2000, the wireless communications industry has experienced consolidation.
PLDT completed its acquisition and consolidation of Smart and Piltel and Globe
acquired Islacom (now named Innove Communications, Inc.). Currently, Smart and
Globe are the two leading wireless operators in the Philippines in terms of
subscribers and revenues. Digitel began its network in 2000 and formally launched
its wireless service under the brand name Sun Cellular in February 2003.
Additionally, NEXTEL, although licensed for wireless trunked radio services, has
also begun to offer call service connectivity to wireless and wireline users.
The past year has seen a slowing down in SIM growth rates to single-digit levels
from the exponential growth it has witnessed in the years before. This slowing
growth, increased mobile penetration levels while the entry of new players has
brought on increased competition in the industry, characterized by aggressive pricebased offers and subscriber acquisition programs.
To adopt to the changing consumer habits and increased level of competition, we
intend to further improve our price-competitiveness and launch more innovative,
value-based propositions. Similar to our Globe Kababayan, CelebRATE! and persecond charging promotions, we intend to design and launch offers tailor-fitted to
our customers’ diverse needs. As part of our efforts to expand our geographic reach,
we will continue to build and enhance our network. In the past two years, we have
doubled our cell sites, from around 2,600 at end 2003 to over 5,100 by end 2005.
This is part of our efforts to achieve pervasive nationwide reach, penetrate deeper
into the mass markets and expand our presence in untapped areas.
Regionally, we aim to enable the creation and seamless delivery of mobile services
to more subscribers across the Asia-Pacific by exploring commercial applications
and offering joint undertakings with the six members of the Bridge Mobile Alliance.
27
Wireline Voice Market
There are ten wireline operators in the Philippines with licenses to provide local and
domestic long distance service. PLDT is the dominant provider with 2.1 million lines
in service as of 31 December 2005.
The Philippine wireline voice market has experienced modest growth in recent years
with the number of lines in service increasing from 2.9 million in 1999 to
approximately 3.5 million in 2005. The modest increase in lines of service or
subscribed lines is a result of the wide availability and affordability of wireless
services.
Each operator (other than PLDT, which is authorized to provide nationwide wireline
services) has been granted service areas in which they must install the required
number of wirelines and provide service. The NTC has created 15 such service areas
in the Philippines and in order to promote network construction, it has been the
government policy to allow only one or two major operators (in addition to PLDT) in
each service area. Rates for local exchange and domestic long distance services have
been deregulated and operators are allowed to have metered as well as flat monthly
fee tariff plans for the services provided.
On 5 March 2004, Innove filed an application with the NTC for the expansion of its
fixed line business. On 17 June 2005, Innove was awarded by the NTC with a
nationwide franchise for its wireline business. This will allow Innove greater
flexibility in maximizing previously invested capacities and expand its current
network to serve a wider range of customers nationwide.
Wireline Data Market
The wireline data service business is a growing segment of the wireline industry. As
the Philippine economy grows, businesses are increasingly utilizing new networking
technologies and the internet for critical business needs such as sales and marketing,
inter-company communications, database management and data storage.
The potential of corporate data is becoming more visible as it serves the promising
IT Enabled Service (ITES) industry which includes call centers and Business Process
Outsourcing (BPO) companies. We plan to compete aggressively in this segment and
capitalize on the rapid growth of the industry. The demand for mobility and
increased connectivity to the workplace entails innovative solutions to address access
requirements. Other industry segments are also realizing the need for connectivity
and IT-enablement which is expected to drive bandwidth demand. In addition, the
prices of bandwidth, which have seen steep declines in the past couple years, are
showing signs of stabilizing. These price declines have led to an increase in customer
uptake and growth, providing additional impetus for the wireline data market.
International Long Distance Market
International long distance traffic has been increasing at a rapid rate in the
Philippines in recent years. International long distance providers in the Philippines
generate revenues from both inbound and outbound international call traffic. The
pricing of calls is based on agreed international settlement rates.
28
To date, there are eleven licensed international long distance operators, nine of
which directly compete with us for customers. PLDT is the dominant provider of
international long distance services.
In the past, settlement rates for international long distance traffic were generally
based on the concept of accounting rates. For several years now, commercial
negotiations for these settlement rates are settled using a termination rate system
where the termination rate is determined by the terminating carrier (e.g. Philippines)
in negotiation with the originating foreign correspondent.
In December 1996, the United States Federal Communications Commission (‘U.S.
FCC’ or ‘FCC’) proposed a global reduction of international settlement rates. Prior
to 2001, the accounting rate for all carriers on route from the U.S. to the Philippines
was $0.46 per minute. In 2001, the accounting rate was reduced to $0.38 per minute.
Since 2000, Globe charged termination rates to our networks that are within the U.S.
FCC settlement rate benchmark for inbound international calls of $0.19 per minute
for international long distance traffic originating from the United States and
terminating in the Philippines and within the benchmark of the International
Telecommunications Union of $0.238 for countries with teledensities like the
Philippines.
In 2003, we proposed termination rates of $0.12 per minute for wireline terminating
traffic and $0.16 per minute for wireless terminating traffic to our major foreign
correspondents all over the world. A majority of Globe’s 39 major international
correspondents agreed to the proposed termination rates, however, certain major U.S.
carriers rejected the proposal. As a result, bilateral negations with such carriers did
not proceed, but ended with AT&T and Worldcom (MCI) filing a petition before the
U.S. FCC seeking a stop payment order on settlement to the Philippine carriers last
February 7, 2003. This led to US FCC’s order that all U.S. facilities-based carriers
were to withhold payments of settlement rates to us and five other Philippine carriers
until such time as the U.S. FCC issues a public notice stating otherwise. This issue
continued until last 15 August 2005 when the US FCC released its order upholding
the findings of whipsawing. (For specific details on this issue with the US FCC, see
Item 3: “Legal Proceedings.”)
(vi) Sources and availability of raw materials and the names of principal suppliers; If
the registrant is or is expected to be dependent upon one or a limited number of
suppliers for essential raw materials, energy or other items, describe. Describe
any major existing supply contracts.
Globe works with both local and foreign suppliers and contractors. Equipment and
technology required to render telecommunications services are mainly sourced
from foreign countries. Globe’s principal suppliers are:
For wireless - Nokia Oy (Finland); Ericsson Radio Systems AB (Sweden),
Ericsson (Sweden), Siemens Corporation (Germany),
Alcatel (France),
Microwave Networks Inc(US) ., Fujitsu Ltd. (Japan), ECI Telecoms (Israel),
Enavis (Israel), NERA (Norway), NEC Corp. (Japan), ASCOM, Benning
(Germany), SEC Cellyte (US), Hawker Batteries, JNB Batteries, Rohas-Euco
(Malaysia), Transmast, Andrews Corporation, Allen Telecom Group (Micom),
Kathrein, Cellwave, Huber & Suhner, CMG (Netherlands), Comverse
Technologies; Harris Radio Corporation (US/Canada), Cisco Systems
29
(Philippines.); Communications Solutions, Inc., Investors Quality Services, Inc.
(USA), Lucent Technologies (USA), Mitsubishi Corporation (Japan and
Philippines), Sumitomo Corporation (Japan), Tomen Corporation (Japan and
Philippines), and Tyco Electronics (Philippines).
SIM cards and call cards are sourced from Axalto International Ltd. (France),
Gemplus Technologies Asia Pte Ltd (France), Banner Plastic Cards (Philippines),
and Orga Card Systems Pte Ltd (Germany).
For wireline - Tomen (Japan), Fujitsu Ltd. (Japan), Tomen Telecom Phils.,
Sumitomo Corporation (Japan), Mitsubishi (Japan), Lucent Technologies (USA),
NEC (Japan), NESIC (Phils.), Alcatel (Italy), Mitsubishi Corp. (Japan & Phils.),
Melcom Corp. (Philippines.), Comsys Phils, Inc., Cisco Systems (Philippines.),
Datacraft Comm (Phils.), Worldlink Comm. (Philippines.), IECI (Philippines.),
Filipinas Wincomm Corp.(Philippines), RAD Far East Ltd. (Hongkong), Cisco
(USA), RAD (Israel), SR (Canada), DMC (USA), Motorola (US), MCI
WorldComm (US), Teleglobe (Canada), Cable and Wireless (UK), AT&T Global
(US), British Telecom (UK), and Singapore Telecom (Singapore), Comverse
Technologies (USA), Lityan (Philippines) and Banner Plastic Cards (Philippines),
Tellabs (USA/Singapore).
Major supply contract – The Company’s capital expenditures Program includes
various phases, each phase supplied/serviced by various local and international
companies who will provide equipment and services that will involve planning,
design, construction and commissioning of various equipment and systems for
Globe. In 2005, we incurred cash capital expenditures of P14,786 million
compared to P21,219 million in 2004.
(vii) Disclose how dependent the business is upon a single customer or a few customers,
the loss of any or more of which would have a material adverse effect on the
registrant and its subsidiaries taken as a whole. Identify any customers that
account for, or based upon existing orders will account for, twenty percent (20%)
or more of the registrant’s sales; Describe any major existing sales contracts.
Globe Telecom has a wide subscriber base. As of 31 December 2005, on a
consolidated basis, we had 12.4 million wireless subscribers and 362,000 wireline
subscribers. No single customer and contract accounted for more than 20% of
Globe’s total sales in 2005.
(viii) Transactions with and/or dependence on related parties
Globe Telecom and Innove, in their regular conduct of business, enters into
transactions with its principal shareholders, AC and STI, and certain related
parties. These transactions, which are accounted for at market prices normally
charged to unaffiliated customers for similar goods and services, include the
following:
Globe Telecom
(a) Globe Telecom has interconnection agreements with STI. The related net
traffic settlements receivable (included in “Receivables” in the consolidated
balance sheets) and the interconnection toll income (included in “Service
30
revenues” in the consolidated statements of income) earned as of and for the
years ended 31 December 2003, 2004, and 2005 are as follows:
2005
Traffic settlements
receivable - net
Interconnection toll income
P
=335,766
1,422,249
2004
(In Thousand Pesos)
=31,212
P
1,083,859
2003
=548,395
P
2,239,630
(b) Globe Telecom and STI have a technical assistance agreement whereby STI
will provide consultancy and advisory services, including those with respect to
the construction and operation of Globe Telecom’s networks and
communication services, equipment procurement and personnel services. In
addition, Globe Telecom has software development, supply, license and
support arrangements, lease of cable facilities, maintenance and restoration
costs and other transactions with STI.
The details of fees (included in “Operating costs and expenses” account in the
consolidated statements of income) incurred under these agreements are as
follows:
2005
Lease of cable facilities, maintenance and
restoration costs and other transactions
Technical assistance fee
Software development, supply, license and support
P266,793
=
143,450
35,652
2004
2003
(In Thousand Pesos)
=137,111
P
44,360
40,409
P54,026
=
78,095
56,316
The net outstanding balances due to STI (included in “Accounts payable and
accrued expenses” account in the consolidated balance sheets) arising from
these transactions are as follows:
2005
Lease of cable facilities, maintenance and
restoration costs and other transactions
Technical assistance
Software development, supply, license and
support
2004
2003
(In Thousand Pesos)
P13,738
=
81,019
=62,675
P
8,899
P14,193
=
13,756
11,940
21,322
16,895
(c) In 2001, Globe Telecom signed a cable equipment supply agreement with
C2C, a related party of STI. In March 2002, Globe Telecom entered into an
equipment lease agreement for the same equipment obtained from C2C with
GB21 Hong Kong Limited (GB21). Subsequently, GB21, in consideration of
C2C’s agreement to assume all payment obligations pursuant to the lease
agreement, assigned all its rights, obligations and interest in the equipment
lease agreement to C2C. As a result of the said assignment of receivables and
payables by GB21 and C2C under the two agreements, Globe Telecom’s
liability arising from the cable equipment supply agreement with C2C was
effectively converted into a non-interest bearing long-term obligation.
31
Upon adoption of PAS 39 in 2005, the non-interest bearing long-term
obligation was restated to its fair value, representing the present value of future
cash flows. The difference between the principal amount and the present value
of the obligation is reported as an adjustment to the property and equipment
account. As of 31 December 2005, the remaining liability of Globe Telecom to
C2C for the cable equipment supply agreement amounted to P
=1,235.81 million
(inclusive of the accumulated accretion of P
=486.98 million) included under
“Other long-term liabilities” account in the consolidated balance sheets. The
fair value of the equipment purchased amounted to =
P1,453.89 million included
under “Property and equipment” account in the consolidated balance sheets.
Globe Telecom entered into agreements with C2C for the purchase of IRUs in
the C2C and Japan-US Cable Networks. The aggregate cost of capacity
purchased from C2C amounted to =
P1,133.79 million. This was part of the
property and equipment transferred to Innove in June 2004.
In July 2002, Globe Telecom received advance service fees from C2C
amounting to US$1.60 million, which will be offset against its share in the
operations and maintenance costs of the cable landing facilities of Globe
Telecom. Also, in January 2003, Globe Telecom received advance lease
payments from C2C for its use of a portion of Globe Telecom’s cable landing
station facilities amounting to US$4.11 million.
The parties have agreed on a lease amortization schedule and application of a
portion of the advance service fees for C2C’s share in the 2002 operations and
maintenance costs of the cable landing facilities. Accordingly, Globe Telecom
recognized lease income amounting to =
P15.06 million, P
=16.32 million and P
=
51.00 million in 2005, 2004 and 2003, respectively. Globe Telecom also
recognized service fees amounting to =
P2.33 million, =
P43.76 million and P
=
42.33 million in 2005, 2004 and 2003, respectively.
The current and noncurrent portions of the said advances shown as part of
“Other long-term liabilities” account in the consolidated balance sheets follow:
2004
(In Thousand Pesos)
P
=17,760
P
=14,759
146,449
123,166
P
=164,209
P
=137,925
2005
Current
Noncurrent
2003
P
=59,483
161,970
P
=221,453
(d) Globe Telecom reimburses AC for certain operating expenses. The net
outstanding liabilities to AC related to these transactions as of 31 December
2005 were not material.
(e) Globe Telecom has preferred roaming service contract with BMPL. Under this
contract, Globe Telecom will pay BMPL for services rendered by the latter
which include, among others, coordination and facilitation of preferred
roaming arrangement among JV partners, and procurement and maintenance of
telecommunications equipment necessary for delivery of seamless roaming
experience to customers. Globe Telecom also earns or incurs commission form
BMPL for regional top-up service provided by the JV partners. As of 31
December 2005, balances related to this transaction were not material.
32
The summary of consolidated outstanding balances resulting from transactions
with related parties follows:
2005
Traffic settlements receivable - net (included
in Receivables)
Other current assets
Accounts payable (included in Accounts
payable and accrued expenses)
Other long-term liabilities
2004
2003
(As Restated) (As Restated)
(In Thousand Pesos)
=335,766
P
927
=31,212
P
946
=548,395
P
1,118
129,420
1,373,735
122,959
2,426,492
45,962
2,651,816
Globe Group’s compensation of key management personnel by benefit type
follows:
2005
Short-term employee benefits
Share-based payments
Post-employment benefits
P296,191
=
161,731
32,938
=490,860
P
2004
2003
(As Restated) (As Restated)
(In Thousand Pesos)
=261,174
P
=186,727
P
134,769
59,091
35,667
33,945
=431,610
P
=279,763
P
There are no agreements between Globe Group and any of its directors and
key officers providing for benefits upon termination of employment, except for
such benefits to which they may be entitled under Globe Group’s retirement
plans.
(ix)
Summarize the principal terms and expiration dates of all patents, trademarks,
copyrights, licenses, franchises, concessions, royalty agreements held; Indicate the
extent to which the registrant’s operations depend, or are expected to depend, on
the foregoing and what steps are undertaken to secure these rights;
The tables below summarize each major license that we currently hold:
Service
Globe
Wireless
Local Exchange
Carrier
International Long
Distance
Interexchange
Carrier
VSAT
Innove
Type of
License
Date Issued or
Last Extended
Expiration Date
CPCN (1)
July 22, 2002
December 24, 2030
CPCN (1)
July 22, 2002
December 24, 2030
CPCN (1)
July 22, 2002
December 24, 2030
CPCN (1)
February 14,
2003
February 6, 1996
December 24, 2030
CPCN (1)
February 6, 2021
Wireless
Type of
License
CPCN (1)
Date Issued or
Last Extended
July 22, 2002
April 10, 2017
Local Wireline
CPCN (1)
July 22, 2002
April 10, 2017
33
Expiration Date
Action Being
Taken
No action
required
No action
required
No action
required
No action
required
No action
required
Action Being
Taken
No action
required
No action
required
International
Long Distance
Interexchange
Carrier
CPCN (1)
July 22, 2002
April 10, 2017
CPCN (1)
April 30, 2004
April 10, 2017
No action
required
No action
required
(1) Certificate of Public Convenience and Necessity. The term of a CPCN is co-terminus with the franchise
term.
In July 2002, the NTC issued CPCNs to Globe and Innove. The CPCNs allow us
to operate our respective services for a term that will be predicated upon and coterminus with our congressional franchise under RA 7229 and RA 7372 for Globe
and Innove, respectively. We were granted our permanent licenses after having
demonstrated our legal, financial and technical capabilities in operating and
maintaining wireless telecommunications systems, local exchange carrier services
and international gateway facilities. Additionally, Globe and Innove exceeded the
80% minimum roll-out compliance requirement for coverage of all provincial
capitals, including all chartered cities within a period of seven years.
We have applied with the Intellectual Property Office, the independent regulatory
agency responsible for registration of patents, trademarks and technology transfers
in the Philippines, for registration of our brand names, including, Globe
Handyphone, TM, Globelines, Globe Link, GlobeQuest and G-Cash for the
wireless and wireline services we offer. We received a certificate of registration for
Globe Handyphone, which is valid for 20 years from 13 December 1999, the date
of registration.
(x)
Need for any governmental approval or principal products or services. If
governmental approval is necessary and the registrant has not yet received that
approval, discuss the status of the approval within the government approval
process.
Please refer to Table in Item (ix) above.
(xi)
Effect of existing or probable governmental regulations on the business;
The Globe Group is regulated by the NTC under the provisions of the Public
Service Act (CA 146), Executive Order (EO) 59, EO 109, and RA 7925. Under
these laws:
(a) Globe is required to secure a CPCN/PA from the NTC for those services it
offers which are deemed regulated services, as well as for those rates which
are still deemed regulated, under RA 7925.
(b) Globe is required to observe the provisions of EO 59 on interconnection of
public telecommunications networks.
(c) Under EO 109, Globe was required to observe (and has complied with) an
obligation to rollout 700,000 fixed lines as a condition to the grant of its
provisional authorities for the cellular and international gateway services.
(d) Globe remains under the supervision of the NTC for other matters stated in
CA 146 and pays annual supervision fees and permit fees to the NTC.
34
In 2000, the NTC issued NTC Memorandum Circular No. 13-6-2000
proposing new requirements for wireless operators, including the following:
• provide subscribers with their bills within a specified period;
• extend the expiry date of prepaid cards from two months to two years;
• provide prepaid subscriber balance updates every time they make phone
calls;
• bill on a per pulse basis using units of six seconds instead of the previous
per minute basis; and
• not to bill calls directed to recorded voice messages.
We, together with other cellular operators, sought and obtained a preliminary
injunction against the implementation of NTC Memorandum Circular No.
13-6-2000 from the RTC of Quezon City. The NTC appealed the issuance of
the injunction to the Court of Appeals.
On 25 October 2001, we received a copy of the decision of the Court of
Appeals ordering the dismissal of the case before the RTC for lack of
jurisdiction, but without prejudice to the wireless companies seeking relief
before the NTC, which the Court of Appeals (‘CA’) claims had jurisdiction
over the matter.
On 22 February 2002, we filed a Petition for Review with the Supreme
Court (‘SC’) to annul and reverse the decision of the CA. On 2 September
2003, the SC overturned the CA’s earlier dismissal of the petitions filed by
SMART and Globe. In its 13-page decision, the SC said that the Quezon
City trial court could hear and decide the case contrary to NTC’s argument.
The SC has also since denied the NTC’s motion for reconsideration. We are
currently awaiting resumption of the proceedings before the RTC of Quezon
City. In the event that Globe does not sustain its position and NTC
Memorandum Circular No. 13-6-2000 is implemented in its current form,
the Company would probably incur additional costs for carrying and
maintaining prepaid subscribers in its network.
(xii) Indicate the amount spent on research and development activities, and its
percentage to revenues during each of the last three fiscal years;
Globe did not incur any research and development costs in 2003, 2004 and 2005.
(xiii) Costs and effects of compliance with environmental laws
The Globe Group complies with the Environmental Impact Statement (‘EIS’)
system of the Department of Environment and Natural Resources (‘DENR’) and
pays nominal filing fees required for the submission of applications for
Environmental Clearance Certificates (‘ECC’) or Certificates of Non-Coverage
(‘CNC’) for its cellsites and certain other facilities, as well as miscellaneous
expenses incurred in the preparation of applications and the related environmental
impact studies. The Globe Group does not consider these amounts material.
(xiv) State the number of the registrant’s present employees and number of employees it
anticipates to have within the ensuing twelve (12) months. Indicate the number by
type of employee (i.e. clerical, operations, administrative, etc.) whether or not any
35
of them are subject to collective bargaining agreements (CBA) and the expiration
dates of any CBA. If the registrant’s employees are on strike, or have been in the
past three (3) years, or are threatening to strike, describe the dispute. Indicate any
supplemental benefits or incentive arrangements the registrant has or will have
with its employees.
On a consolidated basis, Globe Telecom increased its headcount to 4,987 in 2005
from 4,956 in 2004, 17% of which are covered by the 2001-2005 Collective
Bargaining Agreement (CBA). Certain non-supervisory employees of Globe are
represented by a labor union.
Between 2004 and 2005, there was no major dispute which warranted Globe
Telecom Workers Union (GTWU) to file a notice of strike against the company.
Globe Telecom entered into a collective bargaining agreement with the union on
January 2001 which expired on December 2005. It is stipulated under the
Philippine Labor Code that a duly registered CBA shall be for a term of five years
from the date of effectivity. However, all provisions of a CBA shall be
renegotiated not later than three years after its execution. Thus, a series of
discussions regarding the economic and non-economic provisions of the CBA
started on January 2004. An agreement was concluded on April 29, 2004 which
took effect on January 1, 2004 until December 31, 2005. On November 2005, the
GTWU began its negotiations for another five-year agreement with Globe
Telecom. An agreement was promptly reached over the economic and noneconomic provisions of the CBA last December 2005.
Breakdown of employees by main category of activity for 2005 and 2004 are as
follows:
Employee Type
Rank & File, CBU
Supervisory
Managerial
Executives
Total
2005*
2,977
1,318
497
195
2004**
3,079
1,244
461
172
4,987
4,956
*Includes Globe, Innove & GXI
**Includes Globe & Innove
Globe Telecom continues to develop strategic initiatives to explore new ways to
realize operating efficiencies which will enable it to fully focus on its strategic
business units. This is to ensure that 2005 gains on employee productivity and
controlled manpower growth is sustained. It also believes that these initiatives will
enhance stakeholder value and improve corporate agility which would increase its
overall competitiveness and regain its position as the service leader in the telecom
industry.
(xv) Discuss the major risk/s involved in each of the businesses of the company and
subsidiaries. Include a disclosure of the procedures being undertaken to identify,
assess and manage such risks.
36
The Company has a formal “Enterprise Wide Risk Management” program that
identifies and assesses corporate risks, recommends specific action to address such
risks and monitors implementation of the specific actions. (For a listing of the
different risk factors, please refer to additional disclosures in the MD&A section.)
(b) Additional Requirements as to Certain Issues or Issuers of Debt and Securities:
(i) Debt Issues
The Company has, in a transaction exempt under the Philippine Securities
Regulation Code, issued a 13% US$220 million bond due 2009(which was fully
redeemed by August 2004) and a 9.75% US$300 million bond due 2012. In
February 2004, we issued P3 billion worth of Philippine SEC registered bonds.
As of 31 December 2005, consolidated total debt amounted to =
P49,693 million
which is 5% lower than the =
P52,218 million in 2004. This is mainly due to
Globe’s prepayment of US$41 million of its long term loans in addition to
US$161 million of maturing loans in 2005. Loan repayments of Globe for the
full year 2005 amounted to =
P12,527 million (US$236 million) compared to the
=18,874 million (US$335 million) paid in 2004.
P
(ii)Investment in Company Securities: Not Applicable
37
Item 2. Properties
(a) Buildings and Leasehold Improvements
Globe owns several floors of Pioneer Highlands Towers 1 and 2 to serve as its corporate
headquarters which was renamed Globe Telecom Plaza. This is located at Pioneer Corner
Madison Streets, Mandaluyong City.
Globe also owns the Makati Host Exchange along Valero St., Makati City. We also lease
additional office space in the in Buendia and Ermita for our technical offices and host
exchange, respectively.
Globe Telecom leases the space for most of its 89 wireless business centers, 41 GPS centers
and 5,159 cell sites throughout the Philippines. Our existing business centers and cell
sites located in strategic locations all over the country are generally in good condition
and are covered by specific lease agreements with various lease payments, expiration
periods and renewal options. As we continue to expand our wireless network in the
next 12 months, we intend to lease more spaces for additional cell sites and centers
whose lease payments, expiration periods and renewal options are undeterminable at
this time.
(b) Telecommunications Equipment
As of 31 December 2005, we had the following major telecommunications equipment:





.
22 Mobile Switching Centers (‘MSC’) providing a 13.05 million subscriber capacity;
15 Home Location Registers (‘HLR’) with a capacity of 27.6 million subscribers,
4 Short Messaging Service Centers (‘SMSC’) that are capable of handling 6,500
SMS Message Originating (‘MO’) transactions per second,
1 Multimedia Messaging Service Center (‘MMSC’) with 10 multimedia messages
per second capacity; and
1 Wireless Application Protocol (‘WAP’) Gateway - with a 450 Transactions Per
Second (TPS) capacity.
The infrastructure for Globelines fixed telephone service now includes over 23 telephone
switching exchanges in locations including Makati, Mandaluyong, Batangas, Cavite,
Marikina, Cebu, Bohol, Negros Oriental, Negros Occidental, Panay, Samar, Leyte and Iligan
in addition to 52 remote switching units (RSU/RDLU). Globe and Innove have also installed
more than 1.5 million fixed lines.
For our international and domestic long distance telephony business, we have 13 toll
switching systems in our Ermita, Mandaluyong, Cavite, Batangas, Cebu, Mandaue,
Tagbilaran, Tacloban, Dumaguete, Bacolod, Roxas, Iloilo and Iligan host exchanges. We
operate three international gateway facilities. Two international gateway switches are located
in Metro Manila while the third is in Cebu.
We also have a national transmission network that includes a microwave Synchronous
Digital Hierarchy (‘SDH’) backbone that stretches from the northern part of Luzon to the
southern part of Mindanao, supplemented by leased fiber optic networks in urban areas.
Globe also established, operates and maintains a Fiber Optic Backbone Network (‘FOBN’)
linking the Luzon, Visayas and Mindanao island groups to complement its microwave
38
facilities and offer flexibility for future telecommunications technology including broadband,
GPRS, 3G and broadband data transmission.
(c) Investment in Cable Systems
We have also invested in several submarine cable systems, in which we either own or lease a
share of the systems’ total capacity.
We have a cable landing station, located in Nasugbu, Batangas to land the C2C cable
network, a 17,000 kilometer long submarine cable network linking the Philippines to Hong
Kong, Taiwan, China, Korea, Japan and Singapore. The C2C cable network is one of the
largest networks in the Asia-Pacific region in terms of design capacity. This will enable us to
lower our transmission cost for carrier services by enhancing our capacity. Globe has
separately purchased capacity in the C2C cable network. Additionally, Globe Telecom
entered into agreements with C2C for the purchase of IRUs in the C2C and Japan-US Cable
Networks.
For 2006, we have earmarked approximately US$ 250 million for our capital expenditures
that will be spent primarily on expanding our wireless network and enhancing the necessary
transmission facilities in areas where traffic is expected to surge.
Item 3. Legal Proceedings
I. Civil Case No.Q-00-42221,
Regional Trial Court of Quezon City
ISLA COMMUNICATION CO., INC. et. al vs. NATIONAL
TELECOMMUNICATIONS COMMISSION (NTC), et. al.
Globe is an intervenor in and Innove is a party to Civil Case No. Q-00-42221 entitled "Isla
Communications Co., Inc. et. al., versus National Telecommunications Commission et. al.,"
before the RTC of Quezon City by virtue of which Globe and Innove, together with other
cellular operators, sought and obtained a preliminary injunction against the implementation
of NTC Memorandum Circular No. 13-6-2000 from the RTC of Quezon City. NTC MC 136-2000 prescribed new billing requirements for cellular service providers. The NTC appealed
the issuance of the injunction to the Court of Appeals. On 25 October 2001, we received a
copy of the decision of the Court of Appeals ordering the dismissal of the case before the
RTC for lack of jurisdiction, but without prejudice to the wireless companies’ seeking relief
before the NTC, which the Court of Appeals claims had jurisdiction over the matter. On 22
February 2002, we filed a Petition for Review with the Supreme Court to annul and reverse
the decision of the Court of Appeals. The Supreme Court, on 2 September 2003, overturned
the CA’s earlier dismissal of the petitions filed by SMART and Globe. In its 13-page
decision, the SC said that the Quezon City trial court could hear and decide the case, contrary
to NTC’s argument. The SC has also since denied the NTC’s motion for reconsideration. We
are currently awaiting resumption of the proceedings before the RTC of Quezon City.
II. RECENT DEVELOPMENTS WITH U.S. CARRIERS
Development with US Carriers
On February 7, 2003, AT&T and Worldcom (MCI) filed a petition before the US Federal
Communications Commission (US FCC) seeking a stop payment order on settlement to the
Philippine carriers on the ground that Philippine carriers were “whipsawing” AT&T and
39
MCI into agreeing to an increase in termination rates to the Philippines. Whipsawing occurs
when a foreign monopoly supplier uses its market power to negotiate a more favorable
agreement from one U.S. carrier and extract the same terms from other U.S. carriers.
On March 10, 2003, the Chief International Bureau of the U.S. FCC issued an order
suspending all settlement payments of U.S. facilities-based carriers to a number of Philippine
carriers, including Globe Telecom, until such time as the U.S. FCC issues a Public Notice
stating otherwise. This order had the effect of preventing U.S. facilities-based carriers such
as AT&T from paying the affected Philippine carriers for switched voice services, whether
rendered before or after the date of the Order. In response, the NTC issued an Order on
March 12, 2003 ordering Philippine carriers not to accept traffic from U.S. carriers who do
not pay for services rendered and to take all steps necessary to collect payment for services
rendered.
On January 26, 2004, the U.S. FCC lifted its stop-payment order against Globe Telecom
following confirmation by U.S. carriers that service with Globe Telecom had been
normalized. U.S. carriers were required to resume payments for termination services.
In June 2004, the U.S. FCC issued an order denying the petitions for review filed by the
different Philippine carriers and upholding the finding of whipsawing. In the same order, the
U.S. FCC stated that the matter of lifting the International Settlement Policy (‘ISP’) over the
Philippine route will be decided in FCC proceedings relative to its ISP reform order.
Pursuant to the ISP Reform Order, countries whose rates are at or below benchmark will be
dropped from the coverage of the ISP unless serious concerns are raised on the route.
In August 2004, the U.S. FCC, in the proceedings on the ISP Reform Order, required U.S.
carriers to certify that the rates charged by the Philippine carriers are benchmark compliant.
As of October 11, 2004, all three major U.S. Carriers (AT&T, MCI and Sprint) have certified
to the benchmark compliance of the Philippine route.
On August 15, 2005, the U.S. FCC released its order upholding the findings of whipsawing.
It also ordered the lifting of the ISP on the Philippine route on the ground that the rates on
the route were still benchmark-compliant and there was no further evidence of continuing
anti-competitive conduct on the route.
On January 10 and 11, 2004, the United States Department of Justice (U.S. DOJ)
served subpoenas on several Philippine telecom executives, including two Globe
Telecom managers and the Chief executive officer of Innove, requiring them to
appear before a grand jury investigation in Hawaii. The investigation is for the
purpose of determining if the conduct of the Philippine carriers in relation to the
termination rate disputes with U.S. carriers may have violated U.S. laws. On March
24, 2005, the District Court of Hawaii granted Globe Telecom’s motion to quash the
subpoena duces tecum against it on the ground that U.S. courts have no jurisdiction.
On April 28, 2005, the U.S. DOJ filed a notice of appeal stating its intention to
appeal the ruling of the district court of Hawaii. On July 5, 2005, Globe Telecom
received an advice from U.S. DOJ that its investigation has been closed.
Item 4. Submission of Matters to a Vote of Security Holders
None.
40
PART II – SECURITIES OF THE REGISTRANT
(A) Market Price and Dividends on Registrants Common Equity & Related
Stockholder Matters
Item 1. Market Information
(a) Identify the principal market or markets where the registrant’s common equity is
traded. State if there is no public trading market.
Principal Market where common equity is traded – Philippine Stock
Exchange
ii. Principal Market for registrant’s common equity – Philippine Stock
Exchange
iii. High and Low sales prices for each quarter within the last two fiscal years
i.
COMMON SHARES
Price Per Share (PHP)
High
Low
Calendar Period
2004:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2005:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
1,005.00
955.00
1,095.00
1,175.00
775.00
785.00
785.00
885.00
965.00
900.00
870.00
795.00
870.00
800.00
695.00
700.00
iv. Price Information as of latest practicable trading date: P880 per common share
as of 21 April 2006.
Item 2. Holders
There are approximately 4,722 holders of common equity and four holders of
common equity and preferred equity securities, respectively, as of 31 January
2006. The following are the top 20 holders of the common and preferred equity
securities of the Company:
Common Equity Security
Stockholder Name
1.
2.
3.
4.
5.
6.
7.
8.
Singapore Telecom Int’l. Pte. Ltd.
Ayala Corporation
PCD Nominee Corp. (Non-Filipino)
PCD Nominee Corp. (Filipino)
Globe ESOWN-Trust Account
Globe ESOP-Trust Account
Benjamin C. Liao
Paulino Lim
41
No. of
Common
Shares
58,833,614
45,752,174
22,972,596
2,971,853
110,717
68,440
30,130
25,000
Percentage
(of Common
Shares)
44.60%
34.69%
17.42%
2.25%
0.08%
0.05%
0.02%
0.02%
9.
10.
The First National Co., Inc.
Insular & HIH General Insurance Co.,
Inc.
Nancy Saw
GTESOP2000-002
Pua Yok Bing
GTESOP98092
GTESOP98091
Eddie L. Hao
Agaton L. Tiu
GTESOP98090
GTESOP98089
GTESOP98088
GTESOP98087
GTESOP98084
GTESOP98083
GTESOP98082
GTESOP98081
GTESOP98066
GTESOP98065
GTESOP98064
GTESOP98063
GTESOP98062
GTESOP98061
GTESOP98060
GTESOP98059
GTESOP98058
GTESOP98057
GTESOP98056
GTESOP98055
GTESOP98054
GTESOP98053
Florentino P. Feliciano
Great Pacific Life Assurance Corporation
Cesar L. Sison
R. Nubla Securites, Inc.
11.
12.
13.
14.
14.
15.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
16.
17.
18.
19.
20.
Preferred Equity Security
Stockholder Name
1.
2.
3.
4.
Asiacom Philippines, Inc.
Romeo L. Bernardo
Guillermo D. Luchangco
Jesus P. Tambunting
* Nominee shares
21,001
18,173
0.02%
0.01%
17,500
16,250
15,585
12,500
12,500
10,250
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
9,487
8,620
8,500
8,437
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
No. of Common Shares
158,515,018
1*
1*
1*
Percentage
(of Preferred Shares)
100.00%
0.00%
0.00%
0.00%
Item 3. Dividends
PERCENT
25%
STOCK DIVIDEND (Per Share)
DECLARATION DATE
RECORD DATE
January 29, 2002
April 30, 2002
42
PAYMENT
DATE
June 17, 2002
On 25 April 2002, Globe Telecom’s share price was adjusted to =
P640.00 per share to
reflect the 25% stock dividend. On payment date, Globe’s outstanding number of
common shares has been adjusted to reflect the increase.
PESO
AMOUNT
14.00
18.00
18.00
20.00
20.00
20.00
CASH DIVIDENDS (Per Share)
DECLARATION DATE
RECORD DATE
April 1, 2003
January 29, 2004
August 2, 2004
February 1, 2005
August 2, 2005
February 7, 2006
April 21, 2003
February 18, 2004
August 20, 2004
February 18, 2005
August 19, 2005
February 21, 2006
PAYMENT DATE
May 6, 2003
March 15, 2004
September 15, 2004
March 15, 2005
September 14, 2005
March 15, 2006
Dividends declared by the Company on its shares of stocks are payable in cash or in
additional shares of stock. The payment of dividends in the future will depend upon
the earnings, cash flow and financial condition of the Company and other factors.
Cash dividends are subject to approval by the Company's Board of Directors
(‘BOD’) but no stockholder approval is required. Property dividends which may
come in the form of additional shares of stock are subject to approval by both the
BOD and the Company's stockholders.
On 1 April 2003, the BOD of Globe Telecom approved the declaration of cash
dividends of P2,126.68 million (P14 per common share) to common stockholders on
record as of 21 April 2003. Payment was made on 6 May 2003.
On 29 January 2004, the BOD approved a new dividend policy to declare cash
dividends to its common shareholders on a regular basis as may be determined by the
BOD from time to time. The BOD had set out a dividend payout rate of
approximately 50% of prior year’s net income payable semi-annually in March and
September of each year. This will be reviewed annually taking into account Globe
Telecom’s operating results, cash flows, debt covenants, capital expenditure levels
and liquidity.
The BOD also declared the first semi-annual cash dividend in 2004 of P
=18 per share
payable to common stockholders of record as of 18 February 2004 and subsequently
paid dividends amounting to P
=2,518.27 million on 15 March 2004. The second
semi-annual cash dividend of P
=18 per share payable to common stockholders of
record as of 20 August 2004 was declared on 2 August 2004 and paid on 15
September 2004.
On 1 February 2005, the BOD declared the first semi-annual cash dividend in 2005
of P20 per common share with a record date of 18 February 2005 and payment was
made on 15 March 2005. On 2 August 2005, the Board of Directors declared the
second semi-annual cash dividend for 2005 amounting to P20 per common share
outstanding as of record date 19 August 2005, and payment was made on 14
September 2005.
On 7 February 2006, the BOD approved the declaration of first semi-annual cash
dividends in 2006 of P20 per share to common stockholders of record as of 21
February 2006 payable on 15 March 2006.
43
Item 4. Recent Sales of Unregistered or Exempt Securities, including recent issuance of
securities constituting an exempt transaction
a. Securities Sold - In February 2004, Globe issued P3 billion worth of Philippine
SEC-registered bonds.
Amount Sold
(in Mn Php)
3,000.00
Date of Sale
February 2004
b. Underwriters and Other Purchases - The bond was offered to the public at face
value through the Joint Lead Underwriters namely Citicorp Capital Philippines,
Inc. and First Metro Investment Corporation.
(B) Description of Registrants Securities.
(1) Common or Preferred Stock:
i.
Common Shares
Common shares at a par value of P
=50 per share of which 131.9 million shares
have been issued and outstanding out of a total authorized of 179.9 million
shares.
On 1 February 2005, the BOD of Globe Telecom approved an offer to purchase
one share for every fifteen shares of the outstanding common stock of Globe (par
value P50) from all shareholders of record as of 10 February 2005, at a price of
P950 per share. The approval allows Globe to purchase up to 9,326,924 shares
representing 6.67% of its outstanding common shares. Each shareholder is
entitled to tender a proportionate number of shares owned at the 1:15 ratio,
referred to as the Tender Ratio, for purchase by Globe upon and subject to the
terms and conditions of the tender offer. Assuming all shareholders participate in
the tender offer to the full extent, the total purchase price will be about P8.86
billion. Tendering shareholders i eligible to receive the cash dividends declared
on 1 February 2005 for their tendered shares.
On 1 February 2005, the Company filed with the Securities and Exchange
Commission the tender offer report (SEC Form 19-1) with a copy of the letter to
the shareholders, the terms and conditions of the tender offer and the tender
form. The tender offer report was also sent to the stockholders and was made
available at the PSE and its member brokers starting 3 February 2005. On 3
February 2005, Globe commenced the tender offer which expired on 3 March
2005 after a one-day extension.
On 1 February 2005, the BOD approved the retirement of the purchased shares
and the existing 12 million treasury shares acquired in 2003 from DeTeAsia (as
discussed in item ii – Treasury Shares).
On 8 March 2005, Globe announced that it had accepted 8,064,094 common
shares that were tendered by the stockholders. The accepted shares represent
86% of shares eligible for tender. The value of the tendered shares totaled P7.8
billion. The accepted shares were eventually crossed at the exchange on 15
March 2005.
44
ii. Treasury Shares
On October 2003, DTA sold its 24.8% equity ownership in Globe Telecom as
follows: (1) 10.04 million shares to Ayala; (2) 15.64 million shares to STI; and
(3) 12 million shares to Globe Telecom. The acquisition by Globe Telecom of
its own common shares of stock decreased (1) the outstanding shares of stock by
12 million shares and (2) the stockholders’ equity by P
=8.19 billion, representing
the total consideration for the 12 million shares at P
=680 per share and incidental
costs associated with the acquisition.
At the Annual Stockholders’ Meeting held last 04 April 2005, the Company’s
stockholders approved the cancellation of the 20,065,627 Treasury Shares
consisting of the 12 million shares acquired from Deutsche Telekom and the
8,064,094 shares acquired from the share buyback, and the amendment of the
Articles of Incorporation of the Company to accordingly reduce the authorized
capital stock of the Corporation from P11,250,000,000 to P10,246,718,650.
iii. Preferred Shares
Preferred stock-series “A” has the following features:
(a) Convertible to one common share after 10 years from issue date at not less
than the prevailing market price of the common stock less the par value of
the preferred shares;
(b) Cumulative and non-participating;
(c) Floating rate dividend (set at MART 1 plus 2% average for a 12-month
period);
(d) Issued at P
=5 par;
(e) With voting rights;
(f) Globe Telecom has the right to redeem the preferred shares at par plus
accrued dividends at any time after 5 years from date of issuance; and
(g) Preferences as to dividend in the event of liquidation.
Preferred “A” shares were listed on July 29, 2001 with the PSE.
In 2003, the BOD approved the declaration of cash dividends to preferred
shareholders “Series A” as of record date December 31, 2003 amounting to P
=67.96
million, which were paid on September 28, 2004.
On December 15, 2004, the BOD approved the declaration of cash dividends to
preferred shareholders “Series A” as of record date December 31, 2004 amounting to
=75.13 million, which were paid on March 15, 2005.
P
On December 13, 2005, the BOD approved the declaration of cash dividends to
preferred shareholders “Series A” as of record date December 31, 2005 amounting to
=68.33 million.
P
45
(2) Employee Benefits
Stock Option Plans
Globe Group has various stock-based compensation plans. The number of shares
allocated under the plans shall not exceed the aggregate equivalent of 6% of the
authorized capital stock or up to 12.00 million common shares.
The Employees Stock Ownership Plan (ESOWN) for all regular employees (granted
in 1998 and 1999) and the Executive Stock Option Plan 1 (ESOP1) for key senior
executives (granted in 1998 and 2000) provide for an initial subscription price for
shares subject of each option granted equivalent to 85% of the initial offer price.
Any subsequent subscription for the ESOP1 shall be for a price equivalent to 85%
of the average closing price for the month prior to the month of eligibility. These
options are settled in equity once exercised. The qualified officers and employees
shall pay for the shares subscribed under the ESOWN and ESOP1 through
installments over a maximum period of 5 years and 10 years, respectively. The
shares of stock have a holding period of five years and the employees must remain
with Globe Telecom or its affiliates over such period. The plans also provide
restrictions on sale or assignment of shares for five years from date of subscription.
The number of exercised shares under ESOP1 totaled 1,712,133 shares with a
weighted average exercise price of P
=196.75 per share. The remaining stock options
under ESOWN and ESOP1 expired in 2004.
On April 4, 2003, Globe Telecom granted additional stock options to key executives
and senior management personnel of the Globe Group under Executive Stock
Option Plan 2 (ESOP2). It required the grantees to pay a nonrefundable option
purchase price of =
P1,000.00. As of December 31, 2005, a total of 680,200 stock
options were granted to key executives and senior management personnel. ESOP2
provides for an exercise price of =
P547.00 a share, which is the average quoted
market price of the last 20 trading days preceding April 4, 2003. These options are
settled in equity once exercised. Fifty percent of the options become exercisable
from April 4, 2005 to April 4, 2013, while the remaining fifty percent become
exercisable from April 4, 2006 to April 4, 2013. In order to avail of the privilege,
the grantees must remain with Globe Telecom or its affiliates from grant date up to
the beginning of the exercise period of the corresponding shares.
On July 1, 2004, Globe Telecom granted additional stock options to key executives
and senior management personnel of the Globe Group under ESOP2. It required the
grantees to pay a nonrefundable option purchase price of =
P1,000.00. As of December
31, 2005, a total of 803,800 stock options were granted to key executives and senior
management personnel. The agreement provides for an exercise price of P
=840.75 per
share. These options will be settled in equity once exercised. Fifty percent of the
options become exercisable from July 1, 2006 to June 30, 2014, while the remaining
fifty percent become exercisable from July 1, 2007 to June 30, 2014. In order to avail
of the privilege, the grantees must remain with Globe Telecom or its affiliates from
grant date up to the beginning of the exercise period of the corresponding shares.
The stock options granted under ESOP2 include options granted by Innove to its
employees, in accordance with the same terms and conditions under which such
options were extended to Globe Telecom’s employees. Under an intercompany
agreement between Globe Telecom and Innove, Innove shall compensate Globe
46
Telecom for the excess of the market price of the shares and the exercise price of the
options.
A summary of Globe Group’s stock option activity and related information follows:
2005
Outstanding, at beginning
of year (ESOP1,ESOP2
and ESOWN)
Granted (ESOP2)
Exercised (ESOP2)
Expired/forfeited/cancelled
(ESOP1,ESOP2 and
ESOWN)
Outstanding, at end of year
Exercisable, at end of year
(ESOP2)
2004
Weighted
Number
Average
of
Exercise
Shares
Price
2003
Weighted
Number
Average
of
Exercise
Shares
Price
Number
of
Shares
Weighted
Average
Exercise
Price
1,450,600
8,000
(149,000)
= 709.77
P
547.00
547.00
643,782
836,800
(2,700)
P546.51
=
829.17
547.00
4,582
639,200
–
P477.51
=
547.00
–
(28,250)
1,281,350
604.19
= 730.01
P
(27,282)
1,450,600
535.32
P709.77
=
–
643,782
–
=546.51
P
172,350
= 547.00
P
–
=–
P
4,582
=477.51
P
The average share price at the date of exercise of the options exercised in 2005 and
2004 amounted to P807.08 and P909.17, respectively.
The options have a contractual term of 10 years. As of December 31, 2005, 2004 and
2003, the weighted average remaining contractual life of options outstanding is
8.03 years, 8.94 years and 9.22 years, respectively.
The fair value of each option is estimated on the date of grant using the BlackScholes option pricing model. The fair values of stock options granted under ESOP2
on April 4, 2003 and July 1, 2004 amounted to =
P283.11 and =
P357.94, respectively.
The following assumptions were used to determine the fair value of the stock options
at grant date:
July 1, 2004
=835.00
P
=840.75
P
39.50%
10 years
4.31%
12.91%
Weighted average share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate
April 4, 2003
=580.00
P
=547.00
P
34.64%
10 years
2.70%
11.46%
The expected volatility measured at the standard deviation of expected share price
returns was based on analysis of share prices for the past 365 days.
Cost of share-based payment in 2005, 2004 and 2003 amounted to =
P161.73 million,
=134.77 million and P
P
=59.09 million, respectively.
47
PART III – FINANCIAL INFORMATION
Item 1. Year Ended 31 December 2005 compared with Year Ended 31 December 2004
GROUP results of operations
The following table details the consolidated results of operations for the Globe Group for the
fourth and third quarter of 2005, and the full year ended 31 December 2005 and 2004.
KEY DRIVERS
(In millions of pesos)
Q4
2005
Q3
2005
QoQ
Change
(%)
31 Dec
2005
Profit & Loss Data
Net Operating Revenues …………………………
Service Revenues ……………………………………
Non-Service Revenues……………………………….
Costs and Expenses ………………………………
Cost of Sales……………………………………
Operating Expenses ……………………………
Depreciation and Amortization………………..
Financing……………………………………….
Interest Income…………………………………
Others - net…………………………………….
Equity-Net Losses of An Associate & JV……..
EBITDA ……………………………………………
EBITDA Margin…………………………………..
EBIT ……………………………………………….
Provision for Income Tax………………………...
Net Income ……………………………..................
_________________________________
1
15,381
14,629
752
9,898
991
5,574
4,148
(370)
(155)
(291)
1
8,816
60%
4,668
(1,609)
3,874
14,805
13,540
1,265
11,523
1,717
5,013
4,020
1,002
(137)
(92)
0
8,075
60%
4,054
(1,055)
2,227
4%
8%
-41%
-14%
-42%
11%
3%
-136%
13%
216%
100%
9%
15%
53%
74%
58,748
54,897
3,851
44,566
6,025
20,751
15,734
3,141
(520)
(578)
13
31,972
58%
16,238
(3,867)
10,315
31 Dec
2004
(Audited)
(As
(restated) 1
55,609
52,741
2,868
42,886
6,675
16,039
14,706
6,327
(454)
(407)
0
32,895
62%
18,189
(1,327)
11,396
Prior period figures have been restated due to the adoption of various Philippine Accounting Standards (PAS) and Philippine
Financial Reporting Standards (PFRS) on 1 January 2005. (See related discussion in the attached financial statements)
GROUP OPERATING REVENUES
Service Revenues
For the full year 2005, the Globe Group’s total net operating revenues improved by 6% to
P58,748 million from P55,609 million in 2004 while total net service revenues increased by
4% to P54,897 million in 2005 from P52,741 million in 2004.
Wireless service revenues, which accounted for 88% of net service revenues in 2005, grew
by 3% year-on-year to P48,481 million. Meanwhile, wireline service revenues, which
accounted for the remaining 12% of net service revenues in 2005, grew by 13% year-on-year
to P6,416 million.
Non-Service Revenues
We also registered non-service revenues of P3,851 million for the full year 2005, a 34%
increase from last year’s P2,868 million due mostly to higher year-on-year handset sales
contributed by subscriber acquisitions. Non-service revenues are reported net of discounts on
phonekits and SIM (Subscriber Identification Module) packs. The cost related to the sale of
handsets and SIM packs are shown under cost of sales. The difference between non-service
revenues and cost of sales is referred to as subsidy.
48
YoY
Change
(%)
6%
4%
34%
4%
-10%
29%
7%
-50%
15%
42%
100%
-3%
-11%
191%
-9%
For the full year 2005, subsidies dropped by 43% to P2,174 million from P3,807 million in
2004. This is in line with the decline in gross subscriber additions following the end of the
SIM swap activities last May 2005, and as part of an overall thrust to reduce subsidies in
favor of more cost-effective subscriber acquisition and loyalty programs.
GROUP OPERATING REVENUES BY SEGMENTS
For the full year ended (in millions of pesos)
31 December
2005
Globe Group
31 December
2004
YoY change
(%)
Wireless
Service Revenues…………………………………………
Non-Service Revenues……………………………………
52,229
48,481
3,748
49,903
47,054
2,849
5%
3%
32%
Wireline
Service Revenues…………………………………………
Non-Service Revenues……………………………………
Net Operating Revenues……………………………………
6,519
6,416
103
58,748
5,706
5,687
19
55,609
14%
13%
442%
6%
A. Wireless Business
Service
Voice 1 ….…………………………………………………….
Data 2..………………………………………………………
31 December
2005
48,481
28,945
19,536
Globe
31 December
2004
47,054
27,630
19,424
YoY change
(%)
3%
5%
1%
Non-Service 3….…………………………………………………
Wireless Net Operating Revenues…………………..…………
3,748
52,229
2,849
49,903
32%
5%
For the full year ended (in millions of pesos)
1
Wireless voice net service revenues include the following:
a)
Monthly service fees on postpaid plans & subscription fees on prepaid services;
b) Charges for Globe to Globe and TM to TM and outbound calls in excess of the free minutes for various Globe
Handyphone postpaid plans, including currency exchange rate adjustments, or CERA net of marketing promotions
credited to subscriber billings;
c)
Airtime fees from prepaid reload denominations (for Globe Handyphone Prepaid and TM) for Globe to Globe and
TM to TM and outbound calls recognized upon the earlier of actual usage of the airtime value or expiration of the
unused value of the prepaid reload denomination which occurs between 1 and 60 days after activation depending on
the prepaid value reloaded by the subscriber net of (i) bonus credits* ii) prepaid reload discounts; and
d) Revenues generated from inbound international and national long distance calls and international roaming calls; and
Revenues from (a) to (d) are net of any interconnection or settlement payouts to international and local carriers.
* Included airtime on SIM cards provided under Globe’s SIM swap program which was concluded last May 2005.
2
Wireless data net service revenues consist of revenues from value-added services such as inbound and outbound SMS and
MMS, content downloading and infotext net of any interconnection or settlement payouts to international and local carriers
and content providers.
3
Wireless non-service revenues consist principally of sales of handsets, phonekits, accessories and SIM packs.
Overall, the wireless business recorded a 5% year-on-year increase on its net operating
revenues to reach P52,229 million for the full year ended 31 December 2005. This is mainly
attributable to growth experienced in both our voice and data sectors, as well, as in our nonservice revenues.
49
These results are further driven by the following key drivers set out in the table below:
KEY DRIVERS
Cumulative Subscribers (or SIMs*) –
Net (End of period)
Postpaid . …………………………………
Q4
2005
Q3
2005
QoQ
Change
(%)
31 Dec
2005
31 Dec
2004
YoY
Change
(%)
12,403,575
594,142
12,409,238
613,929
-3%
12,403,575
594,142
12,513,973
630,495
-1%
-6%
Prepaid .……………………………………
Globe Handyphone Prepaid ………………
TM …………………………………………
11,809,433
8,699,687
3,109,746
11,795,309
9,227,769
2,567,540
-6%
21%
11,809,433
8,699,687
3,109,746
11,883,478
10,185,154
1,698,324
-1%
-15%
83%
Average Revenue Per Subscriber (ARPU)
Gross ARPU
Postpaid . ………………………………………
2,349
2,199
7%
2,246
2,138
5%
Prepaid1
Globe Handyphone Prepaid ………………
TM ……………………………………………
399
350
351
281
14%
25%
378
333
422
288
-10%
16%
1,722
1,588
8%
1,635
1,605
2%
288
250
255
182
13%
37%
268
214
305
183
-12%
17%
4,303
5,462
-21%
7,026
9,886
-29%
205
59
301
144
-32%
-59%
248
90
267
151
-7%
-40%
2.6%
4.4%
3.1%
2.6%
8.2%
6.7%
8.3%
10.2%
7.8%
9.5%
5.5%
12.7%
Net ARPU
Postpaid . …………………………………
Prepaid
Globe Handyphone Prepaid …………….
TM …………………………………………
Subscriber Acquisition Cost (SAC)
Postpaid . …………………………………
Prepaid
Globe Handyphone Prepaid …………….
TM …………………………………………
Average Monthly Churn Rate (%)
Postpaid . …………………………………
Prepaid
Globe Handyphone Prepaid …………….
TM ………………………………………....
Wireless Data Net Service Revenues
(in millions of pesos)……………………....
4,918
4,661
6%
19,536
19,424
Wireless Data as a % of Wireless Net
Service Revenues…………………………….
38%
41%
40%
41%
Wireless Data Net Service Revenues
includes……………………………………..
Regular SMS…………………………….
International SMS……………………….
Value-Added Services……………………
82%
8%
10%
83%
8%
9%
83%
8%
9%
81%
9%
9%
______________________________________
*The word “subscriber” may be used interchangeably with the term “SIM.”
1
Revenue from a prepaid subscriber is realized upon actual usage of the airtime value (pre-loaded airtime value of SIM cards
and subsequent top-ups) for voice, SMS, MMS, content downloading and infotext services net of free SMS allocation, bonus
credits (included airtime on SIM cards provided under Globe’s SIM swap program which was concluded last May 2005) or the
expiration of the unused value, whichever comes earlier. Proceeds from the sale of prepaid cards, airtime value through
electronic load services such as ATM and airtime value through over-the-air (OTA) reloading are treated as deferred or
unearned revenues are shown under the liabilities section of the balance sheet since the service has not yet been rendered.
50
1%
Wireless net service revenues registered a 3% year-on-year growth from P47,054 million to
P48,481 million for the full year 2004 and 2005, respectively. This 3% growth was driven
by a 5% increase in voice service revenues, particularly in international voice and roaming
services, despite a 1% drop in wireless subscribers. Total gross subscriber additions for the
full year 2005 decreased by 2% year-on-year to 11.6 million compared to 11.9 million in
2004. On the other hand, net additions contracted by 103% to a net reduction of 110,000
subscribers for the full year 2005 against 3.7 million net additions in 2004, hence, a higher
churn rate of 7.9% at the consolidated level from 6.4% in 2004. The higher year-on-year
consolidated churn was driven by higher terminations of non-revenue generating subscribers
in the Globe Handyphone Prepaid segment. Non-revenue generating subscribers for Globe
Handyphone Prepaid relates to subscribers acquired during the SIM-swapping activities that
were subsequently churned out after their second expiry. In addition, there were also nonrevenue generating subscribers related to “trade scooping,” where large volumes of SIMs are
purchased in order to take advantage of SIM-swap activities in the market. The free SIMswap program, which was launched in February 2004 allowed subscribers of another mobile
network to switch to Globe by exchanging their active SIM cards for Globe Handyphone
Prepaid or TM SIMs. This elevated level of churn involving non-revenue generating
subscribers is not expected to recur as the SIM-swap program was discontinued in May
2005.
Wireless data net service revenues increased by 1% to P19,536 million in 2005 from P19,424
million in 2004. To encourage brand loyalty and stimulate usage of wireless data services,
Globe launched its CelebRATE! promotion last June 2005 that offered discounted call and
text rates for Globe to Globe and TM to TM calls and text messages. This promotion
included the Globe Text NonStop offer that allows heavy SMS users the option to send
unlimited Globe to Globe and TM to TM text messages for P15 for 1 day, P25 for 2 days and
P50 for 5 days. This offer was later supplemented with a P100 option for 10 days of
unlimited text messaging. TM also launched its own Todo Text promotion which had P10 for
1 day, P25 for 3 days and P50 for 7 days denominations which has been extended to
February 2006. To encourage subscribers to try the promotion, TM came up with its TM
Todo Text Sampler that allows subscribers free unlimited text for 5 days for a minimum P25
load. TM subscribers were also offered a low text messaging rate of P0.75 per message sent
and this promotion has been extended to 14 February 2006.
Other promos launched to drive usage of wireless data services include Visibility service,
which provides data access via GPRS, EDGE, WiFi and dial-up transport channels on a payper-use arrangement or four universal access plans, and GPRS Discounted Off-Peak Rate
promotion which allows subscribers to avail of a 33% discount (P0.10 per kilobyte) on
Globe’s GPRS (General Packet Radio Service) rates when used from 12 midnight to 8 am
(launched in the fourth quarter of 2005).
Postpaid
For the full year ended 2005, our postpaid sector comprised approximately 5% of our total
subscriber base. The postpaid subscriber base reached 594,142 in 2005 which is 6% lower
than the previous year. This is mainly due to the increased incidence of Globe-initiated
credit-related terminations resulting in a slight increase in average monthly churn of 3.1% in
2005 from 2.6% in 2004. Based on the Company’s policy on postpaid subscribers,
permanent disconnections are made after a series of collection steps following non-payment.
Such permanent disconnections generally occur within a predetermined number of days from
statement date.
51
However, despite the slightly higher monthly churn rate in 2005, we posted a 30% increase
in gross additions registering 191,732 subscribers from 148,015 generated in 2004 due to our
aggressive subscriber acquisition campaigns and promotions. The net reductions in our
postpaid sector were also 33% lesser at 36,353 compared to 54,531 subscribers in 2004.
Our postpaid segment contributed an average net ARPU of P1,635, an increase of 2% from
last year’s average of P1,605 while gross ARPU increased by 5% to P2,246 from P2,138.
The slight increase in both gross and net ARPU was due to a richer subscriber mix, as well,
as higher voice usage resulting from usage and tariff promotions launched in the second half
of 2005. Given the intense price competition, Globe started a number of value promotions
during the second and third quarters of 2005 which addressed key segments and specific
consumer needs. For heavy voice users within our network, we offered Globe CelebRATE!
Call (P10 for a 3-minute call). For IDD users, we introduced Budget IDD rates at US$0.20,
starting on the first minute, for IDD calls to selected destinations. (See related discussion in
“Other Globe Group Revenues – International Long Distance Services” section)
Additionally, on 17 December 2005, Globe led the market with its launch of the 10
centavos/second call promo, which allowed Globe to Globe and TM to TM calls on a persecond charging basis aimed at increasing voice usage among its subscribers. Due to the
positive response from our subscribers, this promo has been extended through 14 February
2006.
As a result of our deliberate shift to a more focused approach in targeting consumer
segments, acquisition subsidies were reduced, resulting in a 29% drop in SAC to P7,026 in
2005 from P9,886 in 2004. Handset subsidies merely comprised 86% of total SAC
compared to 95% in 2004.
Prepaid
For the full year 2005, our prepaid segment made up 95% of our total subscriber base.
Prior to the third quarter of 2004, a prepaid subscriber was recognized upon the activation
and use of a new SIM card. The subscriber was provided with 60 days (first expiry) to
utilize the preloaded airtime value. If the subscriber did not reload prepaid credits within the
first expiry period, the subscriber retained the use of the wireless number, but was entitled
only to receive incoming voice calls and text messages for another 120 days (second expiry),
except for the first reload of SIM-swappers that was required within only 30 days from the
first expiry. However, if the subscriber did not reload prepaid credits within the second
expiry period, the account would be permanently disconnected and considered part of churn.
The first expiry periods of reloads vary depending on the denominations, ranging from 1 day
for P10 to 60 days for P300 to P1,000 reloads. The second expiry is 120 days from the date
of the first expiry. The first expiry is reset based on the longest expiry period among current
and previous reloads. Under this policy, subscribers are included in the subscriber count until
churned.
Acknowledging the changing dynamics of the industry and the introduction of the SIM-swap
program, Globe updated its policy in recognizing a subscriber in its total count based on the
subscriber intent to use the service. Starting the third quarter of 2004, a SIM-swapper was
only considered a subscriber upon making the first reload. Non-SIM swap subscribers or
regular subscribers are recognized upon activation and use of a new SIM. Accordingly,
subscribers not considered in the subscriber count were not considered as part of churn.
However, the nationwide SIM-swap program has since been discontinued beginning May
2005.
52
Overall, our consolidated prepaid subscribers decreased by 1% to 11.8 million in 2005 from
11.9 million in 2004, as Globe culled out the non-revenue generating subscribers related to
its SIM swap program starting May 2005. Net incremental prepaid subscriber base fell by
74,075 in 2005 compared to the 3,708,621 incremental prepaid subscribers generated in
2004. However, gross prepaid additions remained strong driven mostly by 57% year-on-year
growth in gross additions from the TM brand from 2.6 million in 2004 to 4.1 million in 2005.
Globe Handyphone Prepaid likewise added 7.3 million subscribers in 2005 but registered a
19% decrease compared to the 9.1 million new subscribers in 2004. The current subscriber
counts and churn rates for our prepaid segment have been heavily influenced by the SIMswap program. The succeeding sections discuss Globe Handyphone Prepaid and TM in more
detail.
Globe Handyphone Prepaid
The Globe Handyphone Prepaid subscriber base totaled 8.7 million by the end of 2005
which is 15% lower than the 10.2 million subscribers in 2004. Due to stiff competition and
the termination of the free SIM-swap program, gross additions for 2005 decreased by 19% to
7.3 million subscribers from 9.1 million in 2004
The average monthly churn rate also reached 7.8% in 2005 compared to 5.5% for the
previous year mainly due to the termination of non-revenue generating subscribers, which
were mainly SIM-swappers and “trade scoopers” who were subsequently churned out after
their second expiry.
Of the total full year disconnections of 8.8 million, approximately 58% or 5.1 million of the
terminated subscribers were related to SIM swap activities or non-revenue generating
subscribers. During the fourth quarter, 51% of Globe Handyphone Prepaid churn was
contributed by the expiry of these non-revenue generating SIMs. Of the 51%, 31% came
from disconnections related to previous SIM-swap offers while the remaining 69% came
from trade scooping activities. Another 4% was related to the immediate disconnection of
ISR SIMs captured in our fraud monitoring system. As such, only 45% of the total churn for
the quarter related to “normal churn.” Normal monthly churn rate for Globe Handyphone
Prepaid was at 3.7%. Based on the Company’s churn policy, the last of the non-revenue
SIMs were churned during the fourth quarter of 2005, after the lapse of their second expiry
period.
Gross and net ARPUs for Globe Handyphone Prepaid decreased by 10% and 12%
respectively, despite higher voice and data usage during the last quarter of 2005, due to flat
revenues in the earlier quarters as a result of competition and price-discounting promotions
launched during the year. The increased traffic volume during the fourth quarter can be
attributed to the Text NonStop offer, P10 for a 3 minute call, Budget IDD Rates and the 10
centavos/second call promotions, as well as traditional heavy usage with the year-end
holidays.
SAC dropped by 7% to P248 in 2005 from P267 the previous year due to lower gross
subscriber acquisitions and SIM pack subsidies. In 2005, handset subsidies comprised 40%
of total SAC while advertising and promotions contributed 57% and commissions made up
the balance of 3% compared to 63%, 35% and 2%, respectively, in 2004.
53
TM
2005 was a banner year for TM as it posted gains on all key operating metrics – gross and net
acquisitions, churn rates, ARPUs, and SACs.
Cumulative TM subscribers reached 3.1 million by the end of 2005 after a 57% increase in
gross additions and an outstanding 618% improvement in net additions compared to 2004.
The relaunch of TM in January 2005, supported by competitive value promotions resulted in
significant acquisitions for the brand.
The average monthly churn rate for TM registered at an improved rate of 9.5% for the full
year 2005 against the 12.7% in 2004. TM’s churn in 2005 was affected by Globe-initiated
terminations of TM SIMs found engaging in International Simple Resale (ISR) activities
which are illegal in the Philippines. For the full year 2005, terminations due to ISR activities
accounted for 29% of total year-to-date churn. Excluding terminations due to ISR activities,
the average monthly churn rate for the full year 2005 would only be at 6.7%. Because of
early detection of this illegal usage and the immediate SIM disconnection, the impact to the
Company’s financial performance has been minimized. (See related discussion in ILD
section)
Gross and net TM ARPU in 2005 improved by 16% and 17% year-on-year compared to
2004. The increased ARPU was driven by higher voice and data usage by TM subscribers on
account of the Todo Tawag 15/15 (P15 for a 15 minute call), 10 centavos/second call and
Todo Text promotions.
SAC dropped by 40% to P90 in 2005 from P151 the previous year due to higher gross
subscriber acquisitions despite increased SIM pack subsidies. In 2005, handset subsidies
comprised 38% of total SAC while advertising and promotions contributed 60% and
commissions made up the balance of 2% compared to 77%, 20% and 3%, respectively, in
2004.
G-Cash
With G-Cash celebrating its first year anniversary, it continues to grow and establish
presence in the mobile commerce industry. From G-Cash’s initial thrust towards moneytransfers, purchase of goods and services from retail outlets, and sending and receiving
domestic and international remittances, the service, over a span of one year, created a whole
new series of creative possibilities in the field of mobile commerce. Today, G-Cash allows
Globe and TM subscribers to pay for the following using their mobile phone’s text
messaging service:







