- Globe Telecom

Contents
02 – Vision & Mission Statements
03 – Financial Highlights
04 – Chairman’s Message
07 – President’s Message
12 – 2004 Operational Achievements
18 – Management’s Discussion & Analysis
22 – Other Wireless Products & Services
25 – Innove Communications
30 – Board of Directors & Key Officers
36 – Report of Independent Auditors
75 – Directory of Business Centers
79 – List of Subsidiaries
80 – Globe Bridging Communities
GLOBE TELECOM, INC.
1
ANNUAL REPORT 2004
Vision & Mission Statements
Vision
Mission
Our Company provides more than just lines.
Our mission is to advance the quality of life by delivering the best solutions to the communications-based
needs of our subscribing publics.
We advance the quality of life of individuals and
organizations by delivering the solutions to their
communications-based needs.
We provide quality and personalized service that
exceeds our customers’ needs and expectations.
We take lead of the industry as the service provider of choice. We secure our competitive edge by
packaging solutions enhanced by pioneering innovations in service delivery, customer care, and the best
appropriate technologies.
We acknowledge the importance of our key stakeholders. In fulfilling our mission, we create value for:
We are driven by a culture of excellence and
innovation, enabled by best-in-market talent and
superior operating effectiveness and flexibility.
Customers: Customer satisfaction is the key to our success. We help individuals improve their way
We are the company of choice because, in what
we provide, we are the best.
Telecom International. We take pride and build on the value our shareholders provide. In return, we
maximize the value of their investments.
of life and organizations do their business better.
Shareholders: Our business is sustained by the commitment of Ayala Corporation and Singapore
Employees: Our human resources are our most valuable assets. We provide gainful employment that
promotes the dignity of work and professional growth and thus attract and retain best-in-market talent
Community: Community support is vital. We will act as responsible citizens in the communities in
which we operate.
Government: We are the partners of government in nation building. We support and participate
in the formation of policies, programs and actions that promote fair competition, judicious regulation and
economic prosperity.
GLOBE TELECOM, INC.
2
ANNUAL REPORT 2004
Financial Highlights
Wireless
Subscribers
Net Operating
Revenues
EBITDA*
00
00
00
(in 000s)
01
02
03
04
Net Income
(in Pm)
(in Pm)
(in Pm)
2,563
4,588
6,572
8,860
12,514
01
02
20,077
35,403
45,800
03
04
49,478
55,609
Property
& Equipment
Market
Capitalization
00
(in Pm)
7,954
01
02
00
15,811
03
26,704
01
02
27,853
03
33,040
04
1,622
4,379
6,918
10,345
04
11,257
(in Pm)
45,179
89,101
96,270
00
51,185
01
02
01
02
80,620
67,978
03
101,178
03
04
107,013
04
120,317
133,608
2004
2003
2002
2001
2000
Net Operating Revenues
55,609
49,478
45,800
35,403
20,077
Income from Operations
17,143
15,692
15,816
9,716
4,716
Net Income
11,257
10,345
6,918
4,379
1,622
Stockholders’ Equity
57,016
50,854
50,856
43,912
19,204
107,013
101,178
96,270
89,101
45,179
For the Years Ended
(in Pm)
Property and Equipment - Net
*Earnings Before Interest, Taxes, Depreciation, Amortization and other income/expense
GLOBE TELECOM, INC.
3
ANNUAL REPORT 2004
Fellow Stockholders
Lim Chuan Poh
Co-Vice Chairman
Delfin L. Lazaro
Jaime Augusto
Zobel de Ayala II
Co-Vice Chairman
Chairman
Ultimately, we believe that reinforcing
the
Philippines’
leadership
in
telecommunications technology is a
key responsibility we continue to carry
pioneer the future of
our country.
as we
GLOBE TELECOM, INC.
4
ANNUAL REPORT 2004
The telecom industry was confronted with
many challenges in 2004 brought about by
intensified competition among market players,
uncertainties from a fiercely contested national
election and continuing tensions overseas.
However, despite these adversities, your
Company emerged resilient as we made even
bolder steps to enhance our wireless and
wireline businesses. The industry continued to
develop aggressively driven by new technological
advancements. Our firm belief in the cellular
phone’s increasing potential to deliver new
products and services has underpinned many
of Globe Telecom’s accomplishments over
the past ten years. Given this, we continue to
pursue our mandate to pioneer the future of
the Philippine telecommunications industry.
industry as we make another innovation that
could significantly change the way Filipinos
live. Our latest pioneering contribution to
mobile commerce in the Philippines, G-Cash,
facilitates through the mobile phone the three
major cash transactions made by consumers
today: purchases and payments, person-toperson or P2P transactions, and domestic and
international remittance.
We have come a long way from the telecom
company we were a decade ago. In 1994,
Ayala Corporation and Singapore Telecom
launched through Globe the Global System
for Mobile Communication or GSM standard
in mobile communications, a digital service far
superior and more secure than the prevailing
analog technologies at that time. With it,
Globe introduced the Short Messaging
Service, or SMS, which brought connectivity
to a new level and in the process, served as
a new medium for connecting Filipinos’ lives.