utility bills
interest and amortization of loans
insurance premiums
donations to various institutions and organizations
sales commissions
school tuition fees
micro tax payments (for annual business registration)
54
As of 31 December 2005, there were over 1.2 million registered users of G-Cash generating
an average of almost P3 million in total daily transactions from over 500 partner
establishments with over 4,500 outlets nationwide including more than 200 international
partner outlets in 14 countries.
B. Wireline Business
In order to meet focused customer demands and grow specific market segment opportunities,
Innove organized its businesses into two main groups – Residential & Business and
Corporate. The Residential & Business group(now renamed as the Consumer Broadband
Group), which operates under the Globelines brand, handles the consumer and the small and
medium business (SME) segments. On the other hand, the Corporate group, which operates
under the GlobeQUEST brand, is in charge of enterprises, wholesalers, resellers and our
channel partners.
As Innove is adopting “customer-centric” market approach, which allows it to develop
products based on specific business requirements and to better serve the varied needs of its
customers, it reorganized itself into four (4) focused groups to cover the fixed line and
wireless business segments – Consumer Broadband, SME Business group and two (2) new
segments under the Enterprise Business Group or EBG. The EBG was developed in response
to the corporate customers’ changing needs and preferences for integrated mobile and fixed
line communications solutions. The EBG will consist of EBG Globe Solutions, which is the
corporate wireless business group of Globe, and EBG GlobeQUEST, the corporate wireline
group of Innove.
For the full year 2005, our wireline business recorded a double-digit growth of 14% in total
wireline net operating revenues. As shown in the table below, the overall 14% growth is
attributable to growth experienced in both our voice and data segments, as well, as in our
non-service revenues. Our voice segment grew by 11% year-on-year to register P4.4 billion
in net service revenues in 2005 while our data segment posted a 16% year-on-year growth in
net service revenues to reach P2.0 billion at the end of the year.
For the full year ended (in millions of pesos)
Service
Voice 1 ………………………………………………
Data 2…………………………………………………
31 December
2005
6,416
4,396
2,020
Innove
31 December
2004
5,687
3,945
1,742
YoY change
(%)
13%
11%
16%
Non-Service Revenues3……………………………………
Wireline Net Operating Revenues...……………………
103
6,519
19
5,706
442%
14%
1
Wireline voice net service revenues consist of the following:
a)
Monthly service fees including CERA;
b) Revenues from local, international and national long distance calls made by postpaid, prepaid wireline subscribers
and payphone customers, net of (i) prepaid and payphone call card discounts (ii) bonus credits and (iii) marketing
promotions credited to subscriber billings;
c)
Revenues from inbound local, international and national long distance calls from other carriers terminating on our
network; and
d) Installation charges and other one-time fees associated with the establishment of the service.
Revenues from (a) and (b) are net of any interconnection or settlement payments to domestic and international carriers.
2
Wireline data net service revenues consist of revenues from:
a)
Monthly service fees from International Private Lease (IPL) and domestic lease lines;
b)
Monthly service fees on Internet services and charges in excess of free allocations;
c)
One-time connection charges associated with the establishment of service; and
d)
Revenues from value-added services.
3
Wireline non-service revenues consist principally of sales of handsets and accessories.
55
Wireline Voice
For the full year ended (in millions of pesos)
Voice
Net Service Revenues ………………………………………
Net Non Service Revenues …………………………………
Total Voice Operating Revenues………………………………
Innove
31 December 31 December
2005
2004
4,396
12
4,408
YoY change
(%)
3,945
19
3,964
11%
-37%
11%
The 11% year-on-year growth in our wireline voice segment is mainly attributable to the
11% growth in net service revenues. The key drivers behind this double-digit growth in our
voice segment are as follows:
KEY DRIVERS
Cumulative Voice Subscribers Net (End of period)……………...................
Consumer Broadband Subscribers –
Net (End of period) 1 …………………..
Q4
2005
Q3
2005
QoQ
Change
(%)
31 Dec
2005
31 Dec
2004
YoY
Change
(%)
12%
362,143
361,998
-
362,143
323,094
22,479
18,255
23%
22,479
7,780
189%
Average Revenue Per Subscriber (ARPU)
Gross ARPU…………………………….
Net ARPU……………………………….
1,182
1,048
1,193
1,056
-1%
-1%
1,233
1,087
1,272
1,112
-3%
-2%
Average Monthly Churn Rate ..………….
2.2%
1.6%
1.7%
1.5%
_________________________________
1
Broadband subscriptions by existing fixed line subscribers.
As of 31 December 2005, Innove increased its total wireline voice subscribers by 12% to
362,143 from 323,094 in 2004. For 2005 and 2004, 62% of total subscribers were postpaid
while 38% were prepaid while business/residential mix was 18:82 for both years.
With our growing broadband business, consumer broadband subscribers registered a
remarkable year-on-year increase of 189% to 22,479 by the end of 2005. This is attributable
to the various marketing promotions and services launched during the third and fourth
quarters of 2005 such as the GLBB PC Bundle Promo and the Broadband Sales Blitzes.
Traffic volume also increased by 36% year-on-year to 777 million minutes in 2005 from 571
million minutes in 2004 generated from both the postpaid and prepaid segments, due to the
increased subscriber base, as well, as the success of promotions launched to increase both
domestic and international usage.
The increase in subscribers, as well, as the higher traffic volume have contributed to the 11%
increase in total net service revenues in 2005. However, due to a drop in collection rates, net
and gross ARPUs have registered marginal decreases as shown in the table.
Churn rates for 2005 have also slightly increased year-on-year to 1.7% from 1.5%, driven
mostly by higher disconnections in the postpaid service due to company-initiated clean up of
delinquent accounts.
56
Wireline Data
Innove
31
December
2005
For the full year ended (in millions of pesos)
Data
International …..………………………………………
Domestic …… ………………………………………
Others 1 ………………………………………………
Net Non Service Revenues……………………………
Total Data Operating Revenues………………………………
679
770
571
92
2,112
____________________________________________________________________________________________
1
31 December
2004
670
644
428
0
1,742
YoY change
(%)
1%
20%
33%
100%
21%
Includes revenues from value-added services and corporate internet services.
On the wireline data front, total operating revenues grew by a remarkable 21% to P2,112
million at year end from P1,742 million in 2004. This strong revenue growth was driven
mostly by DL (Domestic Lease Lines), IPL (International Private Lease Lines) and corporate
internet services in terms of better bandwidth and circuit indicators.
OTHER GLOBE GROUP REVENUES
International Long Distance (ILD) Services
31 December
2005
13,526
For the full year ended
Total ILD Revenues (in millions of pesos) ………………
31 December
2004
12,622
YoY change
(%)
7%
Total ILD Revenues as a percentage of net service
revenues………………………………………………….
25%
24%
Total ILD Minutes (in million minutes) 1………………..
1,469
1,271
16%
Inbound……………………………………………………
Outbound.…………………………………………………
1,251
218
1,082
189
16%
15%
5.7
5.7
ILD Inbound / Outbound Ratio (x) …………………
________________________________________________________________________________________________
1
ILD minutes originating from and terminating to Globe and Innove networks.
On a consolidated basis, ILD revenues from the Wireless and Wireline services increased by
7% to P
=13,526 million in 2005 compared to =
P12,622 million in 2004. The increase was
mostly driven by higher traffic during the second half of 2005 due to the strong holiday
demand and encouraged by various IDD promotions from the wireless (Globe Budget IDD)
and wireline (Globelines Lowest IDD Rates) groups.
Both Globe and Innove offer ILD services which covers international calls between the
Philippines and over 200 countries. This service generates revenues from both inbound and
outbound international call traffic with pricing based on agreed international termination
rates for inbound traffic revenues and NTC-approved ILD rates for outbound traffic
revenues.
On 1 June 2005, Globe started its IDD CelebRATE! promo aimed at heavy IDD users among
its wireless postpaid subscribers. For selected destinations, the promo offered an IDD rate of
US$0.20 per minute after the first 4 minutes, with the first 4 minutes to be charged the
prevailing rate of US$0.40 per minute. This promotion subsequently included Globe
57
Handyphone prepaid subscribers and ended on 27 September 2005. On 28 September 2005,
the Globe Budget IDD promotion was launched to all wireless subscribers, with a flat rate
offering of US$0.20 per minute, starting on the first minute, for IDD calls to 10 destinations
namely, US, Canada, China, Malaysia, Hong Kong, Singapore, Thailand, South Korea,
Taiwan and Australia. Due to the positive response to this promo, this was subsequently
extended to the fourth quarter of 2005 up to February 2006 and now include two additional
IDD destinations, United Kingdom and Kuwait.
On 14 September 2005, Globelines launched its Lowest IDD rates promotion for its
Globelines subscribers, Globe1 card users and Globelines Broadband subscribers. Globelines
postpaid subscribers were charged US$0.20 per minute for IDD calls to selected countries
while, starting November 2005, Globe1 card users could make IDD calls for P4.50 per
minute to 10 destinations from Globelines postpaid and prepaid lines including payphones
nationwide.
To ensure that the company fully benefits from the increased ILD volume, we continue to
actively monitor ISR operations passing through our networks. An ISR operation is a
method of terminating inbound international calls without passing through the normal
International Gateway Facility (IGF). ISR operations involve routing inbound international
calls through private leased lines or IP data lines, and then terminated to the called party
through a local cellular or fixed line number. As the ISR operators terminate an inbound IDD
call as a local call, they are able to offer lower rates to foreign carriers than current
termination rates. If ISR operations are unchecked, Globe will not be able to realize the full
inbound international revenue and instead earn only from local or national calls or access
charges from other carriers and normal domestic termination charges for local or NDD calls,
which are lower than international termination rates.
To reduce ISR activities, Globe initiated increased detection and blocking procedures
including closer coordination of detected ISR lines with other industry players. The
Company also implemented arrangements with international carriers to reduce arbitrage
opportunities for ISR operators. The Company further tightened its fraud and risk evaluation
process for corporate and individual accounts and is implementing legal, commercial and
technical solutions to the ISR concern, such as the immediate termination of SIMs detected
as being used for ISR operations and the suspension of AutoloadMax retailers identified as
having significant loading transactions to ISR SIMs. The Company has also coordinated with
the NTC and other government agencies in addressing this concern. Because of these
ongoing efforts, ISR losses have significantly decreased compared to last year.
Interconnection
Domestically, the Globe Group pays interconnection charges to other carriers for calls
originating from its network terminating to other carriers’ networks, and hauling charges for
calls that pass through Globe’s network terminating in another network.
Internationally, the Globe Group also incurs payouts for outbound international calls. These
charges are based on a negotiated price per minute.
The interconnection expenses paid as a percentage of gross service revenues for the full year
2005 registered at 19% from 20% for the same period in 2004.
The Globe Group also collects termination fees from local and foreign carriers whose calls
terminate in Globe Group’s network. Domestic calls terminating to wireless networks are
58
charged a termination rate of P4.00 per minute (from P4.50 per minute in 2003) while calls
terminating to wireline voice networks are charged a termination rate of P3.00 per minute
(from P2.50 per minute in 2003).
GROUP OPERATING EXPENSES
For the full year 2005, the Globe Group’s operating expenses increased by 29% to P
=20,751
million from =
P16,039 million in 2004 as Globe continued its marketing promotions and
shouldered increased network operating costs related to its aggressive expansion in the past
year. Of the total operating expenses of P20,751 million in 2005, network support or
network-related expenses accounted for 43%, marketing contributed 23%, business support
added 29% and corporate-related expenses made up the remaining balance of 5%.
31 December
YoY change
2004
(%)
1
(As restated)
6,025
6,675
-10%
31 December
2005
For the full year ended (in millions of pesos)
Cost of sales……………………………………………………..
Selling, Advertising and Promotions ……………………………
Staff Costs ………………………………………………………
Utilities, Supplies & Other Administrative Expenses……………
Rent…………………………………………………………………
Repairs and Maintenance……………………………………………
Provisions (Reversal of Allowance) for:
Doubtful Accounts …………………………………………
Inventory Losses, Obsolescence and Market Decline ………..
Losses on Property and Equipment and Other Probable losses
Losses on retirement of property and equipment…………………
Services and Others………………………………………………
Professional Fees & Other Contracted Services……………
Insurance and Security Services………………………………
Taxes and Licenses…………………………………………
Others ………………………………………………………
Operating Expenses………………………………………………
Depreciation and Amortization ……………….…………………
Financing…………………………………………………………
…..
Equity in Net Losses of An Associate & Joint Venture………
Interest Income……………………………………………………
Others – net………………………………………………………
Costs and Expenses………………………………………………
1
Prior years’ figures were restated as a result of various PAS adoptions.
4,697
3,519
1,982
1,840
1,877
3,753
2,874
1,715
1,420
1,325
25%
22%
16%
30%
42%
616
80
179
734
1,052
72
(489)
-
-41%
11%
-137%
100%
1,496
1,478
832
1,421
20,751
15,734
3,141
1,295
1,035
616
1,371
16,039
14,706
6,327
16%
43%
35%
4%
29%
7%
-50%
13
(520)
(578)
44,566
(454)
(407)
42,886
100%
15%
42%
4%
Selling, Advertising and Promotions
Selling, Advertising and Promotions expenses increased by 25% to P4,697 million in 2005.
This is mostly due to increased marketing and promotional activities related to the
acquisition and implementation of usage and loyalty campaigns for subscribers, including
promotion activities related to the re-launch of the TM brand.
Staff Costs
31 December
2005
For the full year ended
No. of Regular Employees …………………………………
59
4,987
Globe Group
31
December
YoY change
2004
(%)
4,956
1%
Staff costs grew by 22% to P3,519 million on account of increases in overtime costs and
merit adjustments and the full-year impact of employees hired in 2004 (a total of 770
employees were hired in 2004).
Utilities, Supplies and Other Administrative Expenses
Utilities, Supplies and Other Administrative expenses registered a 16% year-on-year increase
to P1,982 million mainly due to higher power and utilities charges to support the Globe
Group’s expanded network facilities in 2005.
Rent Expenses
Rent expenses increased by 30% to =
P1,840 million in 2005 due to increases in charges for
cell sites, warehouse and interconnection facilities in support of the Globe Group’s continued
network expansion.
Repairs and Maintenance Expenses
Repairs and Maintenance expenses likewise increased by 42% to P1,877 million in 2005 due
to additional technical service agreements necessary for the repair and maintenance of the
Globe Group’s expanded network facilities and equipment.
Losses on Retirement of Property and Equipment
Losses on retirement of property and equipment on certain fixed assets of P734 million was
recognized as a result of impairment reviews and reconciliation exercise undertaken based on
recent count activity. (Please refer to the notes in the attached unaudited consolidated
financial statements).
Provisions
Provisions for doubtful accounts for trade receivables decreased by 44% to P563 million for
the full year 2005 compared to P1,011 million in 2004 due to credit handling and system
improvements made to address subscriber delinquency issues. Provisions for doubtful
accounts for traffic receivables registered at P53 million in 2005 compared to P41 million in
2004. As a result, total provisions for doubtful accounts, including provisions for non-trade
accounts, amounted to P
=616 million for the full year 2005 against P
=1,052 million in 2004.
For the full year ended
Net Receivable Days …………………………………………
31
December
2005
60
Globe Group
31
December
YoY change
2004
(%)
52
15%
Net subscriber receivable days was 60 for 2005 compared to 52 for 2004. The 15% year-onyear increase was due to higher receivables from the wireline business.
On inventories and supplies, Globe recognized provisions for inventory losses, obsolescence
and market decline of P
=80 million in 2005 compared to P
=72 million in 2004.
The Globe Group also recognized net provisions for losses on property and equipment and
other probable losses amounting to P179 million for the full year 2005 compared to P489
60
million net reversal in 2004. Net reversal of provision in 2004 resulted mainly from
favorable developments that led to the non-realization of charges previously provided for.
Services and Others
Services and Others increased by 21% to P5,227 million as a result of increased marketing
and network-related expenses in 2005. The Professional fees and Other Contracted Services
expenses also increased by 16% to P1,496 million due to the higher charges on contracted
services incurred by the marketing and distribution groups for various subscriber acquisition
activities (including related freight, courier and clerical services and consultancy fees). Taxes
and licenses increased by 35% to P832 million due to higher NTC spectrum and supervision
fees and real property taxes related to the increased number of microwave radio facilities and
cellsites. Meanwhile, Insurance and Security Services expenses increased by 43% to P1,478
million brought about by higher insurance premiums and security costs due to the larger
number of cellsites and network facilities.
Therefore, with the minimal 6% growth in operating revenues and the 29% year-on-year
increase in total operating expenses, consolidated EBITDA for the full year 2005 decreased
by 3% to P
=31,972 million compared to =
P32,895 million in 2004, translating to an EBITDA
margin of 58% compared to 62% from last year.
Depreciation and Amortization
Depreciation and amortization on a consolidated basis increased by 7% to P
=15,734 million in
2005 compared to =
P14,706 million in 2004. This increase reflected the additional
depreciation charges related to various telecommunications equipment placed in service
during the period as total cellsites increased by 1,423 base stations to 5,159 in 2005.
Depreciation is computed using the straight-line method over the estimated useful life (EUL)
of the assets, where the weighted EUL of all depreciable assets is set at 9.76 years.
Therefore, as a result of the overall increase in depreciation and amortization charges,
consolidated EBIT or earnings before interest, other expenses (income) and taxes decreased
by 11% year-on-year to =
P16,238 million in 2005 compared to =
P18,189 million in 2004.
Other Income Statement Items
Details of Consolidated Other (Income)/Expenses for the full year 2005 and 2004 are:
For the full year ended (in millions of pesos)
31 December
2005
Financing Costs – net
Interest Expense ……………………………
Globe Group
31 December
2004
1
(as Restated)
YoY change
(%)
4,658
4,369
7%
Loss on derivative instruments – net……………
Swap costs and other financing costs……………
Foreign Exchange loss(gain) – net………………
104
682
(2,303)
3,141
1,744
214
6,327
100%
-61%
1,176%
-50%
Interest Income ……………………………………
Equity in Net Loss of an associate and joint venture
Others – net…………………………………………
Total Other (Income) /Expenses…………………
(520)
13
(578)
2,056
(454)
0
(407)
5,466
______________________________________________________________________
1
Prior years’ figures were restated as a result of various PAS adoptions.
61
15%
100%
42%
-62%
Globe registered a 61% decrease in swap costs and other financing charges to P682 million
in 2005 from P1,744 million in 2004. Total swap costs accruing on long term currency and
interest rate swap contracts amounted to P678 million in 2005, a 56% decrease from the
P1,056 million in 2004. Swap costs and other financing costs for 2004 also included bond
redemption costs of 2009 Senior Notes amounting to P693 million. (See related discussion in
Foreign Exchange and Interest Rate Exposure section).
For the full year 2005, the Globe Group registered net foreign exchange gains of P2,303
million compared to a net foreign exchange loss of P214 million last year due to the Globe
Group being in a net dollar liabilities position and the appreciation of the peso against the
US$ from P56.341 to P53.062 at the end of 2005. Also in 2005, the Globe Group adopted
PAS 21 which prohibits capitalization of forex gains and losses. (See related discussion
under Foreign Exchange and Interest Rate Exposure section) Loss on derivatives instrument
arose from the mark-to-market valuation of Globe Group’s various financial instruments.
(See related discussion in Foreign Exchange and Interest Rate Exposure section)
The consolidated provision for current and deferred income tax for the Globe Group
increased by 191% to P3,867 million in 2005 from P1,327 million in 2004, mainly as a result
of the expiry of the income tax holiday incentive of Globe on 31 March 2005 and Innove’s
shift to a taxable income position subject to the regular corporate tax rates in 2005. As a
result, our consolidated effective income tax rate was 27% for 2005 compared to 10% in
2004.
Our deferred tax assets and liabilities as of 31 December 2005 were computed using the tax
rate of 30% to 35% as per Republic Act (RA) 9337 which became effective on 01 November
2005.
Therefore, resulting from the movements in our total operating revenues vis-à-vis our total
operating expenses including depreciation and amortization and other income statement
items, the Globe Group’s consolidated net income decreased by 9% year-on-year to P
=10,315
million in 2005 from P
=11,396 million in 2004. Excluding foreign exchange and mark-tomarket gains and losses, net income after tax would have been P
=8,552 million, down 26%
from comparable 2004 level of =
P11,573 million.
Accordingly, consolidated basic earnings per common share were P76.74 and P80.92 (as
restated) and consolidated diluted earnings per common share were P76.60 and P80.78 (as
restated) for the full year 2005 and 2004, respectively.
62
Liquidity and Capital Resources
As of and For the full year ended (in millions of pesos)
Balance Sheet Data
Total Assets …………………………………………………
Total Debt ……………………………………………………
Total Stockholders’ Equity …………………………………
Financial Ratios (x)
Current Ratio…………………………………………………
Total Debt to EBITDA ……………………………………
Interest Cover (Gross) …………………………………………
Debt to Equity (Gross) …………………………………………
Debt to Equity (Net) 2…………………………………………
Total Debt to Total Capitalization (Book) ……………………
Total Debt to Total Capitalization (Market) ...…………………
Globe Group
31 December
31 December
2004
2005
(as
YoY change
Restated)1
(%)
125,102
49,693
51,619
129,704
52,218
54,507
0.90
1.55
0.87
1.59
6.79
0.96
7.40
0.96
0.73
0.70
0.49
0.49
0.34
0.28
1
Prior figures were restated as a result of various PAS adoptions.
2
Net debt is calculated by subtracting cash, cash equivalents and short term investments from total debt.
-4%
-5%
-5%
Globe Group’s consolidated assets as of 31 December 2005 amounted to =
P125,102 million
compared to P
=129,704 million as of 31 December 2004.
As of 31 December 2005 and 2004, current ratio on a consolidated basis was 0.90:1 and
0.87:1, respectively. Consolidated cash, cash equivalents and short term investments was at P
=
12,165 million at the end of 2005, 15% lower than the P14,303 million in 2004 due to
dividend payments and the buyback of shares in March 2005. Gross debt to equity ratio as of
31 December 2005 was 0.96:1 on a consolidated basis and remains well within the 2:1 debt
to equity limit dictated by certain debt covenants. Net debt to equity ratio was at 0.73:1 as of
31 December 2005.
The financial tests under Globe’s loan agreements include compliance with the following
ratios:




Total debt to equity not exceeding 2:1;
Total debt to EBITDA not exceeding 3:1;
Debt service coverage1 exceeding 1.3 times (except for refinancing of the 2009
bond which the lenders consented to exclude from the computation);
Secured debt ratio2 not exceeding 0.2 times.
1
Debt service coverage ratio is defined as the ratio of EBITDA to required debt service, where debt service includes
subordinated debt but exclude shareholder loans.
2
Secured debt ratio is defined as the ratio of the total amount for the period of all present consolidated obligations for payment,
whether actual or contingent and as defined in the loan agreement to the total amount of consolidated debt.
63
Consolidated Net Cash Flows
For the full year ended (in millions of pesos)
Net Cash from Operating Activities …………………
Globe Group
31 December
31 December
2004
YoY change
2005
(as restated)
(%)
28,841
26,927
7%
Consolidated net cash flow from operations (excluding capex) amounted to =
P 28,841 million
for the period ended 31 December 2005, a 7% increase from P
=26,927 million in 2004.
31
For the full year ended (in millions of pesos)
December
2005
Capital Expenditures (Cash) ………………………………. ……. 15,950
Increase (Decrease) in Liabilities related to Acquisition of PPE … (1,164)
Total Capital Expenditures1 …………………………………… 14,786
Total Capital Expenditures / Service Revenues (%)…………
1
27%
Globe Group
31 December
2004
20,283
936
21,219
YoY
change
(%)
-21%
-224%
-30%
40%
Consolidated capital expenditures include property and equipment, acquired as of report date regardless of whether
payment has been made or not, but excludes capitalized costs during the period. (See related discussion in Liquidity and
Capital Resources Section)
Consolidated net cash used in investing activities amounted to P
=15,832 million for the full
year 2005, a 10% decrease from the =
P17,679 million in 2004. Consolidated capital
expenditures amounted to P
=14,786 million in 2005, a decrease of 30% from the previous
year. For 2006, Globe has earmarked approximately US$250 million for capital expenditures
to expand its wireless network, and upgrade the necessary facilities for 3G and increase
capacity for areas where traffic is expected to surge. The 2006 capital expenditure program
will be funded through internally-generated cash and debt financing.
Consolidated net cash used in financing activities for the full year 2005 amounted to P
=15,680
million, an 80% increase compared to P
=8,707 million in 2004 due to Globe’s reacquisition of
its common shares via a tender offer and higher dividend payments in 2005. Consolidated
total debt as of 31 December 2005 amounted to =
P49,693 million, a 5% decrease from the =
P
52,218 million in 2004 as Globe prepaid US$41 million of its long term loans in addition to
US$161 million of maturing loans in 2005. Loan repayments of Globe for the full year 2005
amounted to =
P12,527 million (US$236 million) compared to the =
P 18,874 million (US$335
million) paid in 2004.
As of 31 December 2005, gross debt dropped to =
P50 billion, 65% of which are denominated
in US$. Of the 65%, 29% has been swapped to pesos. As a result, the amount of US$ debt
swapped into pesos and peso-denominated debt accounts for approximately 53% of
consolidated loans as of 31 December 2005.
64
Below is the schedule of debt maturities for Globe for the years stated below based on total
outstanding debt as of 31 December 2005:
Year Due
Principal
(US$
millions)
2006 ………………………………………………………………………………………………
2007 ………………………………………………………………………………………………
2008……………………………………………………………………………………………….
2009……………………………………………………………………………………………….
2010 through 2012 ……………………………………………………………………………….
Total
148
130
95
148
415
936
Stockholders’ equity was P
=51,619 million as of 31 December 2005 resulting in a 5% decline
from the P
=54,507 million in 2004. As a result of the adoption of new accounting standards,
the Globe Group took a one-time charge to its beginning retained earnings amounting to
P2,672 million representing the net of tax effect of various changes in accounting standards
discussed in the attached notes to the financial statements. A substantial portion of this onetime charge is due to the adoption of PAS 21 which no longer allows the capitalization of
foreign exchange differentials related to the acquisition of property and equipment.
On 1 February 2005, the Board of Directors (BOD) of Globe Telecom approved an offer to
purchase one share for every fifteen shares of the outstanding common stock of Globe from
all shareholders of record as of 10 February 2005, at a price of P950 per share. The approval
allowed Globe to purchase up to 9 million shares representing 6.7% of its outstanding
common shares. Each shareholder was entitled to tender a proportionate number of shares
owned at the 1:15 ratio, referred to as the Tender Ratio, for purchase by Globe upon and
subject to the terms and conditions of the tender offer. On 3 February 2005, Globe
commenced the tender offer which expired on 3 March 2005 after a one-day extension. Also,
on 1 February 2005, the BOD approved the retirement of the purchased shares and the
existing 12 million treasury shares acquired in 2003 from DeTeAsia.
On 8 March 2005, Globe announced that it had accepted 8 million common shares that were
tendered by the stockholders. The accepted shares represented 86% of shares eligible for
tender. The value of the tendered shares totaled P7.66 billion which were eventually crossed
at the exchange on 15 March 2005 and payment made on 16 March 2005. (Please refer to the
shareholder structure as of 31 December 2005)
As of 31 December 2005, Globe’s capital stock consists of:
1. Preferred stock Series “A” at a par value of P5 per share of which 159 million shares
are outstanding out of a total authorized of 250 million shares.
Preferred stock “Series A” has the following features:
(a) Convertible to one common share after 10 years from issue date at not less than
the prevailing market price of the common stock less the par value of the
preferred shares;
(b) Cumulative and non-participating;
(c) Floating rate dividend (set at MART 1 plus 2% average for a 12-month period);
(d) Issued at =
P5 par;
(e) With voting rights;
(f) Globe Telecom has the right to redeem the preferred shares at par plus accrued
dividends at any time after 5 years from date of issuance in 2001; and
65
(g) Preferences as to dividend in the event of liquidation.
On December 13, 2005, the BOD approved the declaration of cash dividends to
preferred shareholders “series A” as of record date December 31, 2005 amounting to
=68.33 million.
P
On December 15, 2004, the BOD approved the declaration of cash dividends to
preferred shareholders “series A” as of record date December 31, 2004 amounting to
=75.13 million, which were paid on March 15, 2005.
P
In 2003, the BOD approved the declaration of cash dividends to preferred
shareholders “series A” as of record date December 31, 2003 amounting to P
=67.96
million, which were paid on September 28, 2004.
2. Common shares at par value of =
P50 per share of which 152 million shares have been
issued and 132 million are outstanding out of a total authorized of 200 million
shares. In the last annual stockholders meeting on 4 April 2005, Globe’s
stockholders authorized the cancellation of its treasury shares and the reduction in
the authorized capital stock of the Company. On October 28, 2005, the Securities
and Exchange Commission approved the reduction in capital stock. After the
reduction, total authorized common shares are now 179,934,373, of which
131,900,430 are outstanding.
On 1 February 2005, the BOD declared the first semi-annual cash dividend in 2005
of P20 per common share with a record date of 18 February 2005 with payment
made on 15 March 2005. On 2 August 2005, the Board of Directors declared the
second semi-annual cash dividend for 2005 amounting to P20 per common share
outstanding as of record date 19 August 2005, and payment was made on 14
September 2005. This is consistent with our cash dividend policy of distributing 50%
of prior year’s net income and represents an increase of 11% over the previous year.
On 7 February 2006, the BOD approved the declaration of first semi-annual cash
dividends in 2006 of P20 per share to common stockholders of record as of 21
February 2006 payable on 15 March 2006.
Consolidated Return on Average Equity (ROE) for the year ended 31 December 2005 stood
at 19% compared to 22% for the same period last year.
On 1 July 2004, Globe Telecom granted additional stock options to key executives and
senior management personnel of the Globe Group under the Executive Stock Option Plan 2.
It required the grantees to pay a nonrefundable option purchase price of P1,000. The
agreement provides for an exercise price of P840.75 per share. 50% of the options become
exercisable from 1 July 2006 to 30 June 2014, while the remaining 50% become exercisable
from 1 July 2007 to 30 June 2014. As of 31 December 2005, outstanding stock options
granted to key executives and senior management personnel totaled 1,281,350. In order to
avail of the privilege, the grantees must remain with Globe Telecom or its affiliates from
grant date up to the beginning of the exercise period of the corresponding shares.
66
Foreign Exchange and Interest Rate Exposure
Starting 1 January 2005, the Globe Group adopted PAS 21, The Effects of Changes in
Foreign Exchange Rates, which eliminates the capitalization of foreign exchange
differentials related to the acquisition of property and equipment. Previously, the foreign
currency-denominated liabilities used to finance the acquisition and installation of Globe and
Innove’s property and equipment were capitalized. These foreign exchange differentials were
added to or deducted from the cost of the appropriate property and equipment accounts.
The adoption of PAS 21 decreased our beginning retained earnings by P2,444 million.
(Please see related discussion in the attached consolidated financial statements)
The Philippine Peso closed at P
=53.062 as of 31 December 2005 from =
P56.341 as of the same
date last year.
The foreign exchange differentials arising from revaluation of foreign currency-denominated
accounts are charged/credited to against current operations. Globe Group’s net foreign
exchange gains/(loss) credited/(charged) to against current operations amounted to P2,303
million gain and P214 million loss for the full year 2005 and 2004, respectively.
To mitigate foreign exchange risk, the Globe Group enters into short-term foreign currency
forwards and long-term foreign currency swap contracts. Short-term forward contracts are
used to manage our foreign exchange exposure related to foreign currency-denominated
monetary assets and liabilities. For certain long term foreign currency denominated loans, we
enter into long term foreign currency and interest rate swap contracts to manage its foreign
exchange and interest rate exposures.
As of 31 December 2005, our Company had US$175 million in outstanding foreign currency
swap agreements, some of which have option features. We also sold covered currency
options with total notional amount of US$28 million with maturities ranging from March
2006 to March 2007.
Interest rate swaps are used to manage our interest rate risk in a cost-efficient manner. As of
31 December 2005, our Company had US$56 million in notional amount of US$ swaps
under which it effectively swapped some of its floating rate US$ denominated loans into
fixed rate, with semi-annual payment intervals up to August 2007. We also have US$5
million in notional amount of US$ swaps under which it effectively swapped 9.75% fixed
coupon of its 2012 Senior Notes to a floating rate based on LIBOR, subject to a cap. The
performance of the swap is linked to the 10-year and 30-year US$ Constant Maturity Swap
Rates. Our Company also has a fixed to floating interest rate swap contract with a notional
amount of P1 billion, in which it effectively swaps a fixed rate Philippine peso denominated
bond into floating rate with quarterly payment intervals up to February 2009.
The Group also has embedded forwards and options in certain financial and non-financial
contracts with total notional amount of US$13 million. Globe’s 2012 Senior Notes also
contain embedded call options which give us the right to prepay the Notes at a certain call
price per year.
Gains on derivative instruments represent the net mark-to-market (MTM) gains(losses) on
derivative instruments. Beginning 2005, MTM values have to be booked as required by PAS
39. The estimated unrealized mark-to-market gain on the outstanding derivatives(including
embedded derivatives) of the Globe Group amounted to P817 million based on valuation as
67
of 31 December 2005 while losses on derivative instruments reflected in the consolidated
income statements amounted to P104 million for the year ended 31 December 2005. (See
related discussion under Results of Operations)
Consolidated foreign currency-linked revenues were 27% and 26% of total net revenues for
the periods ended 31 December 2005 and 2004, respectively. Foreign currency linked
revenues include those that are: (1) billed in foreign currency and settled in foreign currency,
or (2) billed in Pesos at rates linked to a foreign currency tariff and settled in Pesos, or (3)
wireline monthly service fees and the corresponding application of the Currency Exchange
Rate Adjustment or CERA mechanism, under which our Group has the ability to pass the
effects of local currency depreciation to its subscribers. These revenues serve as a natural
hedge to our foreign exchange exposure.
Annex to Management’s Discussion and Analysis (MD&A) section
1. All material off-balance sheet transactions, arrangements, obligations
(including contingent obligations), and other relationships of the Company with
unconsolidated entities or other persons created during the reporting period;
Events that will trigger direct or contingent financial obligations that are
material to the Company including any default or acceleration of an obligation.
The Globe Group applied PFRS 1, First-time Adoption of PFRS, in preparing the
consolidated financial statements, with January 1, 2003 as the date of transition. The
Globe Group applied the accounting policies set forth below to all the years
presented, except those relating to the classification and measurement of financial
instruments. An explanation of how the transition to PFRS has affected the reported
financial position, financial performance and cash flows of the Globe Group is
provided below.
Explanation of Transition to PFRS
As stated above, these are the Globe Group’s first annual consolidated financial
statements in accordance with PFRS. The transition to PFRS resulted in certain
changes to the Globe Group’s previous accounting policies. The comparative figures
for 2004 and 2003 were restated to reflect the changes in accounting policies
discussed below resulting from transition to PFRS, except those relating to financial
instruments. The Globe Group has made use of the exemption available under PFRS
1, and as allowed by the Securities and Exchange Commission (SEC), to apply
Philippine Accounting Standards (PAS) 32, Financial Instruments: Disclosure and
Presentation and PAS 39, Financial Instruments: Recognition and Measurement, to
financial instruments outstanding as of January 1, 2005. The cumulative effect of
adopting PAS 39 was charged to the January 1, 2005 retained earnings. The policies
applied to financial instruments beginning January 1, 2005 and prior to January 1,
2005 are disclosed separately.
New Accounting Standards

PFRS 1, First Time Adoption of PFRS, requires an entity to comply with each
PFRS effective at the reporting date for its first PFRS financial statements. The
Globe Group has adopted PFRS for these financial statements as of and for the
year ended December 31, 2005 and has also restated the comparative amounts
68
for the years ended December 31, 2004 and 2003 except for the following
courses of action that have been taken as allowed under PFRS 1:
Share-based payment transactions
The Globe Group has applied PFRS 2, Share-based Payment, only to equitysettled awards granted after November 7, 2002 that had not vested on or before
January 1, 2005 similar to the transitional provisions under PFRS 2 for equitysettled transactions.
Post retirement benefits - Defined benefit schemes
The Globe Group has chosen not to recognize using the “corridor approach”
cumulative actuarial gains or losses that resulted from the measurement of such
schemes in accordance with PAS 19, Employee Benefits, at the date of transition.
Instead, the Globe Group has elected to recognize all cumulative actuarial gains
and losses at the date of transition to PFRS.

PFRS 2, Share-based Payment, sets out the measurement principles and
accounting requirements for share-based payment transactions, including
transactions with employees or other parties to be settled in cash, other assets, or
equity instruments of the entity. Under this standard, the Globe Group is
required to recognize the cost of share options granted after November 7, 2002
in the statements of income. Prior to January 1, 2005, the Globe Group did not
recognize any expense for share options granted but disclosed required
information for such options.
The adoption of PFRS 2 decreased net income by =
P254.08 million, =
P63.56
million and P
=30.75 million in 2005, 2004 and 2003, respectively. Retained
earnings decreased by =
P94.31 million and =
P30.75 million as of January 1, 2005
and 2004, respectively. Additional paid-in capital increased by P
=0.76 million as
of January 1, 2005. Cost of share-based payments presented in the stockholders’
equity section of the consolidated balance sheets increased by =
P193.10 million
and P
=59.09 million as of January 1, 2005 and 2004, respectively.

PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, specifies
the accounting for assets held for sale and the presentation and disclosure
requirements for discontinued operations. Under this standard, qualifying
noncurrent assets or disposal groups held for sale shall be carried at fair value
less cost to sell if this amount is lower than its carrying amount less accumulated
impairment losses. The company shall not depreciate (or amortize) noncurrent
assets (or disposal groups) while classified as held for sale. Any gain or loss on
the remeasurement of a noncurrent asset (or disposal group) classified as held for
sale shall be included in the profit or loss from continuing operations.
As of December 31, 2005, 2004 and 2003, the Globe Group has no qualifying
noncurrent assets that are held for sale.

PAS 19, Employee Benefits, prescribes the accounting and disclosures by
employers for employee benefits (including short-term employee benefits, postemployment benefits, other long-term employee benefits and termination
benefits). For post-employment benefits classified as defined benefit plans, the
standard requires: (a) the use of the projected unit credit method to measure an
entity’s obligations and costs; (b) an entity to determine the present value of
69
defined benefit obligations and the fair value of any plan assets with sufficient
regularity; and (c) the recognition of a specific portion of net cumulative
actuarial gains and losses when the net cumulative amount exceeds 10% of the
greater of the present value of the defined benefit obligation or 10% of the fair
value of the plan assets, but also permits the immediate recognition of these
actuarial gains and losses.
The adoption of PAS 19 has decreased net income by P
=21.78 million and P
=18.12
million in 2004 and 2003, respectively, and increased retained earnings by P
=
92.89 million, P
=114.67 million and P
=132.79 million as of January 1, 2005, 2004
and 2003, respectively. Pension cost and accrual of short-term benefits amounted
to P
=258.32 million in 2005.

PAS 21, The Effects of Changes in Foreign Exchange Rates, eliminates the
capitalization of foreign exchange differentials related to the acquisition of
property and equipment.
The adoption of PAS 21 decreased retained earnings by =
P2,443.53 million,
=2,739.20 million and =
P
P2,463.50 million as of January 1, 2005, 2004 and 2003,
respectively, and increased net income by P
=295.67 million and decreased by P
=
275.69 million in 2004 and 2003, respectively.

PAS 32, Financial Instruments: Disclosure and Presentation, covers the
disclosure and presentation of all financial instruments. The standard requires
more comprehensive disclosures about a company’s financial instruments,
whether recognized or unrecognized in the financial statements. New disclosure
requirements include terms and conditions of financial instruments used by the
entity, types of risks associated with both recognized and unrecognized financial
instruments (market risk, foreign exchange risk, price risk, credit risk, liquidity
risk and cash flow risk), fair value information of both recognized and
unrecognized financial assets and financial liabilities, and the entity’s financial
risk management policies and objectives. The standard also requires financial
instruments to be classified as debt or equity in accordance with their substance
and not their legal form.
The standard also requires presentation of financial assets and financial liabilities
on a net basis when, and only when, an entity: (a) currently has a legally
enforceable right to set off the recognized amounts; and (b) intends either to
settle on a net basis, or to realize the asset and settle the liability simultaneously.

PAS 39, Financial Instruments: Recognition and Measurement, establishes the
accounting and reporting standards for the recognition and measurement of the
entity’s financial assets and financial liabilities. PAS 39 requires a financial asset
or a financial liability to be recognized initially at cost including related
transaction costs. Subsequent to initial recognition, an entity should measure
financial assets at their fair values, except for loans and receivables and held-tomaturity investments, which are measured at amortized cost using the effective
interest rate method. Financial liabilities are subsequently measured at amortized
cost, except for liabilities designated as at fair value through profit and loss and
derivatives, which are subsequently measured at fair value.
70
PAS 39 also establishes the accounting and reporting standards requiring that
every derivative instrument (including certain derivatives embedded in other
contracts) be recorded in the balance sheets as either an asset or liability
measured at its fair value. PAS 39 requires that changes in the derivative’s fair
value be recognized currently in the statements of income unless specific hedges
allow a derivative’s gains and losses to offset related results on the hedged item
in the statements of income, or deferred in the stockholders’ equity as
“Cumulative translation adjustment”. PAS 39 requires that an entity must
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting treatment.
Derivatives that are not designated and do not qualify as hedges are adjusted to
fair value through income.
The Globe Group has adopted the hedge accounting treatment of PAS 39 for
certain derivative instruments.
As allowed by the SEC, the adoption of PAS 39 did not result in the restatement
of prior year financial statements. The cumulative effect of adopting this
accounting standard was charged to the January 1, 2005 retained earnings.
The adoption of PAS 39 decreased net income by =
P148.29 million in 2005 and
increased translation adjustment (presented as a reduction in the stockholders’
equity) by P
=84.88 million in 2005. Retained earnings increased byP
=31.29 million
while cumulative translation adjustment decreased by =
P151.01 million, as of
January 1, 2005.
PAS 40, Investment Property, establishes the accounting and reporting standards
for investment property. Investment property is property (land or a building or
both) held (by the owner or by the lessee under a finance lease) to earn rentals or
for capital appreciation or both, rather than for: (a) use in the production or
supply of goods or supply of goods or services or for administrative purposes; or
(b) sale in the ordinary course of business. Under this standard, an entity is
permitted to choose either the fair value model or cost model in the subsequent
measurement of a qualifying investment property. Fair value model requires an
investment property to be measured at fair value with fair value changes
recognized directly in the statements of income. Cost model requires an
investment property to be measured at cost less any accumulated depreciation
and impairment losses. The Globe Group adopted the cost model for investment
property.
The adoption of PAS 40 resulted in reclassification of the carrying value of the
portion of a building being leased to third parties amounting to =
P261.52 million,
=270.99 million and P
P
=281.41 million as of January 1, 2005, 2004 and 2003,
respectively, from property and equipment to investment property.
Revised Accounting Standards
PAS 16, Property, Plant and Equipment, (a) provides additional guidance and
clarification on recognition and measurement of items of property, plant and
equipment; (b) requires the capitalization of the costs of asset dismantling,
removal or restoration as a result of either acquiring or having used the asset for
71
purposes other than to produce inventories during the year; and (c) requires
measurement of an item of property, plant and equipment acquired in exchange
for a nonmonetary asset or a combination of monetary and nonmonetary assets at
fair value, unless the exchange transaction lacks commercial substance. Under
the previous version of the standard, an entity measured such an acquired asset at
fair value unless the exchanged assets were similar.
The adoption of PAS 16 decreased net income by =
P104.13 million, =
P71.45
million and P
=68.05 million in 2005, 2004 and 2003, respectively. Retained
earnings decreased by =
P258.50 million, P
=187.05 million and P
=118.99 million as
of January 1, 2005, 2004 and 2003, respectively.
2. Causes of any material change from period to period FS:
Balance Sheet Accounts Variance Analysis (December 31, 2005 vs. December
31, 2004)
a) Cash and Cash Equivalents – Decreased by 20% or P2.7 billion mainly due to
repurchase of common shares in March 2005.
b) Short-term Investments – Increased by P532 million due to purchase of
government bonds in 2005
c) Receivables – net – Variance of 24% as compared to last year of the same period
due to higher receivable from various carriers resulting from the reduced ISR
activities (please see related discussion on International Long Distance Services
in the Management’s Analysis and Discussion section) and higher wireline
postpaid (voice and data) subscribers.
d) Inventories and Supplies – Net – Higher acquisition of handsets and phonekits
over units sold to subscribers.
e) Prepayment and other current assets – Increase of 14% is due mainly to set-up of
derivative assets as a result of PAS 32/39 adoption.
f) Intangible Assets – Increased by 17% or P156 million due to acquisition of
various capitalizable software licenses supporting the expanded network and
subscriber base.
g) Deferred tax assets – Decreased due to realization of deferred tax asset related to
prepaid capacity provisioning and MCIT and impact of various PAS adoptions.
h) Investments in Associates, Joint Venture and Others – Declined by P15 million
mainly due to equity loss take up from Bridge Mobile Alliance (a joint venture).
i) Unearned Revenues – Decreased by 25% or P431 million due to higher usage of
prepaid airtime load as a result of various promotional programs of Globe
Handyphone and TM (such as unlimited text and lower call rate).
j) Long-term debt – Decreased by 5% due to lower borrowing as compared to last
year.
k) Deferred tax liabilities – Increased by 28% primarily due to higher deferred tax
liabilities related unrealized foreign exchange gain and impact of various PAS
adoptions.
l) Stock Options – Increase represents additional compensation expense during the
year net of the amount transferred to additional paid-in capital for the exercised
portion of stock options.
m) Cumulative Translation Adjustment – represents fair value changes on
derivatives that qualify as cash flow hedges and available-for-sale investments
due to adoption of PAS 39 (see Note 2 of the Audited Financial Statements -
72
Adoption of New and Revised Accounting Standards of the attached condensed
financial statements).
n) Paid-up capital – Significant decrease of P6 billion pertains to retirement of 20
million treasury shares during the year.
o) Retained Earnings – Decrease of P4.8 billion due to retirement of treasury shares
and declaration of dividends to common shareholders.
3. Description of material commitments and general purpose of such
commitments. Material off-balance sheet transactions, arrangements,
obligations and other relationships with unconsolidated entities or other
persons created during the period:
Lease Commitments:
(a) Operating lease commitments - Globe Group as lessee
Globe Telecom and Innove leases certain premises for some of
telecommunications facilities and equipment and for most of its business centers
and cell sites. The operating lease agreements are for periods ranging from 1 to
10 years from the date of the contracts and are renewable under certain terms
and conditions. The agreements generally require certain amounts of deposit and
advance rentals, which are shown as part of “Other noncurrent assets” account in
the consolidated balance sheets. The Globe Group’s rentals incurred on these
leases (included in “Operating costs and expenses’ account in the consolidated
statements of income) amounted to =
P1,840.00 million, =
P1,420.07 million and P
=
1,604.42 million in 2005, 2004 and 2003, respectively.
As of December 31, 2005, the future minimum lease payments under these
operating leases are as follows (in thousand pesos):
Not later than one year
After one year but not more than five years
After five years
=765,915
P
2,267,823
1,029,121
=4,062,859
P
(b) Operating lease commitments - Globe Group as lessor
Globe Telecom and Innove have certain lease agreements on equipment and
office spaces. The operating lease agreements are for periods ranging from 1 to
10 years from the date of contracts.
Globe Telecom has an equipment lease agreement with C2C for a period of 14
years. Lease income (included under “Others - net” account in the consolidated
statements of income) amounted to P
=194.01 million, P
=200.08 million and
=196.33 million in 2005, 2004 and 2003, respectively.
P
73
The future minimum lease payments receivable under this operating lease are as
follows (in thousand pesos):
Within one year
After one year but not more than five years
After five years
=189,388
P
757,554
994,289
=1,941,231
P
Innove entered into a lease agreement covering the lease of office space at the
Innove IT Plaza to a third party. The lease has a remaining lease term of less
than a year renewable under certain terms and conditions. Total lease income
amounted to about P
=29.01 million, =
P20.84 million and =
P13.19 million in 2005,
2004 and 2003, respectively. As of December 31, 2005, the future minimum
lease receivables under this operating lease amounted to =
P50.15 million which is
due within two years.
(c) Finance lease commitments - Globe Group as lessee
Globe Telecom and Innove have entered into finance lease agreements for
various items of property and equipment. The said leased assets are capitalized
and are depreciated over their estimated useful life of three years, which is also
equivalent to the lease term.
As of December 31, 2005, the consolidated future minimum lease payments
under finance leases and the present value of the net minimum lease payments
are as follows (in thousand pesos):
Within one year
After one year but not more than five years
Total minimum lease payments
Less interest
Present value of minimum lease payments
Current
Noncurrent
=13,058
P
138
13,196
533
=12,663
P
12,537
126
=12,663
P
The present value of the minimum lease payments under finance leases is
included under “Other long term liabilities” account in the consolidated balance
sheets.
(d) Finance lease commitments - Globe Group as lessor
Innove has existing finance lease arrangements with a lessee for the Innove’s
office equipment. As of December 31, 2005, the gross investment and the
present value of the net minimum lease payments receivable included under
“Prepayments and other current assets” account in the consolidated balance
sheets are P
=12.00 million and
=11.48 million, respectively. No collections
P
were received from the lessee as of December 31, 2005.
Agreements and Commitments with Other Carriers
Globe Telecom and Innove have existing correspondence agreements with
various foreign administrations and interconnection agreements with local
telecommunications companies for their various services. They also have
74
international roaming agreements with other CMTS-GSM operators in foreign
countries, which allow its CMTS-GSM subscribers access to foreign GSM
networks. The agreements provide for sharing of toll revenues derived from the
mutual use of interconnection facilities.
Arrangements and Commitments with Suppliers
Globe Telecom and Innove have entered into agreements with various suppliers for
the delivery, installation, or construction of its property and equipment. Under the
terms of these agreements, delivery, installation or construction commences only
when purchase orders are served. Billings are based on the progress of the project
installation or construction. While the construction is in progress, project costs are
accrued based on the billings received. When the installation or construction is
completed and the property is ready for service, the balance of the related purchase
orders is accrued. The consolidated accrued project costs as of December 31, 2005,
2004 and 2003 included in “Accounts payable and accrued expenses” account in the
consolidated balance sheets amounted to P
=2,444.11 million, =
P3,454.29 million and P
=
3,003.05 million, respectively. As of December 31, 2005, the consolidated expected
future payments amounted to =
P1,889.18 million. The settlement of these liabilities is
dependent on the payment terms agreed with the suppliers and contractors.
As of December 31, 2005, the Globe Group has available short-term credit facilities
of US$43.00 million and =
P5,050.00 million.
4. Trend Information:
Operating in a highly competitive telecommunications industry, Globe is mainly
subject to competitive and technological innovation risks.
The increased
competitiveness of existing players and potential new entrants poses risks on Globe’s
market share, profitability and image. As our business and profitability largely
depend on the reliability and performance of our network infrastructure, rapid
changes in technology may adversely affect the economics of our existing business,
value of our assets and create new competition.
Globe may also be significantly affected by the development/changes in regulations
and actions by international, national or local regulators which can threaten Globe’s
competitive position and its capacity to efficiently conduct business.
The occurrence of natural catastrophes may materially disrupt our operations while
future economic downturns and political instability may affect our financial results.
Other risks that Globe may be exposed to are as follows:
 Changes in Philippine and international interest rates with respect to Globe’s
borrowings;
 Changes in the value of the Peso against the U.S dollar;
 Changing customer needs and wants in terms of desired products, pricing and/or
quality of service
 Limits on foreign ownership of our capital stock which may restrict our access to
sources of equity capital.
5. Seasonal Aspects that have a material effect on the FS – None
75
Item 2. Year Ended 31 December 2004 Compared with Year Ended 31 December 2003
FINANCIAL AND OPERATIONAL HIGHLIGHTS
(In Million Pesos unless otherwise stated)
Globe Consolidated
As of and for the full year ended 31 December
(In Million Pesos unless otherwise stated)
2004
2003
YoY change
(%)
Profit & Loss Data
Net Operating Revenues …………………………………………
Service Revenues ……………………………………………
Non-Service Revenues ………………………………………
Costs and Expenses ………………………………………………
EBITDA1 …………………………………………………………
EBIT2 …………………………………………………………….
Net Income ………………………………………….……………
55,609
52,741
2,868
38,466
33,040
17,143
11,257
49,478
47,535
1,943
33,786
27,853
15,692
10,345
12%
11%
48%
14%
19%
9%
9%
Balance Sheet Data
Total Assets 3…………………………………………………….
Total Debt ……………………………………………………….
Total Stockholders’ Equity ………………………………………
138,125
52,218
57,016
140,130
56,132
50,854
-1%
-7%
12%
1.58
7.68
0.92
0.66
0.48
0.28
2.02
6.18
1.10
0.81
0.52
0.32
27,294
21,219
52
56.34
4,956
23,290
15,814
48
55.59
4,186
Financial Ratios (x)
Total Debt to EBITDA …………………………………………..
Interest Cover (Gross) ……………………………………………
Debt to Equity (Gross) ……………………………………………
Debt to Equity (Net) 4…………………………………………….
Total Debt to Total Capitalization (Book) ………………………
Total Debt to Total Capitalization (Market) ...……………………
Other Data
Net Cash from Operating Activities ………………………………
Capital Expenditures 5………………………………………………
Net Receivable Days ……………………………………………….
Peso/Dollar Exchange Rate (In pesos) ……………………………
No. of Regular Employees …………………………………………
_________________________________________________
17%
34%
8%
1%
18%
1
EBITDA is defined as Earnings Before Interest, Taxes, Depreciation, Amortization and Other Income/Expense. EBITDA is
calculated by deducting costs and expenses (excluding Depreciation and Amortization) from net operating revenues.
2
EBIT is defined as earnings before interest, other expenses and income taxes. EBIT is calculated by deducting costs and
expenses (including depreciation and amortization) from net operating revenues.
3
Prior period figures have been restated due to the adoption of SFAS 12/IAS 12 (Income Taxes) for comparative purposes
only.
4
Net debt is calculated by subtracting cash, cash equivalents and short term investments from total debt.
5
Consolidated Capital Expenditures include property and equipment acquired as of report date regardless of whether payment
has been made or not. (See related discussion in Liquidity and Capital Resources Section)
Globe Group’s wireless service revenues accounted for 89% of the Company’s net operating
service revenues of P52,741 million for the full year of 2004 while the remaining 11% was
contributed by the wireline business. In 2004, the Globe Group’s (Globe, Innove
Communications, Inc. and G-Xchange, Inc.) net service revenues increased by 11% during
the year from P47,535 million in 2003 while net operating revenues registered a 12%
improvement from P49,478 million in 2003.
76
The Globe Group reports operating revenues on a net basis, which consist of gross operating
revenues (service and non-service) less domestic interconnection charges, settlement payouts
to international carriers and content providers, revenue share due to foreign administrations
for circuits provided to service local customers of wireline data, prepaid reload discounts,
bonus credits (including airtime on SIM cards provided under Globe’s SIM swap program)
and marketing promotions credited to subscriber billings.
Gross operating service revenues for the Wireless and Wireline businesses include monthly
service fees, applicable installation charges, airtime fees from local, national and
international long distance, and international roaming services. Gross operating revenues also
include data revenues from value-added services which include Short Messaging Service
(SMS) or text messaging, Multi-Media Messaging Service (MMS), content downloading,
infotext services, broadband and internet services.
In the third quarter of 2004, Globe invested in G-Xchange, Inc. (GXI) – a wholly-owned
subsidiary, handling money transfer, cash management and related services under Globe’s GCash service. Revenues from the new subsidiary are still minimal for 2004 as GXI started
commercial operations only last 16 October 2004.
Domestically, the Globe Group pays interconnection charges to other carriers for calls
originating from its network terminating to other companies’ networks and hauling charges
for calls that pass through Globe’s network terminating in another network.
Internationally, the Globe Group also incurs payouts in connection with outbound
international calls. These charges are based on a negotiated price per minute.
The interconnection expenses paid as a percentage of gross service revenues remained at the
20% level for the years 2003 and 2004.
The Globe Group also collects termination fees from local and foreign carriers whose calls
terminate in Globe Group’s network. As part of domestic interconnection agreements
concluded in 2002, effective 01 January 2004, domestic calls terminating to wireless
networks are charged a termination rate of P4.00 per minute (from P4.50 per minute in 2003)
while calls terminating to wireline voice networks are charged a termination rate of P3.00 per
minute (from P2.50 per minute in 2003).
Non-service revenues include proceeds from the sale of handsets, phonekits and accessories,
upfront fees/activation fees representing the excess of the selling price of SIM packs over the
preloaded airtime and transaction fees for cash-in/out of G-Cash. We registered non-service
revenues of P2,868 million for the full year of 2004 compared to P1,943 million for the same
period last year due mainly to higher SIM and phonekit sales. Non-service revenues are
reported net of discounts on phonekits. The cost related to the sale of handsets and SIM
packs are shown under cost of sales.
Proceeds from the sale of prepaid cards, airtime value through electronic load services such
as ATM and airtime value through over-the-air (OTA) reloading are treated as deferred or
unearned revenues shown under the liabilities section of the balance sheet since the service
has not yet been rendered. Revenue is realized upon actual usage of the airtime value for
voice, SMS, MMS, content downloading and infotext services net of free SMS, bonus credits
or the expiration of the unused value, whichever comes earlier. Related revenue on preloaded
airtime value of SIM packs sold is also recognized upon usage. However, preloaded airtime
77
value on SIM cards provided under Globe’s SIM swap program are not included as part of
revenue.
On 30 September 2003, Globe’s wireline voice and data businesses were transferred to
Innove (previously named Isla Communications Co., Inc.). Starting 1 October 2003, all of
the financial results of the wireline voice and data businesses are presented under
Innove.(See related discussion in Wireline Services Section)
KEY PERFORMANCE INDICATORS
Net Operating Revenues by Line of Business
The table below shows the net operating revenues for each of the Globe Group’s businesses
for the periods indicated:
Globe Consolidated
For the year ended 31 December (in millions of pesos)
Net Operating Revenues from:
2004
2003
YoY change (%)
Service Revenues:
Wireless 1……………………………………………
Voice………………………………………………
Data ………………………………………………
47,054
27,722
19,332
42,594
27,821
14,773
10%
31%
Wireline ………………………………………………
Voice 2 ……………………………………………
Data 3……………………………………………
5,687
3,833
1,854
4,941
3,469
1,472
15%
10%
26%
Net Service Revenues……………………………………
Non-Service Revenues……………………………………
Net Operating Revenues
___________________________________________
52,741
2,868
55,609
47,535
1,943
49,478
11%
48%
12%
1
Wireless net service revenues include: (1) monthly service fees; (2) charges for local calls in excess of the free minutes
for various Globe Handyphone postpaid plans, including currency exchange rate adjustments, or CERA net of
marketing promotions credited to subscriber billings; (3) airtime fees from prepaid reload denominations (for Globe
Prepaid Plus and TM) for Globe to Globe and TM to TM and outbound calls usage net of (i) bonus credits (including
airtime on SIM cards provided under Globe’s SIM swap program) (ii) prepaid reload discounts, recognized upon the
earlier of actual usage of the airtime value or expiration of the unused value of the prepaid reload denomination which
occurs between 1 and 60 days after activation depending on the prepaid value reloaded by the subscriber; (4) revenues
generated from inbound international and national long distance calls and international roaming calls; and (5) revenues
from value-added services such as SMS and MMS, content downloading and infotext. Revenues from (2) to (5) are net
of any interconnection or settlement payouts to international and local carriers and content providers.
2
Wireline voice net service revenues consist of: (1) monthly service fees including CERA; (2) revenues from local,
international and national long distance calls made by postpaid, prepaid wireline subscribers and payphone customers,
net of prepaid and payphone call card discounts less bonus credits and marketing promotions credited to subscriber
billings (3) revenues from inbound local, international and national long distance calls from other carriers terminating
on our network; and (4) installation charges and other one-time fees associated with the establishment of the service.
3
Wireline data net service revenues consist of revenues from: (1) international and domestic leased lines; (2) internet
services; (3) other wholesale transport services and (4) revenues from value-added services.
78
Wireless Services
Globe Consolidated
As of and for the year ended 31 December
(in millions of pesos)
2004
2003
YoY change(%)
Wireless Net Revenues…………………..………………
49,903
44,465
12%
Service .…………………………………………………….
Voice ….………………………………………………..
Data ..……………………………………………………
47,054
27,722
19,332
42,593
27,820
14,773
10%
31%
Data as a % of Wireless Net Service Revenues ..……
Data as a % of Total Wireless Net Revenues ..………
41%
39%
35%
33%
Non-Service ….……………………………………………
2,849
1,871
52%
Subscribers – Net (End of period)…………………………
Postpaid . …………………………………………………
Prepaid .……………………………………………………
Globe Prepaid Plus ………………………………………
TM …………………………………………..
12,513,973
630,495
11,883,478
10,185,154
1,698,324
8,859,883
685,026
8,174,857
6,673,013
1,501,844
41%
-8%
45%
53%
13%
__________________________________________________________________________________
Wireless Services
Wireless net service revenues grew by 10% for the full year of 2004 to P47,054 million
driven by a consolidated 41% increase in total subscribers and their corresponding usage of
voice and data services for the year ended 31 December 2004.
Gross subscriber additions for all brands for 2004 increased by 97% year on year to 11.9
million compared to 6.0 million in 2003 while net additions grew by 60% to 3.7 million for
the full year of 2004 against 2.3 million for the same period in 2003. Gross and net
subscriber additions were generated mainly by year on year growth in the prepaid segment
due to a wider distribution network with the introduction of Globe’s OTA reload service,
SIM swap programs (See related discussion in Wireless Services-Prepaid Section) and
increased network coverage in the provincial areas.
The Globe Group offers its wireless services through three brands, Globe Handyphone,
Globe Handyphone Prepaid Plus and TM. The postpaid brand of Globe, Globe Handyphone,
includes all postpaid plans such as G-Plans and consumable G-Flex Plans, Platinum - a brand
for the high-end market and GlobeSolutions for corporate and business needs. Globe
Handyphone Prepaid Plus and TM are the prepaid brands of Globe and Innove, respectively
– each positioned at different segments of the market – the broad market classes for Globe
Handyphone Prepaid Plus and mass-based market classes for TM.
To spur increased usage of its wireless data services and building on its value-transfer
platform, the Globe Group launched the following innovations in the fourth quarter of 2004:

On 16 October 2004, Globe introduced a breakthrough in mobile commerce by
offering its G-Cash service. G-Cash allows Globe Handyphone, Globe Handyphone
Prepaid Plus and TM subscribers to buy goods and services from accredited partner
establishments, exchange stored value for cash in designated outlets, send and
receive G-Cash person to person and even permits subscribers and non-subscribers
to send domestic and international remittances through financial institutions that
have been trusted over the years. In the two and a half months since it was launched,
79
the number of G-Cash subscribers has already reached more than 200,000. G-Cash
expands Globe Group’s market reach by creating business opportunities for
merchants, trade partners and entrepreneurs and giving consumers a secure and
convenient mobile payment option. As of 31 December 2004, G-Cash had more than
30 partner establishments spanning different industries including international and
domestic remittance companies, merchant partners in food and food delivery,
transportation, drugstores, bookstores and other retailers, government agencies (BIR,
Philippine Sports Commission), banking Associations and Partners (RBAP &
Landbank), charitable institutions (Red Cross, UNICEF) and e-commerce
companies.

In 2004, Globe AutoloadMax and Share-A-Load continued to contribute significantly
to total OTA reloading transactions. For the month of December 2004, these top-up
options accounted for 90% of total reload transactions and 62% of total reload value
while total Globe AutoloadMax retailers reached 737 thousand retailers by the end of
the year. Additionally, to address the needs of Overseas Filipino Workers (OFWs)
and their families in the Philippines, Globe launched its Globe Kababayan crossborder reload services in Hong Kong, Singapore and Japan during the 3rd quarter of
2004. OFWs in these countries, along with Taiwan, Saipan, Guam, the United States
and the United Kingdom can now send prepaid credits to their relatives who are on
the Globe Prepaid or TM service through the launch of Share-A-Load and Globe
AutoloadMax facilities.
Wireless Services - Postpaid
Globe offers postpaid services through its brand Globe Handyphone. Globe’s postpaid
subscriber base registered at 630,495 as of 31 December 2004, compared to 685,026 posted
in the same period last year due to company-initiated terminations. Gross additions for the
full year of 2004 registered at 148,015 subscribers, compared to 361,127 for the same period
in 2003. Terminations exceeded additions resulting in a decline of 54,531 from the postpaid
subscriber base for the full year of 2004 against net additions of 166,126 for the same period
in 2003.
Net ARPU per Globe postpaid wireless subscriber for the full year of 2004 reached P
=1,605
from =
P1,637 for the same period in 2003. Net ARPU is computed by dividing recurring
wireless postpaid net operating service revenues for the period (net of interconnection
charges to external carriers and discounts) by the average number of postpaid wireless
subscribers and then dividing the quotient by the number of months in the period.
Globe’s postpaid ARPU on a gross basis averaged =
P2,138 for the full year of 2004 from
=2,173 in the same period in 2003. Gross ARPU is computed by dividing recurring wireless
P
postpaid gross service revenues for the period by the average number of postpaid wireless
subscribers and then dividing the quotient by the number of months in the period.
Globe’s postpaid acquisition cost per subscriber of P
=9,886 for the full year of 2004 is higher
compared to =
P9,834 for the same period last year. For the full year of 2004, handset and
Subscriber Identification Module (SIM) subsidies accounted for 95% of acquisition cost
while advertising/promotional expenses made up the balance of 5%. In 2003, handset and
SIM subsidies accounted for 94% of total acquisition cost while advertising expenses made
up the balance.
80
The average monthly churn rate for Globe’s postpaid subscribers is defined as total
disconnections net of reconnections divided by the average postpaid subscribers, divided by
the number of months in the period. Globe’s postpaid churn rate averaged 2.6% per month
for the full year of 2004 compared to 2.7% for the same period in 2003. For postpaid
subscribers, permanent disconnections are made after a series of collection steps following
non-payment. Such permanent disconnections generally occur within a predetermined
number of days from statement date.
Wireless Services - Prepaid
Consolidated prepaid subscribers grew by 45% to 11,883,478 as of 31 December 2004 from
8,174,857 for the same period in 2003. Globe offers prepaid services through its Globe
Handyphone Prepaid Plus brand, while Innove offers prepaid services through its TM brand.
In February 2004, Globe launched a nationwide Free SIM Swap program that allowed
subscribers of another mobile network to switch to Globe by exchanging their active nonGlobe and non-TM SIM cards for Globe Handyphone Prepaid Plus or TM SIMs.
Prior to the third quarter of 2004, a prepaid subscriber was recognized upon the activation
and use of a new SIM card. The subscriber was provided with 60 days (first expiry) to
utilize the preloaded airtime value. If the subscriber did not reload prepaid credits within the
first expiry period, the subscriber retained the use of the wireless number, but was entitled
only to receive incoming voice calls and text messages for another 120 days (second expiry),
except for the first reload of SIM-swappers that was required within only 30 days from the
first expiry. However, if the subscriber did not reload prepaid credits within the second
expiry period, the account would be permanently disconnected and considered part of churn.
For reloads, expiry periods varied depending on the denominations ranging from P10 to
P1,000, from 1 to 60 days for the first expiry, and from 30 to 120 days for the second
expiry. The first expiry was reset based on the longest expiry period among current and
previous reloads. The second expiry, on the other hand, would be reset based on the
remainder of the initial 120-day period after the first expiry or the longest expiry period
among current and previous reloads, whichever was longer.
Under this policy, subscribers are included in the subscriber count until churned.
Acknowledging the changing dynamics of the industry, Globe updated its policy of including
new subscribers in its total count only when they are capable of generating outgoing service
revenue. Thus, a SIM-swapper is included in the subscriber count only upon the first reload.
Subscribers not considered in the subscriber count is accordingly not considered as part of
churn.
Starting third quarter of 2004, reports for subsequent periods reflect subscriber figures as
defined above.
81
Globe Prepaid Plus
Globe Prepaid Plus’ subscriber base for the full year of 2004 grew by 53% to 10,185,154
from 6,673,013 from the same period in 2003. Gross additions for the full year of 2004 were
123% higher at 9,069,132 compared to 4,061,127 in 2003 while net additions likewise
improved by 139% to 3,512,141 against the 1,472,513 compared to the same period in 2003.
The average monthly churn rate for Globe Prepaid Plus subscribers reached 5.5% for the full
year of 2004, higher than the 3.3% posted for the full year of 2003. The increased churn rate
resulted from rotational churn due to competitive free SIM Swap activities. However, lower
denomination call cards and OTA reload values, Libre Load promotions and new services
deployed from Globe’s value-transfer platform (see Related section below) contributed to a
reduced churn rate for the year from 5.8% for the second and third quarters of 2004.
Globe Prepaid Plus subscribers can reload airtime value or credits, which can be purchased
from Globe’s centers and dealers, or purchased electronically from designated merchants,
automated teller machines, and reloading facilities. Subscribers can purchase prepaid call and
text cards in denominations ranging from P100 to P1,000. In addition to AutoloadMax,
Globe’s OTA reloading service that allows Globe Prepaid Plus subscribers to load values for
as low as P25 and any amount in P1 increments up to P150, postpaid and prepaid subscribers
may also avail of Globe’s Share-A-Load service and send prepaid load credits in P1
increments, via SMS, in denominations ranging from P1 to P1,500 (depending on the
subscribers’ postpaid plan). Building on its value transfer platform, Globe allowed prepaid
subscribers to place voice calls or send SMS messages after registering through Globe’s Call
and Text Collect service even when a prepaid subscriber has run out of load credits or use
Globe’s Text Bak Mo Libre Ko messaging service that ensures a sending subscriber that the
receiving subscriber he sends a text message to will be able to text back. The receiver who
replies will not be charged as the sender will shoulder the cost of the text reply. Additionally,
with Globe’s Ask-A-Load service, prepaid subscribers with or without load credits may now
request for prepaid credits from a Globe Postpaid or another Globe prepaid subscriber which
can also be scheduled daily, weekly or monthly. Ask-A-Load and Text Bak Mo Libre Ko
services do not require registration to activate and use the service.
The net ARPU for Globe Prepaid Plus registered a year-on-year decrease of 22% to =
P305 for
the full year of 2004 from =
P389 for the same period in 2003 due mainly to lower voice and
data revenues on a per subscriber basis. Net ARPU is computed by dividing recurring
wireless prepaid net operating service revenues for the period (net of discounts and
interconnection charges to external carriers) by the average number of prepaid wireless
subscribers and then dividing the quotient by the number of months in the period.
Globe’s prepaid gross ARPU averaged =
P422 for the full year of 2004 compared to =
P512 in
2003. Gross ARPU is computed by dividing recurring wireless prepaid gross service
revenues for the period by the average number of prepaid wireless subscribers and then
dividing the quotient by the number of months in the period.
Acquisition cost for Globe Prepaid Plus decreased by 8% to =
P267 for the full year of 2004
from P
=291 for the same period in 2003. For the full year of 2004, commissions contributed
only 1% with handset and SIM subsidies accounting for 64% and advertising costs
comprising the balance of 35%. In 2003, commissions also contributed 1%, handset and SIM
subsidies accounted for 58%, while advertising costs comprised the remaining 41%.
82
TM
Innove’s TM subscribers increased by 13% to 1,698,324 subscribers as of 31 December 2004
compared to 1,501,844 subscribers for the same period last year. Gross additions for the full
year of 2004 increased by 79% to 2,642,239 from 1,591,279 for the same period in 2003
while net additions went down by 70% to 196,480 from 649,059 for the same period in 2003.
The net ARPU for TM for the full year of 2004 was =
P183 or 16% lower than the P
=218
registered for the same period in 2003. Gross ARPU was likewise lower at P
=288 for the full
year of 2004 compared to =
P296 for the same period in 2003.
Acquisition cost per TM subscriber decreased by 18% at P
=151 for the full year of 2004
compared to P
=185 for the same period last year. Of the total acquisition cost for the full year
of 2004, handset and SIM subsidies accounted for 77%, commissions totalled 3% and
advertising costs made up the balance of 20%. In 2003, handset and SIM subsidies accounted
for 46%, while commissions and advertising costs made up the remaining 54%.
The average monthly churn rate for TM registered at 12.7 % for the full year of 2004 against
6.7% for the same period last year. The increase in churn rate was mainly due to the
rotational churn resulting from competitive free SIM swap activities and the termination of
TM SIMs found engaging in International Simple Resale or ISR activities. (See related item
in ILD Section)
Wireline Services
On 26 May 2003, Globe and Islacom filed a joint application with the National
Telecommunications Commission (NTC) for authority to sell and transfer Globe’s wireline
voice and wireline data services to Innove. On 21 August 2003, the Securities and Exchange
Commission (SEC) approved the change in name of Globe’s wholly-owned subsidiary,
Islacom to Innove Communications, Inc (Innove). This is part of Globe’s strategy to
integrate all of its wireline services under Innove. On 7 August 2003, the NTC approved the
legal transfer of Globe’s wireline business authorizations, properties, assets and obligations
to Innove. The NTC also approved the common usage, operations and maintenance of the
network elements of both Globe and Innove to ensure the smooth transfer of its services and
prevent disruptions in interconnection with other carriers during the transition. Pursuant to
the approval granted by the NTC, the wireline business of Globe was integrated into Innove
on 30 September 2003. Effective 1 October 2003, all wireline voice and data services were
consolidated under Innove. Innove remains a wholly-owned subsidiary of Globe.
83
Wireline Services – Voice
Innove 1
As of and for the year ended 31 December(in millions of
pesos)
2004
Wireline Voice Net Service Revenues ………………………
Wireline Voice Net Non Service Revenues
3,833
19
3,469
72
10%
-74%
Subscribers – Net (End of period) ….………………………
323,094
261,254
24%
1.5
1.6
Monthly churn rate (%)..………………………………………
_______________________________________________
1
2003
YoY change(%)
January to September 2003 revenues for wireline voice services offered in Luzon and Mindanao were recognized under
Globe but reflected in the above table as Innove to be comparable.
Innove provides wireline voice communication services, including local, national long
distance, international long distance and other value-added services, through its postpaid,
prepaid and payphone lines, under the brand name Globelines. Innove provides wireline
voice services in nine specific geographic areas in the Philippines, including parts of Metro
Manila, the Calabarzon region and Central Mindanao and Visayas. On 5 March 2004, Innove
filed an application with the NTC for the expansion of its fixed line business. The application
is currently pending.
As of 31 December 2004, Innove had total wireline voice subscribed lines of 323,094 of
which 62% were postpaid and 38% were prepaid. Total wireline voice subscribers grew by
24% from the 261,254 subscribed lines registered for the same period in 2003.
Innove’s net wireline voice ARPU for the full year of 2004 was at P1,112 compared to
P1,164 for the same period in 2003. Net ARPU is computed by dividing recurring wireline
voice net operating service revenues for all areas for the period (net of discounts and
interconnection charges to external carriers) by the average number of wireline voice
subscribers and then dividing the quotient by the number of months in the period.
The average monthly churn rate for Globelines was 1.5% for the full year of 2004 compared
to 1.6% for the same period in 2003. Innove offers its prepaid landline services under the
brand, Globelines Prepaid.
Wireline Services – Data
Innove
As of and for the year ended 31 December
(In millions of Pesos)
2004
International Lease……………………………………
Domestic Lease ………………………………………
Internet ………………………………………………
Others 2………………………………………………
Net Operating Revenues ……………………………
___________________________________________________________________
1
2
670
663
384
137
1,854
2003 1
555
544
308
65
1,472
YoY change (%)
21%
22%
25%
111%
26%
Effective 01 October 2003, all wireline voice and wireline data services were consolidated under Innove. January to
September 2003 revenues from wireline data services were reported under Globe but reflected in above table as Innove to be
comparable.
Includes revenues from value-added services of wireline voice business such as DSL/Net Express previously included in
wireline voice service revenues.
Innove’s GlobeQuest brand offers wireline data services, including international and
domestic lease lines, internet, data center support services and wholesale transport services.
Businesses and individuals can subscribe to GlobeQuest’s Private Networks for their
international and domestic lease line requirements. Internet users can apply for Broadband
84
Internet or Broadband Access for commercial turnkey internet business solutions to access
Innove’s advanced broadband network infrastructure or high-speed fiber optic network.
Additionally, GlobeQuest DataCenters provides businesses with advanced infrastructure and
technology to support data hosting applications. Wireline data net operating revenues, which
principally consist of billings for these services increased by 26% to =
P 1,854 million for the
full year of 2004 from P
=1,472 million for the same period in 2003. The higher growth was
mainly due to international and domestic lease businesses.
International Long Distance Services (ILD)
Globe and Innove both offer ILD services. ILD services are offered between the Philippines
and over 200 countries. This service generates revenues from both inbound and outbound
international call traffic with pricing based on agreed international termination rates for
inbound traffic revenues and NTC-approved ILD rates for outbound traffic revenues.
For the year ended 31 December
Total ILD Minutes (in million minutes) 1………………
2004
1,271
Inbound…………………………………………………
1,082
1,242
-13%
189
193
-2%
5.7
6.4
Outbound.………………………………………………
ILD Inbound / Outbound Ratio (x) …………………
________________________________________________________________________________________________
1
Globe Consolidated
2003
YoY change (%)
1,435
-11%
ILD minutes originating from and terminating to Globe and Innove networks.
On a consolidated basis, including contributions from the Wireless and Wireline services,
ILD revenues decreased slightly to =
P12,622 million for the full year of 2004, translating to
24% of consolidated net service revenues for the full year of 2004 compared to =
P13,142
million and 28% respectively, for the same period in 2003.
Inbound ILD volume and correspondingly, ILD revenues have continued to suffer from the
effects of International Simple Resale or ISR operations. ISR operations are a method of
terminating inbound international calls without passing through the normal IGF. ISR
operations involve routing inbound international calls through private leased lines or IP data
lines, and then terminated to the called party through a local cellular or fixed line number. As
the ISR operators terminate an inbound IDD call as a local call, they are able to offer lower
rates to foreign carriers than current termination rates. As a result, Globe is not able to realize
the full inbound international revenue and instead earns only from charges from local or
national calls or access charges from other carriers and normal domestic termination charges
for local or NDD calls which are lower than international termination rates. ISR operations
are illegal in the country.
To reduce ISR activities, the Globe Group has implemented increased detection and blocking
procedures including closer coordination of detected ISR lines with other industry players.
The Globe Group has also tightened its fraud and risk evaluation process for corporate and
individual accounts and has started to implement legal, commercial and technical solutions to
the ISR concern such as charging higher rates for TM numbers detected as being used for
ISR operations. The Globe Group has also coordinated with the NTC and other government
agencies in addressing this concern.
85
National Long Distance Services (NLD)
Globe and Innove both offer NLD services. Revenues from NLD services are generated from
calls outside of a specific local area but within the Philippines.
Globe Consolidated
Total NLD Minutes (in million minutes)……………
428
473
YoY change
(%)
-10%
Inbound…..………………………………………
Outbound..………………………………………
208
220
240
233
-13%
-6%
For the year ended 31 December
2004
2003
Consolidated NLD revenues, from wireless and wireline services stood at P
=1,537 million for
the full year of 2004, or a 24% decrease from P
=2,030 million for the same period in 2003.
Consolidated NLD revenues for the full year of 2004 amounted to 3% of consolidated net
service revenues for the period compared to 4% for the full year of 2003. (See related item
on Wireline Voice NLD in Recent Developments Section)
Both Globe and Innove offer Interexchange Carrier Services (IXC). Globe uses its
Microwave Facilities called National Transmission Network (NTN) and the Nationwide
Digital Transmission Network (NDTN or the Telicphil Facilities), while Innove uses its own
backbone transmission network for hauling national and international interconnection traffic
among wireless and wireline operators in the Philippines. Globe also has a Fiber Optic
Backbone Network (FOBN) which supports its wireless, wireline voice and data, ILD, and
NLD requirements. It is a combination of submarine and land fiber systems with an
estimated fiber optic length of 1,300 kilometers. The FOBN carries traffic for both Globe and
Innove offered services.
Results of Operations
For the year ended 31 December (in millions of pesos)
Cost of sales……………………………………………
Services and Others……………………………………
Selling, Advertising and Promotions …………………
Staff Costs …………………………………………….
Utilities, Supplies & Other Administrative Expenses…
Rent……………………………………………………
Repairs and Maintenance………………………...……
Entertainment, Amusement & Representation ………
Provisions (Reversal of Allowance) for:
Doubtful Accounts………………………………
Inventory Losses, Obsolescence and Market Decline
Losses on Property and Equipment ………………
Other Probable Losses……………………………
Operating Costs and Expenses 1………………………
2004
6,675
4,307
3,753
2,729
1,715
1,420
1,325
10
Depreciation and Amortization ……………….…
Total Costs and Expenses……………………………
Globe Consolidated
2003
YoY change (%)
6,214
7%
3,388
27%
3,119
20%
2,471
10%
1,546
11%
1,604
-11%
1,779
-26%
10
-
1,052
73
12
(501)
22,570
941
15
304
234
21,625
12%
387%
-96%
-314%
4%
15,896
38,466
12,161
33,786
31%
14%
________________________________________________________________
1
Operating costs and expenses now include provisions (reversals of allowance).
For the full year of 2004, the Company’s operating costs and expenses increased by 4% to
=22,570 million from P
P
=21,625 million in 2003. In 2004 total costs and expenses registered a
14% increase to =
P38,466 million compared to P
=33,786 million for the same period in 2003.
86
Cost of sales increased by 7% to P
=6,675 million due to higher sales of phonekits and SIM
packs.
Services and Others increased by 27% to P4,307 million for the full year of 2004 due mainly
to higher professional and legal fees, contracted services for various marketing activities and
administrative projects compared to the same period in 2003.
Selling, Advertising and Promotions expenses increased by 20% to P3,753 million for 2004
due mostly to increased marketing and promotional activities for launching of new products
and services.
Staff costs grew by 10% to P2,729 million due mostly to higher headcount which grew by
770 personnel or 18% from 4,186 to 4,956 in 2004 and overtime charges during the period.
Utilities, supplies and other administrative expenses also increased by 11% to P1,715 million
due mainly to higher electricity and fuel charges coming from an expanded network in 2004
and consumption of supplies.
Rent expenses decreased by 11% to P
=1,420 million due to cost savings resulting from lower
negotiated lease payments and deactivations of certain cable systems and circuits being
leased.
Repairs and maintenance expenses were lower by 26% year on year to P1,325 million on
account of adjustments made on previous charges as the Company was able to negotiate
lower maintenance costs for various facilities and equipment.
Provisions for trade receivables decreased by 13% to P1,011 million for the full year of 2004
compared to P1,165 million in 2003 due to higher provisions made in 2003 for postpaid
subscriber accounts. Provision for doubtful accounts for traffic receivables reached
P42 million compared to a net reversal of allowance in the same period in 2003 amounting to
P236 million due to subsequent settlement of traffic receivables previously provided with
allowance. Net reversal of provisions for other receivables totaled P0.5 million for the full
year of 2004 compared to P11.5 million provisions in 2003. As a result, provisions for
doubtful accounts amounted to P
=1,052 million for the full year of 2004 against =
P941 million
for the same period in 2003.
Net subscriber receivable days was 52 for the full year of 2004 compared to 48 for the same
period last year due to higher receivables from the wireline business. Globe maintains an
allowance for doubtful accounts at a level considered adequate to provide for potential
uncollectible receivables. For subscriber receivables, an allowance is calculated using the
policy of providing full allowance for receivables from permanently disconnected
subscribers. Permanent disconnections are made after a series of collection steps following
non-payment by wireless and wireline subscribers. Such permanent disconnections generally
occur within a predetermined period from statement date.
Full allowance is generally also provided for individual and business wireless subscribers
with outstanding receivables that are past due by 90 and 120 days, respectively and those on
temporary disconnected status that are subject for termination within the succeeding month.
For wireline c and business subscribers, full allowance is provided for outstanding
receivables that are past due by 90 and 150 days, respectively.
87
For traffic settlement receivables, a policy of providing full allowance is adopted for net
international and national traffic settlement accounts and roaming accounts that are not
settled within ten months and six months, respectively from transaction date and after a
review of the status of settlement with other carriers. Additional provisions are made for
accounts specifically identified to be doubtful of collection.
For the period ended 31 December 2004, Globe recognized provisions for inventory losses,
obsolescence and market decline of =
P73 million compared to =
P15 million for the same period
in 2003. Provision for inventory losses in 2004 increased by 387% due to provisions for
market decline on handsets as inventory level increased as a consequence of intensive
subscriber acquisition promos. Inventories and supplies are stated at the lower of cost or net
realizable value (NRV). NRV for handsets and accessories is the selling price in the ordinary
course of business less direct costs to sell while NRV for SIM packs, call cards, spare parts
and supplies, and wireline telephone sets consists of the related replacement costs. In
determining the NRV, the Globe Group considers any adjustment necessary for
obsolescence, which is provided 100% for non-moving items for more than one year and
50% for slow-moving items. Cost is determined using the moving average method. Supplies
of SIM packs/SIM cards and telephone handsets are consumed upon activation of the
wireless and wireline services. An allowance for market decline is provided equivalent to the
excess of the cost over the net realizable value of inventories. When inventories are sold, the
related allowance is reversed in the same period, with the appropriate sales (revenues) and
cost of sales (expenses) recognition. An allowance is also provided for obsolescence and
probable losses. Full obsolescence allowance is provided when the inventory is non-moving
for more than a year. A 50% allowance is provided for slow-moving items.
Provisions for other probable losses relates to pending regulatory claims and assessments.
The Globe Group recognized net reversal of provision for other probable losses amounting to
P501 million for the year ended 31 December 2004 resulting mainly from recent favorable
developments that called for a reassessment of existing provisions.
The information usually required by SFAS 37/IAS 37, Provisions, Contingent Liabilities and
Contingent Assets, is not disclosed on the grounds that it can be expected to prejudice the
outcome of these claims and assessments. As of 1 February 2005, the remaining pending
regulatory claims and assessments are still being resolved.
Depreciation and amortization on a consolidated basis increased by 31% to P
=15,896 million
for the full year of 2004 compared to the =
P12,161 million for the same period in 2003. The
increase reflected additional depreciation charges related to various telecommunications
equipment placed in service during the period and a change in the Estimated Useful Life
(EUL) of certain equipment arising from a regular review conducted to assess the
reasonableness of EUL assumed for all equipment versus the expected pattern of economic
benefits. Globe revised the remaining useful lives of certain switch equipment from 15 to 10
years and certain investments in cable systems from 20 to 15 years.
In addition, Globe accelerated the remaining EUL of certain telecommunications equipment,
which are specifically identified to be useful for specific periods shorter than the previous
EUL. These changes have been accounted for as a change in accounting estimates. These
changes increased depreciation expense for the year ended 31 December 2004 by about
P2,047 million before related income taxes. Depreciation is computed using the straight-line
method over the estimated useful life of the assets. The weighted EUL of all assets, as of 31
December 2004, is 9.39 years.
88
Depreciation and amortization also includes full amortization of remaining bond issuance
cost of P100 million related to 2009 Senior Notes redeemed in August 2004. (See Related
discussion under Liquidity and Capital Resources Section)
Consolidated EBITDA for the full year of 2004 increased by 19% to P
=33,040 million
compared to =
P27,853 million for the same period in 2003. Consolidated EBITDA is defined
as consolidated earnings before interest, taxes, depreciation and amortization and other
income/expenses. Consolidated EBITDA margin for the period ended 31 December 2004
was 63% compared to 59% for the same period in 2003. EBITDA margin is computed on the
basis of net service revenues.
Details of Consolidated Other Income/(Expenses) for the year ended 31 December 2004 and
2003 are as follows:
For the year ended 31 December (In millions of Pesos)
Interest Income ………………………………………
Interest Expense ……………………………………
Capitalized Interest Expense ………………………
Net Interest Expense………………………………
2004
454
(4,379)
78
(3,847)
Equity in Net Loss of Investee Company…………
Swap Costs and Other Financing Charges……………
Provision for Impairment in Value of Investments……
Reversal of provision for restructuring cost on network
integration
Others – net …………………………………………
Sub-Total ……………………………………
Total Other Expenses………………………………
Globe Consolidated
2003
YoY change (%)
757
-40%
(4,506)
-3%
482
-84%
(3,267)
18%
(1,750)
-
(4)
(1,818)
(907)
-4%
-
504
(1,246)
(5,093)
113
1,048
(1,568)
(4,835)
-52%
-21%
5%
Globe Group posted an 18% increase in total net interest expense of =
P 3,847 million in 2004
from P
=3,267 million for the same period in 2003. Interest and other related financing charges
on borrowed funds used to finance the acquisition of property and equipment to the extent
incurred during the period of installation are capitalized as part of the cost of the property.
The capitalization of these borrowing costs, as part of the cost of the property: (a)
commences when the expenditures and borrowing costs being incurred during the installation
and related activities necessary to prepare the property for its intended use are in progress;
(b) is suspended during extended periods in which active development is interrupted; and (c)
ceases when substantially all the activities necessary to prepare the property for its intended
use are complete. These costs are amortized using the straight-line method over the estimated
useful lives of the related property.
Globe also registered a 25% decrease in swap costs to P1,056 million accruing on the long
term currency and interest rate swap contracts for the year ended 31 December 2004
compared to
=
P1,408 million for the same period last year. (See related discussion in
Foreign Exchange Exposure section).
Others-net decreased by 52% to P504 million for 2004 from P1,048 million in 2003 due to a
higher net foreign exchange gain in 2003 and favorable resolution of previous charges.
In 2003, Innove recognized full provision for its 4.25% equity investment in C2C Holdings
Pte. Ltd. (C2C Holdings) amounting to =
P895 million. The provision was made following the
assessment by C2C Holdings of the estimated future cash flows expected from the
continuing use of the cable network assets of C2C Pte. Ltd. (C2C) until the end of its
economic useful life and after considering the increased potential risk to the restructuring of
89
C2C’s debt. This considered an independent market study commissioned to revalidate the
bandwidth market potential and its effect on C2C Holdings.
Consolidated earnings before interest, other expenses (income) and taxes (EBIT) grew by 9%
to =
P17,143 million for the full year of 2004 compared to =
P15,692 million for the same period
in 2003.
For the period ended 31 December 2004, Globe’s provision for current and deferred income
tax amounted to P1,506 million after adjustments pertaining to current tax of prior periods,
including that on incentives availed by Globe from its Income Tax Holiday (ITH). Globe’s
incentives from ITH are due to expire on 31 March 2005. Globe’s effective income tax rate
was 18% before equity in Innove’s net income. Innove’s provision for current and deferred
income tax registered a net benefit of P713 million due largely to the reinstatement of tax
benefits on the remaining balance of previously unrecognized deferred tax assets deemed
recoverable from future taxable income. Globe’s consolidated provision for current and
deferred income tax amounted to P793 million in 2004 from P513 million in 2003.
Consolidated net income increased by 9% year-on-year to =
P 11,257 million from the =
P10,345
million posted for the same period in 2003.
Accordingly, consolidated basic and diluted earnings per common share were =
P79.93 and
=79.80, respectively, for 2004. For the full year of 2003, basic and diluted earnings per share
P
were at =
P68.79 and =
P68.65, respectively. The increase in earnings per share for 2004 was due
to improved operating results for the period plus the accretion resulting from Globe’s
buyback of 12 million shares in October 2003. (See related discussion in Capital Resources
Section)
Basic earnings per share (EPS) is computed by dividing earnings applicable to common
stock by the weighted average number of common shares outstanding during the period
including fully-paid but unissued shares, if any, as of the end of the period after giving
retroactive effect for any stock dividends, stock splits or reverse stock splits during the
period. Diluted EPS is computed assuming that the stock options are exercised and qualified
convertible preferred shares are converted.
Foreign Exchange Exposure
The Philippine Peso closed at P
=56.34 as of 31 December 2004 from P
=55.59 as of the same
date last year. As a result of the translation of these foreign currency-denominated assets and
liabilities, Globe Group’s reported net foreign currency revaluation gain amounted to
P301 million compared to P1,234 million loss for the periods ended 31 December 2004 and
2003, respectively.
The foreign exchange differentials arising from remeasurement of foreign currencydenominated accounts (other than those relating to the liabilities/borrowed funds attributed to
financing capital projects and those covered by swap agreements) are charged/credited to
current operations. Globe Group’s net foreign exchange gains credited to current operations
amounted to P90 million and P304 million for the year ended 31 December 2004 and 2003,
respectively.
The consolidated foreign exchange differentials attributed to the remeasurement of foreign
currency-denominated liabilities used to finance the acquisition and installation of Globe and
Innove’s property and equipment consisted of net foreign exchange losses amounting to
90
P305 million and P1,107 million for the year ended 31 December 2004 and 2003,
respectively. These foreign exchange differentials were added to or deducted from the cost
of the appropriate property and equipment accounts. Globe’s foreign exchange differentials
arising from remeasurement of foreign currency-denominated liabilities/borrowed funds
covered by currency swap contracts amounted to P515 million gain and P431 million loss for
the year ended 31 December 2004 and 2003, respectively. These gains (losses) were offset
by the translation losses (gains) from the related currency swaps.
SFAS 21/IAS 21, The Effects of Changes in Foreign Exchange Rates, provides certain
restrictions in allowing the capitalization of foreign exchange differentials. SFAS 21/IAS 21
will become effective for financial statements covering periods beginning on or after January
1, 2005. Accordingly, Globe Group under these standards, will no longer be able to
capitalize foreign exchange differentials effective 1 January 2005. On such date, any
remaining balance of the capitalized foreign exchange differentials, net of income tax effect,
will be adjusted retroactively against retained earnings and comparative consolidated
financial statements will be restated. As of 31 December 2004, the net cumulative foreign
exchange losses included in property and equipment amounted to =
P4,538 million, net of
accumulated depreciation of P
=3,376 million.
To mitigate foreign exchange risk, Globe enters into short-term foreign currency forwards
and long-term foreign currency swap contracts. Short-term forward contracts are used to
manage Globe’s foreign exchange exposure related to foreign currency-denominated
monetary assets and liabilities. For certain long term foreign currency denominated loans,
Globe enters into long term foreign currency and interest rate swap contracts to manage its
foreign exchange and interest rate exposures.
As of 31 December 2004, Globe had US$236 million in outstanding foreign currency swap
agreements, some of which have option features. Globe Telecom also sold currency options
with total notional amount of US$16 million maturing on 30 March 2005 and 30 September
2005.
Globe also has outstanding interest rate swaps. As of 31 December 2004, Globe has US$88.7
million in notional amount of US$ swaps under which it effectively swapped some of its
floating rate US$ denominated loans into fixed rate, with semi-annual payment intervals up
to August 2007. Globe also has US$5 million in notional amount of US$ swaps under which
it effectively swapped 9.75% fixed coupon of its 2012 Senior Notes to a floating rate based
on LIBOR, subject to a cap. The performance of the swap is linked to the 10 year and 30
year US$ Constant Maturity Swap Rates.
Globe also has a fixed to floating interest rate swap contract with a notional amount of P1
billion, in which it effectively swaps a fixed rate Philippine peso denominated bond into
floating rate with quarterly payment intervals up to February 2009.
Total swap costs accruing on the above long term currency and interest rate swap contracts
amounted to P1,056 million in 2004.
As of 31 December 2004, Globe had investments in US Dollar Linked Peso Notes (DLPN)
with a face value totaling P
=150 million maturing on 5 December 2005. The Notes are issued
by the Republic of the Philippines (ROP), denominated in Philippine Pesos, with coupon
payments and redemption amounts adjusted for the appreciation or depreciation of the US
dollar to the Philippine peso exchange rate. As such, the instrument behaves similarly to a
91
US-dollar asset. Globe had US$2.9 million outstanding non-deliverable currency forward
contracts to fix the Philippine peso cash flows from coupon and redemption of the DLPNs.
For disclosure purposes, the estimated unrealized mark-to-market gain on the outstanding
derivatives of Globe amounted to US$8.6 million based on the mark-to-market valuation as
of 31 December 2004 provided by counterparty banks. Such unrealized mark-to-market gain
is not included in the determination of net income.
Consolidated foreign currency linked revenues were 26% of total net revenues for the period
ended 31 December 2004 versus 30% in 2003. Foreign currency linked revenues include
those that are: (1) billed in foreign currency and settled in foreign currency, or (2) billed in
Pesos at rates linked to a foreign currency tariff and settled in Pesos, or (3) wireline monthly
service fees and the corresponding application of the Currency Exchange Rate Adjustment or
CERA mechanism, under which Globe has the ability to pass the effects of local currency
depreciation to its subscribers. These revenues serve as a natural hedge to our foreign
exchange exposure.
Liquidity and Capital Resources
Consolidated assets as of 31 December 2004 amounted to =
P138,125 million compared to
=140,130 million in 2003.
P
As of 31 December 2004, current ratio on a consolidated basis was 0.90:1 compared to
0.97:1 for the same period in 2003. Consolidated cash, cash equivalents and short term
investments was at P
=14,303 million at the end of 2004 compared to P15,004 million for the
same period in 2003. Gross debt to equity ratio was 0.92:1 on a consolidated basis and
remains well within the 2:1 debt to equity limit dictated by certain debt covenants while net
debt to equity ratio was 0.66:1 at the end of 2004.
The financial tests under Globe’s loan agreements include compliance with the following
ratios:
 Total debt to equity not exceeding 2:1;
 Total debt to EBITDA of 3:1;
 Debt service coverage exceeding 1.3 times (except for refinancing of the 2009
bond which the lenders consented to exclude from the computation);
 Secured debt ratio not exceeding 0.2 times.
Consolidated net cash flow from operations amounted to =
P27,294 million for the period
ended 31 December 2004 from P
=23,290 million in 2003.
Globe Consolidated
As of and for the year ended 31 December (in millions of
pesos)
Capital Expenditures (Cash) ……………………………….
Increase (Decrease) in Liabilities related to Acquisition of
PPE
Total Capital Expenditures …………………………………
20,283
17,452
936
21,219
(1,638)
15,814
Total Capital Expenditures / Service Revenues (%)…
40%
2004
2003
YoY change
16%
-157%
34%
33%
Consolidated net cash used in investing activities amounted to P
=17,679 million for the full
year of 2004 compared to =
P14,778 million for the same period in 2003. Consolidated capital
92
expenditures for the full year of 2004 amounted to =
P21,219 million. For 2005, the Globe
Group has earmarked around P17 billion for capital expenditures that will be spent primarily
on expanding its wireless network and enhancing the necessary transmission facilities in
areas where traffic is expected to surge. The 2005 capital expenditures program will be
funded through internally-generated cash and debt financing.
Consolidated net cash used in financing activities for the full year of 2004 amounted to
=9,074 million compared to P
P
=14,433 million for the same period in 2003. Consolidated total
debt as of 31 December 2004 amounted to =
P52,218 million. Loan repayments of Globe for
the full year of 2004 amounted to P
=18,874 million (US$335 million).
In February 2004, Globe issued =
P3.0 billion worth of Philippine SEC registered bonds. This
completed Globe’s refinancing requirement for its 2009 bonds. As of 30 June 2004, Globe
had redeemed US$77 million of its 2009 Senior Notes. On 2 August 2004, Globe Telecom
exercised its call option on the 2009 Senior Notes. The Company redeemed the remaining
balance of US$143 million at 106.5%. Bond redemption costs of P693 million were incurred
on the 2009 Senior Notes redeemed in August 2004. US$88 million worth of swaps and
forwards used to hedge the Senior Notes also matured. Consequently, previously deferred
debt issuance costs of
=
P100 million related to the notes were fully amortized upon
redemption and included in depreciation and amortization expenses.
During the year, Globe secured the following term loan facilities with various institutions to
finance its capital expenditure requirements.

In April 2004, Globe signed a US$100 million term loan facility with Norddeutsche
Landesbank Girozentrale (Singapore branch) as Lender. The facility is a 5-year term loan
with floating rate of interest over US$ LIBOR.

In June 2004, Globe signed a 5-year P
=2 billion term loan facility with Metropolitan Bank
and Trust Company (Metrobank) as Lender. The facility is a 5-year term loan with a
floating rate of interest over MART.

In July 2004, Globe raised US$100 million senior unsecured notes due 2012 which was
consolidated to form a single series with Globe’s US$200 million 9.75% notes due 2012
issued on April 4, 2002. Additionally, Globe signed a 5-year P
=5 billion fixed term loan
facility with various lenders under the DBP-JBIC program. The facility is a 5-year term
loan with a fixed rate of interest.
As of 31 December 2004, gross debt reached P52,218 million, 77% of which are
denominated in US$. Of the 77%, 33% have been swapped to peso debt. As a result, the
amount of US$ debt swapped into pesos and peso-denominated debt accounts for
approximately 48.5% of consolidated loans as of 31 December 2004.
Below is the schedule of debt maturities for Globe for the years stated below based on total
debt as of 31 December 2004:
Year Due
2005 ………………………………………………………………………
2006 ………………………………………………………………………
2007 ………………………………………………………………………
2008………………………………………………………………………
2009 through 2012 ……………………………………………………….
Total
93
Principal (US$ millions)
161
170
128
53
415
927
Stockholders’ equity was P
=57,016 million as of 31 December 2004. On 16 October 2003,
Globe approved the purchase of 12 million common shares from DeTeAsia Holdings GmbH
(DeTeAsia) at P680 per share for a total of P8.19 billion. This purchase was equivalent to
7.9% of Globe’s total outstanding common shares. DeTeAsia’s offer to sell all or part of its
37.7 million shares had earlier been accepted by Ayala Corporation (Ayala) and Singapore
Telecom International Pte. Ltd (STI), a wholly-owned subsidiary of Singapore
Telecommunications, Ltd. (ST). Ayala and STI then gave Globe an option to participate in
the transaction by buying back a portion of the shares of DeTeAsia. Globe closed its
purchase of common shares from DeTeAsia last 24 October 2003.
With Globe’s decision to participate, the DeTeAsia’s Globe common shares were sold as
follows: Ayala at 10.04 million shares, STI with 15.64 million shares and Globe with 12
million shares. On 12 November 2003, Ayala and ST each sold 3.75 million common shares
at P
=765 a share through a transaction on the Philippine Stock Exchange. After the
transaction, both Ayala (including shares owned by a subsidiary where it has full voting
power) and ST each owned 40% of Globe’s outstanding common shares. Subsequently, the
Company’s free float increased from 14.5% to 20%.
As of 31 December 2004, Globe’s capital stock consists of:
1. Preferred stock Series “A” at a par value of P5 per share of which 158.5 million
are outstanding out of a total authorized of 250 million shares.
Preferred stock “Series A” has the following features:
a) Convertible to one common share after 10 years from issue date at a price
which shall not be less than the prevailing market price of the common stock
less the par value of the preferred shares;
b) Cumulative and non-participating;
c) Floating rate dividend (set at MART 1 plus 2% average for a 12-month
period);
d) Issued at P
=5 par;
e) Voting rights;
f) Globe has the right to redeem the preferred shares at par plus accrued
dividends at any time after 5 years from date of issuance; and
g) Preferences as to dividend in the event of liquidation.
On 15 December 2004 the Board of Directors (BOD) approved the declaration
of cash dividends to preferred shareholders as of record date 31 December 2004
amounting to P75 million which remains outstanding as of 31 December 2004
and was included under “Accounts payable and accrued expenses” account in the
consolidated balance sheets. The 2003 dividends payable to convertible
preferred shareholders amounting to =
P68 million was paid on 28 September
2004.
2. Common shares at a par value of P
=50 per share of which 151.9 million shares
have been issued and 139.9 million are outstanding out of a total authorized of
200 million shares. The 12 million shares acquired from DeTeAsia are
considered treasury shares.
On 29 January 2004, the BOD approved a new dividend policy to declare cash
dividends to its common shareholders on a regular basis as may be determined
94
by the BOD from time to time. The BOD had set out a dividend payout rate of
approximately 50% of prior year’s net income payable semi-annually in March
and September of each year. This will be reviewed annually taking into account
Globe Telecom’s operating results, cash flows, debt covenants, capital
expenditure levels and liquidity. The BOD also declared the first semi-annual
cash dividend in 2004 of P
=18 per share payable to common stockholders of
record as of 18 February 2004 and a total of =
P2.52 billion dividends was paid on
15 March 2004. Additionally, the BOD on 2 August 2004 approved the
declaration of the second semi-annual cash dividends for 2004. A total of P2.52
billion in dividends were paid on 15 September 2004 with record date on 20
August 2004. (Please refer to Recent Developments Section for 2005 Cash
Dividend)
Consolidated Return on Average Equity (ROE) for the period ended 31 December 2004
stood at 21%.
On July 1, 2004, Globe Telecom granted additional stock options to key executives and
senior management personnel of the Globe Group under the Executive Stock Option Plan 2.
It required the grantees to pay a nonrefundable option purchase price of P1,000. The
grantees were given until September 30, 2004 to accept the offer. As of 31 December 2004,
a total of 803,800 stock options were granted to key executives and senior management
personnel. The agreement provides for an exercise price of P840.75 per share. Fifty percent
of the options become exercisable from July 1, 2006 to June 30, 2014, while the remaining
Fifty percent become exercisable from July 1, 2007 to June 30, 2014. In order to avail of the
privilege, the grantees must remain with Globe Telecom or its affiliates from grant date up to
the beginning of the exercise period of the corresponding shares.
At the Annual Stockholders’ Meeting held last 04 April 2005, the Company’s stockholders
approved the cancellation of the 20,065,627 Treasury Shares consisting of the 12 million
shares acquired from Deutsche Telekom and the 8,064,094 shares acquired from the share
buyback, and the amendment of the Articles of Incorporation of the Company to accordingly
reduce the authorized capital stock of the Corporation from P11,250,000,000 to
P10,246,718,650.
Recent Developments
Globe is an intervenor in and Innove (formerly Isla Communications Co., Inc.) is a party to
Civil Case No. Q-00-42221 entitled "Isla Communications Co., Inc. et. al., versus National
Telecommunications Commission et. al.," before the Regional Trial Court (RTC) of Quezon
City by virtue of which Globe and Innove, together with other cellular operators, sought and
obtained a preliminary injunction against the implementation of National
Telecommunications Commission (NTC) Memorandum Circular No. 13-6-2000. NTC
Memorandum Circular 13-6-2000 sought, among others, to extend the expiration period of
prepaid cards to two years. The NTC appealed the issuance of the injunction to the Court of
Appeals (CA). On 25 October 2001, Globe and Innove received a copy of the decision of
the CA ordering the dismissal of the case before the RTC for lack of jurisdiction, but without
prejudice to the cellular companies' seeking relief before the NTC which the CA claims had
jurisdiction over the matter. Globe subsequently filed a Petition for Review with the
Supreme Court (SC) seeking to reverse the decision of the CA. After initially denying the
petition, the SC on 2 September 2003, overturned the CA’s earlier dismissal of the petitions
filed by SMART and Globe. In its 13-page decision, the SC said that the Quezon City trial
court could hear and decide the case, contrary to NTC’s argument. The SC has also since
95
denied the NTC’s motion for reconsideration. We are awaiting resumption of the
proceedings before the RTC of Quezon City. In the event, however, that Globe is not
eventually sustained in its position and NTC Memorandum Circular No. 13-6-2000 is
implemented in its current form the Company would probably incur additional costs for
carrying and maintaining prepaid subscribers in its network.
On 7 February 2003, AT&T and MCI filed a petition before the United States Federal
Communications Commission (‘U.S. FCC’) seeking a stop-payment order on settlements to
the Philippine carriers on the ground that Philippine carriers were “whipsawing” AT&T and
MCI/WorldCom (MCI) into agreeing to an increase in termination rates to the Philippines.
Whipsawing occurs when a foreign monopoly supplier uses its market power to negotiate a
more favorable agreement from one US carrier and extract the same terms from other US
carriers. On 10 March 2003 the Chief International Bureau of the U.S. FCC issued an order
suspending all settlement payments of U.S. facilities-based carriers to a number of Philippine
carriers, including Globe Telecom, until such time as the U.S. FCC issues a Public Notice
stating otherwise. This Order had the effect of preventing U.S. facilities-based carriers such
as AT&T from paying the affected Philippine carriers for switched voice services, whether
rendered before or after the date of the Order. In response, the NTC issued an Order last 12
March 2003 ordering Philippine carriers not to accept traffic from US carriers who do not
pay for services rendered and to take all steps necessary to collect payment for services
rendered.

On November 2003, Globe announced the conclusion of interim commercial
arrangements with MCI and Sprint. On 9 January 2004, Globe reached an interim
termination rate agreement with AT&T for US-Philippine traffic. On 26 January 2004
the US FCC lifted its stop-payment order against Globe following confirmation by US
carriers that service with Globe had been normalized. U.S. carriers are now required to
resume payments for termination services. Globe has started receiving various
payments from these carriers after the lifting of the stop payment order. On June 2004,
the FCC issued an order denying the Petitions for Review filed by the different
Philippine carriers and upholding the finding of whipsawing. In the same order, the
U.S. FCC stated that the matter of lifting the International Settlements Policy (ISP)
over the Philippine route will be decided on in the U.S. FCC's proceedings relative to
its ISP Reform Order. Pursuant to the ISP Reform Order, countries whose rates are at
or below benchmark will be dropped from the coverage of the ISP unless serious
concerns are raised on the route. In August 2004, the U.S. FCC, as a pre-requisite to
lifting the ISP over the Philippine route required US carriers to certify that the rates
they are charged by the Philippine carriers are benchmark-compliant. As of 11 October
2004, all three major US carriers (AT&T, MCI and Sprint) have certified to the
benchmark compliance of the Philippine route. However, the U.S. FCC has not yet
lifted the ISP over the Philippine route to date. The US FCC continues to review the
position of the US carriers in this matter.