For this, the Philippines was acknowledged
globally as a leading innovator in wireless
value-added services. Today Globe continues
to be a driving force in placing the Philippines
in the global map of cutting edge innovation.
We remain vanguards of an emergent
We continue to seek new prospects for Globe
with the objective of bringing the mobile
experience to more Filipinos around the world.
In 2004, Globe joined six other leading Asia
Pacific mobile operators namely Singapore
Telecom, Bharti of India, Malaysia’s Maxis, Optus
of Australia, Taiwan Cellular and Telkomsel in
Indonesia to form a regional mobile alliance
called Bridge Mobile. This group which is part
of the SingTel alliance has a combined base of
over 56 million subscribers, making it the largest
mobile alliance in the Asia Pacific region. Bridge
Mobile will serve as the commercial vehicle by
which we can jointly invest to build a regional
mobile infrastructure and common service
platforms. This will enable the creation and
seamless delivery of mobile services across
geographic borders and enhance the service
G-Cash builds on the success of our over-the-air
reloading products in 2004 as we developed
ways to expand the use of mobile phones
beyond communications. The continued
growth in our subscriber base matched by our
solid financial results indicates how far we have
accomplished this goal.
GLOBE TELECOM, INC.
5
ANNUAL REPORT 2004
experience of our respective mobile customers
when roaming from one country to another
through wider service availability and exclusive
product offerings.
With our sustained growth and strong cash
generation momentum, we have adhered to
our cash dividend policy. In February, your
Company’s Board of Directors declared the first
semi-annual cash dividend amounting to P20 per
shareholder payable to common stockholders
of record as of 18 February 2005. This is an
increase of 11% over 2004’s first semi-annual
cash dividend. A total of P2.8 billion dividends
will be paid on 15 March 2005.
Globe joins six other leading Asia Pacific
mobile operators to form a regional
mobile alliance called Bridge Mobile.
Your Board of Directors also 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 9,326,924 shares or 6.67% of
the Company’s outstanding common shares
valued at about P8.86 billion. We believe this
is a value enhancing exercise as it optimizes
Globe’s capital structure and increases return
on equity and cash yield to shareholders. This
will also bring Globe’s net debt to equity ratio
close to target while keeping total debt to
EBITDA within a 2 to 1 ratio. In addition, your
Company’s Board of Directors also approved
the retirement of the purchased shares and the
existing 12 million Treasury shares acquired in
2003 from Deutsche Telekom.
Globe’s cash flow generation has substantially
increased in recent years notwithstanding the
aggressive network expansion. In the past
two years, we spent an average of P18 billion
annually for capital projects that extended
our geographic coverage to areas where we
anticipated growth in the wireless market.
We will pursue our expansion program with
P17 billion earmarked in 2005 to build even
more cell sites and reach out more to the
underserved areas. Our strong financial position
provides the flexibility to follow through with
this network build out. Our long-term debt as
of the end of the year of P52 billion remains
highly manageable with maturities well spread
over the next seven years.
In the year to come, the domestic telecom
industry will continue to be challenged by
issues that weigh heavily on the country’s
overall macro-economic and fiscal position.
The country’s fiscal imbalance, which has
prompted the imposition of several tax-raising
measures will certainly bear impact across
a variety of business sectors as well as the
consumers. While these measures may have
short term repercussions, we believe these
will yield long term benefits to the country’s
economic condition which may provide even
greater opportunities.
Meanwhile, we will continue to build on the
groundbreaking services we have established to
provide the foundation for more inventive and
leading-edge services. Just as we revolutionized
the way Filipinos communicate when we first
ventured into wireless technology, we will
continue to create new, innovative products
and services that will unlock our potentials
as a wireless service provider and enhance
value for all our stakeholders. Ultimately,
we believe that reinforcing the Philippines’
leadership in telecommunications technology is
a key responsibility we continue to carry as we
pioneer the future of our country.
Jaime Augusto Zobel de Ayala II
Chairman
Delfin L. Lazaro
Co-Vice Chairman
Lim Chuan Poh
Co-Vice Chairman
1st DIVIDEND OF 2005
Cash Dividend Declaration
The Board of Directors declared the first semi-annual cash dividend in
2005 of P20 per share, 11% higher than 2004, payable to common
stockholders of record as of 18 February 2005. A total of P2.8 billion
in cash dividends will be paid on 15 March 2005.
Basic Earnings per Share
2004
79.93
2003
68.79
% var
16%
Fully Diluted Earnings per Share
79.80
68.65
16%
Dividend per Shareholder*
36.00
14.00
157%
955.00
860.00
11%
49%
31%
Globe’s Dividend Policy was approved by the Board of Directors in early
2004. The dividend payout rate was set at approximately 50% of prior
year’s net income payable semi-annually in March and September of each
GLOBE TELECOM, INC.
6
year subject to annual review, considering Globe’s operating results,
cash flows, debt covenants, capital expenditure levels and liquidity.