On 10 and 11 January 2004, the United States Department of Justice (US DOJ)
served subpoenas on several Philippine telecom executives, including two Globe
managers and the Innove CEO, requiring them to appear before a grand jury
investigation in Hawaii. The investigation is for the purpose of determining if the
conduct of the Philippine carriers in relation to the termination rate disputes with U.S.
carriers may have violated U.S. laws. On March 24, 2005, the District Court of Hawaii
granted Globe’s motion to quash the subpoena duces tecum against it on the ground
that US courts have no jurisdiction. This decision is not yet final and may still be
96
appealed by the US Department of Justice. The outcome of the investigation is
presently not determinable.
On 29 October 2004, the Singapore Exchange Securities Trading Limited advised Globe
that its US$300 million 9.75% Notes due 2012 (“Notes”) had been listed and quoted on the
Singapore exchange. The legal listing on the Singapore exchange signifies that the Notes are
listed in a register kept by the Singapore exchange but are not included on the main board of
the Singapore exchange or SGX. Trades in the Notes would not be made through the
Singapore exchange but would be conducted on a direct bilateral basis between trading
houses and settled via international clearing houses. Last 22 July 2004, Globe successfully
raised US$100 million in the international capital markets through the re-opening of its
US$200 Million Senior Notes due 2012 which are also listed in Luxembourg. (See Liquidity
and Capital Resources Section)
On 3 November 2004, Globe Telecom announced that it signed an agreement with six other
leading Asia Pacific mobile operators to form a regional mobile alliance, Bridge Mobile
Alliance, which will operate through a Singaporean-incorporated company, Bridge Mobile
Pte. Ltd. (‘Bridge Mobile’). The joint venture company will look at driving commercial and
other benefits for the operators and delivering regional mobile services to their subscribers.
The seven operators are Bharti (India), Globe Telecom (Philippines), Maxis (Malaysia)
Optus (Australia), Singtel (Singapore) Taiwan Cellular Corporation (Taiwan) and Telkomsel
(Indonesia).
On 9 November 2004, Moody’s Investor Service (Moody’s) placed on review for possible
downgrade the Ba2 foreign currency senior implied and senior unsecured bond ratings of
Globe. This rating action follows Moody’s decision to place the Philippines’ Ba2 foreign
currency sovereign ceiling under review for possible downgrade. At the same time, Moody’s
affirmed the Ba1 local currency senior implied and senior unsecured issuer ratings of Globe.
The outlook for these ratings remains positive.
On 10 November 2004, Ayala Corporation (Ayala) announced that it sold 7 million common
shares, equivalent to 5% of the common shares in Globe to SingTel. Substantially all of these
shares (6,287,565) are part of the block Ayala acquired from Deutsche Telecom (DT) last
October 2003. After the sale, Ayala’s common shareholdings decreased from 40% to 35%.
Ayala intends to use the sale proceeds to pay down part of its debt at the parent level and
further strengthen its financial position.
On 22 November 2004, the Philippine Rating Services Corporation (PhilRatings) announced
that it has maintained its PRS Aaa rating for Globe’s outstanding P3.0 billion bonds. A rating
of PRS Aaa is defined as: “Smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is secured. While the
various protective elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.”
On December 2004, Innove launched its “No NDD charges for Globelines to Globelines
calls nationwide” program. As part of its program, effective 5 January 2005, Globelines
postpaid subscribers would no longer be charged National Direct Dialing (NDD) charges for
calls made from their Globelines postpaid phones to any other Globelines postpaid phone
nationwide. However, on 4 January 2005, Innove suspended the implementation of the
program after receiving a cease-and-desist order (CDO) from the NTC in view of complaints
by the Private Telephone Companies of the Philippines (PAPTELCO) and PT&T for alleged
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predatory pricing. Innove has replied to the complaint of PAPTELCO and PT&T and
continues to work with the NTC to discuss the program. On 11 January 2005, Globe filed a
complaint against several telecom companies seeking to enjoin various carriers’ unlimited
call pricing schemes that Globe claims constitute predatory pricing. On 14 January 2005, the
NTC temporarily lifted the CDO and directed Innove to offer its toll-free NDD services for a
period not exceeding 30 days upon receipt of the memo from NTC pending a review and
resolution of all price and rate reduction schemes.
On 15 December 2004, the Board of Directors of Globe Telecom Holdings, Inc. (GTHI), an
associate of Globe Telecom, having completed and concluded its only activity related to the
Philippine Deposit Receipts, approved the dissolution of GTHI.
On 6 January 2005, Globe Kababayan launched its “Quick Remit and Load Card” service
that enables Overseas Filipino Workers (OFW) to remit cash and reload credits to Globe
Handyphone and TM phones. The Quick Remit and Load Card service allows OFWs to do
away with queuing at overseas remittance centers and making over-the-counter payments of
cable fees. This service complements G-Cash’s international remittance service.
Additionally, OFWs need not wait for days-off to remit money or reload credits to Globe
Handyphone and TM phones as the service can be availed anytime and anywhere. The Quick
Remit and Load Card service will be manufactured and distributed internationally by
Paysetter, Inc. and will be available in P1,200, P3,200 and P5,200 denominations.
On 16 January 2005, TM offered its new “Power Piso” call rates where TM to TM calls will
be charged P1.00 per minute only starting on the 3rd minute of each call. The 1st two (2)
minutes will be charged the current P5.50 per minute rate. The “Power Piso” campaign is
part of TM’s new repositioning to “TM, Ang Bagong TM” that is focused on giving more
peso value to its mass consumers by making its services more affordable. Additionally,
starting 16 January 2005, TM subscribers can access selected Value Added Services (VAS)
content for only P1 per download. This will be a permanent service available to TM
subscribers. Initial VAS content will include daily job openings, jokes and tips. Other VAS
services will be offered at the regular rate of P2.50 per download.
On 30 January 2005, Globe launched its “MyGlobe Tracker” service which allows Globe
Handyphone postpaid and prepaid subscribers to track the location of friends, family and
celebrities through their mobile phones using location-based technologies and applications
that act on or react to geographic triggers. These services provide a general location or
vicinity of a subscriber. Currently, five types of services are available to Globe subscribers
on “MyGlobe Tracker:”
(a) myFriend Tracker – Subscribers can locate friends and get information on their
location;
(b) myFamily Tracker - Parents can get information on the location of their children;
(c) myChat Tracker – Subscribers can get a list of chatters in their area;
(d) Celebrity Tracker – Subscribers can get alerts from celebrities in their area;
(e) Nginig Tracker – Subscribers can get information on paranormal readings within
their area. This is based on the ABS-CBN show “NGINIG”.
Registration for the above services is currently free while location requests range from P5
(SMS) and P10 (MMS).
On 1 February 2005, the Board of Directors declared the first semi-annual cash dividend in
2005 of P20 per common share with a record date of 18 February 2005 and payment date of
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15 March 2005. This cash dividend declaration is consistent with the Company’s dividend
policy of paying out approximately 50% of prior year’s net income payable semi-annually in
March and in September of each year.
On 1 February 2005, the Board of Directors approved an offer to purchase one share for
every fifteen shares of the outstanding common stock of Globe (par value P50) from all
shareholders of record as of 10 February 2005, at a price of P950 per share. The approval
allows Globe to purchase up to 9,326,924 shares representing 6.67% of its outstanding
common shares. Each shareholder is entitled to tender a proportionate number of shares
owned at the 1:15 ratio, referred to as the Tender Ratio, for purchase by Globe upon and
subject to the terms and conditions of the tender offer. Assuming all shareholders participate
in the tender offer to the full extent, the total purchase price will be about P8.86 billion.
Tendering shareholders will be eligible to receive the cash dividends declared on 1 February
2005 for their tendered shares.
Globe commenced the tender offer on 3 February 2005 and ended the offer on 3 March 2005.
On February 15, 2005, the Company crossed on the Philippine stock exchange the 8.064
million shares acquired under the buyback program.
On 1 February 2005, the Board of Directors approved the retirement of the purchased shares
and the existing 12 million treasury shares acquired in 2003 from DeTeAsia. At the Annual
Stockholders’ Meeting held last 04 April 2005, the company’s stockholders approved the
cancellation of the 20,065,627 Treasury Shares consisting of the 12 million shares acquired
from Deutsche Telekom and the 8,064,094 shares acquired from the share buyback, and the
amendment of the Articles of Incorporation of the Company to accordingly reduce the
authorized capital stock of the Corporation from P11,250,000,000 to P10,246,718,650.
Annex to Management’s Discussion and Analysis (MD&A) section
1. All material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the Company with
unconsolidated entities or other persons created during the reporting period;
Events that will trigger direct or contingent financial obligations that are material
to the Company including any default or acceleration of an obligation.
Adoption of New Accounting Standards
The Globe Group adopted the following Statements of Financial Accounting Standards
(SFAS), which became effective for financial statements covering the period beginning
January 1, 2004. These standards adopted their corresponding International Accounting
Standards (IAS).
• SFAS 12/IAS 12, Income Taxes, prescribes the accounting treatment for current and
deferred income taxes. The standard requires the use of a balance sheet liability
method in accounting for deferred income taxes. The adoption of the new standard has
no significant impact on the Globe Group’s results of operations. For presentation
purposes, the deferred income tax assets and deferred income tax liabilities previously
classified as current assets and current liabilities, respectively, in the consolidated
balance sheets are now reclassified as noncurrent assets and noncurrent liabilities upon
adoption of the new standard. The net deferred income tax assets and deferred income
tax liabilities are presented on a net basis by entity. Also, deferred tax assets on
temporary deductible differences previously covered with valuation allowance are no
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longer recognized as deferred tax assets. Additional disclosures required by the new
standard were included in the consolidated financial statements, including the
deductible temporary differences with no deferred income tax assets recognized in the
consolidated financial statements.
• SFAS 17/IAS 17, Leases, prescribes the accounting policies and disclosures to apply to
finance and operating leases. Finance leases are those that transfer to the lessee
substantially all the risks and benefits incidental to ownership of the leased item.
Leases where the lessor retains substantially all the risks and benefits of ownership of
the asset are classified as operating leases. The adoption of the standard resulted in the
recognition of lease payments under operating leases as an expense or income on a
straight line basis over the lease term. Previously, lease payments under operating
leases are recognized as an expense based on terms of the lease arrangements. The
adoption of the new standard resulted in a net decrease in consolidated net income by
about P117.37 million or a reduction in basic earnings per share of P0.84 for the year
ended December 31, 2004. The effect was accounted for prospectively because the
impact of adoption on the prior year financial statements is not material. Additional
disclosures required by the new standard were included in the condensed consolidated
financial statements.
New and Revised Accounting Standards to be Effective in 2005
The Accounting Standards Council (ASC) approved the issuance of new and revised
accounting standards which are based on revised IAS and new International Financial
Reporting Standards (IFRS) issued by the International Accounting Standards Board
(IASB). The new standards are effective for annual periods beginning on or after 1
January 2005. The ASC has re-named the standards that it issues to correspond better to
the issuances of IASB. Philippine Accounting Standards (PAS) correspond to adopted
IAS while Philippine Financial Reporting Standards (PFRS) correspond to the adopted
IFRS. Previously, standards issued by the ASC were designated as SFAS.
The Globe Group will adopt beginning 1 January 2005 the following new and revised
accounting standards that are relevant to the Globe Group:
New Accounting Standards
• PAS 19, Employee Benefits, prescribes the accounting and disclosures by employers for
employee benefits (including short-term employee benefits, post-employment benefits,
other long-term employee benefits and termination benefits). For post-employment
benefits classified as defined benefit plans, the standard requires (a) the use of the
projected unit credit method to measure a company’s obligations and costs; (b) a
company to determine the present value of defined benefit obligations and the fair
value if any plan assets with sufficient regularity; (c) the recognition of a specific
portion of net cumulative actuarial gains and losses when the net cumulative amount
exceeds 10% of the greater of the present value of the defined benefit obligation or the
fair value of the plan assets, but also permits the immediate recognition of these
actuarial gains and losses.
The Globe Group is in the process of having its actuarial valuation updated to
determine the impact of adopting PAS 19. The difference between the transitional
liability and the recorded liability will be adjusted against 2005 beginning retained
earnings.
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• PAS 21, The Effects of Changes in Foreign Exchange Rates, eliminates the
capitalization of foreign exchange differentials related to the acquisition of property
and equipment. Effective 1 January 2005, any undepreciated balance of the capitalized
foreign exchange differentials, net of deferred income tax, will be adjusted
retroactively to beginning retained earnings, and prior years’ consolidated financial
statements presented will be restated.
As of 31 December 2004, the net cumulative foreign exchange losses included in
property and equipment amounted to P4,538.30 million, net of accumulated
depreciation of P3,376.17 million. The adoption of PAS 21 is estimated to decrease the
2005 beginning retained earnings by P2,416.59 million, net of deferred income tax.
• PAS 32, Financial Instruments: Disclosure and Presentation, covers the disclosure and
presentation of all financial instruments. The standard requires more comprehensive
disclosures about a company’s financial instruments, whether recognized or
unrecognized in the financial statements. New disclosure requirements include terms
and conditions of financial instruments used by the company, types of risks associated
with both recognized and unrecognized financial instruments (foreign exchange risk,
price risk, credit risk, liquidity risk, and cash flow risk), fair value information of both
recognized and unrecognized financial assets and financial liabilities, and the
company’s financial risk management policies and objectives. The standard also
requires financial instruments to be classified as debt or equity in accordance with their
substance and not their legal form.
• PAS 39, Financial Instruments: Recognition and Measurement, establishes the
accounting and reporting standards for recognizing and measuring a company’s
financial assets and financial liabilities. The standard requires a financial asset or
financial liability to be recognized initially at fair value. Subsequent to initial
recognition, the company should continue to measure financial assets at their fair
values, except for loans and receivables and held-to-maturity investments, which are to
be measured at cost or amortized cost using the effective interest rate method.
Financial liabilities are subsequently measured at cost or amortized cost, except for
liabilities classified as “at fair value through profit and loss” and derivatives, which are
subsequently to be measured at fair value.
PAS 39 also covers the accounting for derivative instruments. This standard has
expanded the definition of a derivative instrument to include derivatives (and
derivative-like provisions) embedded in non-derivative contracts. Under the standard,
every derivative instrument is recorded in the balance sheet as either an asset or
liability measured at its fair value. Derivatives that do not qualify as hedges are
adjusted to fair value through income. If a derivative is designated and qualify as a
hedge, depending on the nature of the hedging relationship, changes in the fair value of
the derivative are either offset against the changes in fair value of the hedged assets,
liabilities, and firm commitments through earnings, or recognized in stockholders’
equity until the hedged item is recognized in earnings. A company must formally
document, designate and assess the hedge effectiveness of derivative transactions that
receive hedge accounting treatment.
The Globe Group has formed an implementation team that is currently assessing the
operational and financial statement impact of PAS 32 and PAS 39. Among the
implementation activities include the following:
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a. review of all financial and non-financial contracts to identify and bifurcate (where
required) embedded derivatives;
b. classification and measurement of financial assets and financial liabilities;
c. evaluation of financial instruments as to whether these should be classified as debt
or equity, depending on their features;
d. review of existing hedge accounting treatment for qualifying hedges and
compliance with hedge accounting criteria, particularly on documentation and
effectiveness testing; and,
e. enhancement of existing processes and systems relating to validation of mark-tomarket computations, monitoring of changes in the fair value of financial
instruments, monitoring of effectiveness results as these flow through the
financial statements, and monitoring of the impact of bifurcated embedded
derivatives.
Under PAS 39, all derivative instruments (both freestanding and embedded) as well as
most financial instruments classified under the categories “Financial Instruments at
Fair Value thought Profit or Loss” and “Available for Sale” categories will be
measured at fair value which may add volatility in the consolidated balance sheets and
consolidated statements of income. However, the quantitative impact of adopting PAS
39 will be determined only upon substantial completion of the foregoing
implementation activities. The effect of adopting PAS 32 and PAS 39 in 2005 will be
computed retroactively and adjusted against 2005 beginning retained earnings.
Disclosure requirements, where applicable, will be included in the 2005 financial
statements. Prior years’ financial statements will not be restated as allowed under SEC
rules.
• PAS 40, Investment Property, establishes the accounting and reporting standards for
investment property. Investment property is property (land or a building or both) held
(by the owner or by the lessee under a finance lease) to earn rentals or for capital
appreciation or both, rather than for: (a) use in the production or supply of goods or
supply of goods or services or for administrative purposes; or (b) sale in the ordinary
course of business. Under this standard, Globe Group is permitted to choose either the
fair value model or cost model in the subsequent measurement of a qualifying
investment property. Fair value model requires an investment property to be measured
at fair value with fair value changes recognized directly in the statements of income.
Cost model requires an investment property to be measured at cost less any
accumulated depreciation and impairment losses.
The adoption of PAS 40 is not expected to have a material effect on the consolidated
financial statements. Any identified investment property will be reclassified from
property and equipment and will be carried using the cost model.
• PFRS 2, Share-Based Payments, sets out the measurement principles and accounting
requirements for share-based payment transactions, including transactions with
employees or other parties to be settled in cash, other assets, or equity instruments of
the entity. Under this standard, the Globe Group is required to recognize the cost of
share options granted after 7 November 2002 in the statements of income. The Globe
Group currently does not recognize an expense from share options granted but
discloses required information for such options.
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Upon adoption of PFRS 2 in 2005, the estimated cost as of 31 December 2004 of share
options issued to Globe Group employees amounting to P99.04 million, net of deferred
income tax, will be adjusted against 2005 beginning retained earnings with a credit to
additional paid in capital and prior years’ consolidated financial statements presented
will be restated.
• PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, specifies the
accounting for assets held for sale and the presentation and disclosure requirements for
discontinued operations. Under this standard, qualifying non-current assets or disposal
groups held for sale shall be carried at fair value less cost to sell if this amount is lower
than its carrying amount less accumulated impairment losses. The company shall not
depreciate (or amortize) non-current assets (or disposal groups) while classified as held
for sale. Any gain or loss on the remeasurement of a non-current asset (or disposal
group) classified as held for sale shall be included in the profit or loss from continuing
operations.
As of 31 December 2004, Globe Group has no qualifying non-current assets held for
sale.
Revised Accounting Standards
• PAS 16, Property, Plant and Equipment, (a) provides additional guidance and
clarification on recognition and measurement of items of property, plant and
equipment; (b) requires the capitalization of the costs of asset dismantling, removal or
restoration as a result of either acquiring or having used the asset for purposes other
than to produce inventories during the period; and (c) requires measurement of an item
of property, plant and equipment acquired in exchange for a non-monetary asset(s), or
a combination of monetary and non-monetary assets, at fair value unless the exchange
transaction lacks commercial substance. Under the previous version of this standard,
an entity measured such an acquired asset at fair value unless the exchanged assets
were similar.
Upon adoption of the revised PAS 16, the estimated accumulated depreciation and
accretion on the additional asset dismantling costs that will be capitalized amounting to
P258.99 million, net of deferred income tax, will be adjusted against 2005 beginning
retained earnings and prior years’ financial statements presented will be restated.
The adoption of the following revised accounting standards is not expected to have a
material effect on the consolidated financial statements. Additional disclosures
required by the revised accounting standards will be included in the consolidated
financial statements.

PAS 1, Presentation of Financial Statements, provides a framework within which an
entity assesses how to present fairly the effects of transactions and other events;
provides the base criteria for classifying liabilities as current or noncurrent; prohibits
the presentation of income from operating activities and extraordinary items as
separate line items in the statements of income; and specifies the disclosures about key
sources of estimation, uncertainty and judgments management has made in the process
of applying a company’s accounting policies. It also requires changes in the
presentation of minority interest in the consolidated balance sheets and statements of
income.
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
PAS 2, Inventories, reduces the alternatives for measurement of inventories by
disallowing the use of the last in, first out (LIFO) formula. Moreover, the revised
standard does not permit foreign exchange differences arising directly on the recent
acquisition of inventories invoiced in a foreign currency to be included in the cost of
purchase of inventories.
PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, (a)
removes the concept of fundamental error and the allowed alternative to
retrospective application of voluntary changes in accounting policies and
retrospective restatement to correct prior period errors; (b) updates the previous
hierarchy of guidance to which management refers and whose applicability it
considers when selecting accounting policies in the absence of standards and
interpretations that specifically apply; (c) defines material omission or
misstatements; and (d) describes how to apply the concept of materiality when
applying accounting policies and correcting errors.
PAS 10, Events After the Balance Sheet Date, provides a limited clarification of
the accounting for dividends declared after the balance sheet date.
PAS 17, Leases, provides a limited revision to clarify the classification of a lease
of land and buildings and prohibits expensing of initial direct costs in the
financial statements of the lessors.
PAS 24, Related Party Disclosures, provides additional guidance and clarity in
the scope of the standard, the definitions and disclosures for related parties. It
also requires disclosure of the compensation of key management personnel by
benefit type.

PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in
accounting for investments in subsidiaries in the separate financial statements of a
parent, venturer or investor. Investments in subsidiaries will be accounted for either
at cost or in accordance with PAS 39 in the separate financial statements. Equity
method of accounting will no longer be allowed in the separate financial statements.

PAS 28, Investments in Associates, reduces alternatives in accounting for associates
in consolidated financial statements and in accounting for investments in the separate
financial statements of an investor. Investments in associates will be accounted for
either at cost or in accordance with PAS 39 in the separate financial statements.
Equity method of accounting will no longer be allowed in the separate financial
statements.
PAS 27 and 28 require strict compliance with adoption of uniform accounting
policies and require the parent company/investor to make appropriate adjustments to
the subsidiary’s/associate’s financial statements to conform them to the parent
company’s/investor’s accounting policies for reporting like transactions and other
events in similar circumstances.
PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for
interests in joint ventures in consolidated financial statements and in accounting
for investments in the separate financial statements of a venturer. Interests in
joint ventures will be accounted for either at cost or in accordance with PAS 39
in the separate financial statements. Equity method of accounting will no longer
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be allowed in the separate financial statements. However, the equity method is
still an allowed alternative in the consolidated financial statements.

PAS 33, Earnings Per Share, prescribes principles for the determination and
presentation of earnings per share for entities with publicly traded shares, entities in
the process of issuing ordinary shares to the public, and any entities that calculate
and disclose earnings per share. The standard also provides additional guidance in
computing earnings per share including the effects of mandatorily convertible
instruments and contingently issuable shares, among others.

PAS 36, Impairment of Assets, establishes frequency of impairment testing for
certain intangibles and provides additional guidance on the measurement of an
asset’s value in use.
PAS 38, Intangible Assets, provides additional clarification on the definition and
recognition of certain intangibles. Moreover, this revised standard requires that
an intangible asset with an indefinite useful life should not be amortized but will
be tested for impairment by comparing its recoverable amount with its carrying
amount annually and whenever there is an indication that the intangible asset
may be impaired.
2. Causes of any material change from period to period of FS:
Balance Sheet Accounts Variance Analysis (31 Dec 2004 vs. 31 Dec 2003)
a.) Short-term investment – Decreased by 63% or P1,242.1 million due to
maturities of various short-term investments.
b.) Receivables – Net – Declined by 38% due mainly from net collection of
traffic receivables from various carriers and decrease in ILD revenues as a
result of ISR (International Simple Resale) operations. (Please see related
discussion under International Long Distance Services in FY 2004 MD&A
discussion)
c.) Inventories and Supplies – Net – Level of inventory increased in 2004 by
84% or P520 million primarily for SIMs reserved for SIM swap program and
purchase of handsets reserved for promotional programs.
d.) Prepayments and other current assets – Primarily due to lower input VAT
generated in 2004 and net amortization of various prepayments.
e.) Deferred Charges and others – Decreased by 31% or P596.6 million due to
full amortization of debt issuance cost related to 2009 Senior Notes
redeemed in August 2004 of P100 million and revaluation gain on foreign
currency swaps and unamortized forward premiums due to termination of
U.S $88 million worth of swaps & forwards used to hedge 2009 Senior
Notes redeemed in August 2004.
f.) Miscellaneous deposits and investments – Decrease is due mainly to
reclassification of investment maturing on December 2005 to short-term
investment.
g.) Deferred Income Tax Assets– Represent Innove’s recognition of previously
unrecognized deferred tax assets as a result of management’s periodic
review of the realizability of its deferred tax assets that considers sufficiency
of future taxable income from which all or part of the DTA will be utilized.
This was partly offset by normal deferred tax adjustments.
h.) Accounts payable and accrued expenses – Declined by 19% or 4.7 billion
primarily due to net settlement to local/foreign carriers, net payment to
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suppliers/contractors and net reversal of provision for probable losses
resulting mainly from recent favorable developments that called for a
reassessment of existing provisions.
i.) Unearned revenues – Decreased by 27% or P644.2 million due to faster and
higher usage of airtime brought by various new services launched during the
year (such as video streaming, Text & Call Collect, G-Cash etc.).
j.) Deferred Income Tax Liabilities – Increased by 34% or P1.2 billion due to
higher deferred income tax liabilities related to excess of accumulated
depreciation of property and equipment for tax purposes over financial
reporting and capitalized borrowing cost already claimed as deduction for
tax purposes.
3.
Description of material commitments and general purpose of such commitments.
Material off-balance sheet transactions, arrangements, obligations and other
relationships with unconsolidated entities or other persons created during the
period:
Our lease commitments are as follows:
(a) Operating lease commitments - Globe Group as lessee
Globe Telecom and Innove lease certain premises for some of their telecom
facilities and equipment and for most of their business centers and cell sites.
These operating lease arrangements are for periods ranging from one to ten years
from the date of the contracts and are renewable under certain terms and
conditions. The agreements generally require certain amounts of security deposit
and advance rentals, which are shown as part of “Miscellaneous deposits and
investments” account in the consolidated balance sheets. The consolidated
rentals incurred on these leases amounted to P
=1,420.07 million, P
=1,604.42
million and P
=2,056.73 million in 2004, 2003 and 2002, respectively.
As of 31 December 2004, the consolidated future minimum lease payments
under these operating leases are as follows (in thousand pesos):
Not later than one year
After one year but not more than five years
After five years
=528,239
P
1,895,387
1,049,610
=3,473,236
P
(b) Operating lease commitments – Globe Group as lessor
Innove entered into a lease agreement covering the lease of office space at the
Innove IT Plaza to a third party. The lease has a remaining lease term of less
than a year renewable under certain terms and conditions. Total lease income
amounted to about P
=21.22 million and P
=13.19 million in 2004 and 2003,
respectively. As of December 31, 2004, the future minimum lease receivables
under this operating lease amounted to =
P23.77 million which is due within one
year.
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(c) Finance lease commitments - Globe Group as lessee
Globe Telecom and Innove have entered into finance lease agreements for their
various property and equipment. The said leased assets are capitalized and
depreciated over their estimated useful life of three years which is also
equivalent to the lease term.
As of 31 December 2004, the consolidated future minimum lease payments
under finance leases and the present value of the net minimum lease payments
are as follows (in thousand pesos):
Within one year
After one year but not more than five years
Total minimum lease payments
Less interest
Present value of minimum lease payments
Current
Noncurrent
P24,890
=
14,816
39,706
3,100
36,606
22,845
13,761
=36,606
P
The present value of the net minimum lease payments under finance leases was
included under “Other long-term liabilities” account in the consolidated balance
sheets.
The carrying values of property and equipment held under finance leases where
the Globe Group is the lessee are as follows:
2004
= 186,031
P
4,400
190,431
167,062
= 23,369
P
Furniture, fixtures and equipment
Transportation and work equipment
Less accumulated depreciation
Net book value
2003
2002
(In Thousand Pesos)
=199,560
P
P206,541
=
4,400
4,400
203,960
210,941
167,188
142,778
=36,772
P
=68,163
P
Agreements and Commitments with Other Carriers
Globe Telecom and Innove have existing correspondence agreements with various
foreign administrations and interconnection agreements with local telecommunications
companies for their various services. They also have international roaming agreements
with other CMTS-GSM operators in foreign countries, which allow their CMTS-GSM
subscribers access to foreign GSM networks. The agreements provide for sharing of toll
revenues derived from the mutual use of interconnection facilities.
With the integration of Innove’s wireless network to Globe Telecom’s network and the
migration of the wireless subscribers of Innove to TM service, roaming agreements
between Innove and its roaming partners have been terminated.
Agreements and Commitments with Suppliers
Globe Telecom and Innove have entered into agreements with various suppliers for the
delivery, installation or construction of their property and equipment. Under the terms of
these agreements, delivery, installation or construction commence only when purchase
orders are served. Billings are based on the progress of the project installation or
construction. While the construction is in progress, project costs are accrued based on
107
the billings received. When the installation or construction and related activities
necessary to prepare the property for its intended use are complete and the property is
ready for service, the balance of the related purchase orders is accrued. The consolidated
accrued project costs as of December 31, 2004, 2003 and 2002 included in the “Accounts
payable and accrued expenses” account in the consolidated balance sheets amounted to
about P
=3,454.29 million, =
P3,003.05 million and P
=3,805.17 million, respectively. As of
December 31, 2004, the consolidated expected future payments amounted to
=6.77 billion. The settlement of these liabilities is dependent on the payment terms
P
agreed with the suppliers and contractors. The normal repayment credit terms commence
once the projects are finally accepted by Globe Telecom and Innove.
As of December 31, 2004, the Globe Group has available short-term credit facilities of
U.S.$32.00 million and =
P5,300.00 million and undrawn committed long-term credit
facilities of U.S.$100.00 million and =
P5,300.00 million. The said facilities may be
drawn either in U.S. dollars or in Philippine pesos.
Investments in Subsidiaries, Associate and Joint Venture
Investment in Bridge Mobile Alliance (BMA)
On 3 November 2004, Globe Telecom and six other leading Asia Pacific mobile
operators (JV partners) signed an Agreement (JV Agreement) to form a regional mobile
alliance, BMA, which will operate through a Singapore-incorporated company, Bridge
Mobile Pte. Ltd. (Bridge Mobile). The joint venture company will look at driving
commercial and other benefits for the operators and delivering regional mobile services
to their subscribers. Bridge Mobile will be a commercial vehicle in which the seven JV
partners will jointly invest to build and establish a regional mobile infrastructure and
common service platform. This will enable the creation and seamless delivery of regional
mobile services across geographical borders, and enhance the service experience of their
mobile customers when they roam from one country to another. Bridge Mobile will also
develop new products and services on a regional basis and create competitive advantages
and differentiation for the mobile operators in their respective markets.
The other joint venture partners include Bharti Tele-Ventures Limited (India), Maxis
Communications Berhad (Malaysia), Optus Mobile Pty Limited (Australia), Singapore
Telecom Mobile Pte Ltd (Singapore), Taiwan Cellular Corporation (Taiwan) and PT
Telekomunikasi Selular (Indonesia). Under the JV Agreement, each partner
(shareholder) shall contribute U.S.$4 million scheduled as follows:
Year 1 about U.S.$1.5 million
Year 2 about U.S.$1.3 million
Year 3 about U.S.$1.2 million
As of 31 December 2004, the initial subscription required upon signing of the JV
Agreement amounting to U.S.$1.0 million (P56.33 million) is included in
“Miscellaneous deposits and investments” account in the consolidated balance sheets.
Globe Telecom’s percentage of ownership in BMA is 14.29%.
Investment in Globe Telecom Holdings, Inc. (GTHI)
Globe had a 32.67% investment in GTHI. On 15 December 2004, the Board of Directors
(BOD) of GTHI approved the dissolution of GTHI.
108
4. Trend Information
Risk Factors
The following summary of our risk factors may contribute to increasing or decreasing
our liquidity:
a. We derive most of our revenues from our wireless business and hence, are dependent
on the growth of our wireless business.
b. We have a substantial amount of existing debt which could restrict our financing and
operating flexibility and have other adverse consequences.
c. We may be unable to obtain sufficient financing for our capital expenditures.
d. The Philippine telecommunications industry is highly competitive. Competition may
lead to a reduction in our revenues and an increase in our capital expenditures.
e. Rapid changes in telecommunications technology may adversely affect the
economics of our existing businesses and the value of our assets and create new
competition.
f. Our business and profitability depend on the reliability and performance of our
network infrastructure.
g. We are controlled by two major shareholders and these shareholders have had and
are expected to continue to have a significant influence on our success, but are not
required to provide equity or financial support in the future. They may also engage in
businesses similar to ours.
h. Limits on foreign ownership of our capital stock may restrict our access to sources of
equity capital.
i. The occurrence of natural catastrophes may materially disrupt our operations.
j. If new billing requirements issued by the NTC are implemented in their current
form, we could suffer significant adverse financial effects (Please see Item 3: Legal
Proceedings).
k. Political instability may affect our financial results.
l. Future economic downturns could affect future growth of our business.
m. The decline in the value of the Peso against the U.S. dollar increases many of our
costs while improvement of the Peso against the U.S. dollar may also reduce our
inbound IDD revenues.
n. Our business is significantly affected by the development of regulation and the
discretion of regulators.
5. Seasonal Aspects that have a material effect on the FS – None.
109
PART IV-MANAGEMENT AND CERTAIN SECURITY HOLDERS
Item 9. Directors and Key Officers of the Registrant
(including their business experience for the past five years)
Members of the Board of Directors as of 31 December 2005 are as follows:
Office
Chairman
Co-Vice Chairman
Co-Vice Chairman
Director
Director & President
Director
Director
Director
Director
Director
Director
Name
Jaime Augusto Zobel de Ayala II
Delfin L. Lazaro
Lim Chuan Poh
Fernando Zobel de Ayala
Gerardo C. Ablaza, Jr.
Romeo Bernardo1
Jeann Low 2
Roberto F. de Ocampo
Xavier P. Loinaz
Guillermo Luchangco1
Jesus P. Tambunting
_____________________________________________
1
2
Age
46
60
51
45
52
51
45
60
62
66
67
Term of Office
1997-2005
1997-2005
2001-2005
1995-2005
1998-2005
2001-2005
2005
2003-2005
2001-2005
2001-2005
2003-2005
Independent Directors
Lucas Chow was replaced by Jeann Low effective 30 June 2005. On 7 February 2006, Koh Kah Sek replaced
Jeann Low.
Our Current Directors are:
Jaime Augusto Zobel de Ayala II. Mr. Zobel, 46, Filipino, has served as Chairman of the
Board since 1997 (and has been a Director since 1989). He also serves as the Co-Vice
Chairman of the Board of Directors, Member of the Executive Committee and Management
Committee and President and CEO of Ayala Corporation. e is also Chairman of the Board of
Directors of Bank of the Philippine Islands and Integrated Microelectronics, Inc. He is also a
member of various international and local business and socio-civic organizations including
the JP Morgan International Council, Mitsubishi Corporation International Advisory
Committee, Toshiba International Advisory Group, Harvard University Asia Center
Advisory Committee, Board of Trustees of the Asian Institute of Management and a national
council member of the World Wildlife Fund (US). He was a member of the World
Economic Forum Global Leaders for Tomorrow and was a TOYM (Ten Outstanding Young
Men) Philippine Awardee in 1999.
Delfin L. Lazaro. Mr. Lazaro, 60, Filipino, has served as Director since January 1997. He is
currently Chairman of the Executive Committee and a former president of Globe. He is also
the Chief Finance Officer and a member of the Management Committee of the Ayala
Corporation. His other significant positions include: President of Azalea Technology
Investments; Member of the Board of Directors of Ayala Land, Inc. (ALI), Manila Water
Co., Inc. (MWC) and Integrated Micro-electronics, Inc. (IMI). Also, Mr. Lazaro was
formerly the President of Globe Telecom, Inc. and the President and CEO of Benguet
Corporation and Secretary of the Department of Energy of the Philippine government. He
was named Management Man of the Year 1999 by the Management Association of the
Philippines for his contribution to the conceptualization and implementation of the Philippine
Energy Development Plan and to the passage of the law creating the Department of Energy.
He was also cited for stabilizing the power situation that helped the country achieve
110
successively high growth levels up to the Asian crisis in 1997. In addition, Mr. Lazaro was
chosen for his role in turning Globe Telecom around during a difficult economic period.
Lim Chuan Poh. Mr. Lim, 51, Singaporean, has served as Director since 2001. He is the
Executive Vice President (Strategic Investments) of Singapore Telecom. He is also the
Chairman of Bridge Mobile Alliance, which is Asia Pacific's largest mobile alliance group.
Prior to joining SingTel in 1998, he was Deputy Secretary of the Ministry of
Communications. He also served in different senior appointments in the Singapore Civil
Services.
Gerardo C. Ablaza, Jr. Mr. Ablaza, 52, Filipino, has served as Director since 1998. He is
currently the President and Chief Executive Officer of Globe. He is also a Senior Managing
Director of Ayala Corporation. He was previously Vice President and Country Business
Manager for the Philippines and Guam of Citibank, N.A. for its Global Consumer Banking
business. Prior to this position he was Vice President of Citibank, N.A. Singapore for
Consumer Banking. Attendant to his last position in Citibank, N.A., Mr. Ablaza was the
bank’s representative to the Board of Directors of CityTrust Banking Corporation and its
various subsidiaries.
Romeo L. Bernardo. Mr. Bernardo, 51, Filipino, has served as a director since 2001. He is
currently President of Lazaro Bernardo Tiu and Associates. He is Chairman and/or member
of the Board of several private companies including the Bank of the Philippine Islands, RFM
Corporation, Phinma, PSI Technologies (a Nasdaq-listed company), and ALFM Peso, Dollar
and Euro Bond Funds. He has previously served as Undersecretary of Finance of the
Philippine Government and Alternate Executive Director of the Asian Development Bank.
Jeann Low. Ms. Low, 45, Singaporean, has served as Director since June 30, 2005. She is
the Chief Financial Officer of Optus since Feb 2006. Prior to Optus, she was with SingTel as
the Group Financial Controller for 5 years before being appointed as Executive Vice
President (Strategic Investments) in Nov 2005. Prior to joining SingTel in 1998, she was
with Aztech Systems as Vice President responsible for the Aztech Group’s Finance, Human
Resource and Administration departments.
Roberto F. de Ocampo. Mr. de Ocampo, 60, Filipino, has served as director since 2003. He
is currently the President of the Asian Institute of Management. Dr. de Ocampo had been
and is Chairman and/or Board Member of several companies both in the Philippines and
abroad including, among others, the Centennial Group (Washington, D.C.), Dun &
Bradstreet (Asia Pacific) Pte. Ltd., Alaska Milk Corporation, United Overseas Bank, ABSCBN Broadcasting Corporation, Philippine Airlines, Philamlife Savings Bank, Metrobank,
Seaboard Eastern Insurance Co., House of Investments. He has also served as Secretary of
the Department of Finance of the Philippine government. More recently, he was elected to
the Board of Advisors of the Conference Board, one of the world’s leading authorities in
international business economics (based in New York).
Xavier P. Loinaz. Mr. Loinaz, 62, Filipino, has served as Director since 2001. He is
formerly the President of the Bank of the Philippine Islands (BPI). Other positions held are:
Director of BPI, BPI Capital Corporation, BPI Direct Savings Bank, Inc., BPI/MS Insurance
Corporation and BPI Family Savings Bank, Inc.; Chairman of the Board of Directors of
Ayala Life Assurance, Inc.; and Member of the Board of Trustees of BPI Foundation, Inc.
Guillermo D. Luchangco. Mr. Luchangco, 66, Filipino, has served as Director since 2001.
He is also Chairman and Chief Executive Officer of Investment & Capital Corporation of the
111
Philippines, ICCP Venture Partners, Inc., Pueblo de Oro Development Corp., Manila
Exposition Complex, Inc. and RFM-Science Park of the Philippines, Inc., among others. He
is also a Director of Bacnotan Consolidated Industries, Inc., Planters Development Bank,
Ionics EMS, Inc., and Ionics Circuits, Inc.
Jesus P. Tambunting, Mr. Tambunting, 67, Filipino, has served as Director since 2003. He
is also currently the Chairman and Chief Executive Officer of Planters Development Bank,
Chairman of SME Solutions, Inc., PDB-FMO Development Center Micro Enterprise Bank of
the Philippines and Association of Development Financing Institutions in Asia and the
Pacific (ADFIAP). From 1993 to 1998, Mr. Tambunting served as Ambassador
Extraordinary and Plenipotentiary to the United Kingdom of Great Britain and Northern
Ireland. He was conferred Management Man of the Year 2003 by the Management
Association of the Philippines, “Knight of the Equestrian Order of the Holy Sepulchre of
Jerusalem” by the Vatican in 2004 and the Lifetime Achievement Award in 2005 by the
Asian Bankers Association.
Fernando Zobel de Ayala. Mr. Ayala, 45, Filipino, has served as Director since 1995. He is
currently Chairman of the Board of Directors of Ayala Land, Inc. (ALI), and Executive
Managing Director and Co-Vice Chairman of the Board of Directors of Ayala Corporation.
His other significant positions include: Chairman of Manila Water Co., Inc., Ayala Hotels,
Inc., AC International Finance Ltd., Roxas Land Corporation and Alabang Commercial
Corp.; Co-Vice Chairman and Trustee of Ayala Foundation, Inc., Vice Chairman of Ayala
International Pte. Ltd. and Director of Integrated Micro-electronics Inc. (IMI).
Elected to the Board of Directors on 07 February 2006:
Koh Kah Sek. Ms. Koh, 34, Singaporean, joined SingTel in March 2005 as Group Financial
Controller. Prior to joining SingTel, she was with Far East Organisation – Yeo Hiap Seng
Limited as Vice President (Finance) responsible for the financial functions of the Singapore
and US operations. Prior to joining Far East Organisation, she had spent a number of years
in PricewaterhouseCoopers and Goldman Sachs.
Key Officers
The officers of our company are appointed by the Board of Directors and their appointment
as officers may be terminated at will by the Board of Directors. The table below shows the
name and position of our key officers as of 31 December 2005.
Name
Gerardo C. Ablaza, Jr. *
Ferdinand M. de la Cruz
Rebecca V. Eclipse
Rodell A. Garcia
Gil B. Genio
Delfin C. Gonzalez, Jr.
Cesar M. Maureal **
Rodolfo A. Salalima
Position
President and Chief Executive Officer
Head – Consumer Business
Head – Strategic Execution Center
Chief Information Officer
Chief Executive Officer – Innove
Chief Financial Officer
Head – Human Resources Group
Head - Corporate Affairs and Regulatory Matters
Renato O. Marzan
Corporate Secretary
* Member of the Board of Directors
**Resigned as of 30 June 2005
112
Consultants
Andrew Buay
Robert L. Wiggins
Chief Operating Adviser
Chief Technical Adviser
Position
Ferdinand M. de la Cruz. Mr. de la Cruz, 39, Filipino, joined Globe as Head of the Wireless
Group and is a licensed Mechanical Engineer. He brings with him solid work experience in
the sales and marketing departments of multinational companies like Kraft Foods and
Unilever Philippines. He was the President and General Manager of Kraft Foods Philippines
before joining Globe, and before that, was the Senior Vice-President for the Marketing and
Sales Division of Ayala Land Inc. He also served as National Sales Manager for San Miguel
Brewing.
Rebecca V. Eclipse. Ms. Eclipse, 42, Filipino, is the Head of the Strategic Execution Center.
She has 7 years experience in telecom financials and auditing from Oceanic Wireless
Network and Eastern Telecoms and 5 years of senior computer auditing from SGV & Co.
Rodell A. Garcia. Mr. Garcia, 49, Filipino, is the Chief Information Officer. Prior to joining
Globe, he was Executive Vice President for the Information Technology Group of DBS Bank
Philippines, Inc. He also held several management positions in Citytrust Banking
Corporation.
Gil B. Genio. Mr. Genio, 45, Filipino, is Chief Executive Officer of Innove and was
appointed Head of the Fixed Network Group and Chief Operating Officer of Innove on
November 16, 2000. Before his appointment to Innove, Mr. Genio was Globe’s Senior Vice
President and Chief Financial Officer. He is also currently a Managing Director of Ayala
Corporation. Prior to joining Globe, he served as Vice-President for Citibank, N.A.,
managing audit operations in Japan, Hong Kong and the People’s Republic of China.
Delfin C. Gonzalez, Jr. Mr. Gonzalez, 56, Filipino, is Chief Financial Officer and joined
Globe on November 16, 2000 as Head of the Finance Group. He worked previously with San
Miguel Corporation, first with the Strategic Planning and Finance Group and then as
Executive Vice President, CFO and Treasurer before he retired in 1999.
Rodolfo A. Salalima. Mr. Salalima, 58, Filipino, is Head of Corporate and Regulatory
Affairs and the Assistant Corporate Secretary. He has been employed with Globe since 1993.
He is also a Managing Director of Ayala Corporation. From 1992 to 1996, he served as the
first President and Founding Director of the Telecommunications and Broadcast Attorneys of
the Philippines, Inc. and is currently a Director and the President of the Philippine
Electronics and Telecommunications Federation.
Renato O. Marzan. Atty. Marzan, 57, Filipino, has served as Corporate Secretary since 1993
and is a former Director of Globe. He also serves as Managing Director of Ayala
Corporation; Director and Corporate Secretary of Honda Cars Makati, Inc., Isuzu
Automotive Dealership, Inc. and Michigan Holdings, Inc.; Corporate Secretary of Avida
Land, Corp. (formerly Laguna Properties Holdings, Inc.), Ayala Systems Technology, Inc.,
Azalea Technology Investment, Inc., Ayala Hotels, Inc., Laguna Technopark, Inc., Integrated
Micro-electronics, Inc., Community Innovations, Inc., and Roxas Land Corporation; and
Assistant Corporate Secretary of Ayala Corporation, Ayala Land, Inc. and Ayala Foundation,
Inc.
113
Senior Consultants
Andrew Buay. Mr. Buay, 40, Singaporean, joined Globe as Chief Operating Adviser in 2003.
He is currently the Managing Director of Singapore Telecommunications International
(Philippines) and has held various executive and senior management positions within
Singapore Telecom, Inc.
Robert L. Wiggins. Mr. Wiggins, 53, Australian, joined Globe as Chief Technical Adviser in
2002. He has approximately 30 years of work experience in the telecommunications industry
in various management capacities.
Family Relationships
The Chairman of our Board of Directors, Jaime Augusto Zobel de Ayala II, and a Director,
Fernando Zobel de Ayala, are brothers.
Significant Employee
All the employees are considered important assets of the Company who collectively make
significant contributions to the Company. Globe Telecom also has stock-based compensation
plans to encourage employees to remain with the Company. (Please refer to Item 10Executive Compensation section for details).
Involvement in Certain Legal Proceedings
None of the directors, officers or members of the Company’s senior management have,
during the last five years, been subject to any of the following:
(a) any bankruptcy, petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or within two (2)
years prior to the time;
(b) any conviction by final judgment of any offense in any pending criminal proceeding,
domestic or foreign, excluding traffic violations and other minor offenses;
(c) any order, judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, domestic or foreign, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type of
business, securities, commodities, or banking activities; and
(d) found by a domestic or foreign court of competent jurisdiction (in a civil action), the
Commission or comparable foreign body, or a domestic or foreign exchange or
electronic marketplace or self regulatory organization, to have violated a securities or
commodities law, and the judgment has not been reversed, suspended or vacated.
114
Item 10. Executive Compensation
Standard Arrangements:
Directors
Article II Section 6 of the Company’s By-Laws provides:
“SECTION 6. COMPENSATION OF DIRECTORS - Directors as such shall not receive
any stated salary for their services, but, by resolution of the stockholders, a specific sum
fixed by the stockholders may be allowed for attendance at each regular or special meeting of
the Board; provided that nothing herein contained shall preclude any director from serving in
any other capacity and receiving compensation thereof.”
Officers Annual Compensation
The total annual compensation of the President and seven (7) other top Officers of the
Corporation is P90.83 million in 2004 and P90.64 million in 2005. The projected total
annual compensation for the current year is P87.67 million.
The total annual compensation includes the basic salary, guaranteed bonuses, fixed
allowances and variable pay (performance-based annual incentive).
Name
Principal Position
Gerardo C. Ablaza,
Jr.
Ferdinand M. dela
Cruz
Gil B. Genio
President & Chief
Executive Officer
Head
–
Wireless
Business
Head
–
Wireline
Business
Chief
Financial
Officer
Head – Corporate
Affairs & Regulatory
Matters
Head – Information
Systems
Head – Strategy
Execution Center
Head – Human
Resources
Delfin C. Gonzalez,
Jr.
Rodolfo A. Salalima
Rodell A. Garcia
Rebecca V. Eclipse
Cesar M. Maureal
All Officers as a Group
* Projected Total Annual Compensation
Basic
Pay
2006*
Other
Variable
Pay
P76.72 M
P10.95 M
Basic
Pay
2005
Other
Variable
Pay
P73.33 M
Basic
Pay
2004
Other
Variable
Pay
P17.31 M P 69.73 M
P21.10 M
The total annual compensation paid to all senior personnel from managers and up was
P800.5 million in 2004 and P861.44 million in 2005. The projected total annual
compensation for the current year is P888.2 million.
Name
All Officers ** as a Group
Basic Pay
P728.3 M
2006*
Other Variable
Pay
2005
Other
Variable
Pay
P648.54 M
P212.9 M
Basic Pay
P159.9 M
2004
Other
Variable
Pay
P659.6 M
P140.9 M
Basic Pay
* Projected Total Annual Compensation
** Managers and up
The Company has no other arrangement with regard to the remuneration of its existing
directors and officers aside from the compensation received as herein stated.
115
The above named executive officers are covered by a Letters of Appointment with the
Company stating therein their respective job functionalities, among others.
Other Arrangements:
Globe Telecom has various stock-based compensation plans. The number of shares allocated
under the plans shall not exceed the aggregate equivalent of 6% of the authorized capital
stock or up to 12.00 million common shares. These include the following:
a) Employees Stock Ownership (‘ESOWN’) Plan for all regular employees granted in
1998 and 1999;
b) Executive Stock Option Plan 1 (‘ESOP1’) for key senior executives granted in 1998
and 2000;
c) Executive Stock Option Plan 2 (‘ESOP2’) for key executives and Senior
Management granted in 2003.
For a more detailed discussion on the stock-based compensation plans, please refer to the
Stock Options section under Part II Securities of the Registrant.
Additional Disclosures (Warrants and Options Outstanding):


Outstanding warrants and options – Not Applicable. There were no new stock rights
or warrants issued in 2005.
Adjustments or amendments to warrants and options – Not Applicable. There were
no new stock rights or warrants issued in 2005.
116
Item 11. Security Ownership of Certain Beneficial Owners and Management
1. Security Ownership of Certain Record and Beneficial Owners (of more than 5%) as
of 31 January 2006
Type of
Class
Preferred
Common
Common
Common
Name, address of Record
Owner and Relationship
with Issuer
Asiacom Philippines, Inc. 1
34/F Tower One Bldg.
Ayala Ave., Makati City
Singapore Telecom Int’l. Pte.
Ltd. (STI)3
31 Exeter Road, Comcentre,
Singapore 0923
Ayala Corporation5
34/F Tower One Bldg.
Ayala Ave., Makati City
PCD Nominee Corporation
(Non-Filipino) 7
G/F Makati Stock Exchange
Bldg., Ayala Ave.
Makati City
Name of Beneficial Owner
and Relationship with
Record Owner
Asiacom Philippines, Inc. 2
Citizenship
Singapore Telecom Int’l.
Pte. Ltd. (STI)4
No. of Shares
Held
Filipino
Percent
of Class
158,515,021
54.582%
Singaporean
58,833,614
20.258%
Ayala Corporation6
Filipino
45,752,174
15.754%
Hongkong and Shanghai
Banking Corporation
(HSBC) and Standard
Chartered Bank (SCB)8
Filipino
22,972,596
7.910%
2. Security Ownership of Directors and Management (Corporate Officers) as of 31
January 2006.
Type of
Name of Beneficial Owner
Amount and Nature of
Class
Beneficial Ownership
Directors
Common
Jaime Augusto Zobel de Ayala II
4,102 (direct & indirect)
Common
Delfin L. Lazaro
1 (direct)
Common
Lim Chuan Poh
2 (direct)
Common
Gerardo C. Ablaza, Jr.
1 (direct)
Preferred
Romeo L. Bernardo
1 (direct)
Common
Jeann Low
2 (direct)
Common
Roberto F. de Ocampo
1 (direct)
Common
Xavier P. Loinaz
1 (direct)
Preferred
1 (direct)
Guillermo D. Luchangco
Common
2,500 (direct)
Preferred
Jesus P. Tambunting
1 (direct)
Common
Fernando Zobel de Ayala
101 (direct)
CEO and Four Most Highly Compensated Executive Officers
Common
Gerardo C. Ablaza, Jr.
1 (direct)
Common
Ferdinand M. dela Cruz
0
Common
Gil B. Genio
0
Common
Delfin C. Gonzalez, Jr.
0
Common
Rodolfo A. Salalima
1,961 (direct)
1
Citizenship
Percentage of
Ownership
Filipino
Filipino
Singaporean
Filipino
Filipino
Singaporean
Filipino
Filipino
0.0014124%
0.0000003%
0.0000007%
0.0000003%
0.0000003%
0.0000007%
0.0000003%
0.0000003%
0.0000003%
0.0008608%
0.0000003%
0.0000348%
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
0.0000003%
n/a
n/a
n/a
0.0006752%
The Chairman of the Board of Asiacom, Mr. Jaime Augusto Zobel de Ayala II, is also the Chairman
of the Board of the Company.
2
The Board of Directors of Asiacom has the power to decide how the Asiacom shares in Globe are to
be voted.
3
Singapore Telecom Int’l. Pte. Ltd. is not related to the Company.
4
The Board of Directors of STI has the power to decide how the STI shares in Globe are to be voted.
5
The Co-Vice Chairman and Chief Executive Officer of Ayala Corporation, Mr. Jaime Augusto Zobel
de Ayala II, is the Chairman of the Board of the Company.
6
The Board of Directors of AC has the power to decide how the AC shares in Globe are to be voted.
7
The PCD is not related to the Company.
8
HSBC and SCB are participants of PCD. The 13,184,392 and 8,083,524 shares beneficially owned
by HSBC and SCB, respectively, form part of the 22,972,596 shares registered in the name of the
PCD. The clients of HSBC and SCB have the power to decide how their shares are to be voted.
117
Other Executive Officers
Common
Renato O. Marzan
Common
Rebecca V. Eclipse
Common
Rodell A. Garcia
Common
Andrew Buay
Common
Robert L. Wiggins
All Directors and Officers as a group
_________________________________
0
0
2,029 (direct)
0
0
10,704
Filipino
Filipino
Filipino
Singaporean
Singaporean
n/a
n/a
0.0006986%
n/a
n/a
0.0036858%
None of the members of the Company’s directors and management own 2.0% or more of
the outstanding common and preferred stock of the Company.
3. Voting Trust Holders of 5% or More
There are no voting trust holders of 5% or more.
4. Changes in Control
Our major shareholders are Ayala, STI and Asiacom. Ayala and STI own 60% and 40%
of the outstanding shares of Asiacom, respectively. DeTeAsia was previously a major
shareholder until it sold its 37.67 million common shares (24.8% of the common
outstanding stock) in Globe Telecom to Ayala, STI and Globe in the third quarter of 2003.
Ayala owns 35% of the total outstanding common stock of the Corporation, while STI
owns 45% of the total outstanding common stock of the Corporation, as of 31 December
2005. Asiacom owns all of the outstanding preferred stock of the Corporation.
Item 12. Certain Relationships and Related Transactions
The Globe Group adopted PAS 24, Related Party Disclosures, effective January 1, 2005. The
information includes the additional disclosures required by the revised accounting standard.
Globe Telecom and Innove, in their regular conduct of business, enters into transactions with
its principal shareholders, AC and STI, and certain related parties. These transactions, which
are accounted for at market prices normally charged to unaffiliated customers for similar
goods and services, include the following:
Globe Telecom
(a) Globe Telecom has interconnection agreements with STI. The related net traffic
settlements receivable (included in “Receivables” in the consolidated balance sheets)
and the interconnection toll income (included in “Service revenues” in the
consolidated statements of income) earned as of and for the years ended December
31 follow:
2005
Traffic settlements receivable - net
Interconnection toll income
P
=335,766
1,422,249
2004
2003
(In Thousand Pesos)
=548,395
=31,212 P
P
2,239,630
1,083,859
(b) Globe Telecom and STI have a technical assistance agreement whereby STI will
provide consultancy and advisory services, including those with respect to the
construction and operation of Globe Telecom’s networks and communication
118
services, equipment procurement and personnel services. In addition, Globe Telecom
has software development, supply, license and support arrangements, lease of cable
facilities, maintenance and restoration costs and other transactions with STI.
The details of fees (included in “Operating costs and expenses” account in the
consolidated statements of income) incurred under these agreements are as follows:
Lease of cable facilities, maintenance and restoration
costs and other transactions
Technical assistance fee
Software development, supply, license and support
2004
2005
(In Thousand Pesos)
P
=266,793
143,450
35,652
=137,111
P
44,360
40,409
2003
P54,026
=
78,095
56,316
The net outstanding balances due to STI (included in “Accounts payable and accrued
expenses” account in the consolidated balance sheets) arising from these transactions
are as follows:
2005
Lease of cable facilities, maintenance and
restoration costs and other transactions
Technical assistance
Software development, supply, license and
support
2004
(In Thousand Pesos)
2003
P
=13,738
81,019
=62,675
P
8,899
P14,193
=
13,756
11,940
21,322
16,895
(c) In 2001, Globe Telecom signed a cable equipment supply agreement with C2C, a
related party of STI. In March 2002, Globe Telecom entered into an equipment lease
agreement for the same equipment obtained from C2C with GB21 Hong Kong
Limited (GB21). Subsequently, GB21, in consideration of C2C’s agreement to
assume all payment obligations pursuant to the lease agreement, assigned all its
rights, obligations and interest in the equipment lease agreement to C2C. As a result
of the said assignment of receivables and payables by GB21 and C2C under the two
agreements, Globe Telecom’s liability arising from the cable equipment supply
agreement with C2C was effectively converted into a non-interest bearing long-term
obligation. (Please refer to earlier section on Related Parties) As of December 31,
2005, the remaining liability of Globe Telecom to C2C for the cable equipment
supply agreement amounted to =
P1,235.81 million (inclusive of the accumulated
accretion of =
P486.98 million) included under “Other long-term liabilities” account in
the consolidated balance sheets. The fair value of the equipment purchased amounted
to =
P1,453.89 million included under “Property and equipment” account in the
consolidated balance sheets.
Globe Telecom entered into agreements with C2C for the purchase of IRUs in the
C2C and Japan-US Cable Networks. The aggregate cost of capacity purchased from
C2C amounted to P
=1,133.79 million. This was part of the property and equipment
transferred to Innove in June 2004.
In July 2002, Globe Telecom received advance service fees from C2C amounting to
US$1.60 million, which will be offset against its share in the operations and
maintenance costs of the cable landing facilities of Globe Telecom. Also, in January
2003, Globe Telecom received advance lease payments from C2C for its use of a
portion of Globe Telecom’s cable landing station facilities amounting to US$4.11
million.
119
The parties have agreed on a lease amortization schedule and application of a portion
of the advance service fees for C2C’s share in the 2002 operations and maintenance
costs of the cable landing facilities. Accordingly, Globe Telecom recognized lease
income amounting to P
=15.06 million, =
P16.32 million and P
=51.00 million in 2005,
2004 and 2003, respectively. Globe Telecom also recognized service fees amounting
to =
P2.33 million, P
=43.76 million and P
=42.33 million in 2005, 2004 and 2003,
respectively.
The current and noncurrent portions of the said advances shown as part of “Other
long-term liabilities” account in the consolidated balance sheets follow:
2005
Current
Noncurrent
P14,759
=
123,166
=137,925
P
2004
2003
(In Thousand Pesos)
=17,760
P
=59,483
P
146,449
161,970
=164,209
P
=221,453
P
(d) Globe Telecom reimburses AC for certain operating expenses. The net outstanding
liabilities to AC related to these transactions as of December 31, 2005 were not
material.
(e) Globe Telecom has preferred roaming service contract with BMPL. Under this
contract, Globe Telecom will pay BMPL for services rendered by the latter which
include, among others, coordination and facilitation of preferred roaming
arrangement among JV partners, and procurement and maintenance of
telecommunications equipment necessary for delivery of seamless roaming
experience to customers. Globe Telecom also earns or incurs commission form
BMPL for regional top-up service provided by the JV partners. As of December 31,
2005, balances related to this transaction were not material.
The summary of consolidated outstanding balances resulting from transactions with
related parties follows:
2005
Traffic settlements receivable - net (included in
Receivables)
Other current assets
Accounts payable (included in Accounts payable
and accrued expenses)
Other long-term liabilities
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
=335,766
P
927
=31,212
P
946
=548,395
P
1,118
129,420
1,373,735
122,959
2,426,492
45,962
2,651,816
Globe Group’s compensation of key management personnel by benefit type follows:
2005
Short-term employee benefits
Share-based payments
Post-employment benefits
P296,191
=
161,731
32,938
=490,860
P
120
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
=261,174
P
P186,727
=
134,769
59,091
35,667
33,945
=431,610
P
=279,763
P
There are no agreements between Globe Group and any of its directors and key
officers providing for benefits upon termination of employment, except for such
benefits to which they may be entitled under Globe Group’s retirement plans.
List all parents of the registrant showing the basis of control and as to each parent the
percentage of voting securities owned or other basis of control by its immediate parent
if any.
Please refer to Item 11- Security Ownership for details.
121
Item 13. Exhibits and Reports on SEC Form 17-C
(a) Exhibits – Please see accompanying Index to Exhibits.
(b) The company regularly files various reports on SEC Form 17-C relative to various
company events. Of these, the more significant ones are as follows:
Date
Item Reported
January 25, 2005
January 25, 2005
1 Feb 2005
2 Feb 2005
March 2, 2005
Globe Telecom launches GTAP
Globe Telecom supports SEAG through G-Cash
Globe reports P11.3 billion net income for 2004, declares P20 cash dividend and
approves 1:15 share buyback offer
Globe announces Notice of Intent for Tender Offer
Innove inks interconnection agreement with Misortel
3 Mar 2005
March 8, 2005
Globe completes Tender Offer
Globe Posts Net Income of P3.0 billion
15 Mar 2005
Globe crosses on the PSE the 8.064 million tendered shares accepted in the buyback
March 28, 2005
Globelines launches its Toll-Free NDD Call Promo
April 4, 2005
Globe maintains growth momentum in the wireless market
May 12, 2005
Innove, USAID to promote computer and Internet literacy in conflict-affected areas
May 13, 2005
Globelines launches Worldpass – Internet access anytime, anywhere
July 26, 2005
Innove introduces its new prepaid call card – Globe1
July 26, 2005
Globe Telecom receives Moody’s credit upgrade
Aug. 2, 2005
Globe’s Subscribers Up 29% to 13.6 million
Aug 3, 2005
Globe Declares 2nd semi-annual cash dividend
August 15, 2005
Globe Telecom becomes 1st RP operator to make 3G video call
August 19, 2005
Globe seeks police, military help to stop rampant cell site attacks
September 7, 2005 Globe launches campaign to stop text and email scams
September 21, 2005 Globelines gives the lowest IDD rates from all access points
October 24, 2005 Globe 1 st to apply for 3G services in RP
Nov. 7, 2005
S&P Ratings Services Raises Globe Telecom’s Foreign Currency Rating
Nov. 9, 2005
Globe’s Net Income Up 87% to P2.2 Billion from Last Quarter
December 12, 2005 Globe Telecom posts P300-M performance bond for 3G services
December 29, 2005 Globe Telecom now a 3G operator
Feb. 7, 2006
Globe’s Momentum Continues; 4th Quarter Net Income Up 74% to P3.9 Billion
122
PART V – CORPORATE GOVERNANCE
In accordance with the corporate requirements on Corporate Governance, Globe has
complied with the same having conducted a self-assessment/rating of such best corporate
governance practices. Globe has likewise submitted the results thereof to the SEC last July
2003.
The Company adopted the Manual of Corporate Governance and full compliance with the
same has been made since the adoption of the Manual, except for the following:
(i) Development of mechanisms to monitor the performance of the Board
The Company currently reviews the performance of the Board as a whole and is
in the process of developing a more formal mechanism to review the
performance of the Board.
(ii) Written Code of Conduct to be followed by the Board, Chief Executive Officer
and Staff
(The Company currently has a Code of Conduct for officers and employees and
rules for ethical conduct of Directors as part of its Code of Corporate
Governance. The company is in the process of consolidating and finalizing a
new Code of Business Ethics that integrates both documents and supplements the
same. The integrated Code will then be submitted for the review of the Audit
Committee.); and
(iii) Form on Full Business Interest Disclosure as part of pre-employment
requirements
(The Company is currently incorporating revisions in the pre-employment form
and the existing Directors’ Disclosure Form to include the penalty of perjury for
false statements made in those forms).
The Company is taking further steps to enhance adherence to principles and practices of
good corporate governance.
PART VI – REGISTRATION STATEMENT & PROSPECTUS PROVISIONS
Not Applicable.
123
COVER SHEET
1 1 7 7
SEC Registration Number
G L O B E
T E L E C OM ,
I N C .
A N D
S U B S I D I A R
I E S
(Company s Full Name)
5 t h
F l o o r ,
i o n e e r
M a d i s o n
G l o b e
T e l e c o m
H i g h l a n d s ,
S t r e e t s ,
P l a z a ,
P i o n e e r
P
c o r n e r
M a n d a l u y o n g
C i t y
(Business Address: No. Street City/Town/Province)
Delfin C. Gonzalez, Jr.
730-2000
(Contact Person)
1 2
3 1
Month
Day
(Company Telephone Number)
A A F S
(Form Type)
Month
(Fiscal Year)
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
ST AMPS
Remarks: Please use BLACK ink for scanning purposes.
*SGVMC107964*
GLOBE TELECOM , INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2005, 2004 and 2003
and
Report of Independent Auditors
*SGVMC107964*
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
2005
ASSETS
Current Assets
Cash and cash equivalents (Notes 25 and 27)
Short-term investments (Note 25)
Receivables - net (Notes 3, 5, 16 and 25)
Inventories and supplies (Note 6)
Prepayments and other current assets (Notes 3, 7, 16, 22 and 25)
Total Current Assets
Noncurrent Assets
Property and equipment - net
(Notes 3, 8, 15, 16 and 22)
Investment property - net (Notes 3 and 9)
Intangible assets - net (Notes 3 and 10)
Deferred income tax - net (Notes 3 and 21)
Investments in associates, joint venture
and others - net (Notes 3, 11 and 25)
Other noncurrent assets (Notes 3, 12, 18, 22 and 25)
Total Noncurrent Assets
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable and accrued expenses
(Notes 13, 16, 22 and 25)
Income taxes payable (Note 21)
Unearned revenues
Current portion of:
Long-term debt (Notes 14 and 25)
Other long-term liabilities (Notes 3, 15, 16, 22 and 25)
Total Current Liabilities
Noncurrent Liabilities
Deferred income tax - net (Notes 3 and 21)
Long-term debt - net of current portion (Notes 14 and 25)
Other long-term liabilities - net of current portion
(Notes 3, 15, 16, 22 and 25)
Total Noncurrent Liabilities
Total Liabilities
Stockholders Equity (Note 17)
Paid-up capital
Cost of share-based payment (Note 2)
Cumulative translation adjustment (Notes 2 and 25)
Retained earnings (Note 2)
Treasury stock - common
Total Stockholders Equity
December 31
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
P
=10,910,961
1,253,759
6,764,130
1,372,459
1,232,525
21,533,834
=13,581,842
P
720,831
5,457,913
1,136,885
1,083,408
21,980,879
=13,041,048
P
1,962,889
7,760,694
616,741
1,602,192
24,983,564
98,554,670
259,538
1,100,727
1,163,943
101,643,592
261,516
944,265
2,413,253
95,069,687
270,988
604,951
1,759,412
76,897
2,412,781
103,568,556
P
=125,102,390
91,925
2,368,498
107,723,049
=129,703,928
P
727,726
3,008,349
101,441,113
=126,424,677
P
P
=14,236,333
291,348
1,301,684
=14,054,337
P
47,655
1,732,747
=14,192,402
P
215,934
2,376,906
7,858,150
269,737
23,957,252
9,018,650
292,589
25,145,978
9,022,535
325,373
26,133,150
4,432,867
41,835,238
3,474,732
43,199,301
1,874,082
47,109,200
3,258,223
49,526,328
73,483,580
3,377,015
50,051,048
75,197,026
3,237,478
52,220,760
78,353,910
33,315,408
312,644
(235,892)
18,226,650
39,435,577
193,096
39,418,022
59,091
51,618,810
P
=125,102,390
23,070,999
(8,192,770)
54,506,902
=129,703,928
P
16,786,424
(8,192,770)
48,070,767
=126,424,677
P
See accompanying Notes to Consolidated Financial Statements.
*SGVMC107964*
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
2004
2003
(As Restated)
(As Restated)
2005
(In Thousand Pesos, Except Per Share Figures)
NET OPERATING REVENUES (Note 16)
Service revenues
Nonservice revenues
COSTS AND EXPENSES
Operating (Notes 16, 18, 19 and 22)
Depreciation and amortization (Notes 3, 8, 9, 10 and 26)
Cost of sales
Financing costs (Notes 14, 20 and 25)
Interest income
Losses on retirement of property and equipment (Note 8)
Provisions (reversal of provision) for:
Doubtful accounts (Note 3)
Property and equipment and other
probable losses (Notes 3, 8 and 13)
Inventory losses, obsolescence and market decline
Impairment of investments in shares of
stocks (Note 11)
Equity in net losses of an associate and
joint venture (Note 11)
Others - net (Notes 9 and 22)
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM) INCOME
TAX (Note 21)
Current
Deferred
NET INCOME
Earnings Per Share (Notes 2 and 24)
Basic
Diluted
Cash dividends declared per common share (Note 17)
=54,896,813
P
3,850,788
58,747,601
19,142,262
15,733,959
6,024,711
3,140,593
(519,648)
733,819
615,729
179,259
80,049
= 52,741,358
P
2,867,622
55,608,980
15,403,963
14,705,825
6,675,198
6,326,879
(454,038)
1,052,222
(489,163)
72,388
= 47,534,537
P
1,943,398
49,477,935
13,998,568
11,588,748
6,213,683
6,739,026
(756,840)
177,733
940,751
246,846
15,241
906,683
13,334
(577,476)
44,566,591
62
(407,290)
42,886,046
3,941
(773,082)
39,301,298
14,181,010
12,722,934
10,176,637
1,747,249
2,119,253
3,866,502
379,928
946,764
1,326,692
=10,314,508
P
= 11,396,242
P
= 9,952,636
P
P76.74
=
= 76.60
P
= 40.00
P
=80.92
P
P80.78
=
=36.00
P
P66.16
=
=66.04
P
=14.00
P
758,271
(534,270)
224,001
See accompanying Notes to Consolidated Financial Statements.
*SGVMC107964*
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
Capital
Stock*
Additional
Paid-in
Cost of
Treasury
Cumulative
Capital Common
Share-Based
Payment
Stock Common
Translation
Adjustment
Retained
Earnings
Total
For The Year Ended December 31, 2005 (In Thousand Pesos)
As of January 1, 2005,
as previously reported
= 8,323,023
P
Effect of changes in accounting
policies (Note 2)
=31,111,790
P
=
P
764
193,096
31,112,554
193,096
(P
=8,192,770)
8,323,023
=25,774,446
P
(2,703,447)
Cumulative effect of change in
accounting policy for financial
instruments as of January 1, 2005
(Notes 2 and 25)
As of January 1, 2005, as restated
=
P
(8,192,770)
(151,008)
31,290
(151,008)
23,102,289
= 57,016,489
P
(2,509,587)
(119,718)
54,387,184
Changes in fair value of cash flow hedges
Transferred to income and expense
(429,336)
(429,336)
for the year for cash flow hedges
Tax effect of items taken directly to
or transferred from equity
Changes in fair value of available-for-sale
237,619
237,619
114,167
114,167
equity investments
Net income recognized directly in equity
(7,334)
(7,334)
(84,884)
(84,884)
Net income for the year
Total recognized income for the year
Acquisition of treasury shares for the
year (Note 17)
Retirement of treasury shares (Note 17)
(84,884)
(1,003,283)
(7,675,658)
15,868,428
(5,179,349)
Exercise of stock options
As of December 31, 2005
10,314,508
10,314,508
10,229,624
(7,675,658)
(9,685,796)
Dividends on (Note 17):
Common stock
Preferred stock
Cost of share-based payments (Note 18)
Collections of subscriptions
receivable - net of refunds
10,314,508
(5,436,017)
(5,436,017)
(68,334)
(68,334)
161,731
161,731
10,968
10,968
3,033
48,462
= 7,333,741
P
= 25,981,667
P
(42,183)
= 312,644
P
9,312
=
P
(P
= 235,892)
=
P18,226,650
= 51,618,810
P
For the Year Ended December 31, 2004 (In Thousand Pesos)
As of January 1, 2004,
as previously reported
Effect of changes in accounting
policies (Note 2)
As of January 1, 2004, as restated
Net income for the year, as restated
= 8,307,828
P
=31,110,194
P
8,307,828
31,110,194
=
P
(P
=8,192,770)
=
P
59,091
59,091
(8,192,770)
Dividends on (Note 17):
Common stock
Preferred stock
Cost of share-based payment (Note 18)
Exercise of stock options
Stock option purchase price
Collections of subscription
receivable - net of refunds
As of December 31, 2004, as restated
2,147
213
= 19,628,747
P
(2,842,323)
(2,783,232)
16,786,424
11,396,242
48,070,767
11,396,242
(5,036,539)
(5,036,539)
(75,128)
(75,128)
134,769
1,383
213
134,769
(764)
15,195
= 8,323,023
P
= 50,853,999
P
15,195
=31,112,554
P
=193,096
P
(P
=8,192,770)
=
P
= 23,070,999
P
= 54,506,902
P
(Forward)
*SGVMC107964*
-2-
Capital
Stock*
Additional
Paid-in
Capital Common
Cost of
Share-Based
Payment
Treasury
Stock Common
Cumulative
Translation
Adjustment
Retained
Earnings
Total
For The Year Ended December 31, 2003 (In Thousand Pesos)
As of January 1, 2003,
as previously reported
=8,267,828
P
=31,109,975
P
8,267,828
31,109,975
=
P
=
P
=
P
Effect of changes in accounting policies
(Note 2)
As of January 1, 2003, as restated
Net income for the year, as restated
Acquisition of treasury shares
Preferred stock
Cost of share-based payment (Note 18)
Stock option purchase price
Collections of subscription
receivable - net of refunds
(2,449,706)
9,028,421
48,406,224
9,952,636
9,952,636
(8,192,770)
(2,126,676)
(2,126,676)
(67,957)
(67,957)
59,091
219
59,091
219
40,000
=8,307,828
P
=50,855,930
P
(2,449,706)
(8,192,770)
Dividends on (Note 17):
Common stock
As of December 31, 2003, as restated
=11,478,127
P
40,000
=31,110,194
P
=59,091
P
(P
=8,192,770)
=
P
=16,786,424
P
=48,070,767
P
*Net of subscriptions receivable of =P53.86 million, =
P64.82 million and =
P80.02 million as of December 31, 2005, 2004 and 2003, respectively.
See accompanying Notes to Consolidated Financial Statements.
*SGVMC107964*
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2004
2003
(As Restated)
(As Restated)
2005
(In Thousand Pesos)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 8, 9 and 10)
Interest expense (Note 20)
Provisions (reversal of provisions) for:
Property and equipment and other probable losses
Impairment of investments in shares of stock
Losses on retirement of property and equipment (Note 8)
Interest income
Loss on derivative instruments - net (Notes 20 and 25)
Cost of share-based payment (Notes 16 and 18)
Loss (gain) on disposal of property and
equipment
Equity in net losses of an associate and
joint venture (Note 11)
Amortization of deferred charges and others
Dividend income
Operating income before working capital changes
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables
Inventories and supplies
Prepayments and other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Unearned revenues
Other long-term liabilities
Cash generated from operations
Interest paid
Income taxes paid
Net cash flows provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment and intangible
assets (Notes 8 and 10)
Proceeds from sale of property and equipment
Decrease (increase) in:
Short-term investments
Other noncurrent assets
Interest received
Dividends received
Net cash flows used in investing activities
(Forward)
=14,181,010
P
= 12,722,934
P
= 10,176,637
P
15,732,204
4,657,748
14,541,584
4,368,716
11,503,891
4,088,209
179,259
733,819
(519,648)
264,435
161,731
(28,398)
(489,163)
(454,038)
246,846
906,683
177,733
(756,840)
134,769
59,091
17,777
67,206
13,334
1,755
(105)
35,377,144
62
164,241
(350)
31,006,532
3,941
84,857
(307)
26,557,947
(1,792,779)
(233,421)
(624,734)
6,628,685
(555,305)
(24,877)
(5,098,769)
(213,035)
496,535
1,967,465
(431,063)
(25,373)
34,237,239
(4,646,042)
(750,342)
28,840,855
(4,687,223)
(644,159)
56,675
31,780,328
(4,727,341)
(125,702)
26,927,285
5,377,392
263,225
251,866
27,635,161
(4,588,050)
(905,019)
22,142,092
(15,949,875)
183,434
(20,283,533)
27,370
(17,452,338)
51,983
(545,554)
(12,524)
492,828
105
(15,831,586)
1,941,537
173,924
461,051
350
(17,679,301)
2,102,649
(260,368)
779,321
307
(14,778,446)
*SGVMC107964*
-2Years Ended December 31
2004
2003
(As Restated)
(As Restated)
2005
(In Thousand Pesos)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Long-term borrowings
Short-term borrowings
Repayments of:
Long-term borrowings
Short-term borrowings
Purchase of treasury stock - common (Note 17)
Payments of dividends to (Note 17):
Common shareholders
Preferred shareholders
Collection of subscription receivable and exercise of stock
options - net of related expenses
Net cash flows used in financing activities
= 9,992,181
P
21,000
= 15,194,743
P
60,000
= 7,498,290
P
(12,505,808)
(21,000)
(7,675,658)
(18,814,228)
(60,000)
(10,390,104)
(6,639)
(8,192,770)
(5,436,017)
(75,128)
(5,036,539)
(67,957)
(2,126,676)
(108,072)
20,280
(15,680,150)
16,791
(8,707,190)
40,219
(13,285,752)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(2,670,881)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR
13,581,842
13,041,048
18,963,154
= 10,910,961
P
= 13,581,842
P
= 13,041,048
P
CASH AND CASH EQUIVALENTS AT
END OF YEAR
540,794
(5,922,106)
See accompanying Notes to Consolidated Financial Statements.
*SGVMC107964*
GLOBE TELECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Globe Telecom, Inc. (hereafter referred to as Globe Telecom or the Parent Company ) is a stock
corporation organized under the laws of the Philippines, and enfranchised under Republic Act (RA)
No. 7229 and its related laws to render any and all types of domestic and international
telecommunications services. Globe Telecom is one of the leading providers of digital wireless
communications services in the Philippines using a full digital network based on the Global System
for Mobile Communication (GSM) technology. It also offers domestic and international long
distance communication services or carrier services. Globe Telecom s principal executive offices
are located at 5th Floor, Globe Telecom Plaza, Pioneer Highlands, Pioneer corner Madison Streets,
Mandaluyong City, Metropolitan Manila, Philippines. Globe Telecom is listed in the Philippine
Stock Exchange (PSE) and has been included in the PSE composite index since September 17,
2001.
Globe Telecom owns 100% of Innove Communications, Inc. ( Innove ). Innove is a stock
corporation organized under the laws of the Philippines and enfranchised under RA No. 7372 and
its related laws to render any and all types of domestic and international telecommunications
services. Innove is one of the providers of digital wireless communication services in the
Philippines. Innove currently offers cellular service under the Touch Mobile (TM) prepaid cellular
brand. The TM brand is supported in the integrated cellular networks of Globe Telecom and Innove.
Innove also offers a broad range of wireline voice communication services, as well as domestic and
international long distance communication services or carrier services. Innove s principal executive
office is located at 18th Floor, Innove IT Plaza corner Samar and Panay Roads, Cebu Business
Park, Cebu City, Philippines.
Globe Telecom is a grantee of various authorizations and licenses from the National
Telecommunications Commission (NTC) as follows: (1) license to offer and operate telex,
facsimile, other traditional voice and data services and domestic line service using Very Small
Aperture Terminal (VSAT) technology; (2) license for inter-exchange services; and (3) Certificate
of Public Convenience and Necessity (CPCN) for: (a) international digital gateway facility (IGF) in
Metro Manila, (b) nationwide digital cellular mobile telephone system under the GSM standard
(CMTS-GSM), and (c) local exchange carrier (LEC) services in Makati and surrounding areas in
Metro Manila, Batangas, Cavite, Mindoro, Palawan and certain areas in Mindanao.
On August 7, 2003, the NTC granted Globe Telecom s application to transfer its wireline business,
assets, obligations and subscribers to Innove. With the transfer of Globe Telecom s wireline voice
and data services to Innove on September 30, 2003, Innove now holds the following: (a) the
authorizations and licenses from the NTC issued to Globe Telecom to offer and operate telex,
facsimile, and other traditional voice and data services and domestic leased line service using VSAT
technology; and (b) the CPCN previously issued to Globe Telecom on July 23, 2002 to offer LEC
services in Makati and surrounding areas in Metro Manila, Batangas, Cavite, Mindoro, Palawan
and certain areas in Mindanao.
On July 23, 2002, the NTC also issued the CPCN for Innove s IGF, CMTS and LEC services
which is valid and renewable after 25 years.
*SGVMC107964*
-2On June 17, 2005, NTC issued a provisional authority to Innove to establish, install telephone,
operate and maintain LEC service, particularly integrated local telephone service with public
payphone facilities and public calling stations in all regions, provinces, cities and municipalities
across the nation that are not yet covered by its existing CPCN and to charge therefore monthly
rates at par with the approved rates of the LEC operators in the area, subject to certain conditions.
On December 28, 2005, NTC approved Globe Telecom s application for third generation (3G)
radio frequency spectra to support the upgrade of its CMTS network to be able to provide 3G
services. Globe Telecom has been assigned the 10-Megahertz (MHz) of 3G radio frequency
spectrum.
On August 23, 2004, Globe Telecom invested in G-Xchange, Inc. (GXI), a wholly-owned
subsidiary, with the primary purpose of developing, designing, administering, managing and
operating software applications and systems, including systems designed for the operations of bills,
payment and money remittance, payment and delivery facilities through various telecommunications
systems operated by telecommunications carriers in the Philippines and throughout the world and to
supply software and hardware facilities for such purposes. GXI handles the mobile payment and
remittance service using Globe Telecom s network as transport channel under the G-Cash brand.
The service, which is integrated into the cellular services of Globe Telecom and Innove, enables
easy and convenient person-to-person fund transfers via short messaging services (SMS) and allows
Globe Telecom and Innove subscribers to easily and conveniently put cash into and get cash out of
the G-Cash system. GXI started commercial operations on October 16, 2004. GXI is a stock
corporation organized under the laws of the Philippines. GXI is registered with the Bangko Sentral
ng Pilipinas as a remittance agent. GXI s principal executive office is located at 6th Floor, Globe
Telecom Plaza, Pioneer Highlands, Pioneer corner Madison Streets, Mandaluyong City,
Metropolitan Manila, Philippines.
2. Summary of Significant Accounting Policies
Basis of Financial Statement Preparation
The accompanying consolidated financial statements of Globe Telecom and its wholly-owned
subsidiaries, Innove and GXI collectively referred to as the Globe Group , have been prepared in
accordance with generally accepted accounting principles in the Philippines (Philippine GAAP), as
set forth in Philippine Financial Reporting Standards (PFRS). This is Globe Group s first annual
consolidated financial statements prepared in accordance with PFRS.
The Globe Group applied PFRS 1, First-time Adoption of PFRS, in preparing the consolidated
financial statements, with January 1, 2003 as the date of transition. The Globe Group applied the
accounting policies set forth below to all the years presented, except those relating to the
classification and measurement of financial instruments.
The consolidated financial statements of the Globe Group have been prepared under the historical
cost convention method, except for derivative financial instruments and available-for-sale financial
assets that are measured at fair value. The carrying values of recognized assets and liabilities that
are hedged are adjusted to record changes in the fair values attributable to the risks that are being
hedged.
*SGVMC107964*
-3The consolidated financial statements of the Globe Group are presented in Philippine peso and
rounded to the nearest thousands except when otherwise indicated.
Explanation of Transition to PFRS
As stated above, these are the Globe Group s first annual consolidated financial statements in
accordance with PFRS. The transition to PFRS resulted in certain changes to the Globe Group s
previous accounting policies. The comparative figures for 2004 and 2003 were restated to reflect
the changes in accounting policies discussed below resulting from transition to PFRS, except those
relating to financial instruments. The Globe Group has made use of the exemption available under
PFRS 1, and as allowed by the Securities and Exchange Commission (SEC), to apply Philippine
Accounting Standards (PAS) 32, Financial Instruments: Disclosure and Presentation and PAS 39,
Financial Instruments: Recognition and Measurement, to financial instruments outstanding as of
January 1, 2005. The cumulative effect of adopting PAS 39 was charged to the January 1, 2005
retained earnings. The policies applied to financial instruments beginning January 1, 2005 and prior
to January 1, 2005 are disclosed separately.
New Accounting Standards
PFRS 1, First Time Adoption of PFRS, requires an entity to comply with each PFRS effective
at the reporting date for its first PFRS financial statements. The Globe Group has adopted
PFRS for these financial statements as of and for the year ended December 31, 2005 and has
also restated the comparative amounts for the years ended December 31, 2004 and 2003, except
for PAS 32 and PAS 39 based on the exemption provided by PFRS 1. In addition, the following
courses of action have been taken as allowed under PFRS 1:
Share-based payment transactions
The Globe Group has applied PFRS 2, Share-based Payment, only to equity-settled awards
granted after November 7, 2002 that had not vested on or before January 1, 2005, similar to the
transitional provisions under PFRS 2 for equity-settled transactions.
Post retirement benefits - Defined benefit schemes
The Globe Group has chosen not to recognize using the corridor approach cumulative actuarial
gains or losses that resulted from the measurement of such schemes in accordance with PAS 19,
Employee Benefits, at the date of transition. Instead, the Globe Group has elected to recognize all
cumulative actuarial gains and losses at the date of transition to PFRS.
PFRS 2, Share-based Payment, sets out the measurement principles and accounting
requirements for share-based payment transactions, including transactions with employees or
other parties to be settled in cash, other assets, or equity instruments of the entity. Under this
standard, the Globe Group are required to recognize in the statements of income the cost of
share options granted after November 7, 2002 that had not vested on or before
January 1, 2005. Prior to January 1, 2005, the Globe Group did not recognize any expense for
share options granted but disclosed required information for such options.
*SGVMC107964*
-4The adoption of PFRS 2 decreased net income by P
=254.08 million, =
P63.56 million and
=30.75 million in 2005, 2004 and 2003, respectively. Retained earnings decreased by
P
=94.31 million and P
P
=30.75 million as of January 1, 2005 and 2004, respectively. Additional
paid-in capital increased by P
=0.76 million as of January 1, 2005. Cost of share-based payment
presented in the stockholders equity section of the consolidated balance sheets increased by P
=
193.10 million and P
=59.09 million as of January 1, 2005 and 2004, respectively.
PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, specifies the
accounting for assets held for sale and the presentation and disclosure requirements for
discontinued operations. Under this standard, qualifying noncurrent assets or disposal groups
held for sale shall be carried at fair value less cost to sell if this amount is lower than its
carrying amount. The company shall not depreciate (or amortize) noncurrent assets (or disposal
groups) while classified as held for sale. Any gain or loss on the remeasurement of a noncurrent
asset (or disposal group) classified as held for sale shall be included in the profit or loss from
continuing operations.
As of December 31, 2005, 2004 and 2003, the Globe Group has no qualifying noncurrent
assets that are held for sale.
PAS 19, Employee Benefits, prescribes the accounting and disclosures by employers for
employee benefits (including short-term employee benefits, post-employment benefits, other
long-term employee benefits and termination benefits). For post-employment benefits classified
as defined benefit plans, the standard requires: (a) the use of the projected unit credit method to
measure an entity s obligations and costs; (b) an entity to determine the present value of defined
benefit obligations and the fair value of any plan assets with sufficient regularity; and (c) the
recognition of a specific portion of net cumulative actuarial gains and losses when the net
cumulative amount exceeds 10% of the greater of the present value of the defined benefit
obligation or 10% of the fair value of the plan assets, but also permits the immediate
recognition of these actuarial gains and losses.
The adoption of PAS 19 has decreased net income by P
=21.78 million and P
=18.12 million
in 2004 and 2003, respectively, and increased retained earnings by =
P92.89 million,
=114.67 million and P
P
=132.79 million as of January 1, 2005, 2004 and 2003, respectively.
Pension cost and accrual of short-term benefits amounted to P
=258.32 million in 2005.
PAS 21, The Effects of Changes in Foreign Exchange Rates, eliminates the capitalization of
foreign exchange differentials related to the acquisition of property and equipment.
The adoption of PAS 21 decreased retained earnings by =
P2,443.53 million, P
=2,739.20 million
and =
P2,463.50 million as of January 1, 2005, 2004 and 2003, respectively. Net income
increased by =
P295.67 million in 2004 and decreased by P
=275.69 million in 2003.
*SGVMC107964*
-5PAS 32, Financial Instruments: Disclosure and Presentation, covers the disclosure and
presentation of all financial instruments. The standard requires more comprehensive disclosures
about a company s financial instruments, whether recognized or unrecognized in the financial
statements. New disclosure requirements include terms and conditions of financial instruments
used by the entity, types of risks associated with both recognized and unrecognized financial
instruments (market risk, foreign exchange risk, price risk, credit risk, liquidity risk and cash
flow risk), fair value information of both recognized and unrecognized financial assets and
financial liabilities, and the entity s financial risk management policies and objectives. The
standard also requires financial instruments to be classified as debt or equity in accordance with
their substance and not their legal form.
The standard also requires presentation of financial assets and financial liabilities on a net basis
when, and only when, an entity: (a) currently has a legally enforceable right to set off the
recognized amounts; and (b) intends either to settle on a net basis, or to realize the asset and
settle the liability simultaneously (see Notes 5 and 13).
PAS 39, Financial Instruments: Recognition and Measurement, establishes the accounting and
reporting standards for the recognition and measurement of the entity s financial assets and
financial liabilities. When financial assets are recognized initially, they are measured at fair
value plus, in the case of investments not at fair value through profit or loss, directly
attributable transaction costs. Subsequent to initial recognition, an entity should measure
financial assets at their fair values, except for loans and receivables and held-to-maturity
investments, which are measured at amortized cost using the effective interest rate method.
Financial liabilities are subsequently measured at amortized cost, except for liabilities classified
under fair value through profit and loss and derivatives, which are subsequently measured at
fair value.
PAS 39 also establishes the accounting and reporting standards requiring that every derivative
instrument (including certain derivatives embedded in other contracts) be recorded in the
balance sheets as either an asset or liability measured at its fair value. PAS 39 requires that
changes in the derivative s fair value be recognized currently in the statements of income unless
specific hedges allow a derivative s gains and losses to offset related results on the hedged item
in the statements of income, or deferred in the stockholders equity as Cumulative translation
adjustment . PAS 39 requires that an entity must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting treatment.
Derivatives that are not designated and do not qualify as hedges are adjusted to fair value
through income.
The Globe Group has adopted the hedge accounting treatment of PAS 39 for certain derivative
instruments.
As allowed by the SEC and PFRS 1, the adoption of PAS 39 did not result in the restatement of
prior year financial statements. The cumulative effect of adopting this accounting standard was
included in the January 1, 2005 retained earnings and cumulative translation adjustment.
*SGVMC107964*
-6The adoption of PAS 39 decreased net income by P
=148.29 million in 2005 and increased
cumulative translation adjustment (presented as a reduction in the stockholders equity) by
=84.88 million in 2005. Retained earnings increased by P
P
=31.29 million while cumulative
translation adjustment decreased by P
=151.01 million, as of January 1, 2005.
PAS 40, Investment Property, establishes the accounting and reporting standards for
investment property. Investment property is property (land or a building or both) held (by the
owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both,
rather than for: (a) use in the production or supply of goods or supply of goods or services or
for administrative purposes; or (b) sale in the ordinary course of business. Under this standard,
an entity is permitted to choose either the fair value model or cost model in the subsequent
measurement of a qualifying investment property. Fair value model requires an investment
property to be measured at fair value with fair value changes recognized directly in the
statements of income. Cost model requires an investment property to be measured at cost less
any accumulated depreciation and impairment losses. The Globe Group adopted the cost model
for investment property.
The adoption of PAS 40 resulted in reclassification of the carrying value of the portion of a
building being leased to third parties amounting to P
=261.52 million, =
P270.99 million and
=281.41 million as of January 1, 2005, 2004 and 2003, respectively, from property and
P
equipment to investment property (see Note 9).
Revised Accounting Standards
PAS 16, Property, Plant and Equipment, (a) provides additional guidance and clarification on
recognition and measurement of items of property, plant and equipment; (b) requires the
capitalization of the costs of asset dismantling, removal or restoration as a result of either
acquiring or having used the asset for purposes other than to produce inventories during the
year; and (c) requires measurement of an item of property, plant and equipment acquired in
exchange for a nonmonetary asset or a combination of monetary and nonmonetary assets at fair
value, unless the exchange transaction lacks commercial substance. Under the previous version
of the standard, an entity measured such an acquired asset at fair value unless the exchanged
assets were similar.
The adoption of PAS 16 decreased net income by P
=104.13 million, =
P71.45 million and
=68.05 million in 2005, 2004 and 2003, respectively. Retained earnings decreased by
P
=258.50 million, =
P
P187.05 million and P
=118.99 million as of January 1, 2005, 2004 and 2003,
respectively.
The adoption of the following revised accounting standards did not have a material effect on the
Globe Group s financial statements. Additional disclosures required by the revised accounting
standards were included in the Globe Group s financial statements, where applicable:
PAS 1, Presentation of Financial Statements, (a) provides the framework within which an
entity assesses how to present fairly the effects of transactions and other events; (b) provides
the base criteria for classifying liabilities as current or noncurrent; (c) prohibits the
*SGVMC107964*
-7presentation of income from operating activities and extraordinary items as separate line items
in the statements of income; and (d) specifies the disclosures about key sources of estimation,
uncertainty and judgments management has made in the process of applying a company s
accounting policies (see Note 3).
PAS 2, Inventories, reduces the alternatives for measurement of inventories by disallowing the
use of the last in, first out formula. Moreover, the revised accounting standard does not permit
foreign exchange differences arising directly on the recent acquisition of inventories invoiced in
a foreign currency to be included in the cost of inventories.
PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, (a) removes the
concept of fundamental errors and the allowed alternative to retrospective application of
voluntary changes in accounting policies and retrospective restatement to correct prior period
errors; (b) updates the previous hierarchy of guidance to which management refers and whose
applicability it considers when selecting accounting policies in the absence of standards and
interpretations that specifically apply; (c) defines material omissions or misstatements; and
(d) describes how to apply the concept of materiality when applying accounting policies and
correcting errors.
PAS 10, Events after the Balance Sheet Date, provides a limited clarification of the accounting
for dividends declared after the balance sheet date.
PAS 17, Leases, provides a limited revision to clarify on the classification of a lease of land and
buildings and prohibits expensing of initial direct costs in the financial statements of lessors.
PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope of the
standard, the definitions and disclosures for related parties. It also requires disclosure of the
total compensation of key management personnel by benefit type (see Note 16).
PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in accounting
for investments in subsidiaries in the separate financial statements of a parent, venturer or
investor. Investments in subsidiaries will be accounted for either at cost or in accordance with
PAS 39 in the separate financial statements. Equity method of accounting will no longer be
allowed in the separate financial statements.
PAS 28, Investments in Associates, reduces alternatives in accounting for investments in
associates in the separate financial statements of an investor. Investments in associates will be
accounted for either at cost or in accordance with PAS 39 in the separate financial statements.
Equity method of accounting will no longer be allowed in the separate financial statements.
PAS 27 and 28 require strict compliance with adoption of uniform accounting policies and
require the parent company/investor to make appropriate adjustments to the
subsidiary s/associate s financial statements to conform them to the parent
company s/investor s accounting policies for reporting like transactions and other events in
similar circumstances.
*SGVMC107964*
-8PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for interests in joint
ventures in the separate financial statements of a venturer. Interests in joint ventures are
accounted for either at cost or in accordance with PAS 39 in the separate financial statements.
Equity method of accounting is no longer allowed in the separate financial statements.
PAS 33, Earnings per Share, prescribes principles for the determination and presentation of
earnings per share for entities with publicly traded shares, entities in the process of issuing
ordinary shares to the public, and any entities that calculate and disclose earnings per share.
This standard also provides additional guidance in computing earnings per share, including the
effects of mandatorily convertible instruments and contingently issuable shares, among others.
PAS 36, Impairment of Assets, establishes frequency of impairment testing for certain
intangibles and provides additional guidance on the measurement of an asset s value in use.
PAS 38, Intangible Assets, provides additional clarification on the definition and recognition of
certain intangibles. Moreover, this revised accounting standard requires that an intangible asset
with an indefinite useful life should not be amortized but will be tested for impairment by
comparing its recoverable amount with its carrying amount annually and whenever there is an
indication that the intangible asset may be impaired.
The increasing (decreasing) effects of transition to PFRS follow:
December 31, 2004
Noncurrent
Assets
PFRS 2 - Share-based Payment
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in
Foreign Exchange Rates
P 10,795
=
418,057
279,304
(3,674,015)
(P
=2,965,859)
Current
Liabilities
=
P
40,049
=40,049
P
Noncurrent
Liabilities
Equity*
(In Thousand Pesos)
(P
=88,760)
=
P 193,860
676,556
146,365
(1,230,482)
(P
=496,321)
January 1,
2004
Retained
Earnings
(P
=30,746)
(187,048)
114,669
(2,739,198)
=
P 193,860 (P
=2,842,323)
Net Income
(P
=63,559)
(71,451)
(21,779)
295,665
=
P138,876
December 31, 2003
Noncurrent
Assets
PFRS 2 - Share-based Payment
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in
Foreign Exchange Rates
=3,094
P
266,580
239,213
(4,431,116)
(P
=3,922,229)
Current
Liabilities
=
P
(6,076)
Noncurrent
Liabilities
Equity*
(In Thousand Pesos)
(P
=25,251)
=
P 59,091
453,628
130,620
(1,691,918)
(P
=6,076) (P
=1,132,921)
=
P 59,091
January 1,
2003
Retained
Earnings
Net Income
=
P
(118,994)
132,793
(P
=30,746)
(68,054)
(18,124)
(2,463,505)
(P
=2,449,706)
(275,693)
(P
=392,617)
*Represents effect on additional paid-in capital-common and cost of share-based payment.
*SGVMC107964*
-9The reconciliation of the increasing (decreasing) effects of transition to PFRS as they apply to
stockholders equity as of January 1, 2005, 2004 and 2003 and the net income and earnings per
share in 2004 and 2003 follows:
Stockholders equity
2005
As previously reported
PFRS 2 - Share-based Payment
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in
Foreign Exchange Rates
PAS 39 - Financial Instruments
As restated
=57,016,489
P
99,555
(258,499)
92,890
(2,443,533)
(119,718)
=54,387,184
P
2004
2003
(In Thousand Pesos)
= 50,853,999
P
P 50,855,930
=
28,345
(187,048)
(118,994)
114,669
132,793
(2,739,198)
= 48,070,767
P
(2,463,505)
= 48,406,224
P
Net income
As previously reported
PFRS 2 - Share-based Payment
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in Foreign Exchange Rates
As restated
2004
2003
(In Thousand Pesos)
=11,257,366
P
=10,345,253
P
(63,559)
(30,746)
(71,451)
(68,054)
(21,779)
(18,124)
295,665
(275,693)
=11,396,242
P
=9,952,636
P
Basic earnings per share
As previously reported
PFRS 2 - Share-based Payment
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in Foreign Exchange Rates
As restated
2004
2003
=79.93
P
(0.45)
(0.51)
(0.16)
2.11
=80.92
P
=68.79
P
(0.21)
(0.46)
(0.12)
(1.84)
=66.16
P
The Globe Group did not early adopt the following Standards that have been approved but are not
yet effective:
PFRS 6, Exploration for and Evaluation of Mineral Resources - This standard does not apply
to the activities of the Globe Group.
PFRS 7, Financial Instruments: Disclosures - The revised disclosure on financial instruments
provided by this standard will be included in the Globe Group s financial statements when the
standard is adopted in 2007.
*SGVMC107964*
- 10 Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Globe Telecom, Innove
and GXI. Innove s and GXI s principal activities are wireless and wireline services, and software
management for telecom applications, respectively.
Consolidated financial statements are prepared using uniform accounting policies for like
transactions and other events in similar circumstances. All significant intercompany balances and
transactions, including intercompany profits and unrealized profits and losses, were eliminated
during consolidation in accordance with the accounting policy on consolidation.
Revenue Recognition
The Globe Group provides wireless services and wireline voice and data communication services.
Wireless and wireline voice services are provided under postpaid and prepaid arrangements while
wireline data services are all under postpaid arrangement.
Revenue is recognized when the delivery of the products or services has occurred and the
collectibility is reasonably assured.
Revenue is stated at amounts invoiced and accrued to customers, taking into consideration the bill
cycle cut-off (for postpaid subscribers), and charged against preloaded airtime value (for prepaid
subscribers), and excludes value added tax (VAT) and overseas communication tax.
Revenues principally consist of: (1) airtime and toll fees for local, domestic and international long
distance calls in excess of free call allocation, less (a) bonus airtime credits, airtime on free
Subscribers Identification Module (SIM) for SIM swap transactions and marketing promotions
credited to subscriber billings, (b) prepaid reload discounts, and (c) interconnection fees;
(2) revenues from value added services such as SMS in excess of free SMS allocation and
multimedia messaging services (MMS), content downloading and infotext services, net of
interconnection fees and payout to content providers; (3) inbound revenues from other carriers
which terminate their calls to Globe Group s network; (4) revenues from international roaming
services; (5) usage of broadband and internet services in excess of fixed monthly service fees;
(6) fixed monthly service fees (for postpaid wireless and wireline voice and data subscribers and
wireless prepaid subscription fees for discounted promotional calls and SMS); (7) proceeds from
sale of handsets, phonekits, and other phone accessories; and (8) one-time registration fees (for
postpaid wireless subscribers), one-time service connection fees (for wireline voice and data
subscribers), and one-time activation or upfront fees for the excess of the selling price of SIM packs
over the preloaded airtime (for prepaid subscribers).
Postpaid service arrangements include fixed monthly charges, which are recognized over the
subscription period on a pro-rata basis. Telecommunications services provided to postpaid
subscribers are billed throughout the month according to the bill cycles of subscribers. As a result
of bill cycle cut-off, monthly service revenues earned but not yet billed at end of the month are
estimated and accrued. These estimates are based on actual usage less estimated free usage using
historical ratio of free over billable usage.
Proceeds from the sale of prepaid cards and airtime value through over-the-air reloading services
are deferred and shown as Unearned revenues in the consolidated balance sheets. Revenue is
recognized upon actual charging of subscription fees for promotional discounted calls or SMS
*SGVMC107964*
- 11 services and the actual usage of the airtime value for voice, SMS, MMS and content downloading,
and net of free service allocation and bonus reload, or upon expiration of the unused value,
whichever comes earlier.
Inbound revenues and outbound charges are accrued based on actual volume of traffic monitored by
the Group s network and in the traffic settlement system and the agreed termination rates and on
revenue sharing agreement with other foreign and local carriers and content providers. Prompt
payment discounts on settlement of inbound revenues are recorded when incurred upon settlement of
accounts. Inbound revenues represent settlements recognized from telecommunications providers
that sent traffic to the Globe Group s network, while outbound charges represent settlements to
telecommunications providers for traffic originating from the Globe Group s network and
settlements to service providers for value added contents downloaded by subscribers. Adjustments
are made to the accrued amount for discrepancies between the traffic volume per Globe Group s
records and per records of the other carriers and content providers as these are determined and/or
are mutually agreed by the parties. Uncollected inbound revenues are shown as traffic settlements
receivable under Receivables , while unpaid outbound charges are shown as traffic settlements
payable under Accounts payable and accrued expenses in the consolidated balance sheets, unless
a right of offset exists.
Proceeds from sale of handsets, phonekits, SIM packs, and other phone accessories are recognized
upon delivery of the item to customers. The related costs of handsets, phonekits, SIM packs and
accessories sold to customers are presented as Cost of sales in the consolidated statements of
income.
Lease income from operating lease is recognized on a straight-line basis over the lease term.
Interest income is recognized as it accrues using effective interest rate method.
Subscriber Acquisition and Retention Costs
The related costs incurred in connection with the acquisition of subscribers are charged against
current operations. Subscriber acquisition costs primarily include commissions, handset and
phonekit subsidies and marketing expenses. Handset and phonekit subsidies represent the difference
between the book value of handsets, accessories and SIM cards (included in Cost of sales
account), and the price offered to the subscribers (included in Nonservice revenues under Net
operating revenues). Retention costs for existing postpaid subscribers are in the form of free
handsets and bill credits. Free handsets are charged against current operations and included in
selling, advertising and promotion expenses under Operating costs and expenses .
Bill credits are deducted from operating revenues upon application against qualifying subscriber
bills.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments
that are readily convertible to known amounts of cash with original maturities of three months or
less from dates of placements and that are subject to an insignificant risk of changes in value.
*SGVMC107964*
- 12 Receivables
Receivables are recognized and carried at billable amounts less an allowance for doubtful accounts.
Penalties, termination fees and surcharges on past due accounts of postpaid subscribers are
recognized as revenues upon collection. An allowance for doubtful accounts is maintained at a level
considered adequate to provide for potential uncollectible receivables. The level of this allowance is
evaluated by management on the basis of factors that affect the collectibility of the accounts. A
review of the age and status of receivables, designed to identify accounts to be provided with
allowance, is performed regularly.
Customers
Full allowance is provided for receivables from permanently disconnected wireless and wireline
subscribers. Permanent disconnections are made after a series of collection steps following
nonpayment by postpaid subscribers. Such permanent disconnections generally occur within a
predetermined period from statement date. Except for specific individual and corporate wireless
subscribers subjected to specific evaluation and special credit management handling, full
allowance is generally provided for active individual and corporate wireless subscribers with
outstanding receivables that are past due by 90 and 120 days, respectively, and those with
temporary disconnected status that are subject for termination within the succeeding month.
Full allowance is also provided for active residential and business wireline voice subscribers
with outstanding receivables that are past due by 90 and 150 days, respectively. Full allowance
is likewise provided for receivables from wireline data corporate accounts that are past due by
150 days.
Traffic Settlements
Full allowance is generally provided for the net receivable from international and national
traffic carriers and roaming partners which are not settled within 10 months and 6 months,
respectively, from transaction date and after review of the status of settlement with other
carriers.
Additional provisions are made for accounts specifically identified to be doubtful of collection
regardless of age of the account.
Inventories and Supplies
Inventories and supplies are stated at the lower of cost or net realizable value (NRV). NRV for
handsets and accessories and wireline telephone sets is the selling price in the ordinary course of
business less direct costs to sell, while NRV for SIM packs, call cards, spare parts and supplies
consists of the related replacement costs. In determining the NRV, the Globe Group considers any
adjustment necessary for obsolescence, which is provided 100% for nonmoving items for more than
one year and 50% for slow-moving items. Cost is determined using the moving average method.
Supplies of SIM packs and telephone handsets are consumed upon activation of the wireless and
wireline services.
Property and Equipment
Property and equipment, except land, are carried at cost less accumulated depreciation, amortization
and accumulated provision for impairment losses. Land is stated at cost less any accumulated
provision for impairment losses. The cost of an item of property and equipment
*SGVMC107964*
- 13 includes its purchase price and any cost attributable in bringing the asset to its intended location and
working condition. Cost also includes: (a) interest and other financing charges on borrowed funds
used to finance the acquisition of property and equipment to the extent incurred during the period of
installation and construction; and (b) asset retirement obligations (ARO) specifically on property
and equipment installed/constructed on leased properties.
Subsequent costs are capitalized as part of property and equipment only when it is probable that
future economic benefits associated with the item will flow to the Globe Group and the cost of the
item can be measured reliably. All other repairs and maintenance are charged against current
operations as incurred.
Effective January 1, 2005, foreign exchange differentials arising from the acquisition of property
and equipment are charged against current operations and no longer capitalized. The comparative
2004 and 2003 financial statements were restated to reflect this change in accounting policy.
Assets under construction are transferred to the related property and equipment account when the
construction or installation and related activities necessary to prepare the property and equipment
for their intended use are completed, and the property and equipment are ready for service.
Depreciation and amortization of property and equipment commences once the property and
equipment are available for use and computed using the straight-line method over the estimated
useful lives (EUL) of the assets regardless of utilization.
Leasehold improvements are amortized over the shorter of their EUL or the corresponding lease
terms.
The EUL of property and equipment are reviewed annually based on expected asset utilization as
anchored on business plans and strategies that also consider expected future technological
developments and market behavior to ensure that the period of depreciation and amortization is
consistent with the expected pattern of economic benefits from items of property and equipment.
The EUL of property and equipment of the Globe Group are as follows:
Telecommunications equipment:
Tower
Switch
Outside plant
Distribution dropwires
Cellular facilities and others
Buildings
Leasehold improvements
Investments in cable systems
Furniture, fixtures and equipment
Transportation and work equipment
Years
15
10 and 15
10-20
5
3-10
20
5 years or lease term, whichever is shorter
15
3-5
2-5
*SGVMC107964*
- 14 When property and equipment is retired or otherwise disposed of, the cost and the related
accumulated depreciation and amortization and accumulated provision for impairment losses, if
any, are removed from the accounts and any resulting gain or loss is credited to or charged against
current operations.
Asset Retirement Obligations
The Globe Group is legally required under various contracts to restore leased property to its original
condition and to bear the cost of dismantling and deinstallation at the end of the contract period. The
Globe Group recognizes the fair value of the liability for these obligations and capitalizes these
costs as part of the balance of the related property and equipment accounts, which are depreciated
and amortized on a straight-line basis over the useful life of the related property and equipment or
the contract period, whichever is shorter.
Investment Property
Investment property is initially measured at cost including transaction costs. Investment property is
derecognized when it has either been disposed of or permanently withdrawn from use and no future
benefit is expected from its disposal. Any gain or loss on the derecognition of an investment
property is recognized in the consolidated statement of income in the year of derecognition.
Transfers are made to investment property when, and only when, there is a change in use, evidenced
by the end of owner-occupation, commencement of an operating lease to another party or by the end
of construction or development. Transfers are made from investment property when, and only when,
there is a change in use, evidenced by commencement of owner-occupation or commencement of
development with a view to sell.
Depreciation of investment property is computed using the straight-line method over its useful life,
regardless of utilization. The EUL of the investment property is 15 years.
Intangible Assets
Intangible assets acquired separately are capitalized at cost. Subsequently, intangible assets are
measured at cost less accumulated amortization and provisions for impairment losses, if any. The
useful lives of intangible assets with finite life are assessed at the individual asset level. Intangible
assets with finite life are amortized over their useful life. Periods and method of amortization for
intangible assets with finite useful lives are reviewed annually or earlier when an indicator of
impairment exists.
Costs incurred to acquire computer software (not an integral part of its related hardware) and bring
it to its intended use are capitalized as intangible assets. These costs are amortized over the EUL of
the related computer software ranging from 3 to 5 years. Costs directly associated with the
development of identifiable computer software that generate expected future benefits to the Globe
Group are recognized as intangible assets. All other costs of developing and maintaining computer
software programs are recognized as expense when incurred.
A gain or loss arising from derecognition of an intangible asset is measured as the difference
between the net disposal proceeds and the carrying amount of the asset and is recognized in the
consolidated statements of income when the asset is derecognized.
*SGVMC107964*
- 15 Debt Issuance Costs
Prior to January 1, 2005, issuance, underwriting and other related expenses incurred in connection
with the issuance of debt instruments are deferred and amortized over the terms of the instruments
using the straight-line method and unamortized debt issuance costs are shown under Other
noncurrent assets account in the consolidated balance sheets.
Effective January 1, 2005, debt issuance costs were amortized using the effective interest method
and unamortized debt issuance costs are netted against the related carrying value of the debt
instrument in the consolidated balance sheets.
When the related instrument is retired, the related unamortized debt issuance costs at the date of
retirement are charged against current operations.
Investments in Associates, Joint Venture and Others
Investments are accounted for under the equity method. An associate is an entity in which the Globe
Group has a significant influence and which is neither a subsidiary nor a joint venture (JV). A JV is
an entity not being a subsidiary nor an associate in which the Globe Group exercises joint control
together with one or more venturers.
Under the equity method, the investments in associates and JV are carried in the consolidated
balance sheets at cost plus post-acquisition changes in the Globe Group s share of net assets of the
associates and JV, less any accumulated impairment in value. The consolidated statements of
income reflect the share of the results of operations of the associates and JV. Where there has been
a change recognized directly in the associates equity, the Globe Group recognizes its share of any
changes and discloses this, when applicable, in the consolidated statements of changes in equity.
Other investments include shares of stock where the Globe Group s ownership interest is less than
20% or where control is likely to be temporary. These are initially recognized at cost, being the fair
value of the consideration given and including acquisition charges associated with the investments.
Gains or losses on these investments are recognized directly in equity, through the statement of
changes in stockholders equity. When the investment is derecognized, the cumulative gain or loss
previously recognized in equity is recognized in the consolidated statements of income.
Impairment of Assets
An assessment is made at the balance sheet date to determine whether there is any indication that the
asset may be impaired, or whether there is any indication that an impairment loss previously
recognized for an asset in prior years may no longer exist or may have decreased. If any such
indication exists and when the carrying value of an assets exceeds its estimated recoverable amount,
the asset or cash generating unit to which the asset belongs is written down to its recoverable
amount. The recoverable amount of an asset is the greater of its net selling price and value in use.
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable
amount. An impairment loss is charged against operations in the year in which it arises. A
previously recognized impairment loss is reversed only if there has been a change in estimate used
to determine the recoverable amount of an asset, however, not to an amount higher than the carrying
amount that would have been determined (net of any accumulated depreciation
*SGVMC107964*
- 16 and amortization for property and equipment) had no impairment loss been recognized for the asset
in prior years. A reversal of an impairment loss is credited to current operations.
For the Globe Group, the cash-generating unit for purposes of impairment assessment of property
and equipment is the combined wireless and wireline asset groups of Globe Telecom and Innove.
This asset grouping is predicated upon the requirement contained in Executive Order (EO)
No. 109 and RA No. 7925 requiring licensees of CMTS and IGF services to provide 400,000 and
300,000 LEC lines, respectively, as a condition for the grant of such licenses.
Treasury Stock
Treasury stock is recorded at cost and is presented as a deduction from equity. When the shares are
retired, the capital stock account is reduced by its par value. The excess of cost over par value upon
retirement is debited to the following accounts in the order given: (a) additional paid-in capital to the
extent of the specific or average additional paid-in capital when the shares were issued, and (b)
retained earnings.
Income Taxes
Deferred income tax is provided using the balance sheet liability method on all temporary
differences, with certain exceptions, at balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred income tax assets are recognized for all deductible temporary differences and
carryforward benefit of unused tax credits from excess minimum corporate income tax (MCIT)
over regular corporate income tax and net operating loss carryover (NOLCO) to the extent that it is
probable that taxable income will be available against which the deductible temporary differences
and the carryforward benefit of unused MCIT and NOLCO can be used.
Deferred income tax is not recognized when it arises from the initial recognition of an asset or
liability in a transaction that is not a business combination and, at the time of transaction, affects
neither the accounting profit nor taxable profit or loss. Deferred income tax liabilities are not
provided on nontaxable temporary differences associated with investment in a domestic associate.
The carrying amounts of deferred income tax assets are reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient taxable income will be available to
allow all or part of the deferred income tax assets to be utilized.
Deferred income tax assets and liabilities are measured at the tax rate that is 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 substantially enacted as of balance sheet date.
Provisions
A provision is recognized only when the Globe Group has: (a) a present obligation (legal or
constructive) as a result of a past event; (b) it is probable (i.e., more likely than not) that an outflow
of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable
estimate can be made of the amount of the obligation. Provisions are reviewed at
*SGVMC107964*
- 17 each balance sheet date and adjusted to reflect the current best estimate. If the effect of the time
value of money is material, provisions are determined by discounting the expected future cash flows
at a pre-tax rate that reflects current market assessment of the time value of money and, 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 an interest expense.
Share-based Payment Transactions
Certain employees (including directors) of the Globe Group receive remuneration in the form of
share-based payment transactions, whereby employees render services in exchange for shares or
rights over shares ( equity-settled transactions ) (see Note 18).
The cost of equity-settled transactions with employees is measured by reference to the fair value at
the date at which they are granted. In valuing equity-settled transactions, vesting conditions,
including performance conditions, other than market conditions (conditions linked to share prices),
shall not be taken into account when estimating the fair value of the shares or share options at the
measurement date. Instead, vesting conditions are taken into account in estimating the number of
equity instruments that will vest.
The cost of equity-settled transactions is recognized in the consolidated statements of income,
together with a corresponding increase in equity, over the period in which the service conditions are
fulfilled, ending on the date on which the relevant employees become fully entitled to the award
( vesting date ). The cumulative expense recognized for equity-settled transactions at each reporting
date until the vesting date reflects the extent to which the vesting period has expired and the number
of awards that, in the opinion of the management of the Globe Group at that date, based on the best
available estimate of the number of equity instruments, will ultimately vest.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the
market condition is satisfied, provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum, an expense is recognized
as if the terms had not been modified. In addition, an expense is recognized for any increase in the
value of the transaction as a result of the modification, measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of
cancellation, and any expense not yet recognized for the award is recognized immediately. However,
if a new award is substituted for the cancelled award, and designated as a replacement award on the
date that it is granted, the cancelled and new awards are treated as if they were a modification of the
original award, as described in the previous paragraph.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation
of earnings per share (see Note 24).
The Globe Group has taken the advantage of the transitional provision of PFRS 2 in respect of
equity-settled awards and has applied PFRS 2 only to equity-settled awards granted after November
7, 2002 that had not vested on January 1, 2005.
*SGVMC107964*
- 18 For equity-settled awards granted on or before November 7, 2002, the Globe Group did not
recognize any expense but disclosed information for such options.
Pension Cost
Pension cost is actuarially determined using the projected unit credit method. This method reflects
services rendered by employees up to the date of valuation and incorporates assumptions concerning
employees projected salaries. Actuarial valuations are conducted with sufficient regularity, with
option to accelerate when significant changes to underlying assumptions occur. Pension cost
includes current service cost, interest cost, expected return on any plan assets, actuarial gains and
losses, past service cost and the effect of any curtailment or settlement.
The net pension asset recognized by the Globe Group in respect of the defined benefit pension plan
is the lower of: (a) the fair value of the plan assets less the present value of the defined benefit
obligation at the balance sheet date, together with adjustments for unrecognized actuarial gains or
losses and past service costs that shall be recognized in later periods; or (b) the total of any
cumulative unrecognized net actuarial losses and past service cost and the present value of any
economic benefits available in the form of refunds from the plan or reductions in future
contributions to the plan. The defined benefit obligation is calculated annually by independent
actuary using the projected unit credit method. The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows using risk-free interest rates of
government bonds that have terms to maturity approximating the terms of the related pension
liabilities.
In accordance with PFRS 1, the effect of change in accounting policy includes all cumulative
actuarial gains and losses at the date of transition to PFRS. In subsequent periods, a portion of
actuarial gains and losses is recognized as income or expense if the cumulative unrecognized
actuarial gains and losses at the end of the previous reporting period exceeded the greater of 10% of
the present value of defined benefit obligation or 10% of the fair value of plan assets. These gains
and losses are recognized over the expected average remaining working lives of the employees
participating in the plans.
Borrowing Costs
Interest and other related financing charges on borrowed funds used to finance the acquisition of
property and equipment to the extent incurred during the period of installation are capitalized as
part of the cost of property and equipment. The capitalization of borrowing costs as part of the cost
of an item of property and equipment: (a) commences when the expenditures and borrowing costs
being incurred during the installation and related activities necessary to prepare the item of property
and equipment for its intended use are in progress; (b) is suspended during extended periods in
which active development is interrupted; and (c) ceases when substantially all the activities
necessary to prepare the item of property and equipment for its intended use are completed. These
costs are amortized using the straight-line method over the EUL of the related property and
equipment.
Other borrowing costs are recognized as expense in the period in which these are incurred.
Premiums on long-term debt are included in Long-term debt account in the consolidated balance
sheets and are amortized using the effective interest rate method.
*SGVMC107964*
- 19 Leases
Finance leases, which transfer to the Globe Group substantially all the risks and benefits incidental
to ownership of the leased item, are capitalized at the inception of the lease at the lower of the value
of the leased property and the present value of the minimum lease payments. Lease payments are
apportioned between finance charges and reduction of the lease liability so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance charges are charged directly
against current operations.
Capitalized leased assets are depreciated over the shorter of the EUL of the assets or the
corresponding lease terms.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease collection or payment is recognized in the
consolidated statements of income on a straight-line basis over the lease terms.
Advertising Expenses
Advertising expenses are charged against current operations as incurred.
Foreign Currency Transactions
The functional and presentation currency of the Globe Group is the Philippine Peso. Transactions
denominated in foreign currencies are recorded in Philippine Peso based on the exchange rates
prevailing at the transaction dates. Foreign currency-denominated monetary assets and liabilities are
translated to Philippine Peso at the exchange rate prevailing at the balance sheet date. Foreign
exchange differentials between rate at transaction date, and rate at settlement date or balance sheet
date of foreign currency-denominated monetary assets or liabilities are credited to or charged
against current operations.
Financial Instruments
Accounting Policies Effective January 1, 2005
Financial instruments are recognized initially at fair value of the consideration given (in the case of
an asset) or received (in the case of a liability). The fair values of the consideration given or
received are determined by reference to the transaction price or other market prices. If such market
prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all
future cash payments or receipts, discounted using the prevailing market rates of interest for similar
instruments with similar maturities. The initial measurement of financial instruments, except for
those designated at fair value through profit or loss, includes transaction costs.
Financial instruments are recognized in the consolidated balance sheets when the Globe Group
becomes a party to the contractual provisions of the instrument. Financial assets are derecognized
either when the Globe Group has transferred substantially all the risks and rewards of ownership or
when it has neither transferred nor retained substantially all the risks and rewards of ownership but
it no longer has control over the financial assets. Financial liabilities are derecognized when the
obligation is extinguished.
*SGVMC107964*
- 20 The subsequent measurement bases for financial instruments depend on classification. Financial
instruments that are classified as held-to-maturity, loans and receivables, and financial liabilities
other than liabilities measured at fair value through profit and loss are measured at amortized cost
using the effective interest rate method. Investments are classified as held-to-maturity when those
are nonderivatives with fixed or determinable payments and fixed maturity that the Globe Group
has positive intention and ability to hold to maturity. Investments to be held for an undefined period
are not included in this classification. Amortized cost is calculated by taking into account any
discount, premium and transaction costs on acquisition, over the year to maturity. Amortizations of
discounts, premiums and transaction costs are taken directly to the consolidated statements of
income. For investments carried at amortized cost, gains and losses are recognized in income when
the investments are derecognized or impaired, as well as through the amortization process.
Changes in the fair value of financial assets and liabilities measured at fair value of: (a) all
derivatives (except those eligible for hedge accounting); (b) other items that are held for trading; and
(c) any item designated as held at fair value through profit and loss at origination, are taken
directly to the consolidated statements of income. Changes in the fair value of investments classified
as available-for-sale securities are recognized in equity, except for the foreign exchange fluctuations
on available-for-sale debt securities and the related effective interest which are taken directly to the
consolidated statements of income. These changes in fair values are recognized in equity until the
investment is sold, collected or otherwise disposed of, or until the investment is determined to be
impaired, at which time the cumulative gain or loss previously reported in equity is included in the
consolidated statements of income.
Financial assets and liabilities include financial instruments which may be a nonderivative
instrument, such as receivables, payables and equity securities, or a derivative instrument, such as
financial options, forwards and swaps.
The Globe Group enters into short-term deliverable and nondeliverable currency forward contracts
to manage its exchange exposure related to short-term foreign currency-denominated monetary
assets and liabilities. The Globe Group also enters into structured currency forward contracts where
call options are sold in combination with such currency forward contracts.
The Globe Group enters into deliverable prepaid forward contracts that entitle the Globe Group to a
discount on the contracted forward rate. Such contracts contain embedded currency derivatives that
are bifurcated and marked-to-market through earnings, with the host debt instrument being accreted
to its face value.
The Globe Group enters into short-term interest rate swap contracts to manage its interest rate
exposures on certain short-term floating rate peso investments. The parent company also enters into
long-term currency and interest rate swap contracts to manage its foreign currency and interest rate
exposures arising from its long-term loan. Such swap contracts are sometimes entered into in
combination with options. The Globe Group also sells currency options as cost subsidy for
outstanding currency swap contracts.
*SGVMC107964*
- 21 Derivative financial instruments are recognized and measured in the consolidated balance sheets at
fair values. The method of recognizing the resulting gain or loss depends on whether the derivative
is designated as a hedge of an identified risk and qualifies for hedge accounting treatment. The
objective of hedge accounting is to match the impact of the hedged item and the hedging instrument
in the consolidated statements of income. To qualify for hedge accounting, the hedging relationship
must comply with strict requirements such as the designation of the derivative of an identified risk
exposure, hedge documentation, probability of occurrence of the forecasted transaction in a cash
flow hedge, assessment and measurement of hedge effectiveness, and reliability of the measurement
bases of the derivative instruments.
Upon inception of the hedge, the Globe Group documents the relationship between the hedging
instrument and the hedged item, its risk management objective and strategy for undertaking various
hedge transactions, and the details of the hedging instrument and the hedged item. The Globe Group
also documents its hedge effectiveness assessment methodology, both at the hedge inception and on
an ongoing basis, as to whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items. Hedge effectiveness is
likewise measured, with any ineffectiveness being reported immediately in the consolidated
statements of income.
The Globe Group designates derivatives which qualify as accounting hedges as either: (a) a hedge
of the fair value of a recognized fixed rate asset, liability or unrecognized firm commitment (fair
value hedge); or (b) a hedge of the cash flow variability of recognized floating rate asset and
liability or forecasted transaction (cash flow hedge).
Fair Value Hedges
Fair value hedges are hedges of the exposure to variability in the fair value of recognized assets,
liabilities or unrecognized firm commitments. The gain or loss on a derivative instrument
designated and qualifying as a fair value hedge as well as the offsetting loss or gain on the hedged
item attributable to the hedged risk are recognized currently in the consolidated statements of
income in the same accounting period. Hedge effectiveness is determined based on the hedge ratio
of the fair value changes of the hedging instrument and the underlying hedged item. When the hedge
ceases to be highly effective, hedge accounting is discontinued.
As of December 31, 2005, there were no derivatives designated and accounted for as fair value
hedges.
Cash Flow Hedges
The Globe Group designates as cash flow hedges the following derivatives: (a) certain
floating-to-fixed cross currency swaps as cash flow hedges of both the currency and interest rate
risks of the floating rate foreign currency-denominated obligations; (b) certain principal only swaps
and fixed-to-fixed cross currency swaps as cash flow hedges of the currency risk of certain fixed
rate foreign currency denominated obligations; and, (c) interest rate swap as cash flow hedge of the
interest rate risk of a floating rate foreign currency-denominated obligation.
*SGVMC107964*
- 22 A cash flow hedge is a hedge of the exposure to variability in future cash flows related to a
recognized asset, liability or a forecasted transaction. Changes in the fair value of a hedging
instrument that qualifies as a highly effective cash flow hedge are recognized in Cumulative
translation adjustment, which is a component of stockholders equity. Any hedge ineffectiveness is
immediately recognized in the consolidated statements of income.
Where the forecasted transaction result in the recognition of an asset or liability, the gains and
losses previously included in Cumulative translation adjustment are included in the initial
measurement of the asset or liability. Otherwise, amounts recorded in equity are transferred to the
consolidated statements of income in the same period in which the forecasted transaction affects the
consolidated statements of income.
Hedge accounting is discontinued prospectively when the hedge ceases to be highly effective. When
hedge accounting is discontinued, the cumulative gain or loss on the hedging instrument that has
been reported in Cumulative translation adjustment is retained in the stockholders equity until
the hedged transaction impacts earnings. When the forecasted transaction is no longer expected to
occur, any net cumulative gain or loss previously reported in Cumulative translation adjustment
is recognized immediately in the consolidated statements of income.
Other Derivative Instruments Not Accounted for as Hedges
Certain freestanding derivative instruments that provide economic hedges under Globe Group s
policies either do not qualify for hedge accounting or are not designated as accounting hedges.
Changes in the fair values of derivative instruments not designated as hedges are recognized
immediately in the consolidated statements of income.
For bifurcated embedded derivatives that are not designated or do not qualify as hedges, changes in
the fair values of such transactions are recognized in the consolidated statements of income.
Accounting Policies Prior to January 1, 2005
Translation gains or losses on currency forward and swap contracts are computed by multiplying
the notional amounts by the difference between the exchange spot rates prevailing at the balance
sheet date and the exchange spot rates at the contract inception date (or the last reporting date). The
resulting translation gains or losses on the currency forward and swap contracts are offset against
the translation losses or gains on the underlying foreign currency-denominated monetary assets and
liabilities. The related revaluation amounts on the translation of currency forward and currency
swap contracts are included in Other noncurrent assets account in the consolidated balance
sheets, including the carrying amounts of forward premiums or discounts which are amortized over
the term of the related contracts. Swap costs accruing on long-term currency and
interest rate swap contracts that are currently due to or from the swap counterparties are charged
against current operations.
The mark-to-market gains or losses on these contracts as well as the other types of derivative
contracts are not considered in the determination of consolidated net income but are disclosed in the
related notes to the consolidated financial statements.
*SGVMC107964*
- 23 Impairment of financial assets
The Globe Group assesses at each balance sheet date whether a financial or group of financial
assets is impaired.
Assets carried at amortized cost
If there is objective evidence that an impairment loss on financial assets carried at amortized
cost has been incurred, the amount of the loss is measured as the difference between the asset s
carrying amount and the present value of estimated future cash flows discounted at the asset s
original effective interest rate. The carrying amount of the asset shall be reduced either directly
or through use of an allowance account. The amount of the loss shall be recognized in the
statements of income.
The Globe Group first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exist for an individually assessed financial asset, whether significant or not, the
asset is included in a group of financial asset with similar credit risk characteristics and that
group of financial assets is collectively assessed for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is or continues to be recognized are
not included in a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in the statements of income, to the extent that the carrying value of the asset does not
exceed its amortized cost at the reversal date.
Asset carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is
not carried at fair value because its fair value cannot be reliably measured, or on a derivative
asset that is linked to and must be settled by delivery of such unquoted equity instrument has
been incurred, the amount of the loss is measured as the difference between the asset s carrying
amount and the present value of estimated future cash flows discounted at the current market
rate of return for a similar financial asset.
Available-for-sale financial asset
If an available-for-sale asset is impaired, an amount comprising the difference between its cost
and its current fair value, less any impairment loss previously recognized in statements of
income, is transferred from equity to the statements of income. Reversals in respect of equity
instruments classified as available-for-sale are not recognized in profit. Reversals of impairment
losses on debt instruments are reversed through profit or loss, if the increase in fair value of the
instrument can be objectively related to an event occurring after the impairment loss was
recognized in profit or loss.
Earnings Per Share (EPS)
Basic EPS is computed by dividing earnings applicable to common stock by the weighted average
number of common shares outstanding, after giving retroactive effect for any stock dividends, stock
splits or reverse stock splits during the year.
*SGVMC107964*
- 24 Diluted EPS is computed by dividing net income by the weighted average number of common
shares outstanding during the year, after giving retroactive effect for any stock dividends, stock
splits or reverse stock splits during the year, and adjusted for the effect of dilutive options and
dilutive convertible preferred shares. Outstanding stock options will have a dilutive effect under the
treasury stock method only when the average market price of the underlying common share during
the period exceeds the exercise price of the option. If the required dividends to be declared on
convertible preferred shares divided by the number of equivalent common shares, assuming such
shares are converted, would decrease the basic EPS, then such convertible preferred shares would
be deemed dilutive. Where the effect of the assumed conversion of the preferred shares and the
exercise of all outstanding options have anti-dilutive effect, basic and diluted EPS are stated at the
same amount.
Segment Reporting
The Globe Group s major operating business units are the basis upon which the Globe Group
reports its primary segment information. In 2005, the Globe Group started monitoring its wireline
voice and data businesses as one major converged service with similar risks and returns. The Globe
Group s business segments consist of: (1) wireless communication services and (2) wireline
communication services. The Globe Group generally accounts for inter-segment revenues and
expenses at agreed transfer prices.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed
unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent
assets are not recognized in the consolidated financial statements but are disclosed when an inflow
of economic benefits is probable.
Subsequent Events
Any post year-end event up to the date of approval of the Board of Directors (BOD) of the
consolidated financial statements that provides additional information about the Globe Group s
position at balance sheet date (adjusting event) is reflected in the consolidated financial statements.
Any post year-end event that is not an adjusting event is disclosed in the notes to the consolidated
financial statements when material.
3. Management s Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with
Philippine GAAP requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. The estimates and
assumptions used in the accompanying consolidated financial statements are based upon
management s evaluation of relevant facts and circumstances as of the date of the consolidated
financial statements. Actual results could differ from such estimates.
PAS 1, Presentation of Financial Statements, which was adopted by the Globe Group effective
January 1, 2005, requires disclosures about key sources of estimation, uncertainty and judgments
management has made in the process of applying accounting policies. The following presents a
summary of these significant estimates and judgments:
*SGVMC107964*
- 25 Estimated allowance for doubtful accounts
The Globe Group maintains allowances for doubtful accounts at a level considered adequate to
provide for potential uncollectible receivables. The level of this allowance is evaluated by
management on the basis of factors that affect the collectibility of the accounts. These factors
include, but are not limited to, the length of the Group s relationship with the customer, the
customer s payment behavior and known market factors. The Globe Group reviews the age and
status of receivables, and identifies accounts that are to be provided with allowances on a
continuous basis.
The amount and timing of recorded expenses for any period would differ if the Globe Group made
different judgments or utilized different estimates. An increase in allowance for doubtful accounts
would increase the recorded operating expenses and decrease current assets.
Provision for doubtful accounts amounted to P
=615.73 million, P
=1,052.22 million and
=940.75 million in 2005, 2004 and 2003, respectively. Receivables, net of allowance for doubtful
P
accounts, amounted to P
=6,764.13 million, P
=5,457.91 million and P
=7,760.69 million as of December
31, 2005, 2004 and 2003, respectively (see Note 5).
Estimating asset retirement obligations
The Globe Group is legally required under various contracts to restore leased property to its
original condition and to bear the costs of dismantling and deinstallation at the end of the contract
period. These costs are accrued based on in-house an estimate, which incorporates estimates of
asset retirement costs, third party margins and interest rates. The Globe Group recognizes the fair
value of the liability for these obligations and capitalizes the present value of these costs as part of
the balance of the related property and equipment accounts, which are being depreciated and
amortized on a straight-line basis over the useful life of the related asset. The market risk premium
was excluded from the estimate of the fair value of the ARO because a reasonable and reliable
estimate of the market risk premium is not obtainable. Since a market risk premium is unavailable,
fair value is assumed to be the present value of the obligations. The fair value and present value of
dismantling costs is computed based on an average credit adjusted risk free rate of 14.62%.
Assumptions used to compute ARO are reviewed and updated annually.
The amount and timing of recorded expenses for any period would differ if different judgments were
made or different estimates were utilized. An increase in ARO would increase recorded operating
expenses and increase noncurrent liabilities.
As of December 31, 2005, 2004 and 2003, ARO has a carrying value of =
P907.05 million,
=769.80 million and P
P
=519.31 million, respectively (see Note 15).
Estimated useful lives of property and equipment, intangible assets and investment property
Globe Group reviews annually the estimated useful lives of property and equipment, intangible
assets and investment property based on expected asset utilization as anchored on business plans
and strategies that also consider expected future technological developments and market behavior. It
is possible that future results of operations could be materially affected by changes in these
estimates brought about by changes in the factors mentioned. A reduction in the EUL of property
and equipment, intangible assets and investment property would increase the recorded depreciation
and amortization expense and decrease noncurrent assets.
*SGVMC107964*
- 26 As of December 31, 2005, 2004 and 2003, property and equipment, intangible assets and
investment property amounted to P
=99,914.94 million, P
=102,849.37 million and
=95,945.63 million, respectively (see Notes 8, 9 and 10).
P
Asset impairment
Globe Group assesses impairment on assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The factors that Globe Group
considers important which could trigger an impairment review include the following:
significant underperformance relative to expected historical or projected future operating
results;
significant changes in the manner of use of the acquired assets or the strategy for overall
business; and
significant negative industry or economic trends.
An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable
amount. The recoverable amount is the higher of an asset s net selling price and value in use. The
net selling price is the amount obtainable from the sale of an asset in an arm s length transaction
while value in use is the present value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts
are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the
asset belongs. For impairment loss on specific assets, the recoverable amount represents the net
selling price.
In determining the present value of estimated future cash flows expected to be generated from the
continued use of the assets, Globe Group is required to make estimates and assumptions that can
materially affect the consolidated financial statements.
The carrying value of property and equipment, investment property, intangible assets and
investment in subsidiaries, associates, joint ventures and others amounted to P
=99,991.83 million, P
=
102,941.30 million and P
=96,673.35 million as of December 31, 2005, 2004 and 2003, respectively,
(see Notes 8, 9, 10 and 11).
Deferred income tax assets
Globe Group reviews the carrying amounts of deferred income tax assets at each balance sheet date
and reduced to the extent that it is no longer probable that sufficient income will be available to
allow all or part of the deferred income tax assets to be utilized. However, there is no assurance that
Globe Group will generate sufficient taxable profit to allow all or part of its deferred income tax
assets to be utilized.
As of December 31, 2005, 2004 and 2003, Innove has net deferred income tax assets of
=1,163.94 million, P
P
=2,413.25 million and P
=1,759.41 million, respectively, while Globe Telecom has
net deferred income tax liabilities of =
P4,432.87 million, P
=3,474.73 million and
=1,874.08 million, respectively. Globe Telecom and Innove has no unrecognized deferred income
P
tax assets as of December 31, 2005. GXI has not recognized deferred income tax assets on its net
operating loss carry over.
*SGVMC107964*
- 27 Financial assets and liabilities
Globe Group carries certain financial assets and liabilities at fair value, which requires extensive
use of accounting estimates and judgment. While significant components of fair value measurement
were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates,
volatility rates), the amount of changes in fair value would differ if the Globe Group utilized
different valuation methodologies. Any changes in fair value of these financial assets and liabilities
would affect profit and loss and equity.
Financial assets and liabilities carried at fair values as of December 31, 2005 amounted to
=1,548.89 million and P
P
=731.75 million, respectively (see Note 25).
Pension and other employee benefits
The determination of the obligation and cost of pension and other employee benefits is dependent on
the selection of certain assumptions used in calculating such amounts. Those assumptions include,
among others, discount rates, expected returns on plan assets and salary increase rates and price,
and projected dividend yields, risk free interest rate and volatility rate, for the retirement of pension
and cost of share-based payments, respectively (see Note 18). In accordance with Philippine GAAP,
actual results that differ from the Globe Group s assumptions, subject to the 10% corridor test, are
accumulated and amortized over future periods and therefore, generally affect the recognized
expense and recorded obligation in such future periods.
While the Globe Group believes that the assumptions are reasonable and appropriate, significant
differences between actual experiences and assumptions may materially affect the cost of employee
benefits and related obligations.
As of December 31, 2005 and 2004, Globe Telecom has unrecognized actuarial gains of
=35.39 million and P
P
=31.42 million, respectively, while unrecognized actuarial losses for 2003
amounted to P
=75.33 million. Innove s unrecognized actuarial gains amounted to P
=118.20 million, P
=
74.04 million and P
=17.17 million as of December 31, 2005, 2004 and 2003, respectively
(see Note 18).
The Globe Group also estimates other employee benefit obligations and expenses, including costs of
paid leaves based on historical leave availments of employees, subject to the Globe Group s policy.
These estimates may vary depending on the future changes in salaries and actual experiences during
the year.
The accrued balance of other employee benefits as of December 31, 2005 amounted to
=217.26 million.
P
Contingencies
Globe Telecom and Innove are currently involved in various legal proceedings. The estimate of the
probable costs for the resolution of these claims has been developed in consultation with outside
counsel handling the companies defense in these matters and is based upon an analysis of potential
results. Globe Telecom and Innove currently do not believe that these proceedings will have a
material adverse effect on the consolidated financial position. It is possible, however, that future
results of operations could be materially affected by changes in the estimates or in the effectiveness
of the strategies relating to these proceedings (see Note 23).
*SGVMC107964*
- 28 4. Integration of Wireline Business
On August 7, 2003, the NTC approved the legal rights transfer of Globe Telecom s wireline
business authorizations, properties, assets and obligations to Innove. In September 2003, pursuant
to the approval granted by the NTC, Globe Telecom s wireline voice and data assets and liabilities
were transferred to Innove and the wireline business of Globe Group was integrated into Innove. On
June 30, 2004 and November 30, 2005, Globe Telecom transferred additional wireline assets and
certain investments in cable systems to Innove. On a consolidated basis, the transfers had no impact
on net revenues, EBITDA [earnings before interest, income tax, depreciation and amortization and
other income (expense)] and net income. Innove remains a wholly-owned subsidiary of Globe
Telecom.
The transfer of the wireline business of Globe Telecom to Innove is part of the Globe Group s
operational integration activities to achieve increased focus and streamlined operations. The
integrated and focused wireline operations signal the Globe Group s commitment to innovation,
customer focus and operational excellence.
5. Receivables
This account consists of receivables from:
2005
Customers
Traffic settlements receivables - net
(Notes 16 and 25)
Others
Less allowance for doubtful
accounts (Note 3):
Customers
Traffic settlements and others
=8,022,307
P
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
= 7,988,865
P
= 7,109,926
P
3,120,374
305,076
11,447,757
2,315,050
242,789
10,546,704
4,514,080
197,687
11,821,693
4,468,009
215,618
4,683,627
=6,764,130
P
4,787,070
301,721
5,088,791
= 5,457,913
P
3,879,846
181,153
4,060,999
= 7,760,694
P
Traffic settlements receivables are presented net of traffic settlements payables of
=1,979.29 million, P
P
=1,196.82 million and P
=5,040.98 million as of December 31, 2005, 2004 and
2003, respectively.
*SGVMC107964*
- 29 6. Inventories and Supplies
This account consists of:
2005
At cost:
Call cards
Wireline telephone sets
At NRV:
Handsets and accessories
SIM packs, spare parts and supplies
Wireline telephone sets
= 10,601
P
10,601
840,244
469,335
52,279
1,361,858
=1,372,459
P
2004
(In Thousand Pesos)
2003
P 6,116
=
69,767
75,883
= 49,367
P
35,326
84,693
393,803
667,199
308,805
223,243
1,061,002
= 1,136,885
P
532,048
= 616,741
P
7. Prepayments and Other Current Assets
This account consists of:
2005
Prepayments
Input VAT - net
Derivative assets (Notes 2 and 25)
Other current assets (Note 25)
P297,109
=
286,784
117,056
531,576
=1,232,525
P
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
= 331,591
P
= 365,101
P
312,566
746,648
439,251
= 1,083,408
P
490,443
= 1,602,192
P
As of December 31, 2005 and 2004, Globe Telecom reported a net output VAT amounting to
=69.32 million and P
P
=150.38 million, net of input VAT of P
=207.07 million and P
=224.74 million,
respectively, included in Accounts payable and accrued expenses account in the consolidated
balance sheets (see Note 13). Innove s net input VAT as of December 31, 2005 and 2004 is
presented net of output VAT of P
=102.65 million and P
=172.98 million, respectively.
Input VAT as of December 31, 2003 is presented net of output VAT of P
=1,250.80 million.
*SGVMC107964*
- 30 8. Property and Equipment
The rollforward analysis of this account follows:
Buildings and
Furniture,
Transportation
Telecommunications
Leasehold
Investments in
Fixtures and
and Work
Equipment
Improvements
Cable Systems
Equipment
Equipment
Assets Under
Land
Construction
Total
(In Thousand Pesos)
Cost
At January 1, 2005, as restated
=117,423,719
P
=15,688,934
P
P
=3,436,886
=1,191,320
P
=928,222
P
=4,142,164
P
P
=151,823,077
1,616,476
108,003
33,350
440,860
222,410
36
12,529,070
14,950,205
(3,549,702)
(19,819)
(2,581)
(446,965)
(85,182)
9,338,435
3,155,754
19,938
642,608
4,153
124,828,928
18,932,872
9,062,539
4,073,389
1,332,701
At January 1, 2005, as restated
42,953,548
3,791,378
1,441,963*
2,182,047
760,902
51,129,838
Depreciation and amortization
12,107,710
1,583,301
618,345
811,762
193,734
15,314,852
Retirements/disposals
(2,526,563)
(7,952)
(961)
(413,845)
(64,752)
(3,014,073)
(4,598)
(11,132)
1,480
28,258
4,782
18,790
52,530,097
5,355,595
2,060,827
2,608,222
894,666
63,449,407
P
= 72,298,831
P
=13,577,277
P
=7,001,712
P
=1,465,167
P
=438,035
P
=897,914
P
=2,875,734
P
= 98,554,670
=74,470,171
P
=11,897,556
P
=8,520,222
P
=1,254,839
P
=430,418
P
=928,222
P
=4,142,164
P
P
=101,643,592
=72,014,245
P
=8,798,102
P
=9,131,458
P
=764,736
P
=324,028
P
=927,857
P
=3,109,261
P
P
=95,069,687
Additions (Note 15)
Retirements/disposals
Reclassifications/adjustments
At December 31, 2005
=9,011,832*
P
(30,344)
(4,134,593)
(13,795,500)
897,914
(634,612)
2,875,734
162,004,077
Accumulated depreciation
and amortization
Reclassifications/adjustments
At December 31, 2005
Net book value as of December 31,
2005
Net book value as of December 31,
2004, as restated
Net book value as of December 31,
2003, as restated
* January 1, 2005 restated balance includes PAS 39 adjustment (see Note 16).
The carrying values of property and equipment held under finance leases where Globe Group is the
lessee are as follows (see Note 22c):
2005
Furniture, fixtures and equipment
Transportation and work equipment
Less accumulated depreciation
Net book value
= 138,978
P
3,850
142,828
136,481
=6,347
P
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
= 166,417
P
= 180,103
P
4,400
4,400
170,817
184,503
147,902
148,028
= 22,915
P
= 36,475
P
Investments in cable systems include the cost of Globe Group s ownership share in the capacity of
certain cable systems under a joint venture or a consortium or private cable set-up and indefeasible
rights of use (IRUs) of circuits in various cable systems. It also includes the cost of cable landing
station and transmission facilities where Globe Group is the landing party
(see Note 16).
In 2004, as a result of periodic review of the EUL and depreciation and amortization methods of
items of property and equipment, management came to the conclusion that there has been a
significant change in the expected pattern of economic benefits from certain telecommunications
equipment and investments in cable systems. Globe Group revised the EUL of certain switch
equipment from 15 to 10 years and investments in cable systems from 20 to 15 years.
*SGVMC107964*
- 31 In addition, Globe Group revised the remaining EUL of certain telecommunications equipment,
which are specifically identified to be useful for specific periods shorter than the previous EUL.
These changes have been accounted for as changes in accounting estimates. The changes increased
depreciation expense by about P
=1,618.27 million or P
=11.26 reduction in basic earnings per share,
before related income taxes in 2004.
As discussed in Note 2, the Globe Group adopted PAS 16 beginning January 1, 2005. It requires
the capitalization of the costs of dismantling and restoration of the leased property at the end of the
leased term. Additional capitalized ARO in 2005, 2004 and 2003 amounted to P
=44.43 million, P
=
182.36 million and P
=70.26 million, respectively (see Notes 15 and 27).
In 2005, 2004 and 2003, total capitalized borrowing costs amounted to P
=123.56 million,
=203.55 million and P
P
=704.31 million (including capitalized interest of P
=111.34 million,
=77.67 million and P
P
=557.40 million), respectively.
Losses on Property and Equipment
In 2005, the Globe Group recognized losses on retirement on certain property and equipment of
=733.82 million as a result of impairment reviews and reconciliation exercise based on the recent
P
count activity. The Globe Group used the net selling price to determine the recoverable amount for
specific assets.
Globe Telecom also provided for impairment of certain assets amounting to P
=191.95 million net of
reversals. These assets are expected to be no longer usable when Globe Telecom upgrades its
network in 2006.
9. Investment Property
The rollforward analysis of this account follows:
2005
Cost
Balance at beginning of year
Additions
Balance at end of year
Accumulated depreciation
Balance at beginning of year
Depreciation for the year
Balance at end of year
Net Book Value
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
= 290,834
P
17,621
308,455
=281,821
P
9,013
290,834
=281,821
P
29,318
19,599
48,917
= 259,538
P
10,833
18,485
29,318
=261,516
P
412
10,421
10,833
=270,988
P
281,821
Investment property represents the portion of a building that is currently being held for lease to third
parties.
Additions to investment property during the year represent new leases of office spaces to third
parties.
*SGVMC107964*
- 32 Total lease income from investment property included under Others - net in the consolidated
statements of income amounted to about P
=29.01 million, P
=20.84 million and P
=13.19 million in
2005, 2004 and 2003, respectively. Total direct operating expenses related to investment property
that generated rental income amounted to about P
=20.09 million, P
=19.01 million and
=11.09 million in 2005, 2004 and 2003, respectively.
P
The fair value of the investment property computed using market data approach as of
December 31, 2005 amounted to P
=204.85 million based on the report issued by an independent
appraiser dated January 6, 2006.
10. Intangible Assets
The rollforward analysis of this account follows:
2005
Cost
Balance at beginning of year
Additions
Retirements/disposals
Reclassifications/adjustments
Balance at end of year
Accumulated Amortization
Balance at beginning of year
Amortization
Retirements/disposals
Reclassifications/adjustments
Balance at end of year
Net Book Value
2004
(In Thousand Pesos)
2003
P
=2,265,820
595,621
(91,012)
(13,600)
2,756,829
=1,807,059
P
620,600
(154,682)
(7,157)
2,265,820
=1,617,077
P
203,191
(55,108)
41,899
1,807,059
1,321,555
397,753
(63,097)
(109)
1,656,102
P
=1,100,727
1,202,108
269,264
(144,928)
(4,889)
1,321,555
=944,265
P
1,021,187
221,660
(46,493)
5,754
1,202,108
=604,951
P
Intangible assets pertain to software costs that are not integral to the computer hardware.
11. Investments in Associates, Joint Venture and Others
This account consists of:
2005
Investments carried at equity:
Acquisition cost:
Bridge Mobile Pte. Ltd. (BMPL)
Globe Telecom Holdings, Inc. (GTHI)
Pintouch Telecom, LLC (PTL)
(Forward)
P
= 56,332
98
12,366
68,796
2004
(In Thousand Pesos)
=56,332
P
98
12,366
68,796
2003
P
=
98
12,366
12,464
*SGVMC107964*
- 33 2005
Accumulated equity in net earnings:
Balance at beginning of year
GTHI
PTL
Add equity in net losses:
BMPL
GTHI
Balance at end of year:
BMPL
GTHI
PTL
Less allowance for impairment of investment in
PTL
Carrying values at end of year:
BMPL
GTHI
Investments in shares of stock carried at cost:
C2C Holdings, Pte. Ltd.
Others
Less allowance for impairment of investments:
C2C Holdings, Pte. Ltd.
Others
Carrying values at end of period:
C2C Holdings, Pte. Ltd.
Others
Total investments in associates and joint
venture
Investments in ROP Bonds and
DLPN (Note 25)
= 167
P
20,049
20,216
(13,311)
(23)
(13,334)
2004
(In Thousand Pesos)
=229
P
20,049
20,278
(62)
(62)
2003
P4,170
=
20,049
24,219
(3,941)
(3,941)
43,021
242
32,415
75,678
264
32,415
32,679
326
32,415
32,741
32,415
32,415
32,415
43,021
242
43,263
56,332
265
56,597
327
327
894,551
45,766
940,317
894,551
47,460
942,011
894,551
47,345
941,896
894,551
12,132
906,683
894,551
12,132
906,683
894,551
12,132
906,683
33,634
33,634
35,328
35,328
35,213
35,213
76,897
91,925
35,540
P
= 76,897
=91,925
P
692,186
P727,726
=
Equity in net losses for the year is shown under Equity in net losses of an associate and joint
venture account in the consolidated statements of income.
*SGVMC107964*
- 34 Investment in GTHI
GTHI is a special purpose vehicle incorporated in the Philippines, owned 32.67% each by Globe
Telecom and Ayala Corporation (AC), 33% by Singapore Telecom International Pte. Ltd. (STI)
[a wholly owned subsidiary of Singapore Telecom (ST)], and 1.66% by its directors and officers.
On December 26, 2002, GTHI, having completed and concluded its only business activity, related
to Philippine Deposit Receipts (PDR), filed with the Philippine SEC a request for the revocation of
its permit to sell PDRs. On December 8, 2003, the Philippine SEC approved the revocation of the
Order of Registration and Certificate of Permit to Sell Securities to the Public issued to GTHI. On
December 15, 2004, the BOD of GTHI approved the dissolution of GTHI, which was subsequently
approved by the Philippine SEC on December 13, 2005.
Investment in PTL
PTL is a limited partnership organized in the United States (US) which Globe Telecom has a 50%
ownership. On October 19, 2000, the BOD approved a resolution to seek the dissolution of PTL
and the termination of Globe Telecom s Limited Liability Agreement with Pacific Gateway
Exchange (PGE) and other agreements with PGE and/or PTL. On January 17, 2001, PGE gave its
consent to the dissolution of PTL. The dissolution has not been effected in order to enable PTL to
file its Proof of Claim against PGE before the US Bankruptcy Court, District Court of California
(San Francisco Division) to recover US$5.39 million of receivables from PGE. The Proof of Claim
was filed on May 11, 2001. However, on December 27, 2002, the Official Committee of Unsecured
Creditors of PGE (Committee) filed a complaint for recovery of money/property against PTL and
Globe Telecom alleging that PGE made preferred transfers in favor of PTL and Globe Telecom
prior to the filing of the bankruptcy proceedings. PTL and Globe Telecom filed their respective
answers alleging that the payments were part of a contemporaneous exchange of new value.
Thereafter, PTL, Globe Telecom and Committee agreed to settle the dispute with a mutual release
of claims. On December 17, 2004, the US Bankruptcy Court for the Northern District of California
approved the settlement agreement among the parties. PTL has not been operating since 2000 and
its status is deemed administratively cancelled as of December 31, 2005.
Investment in C2C Holdings, Pte. Ltd. (C2C Holdings)
Innove has a 4.25% ownership in C2C Holdings consisting of 20 million Class A common shares at
an acquisition cost of P
=894.55 million. C2C Holdings is the holding company for the equity
investments of all the cable landing parties in C2C Pte. Ltd. (C2C). C2C, a related party of STI, is
a private cable company with a network reaching 17,000 kilometers that links China, Hong Kong,
Japan, Singapore, South Korea, Taiwan, Philippines and the US.
In 2003, Innove recognized a full provision for its equity investment in C2C Holdings amounting to
=894.55 million (or P
P
=6.39 on a per share basis). The provision was made following the assessment
by C2C Holdings of the estimated future cash flows expected from the continuing use of the cable
network assets of C2C until the end of its economic useful lives and after considering the increased
potential risk to the restructuring of C2C s debt. This considered an independent market study
commissioned to revalidate the bandwidth market potential and its effect on C2C Holdings.
In October 2005, the creditors of C2C appointed receivers and in January 2006, manifested their
intention to take over the management of C2C. Innove is awaiting the resolution of the matter
between C2C and STI.
*SGVMC107964*
- 35 Investment in BMPL
On November 3, 2004, Globe Telecom and six other leading Asia Pacific mobile operators (JV
partners) signed an Agreement (JV Agreement) to form a regional mobile alliance, which will
operate through a Singapore-incorporated company, BMPL. In 2005, the JV consisted of eight
partners. The joint venture company will look at driving commercial and other benefits for the
operators and delivering regional mobile services to their subscribers.
BMPL will be a commercial vehicle in which the eight JV partners jointly invest to build and
establish a regional mobile infrastructure and common service platform. This will enable the
creation and seamless delivery of regional mobile services across geographical borders, and enhance
the service experience of their mobile customers when they roam from one country to another.
BMPL will also develop new products and services on a regional basis and create competitive
advantages and differentiation for the mobile operators in their respective markets.
The other joint venture partners with equal stake in the alliance include Bharti Tele-Ventures
Limited (India), Maxis Communications Berhad (Malaysia), Optus Mobile Pty. Limited
(Australia), Singapore Telecom Mobile Pte. Ltd. (Singapore), Taiwan Cellular Corporation
(Taiwan), PT Telekomunikasi Selular (Indonesia) and Hongkong CSL Ltd. (Hongkong).
Under the JV Agreement, each partner (shareholder) shall contribute US$4.00 million scheduled as
follows:
Year 1
Year 2
Year 3
about US$1.50 million
about US$1.30 million
about US$1.20 million
As of December 31, 2005, Globe Telecom has paid US$1 million (P
=56.33 million) as initial
subscription. BMPL started commercial operations in April 2005.
12. Other Noncurrent Assets
This account consists of:
2005
Derivative assets (Notes 2 and 25)
Miscellaneous deposits (Notes 22a and 25)
Advance payments to suppliers and contractors
Prepaid pension (Note 18)
Revaluation of foreign currency swaps and
unamortized premium (Notes 2 and 25)
Others
=1,431,835
P
342,492
279,206
253,718
105,530
=2,412,781
P
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
=
P
=
P
251,547
218,896
418,677
535,058
300,701
354,438
1,116,414
281,159
=2,368,498
P
1,631,758
268,199
=3,008,349
P
*SGVMC107964*
- 36 13. Accounts Payable and Accrued Expenses
This account consists of:
2005
Accounts payable (Notes 7, 16 and 25)
Accrued expenses (Notes 16 and 25)
Accrued project costs (Note 22)
Traffic settlements - net (Notes 3 and 25)
Provisions
Dividends payable (Note 17)
Derivative liabilities (Notes 2, 3 and 25)
P5,813,717
=
4,101,400
2,444,114
1,544,657
231,455
68,334
32,656
P
=14,236,333
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
=5,053,554
P
=4,055,138
P
4,084,200
4,811,964
3,454,285
3,003,053
1,104,861
1,461,224
282,309
793,066
75,128
67,957
=14,054,337
P
=14,192,402
P
Traffic settlements payables are presented net of traffic settlements receivables amounting to
P7,478.60 million, P
=
=3,761.56 million and P
=3,745.67 million as of December 31, 2005, 2004 and
2003, respectively.
Provisions relate to various pending regulatory claims and assessments. The information usually
required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on
the grounds that it can be expected to prejudice the outcome of these claims and assessments. The
provisions include those related to Globe Group s wireless and wireline business amounting to
=114.19 million, P
P
=165.05 million and P
=675.80 million as of December 31, 2005, 2004 and 2003,
respectively. The Globe Group recognized a net reversal of provision in 2005 amounting to
=50.85 million. As of February 7, 2006, the remaining pending regulatory claims and assessments
P
are still being resolved.
The balance of the provisions also includes Innove s provision relating to NTC permit fees
amounting to P
=117.26 million, which were assessed by NTC on March 27, 1996 as required under
Section 40 (g) of the Public Service Act. Innove, together with other telecommunications
companies, particularly the members of the Telecommunications Operators of the Philippines, had
decided not to pay the assessed permit fees. Innove has retained these provisions pending the
resolution of the ongoing Supreme Court (SC) case on the matter. The expected timing of the
settlement of the permit fees cannot be anticipated pending resolution of these matters.
*SGVMC107964*
- 37 14. Long-term Debt
This account consists of:
2005
Senior Notes
2012
2009
Banks:
Foreign
Local
Corporate notes
Retail bonds
Suppliers credits
Less current portion
2004
(In Thousand Pesos)
2003
P
=16,386,579
=17,387,378
P
=11,117,200
P
9,705,872
15,973,138
10,137,664
4,109,000
2,983,743
103,264
49,693,388
7,858,150
P
=41,835,238
22,121,664
5,975,162
3,070,000
3,000,000
663,747
52,217,951
9,018,650
=43,199,301
P
25,556,947
4,772,692
3,665,000
1,314,024
56,131,735
9,022,535
=47,109,200
P
The maturities of long-term debt at nominal values as of December 31, 2005 follow (in thousand
pesos):
Due in:
2006
2007
2008
2009
2010 and thereafter
=7,806,535
P
6,829,642
4,982,030
7,832,200
21,791,258
=49,241,665
P
The interest rates and maturities of the above loans follow:
Maturities
Interest Rates
2012
2009
9.75%
13.00%
2006-2011
2.17% to 12.45% in 2005
1.16% to 6.83% in 2004
1.18% to 7.35% in 2003
Local
2006-2010
7.36% to 11.73% in 2005
2.50% to 11.73% in 2004
7.56% to 12.52% in 2003
Corporate notes
2010-2012
7.36% to 16.00% in 2005
8.40% to 16.00% in 2004
7.14% to 16.00% in 2003
Senior Notes
2012
2009
Banks:
Foreign
(Forward)
*SGVMC107964*
- 38 -
Retail bonds
Maturities
2007-2009
Interest Rates
7.26% to 11.70% in 2005
7.79% to 11.70% in 2004
Suppliers credits
2005-2006
4.39% to 6.69% in 2005
2.71% to 6.88% in 2004
1.06% to 13.96% in 2003
Unamortized debt premium and issuance costs included in the following long-term debt as of
December 31, 2005 are as follows (in thousand pesos) (see Note 25):
Premium on 2012 Senior Notes (net of related debt
issuance cost)
Unamortized debt issuance costs on retail bonds
=467,979
P
(16,256)
=451,723
P
The loan agreements with suppliers, banks and other financial institutions provide for certain
restrictions and requirements with respect to, among others, maintenance of financial ratios and
percentage of ownership of specific shareholders, incurrence of additional long-term indebtedness or
guarantees and creation of property encumbrances.
Senior Notes
Pertinent terms of Globe Telecom s Senior Notes follow:
Date of issue
Maturity
Interest rate
Interest payments
Eligible holders
2012 Senior Notes (a)
April 4, 2002 and July 23, 2004
April 12, 2012
9.75% p.a.
Semi-annual in arrears on April 15 and
October 15 of each year. Interest accrues from
the date of original issuance or, if interest has
already been paid, from the date it was most
recently paid. Interest is computed on the
basis of a 360-day year comprised of twelve
30-day months
Bondholders of record on April 1 or
October 1 immediately preceding each
interest payment date
2009 Senior Notes (b)
August 6, 1999
August 1, 2009
13% p.a.
Semi-annual in arrears on February 1
and August 1 of each year. Interest
accrues from the date of original
issuance or, if interest has already been
paid, from the date it was most recently
paid. Interest is computed on the basis of
a 360-day year comprised of twelve 30day months
Bondholders of record on January 15 or
July 15 immediately preceding each
interest payment date
(a) On July 23, 2004, Globe Telecom issued US$100.00 million notes (the Notes) at 109% under an
indenture with the Bank of New York as Trustee. The Notes are consolidated and form a single
series with the 2012 Senior Notes issued on April 4, 2002. On October 29, 2004, the
US$300.00 million Senior Notes have been listed and quoted on the Singapore Stock Exchange.
(b) On August 2, 2004, Globe Telecom exercised its call option on the 2009 Senior Notes and
redeemed the balance of the 2009 Senior Notes amounting to US$142.72 million at 106.5%.
Prior to the exercise of the call option, Globe Telecom has redeemed US$77.28 million of the
*SGVMC107964*
- 39 2009 Senior Notes. US$88.00 million of swaps and forwards used to hedge the 2009 Senior
Notes have also matured. Bond redemption costs (included in Financing costs account)
incurred in 2004 and 2003 amounted to P
=693.39 million and P
=410.44 million, respectively.
Redemption Options
The 2012 Senior Notes are redeemable in whole or in part at the option of Globe Telecom at the
redemption dates set forth below, after giving the required notice under the indenture, and, if at the
time of such notice the Notes are listed on the Luxembourg Stock Exchange, by publishing a notice
in the Luxembourg Wort. The 2012 Senior Notes may be redeemed at the following prices (for
Senior Notes redeemed during the 12-month period commencing on each of the years below,
expressed as percentages of the principal amount), plus accrued and unpaid interest and additional
amounts thereon, if any, to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment date):
Redemption date
Redemption price
On or after April 15, 2007
2007
104.875%
2008
103.250%
2009
101.625%
2010 and thereafter
100.000%
Consent Solicitation
On July 6, 2004, Globe Telecom solicited consents from holders of its 2012 Senior Notes to amend
the indenture under which the 2012 Senior Notes were issued in April 2002. On
July 20, 2004, Globe Telecom obtained the required consents from the holders of the 2012 Senior
Notes. The amendments changed certain covenants and other terms in the indenture, including
covenants related to the provision of the consolidated financial statements and reports, limitations
on restricted payments and designation of restricted and unrestricted subsidiaries.
Covenants
The 2012 Senior Notes are unsecured obligations, equal in ranking among themselves and with all
of the existing and future unsecured and unsubordinated debt, subject to Article 2244 (14) of the
Civil Code of the Philippines, and senior in right of payment to all future subordinated debt.
Secured debt of Globe Telecom will be effectively senior to the Senior Notes to the extent of the
value of the assets securing such debt and also to the extent any such indebtedness is incurred by a
restricted subsidiary. In addition, under the laws of the Philippines, in the event a borrower submits
to insolvency or liquidation proceedings in which the borrower s assets are liquidated, unsecured
debt of the borrower that is evidenced by a public instrument as provided in Article 2244 (14) of the
Civil Code of the Philippines will rank ahead of unsecured debt of the borrower that is not
evidenced by a public instrument.
The 2012 Senior Notes provide certain restrictions, which include among others, incurrence of
additional debt, certain dividend payments, and liens, repayments of certain debts,
merger/consolidation and sale of assets in general.
Bank Loans and Corporate Notes
Globe Telecom s corporate notes, which consist of fixed and floating rate notes, and
peso-denominated bank loans, bear interest at stipulated and prevailing market rates.
*SGVMC107964*
- 40 The US dollar-denominated loans extended by commercial banks bear interest based on US Dollar
London Interbank Offered Rate (USD LIBOR) or Commercial Interest Reference Rate (CIRR) plus
margins.
Retail Bonds
In February 2004, Globe Telecom issued P
=3,000.00 million retail bonds locally with fixed and
floating interest rates based on MART1 plus margins. The retail bonds have maturities ranging
from 3 to 5 years. The retail bonds may be redeemed in whole, but not in part, at any time, by
giving not less than 30 nor more than 60 days prior notice, at a price equal to 100% of the principal
amount of the bonds, together with accrued and unpaid interest to the date fixed for redemption, if
Globe Telecom will pay additional amounts due to change in tax and/or other regulations. The
agreements covering the retail bonds provide restrictions with respect to, among others, maintenance
of certain financial ratios, sale, transfer, assignment or disposal of assets and creation of property
encumbrances.
Suppliers Credits
Suppliers credits accrue interests that are either fixed or based on USD LIBOR plus margins.
15. Other Long-term Liabilities
This account consists of:
2005
Noninterest bearing liabilities to
an affiliate (Note 16c)*
ARO (Notes 2, 8 and 27)
Derivative liabilities (Notes 2 and 25)
Advance lease and service revenues (Note 16c)
Accrued lease obligations and others (Note 22c)
Less current portion
=1,235,810
P
907,053
699,090
137,925
548,082
3,527,960
269,737
=3,258,223
P
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
=2,262,283
P
769,795
=2,430,363
P
519,309
164,209
473,317
3,669,604
292,589
=3,377,015
P
221,453
391,726
3,562,851
325,373
=3,237,478
P
*2005 balance is net of PAS 39 adjustments with no restatement of prior years (see Note 2).
The maturities of other long-term liabilities at nominal amounts as of December 31, 2005 follow (in
thousand pesos):
Due in:
2006
2007
2008
2009
2010 and thereafter
=269,737
P
100,342
107,814
116,237
2,933,830
=3,527,960
P
*SGVMC107964*
- 41 The rollforward analysis of Globe Group s ARO follow:
2005
Balance at beginning of year
Capitalized to property and equipment
during the year
Accretion expense during the year
Balance at end of year
P
= 769,795
44,433
92,825
P
= 907,053
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
=519,309
P
=384,747
P
182,363
68,123
=769,795
P
70,256
64,306
=519,309
P
16. Related Party Transactions
As discussed in Note 2, Globe Group adopted PAS 24, Related Party Disclosures, effective January
1, 2005. The information includes the additional disclosures required by the revised accounting
standard.
Globe Telecom and Innove, in their regular conduct of business, enters into transactions with its
principal shareholders, AC and STI, and certain related parties. These transactions, which are
accounted for at market prices normally charged to unaffiliated customers for similar goods and
services, include the following:
Globe Telecom
(a) Globe Telecom has interconnection agreements with STI. The related net traffic settlements
receivable (included in Receivables in the consolidated balance sheets) and the
interconnection toll income (included in Service revenues in the consolidated statements of
income) earned as of and for the years ended December 31 follow:
2005
Traffic settlements receivable - net
Interconnection toll income
P
= 335,766
1,422,249
2004
2003
(In Thousand Pesos)
=548,395
P
=31,212
P
2,239,630
1,083,859
(b) Globe Telecom and STI have a technical assistance agreement whereby STI will provide
consultancy and advisory services, including those with respect to the construction and
operation of Globe Telecom s networks and communication services, equipment procurement
and personnel services. In addition, Globe Telecom has software development, supply, license
and support arrangements, lease of cable facilities, maintenance and restoration costs and other
transactions with STI.
*SGVMC107964*
- 42 The details of fees (included in Operating costs and expenses account in the consolidated
statements of income) incurred under these agreements are as follows:
Lease of cable facilities, maintenance and restoration costs
and other transactions
Technical assistance fee
Software development, supply, license and support
2004
2005
(In Thousand Pesos)
P
=266,793
143,450
35,652
=137,111
P
44,360
40,409
2003
=54,026
P
78,095
56,316
The net outstanding balances due to STI (included in Accounts payable and accrued expenses
account in the consolidated balance sheets) arising from these transactions are as follows:
2005
Lease of cable facilities, maintenance and
restoration costs and other transactions
Technical assistance
Software development, supply, license and
support
2004
(In Thousand Pesos)
2003
P
=13,738
81,019
=62,675
P
8,899
=14,193
P
13,756
11,940
21,322
16,895
(c) In 2001, Globe Telecom signed a cable equipment supply agreement with C2C, a related party
of STI. In March 2002, Globe Telecom entered into an equipment lease agreement for the same
equipment obtained from C2C with GB21 Hong Kong Limited (GB21). Subsequently, GB21,
in consideration of C2C s agreement to assume all payment obligations pursuant to the lease
agreement, assigned all its rights, obligations and interest in the equipment lease agreement to
C2C. As a result of the said assignment of receivables and payables by GB21 and C2C under
the two agreements, Globe Telecom s liability arising from the cable equipment supply
agreement with C2C was effectively converted into a noninterest bearing long-term obligation.
Upon adoption of PAS 39 in 2005, the noninterest bearing long-term obligation was restated to
its fair value, representing the present value of future cash flows. The difference between the
principal amount and the present value of the obligation is reported as an adjustment to the
property and equipment account. As of December 31, 2005, the remaining liability of Globe
Telecom to C2C for the cable equipment supply agreement amounted to P
=1,235.81 million
(inclusive of the accumulated accretion of P
=486.98 million) included under Other long-term
liabilities account in the consolidated balance sheets. The fair value of the equipment
purchased amounted to =
P1,453.89 million included under Property and equipment account in
the consolidated balance sheets.
Globe Telecom entered into agreements with C2C for the purchase of IRUs in the C2C and
Japan-US Cable Networks. The aggregate cost of capacity purchased from C2C amounted to =
P
1,133.79 million. This was part of the property and equipment transferred to Innove in
June 2004.
In July 2002, Globe Telecom received advance service fees from C2C amounting to
US$1.60 million, which will be offset against its share in the operations and maintenance costs
of the cable landing facilities of Globe Telecom. Also, in January 2003, Globe Telecom
received advance lease payments from C2C for its use of a portion of Globe Telecom s cable
landing station facilities amounting to US$4.11 million.
*SGVMC107964*
- 43 The parties have agreed on a lease amortization schedule and application of a portion of the
advance service fees for C2C s share in the 2002 operations and maintenance costs of the cable
landing facilities. Accordingly, Globe Telecom recognized lease income amounting to
=15.06 million, P
P
=16.32 million and P
=51.00 million in 2005, 2004 and 2003, respectively. Globe
Telecom also recognized service fees amounting to P
=2.33 million, =
P43.76 million and P
=42.33
million in 2005, 2004 and 2003, respectively.
The current and noncurrent portions of the said advances shown as part of Other long-term
liabilities account in the consolidated balance sheets follow:
2005
Current
Noncurrent
P
=14,759
123,166
P
= 137,925
2004
(In Thousand Pesos)
=17,760
P
146,449
=164,209
P
2003
P59,483
=
161,970
=221,453
P
(d) Globe Telecom reimburses AC for certain operating expenses. The net outstanding liabilities to
AC related to these transactions as of December 31, 2005 were not material.
(e) Globe Telecom has preferred roaming service contract with BMPL. Under this contract, Globe
Telecom will pay BMPL for services rendered by the latter which include, among others,
coordination and facilitation of preferred roaming arrangement among JV partners, and
procurement and maintenance of telecommunications equipment necessary for delivery of
seamless roaming experience to customers. Globe Telecom also earns or incurs commission
form BMPL for regional top-up service provided by the JV partners. As of
December 31, 2005, balances related to these transactions were not material.
The summary of consolidated outstanding balances resulting from transactions with related parties
follows:
2005
Traffic settlements receivable - net (included in
Receivables) (Note 5)
Other current assets (Note 7)
Accounts payable (included in Accounts payable
and accrued expenses) (Note 13)
Other long-term liabilities (Note 15)
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
P
= 335,766
927
=31,212
P
946
=548,395
P
1,118
129,420
1,373,735
122,959
2,426,492
45,962
2,651,816
Globe Group s compensation of key management personnel by benefit type follows:
Short-term employee benefits
Share-based payment (Note 18)
Post-employment benefits
2004
2003
2005 (As Restated) (As Restated)
(In Thousand Pesos)
=261,174
P
P186,727
=
P
= 296,191
161,731
134,769
59,091
35,667
33,945
32,938
=431,610
P
=279,763
P
P
= 490,860
*SGVMC107964*
- 44 There are no agreements between Globe Group and any of its directors and key officers providing
for benefits upon termination of employment, except for such benefits to which they may be entitled
under Globe Group s retirement plans.
17. Stockholders Equity
Globe Telecom s capital stock consists of:
Preferred stock - Series A =
P5 per share
Authorized
Issued and outstanding
Common stock - =
P50 per share
Authorized
Issued and subscribed
Outstanding
2004
2003
2005
Shares
Amount
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares, Except Per Share Figures)
250,000
158,515
P
=1,250,000
792,575
250,000
158,515
P
=1,250,000
792,575
250,000
158,515
P
=1,250,000
792,575
179,934
131,900
131,900
8,996,719
6,595,022
6,595,022
200,000
151,905
139,904
10,000,000
7,595,272
6,995,200
200,000
151,905
139,904
10,000,000
7,595,272
6,995,200
The rollforward of outstanding common shares follows:
2005
2004
2003
Shares
Amount
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares, Except Per Share Figures)
At January 1
Exercise of stock options
Acquisition of treasury shares
At December 31
139,904 P
=6,995,200
60
3,033
(8,064)
(403,211)
131,900 P
=6,595,022
139,904 P
=6,995,200
151,905
P
=7,595,272
139,904 P
=6,995,200
(12,001)
(600,072)
139,904 P
=6,995,200
Treasury Shares
On February 1, 2005, the BOD approved an offer to purchase one share for every fifteen shares
(1:15) of the outstanding common stock of Globe Telecom from all stockholders of record as of
February 10, 2005 at P
=950.00 per share. The approval allowed Globe Telecom to purchase up to
9,326,924 shares representing 6.67% of Globe Telecom s outstanding common shares. Each
shareholder is entitled to tender a proportionate number of shares at the 1:15 ratio for purchase by
Globe Telecom upon and subject to the terms and conditions of the tender offer. Globe Telecom
also filed with the SEC the tender offer report with a copy of the letter to the shareholders, the terms
and conditions of the tender offer and the tender form. Globe Telecom commenced the tender offer
on February 3, 2005 and ended on March 3, 2005.
On March 15, 2005, Globe Telecom acquired 8,064,094 shares at a total cost of
=7,675.66 million, including incidental costs.
P
*SGVMC107964*
- 45 On April 4, 2005, Globe Telecom s stockholders approved the cancellation of the 20.06 million
treasury shares consisting of the 12.00 million shares acquired from Deutsche Telekom (DT) in
2003 and the 8.06 million shares acquired during the share buyback, and the amendments of the
articles of incorporation of Globe Telecom to reduce accordingly the authorized capital stock of the
corporation from P
=11,250.00 million to P
=10,246.72 million. On April 29, 2005, Globe Telecom
applied for the retirement and cancellation of the existing treasury shares with the SEC, which the
latter approved on October 28, 2005. Accordingly, Globe Telecom cancelled the existing treasury
shares at cost. The difference between the par value and cost of treasury shares was charged to
Additional paid in capital and Retained earnings accounts amounting to
=5,179.35 million and P
P
=9,685.80 million, respectively.
Preferred Shares
Preferred stock - Series A has the following features:
(a) Convertible to one common share after 10 years from issue date at not less than the prevailing
market price of the common stock less the par value of the preferred shares;
(b) Cumulative and nonparticipating;
(c) Floating rate dividend (set at MART 1 plus 2% average for a 12-month period);
(d) Issued at P
=5 par;
(e) With voting rights;
(f) Globe Telecom has the right to redeem the preferred shares at par plus accrued dividends at any
time after 5 years from date of issuance; and
(g) Preferences as to dividend in the event of liquidation.
Preferred A shares were listed on July 29, 2001 with the PSE.
The dividends for preferred shares are declared upon the sole discretion of Globe Telecom s BOD.
In 2003, the BOD approved the declaration of cash dividends to preferred shareholders Series A
as of record date December 31, 2003 amounting to P
=67.96 million, which were paid on
September 28, 2004.
On December 15, 2004, the BOD approved the declaration of cash dividends to preferred
shareholders Series A as of record date December 31, 2004 amounting to P
=75.13 million, which
were paid on March 15, 2005.
On December 13, 2005, the BOD approved the declaration of cash dividends to preferred
shareholders Series A as of record date December 31, 2005 amounting to P
=68.33 million.
Cash Dividends
On April 1, 2003, the BOD of Globe Telecom approved the declaration of cash dividends of
=2,126.68 million (P
P
=14.00 per common share) to common stockholders of record as of
April 21, 2003. Payment was made on May 6, 2003.
On January 29, 2004, the BOD of Globe Telecom approved a new dividend policy to declare cash
dividends to its common stockholders on a regular basis as may be determined by the BOD from
time to time. The BOD had set out a dividend payout rate of approximately 50% of prior year s net
income payable semi-annually in March and September of each year. This will be reviewed
*SGVMC107964*
- 46 annually, taking into account Globe Group s operating results, cash flows, debt covenants, capital
expenditure levels and liquidity. The BOD also declared the first semi-annual cash dividend in 2004
of =
P18 per share payable to common stockholders of record as of February 18, 2004 and
subsequently paid dividends amounting to P
=2,518.27 million on March 15, 2004. The second semiannual cash dividend of =
P18 per share payable to common stockholders of record as of August 20,
2004 was declared on August 2, 2004 and paid on September 15, 2004.
On February 1, 2005, the BOD declared the first semi-annual cash dividend in 2005 of P
=20.00 per
share payable to common stockholders of record as of February 18, 2005 and subsequently paid
dividends amounting to P
=2,798.10 million on March 15, 2005.
On August 2, 2005, the BOD declared the second semi-annual cash dividend for 2005 amounting to
=20.00 per common share outstanding as of record date August 19, 2005, and was paid on
P
September 14, 2005.
Restrictions on Retained Earnings
The retained earnings include the accumulated equity in undistributed net earnings of consolidated
subsidiaries, associates and joint venture accounted for under the equity method totaling P
=4,162.75
million as of December 31, 2005. This amount is not available for dividend declaration until
received in the form of dividends from subsidiaries and associates. The Globe Group is also subject
to loan covenants that restrict its ability to pay dividends (see Note 14).
18. Employee Benefits
As discussed in Note 2, the Globe Group adopted PFRS 2, Share-based Payment and
PAS 19, Employee Benefits on January 1, 2005. The information below includes the disclosure
requirements under these new standards.
Stock Option Plans
Globe Group has various stock-based compensation plans. The number of shares allocated under
the plans shall not exceed the aggregate equivalent of 6% of the authorized capital stock or up to
12.00 million common shares.
The Employees Stock Ownership Plan (ESOWN) for all regular employees (granted in 1998 and
1999) and the Executive Stock Option Plan 1 (ESOP1) for key senior executives (granted in 1998
and 2000) provide for an initial subscription price for shares subject of each option granted
equivalent to 85% of the initial offer price. Any subsequent subscription for the ESOP1 shall be for
a price equivalent to 85% of the average closing price for the month prior to the month of
eligibility. These options are settled in equity once exercised. The qualified officers and employees
shall pay for the shares subscribed under the ESOWN and ESOP1 through installments over a
maximum period of 5 years and 10 years, respectively. The shares of stock have a holding period
of five years and the employees must remain with Globe Telecom or its affiliates over such period.
The plans also provide restrictions on sale or assignment of shares for five years from date of
subscription. The number of exercised shares under ESOP1 totaled 1,712,133 shares with a
weighted average exercise price of P
=196.75 per share. The remaining stock options under ESOWN
and ESOP1 expired in 2004.
*SGVMC107964*
- 47 On April 4, 2003, Globe Telecom granted additional stock options to key executives and senior
management personnel of the Globe Group under Executive Stock Option Plan 2 (ESOP2). It
required the grantees to pay a nonrefundable option purchase price of P
=1,000.00. As of
December 31, 2005, a total of 680,200 stock options were granted to key executives and senior
management personnel. ESOP2 provides for an exercise price of P
=547.00 a share, which is the
average quoted market price of the last 20 trading days preceding April 4, 2003. These options are
settled in equity once exercised. Fifty percent of the options will be exercisable from
April 4, 2005 to April 4, 2013, while the remaining fifty percent will be exercisable from
April 4, 2006 to April 4, 2013. In order to avail of the privilege, the grantees must remain with
Globe Telecom or its affiliates from grant date up to the beginning of the exercise period of the
corresponding shares.
On July 1, 2004, the Globe Group granted additional stock options to key executives and senior
management personnel of the Globe Group under ESOP2. It required the grantees to pay a
nonrefundable option purchase price of =
P1,000.00. As of December 31, 2005, a total of
803,800 stock options were granted to key executives and senior management personnel. The
agreement provides for an exercise price of =
P840.75 per share. These options will be settled in
equity once exercised. Fifty percent of the options become exercisable from July 1, 2006 to June 30,
2014, while the remaining fifty percent become exercisable from July 1, 2007 to
June 30, 2014. In order to avail of the privilege, the grantees must remain with Globe Telecom or its
affiliates from grant date up to the beginning of the exercise period of the corresponding shares.
A summary of Globe Group s stock option activity and related information follows:
2005
Weighte
d
Number Average
of Exercise
Shares
Price
Outstanding, at beginning of
year (ESOP1,ESOP2 and
ESOWN)
1,450,600
Granted (ESOP2)
8,000
Exercised (ESOP2)
(149,000)
Expired/forfeited/cancelled
(ESOP1,ESOP2 and
ESOWN)
(28,250)
Outstanding, at end of year 1,281,350
2004
Number of
Shares
2003
Weighted
Average
Exercise
Price
P
=709.77
547.00
547.00
643,782*
836,800
(2,700)
=546.51
P
829.17
547.00
604.19
P
=730.01
(27,282)*
1,450,600
535.32
=709.77
P
Number of
Shares
Weighted
Average
Exercise
Price
4,582*
639,200
P477.51
=
547.00
643,782
=546.51
P
Exercisable, at end of year
=
P
4,582
=477.51
P
172,350 P
=547.00
*Included within these balances are stock options of 4,582 that have not been recognized in accordance with
PFRS 2 as the options were granted on or before November 7, 2002.
The average share price at the date of exercise for the options exercised in 2005 and 2004 amounted
to P
=807.08 and =
P909.17, respectively.
The options have a contractual term of 10 years. As of December 31, 2005, 2004 and 2003, the
weighted average remaining contractual life of options outstanding is 8.03 years, 8.94 years and
9.22 years, respectively.
*SGVMC107964*
- 48 The fair value of each option is estimated on the date of grant using the Black-Scholes option
pricing model. The fair values of stock options granted under ESOP2 on April 4, 2003 and
July 1, 2004 amounted to P
=283.11 and P
=357.94, respectively. The following assumptions were used
to determine the fair value of the stock options at grant date:
July 1, 2004
=835.00
P
=840.75
P
39.50%
10 years
4.31%
12.91%
Share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate
April 4, 2003
=580.00
P
=547.00
P
34.64%
10 years
2.70%
11.46%
The expected volatility measured at the standard deviation of expected share price returns was
based on analysis of share prices for the past 365 days.
Cost of share-based payment in 2005, 2004 and 2003 amounted to P
=161.73 million,
=134.77 million and P
P
=59.09 million, respectively.
Pension Plans
Globe Telecom
Globe Telecom has a funded, noncontributory, defined benefit pension plan covering
substantially all of its regular employees. The benefits are based on years of service and
compensation on the last year of employment.
The components of pension expense (included in staff costs under Operating costs and
expenses ) in the consolidated statements of income are as follows:
2004
2003
(As Restated) (As Restated)
(In Thousand Pesos)
P
=73,591
=75,843
P
P67,552
=
47,814
46,437
58,697
(70,053)
(60,226)
(85,305)
133
939
=53,737
P
=54,702
P
P
=46,983
=77,229
P
=89,883
P
P
=56,151
2005
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial loss
Total pension expense
Actual return on plan assets
*SGVMC107964*
- 49 The funded status and amounts recognized under Other noncurrent assets in the consolidated
balance sheets for the pension plan of Globe Telecom are as follows:
2005
Benefit obligation
Plan assets
Unrecognized net actuarial gains/(losses) (Note 3)
Asset recognized in the consolidated balance
sheets
P
= 481,754
(770,860)
(289,106)
35,388
(P
= 253,718)
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
=434,771
P
=433,106
P
(766,890)
(712,219)
(332,119)
(279,113)
31,418
(75,325)*
(P
=300,701)
(P
=354,438)
*Net of portion of actuarial losses recognized in 2003 amounting to P
=72.04 million related to curtailment.
Changes in the present value of the defined benefit obligation are as follows:
2005
Balance at January 1
Interest cost
Current service cost
Curtailments/settlements
Benefits paid
Actuarial (gains)/losses
Balance at December 31
P
=434,771
58,697
73,591
(58,347)
(26,958)
P
=481,754
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
=433,106
P
=432,717
P
47,814
46,437
75,843
67,552
(229,508)
(25,889)
(97,961)
(96,103)
213,869
=434,771
P
=433,106
P
Changes in the fair value of plan assets are as follows:
2004
(As Restated)
(In Thousand Pesos)
=712,219
P
70,053
2005
Balance at January 1
Expected return
Contributions
Benefits paid
Settlements
Actuarial gains/(losses)
Balance at December 31
P
= 766,890
85,305
(58,347)
(22,988)
P
= 770,860
(25,889)
10,507
=766,890
P
2003
(As Restated)
=708,062
P
60,226
199,557
(97,961)
(224,489)
66,824
=712,219
P
Globe Telecom expects not to make contribution to its defined benefit pension plan in 2006.
The allocation of the fair value of plan assets of Globe Telecom as of December 31, 2005
follows:
Investments in debt securities
Investments in equity securities
Others
2005
84.00%
15.00%
1.00%
2004
84.00%
13.00%
3.00%
2003
87.00%
8.00%
5.00%
*SGVMC107964*
- 50 Innove
Innove has a funded, noncontributory, defined benefit pension plan covering substantially all of
its regular employees. The benefits are based on years of service and compensation on the last
year of employment.
The components of pension expense (included in staff costs under Operating costs and
expenses ) in the consolidated statements of income are as follows:
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial loss
Total pension expense
Actual return on plan assets
2004
2003
(As restated) (As restated)
2005
(In Thousand Pesos)
=22,489
P
=7,176
P
P
=19,714
20,938
4,814
22,510
(21,737)
(6,085)
(27,528)
(2,454)
P
=12,242
=21,690
P
=5,905
P
=20,711
P
=1,251
P
P
=24,305
The funded status and amounts recognized in prepayments under Prepayments and other
current assets in the consolidated balance sheets for the pension plan of Innove are as follows:
2005
Benefit obligation
Plan assets
Unrecognized net actuarial gains (Note 3)
Asset recognized in the consolidated balance sheets
P
=167,071
(295,581)
(128,510)
118,204
(P
=10,306)
2004
2003
(As Restated) (As Restated)
(In Thousand Pesos)
=168,851
P
=189,402
P
(251,419)
(208,770)
(82,568)
(19,368)
74,043
17,168
(P
=8,525)
(P
=2,200)
Changes in the present value of the defined benefit obligation are as follows:
2005
Balance at January 1
Interest cost
Current service cost
Benefits paid
Actuarial gains on obligation
Balance at December 31
P
=168,851
22,510
19,714
(11,633)
(32,371)
P
=167,071
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
=189,402
P
=206,933
P
20,938
4,813
22,489
7,176
(10,832)
(2,584)
(53,146)
(26,936)
=168,851
P
=189,402
P
*SGVMC107964*
- 51 Changes in the fair value of plan assets are as follows:
P
=251,419
27,528
14,023
(11,633)
2004
(As Restated)
(In Thousand Pesos)
=208,770
P
21,737
28,015
(10,832)
14,244
P
=295,581
3,729
=251,419
P
2005
Balance at January 1
Expected return
Contributions
Benefits paid
Settlements
Actuarial gains/(losses) on obligation
Balance at December 31
2003
(As Restated)
=200,161
P
6,085
15,405
(2,584)
(6,066)
(4,231)
=208,770
P
Innove expects to make contribution to its defined benefit pension plan in 2006.
The allocation of the fair value of plan assets of Innove as of December 31, 2005 follows:
Investments in debt securities
Investments in equity securities
Others
2005
89.00%
7.00%
4.00%
2004
87.00%
9.00%
4.00%
2003
96.00%
2.00%
2.00%
As of December 31, 2005, the pension plan assets of Globe Telecom and Innove include shares
of stock of Globe Telecom with total fair value of P
=32.44 million, and shares of stock of other
related parties with total fair value of P
=41.10 million.
The assumptions used to determine pension benefits of Globe Telecom and Innove in December
31 are as follows:
Discount rate
Salary rate increase
Expected rate of return on plan assets
2005
13.75%
8.50%
10.50%
2004
13.75%
8.00%
10.50%
2003
11.38%
8.00%
10.00%
The overall expected rate of return on plan assets is determined based on the market prices
prevailing on that date, applicable to the period over which the obligation is to be settled.
*SGVMC107964*
- 52 19. Operating Costs and Expenses
This account consists of:
Selling, advertising and promotions
Staff costs (Note 18)
Utilities, supplies and other administrative expenses
Repairs and maintenance
Rent (Note 22)
Professional and other contracted services
Insurance and security services
Taxes and licenses
Others
Number of employees at end of year
2004
(As restated)
2005
(In Thousand Pesos)
=3,753,134
P
P
=4,697,406
2,874,338
3,518,910
1,714,677
1,982,396
1,325,098
1,877,425
1,420,069
1,839,999
1,295,369
1,495,634
1,034,835
1,477,739
616,257
831,629
1,370,186
1,421,124
P
= 19,142,262
=15,403,963
P
4,956
4,987
2003
(As restated)
P3,119,264
=
2,552,465
1,545,426
1,779,154
1,604,418
793,067
702,516
956,311
945,947
=13,998,568
P
4,186
Revenue Regulation No. 10-2002 defines expenses to be classified as entertainment, amusement and
recreation (EAR) expenses and sets a limit for the amount that is deductible for tax purposes.
EAR expenses are limited to 0.5% of net sales for sellers of goods or properties or 1% of net
revenue for sellers of services. For sellers of both goods or properties and services, an
apportionment formula is used in determining the ceiling on such expenses. In 2005, 2004 and
2003, Globe Group recognized EAR expenses (included in others under Operating costs and
expenses ) amounting to P
=14.09 million, P
=9.45 million and P
=10.07 million, respectively.
20. Financing Costs
This account consists of:
Interest expense - net of accretion of bond premium (Note
14)
Foreign exchange loss (gain) - net (Note 25)
Loss on derivative instruments - net (Note 25)
Swap and other financing costs ( Notes 14 and 25)
2004
2003
(As Restated)
(As Restated)
2005
(In Thousand Pesos)
P
= 4,657,748
(2,303,327)
104,301
681,871
P
= 3,140,593
=4,368,716
P
213,995
=4,088,209
P
803,058
1,744,168
=6,326,879
P
1,847,759
=6,739,026
P
*SGVMC107964*
- 53 21. Income Taxes
The significant components of the deferred income tax assets and liabilities of the Globe Group
represent the deferred income tax effects of the following:
2005
Deferred income tax assets on:
Allowances for:
Doubtful accounts
Property and equipment and
other probable losses
Inventory losses, obsolescence and
market decline
Impairment in value of investments in
shares of stock
Unearned revenues and advances already
subjected to income tax
Net unrealized foreign exchange losses
Excess of depreciable cost of equipment for tax
purposes
ARO
Accrued rent expense
Deferred charges
Accrued vacation leave
Cost of share-based payments
MCIT
NOLCO
Deferred income tax liabilities on:
Excess of accumulated depreciation and
amortization of equipment for tax purposes (a)
over financial reporting purposes (b)
Capitalized borrowing costs already claimed
as deduction for tax purposes
Gains on derivative transactions
Unamortized discount on noninterest bearing
liability
Unamortized pension cost
Gain on sale of land
Net deferred income tax liabilities
(a)
Sum-of-the-years digit method
(b)
Straight-line method
2004
2003
(As Restated)
(As Restated)
(In Thousand Pesos)
=1,664,166
P
=1,646,573
P
=571,435
P
266,546
210,735
281,629
91,620
63,661
35,568
9,725
10,373
10,373
518,293
400,440
1,022,142
1,329,102
1,166,476
2,287,531
88,023
3,592,001
121,647
36,705
96,010
9,182
99,554
255,215
32
4,900,931
73,520
7,653
28,345
42,592
106,021
4,699,166
5,101,101
4,542,588
3,503,994
1,352,303
136,650
1,319,288
1,229,481
100,534
80,361
5,962,410
P1,061,479
=
4,813,836
=114,670
P
285,106
154,956
70,328
51,868
47,583
31,370
194,060
70,554
6,257
6,860,925
=3,268,924
P
Net deferred tax assets and liabilities presented in the consolidated balance sheets on a net basis by
entity are as follows:
Net deferred tax assets (Innove and GXI)
Net deferred tax liabilities (Globe Telecom)
2004
2005 (As Restated)
(In Thousand Pesos)
=2,413,253
P
= 1,163,943
P
3,474,732
4,432,867
2003
(As Restated)
= 1,759,412
P
1,874,082
*SGVMC107964*
- 54 As of December 31, 2005, deferred tax asset of GXI that has not been recognized and is available
for offset against future taxable income or tax payable amounted to P
=6.37 million.
As of December 31, 2005, 2004 and 2003, deferred income tax liabilities have not been recognized
on the undistributed earnings (losses) of subsidiaries, associates and joint venture amounting to P
=
4,162.35 million, =
P2,029.85 million and (P
=198.04) million, respectively, since such amounts are not
taxable.
Following are the movements in Innove s and GXI s NOLCO and MCIT:
2005
NOLCO:
At January 1
Additions
Applications/expirations
At December 31
= 101
P
18,176
= 18,277
P
2005
MCIT:
At January 1
Additions
Applications/expirations
At December 31
=255,215
P
(255,215)
=
P
2004
(In Thousand Pesos)
2003
= 331,315
P
101
(331,315)
=101
P
=4,041,270
P
(3,709,955)
= 331,315
P
2004
(In Thousand Pesos)
2003
=260,957
P
36,850
(42,592)
=255,215
P
= 164,184
P
96,773
= 260,957
P
The reconciliation of the provision for income tax at statutory tax rate and the provision for income
tax follows:
2004
(As restated)
(In Thousand Pesos)
=4,071,339
P
P
=4,609,234
2005
Provision at statutory income tax rate
Add (deduct) tax effects of:
Unearned revenues under income tax holiday
(ITH)
Income under ITH
Change in income tax rates
Income subjected to lower tax rates
Equity in net losses of an associate and joint
venture
Provision for impairment of investment in shares
of stock
Expired NOLCO
Changes in unrecognized deferred tax assets
Additional deferred tax liability on wireline
assets transferred due to different tax rates
Others
Provision for income tax
(365,344)
(254,486)
(222,142)
(103,462)
4,334
198,368
P
=3,866,502
2003
(As restated)
=3,256,524
P
(98,418)
(1,074,326)
463,762
(1,536,559)
(124,864)
(206,240)
20
1,261
(2,058,254)
286,256
11,508
(2,076,376)
167,373
443,822
=1,326,692
P
23,865
=224,001
P
*SGVMC107964*
- 55 As discussed in Note 1, Globe Telecom and Innove is enfranchised under RA No. 7229 and 7372,
respectively, and its related laws to render any and all types of domestic and international
telecommunications services. Globe Group is entitled to certain tax and nontax incentives under its
franchise and has availed of incentives for tax and duty-free importation of capital equipment for its
services under its franchise.
On July 19, 2001, the Board of Investments (BOI) approved Globe Telecom s application as an
expanding operator of telecommunications systems (Nationwide CMTS-GSM Network) and
granted its Phase 8 Expansion Project a pioneer status. The BOI issued the certificate of registration
on March 5, 2002 which entitled Globe Telecom to ITH for 3 years. The ITH commenced on April
1, 2002, the date when Phase 8 Expansion was placed in commercial operations. The availment of
the ITH resulted in an increase of P
=1.90, P
=8.38, P
=7.18 in the basic EPS in 2005, 2004 and 2003,
respectively. The ITH expired on March 31, 2005.
On June 25, 2002, the BOI issued a Certificate of Registration to Globe Telecom and granted a
pioneer status as a new operator of Infrastructure and Telecommunications Facilities (Cable
Landing Station Facilities). On June 30, 2004, Globe Telecom transferred additional wireline assets
and certain investments in cable systems to Innove. Included in the assets transferred are various
capacities in the C2C cable network forming part of the registered project. Ownership and operation
of such capacities are now transferred to Innove. In anticipation of such transfer, on June 23, 2004,
Globe Telecom voluntarily surrendered its certificate of registration on the Cable Landing Station
Facilities to the BOI. Effective June 23, 2004, Globe Telecom will no longer be entitled to the ITH
on Cable Landing Station Facilities.
RA No. 9337
RA No. 9337 was enacted into law amending various provisions in the existing 1997 National
Internal Revenue Code. On October 18, 2005, the SC has rendered its final decision declaring the
validity of the RA No. 9337. Among the reforms introduced by the said RA, which became effective
on November 1, 2005, are as follows:
Increase in the corporate income tax rate from 32% to 35% with a reduction thereof to 30%
beginning January 1, 2009;
Increase in VAT rate from 10% to 12% effective February 1, 2006 as authorized by the
Philippine President pursuant to the recommendation of the Secretary of Finance;
Revised invoicing and reporting requirements for VAT;
Expanded scope of transactions subject to VAT; and
Provide thresholds and limitations on the amounts of VAT credits that can be claimed.
22. Agreements and Commitments
Lease Commitments
(a) Operating lease commitments - Globe Group as lessee
Globe Telecom and Innove leases certain premises for some of telecommunications facilities
and equipment and for most of its business centers and cell sites. The operating lease
agreements are for periods ranging from 1 to 10 years from the date of the contracts and are
*SGVMC107964*
- 56 renewable under certain terms and conditions. The agreements generally require certain
amounts of deposit and advance rentals, which are shown as part of Other noncurrent assets
account in the consolidated balance sheets. The Globe Group s rentals incurred on these leases
(included in Operating costs and expenses account in the consolidated statements of income)
amounted to P
=1,840.00 million, P
=1,420.07 million and P
=1,604.42 million in 2005, 2004 and
2003, respectively.
As of December 31, 2005, the future minimum lease payments under these operating leases are
as follows (in thousand pesos):
Not later than one year
After one year but not more than five years
After five years
=765,915
P
2,267,823
1,029,121
=4,062,859
P
(b) Operating lease commitments - Globe Group as lessor
Globe Telecom and Innove have certain lease agreements on equipment and office spaces. The
operating lease agreements are for periods ranging from 1 to 10 years from the date of
contracts.
Globe Telecom has an equipment lease agreement with C2C for a period of 14 years. Lease
income (included under Others - net account in the consolidated statements of income)
amounted to P
=194.01 million, P
=200.08 million and P
=196.33 million in 2005, 2004 and 2003,
respectively.
The future minimum lease payments receivable under this operating lease are as follows (in
thousand pesos):
Within one year
After one year but not more than five years
After five years
=189,388
P
757,554
994,289
=1,941,231
P
Innove entered into a lease agreement covering the lease of office space at the Innove IT Plaza
to a third party. The lease has a remaining lease term of less than a year renewable under
certain terms and conditions. As of December 31, 2005, the future minimum lease receivables
under this operating lease amounted to P
=50.15 million which is due within two years.
(c) Finance lease commitments - Globe Group as lessee
Globe Telecom and Innove have entered into finance lease agreements for various items of
property and equipment. The said leased assets are capitalized and are depreciated over their
estimated useful life of three years, which is also equivalent to the lease term.
*SGVMC107964*
- 57 As of December 31, 2005, the consolidated future minimum lease payments under finance
leases and the present value of the net minimum lease payments are as follows (in thousand
pesos):
Within one year
After one year but not more than five years
Total minimum lease payments
Less interest
Present value of minimum lease payments
Current
Noncurrent
=13,058
P
138
13,196
533
=12,663
P
12,537
126
=12,663
P
The present value of the minimum lease payments under finance leases is included under Other
long term liabilities account in the consolidated balance sheets.
(d) Finance lease commitments - Globe Group as lessor
Innove has existing finance lease arrangements with a lessee for Innove s office equipment. As
of December 31, 2005, the gross investment and the present value of the net minimum lease
payments receivable included under Prepayments and other current assets account in the
consolidated balance sheets are P
=12.00 million and =
P11.48 million, respectively. No collections
were received from the lessee as of December 31, 2005.
Agreements and Commitments with Other Carriers
Globe Telecom and Innove have existing correspondence agreements with various foreign
administrations and interconnection agreements with local telecommunications companies for their
various services. They also have international roaming agreements with other CMTS-GSM
operators in foreign countries, which allow its CMTS-GSM subscribers access to foreign GSM
networks. The agreements provide for sharing of toll revenues derived from the mutual use of
interconnection facilities.
Arrangements and Commitments with Suppliers
Globe Telecom and Innove have entered into agreements with various suppliers for the delivery,
installation, or construction of its property and equipment. Under the terms of these agreements,
delivery, installation or construction commences only when purchase orders are served. Billings are
based on the progress of the project installation or construction. While the construction is in
progress, project costs are accrued based on the billings received. When the installation or
construction is completed and the property is ready for service (see Note 2), the balance of the
related purchase orders is accrued. The consolidated accrued project costs as of
December 31, 2005, 2004 and 2003 included in Accounts payable and accrued expenses account
in the consolidated balance sheets amounted to P
=2,444.11 million, P
=3,454.29 million and
=3,003.05 million, respectively. As of December 31, 2005, the consolidated expected future
P
payments amounted to =
P1,889.18 million. The settlement of these liabilities is dependent on the
payment terms agreed with the suppliers and contractors.
*SGVMC107964*
- 58 As of December 31, 2005, the Globe Group has available short-term credit facilities of
US$43.00 million and P
=5,050.00 million.
23. Contingencies
Globe Telecom and Innove are contingently liable for various claims arising in the ordinary conduct
of business and certain tax assessments which are either pending decision by the courts or are being
contested, the outcome of which are not presently determinable. In the opinion of management and
legal counsel, the eventual liability under these claims, if any, will not have a material or adverse
effect on the Globe Group s financial position and results of operations.
NTC Memorandum Circular No. 13-6-2000
Globe Telecom is an intervenor in and Innove (formerly Isla Communications Co., Inc.) is a party
to Civil Case No. Q-00-42221 entitled Isla Communications Co., Inc. et. al. versus NTC, et. al.
before the Regional Trial Court (RTC) of Quezon City by virtue of which Globe Telecom and
Innove together with other cellular operators, sought and obtained a preliminary injunction against
the implementation of NTC Memorandum Circular No. 13-6-2000. NTC Memorandum Circular
No. 13-6-2000 sought, among others, to extend the expiration of prepaid call cards to two years.
The NTC appealed the grant of the injunction to the Court of Appeals (CA). On October 25, 2001,
Globe Telecom and Innove received a copy of the decision of the CA ordering the dismissal of the
case before the RTC for lack of jurisdiction, but without prejudice to the cellular companies
seeking relief before the NTC which the CA claims had jurisdiction over the matter. On November
7, 2001, Globe Telecom and Innove filed a Motion for Reconsideration. On January 10, 2002, the
Motion was denied. Globe Telecom and Innove filed a Petition for Review
by way of Certiorari to the SC on February 10, 2002. On April 16, 2002, the SC required the
Solicitor General to comment on the Petition. On September 17, 2002, the NTC filed its comment.
On July 23, 2002, the Globe Group filed its comment.
The SC, in its resolution dated September 9, 2002, denied the Petition for Review, a copy of which
was received by Globe Telecom and Innove on September 26, 2002. On October 10, 2002, Globe
Telecom and Innove filed a motion for reconsideration (with motion to consolidate) of the SC s
resolution. On February 17, 2003, the SC granted the motion for reconsideration and reinstated the
petition. On April 15, 2003, Globe Group received the order of the SC requiring the Group to file
the memorandum in the case. Subsequently, the SC reversed the decision of the CA and declared the
RTC as having jurisdiction over the case. The SC remanded the case to the RTC for further
hearing. As of February 7, 2006, Globe Telecom is still awaiting the resumption of proceedings
before the RTC.
In the event, however, that Globe Telecom and Innove are not eventually sustained in their position
and NTC Memorandum Circular No. 13-6-2000 is implemented in its current form, the Globe
Group would probably incur additional costs for carrying and maintaining prepaid subscribers in
their networks.
*SGVMC107964*
- 59 NTC Administrative Case No. 2005-18
On February 11, 2005, Innove filed a case against Digitel Mobile Philippines, Inc. (Digitel) for
predatory pricing and violation of NTC Memorandum Circular No. 07-06-2002 on service
performance standards. The case has been consolidated with NTC Administrative Case
No. 2005-18 entitled PILTEL vs. Digitel. A hearing was conducted on April 5, 2005 and NTC was
requested to conduct a drive test measurement on Digitel s performance which will be witnessed by
NTC and signed-off by representatives of the parties involved. This is pending resolution by the
NTC. During the April 26, 2005 hearing, Digitel manifested that it will no longer present evidence.
On August 3, 2005, the NTC issued an order that states that carriers are free to provide whatever
service quality they wanted on innovative price plans for so long as they advertised their service
quality. Certain service quality improvements and minimum standards should, however, be provided
over time. The order is not yet final and Innove is still considering its options to deal with the said
order.
Development with US Carriers
On February 7, 2003, AT&T and Worldcom (MCI) filed a petition before the US Federal
Communications Commission (US FCC) seeking a stop payment order on settlement to the
Philippine carriers on the ground that Philippine carriers were whipsawing AT&T and MCI into
agreeing to an increase in termination rates to the Philippines. On March 10, 2003, the Chief
International Bureau of the US FCC issued an order suspending all settlement payments of US
facilities-based carriers to a number of Philippine carriers, including Globe Telecom, until such time
as the US FCC issues a Public Notice stating otherwise. This order had the effect of preventing US
facilities-based carriers such as AT&T from paying the affected Philippine carriers for switched
voice services, whether rendered before or after the date of the Order. In response, the NTC issued
an Order on March 12, 2003 ordering Philippine carriers not to accept traffic from
US carriers who do not pay for services rendered and to take all steps necessary to collect payment
for services rendered.
On January 26, 2004, the US FCC lifted its stop-payment order against Globe Telecom following
confirmation by US carriers that service with Globe Telecom had been normalized. US carriers
were required to resume payments for termination services.
In June 2004, the US FCC issued an order denying the petitions for review filed by the different
Philippine carriers and upholding the finding of whipsawing. In the same order, the US FCC stated
that the matter of lifting the International Settlement Policy (ISP) over the Philippine route will be
decided in FCC proceedings relative to its ISP reform order. Pursuant to the ISP Reform Order,
countries whose rates are at or below benchmark will be dropped from the coverage of the ISP
unless serious concerns are raised on the route.
In August 2004, the US FCC, in the proceedings on the ISP Reform Order, required US Carriers to
certify that the rates charged by the Philippine Carriers are benchmark compliant. As of
October 11, 2004, all three major US Carriers (AT&T, MCI and Sprint) have certified to the
benchmark compliance of the Philippine route.
*SGVMC107964*
- 60 On August 15, 2005, the US FCC released its order upholding the findings of whipsawing. Despite
this, however, it ordered the lifting of the ISP on the Philippine route on the ground that the rates on
the route were still benchmark-compliant and there was no further evidence of continuing anticompetitive conduct on the route.
On January 10 and 11, 2004, the United States Department of Justice (US DOJ) served subpoenas
on several Philippine telecom executives, including two Globe Telecom managers and the chief
executive officer of Innove, requiring them to appear before a grand jury investigation in Hawaii.
The investigation is for the purpose of determining if the conduct of the Philippine carriers in
relation to the termination rate disputes with US carriers may have violated US laws. On March 24,
2005, the District Court of Hawaii granted Globe Telecom s motion to quash the subpoena duces
tecum against it on the ground that US courts have no jurisdiction. On April 28, 2005, the US DOJ
filed a notice of appeal stating its intention to appeal the ruling of the district court of Hawaii. On
July 5, 2005, Globe Telecom received an advice from US DOJ that its investigation has been
closed.
24. Earnings Per Share
Globe Group s earnings per share amounts were computed as follows:
2005
Net income attributable to common shareholders for basic
earnings per share
Add dividends on preferred shares
Net income attributable to common shareholders for diluted
earnings per share
Weighted average number of shares for basic earnings per
share
Dilutive shares arising from:
Convertible preferred shares
Stock options
Adjusted weighted average number of common stock for
diluted earnings per share
Basic earnings per share
Diluted earnings per share
2004
2003
(As Restated) (As Restated)
(In Thousand Pesos and Number of Shares, Except Per
Share Figures)
P
= 10,246,174
=11,321,114
P
=9,884,679
P
68,334
75,128
67,957
10,314,508
11,396,242
9,952,636
133,520
139,904
149,405
982
146
872
297
1,227
74
134,648
P
=76.74
P
=76.60
141,073
=80.92
P
=80.78
P
150,706
=66.16
P
=66.04
P
25. Financial Instruments
Financial Risk Management Objectives and Policies
The main purpose of the Globe Group s financial instruments is to fund its operations and capital
expenditures. The main risks arising from the use of financial instruments are liquidity risk, foreign
currency risk, interest rate risk, and credit risk. Globe Telecom also enters into derivative
transactions, the purpose of which is to manage the currency and interest rate risk arising from its
financial instruments.
*SGVMC107964*
- 61 The BOD reviews and approves the policies for managing each of these risks. The Globe Group
monitors market price risk arising from all financial instruments and regularly reports financial
management activities and the results of these activities to the BOD.
The Globe Group s risk management policies are summarized below:
Interest Rate Risk
The Globe Group s exposure to market risk for changes in interest rates relates primarily to the
companies long-term debt obligations.
Globe Telecom s policy is to manage its interest cost using a mix of fixed and variable rate debt.
The Globe Group s policy is to keep a maximum of 75% of its borrowings at fixed rates of interest.
To manage this mix in a cost-efficient manner, the Globe Group enters into interest rate swaps, in
which the companies agree to exchange, at specified intervals, the difference between fixed and
variable interest amounts calculated by reference to an agreed-upon notional principal amount.
As of December 31, 2005, after taking into account the effect of interest rate swaps, 67% of the
Globe Group s borrowings are at a fixed rate of interest.
Foreign Exchange Risk
The Globe Group s foreign exchange risk results primarily from movements of the Philippine Peso
(PHP) against the United States Dollar (USD) with respect to USD denominated financial assets
(such as cash and cash equivalents and short-term investments) and USD denominated financial
liabilities. Majority of revenues are generated in PHP, while substantially all of capital expenditures
are in USD. In addition, 65% of debt as of December 31, 2005 was denominated in USD.
It is Globe Telecom s policy to hedge its foreign currency denominated debt such that the sum of
PHP debt and USD debt that has been swapped to PHP shall comprise at least 50% of total
outstanding debt. Globe Telecom enters into short-term foreign currency forwards and long-term
foreign currency swap contracts in order to achieve this target. As of December 31, 2005, the
amount of USD debt that has been swapped to PHP and PHP-denominated loans amounted to
approximately 53% of the total debt.
Credit Risk
All regular applicants for postpaid service are subject to standard credit verification procedures.
The Credit Management unit of Globe Group continuously provides credit notification and
implements differentiated credit actions, depending on assessed risks, to minimize credit exposure.
Receivable balances of postpaid subscribers are being monitored on a regular basis and appropriate
actions are executed. Likewise, net receivable balances from carriers of traffic are also being
monitored and subjected to appropriate actions to manage credit risk.
With respect to credit risk arising from the other financial assets of the Globe Group, which
comprise cash and cash equivalents, available-for-sale financial assets and certain derivative
instruments, the Globe Group s exposure to credit risk arises from default of the counterparty, with
a maximum exposure equal to the carrying amount of these instruments. The Globe Group
*SGVMC107964*
- 62 has a counterparty credit risk management policy which allocates investment limits based on
counterparty credit ratings and credit risk profile.
Liquidity Risk
The Globe Group seeks to manage its liquidity profile to be able to finance capital expenditures and
service maturing debts. To cover its financing requirements, the Globe Group intends to use
internally generated funds and available long-term and short-term credit facilities. As of
December 31, 2005, the Globe Group has available short-term credit facilities of US$43.00 million
and =
P5,050.00 million.
As part of its liquidity risk management, Globe Telecom regularly evaluates its projected and actual
cash flows. It also continuously assesses conditions in the financial markets for opportunities to
pursue fund raising activities, in case any requirements arise. Fund raising activities may include
bank loans, export credit agency facilities, and capital market issues.
Hedging Objectives and Policies
The Globe Group uses a combination of natural hedges and derivative hedging to manage its foreign
exchange exposure. It uses interest rate derivatives to reduce earnings volatility related to interest
rate movements.
It is the Globe Group s policy to ensure that capabilities exist for active but conservative
management of its foreign exchange and interest rate risks. The Globe Group does not engage in
any speculative derivative transactions. Authorized derivative instruments include currency forward
contracts (freestanding and embedded), currency swap contracts, interest rate swap contracts and
currency option contracts (freestanding and embedded). Certain currency swaps are entered into in
combination with options or contain a structured provision.
Financial Assets and Liabilities
The table below presents a comparison by category of carrying amounts and estimated fair values
of all the Globe Group s financial instruments as of December 31, 2005.
Financial assets:
Cash and cash equivalents
Receivables - net
Derivative assets (included in prepayments
and other current assets and other
noncurrent assets accounts)
Investments in available-for-sale securities
(included in short-term investments and
investments in associates, joint venture and
other accounts)
Investments in held-to-maturity securities
(included in short-term investments
account)
(Forward)
Carrying Value
Fair Value
(In Thousand Pesos)
=10,910,961
P
6,764,130
=10,910,961
P
6,764,130
1,548,891
1,548,891
1,253,951
1,253,951
33,441
33,404
*SGVMC107964*
- 63 -
Financial liabilities:
Accounts payable and accrued expenses
(excluding derivative liabilities)
Long-term debt (including current portion)
Derivative liabilities (included in accounts
payable and accrued expenses and other
long-term liabilities accounts)
Other long-term debt (including current portion
and excluding derivative liabilities)
Carrying Value
Fair Value
(In Thousand Pesos)
=14,203,677
P
49,693,388
=14,203,677
P
53,550,632
731,746
731,746
1,783,892
2,219,844
Traffic settlement receivable and payable accounts, included as part of the Receivables - net and
Accounts payable and accrued expenses accounts, respectively, in the above table, are presented net
of any related payable or receivable balances with the same telecommunications carriers only when
there is a right of offset under the traffic settlement agreements and that the accounts are settled on
a net basis.
Fair Value of Financial Instruments
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:
Nonderivative Financial Instruments
The fair values of cash and cash equivalents, short-term investments, trade accounts and traffic
settlements receivable are approximately equal to their carrying amounts.
The fair value of Globe Telecom s outstanding Senior Notes due 2012 is based on the quoted
market price of the Notes. The price of the Notes (after bifurcating the value of the embedded
prepayment option) is 118.25%, with an effective interest rate of 6.20%. The fair value of other
fixed rate interest bearing loans is based on the discounted value of future cash flows using the
applicable rates for similar types of loans. The discount rates used range from 6.47% to 10.16%
(for PHP loans) and 5.43% (for USD loans).
For variable rate loans that reprice every three months, the carrying value approximates the fair
value because of recent and regular repricing based on current market rates. For variable rate loans
that reprice every six months, the fair value is determined by discounting the principal amount plus
the next interest payment using the prevailing market rate for the period up to the next repricing
date. The discount rates used range from 4.65% to 7.81% (for USD loans). The variable rate PHP
loans reprice every three months. For noninterest bearing obligations, the fair value is estimated as
the present value of all future cash flows discounted using the prevailing market rate of interest for
a similar instrument.
Derivative Instruments
The fair value of forward exchange contracts is calculated by reference to current forward exchange
rates for contracts with similar maturity profiles.
*SGVMC107964*
- 64 The fair value of embedded foreign exchange derivatives in notes that have been purchased by
Globe Telecom is calculated by reference to the current price of the note and the change in the
foreign exchange rate that is linked to the note.
The fair values of interest rate swaps, currency and cross currency swap transactions are
determined using valuation techniques with assumptions that are based on market conditions
existing at balance sheet date. The fair value of interest rate swap transactions is the net present
value of the estimated future cash flows. The fair values of currency and cross currency swap
transactions are determined based on changes in the term structure of interest rates of each currency
and the spot rate. The fair values of structured swaps transactions are determined based on quotes
obtained from counterparty banks.
Embedded currency option and forward contracts are valued using the simple option pricing model
of Bloomberg. The embedded call option on the 2012 Senior Notes is also valued using Bloomberg
models.
Derivative Financial Instruments
Globe Group s freestanding and embedded derivative financial instruments are accounted for as
hedges or transactions not designated as hedges. The table below sets out the information about
Globe Group s derivative financial instruments and the related fair value as of
December 31, 2005:
Notional
Amount
Derivative instruments designated as
hedges:
Cash flow hedges:
Currency and cross currency
swaps
Interest rate swaps
Derivative instruments not
designated as hedges:
Freestanding:
Currency swaps and cross
currency swaps
Interest rate swaps
Sold currency call options
(including premiums
receivable)
Embedded:
Call option on 2012 Senior Notes
Embedded forwards
Embedded options
Net
$91,944
Notional
Amount
(In Thousands)
=
P
56,162
83,061
5,000
Derivative
Asset
=16,657
P
Derivative
Liability
(P
=431,320)
57,491
19,863
69,112
(249,007)
(18,763)
27,700
15,013
(2,330)
300,000
11,720
1,080
$576,667
1,268,712
101,808
235
=1,548,891
P
1,000,000
=1,000,000
P
(30,326)
(P
=731,746)
The subsequent sections will discuss Globe Group s derivative financial instruments according to
the type of financial risk being managed and the details of derivative financial instruments that are
categorized into those accounted for as hedges and those that are not designated as hedges.
*SGVMC107964*
- 65 Foreign exchange and interest rate risks
Information on Globe Group s foreign currency-denominated monetary assets and liabilities and
their Philippine peso equivalents are as follows:
2004
(As Restated)
2005
Assets
Cash and cash equivalents
Short-term investments
Traffic settlements receivables
Other current assets
Other noncurrent assets
Liabilities
Accounts payable and accrued
expenses
Traffic settlements payable
Long-term debt
Other long-term liabilities
Net foreign currency-denominated
liabilities
US
Dollar
Peso
Equivalent
$78,901
=
P4,186,627
50,162
5,238
US
Peso
Dollar
Equivalent
(In Thousands)
2003
(As Restated)
US
Dollar
Peso
Equivalent
2,661,691
277,948
$173,563
9,574
38,516
2,490
=9,778,713
P
539,409
2,170,045
140,289
$141,414
33,416
84,689
3,129
12,523
=
P 7,860,639
1,857,462
4,707,496
173,929
696,103
134,301
7,126,266
224,143
12,628,456
275,171
15,295,629
42,240
11,294
611,487
25,889
690,910
2,241,384
599,306
32,446,723
1,373,734
36,661,147
52,626
18,338
713,258
48,197
832,419
2,965,001
1,033,196
40,185,669
2,715,467
46,899,333
66,315
12,274
858,022
53,185
989,796
3,686,186
682,236
47,694,036
2,956,316
55,018,774
$556,609 =
P29,534,881
$608,276
$714,625
=
P 39,723,145
=34,270,877
P
*SGVMC107964*
- 67 <1 year
Derivatives:
Currency Swaps:
Notional amount
Weighted swap rate
Pay fixed rate
Cross-Currency Swaps:
Floating-Fixed
Notional amount
Pay-fixed rate
Receive-floating rate
Weighted swap rate
Floating-Floating
Notional amount
Pay-floating rate
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
$21,548
$13,880
$10,000
$10,000
$5,000
$80,000
$13,755
$6,094
$417
$20,266
11% - 15.23%
USD Libor
=51.64
P
$10,152
$3,742
$417
$14,311
Mart + 1.25% 2.85%
USD Libor
=51.34
P
Receive-floating rate
Weighted swap rate
Interest Rate Swaps
Fixed-Floating
Notional Peso
Notional USD
Pay-floating rate
Receive-fixed rate
Floating- Fixed
Notional USD
Pay-fixed rate
Receive-floating Rate
=1,000,000
P
$32,065
$24,098
$5,000
Total
(In USD)
$140,428
=53.16
P
4.62% - 10.25%
$18,846
$5,000
Libor+ 4.23%Mart+1.375%
9.75% - 11.7%
$56,162
USD 2.3% - 4.2%
USD Libor
*SGVMC107964*
- 68 Derivative Instruments Accounted for as Hedges
The following sections discuss in detail the derivative instruments accounted for as cash flow
hedges.
Currency and Cross-Currency Swaps
As of December 31, 2005, Globe Telecom has outstanding US$20.27 million foreign currency
swap agreements with certain banks, under which it effectively swaps the principal of certain
USD-denominated loan exposures into fixed PHP-denominated loan exposures with
semi-annual payment intervals up to 2008.
Globe Telecom also has outstanding foreign currency swap agreements with certain banks,
under which it effectively swaps the principal of US$71.68 million loans into PHP up to
April 2012. Under these contracts, swap costs are payable in semi-annual intervals in PHP or
USD.
The unrealized fair value after tax included under Cumulative translation adjustment in the
stockholders equity section of the consolidated balance sheets amounted to P
=223.42 million as
of December 31, 2005.
Notional
amount
Floating-fixed cross-currency swaps
Principal-only swaps
$20,266
71,678
Notional
amount
(In Thousands)
=1,046,536
P
3,875,283
Maturities
2006
2006
Swap
rates
2008 =
P51.642
2012
54.065
Interest Rate Swaps
As of December 31, 2005, Globe Telecom has US$56.16 million in notional amount of interest
rate swap that has been designated as cash flow hedge. The interest rate swap effectively fixed
the benchmark rate of the hedged loan at 2.305% to 4.205% over the duration of the agreement,
which involves semi-annual payment intervals up to August 2007.
As of December 31, 2005, the fair value of the outstanding swap amounted to a
=57.49 million gain, of which P
P
= 5.14 million (net of tax) is reported as Cumulative translation
adjustment in the stockholders equity section of the consolidated balance sheets.
Other Derivative Instruments not Designated as Hedges
Globe Telecom enters into certain derivatives as economic hedges of certain underlying exposures.
Such derivatives, which include embedded and freestanding currency forwards, embedded call
options, and certain currency swaps with option combination or structured provisions, are not
designated as accounting hedges. The gains or losses on these instruments are accounted for directly
to the consolidated statements of income. This section consists of freestanding derivatives and
embedded derivatives found in both financial and nonfinancial contracts.
*SGVMC107964*
- 69 Freestanding Derivatives
Freestanding derivatives that are not designated as hedges consist of currency forwards, options,
swaps and interest rate swaps entered into by Globe Telecom. Mark-to-market changes on these
instruments are accounted for directly in the consolidated statements of income.
Nondeliverable Forwards
Globe Telecom entered into short-term nondeliverable currency forward contracts to fix the
peso cash flows from coupon and redemption of certain DLPN issued by the ROP . These
currency forward contracts with a notional amount of US$2.88 million, matured in
December 2005. The realized gain amounted to =
P23.44 million.
Sold Currency Options
As of December 31, 2005, Globe Telecom has sold currency options with total outstanding
notional amount of US$27.70 million at an average strike price of P
=58.97/US$ maturing up to
March 2007. These were entered into to subsidize the cost of outstanding currency swap
contracts. The mark-to-market value on these currency options (including premiums receivable)
as of December 31, 2005 amounted to a gain of P
=12.68 million.
Currency Swaps and Cross-Currency Swaps
Globe Telecom also has outstanding foreign currency swap agreements with certain banks,
under which it swaps the principal of US$68.75 million USD-denominated loans into PHP up
to April 2012. Under these contracts, swap costs are payable in semi-annual intervals in PHP or
USD. Of the US$68.75 million, US$6.25 million is in combination with sold out-of-the-money
USD call options with a strike price of P
=62.50, while another US$20.00 million provides Globe
Telecom the option to reset lower to a certain minimum the foreign exchange rate used to
determine PHP equivalent amounts to be net settled by Globe Telecom upon maturity or
termination. The reset option has been exercised.
Globe Telecom also entered into cross-currency swap agreements with certain banks, under
which it swaps the principal and interest of certain USD-denominated loans into Philippine peso
with quarterly or semi-annual payment intervals up to June 2008. As of
December 31, 2005, the total outstanding notional amounts of the cross-currency swaps
amounted to US$14.31 million.
The mark-to-market values of the outstanding currency and cross-currency swaps as of
December 31, 2005 amounted to a gain of P
=19.86 million and a loss of P
=249.01 million,
respectively on these instruments.
Interest Rate Swaps
Globe Telecom has an outstanding interest rate swap with a notional amount of
US$5.00 million under which it effectively swapped the 9.75% coupon on its outstanding 2012
Senior Notes into a floating rate of interest based on LIBOR. The swap has a constant maturity
swap (CMS) component that is intended to reduce swap costs. The interest rate on one leg of
the CMS is being reset periodically subject to a cap, while the interest rate on the fixed leg of
the swap is subject to a daily range accrual that is linked to the difference between the 30-year
and 10-year USD swap rates.
*SGVMC107964*
- 70 Globe Telecom also has an outstanding interest rate swap contract with a notional amount of
=1,000.00 million, which effectively swaps a fixed rate PHP-denominated bond into floating
P
rate, with quarterly payment intervals up to February 2009.
The mark-to-market values on the interest rate swaps as of December 31, 2005 amounted to a
net mark-to-market gain of P
=50.34 million.
Embedded Derivatives and Other Financial Instruments
Globe Group s embedded derivatives include embedded currency derivatives noted in both financial
and nonfinancial contracts and embedded call options in debt instruments.
Embedded Currency Forwards
As of December 31, 2005, the total outstanding notional amount of currency forwards
embedded in nonfinancial contracts amounted to US$11.72 million. The nonfinancial contracts
consist mainly of foreign-currency denominated purchase orders with various expected delivery
dates. The mark-to-market gain as of December 31, 2005 on the embedded currency forwards
amounted to P
=71.48 million.
Embedded Currency Options
As of December 31, 2005, the total outstanding notional amount of currency options embedded
in nonfinancial contracts amounted to US$1.08 million. The mark-to-market gain as of
December 31, 2005 on the embedded currency options amounted to P
=0.24 million.
Embedded Call Option
Globe Telecom s 2012 Senior Notes contain embedded call options which give Globe Telecom
the right to prepay the notes at a certain call price per year. As of December 31, 2005, the
embedded call options have a notional amount of US$300.00 million and mark-to-market gain
of P
=1,268.71 million.
Dollar-Linked Peso Notes
Globe Telecom s investments in DLPN issued by the ROP matured in December 2005. These
investments have a total face value of P
=150.00 million and were purchased at a premium with
weighted average price of P
=104.38. The redemption amounts and interest rates of these DLPN
investments are based on a pre-agreed formula, which includes a foreign exchange factor
applied to the base interest rate payable semi-annually in arrears and to the redemption
amounts.
The DLPN investments contain embedded currency forwards that were bifurcated and markedto-market through profit and loss. Globe Group realized a net loss of P
=2.74 million.
The host peso debt instruments on the DLPN investments were accounted for at amortized cost.
*SGVMC107964*
- 71 Fair Value Changes on Derivatives
The net movements in fair value changes of all derivative instruments in 2005 are as follows
(amounts in thousand pesos):
Balance at beginning of year
Net changes in fair value of derivatives:
Designated as accounting hedges
Not designated as accounting hedges
Less fair value of settled instruments
Balance at end of year
=1,266,411
P
(429,336)
27,006
864,081
46,936
=817,145
P
Hedge Effectiveness Results
As of December 31, 2005, the effective mark-to-market value changes on Globe Telecom s
cashflow hedges that were deferred in equity amounted to P
=228.56 million, net of tax. Total
ineffectiveness recognized immediately in the consolidated statements of income for the year then
ended is immaterial.
The distinction of the results of hedge accounting into Effective or Ineffective represent
designations based on PAS 39 and are not necessarily reflective of the economic effectiveness of the
instruments.
26. Segment Reporting
The Globe Group s reportable segments consist of:
Wireless Communications Services - represents cellular telecommunications services that allow
subscribers to make and receive local, domestic long distance and international long distance calls
to and from any place within the coverage area. Revenues principally consist of one-time
registration fees, fixed monthly service fees, revenues from value-added services such as text
messaging, proceeds from sale of handsets and other phone accessories, upfront fees from activation
of simpacks/simcards and per minute airtime and toll fees for basic services which vary based
primarily on the monthly volume of calls and the network on which the call terminates.
Wireline Communications Services - represents fixed line telecommunications services, which offer
subscribers, local, domestic long distance and international long distance services in addition to a
number of value-added services in various service areas covered by the PA granted by the NTC (see
Note 1). Revenues consist principally of fixed monthly basic fee for service and equipment, onetime fixed line service connection fee, value-added service charges, and toll fees for domestic and
international long distance calls and internet subscription fees of wireline voice subscribers.
Includes also a variety of telecommunications services tailored to meet the specific needs of
corporate communications such as leased lines, VSAT, telex, international packet-switching
services, broadband, and internet services.
*SGVMC107964*
- 72 On September 30, 2003, Globe Telecom has discontinued its telex service due to declining revenues
and for cost efficiency.
The segment assets and liabilities and results of operations in 2004 and 2003 have been restated to
reflect the effects of the change in accounting policies.
The segment s performance is evaluated based on earnings before income taxes and depreciation
and amortization (EBITDA).
The Globe Group s segment information follows (in millions):
2005
Wireless
Communications
Services
Wireline
Communications
Services
(3,495)
(940)
(26,776)
3,024
(940)
31,972
(2,677)
(995)
(15,734)
=6,519
P
Operating expenses
(22,341)*
29,888
(12,062)
Depreciation and amortization
EBIT
17,826
347
Other income (expenses) - net
(2,262)
73
Income (loss) before income tax
=15,564
P
Total
=58,748
P
=52,229
P
EBITDA [2]
Corporate [1]
=
P
Revenues
=420
P
(1,935)
132
(P
=1,803)
16,238
(2,057)
=14,181
P
*Includes provision for property and equipment amounting to =
P191.95 million.
2004 (As Restated)
Wireless
Wireline
Communications
Communications
Services
Services
(2,885)
(967)
(22,715)
2,821
(967)
32,894
(2,688)
(548)
(14,706)
=5,706
P
Operating expenses
(18,863)
31,040
(11,470)
Depreciation and amortization
EBIT
19,570
133
Other income (expenses) - net
(5,876)
240
Income (loss) before income tax
=13,694
P
Total
=55,609
P
=49,903
P
EBITDA[2]
Corporate[1]
=
P
Revenues
=373
P
(1,515)
171
(P
=1,344)
18,188
(5,465)
=12,723
P
*SGVMC107964*
- 73 2003 (As Restated)
Wireless
Wireline
Communications
Communications
Services
Services
Corporate[1]
Total
Revenues
=44,465
P
=5,013
P
=
P
=49,478
P
Operating expenses
(21,706)
(18,846)
(2,859)
(1)
EBITDA[2]
25,619
2,154
(1)
27,772
Depreciation and amortization
(8,505)
(3,069)
(15)
(11,589)
EBIT
17,114
(915)
(16)
16,183
Other income (expenses) - net
(5,881)
799
(924)
Income (loss) before income tax
=11,233
P
(P
=116)
(P
=940)
(6,006)
=10,177
P
The segment assets and liabilities as of December 31, 2005, 2004 and 2003 are as follows (in
millions):
2005
Segment assets[3]
Segment liabilities[3]
Wireless
Communications
Services
=97,537
P
65,729
Wireline
Communications
Services
=20,110
P
2,228
Corporate[1]
=6,291
P
1,094
Total
=123,938
P
69,051
2004 (As Restated)
Segment assets [3]
Segment liabilities [3]
Wireless
Communications
Services
Wireline
Communications
Services
Corporate[1]
Total
=98,978
P
=23,579
P
=4,734
P
=127,291
P
68,895
1,654
1,173
71,722
Wireless
Communications
Services
Wireline
Communications
Services
=96,274
P
=22,917
P
=5,474
P
=124,665
P
73,068
2,113
1,299
76,480
2003 (As Restated)
Segment assets [3]
Segment liabilities [3]
Corporate[1]
Total
*SGVMC107964*
- 74 The Globe Group s capitalized expenditures in December 31 follows (in millions):
2004
2003
2005
(As Restated)
(As Restated)
Wireless communications services
= 12,907
P
=19,158
P
=15,829
P
Wireline communications services
1,267
3,235
1,210
916
1,280
593
Corporate
[1]
[2]
[3]
=23,673
P
=17,632
P
P15,090
=
Corporate represents support services that cannot be directly identified with any of the revenue generating services.
The term EBITDA is presented because it is generally accepted as providing useful information regarding a company s ability to
service and incur debt. The Globe Group s presentation of EBITDA differs from the above definition by excluding other income
(expenses). The Globe Group s presentation of EBITDA may not be comparable to similarly titled measures presented by other
companies and could be misleading because not all companies and analysts calculate EBITDA in the same manner.
Segment assets and liabilities do not include deferred income taxes.
27. Notes to Consolidated Statements of Cash Flows
The principal noncash transactions are as follows:
2005
Increase (decrease) in liabilities related to the
acquisition of property and equipment
Dividends on preferred shares
Capitalized ARO
(P
=1,163,860)
68,334
44,433
(
2004
(As Restated)
= 935,909
P
75,128
182,363
2003
(As Restated)
(P
=1,637,835)
67,957
70,256
The cash and cash equivalents account consists of:
2005
Cash on hand and in banks
Short-term placements
P
= 736,200
10,174,761
P
=10,910,961
2004
2003
(In Thousand Pesos)
=1,967,695
P
=2,615,191
P
11,614,147
10,425,857
=13,581,842
P
=13,041,048
P
Cash in banks earns interest at respective bank deposit rates. Short-term placements are made for
varying periods of up to three months depending on the immediate cash requirements of Globe
Group and earn interest at the respective short-term placement rates.
28. Reclassification of Certain Accounts
Certain comparative figures have been reclassified to conform with the current year s presentation
(see Note 2).
*SGVMC107964*
- 75 29. Event After the Balance Sheet Date
On February 7, 2006, the BOD approved the declaration of the first semi-annual cash dividends in
2006 of =
P2,638.00 million (P
=20.00 per common share) to common stockholders of record as of
February 21, 2006 payable on March 15, 2006.
30. Approval of the Financial Statements
On February 7, 2006, the BOD approved and authorized the release of consolidated financial
statements of Globe Telecom, Inc. and Subsidiaries as of and for the years ended
December 31, 2005, 2004 and 2003.
*SGVMC107964*
GLOBE TELECOM, INC.
INDEX TO EXHIBITS
FORM 17-A
Exhibit
No.
Description of Exhibit
Remarks/Attachment
Additional Disclosure on Independent Auditors
Report of Auditors and Consolidated Financial Statements and Notes
to Consolidated Financial Statements
Short Term Investments
Amounts Receivable from Directors, Officers, Employees, Related
Parties and Principal Stockholders Other Than Affiliates
Long-Term Investments in Securities (Non-current Marketable
Securities, Other Long Term Investments in Stocks and Other
Investments)
Deferred Charges and Others
Long Term Debt
Indebtedness to Related Parties (Other Long term Liabilities)
Capital Stock
Sample stock certificate
Plan of Acquisition, Reorganization, Arrangements, Liquidation or
Succession
Instruments Defining the Rights of Security Holders, Including
Indentures
Voting Trust Agreement
Material Contracts
Annual Report to Security Holders or Form 17Q or Quarterly Report
to Security Holders
Letter re: Director Resignation
Report Furnished to Security Holders
Subsidiaries to Registrant
Published Report Regarding Matters Submitted to a Vote of Security
Holders
Consent of Experts and Independent Counsel
Power of Attorney
Additional Exhibits
Note: * The exhibits are either Not Applicable to the Company or require No Answer.
*
*
*
*

*
*
*
*
*
*
*

Additional Disclosure on Independent Auditors
Audit and Audit-Related Fees
In its meeting last 22 March 2004, the shareholders appointed SyCip, Gorres, Velayo and Co.
(SGV & Co.) the Independent Auditor of Globe Telecom, Inc. (Globe) and its related
companies, covering the calendar years of 2004 to 2006. Billings for services rendered in
connection to the engagement for 2005 amounted to P10.5 million as compared to
P12.9 million for 2004.
In addition to performing the audit of Globe and its related companies’ financial statements,
SGV & Co. was also selected, in accordance with established procurement policies, to
provide other services in 2005, the aggregate fees billed for which are shown below (with
comparative figures for 2004):
(Amount in millions of pesos)
Audit
Audit-Related
Tax
Others
Total
P
P
2005
10.5
0.8
0.4
0.8
12.5
P
P
2004
12.9
2.2
1.9
1.0
18.0
(1) Audit fees consisted of work related to the audit of the Company’s annual financial
statements and reviews performed in the preparation of quarterly financial statements.
SGV & Co. also audited Globe Parent financial statements as of and for the period ended 31
March 2005. The audited financial statements are intended to:


Support the Company’s final availment of the Income Tax Holiday for Phase 8
Network Expansion Project.
Accompany the long form report to be filed with the SEC in relation to the
application for the cancellation of existing treasury shares and the amendment of the
Articles of Incorporation to reflect the reduction in the Company’s authorized capital
stock.
(2) Audit-related fees consisted of work that generally either only the independent auditor
can reasonably be expected, or would be in the best position, to provide.
Tax Fees
Tax fees consisted of fees related to tax consultancy and advisory that are outside the scope
of financial audits and reviews, and for which management remained responsible for
applying business judgment to make implementation decisions.
All Other Fees
All other fees consisted of one-time, non-recurring special projects/consulting services.
The Audit Committee has reviewed the nature of non-audit fees rendered by SGV & Co. and
the corresponding fees and concluded that these are not significant to impinge on the
independence of the auditors. The Audit Committee has an existing policy which prohibits
the Company or any of its subsidiaries from engaging the independent auditors to provide
services that may adversely impact their independence, including those expressly prohibited
by SEC regulations. In addition, the Audit Committee pre-approves all audit and permitted
non-audit services provided by the external auditors. It is expected that the external auditors
will continue to provide certain non-audit services including tax-related services to the
Company and its subsidiaries.
At the Annual Stockholders’ Meeting held last 4 April 2005, SGV & Co., were reappointed
as the Company’s auditors for the year 2005.
GLOBE TELECOM, INC. AND SUBSIDIARIES
SCHEDULE A - Short-term Investments
As of December 31, 2005
(In Thousand Pesos)
Name of Issuing Entity and Association of Each Issue
Other Short-term Investments:
Securities Issued/Guaranteed by the Philippine Government
(1)
Principal
Amount
Balance as of
December 31,
2005 (In PhP) (1)
Income
received and
accrued (In
PhP)
1,314,131
1,253,759
27,514
1,314,131
1,253,759
27,514
Short-term investments are carried at amortized cost adjusted for any permanent loss on price decline of the investments
Globe Telecom, Inc. and Subsidiaries
SCHEDULE B- Amounts Receivable from Directors, Officers, Employees, Related
Parties and Principal Stockholders (Other than Related Parties)
As of December 31, 2005
(In Thousand Pesos)
Balance as of
December 31,
2005 (1)
Balance as of
December 31,
2004
Additions
80
4,850
(4,851)
79
42,287
104,341
(92,085)
54,544
42,368
109,191
(96,935)
54,622
Receivable from Singapore Telecom Int'l Pte. Ltd
946
684
(703)
927
Receivable from Asiacom
119
263
(312)
69
46
72
(118)
0
1,111
1,019
(1,133)
996
43,478
110,210
(98,068)
55,619
Name and Designation of Debtor
Collections
Receivable from employees:
Handyphone Loan (see B1)
Medical, salary and other loans (see B2)
Receivable from Related Parties and Principal
Stockholders:
Receivable from Globe Telecom Holdings, Inc.
(1)
All are accounts receivable from director, officers, employees, related parties and principal stockholders as of
December 31, 2005 are classified under current.
GLOBE TELECOM, INC.
Schedule B.1 - Employee Receivable - Handyphone
As of December 31, 2005
PAJARO
Employee name
GERALDINE
PAULINO
JOHN ERIC
PALADO
ELMER
BURGOS
AILEEN
BUSUEGO
FERNANDO III
SUSON
MA. MINDA
NEY
ALEXANDER
AGUILAR
CATHERINE
HERNANDEZ
ALAN
ISIDRO
ROSELINA
MENDOZA
CHRISTINE
MORILLA
FELIPE
RUIZ
IMMACULATE
TORRES
ELLEONOR
PRING
MARLITA
ALVARADO
MARY ANN
ARABIA
ANNIE
ESGUERRA-TRINIDAD
EMILY
LATOJA
MARISSA
ZAPANTA
ROSALIE
ABUEG
ALONA
ARCEGA
ARLO
ASUNCION
LAWRENCE
MALIJAN
ESMERALDA
BARCELONA
MA. LOURDES
FLORENDO
HARRY
CUSTODIO
VICENTE IV
SINGH
LUZ
GERMAN
AIDA
EVIDENTE
CYNTHIA
BASUBAS
MA VERONICA
ALEJANDRINO
MA ROWENA
UYCHUTIN
RONALD
VIRAY
ZENY
EPINO
REZELLE
Others
Total Employee Receivable - Handyphone
ID No.
5582
2602
3780
1808
5183
2207
3422
4950
5622
1161
4429
5135
5364
5843
1197
5800
4674
4590
2126
1937
4234
4203
2838
5903
1481
1696
3118
3806
2212
1620
1928
3165
4528
5287
4266
AMOUNT
2,563
2,548
2,548
2,492
2,492
2,492
2,485
2,467
2,467
2,467
2,467
2,467
2,467
2,371
2,327
2,327
2,327
2,327
2,327
2,327
2,248
2,242
2,200
2,195
2,152
2,123
2,084
2,038
1,998
1,915
1,829
1,800
1,698
1,663
1,652
894
79,485
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
GARCIA
TIVIDAD
ABANILLA
DUMINDIN
DIOMAMPO
GOMEZ
QUIDILLA
PASCASIO
PERALTA
DE LA CRUZ
TRESMANIO
BELLEZA
BEA
DE JESUS
RAYOS DEL SOL
TANJANGCO
BRUSOLA
ONG ANTE
LANTION
CABILUNA
RAMOSO
JACO
LUZANO
REYES
BAGNES
ARANETA
CAPACILLO
JAVIER
DE LEON
SILVA
NABUNG
MAGNO
MACATANGAY
MENDOZA
LEONOR
HECHANOVA
PALANCA
GIGANTE
DELGADO
BAYLOSIS
SANTILLAN
ORENDAIN
NAQUILA
LABRE
ENRIQUEZ
GAGUA
CO
SALVADOR
BOTOR
SANTOS
ADRE
SIASOCO
TAMESIS
DE SILVA
POQUIZ
BARRAQUIAS
DELLOSA
RAMIREZ
SIONGCO
Employee name
MACARIO
AIDA
ROSSANA
PAUL
JOSE ANTONIO
ANGELA
JANELYN
JOSEPHINE
REYNALDO
ROGELIO
JESUS
EDWIN
ROMUALDO
MANUEL
MARIANNETTE
MICHAEL
RONALD
GRACE
EVANGELINE
MELISSA PAULA
ESTELA
XANDRIX
SALVACION
AUREA LUCIA
CELSO
RAQUEL
JOYCE
MA. BERNADETTE
THOMAS JEFFERSON
CHRISTOFFERTSON
JASON
VICTOR
EVELYN
CYNTHIA
MA. REGINA
ROMEO
MA. CLARISSA
ALBERT
DARIUS JOSE
CHRISTIAN
JOSEPHINE
JESIELYN
JESUS
DAVE RUSSELL
CHITO
FELICISIMO
MARISALVE
BERNARD
CHRISTIE
LEAH GRACE
ELISEO JR.
MA. DEMETRIA
GENE VICENTE, JR.
RICHEL
RICHARD
MA. VILMA
MA. LUZ FATIMA
MEDEL
NATHANIEL PASCHAL
ID No.
2022
1180
3392
4799
1866
7914
4671
2855
8989
1371
1940
6108
9299
8275
5132
7070
4689
6603
3563
2363
4025
7867
3937
2911
6320
4637
2532
6550
7222
9106
5621
7802
1438
2719
5626
3001
2444
2619
6818
3997
6207
8017
2277
3662
4629
1655
5900
8654
2175
4515
1981
8818
8585
7886
2303
4884
4730
1252
4383
AMOUNT
1,113,339
691,661
390,300
351,341
345,000
302,063
233,534
230,664
225,000
223,500
215,451
210,636
200,000
195,833
194,070
175,000
168,995
164,000
152,847
152,452
150,241
145,173
140,495
137,083
131,667
129,533
128,433
127,476
125,111
123,333
123,296
120,672
117,800
115,815
111,443
110,417
109,756
107,504
106,484
105,312
103,085
101,588
100,933
99,692
98,899
97,766
96,000
95,833
94,449
94,133
93,784
93,333
92,369
91,667
91,547
91,375
90,715
89,459
89,304
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
ISLA
PADILLA
SERRANO
SOTECO
BERGADO
RIVERA
GO
GUTIERREZ
VIZCAYNO
PERIDO
ADVINCULA
CORROS
PALISOC
BUENAVISTA
MACASUSI
FIGUERRES
SEVERINO
CRUZ
FINEZ
MARGAREJO
ILAGAN
PACE
RAQUEDAN
SIASOCO
MOGATAS
DUBOUZET
MARTINEZ
CHAN
RACELA
FRANCISCO
TENG
LEGASPI
DE MESA
JUDAYA
CUEVAS
SANTIAGO
SALVADOR
SINGSON
MINOZA
DAVID
ROMERO
REYES
ANSELMO
CASTILLO
PINEDA
RAMOS
DELOS REYES
FRAGINAL
AUSON
DEL ROSARIO
AGUILAR
ECLIPSE
TAMAYO
VALENCIA
RED
DATINGUINOO
ASPIRAS
ZENAROSA
LOPEZ
Employee name
JOSEPH
SITADELLA
SHARON PATRICIA JOYC
ROSITA
CARMELA SOCORRO
ESPERANZA
GRISELDA
ROWENA
DANIELITO
ALBERT
GENARO III
JUFEL JAMES
ROSEMARIE
JESSICA WINA
JOSEPH
VENANCIO JR
ANTONIO LINO
GABRIEL RESURECCION
MA. THERESA
ALLYN GRACE
MA RECHILDA
MILA
LUISA
DIVINA JEAN
ARTURO JR.
GOLDWYNN
EDWIN
RICHARD
TEODORA
LEAH
MA. TERESA
ROSA MIA
REGINALD
VICTOR
CECILIA
PAMELA
ROMMEL
MARIA VIRGINIA
JASON
NORMAN THEODORE
GREG
JOSE LUIS
IMELDA
GREGORIO
FREDERICK
TRISHA
ANNA
JAIME JR.
GALLARDO
MARCELA
JEROME JENJIE
REBECCA
JASMINE
JOSE CRIS
FE
JERONIMO DUNSTAN
ALLAN
RICHARD ANTHONY
LEVI
ID No.
3569
5472
7370
6195
7544
1525
7011
8974
6549
2645
2035
8360
5196
3605
6194
1536
7777
2213
2146
7646
3606
3632
7781
3405
6062
7768
3167
6808
1761
3131
1373
4002
4405
4874
4865
4638
7186
5443
6497
7694
6363
5587
6030
1070
5769
1944
4392
6829
4589
2173
5491
2021
7294
1825
3221
2040
6425
3678
2111
AMOUNT
88,204
87,704
87,500
85,874
85,121
85,000
84,957
83,333
82,667
82,274
82,262
79,167
77,560
77,253
77,046
76,667
76,280
76,079
74,736
74,359
74,206
72,761
72,601
70,900
70,833
70,290
70,250
70,173
70,000
69,687
69,084
69,032
68,820
68,264
67,453
66,000
65,975
65,860
65,828
65,333
65,283
64,960
64,176
64,167
63,517
62,700
62,267
62,083
61,667
61,615
60,980
60,000
59,578
58,661
57,746
57,725
57,417
56,869
56,690
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
MALAPIRA
MERCADER
DOMINGO
AVERION
TAMAYO
GARCIA
SALVIEJO
ALAO
LUGADOR
MANASIS
SOCIAS
EALA
JALANDONI
CRISOSTOMO
BANA
AMURAO
BAUTISTA
GARCIA
GAYANELO
CUADRADO
VILLANUEVA
MIRO
CALDERON
GILBER
LLAMAS
VILLASENOR
TIOSECO
MARQUEZ
VILLADOLID
CASUGA
CEPEDA
ESTRADA
GUTLAY
MADAMBA
MORATIN
QUILILAN
CALUB
LLAMEG
RAFLORES
CORTEZ
LLENO
SONZA
VISTA
ACEDO
SAMSON
MAGDATO
CALABIA
HUFANA
REYES
BITO
LOPEZ
DINO
VILLENA
ROQUE
SIAHINGCO
QUINTON
VERGARA
FARGAS
PILAPIL
Employee name
MA. VILMA
MA. TERESA
MA. LUISITA
AILENE
DOMINADOR
BENJAMIN JOSE
CAROLINA
OFELIA
MYLENE
RANULFO
ROLANDO
ROSEMARIE
CELIA CAROLINA
CRISTINO
MICHAEL PAUL
GENIE
MARLON
JOMEL
EDUARDO ROBERTO
CLARISSA
MARIA SUZETTE
RICHARD
ANNA MARIE
VANESSA
AURORA
MA. BERNARDITA
FRANCIS RAMON
MARVIN
MA. SUSANINA
ALVIN
FRITZYL BERNADETTE
ARNEL
EDWIN APOLLO
NATHALYN
REGINALD
ALVIN GERARD
ALEX
MILAGROS
IRNAND
NOEL
ADOLFO JR.
MARY ANTONETTE
VIRGILIO
MELANIE
NUMERIANO
ENRIL
MIRASOL
CATHERINE
MARY ANN
JESUS
CHERYLL
ROMINA PAULA
MA LILIBETH
ERWIN
MERCY KORINA
VERNA
ESTRELLITA
JAIME
MONICA SHANTA
ID No.
3216
8737
2396
4598
5139
5551
1600
2060
3878
5682
6006
3850
8251
1544
6123
7561
8873
4112
6525
6924
5486
8084
3090
6306
1874
4059
7995
6389
8605
5599
6132
3759
1751
8231
6811
4845
6879
1313
3358
6350
6198
1518
4284
3464
1122
6293
2992
5080
6833
1851
7428
8142
1578
6037
2469
7056
2250
6883
5429
AMOUNT
56,375
56,250
56,215
56,188
55,718
55,436
55,417
55,000
55,000
55,000
54,487
54,357
54,167
54,067
53,392
53,125
53,000
52,500
52,175
52,125
51,790
51,747
51,542
51,450
51,158
51,103
50,464
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
49,692
49,237
49,234
49,206
49,171
49,117
49,062
49,018
48,929
48,837
48,408
48,333
48,180
47,946
47,920
47,917
47,658
47,500
47,120
46,882
46,667
46,667
46,555
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
OCAMPO
PANLAQUI
OCAMPO
VIDAL
DON
PEIG
DELA CRUZ
AMBAGAN
BOYLES
MESA
ALDAY
REYES
ROMAN
DOLOR
ALVIZ
RIVERA
LEUNG
GOMEZ
BORJA
GUDMALIN
DELA ROSA
DONATO
CORDERO
PADILLA
PINEDA
OBUMANI
CUI
GONZALES
SANTOS
RICARTE
VICTORIANO
GONZALES
ALLADO
AMORES
NOCHE
PEREZ
BONCALES
ESPINA
MENDOZA
HARILLA
IGTOS
DEL ROSARIO
QUIAZON
ALVARADO
LIM
ABOGANDA
DE LEON
MILO
PUNZALAN
QUIMPO
SANTOS
TOLENTINO
ROMERO
ARANAS
GARCIA
RAFAEL
SOLON
BAUTISTA
PACIS
Employee name
CHERRY
MA.ARSENIA
APRIL
GERARD REHNNE
ROLITA
CAROLINE
SHEILA MARIE
LORELIE
LEO
RANDOLPH
EDMAR
JULES VERNE
ALVIN
HUMPHREY
MAY
CHOICY
MA. ZENAIDA
FREDERICK ANTHONY
CAESAR ALEJANDRO
RAYMUNDO
ANNA MARIE
CHERYL
FARAH DEANNE
DEXTER
MIRA
HIEDE
AUGUSTUS
HERSHEY
MARLYN
WALTER
LENORE CHRISTINA
ROBERTITO
ROMULO JR.
ARVIN
NATHALIE
MIRHAM
DORREN JADE
LINA
RODERICO
ALVIN
ANGELIE JOY
REJIE
ARMANDO
MARY ANN
BRYAN PATRICK
WILFREDO
ARCHIMEDES
ROMELIA
CONCEPCION
ANGELINE
ROSEMARIE
BENJAMIN JR
EDMUND DANTES
MA. ALICIA SOCORRO
BENJAMIN
MYRA
MELANIE
LEODEL
REGINA CAROLINE
ID No.
2259
3317
1970
4298
5224
5968
2373
5661
7193
4047
3545
6841
1577
3736
2334
3210
4439
4906
3626
6186
4351
2854
5289
6809
1885
2312
6659
3149
3564
2014
4210
3775
4306
2519
2662
2873
7513
7396
3439
8021
3414
7848
2331
5800
8145
1788
5099
5660
1666
7439
6815
3796
2829
3590
8988
7831
4747
8711
3894
AMOUNT
46,457
45,833
45,833
45,828
45,535
45,022
44,347
44,167
44,084
43,779
43,774
43,750
43,579
43,371
43,010
42,942
42,850
42,750
42,734
42,667
42,520
42,500
42,353
42,167
41,875
41,700
41,667
41,667
41,667
41,667
41,667
41,654
41,641
41,629
41,501
41,309
41,208
41,144
41,084
41,000
40,940
40,911
40,403
40,343
40,050
40,000
40,000
40,000
40,000
40,000
40,000
40,000
39,779
39,747
39,610
39,598
39,583
39,570
39,338
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
NOCHE
MUNGCAL
DELOS REYES
EVANGELIO
BORDON
JIMENEZ
CENIZA
ILAGAN
BUNAG
MONREAL
ALBANO
BONDOC
MISA
MORALES
DUNGO
GAERLAN
EDIONG
ORTIAGA
VENZON
MARQUEZ
GAMBOA
ALBINA
FRANCISCO
LABRADO
VINOYA
PLATA
RAMIREZ
MARTIN
GUILLERGAN
ESCOBAR
TORRES
EVANGELISTA
DE GUZMAN
VILLANUEVA
ALUNAN
UNTALAN
SERVANDA
MIRANDA
AUSTRIA
CAMPO
CATACUTAN
SERIAS
GERONIMO
MAMARIL
VIRAY
VASQUEZ
LINGATONG
BARCENAL
BENITO
GOHETIA
CALUAG
ABELLADA
PANGILINAN
RAGANDANG
RODELAS
PAZ
VILLAFLOR
BELTRAN
AVILA
Employee name
ANNALIZA
MARIA KRISTINE
PATRICIA
LANIE
LEDILLA
JELINA
LYNETTE
EDGARD
MELANIE ROSE
MARYANN
DENNIS CHRISTOPHER
NOEL
LEONAIRE
SARALIE
LADY LYNN
ROLANDO
CHERRY NINA
JOMMEL
CATHERINE
ARMILENE
JOHN ARTHUR
IAN HIPOLITO
ARNOLD
JASPER JACINTO
ANNA LEE
JOSE LUIS
MARVIN
MA. CORAZON
LUZ
FRANCISCO
SHARON
ANTONET
JOSEPHINE
AURORA
JESSE JAMES RAYMOND
EDWIN
SHERRYLOU
JOCELYN
ANALYN
KARELL
LLOYD
EVELYN
JOEL
ROGER
RUTH
GENTLE GAY
JAMES
MARINOR
VENERANDO, JR.
JESSIE SR.
LORNALYN
JOSE RAUL
JESUS JR.
MYRA
NOEL
JOANNE
SANTOS JR
LAMBERTO
DENNIS RAINIER
ID No.
3689
3924
2728
3075
6117
2297
6157
3747
4332
5656
6882
4064
6450
1743
7299
4211
4855
2638
5160
6190
6088
4834
1998
6069
8436
6367
4628
1164
3622
3163
7882
1764
2059
7598
8949
4401
7251
3398
2460
4035
9095
6452
6215
6070
4199
6672
7565
6116
6390
6159
6728
5201
2368
3944
2215
8528
5206
3260
8675
AMOUNT
39,289
39,166
39,121
39,071
38,667
38,625
38,581
38,559
38,480
38,333
38,333
38,271
38,189
38,170
37,917
37,917
37,617
37,506
37,500
37,500
37,500
37,470
37,459
37,378
37,133
37,003
37,000
36,936
36,820
36,802
36,743
36,737
36,667
36,667
36,600
36,294
36,278
36,250
36,145
36,000
36,000
35,938
35,485
35,452
35,377
35,296
35,221
35,195
35,000
35,000
35,000
35,000
35,000
35,000
35,000
35,000
34,975
34,956
34,769
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
TULIO
ACOSTA
MERCADO
GARCIA
PIOQUINTO
JAVIER
BUIZON
ACENA
ESTRADA
QUIAMBAO
GARCIA
ESTEBAN
LIM
AGUILAR
HERNANDEZ
LACONICO
MANGUERRA
MONDELO
DAVA
VASQUEZ
DUTERTE
RESTUA
PANGANIBAN
DE MESA
CADO
ESPINOSA
DE RAMOS
SANCHEZ
VILLAFUERTE
UY
FRANCISCO
ARBIZO
SOSING
ESPINOSA
BAYOT
PRING
FALLER
HERMIDA
MORALES
ENDRIGA
MENSALVAS
SALGADO
HONRADO
SABERON
TAGLE
CADIZ
HOJAS
DELA CRUZ
PATINIO
SERRANILLO
VELASQUEZ
SAN JOSE
BARREDO
DONES
MANUEL
HONIG
SAMSON
TERRY
TIANGCO
Employee name
TERESITA
HILARIO ROMIL
MARVIN
ANNA LEE
SHERWIN
HUBERT
SHYDEE
RHEA
RICKY
VERONICA
MA. ANDREA
CATHERINE
NORITA
JONALYN
VIRGINIA
PANFILO JR.
RHONA
ANTONIO JR.
ANNALIZA
JANICE
CYNTHIA
VIOLETA
ROSALIE
LUISA
BRIGETH
RAFAEL
GLORIA
RHEA
VERNON
ELEONORE
JOAN
HERBERT
CECILE
PAULINO
ANNE CLAIRE
MARLITA
JENNIFER
RODOLFO JR.
DEO ANTONIO
MARIGOLD
RICHARD
RUEL
JOSEFINA
SIMON JOSEPH
IRIS
MARK
MA. ELISA
WILLIE
ZORAIDA
ERICSON
LEONOR DEBORAH
MARJORETTE
CATHERINE
RAYMUNDO
MELANIE
MICHAEL
ALEX
RUBY
RIORA
ID No.
3246
7788
2753
8964
7434
4696
6361
8496
6409
4996
6455
5597
4939
7002
1511
2076
8739
3060
6405
5175
1110
1071
3668
1337
2230
1852
6043
6362
8892
8252
4907
5571
2727
5589
5031
1197
3664
4065
6862
5453
4670
6846
3592
4095
7648
3151
2716
4445
2595
5592
2132
3228
3789
2956
5742
4804
5191
6252
3951
AMOUNT
34,662
34,442
34,167
33,938
33,889
33,833
33,810
33,750
33,750
33,412
33,393
33,333
33,333
33,333
33,333
33,333
33,304
33,291
33,042
33,000
32,986
32,915
32,898
32,867
32,675
32,610
32,550
32,500
32,137
32,122
31,945
31,875
31,868
31,843
31,833
31,713
31,667
31,667
31,624
31,460
31,313
31,250
31,250
31,195
31,091
30,983
30,851
30,833
30,833
30,833
30,747
30,647
30,625
30,590
30,446
30,396
30,350
30,277
30,122
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
LAREDO
TAN
MAAGAD
SANTOS
OCENAR
PRIVADO
DE CASTRO
HARMOND
BATAC
DEL ROSARIO
RAMOS
VALERA
AVELINO
LUMBO
ALVAREZ
BENGZON
GUIAO
LOYA
GORDON
JIMENEZ
TEJADA
GUTIERREZ
ASESOR
ALCASABAS
MARQUEZ
FLORES
EVARISTO
ACEBES
RODRIGUEZ
CORONEL
VIRREY
JAVELLANA
CANIZARES
DAVID
DOMINGO
RAMIREZ
MAGLANGQUE
SALAMAT
ESPIRITU
CADIENTE
MENEZ
SANTOS
LARDA
TABISAURA
JAUDIAN
BAUTISTA
AGUILA
MALLARI
VILLANUEVA
MENDOZA
GOMEZ
BURGOS
ARAMBURO
LAWIGAN
PARCON
MANZON
CARPIO
ALMINE
RONQUILLO
Employee name
JAIME JR.
RENATO
WENDETT
GRACE
LOVELYN
EMELYN
CORAZON
JEROME
CECILIA
EDGAR
DANILO
RHOANNIE
RICARDO JR.
LESLIE ANN
MARINA MELISSA
ALEXANDER REY
ERIC
ROSANNA
MANUEL
JOLETTE LEA
MITZI LEAH
REYNALDO
GEOFFREY
YVONNIE
RUBY
JOSE ROMMEL
RECHELLE
SHEILA MARIE
KAREN
RINOFEL
MICHELLE JOY
MARITA
RICA LYNN
MONINA
RICARDO, JR.
MA. CONSUELO
MA. ALDA
MARK ANTHONY
JUSTINIANO
ROSALIE
MICHELLE
MELVIN
EDEN
JONATHAN
JENETTE
JOSEPHINE
JEFFREY
JOCELYN
ROMEL
JOSE ROBERTO
LEONARDO
AILEEN
TOM EDISON
RAFAELITA
ANNA IRENE
JANICE MARIE
CARLOS, JR
DULCE AMOR
ANNA MARIE
ID No.
7948
3168
6662
3925
7815
2047
4278
2546
2473
3324
7022
5157
6688
5523
4974
7545
4036
8799
6407
7274
1747
3289
6781
4650
1916
6463
6035
7612
7263
7137
7154
2261
7438
2325
6874
5841
4654
7956
5391
2970
7723
6003
6233
4960
3827
9025
5418
2343
5763
8140
1234
1808
5833
4521
3459
5642
5794
2977
7361
AMOUNT
30,120
30,097
30,058
30,023
30,000
30,000
30,000
30,000
30,000
30,000
30,000
30,000
29,995
29,927
29,927
29,925
29,917
29,892
29,854
29,824
29,741
29,732
29,719
29,711
29,703
29,689
29,659
29,589
29,481
29,458
29,450
29,419
29,399
29,361
29,310
29,310
29,167
29,167
29,078
29,000
28,852
28,793
28,548
28,500
28,377
28,333
28,299
28,150
28,125
28,076
28,046
28,000
28,000
28,000
28,000
27,930
27,917
27,890
27,879
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
SANTAMARIA
ANASTACIO
FABELICO
PENA
DOTIG
DILIDILI
MEDINA
NERY
SARTE
NEYPES
PALMA
VILLAMOR
ANDUYAN
LACERNA
SORIANO
VILLASENOR
CRUZ
CASTILLO
MATEO
BARNUEVO
TIOSEJO
SALVADOR
DIN
OMAMALIN
MONTECILLO
BALLARAN
SALUD
BUAN
CUSTODIO
TANHUECO
CAMPOS
PEREZ
MAMIGO
PUYAT
ESTRELLA
ABADICIO
GADOR
LOPEZ
SANTOS
GODOY
BARBOSA
JOSE
TY
DIÑO
GARCIA
VEGA
ACUNA
PROVIDO
MENDOZA
AGUILAR
DIAZ
MENDEZ
MANOBO
BONIFACIO
DEBLOIS
MANANGUIT
MEDINA
QUE
CADA
Employee name
MANUEL JOHN, JR.
ROMASANT
MART ANTHONY
MAY ANTONETTE
JULIE
CRISALDO
RIZALINDA
PATRICIA
CLEMENTE ANTONIO IV
CARLOS, JR.
STEPHEN
BENJAMIN
EDWIN
MELCHOR
RONALDO
RACHELLE JOANNA
CARMENCITA
RANAULD
JOSEPHINE
MICHAEL
MARICEL
JOSEPH
JOSEPH
CHARITY
ROELA
ZACHARY
MARY JANE
JOSE MANUEL
LEILA
MILDRED
CLAIRE
LILYBETH
FRENNY
ANA ELISA PRAXEDES
FRIDAY JAN
ANNA RHODORA
ZINIA
ADONIS
ROSAHLIE
SALUSTINO
GLENJOY
JONATHAN
CHRISTOPHER
ARLLETH
NINA
CARMELITA
GREGG
ROMEO GERARDO ANTHONY J
JUANITO JR.
RAYMOND MARTIN
MA. DESIREE
JOSEPH
LORELI
MARIA JENNY
ARIEL
NOEL
LUISITO
RICHARD
ELIXIR JOSE
ID No.
5979
6877
4054
5344
3895
1523
2085
8975
7013
6278
7224
6101
5926
6526
6520
5544
6204
3490
4574
4560
5166
6289
6160
6854
8349
5266
3400
7340
3700
5035
4585
3215
5881
1678
7080
8996
3635
2961
6943
3609
4594
3444
1776
8068
1166
7844
2422
8582
3352
3600
3348
2038
5948
6478
8504
1462
1255
2983
5754
AMOUNT
27,845
27,778
27,708
27,538
27,529
27,500
27,500
27,500
27,500
27,271
27,240
27,083
26,939
26,875
26,850
26,814
26,688
26,667
26,667
26,601
26,583
26,564
26,542
26,513
26,500
26,430
26,331
26,250
26,250
26,250
26,195
26,156
26,083
26,029
25,832
25,812
25,734
25,732
25,670
25,667
25,667
25,656
25,511
25,364
25,326
25,220
25,171
25,140
25,094
25,090
25,029
25,000
25,000
25,000
25,000
25,000
25,000
25,000
24,863
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
GRAVADOR
BERROYA
DE QUIROS
CARPO
LOBARBIO
BALDIA
OBNIAL
SUMILONG
CAPISTRANO
ABELLA
VICERA
ALMODIEL
ANTONIO
DRAPER
ROMERO
QUIJADO
ARANAS
FONTANILLA
ARCEGA
MARQUEZ
BRACEROS
VERA
TY
STA. ROSA
DETOSIL
TOLENTINO
PRECLARO
LANGCAUON
MATADLING
RODRIGUEZ
UYCHUTIN
CUARESMA
BAYONA
FAJUTAGANA
REYES
ROMERO
ARCEO
DOCENA
SANGALANG
CHANCO
BEJO
CALOSING
ACUESTA
BUALA
ELARDO
NAVARRO
ONG
BERMUDEZ
RICAFLANCA
BELEN
ARANAS
MONTANO
MILAOR
ALMAZAN
PIEDAD
AGCAOILI
VELOSO
TABUGADIR
POLINTAN
Employee name
GRACE
JOVITO
JEMINNIE ROSE
LEAH
MARY JEAN
MARLY PEARL
JOAN CHRIS
EMMIL
RICHARD BENEDICT
MARIA ANA
DAISY
ERWIN ROMMEL
MA. LEONORA
GRACE
MARIZEN
AGNES ROWENA
JOYLINDA ANGELICA
NEMIA
ARLO
PAUL
TEODORA
EDWARD IAN
VALERIE KRISHNA
JOSEPH
BERNNEL
DJHOANNA CARMELA
JHOANA
RUSHELL
GEMMA RUTH
ARNEL
RONALD
MELY BERNARDA
RANDOLPH
ROBERTO
BERNADETTE
GLEN
ANA FELISA
MA. ANGELINA
MYLA
JOANE
RUEL
ARVIN DAVID
SALVADOR
LEONARD
NOEL JONATHAN
ANGELITO
JONCRIS
HAZEL
SHERWIN
ALEXANDER
ANNA CONSUELO
SOTERO JR.
JEANNE
BERNARDO
MARIA BELINDA LOURDE
PAUL JOHN
DAISY
MA. EMILY
JOHN CHRISTOPHER
ID No.
3637
5946
3904
8920
7736
5924
5886
6932
8087
5474
2861
6051
3981
6493
4704
3081
7942
2735
4203
3617
2489
4191
6417
5401
5530
4230
3079
3117
6794
2553
4528
3095
6880
1648
7888
6608
7378
6130
1608
8396
7562
4003
6468
6594
2830
1797
3852
7305
6419
2161
2836
3103
8363
4015
5925
6475
3227
6531
5359
AMOUNT
24,792
24,780
24,708
24,625
24,535
24,531
24,418
24,390
24,375
24,375
24,300
24,250
24,167
24,081
24,000
23,997
23,919
23,915
23,874
23,800
23,796
23,750
23,696
23,540
23,464
23,458
23,446
23,333
23,333
23,333
23,333
22,917
22,917
22,917
22,917
22,917
22,828
22,784
22,727
22,710
22,620
22,600
22,500
22,500
22,500
22,500
22,500
22,391
22,167
22,016
22,011
21,991
21,875
21,817
21,719
21,668
21,667
21,625
21,592
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
SENO
TEJADA
COLUMBRES
CRUZ
BELMES
GASMIDO
OLARITA
SALVINO
GONZALEZ
MORRISON
ESTOCADO
ARCILLES
MALLARI
MENDOZA
LAWSIN
MONTIERRO
PABLO
DUGAY
GOLPE
PANIGBATAN
SUPNET
TABUN
BERSAMINA
SINGH
SAWYER
GAGUI
BAJO
PERALTA
UY
CUERQUEZ
SALERA
CASTOR
SAMSON
ESTRELLA
CHUA
PARAGAS
MERCADO
MARTINEZ
PENERA
BILLONES
CUETA
DIMANLIG
FRANCISCO
IBARRA
LANSANG
OLAIVAR
PAYUMO
PELEGRINA
BUENAVENTURA
CAYABYAB
MILAÑEZ
AMORES
CARLOS
DUTERTE
ABAYON
GIRON
MAGADIA
GARCIA
HERNAEZ
Employee name
JERONIMO
RANDY
RONALD ALLAN
CIRIACO
ANNA MARIE
GERRILYNN
MANOLITO
RIZZA
REGINA
MYRA
JENNIFER
RODULFO
VICTOR JAMES
CLEOFE
JANTHON
RHODA
MARITONI
MARIA ROWENA
FELIPE, JR.
DENNIS
ALAN
ALVIN
ROGELIO
LUZ
ANNA LOURDES
JOE ANTHONY
EISEL
JOSEPH NENREY
MAE ANN
MARIE PAZ
JOSE III
ROSEMARIE
ANNE MICHELLE
RAYMOND
ERNESTO JR.
FREDIE
MA. LOURDES
RICARDO
ERWIN MATTHEWS
JOSEFINA
FRANCISCO
EDWIN
JASMINA
BENEDICK
ROSALIE
JOSEPH LENNART
CELESTINA
BEVERLY
RAUL
ARIEL
MARY ROSE
EMELYN
VERNETTE
FILOMENO IV
ELOISA
KRISTOFFER
MILLETE
RAY PATRICK
JOSE ROLANDO
ID No.
7569
5256
4338
2552
5757
4268
7909
6506
4794
2826
7477
6416
2243
6187
6191
2463
8527
2967
8355
1906
2342
8064
3283
3806
7933
6952
5795
6077
6176
5927
2127
5214
4074
5634
4917
7258
2150
2031
3701
8674
6078
4911
3209
2787
8332
7488
7526
3233
5965
8307
4809
3616
2901
7553
3129
6435
7689
1789
2966
AMOUNT
21,576
21,495
21,375
21,356
21,302
21,250
21,250
21,238
21,148
21,113
21,088
21,083
21,064
21,000
20,981
20,973
20,833
20,833
20,833
20,833
20,833
20,663
20,625
20,583
20,563
20,528
20,475
20,471
20,417
20,292
20,289
20,209
20,182
20,167
20,113
20,038
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
19,963
19,944
19,929
19,816
19,751
19,629
19,583
19,580
19,410
19,296
19,250
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
ARGUELLES
ILAGAN
CRUZ
DIZON
OLARTE
TECSON
OCHOADA
JUCAL
ESTAMPADOR
REYES
LARIOSA
ARROYO
DAVID
GIRON
RIVERA
TIANO
MAYORALGO
MENDOZA
OCAMPO
ASUNCION
SAULOG
CLAVIO
SAMSON
CUNANAN
MATADLING
BUGAOAN
VALENZUELA
DE GUZMAN
CAUINIAN
FERNANDO
CORPUZ
REYES
STA. ROSA
MACARAIG
CABAUATAN
DRILON
GERALDES
SAZON
QUINTOS
PANGANIBAN
LUMANAO
ABALOS
ISLA
MANGAHAS
NACU
IGLESIA
TIOTUICO
DE GUZMAN
AMPER
BADILI
NADORA
RODRIGUEZ
CONCEPCION
CASAS
INFANTE
PALACOL
LEE
FUNTANAR
GARMA
Employee name
ELSIE
RONNETH
RONNIE
CATHERINE ANNE
JOEL
JOTHER
ARIEL
HIYASMIN
KATHERINE ROCHELLE
MEDARDO
GEOFFREY
LOYOLA
RONALDO
JOSEPHINE ANNA
REGINA MARIE
JENNIFER
IMELDA
ARLYN
FRANCISCO
LAWRENCE
SHERWIN
OLIVIA
ROGELIO NICANOR
ARIEL
JOCELYN
BERNADETTE
MICHELLE
RONALD
AMANTE
DANIEL, JR.
ROWENA
CARMEN
MARK VINCENT
MARINA
MARA GISELA
ANNABELLE
ROLAND JOSEPH
WILLIAM CESAR
NORBEN
ELMER
DIOMEDES
ARVIN
SHIRLEY
MARIA CYNTHIA
GLENDA
GINA
LESLIE
JANET
EDISON CLYDE
CHRISTOPHER
JACQUELINE
ROMMEL
DONNA BEATRICE
JOSEPH
JOSEPHINE
ROSALIN
MARY ANN
GENARD
TIFFANY
ID No.
5316
8303
7883
8361
3705
3851
5413
5428
8877
6151
6138
1364
5325
2548
7398
7383
7312
4340
1301
2838
5651
1898
1873
6937
2713
4744
7787
3429
1216
5863
3389
8742
2609
7253
4740
6271
4923
3279
8258
5598
3975
5115
5270
8098
3541
7980
5373
3507
8629
4998
2097
6090
5492
6305
2731
5112
7714
2959
7636
AMOUNT
19,250
19,186
19,167
19,167
19,154
19,106
19,103
19,073
19,061
19,000
18,873
18,750
18,750
18,750
18,750
18,750
18,750
18,750
18,750
18,724
18,711
18,669
18,667
18,630
18,583
18,563
18,563
18,467
18,376
18,363
18,333
18,333
18,333
18,333
18,300
18,250
18,095
18,083
18,083
18,075
18,003
18,000
18,000
18,000
18,000
17,992
17,950
17,949
17,941
17,875
17,778
17,750
17,745
17,735
17,623
17,554
17,508
17,500
17,500
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
MERCADO
MOLINA
NAMOCATCAT
SABALDICA
CRISOLOGO
FESTIN
LOTO
FERNANDEZ
SALES
STA. CATALINA
JAMALI
VIDAL
CATUDIO
CHUA
COLOQUIO
GALICIA
PATIU
GOLEZ
PEDRIALVA
SIMBAJON
DA COSTA
RIVERA
DE LOS ANGELES
FRANCISCO
MAGAHIS
OLIVA
CRUZ
REYES
SUSULIN
CAIPANG
BUENAVENTURA
CRUZ
ALEJANDRE
NGO
SUNGA
REBENQUE
RAVIZ
BACOLOD
TELAN
BUENDIA
ANCHETA
MACALING
VERSOZA
MOLINA
UMIPIG
ROMUALDEZ
CHOA
LEGASPI
GARCIA
GARCIA
FERROLINO
CARVAJAL
FERNANDEZ
GOROSPE
VAGAY
MARIBOJOC
GAMBOA
SAN MIGUEL
ESTANDARTE
Employee name
SARAH
AMPARITO ROSARIO
JOHNNY
MA. CECILIA
JENETTE MARIE
DANNY
MARJORIE
LUIS RODRIGO
CATHERINE
RONALD
ABDULGANI
FIONA ERIKA
VICENTE
SONNY
JAHIL
ANN SALVACION
ROY ALLAN
RAMIRO RYAN III
ROGER ANGELO
ANA LIZA
JOEL ANDREW
MA. PATRICIA
SHEILA THERESE
CHRISTIAN
JOCELYN
DOROTHEO HONESTO
JUDE TADEO
PAMELA GRACE
GILBERT FRANCIS
CLINTON
JENNIFER
OLIVER
RYAN KHARL
JANICE JOANNE
ROBERT
VERZALEN
MARJORIE
NORWYN
ABEL JOSEPH
MICHELLETTE
FLORDELIZA
JOANNE
DEBBIE
ROLLIE
RONALD
SIMONETTE
CHRISTOPHER GEORGE
JONATHAN
OLIVE
ADINOEL
ROSEMARY ANNE
MA. JOHANNA
ROSEMARIE
YOLANDA
LLOYD
ANUNSACION
CEFERINO
LEILANI
MICHELLE ANN
ID No.
6094
8242
3396
6206
4198
4224
8014
4324
4330
2286
4893
8027
4775
3347
4691
3734
4627
7622
5390
5969
6863
8584
5048
3582
7159
2200
2124
8726
7865
1862
3085
8471
5972
6790
7722
5226
6884
6114
3303
3374
3109
1744
2013
2032
4437
3269
3750
2521
2944
3901
7030
3638
3639
3042
5759
5901
4186
1714
4995
AMOUNT
17,500
17,500
17,500
17,500
17,470
17,417
17,288
17,180
17,170
17,140
17,111
16,913
16,905
16,875
16,875
16,875
16,862
16,861
16,800
16,767
16,700
16,692
16,667
16,667
16,667
16,667
16,667
16,667
16,667
16,664
16,647
16,592
16,549
16,541
16,500
16,468
16,427
16,356
16,333
16,331
16,298
16,250
16,250
16,221
16,214
16,204
16,174
16,147
16,138
16,126
16,079
16,046
16,042
16,000
15,992
15,953
15,938
15,917
15,887
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
VILLANUEVA
ABARQUEZ
BUENAVISTA
GLORIA
EUGENIO
ARRIOLA
TAN
BASILIO
SALAMAT
ISRAEL
PANLILIO
SAM
SORIANO
ESCALAW
VILLANUEVA
BALDWIN
BAGUION
PAGUILA
BATRONEL
CADILO
FLORES
SANTOS
CANTIMBUHAN
ERMAC
TORRES
VALMORES
BERNALES
ESCATRON
PAYPON
VALDEZ
CALLEJA
DIVINO
PASCUAL
BORBON
BROSAS
GUDY
FRIALDE
CABINAS
VALDES
PELAEZ
OFIAZA
PERALTA
INGALLA
ABALAYAN
GUIYAB
STA. ANA
ALDOVINO
ARNIDOVAL
LOZANO
BALANDRA
CONSUL
NATIVIDAD
DELOS SANTOS
AQUINO
BAUTISTA
TRIAS
BALUYO
ORACION
PASTRANA
Employee name
JENNIFER
ROSEMARIE
JAY
PATRICK STEVEN
AMABELLE
ALBERTO
MARY JOY
AIREEN
RODEL
DAVID
LIEZL ANN INGRID
ALEXANDER
AURORA
EFREN
ROMINA
MAYA MARGARETTE
CARLOTA
JERLYN
ELSIE
MARY ANN
ELMIRA
LIDUVINIA
IAN
MAJARLIKA LOU
MARIA DONAVIE
MARTIE CONSUELO
FELIZARDO
ARNEL
ALDRICH
ALDY
MENANDRO
ALFREDO JR.
NORBERTO
LORENA
ELBERT
MA. GILDA
FATIMA
JOELUISE
MARIA VERONICA
TERESITA ANGELINA
NENITA
MARITES
JONAH MARIE
JOSEPH
RICHARD
MARILYN
ROMEL
MARIO
MYRNA
JUDY ANN
MAYLYN
MANUEL JR.
ISABELITO JR
NICHOLAS III
JOSETTE MAY
EVELYN
LUEDA FILOMENA RISA
ANALYN
MELISSA
ID No.
5328
4354
8081
6827
3472
4290
6134
7441
7136
3478
2260
7310
1775
6290
7243
4609
1954
7031
6339
7913
3062
4639
6402
5354
7857
6312
3098
3897
7955
3886
6430
5613
4155
3921
2502
5939
5801
3061
7940
5954
2134
3096
5501
5019
3170
2028
4138
5524
3749
6017
4642
7595
2518
6784
3390
1515
4341
2646
5762
AMOUNT
15,833
15,826
15,813
15,732
15,696
15,625
15,596
15,557
15,500
15,458
15,458
15,267
15,255
15,221
15,135
15,073
15,068
15,060
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
14,990
14,965
14,960
14,902
14,875
14,838
14,812
14,796
14,767
14,762
14,721
14,700
14,680
14,667
14,625
14,620
14,596
14,583
14,583
14,511
14,375
14,346
14,333
14,251
14,167
14,063
14,038
14,013
14,004
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
LAJUM
RAMOS
PUNAN
SALUD
AZANZA
GUTIERREZ
PANSOY
GABITO
ISIDRO
BAHIA
BALINADO
CASTELO
YAPCINCO
AGUSPINA
GONZAGA
APUANG
SOLON
CORTEZ
MIGUEL
TABANAO
PELINO
LLAMAS
VILLAFLOR
LUSTRE
SAPATALO
MANZANO
CIOCON
SABERON
CRUZ
SABARRE
LACSON
OLIZON
TABAO
VARGAS
ORDONO
LLAMAS
BATO-ON
GUERRERO
EUDELA
DOMINGO
CAMBA
DUNGO
CONSTANTINO
BARRON
CASTILLO
SILVA
MEDINA
CASINO
ARCEO
ACOSTA
CANARIAS
VALDEZ
NEPOMUCENO
SANCHEZ
BARCELONA
CABAGUE
TAN
TORRES
DEPANAY
Employee name
VICTOR
JOSEPHINE ANN
DULCE
DEMETRIO JR.
LOUISA
EMERSON
MARICEL
CYRIL
GRACITA
FELIX
FERDINAND
MAUREEN JHOANNA
FERDINAND
SILVERIANO
NONA
ROSEMAE
JANE
RONNIE
RONALD
LOEN
MA. ELENA
JOSE ENRICO
ANA PAULA
HELENA MAE
BETSY
GIOVANI
MARIA SHARON
ELFRIEDA
GOLDA MEIR
FRANCES THERESE
JOSEPH JASON
VERONICA ELENA
MARIA KAREN
VANESSA
ZALDY
ALTER
WILMA
NANCY
KAREN
EVELYN
PERRY
LUISITO
VIRGILIO
RESIE RIA
MARY CORRINE
NOELYN
RESORTE
MANUEL
ARLENE JAN
FELIXBERTO POCHOLO
SARAH
ANNA RICCI
RONALDO
THALA MAJAL
MA LOURDES
LARRY
PEARLITA ADORACION
MARY GRACE
ALNARD
ID No.
4727
5023
5643
6038
5471
2934
5403
6741
2550
3169
2895
8633
7066
2057
5518
4729
6410
3762
8067
6163
6738
2099
8953
6715
3458
7807
2257
2623
4281
7437
6697
4110
5021
5212
2702
6105
8321
1939
4487
5548
7429
4473
2661
7381
5397
6825
2163
7500
6251
2073
4942
8541
5223
5368
1481
6120
3254
7827
3542
AMOUNT
14,000
14,000
13,940
13,913
13,883
13,882
13,867
13,831
13,778
13,768
13,750
13,750
13,750
13,675
13,626
13,562
13,495
13,445
13,429
13,388
13,333
13,333
13,333
13,280
13,280
13,272
13,126
13,125
13,125
13,125
13,063
13,028
13,021
13,019
12,914
12,879
12,850
12,846
12,833
12,825
12,815
12,800
12,750
12,750
12,686
12,685
12,640
12,611
12,584
12,500
12,500
12,500
12,500
12,500
12,500
12,500
12,500
12,500
12,458
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
CASTOR
DE LA CRUZ
SALCEDO
ACABADO
PECHO
DELA CRUZ
LLANTO
HANDOG
DOLINA
SANTOS
TORIO
LAUZON
GARCIA
LAO
TEOPACO
CHENG
PINEDA
CARBONEL
RUIZ
IMPERIAL
MEDINA
PINGOL
BESA
DAKAY
COMLA
MARTIN
MONTILLANO
UMBAY
POTENCIANO
BELLOSILLO
LEONARDO
BABINA
ALEJANDRO
HERNAEZ
ABAD
DE PAULA
GARRIDO
TANHUECO
ARAGO
BERBA
FALCIS
MANALO
TUMANG
CALDERON
GUTIERREZ
PLOPINO
DABON
CAIRO
BANTEGUI
CAMACHO
MORALES
BRAGA
CLEMENTE
MARQUEZ
PAHAGANAS
GAYAMO
FRANCISCO
TAN
LIM
Employee name
LAARNIE
BRIAN HARVEY
MARIUS CARLO
MARIONNE
DIVINA AMOR
JEANETTE
FLORABELLE
CHRISTOPHER
ROBERT SCOTT
JEANNE ISABEL
EDIROSE
ISMAEL
ROCHELLE
CARMEN
LINDSAY JAMIE
JEFFREY ROY
RAYMUND CARLO
DANTE
MARIA AILEEN
ROY
ROSARIO
RONALDO
MELISSA
JEFFREY
RACHELLE
MICHELLE ANN
LEAH
MARY ANNE
RONALDO
AGNES
MA. VICTORIA
MOISES JR.
CONRADO ANTONIO
JESSICA
EMMANUEL
SIRDYNEL
JASMINE
CHRISTOPHER
ALBERTO JR.
BENJAMIN
FEDERICO
KAREN
CHERRIE
DESIREE
RESSEL
CHESTER
DINO
RICHARD
JENNIFER
MA. VICTORIA
REDENTOR
JORGE JR.
JANNETTE
MA. CARMINA
MAYLYN
JOELINE
ALEX
PATRICK VINCENT
LEONILO
ID No.
7608
5107
2732
6817
7726
5247
8805
1629
7792
5639
6928
1348
2726
8544
9016
8497
7864
6505
8227
3265
1448
4952
6988
5629
3629
4111
6777
4646
4154
6404
7234
3166
7083
6377
8521
7584
3155
4402
6584
4362
6068
2647
7145
2687
4621
7658
6324
5305
8732
8005
4564
3932
4070
3885
4220
6637
6476
5130
3952
AMOUNT
12,458
12,456
12,375
12,345
12,245
12,159
12,083
12,005
12,000
12,000
11,942
11,923
11,917
11,875
11,866
11,795
11,761
11,701
11,667
11,667
11,667
11,625
11,625
11,617
11,606
11,583
11,528
11,499
11,497
11,458
11,458
11,450
11,441
11,375
11,339
11,333
11,298
11,250
11,250
11,250
11,250
11,250
11,250
11,134
11,116
11,084
11,080
11,042
11,027
11,005
11,004
11,000
11,000
11,000
11,000
10,967
10,937
10,917
10,896
GLOBE TELECOM, INC. AND SUBSIDIARIES
Schedule B.2 - Hospitalization, Medicines and Others
As of December 31, 2005
Employee name
MEDINA
PATRICK
BERONILLA
ERWIN OLIVER
DATUL
VICENTE JR
DIAO
CHERRY
DIAZ
AILEEN
OLFINDO
FEBRALYNN
GIGANTE
TRISH VANESSA
GONZALEZ
ALPHA SHEILA
VILLANUEVA
JOSE ENRICO
MANTUA
CAROLINE
DE LA SERNA
REY
GINETE
MARY ANNE
ESCOTO
ROLANDO
CAPULE
LORENA
GUILLEN
JANETTE PATRICIA
ALLAS
MARIA CORRINE
MONTANIEL
JOEL
GONZALES
JAY
YABUT
MASTER EDISON
SOTTO
ROBERTO
EVEDIENTES
JULY
ARCEGA
ERIC
PAGASPAS
MARIA CRISELDA
ROSAGAS
CHARIBEL CHARO
CRUZ
FERNANDO
CARIASO
DENNIS
GARCIA
MARCELINO
BARONA
JEHAN
SAMSON
BERNARD
CAPUNO
RUBY ANN
NOTARTE
MARIECRIS
AMOG
RHONELL
SANTOS
MARY IVORY JOY
DEL VALLE
HOMER JR.
GALEON
ALEXANDER
REVESTIR
JOSE MARLON
CARASIG
MARY ROSE
CONCHA
MEILARNI
ESTRADA
MICHELLE
GO
RENE MARTIN
HERIDA
EDUARDO
INDAPAN
ELCID ANTHONY
JAOJOCO
OLIVER JOSE
Others (below P10K and other loans)
Total Hospitalization, Medicines & Other Loans - Globe
ID No.
7233
3174
5447
6197
2446
6192
4692
5006
2271
6149
5882
3350
1080
3071
3576
7741
2113
7811
5803
2786
6483
7069
6347
3607
1376
3491
3973
4371
7536
4419
6335
8180
8213
4788
5805
4077
5098
8508
3370
3178
7356
3813
6973
AMOUNT
10,894
10,833
10,833
10,833
10,833
10,833
10,833
10,773
10,668
10,667
10,649
10,563
10,559
10,552
10,500
10,500
10,495
10,489
10,417
10,334
10,333
10,250
10,249
10,243
10,177
10,129
10,090
10,083
10,062
10,060
10,050
10,020
10,015
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
9,951,450
44,572,619
Schedule B.2a - Medicines/Hospitalization - Innove
2,821,099
Schedule B.2b - Educational - Innove
4,692,727
Schedule B.2c - Housing Renovation - Innove
1,060,367
Schedule B.2d - Others - Innove
1,396,997
Total
54,543,808
Schedule B.2a - Medicines/Hospitalization
As of December 31, 2005
EMPLOYEE
YASON PAOLO ANTONIO
SANTIAGO RENATO
MAPA JOSE ANTONIO JR.
CAGURANGAN RACQUEL
BERNAL GINALYN
MARIANO YOLANDA
ISADA LORELIE
CASTILLO CECILIA GRACE
TAN PETER
BUYCO YOLANDA
FLORENDO HARRY
JANOLO JOSELITO
TIANCO RODOLFO JR
NAVEA RACHEL
ILETO CATHERINE
BUENA ARLENE
DECLARO GLENN
GAPIDO DAVID
TAPIA JOY
BONOAN FAUSTINE
OTHERS
Total
BAL. AS OF 12/31/2005
465,818
246,956
199,337
190,364
153,839
125,973
124,932
103,139
90,500
85,800
84,251
83,092
82,492
74,576
64,838
63,625
60,000
59,375
56,492
52,007
353,695
2,821,099
Schedule B.2b - Educational
As of December 31, 2005
EMPLOYEE
TAN BENJAMIN
CLARAVALL FRANCISCO FERNANDO IV
CACHO VICTOR
LIM BERNARDO JR.
ROSARIO SHIELA MAE
VILLAPENA EDUARDO
GARCES GLENN
SALAMAT NARCISO
BAUTISTA MA. LOURDES
ALANO JOSEFINA
MALABANAN NARCISO
ISAIS MOISES
AMAT MA. CORAZON
CAGURANGAN RACQUEL
RADA ALDRIN NEIL
DETCHING DANILO
FLORES MARIA ROSA ISABEL
LAFIGUERA GERARDO
DE LA CRUZ MARLON
PINEDA LAURO
VALLEJO OLIVER
AVERION ANGELITO
ONGKINGCO RUEL
SAYSON ARIES
ROMERO JESUS
MATIAS HOSMER
ZAFRA ZEL
PENALOSA JOHN OHMAR
DEREZ WILFREDO
KHO NORA
BALANDRA MA. PAMELA
GREGORIO LIVERN
CONCEPCION JOLLY
ESTRADA FEDERICO JR.
DE LA CRUZ CYNTHIA
CUACHON LINO JR.
BUELVA IHREEN
GUEVARA GERARD
BRAGAS ELMER
FERAREN JOJI VISSIA
MACABASCO NUNILON JR.
BUNAO ERWIN
CANOSO ROMEL
ECARMA EDWIN
PASCUAL RODELIO
DIANGO JOHN JARVIS
TELAN ROWENA
AZORES ARNEL ALEXIS
REALINA TEODORO
ARROYO LEILA
NUNAG RODERICK
YMAS JONELLE
ALEJANDRO LEMUEL
TULAY JOSE VIRGILIO
AESQUIVEL RAMON NONATO JR.
BAL. AS OF 12/31/2005
123,333
105,000
103,485
103,310
80,000
78,375
75,467
71,471
71,250
70,000
70,000
68,612
67,500
67,500
67,010
64,884
63,569
62,500
61,844
61,390
60,099
60,000
58,650
57,952
54,167
51,458
51,458
51,292
50,908
50,073
50,000
50,000
48,750
46,417
45,729
43,333
43,000
41,708
41,667
41,667
41,667
40,000
40,000
39,583
38,750
34,967
34,667
33,333
33,044
32,052
31,667
31,667
31,400
30,750
30,717
Schedule B.2b - Educational
As of December 31, 2005
EMPLOYEE
TABORADA GEROME
MILAN LLIENETH
BASCARA CARMELO
BORRES ROMEO ROMMEL
BORCENA NELSON
CONCEPCION RUBEN
SUMARAGO RICKY
BOLTRON ERNEZAR
SUYCANO ROGER
ESPINOLA ARNOLD
CAMBRONERO NOEL
DAGA MA. GRACIA
TRESVALLES CECILIA
ADAN ROMEO
DELA CRUZ ROCHE
CANONG CYNTHIA
SY BUENAVENTURA
MANIQUIZ ALAIN
ASIGNAR MARICEL
GUYAMIN ORLANDO
AUJERO ARIEL ANTHONY
BAUTISTA BENJAMIN
CORONADO EDWIN
GARCIA FERNANDO
MANAOG CHRISTOPHER ALLAN
MARCELINO LARRY
MARIANO YOLANDA
ENRIQUEZ REICHEL REBECCA
NAVEA RACHEL
CARLOBOS JOSELITO
LATOJA MARISSA
AGUILAR VILDA GRACE
BARRAMEDA MA. BELLA
AYSON CESAR
FABI NORMAN JASON
SOLLANO DANILO
PINEDA JAY
TANGLAY ADORA
SARSONAS NORBERTO
CARAG BENIGNO
DORAN GRACE CECILIA
LONTOC RONALDO
QUIZON ALEXIS
MORANTE APOLLO
CAIPANG MA. LOURDES
EMPLEO JAIME JR.
OTHERS
Grand Total
BAL. AS OF 12/31/2005
30,668
30,417
30,167
29,292
29,141
28,333
27,167
26,917
26,822
26,250
26,250
26,177
25,875
25,872
25,833
25,542
25,500
25,375
25,288
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
24,764
24,113
23,833
23,750
23,749
23,513
23,500
22,975
22,954
22,500
22,500
21,875
21,817
21,724
21,375
20,916
20,417
20,000
20,000
490,477
4,692,727
Schedule B.2c - Housing Renovation
As of December 31, 2005
EMPLOYEE
GATCHALIAN JOSEPH
MARASIGAN BENIGNO, JR.
DONATO CINDY
ARINES MA. VICTORIA
GAMBITO JOHNNY
DOBLAS MIGUEL
MENDOZA CARLO
DAGA MA. GRACIA
MALATA REGINA
INAJADA LUCIO
ABARRO JOSEPH REX
RONQUILLO JOEL
GONZALODO JOSE III.
MAPANAO ANTHONY GARTH
GUEVARA GERARD
DEL ROSARIO MICHAEL
CASACLANG DONATO
OTHERS
TOTAL
BAL. AS OF 12/31/05
200,600
165,000
82,500
60,113
60,000
59,000
52,500
46,500
40,000
30,980
30,000
30,000
29,167
22,000
20,833
20,417
20,000
90,757
1,060,367
Schedule B.2d - Others
As of December 31, 2005
EMPLOYEE
DELA CRUZ EDNA
REYES NIEVELINDA
PASCUAL-TITCO MARIA THERESA
GARRIDO JASMINE
CASTILLO CECILIA GRACE
CAGURANGAN RACQUEL
PADRIGA ROGER
AESQUIVEL RAMON NONATO JR.
REMOROZA MINERVA D
JANOLO JOSELITO
RAMOS JOSEPHINE ANN
SIA SIDNEY ALEXANDER
CASAS MAE FAITH
OTHERS (BELOW 20K)
TOTAL
BAL. AS OF 12/31/05
257,861
254,331
130,000
111,141
62,801
45,165
40,630
40,287
35,867
27,620
23,209
23,036
21,754
323,295
1,396,997
Globe Telecom, Inc.
SCHEDULE F - Long-term Debt
As of December 31, 2005
(in thousand pesos)
Title of Issue
and Name of Issuing
Entity
Senior Notes
The Bank of New York
Retail Bond
Citibank NA
Amount authorized by
indenture
Amount shown under
caption "Current portion
of long-term debt" in the
consolidated balance
sheets
Amount shown
under caption "Longterm debt" in
consolidated balance
sheets
(1)
15,918,600
51,614
15,918,600
51,614
16,334,965
3,000,000
-
2,983,744
3,000,000
16,334,965
Rate During the
Year
Date of
Maturity
(1)
9.75%
2012
(2)
7.26% - 11.70%
2007 to 2009
4.39% - 6.69%
2006
8.093% - 16.00%
7.817% - 8.91%
7.36%
7.36%
7.36%
12.96% - 13.79%
2006 to 2011
2010
2007 to 2010
2007 to 2010
2007 to 2010
2009 to 2012
2,983,744
Suppliers Credit
Foreign
ECI Telecom LTD.
Corporate Notes
Hongkong Shanghai Bank
Metrobank
Citibank
Land Bank of the Phils
Dev't Bank of the Phils
Standard Chartered Bank
Banks
Local
Global Business Bank
Rizal Commercial Banking C
Security Bank Corporation
Citibank, N.A.
103,264
103,264
-
103,264
103,264
-
720,000
2,000,000
515,000
500,000
600,000
1,389,000
5,724,000
200,000
200,000
520,000
2,000,000
515,000
500,000
600,000
1,389,000
5,524,000
375,000
312,500
282,000
7,553,164
8,522,664
125,000
125,000
88,500
1,323,797
1,662,297
250,000
187,500
193,500
6,229,367
6,860,367
7.36% - 10.35%
7.85% - 11.73%
10.18%
7.74% - 10.47%
2006 to 2008
2006 to 2008
2006 to 2008
2005 to 2009
3,322,287
338,252
211,679
751,712
771,183
2,162,724
348,866
42,114
2,095,322
5,306,200
622,798
15,973,137
2,317,252
338,252
211,679
300,685
385,592
1,281,014
190,095
28,076
589,837
198,493
5,840,975
1,005,035
451,027
385,591
881,710
158,771
14,038
1,505,485
5,306,200
424,305
10,132,162
2.17% - 6.25%
2.87% - 5.27%
2.77% - 5.80%
5.34% -12.45%
6.55%
3.37% - 5.44%
4.11% - 6.56%
3.39% - 4.35%
3.92% - 6.44%
5.04% - 6.05%
3.12% - 6.58%
2006 to 2007
2006
2006
2006 to 2008
2006 to 2007
2006 to 2007
2006 to 2007
2006 to 2007
2006 to 2009
2007 to 2011
2006 to 2009
49,241,665
7,858,150
41,835,238
Foreign
Bank of America Int'l Ltd.
Citibank - EKN
Standard Chartered Bank
Financierings- Maatschappji O
Exportkreditnamnden
Finnvera
Bayerische Landesbank
Hypovereinsbank
Japan Bank for International
Nordeutsche Landesbank
Societe Generale
TOTAL
(1)
(2)
Includes unamortized premium and net of related unamortized debt issuance cost in accordance with PAS 39 adoption
Net of unamortized debt issuance cost in accordance with PAS 39 adoption
GLOBE TELECOM, INC. AND SUBSIDIARY
SCHEDULE G - Indebtedness to Related Parties (Other long-term liabilities)
As of December 31, 2005
(in thousand pesos)
Name of Related Party
C2C Pte. Ltd (affiliate of Singapore Telecom Int'l Pte. Ltd)
Non-interest bearing liability
Advance lease and service revenues
(1)
Beginning Balance
12/31/04
Ending Balance
12/31/2005
2,262,283
164,209
2,426,492
Significant decrease is due to PAS 39 adjustment. Upon adoption of PAS 39 in 2005, the non-interest
bearing long-term obligation was restated to its fair value, representing the present value of future cash flows.
2005 balance was not restated as allowed by the SEC and exemption available under PFRS 1.
1,235,810
137,925
1,373,735
(1)