Share Price
Ratios
Payout Ratio
ANNUAL REPORT 2004
Dividend Yield
4.2%
2.5%
*paid in two equal installments in March and September 2004
President’s Message
Gerardo C. Ablaza, Jr.
President & Chief Executive Officer
What a year 2004 was! It has been an inspiring
one for us at Globe. As we witnessed the
significant potential for business growth in
the mass market, we geared ourselves to
participate meaningfully in it. At the beginning of
last year, Globe began strategic initiatives aimed
at strengthening our competitive position in
the mass-market arena, and renewed our
commitment to the role we took when we
first embarked on the telecom business: to be
a leader in pioneering the future for wireless
communications in the Philippines.
We are proud to have delivered well on these
initiatives as we marked 2004 with important
breakthroughs and innovations, the benefits of
which we expect to realize in the next few years.
In a world where credit and cash cards are
increasingly substituting for the need to carry
cash, Globe has taken this convenience a major
step further. The industry’s most important
innovation breakthrough in 2004 was G-Cash
-- transforming Globe Handyphone and Touch
Mobile phones into mobile "wallets." The cardless,
cashless, and text-based service is the first in the
Philippines and is the only mobile service available
in the country that delivers the key facets of
m-commerce over a single platform.
Poised to revolutionize the way people transact
money, G-Cash enables subscribers to send and
receive money person to person and make
payments and remittance transactions through
Globe’s network of business alliances.
As of end-2004, there were more than
200,000 registered users for this first-of-akind m-commerce offering in the country.
Globe’s partners expanded to more than
GLOBE TELECOM, INC.
7
ANNUAL REPORT 2004
2004 Revenue Breakdown
Wireline
Data 4%
Wireline
Voice 7%
Wireless 89%
Data 41%
Voice 59%
Total net service revenues up by 11% to
P52.7 billion.
30 establishments with a multitude of new
names that include Jollibee, ShoeMart, Fully
Booked, Ortigas Home Depot, and Westin
Philippine Plaza.
The Bureau of Internal
Revenue connected with us to enable payment
of annual business license fees and the Rural
Bank Association of the Philippines is laying the
groundwork for testing G-Cash as a vehicle for
micro-finance delivery.
We also built services that strengthen the
Filipino value of staying connected with family
and friends – anytime, anywhere. Capitalizing
on the concept of "value-transfers," Globe’s
innovations allow subscribers to sustain their
mobile service with some help from family and
friends. Breaking the norm wherein a subscriber
pays for all calls and text messages, Globe
enables people to share their resources and
opt to pay for these calls and text messages.
Globe Kababayan unleashed a ribbon of
connectedness which has proven to be very
useful during emergencies, and has been
extended to include Filipinos working overseas,
now estimated to have reached more than
eight million. The program which has prioritized
areas with large numbers of Overseas Filipino
Workers (OFW) allows them to send prepaid
credits to their loved ones back home.
With the help of our partner service providers,
AutoloadMAX now reaches more Filipinos across
the globe in countries such as Taiwan, Saipan,
Guam, and the United Kingdom on top of
existing channels in Hong Kong, Singapore and
Japan. To ensure OFWs that their families are
just a phone call or text away, Globe Kababayan
also launched the Quick Remit & Load card which
enables OFWs to remit cash as well as reload
their loved ones' phones at the same time. This
service complements G-Cash’s international
remittance service.
As we competitively positioned ourselves in a
broader market, we targeted distinct consumer
segments so we could tailor-fit to their various
mobile service needs/requirements:
For the selective Globe female
subscriber, we introduced an exclusive club
called Globe Girlfriends. It may be the first club
ever that does not even have membership
cards. Instead, members present specific
messages downloaded from their Globe
Handyphone for them to enjoy perks from
partner establishments.
For the youth, we further strengthened
our GENTXT mobile service. GENTXT is
an exclusive club designed to take young
subscribers’ lifestyle to a whole new
level. Members of this service are given
a GENTXT card which acts as a virtual
passport to parties, concerts, movie
premieres and a whole lot more.
For the "tweens," we launched Globe
Gizmo Prepaid which provides our junior
subscribers instant mobile connections to
their parents and allows the youngsters
easy access to learning tools, games, ring
tones, and picture messages.
GLOBE TELECOM, INC.
8
ANNUAL REPORT 2004
For businessmen, who depend on
devices that keep them in touch with
the global marketplace, we launched
our BlackBerry® service, a leading
wireless connectivity solution. Through
BlackBerry®’s unique “push” technology,
subscribers can access email wirelessly,
browse Internet pages, view and manage
email attachments in popular formats. And
with over one hundred General Packet
Radio Service (GPRS) roaming partners,
subscribers can use this service while
traveling abroad.
To support the reach and scale requirements
of our service and innovation initiatives, we
successfully completed our most aggressive
expansion program focusing on two fronts:
infrastructure and distribution.
On infrastructure, we embarked on the
largest network coverage expansion
program Globe has ever undertaken.
I am proud to say that we successfully
exceeded the time and cost targets we set
for this Phase 10 network rollout program.
During the year, we added 1,156 new cell
sites that brought the total cell site count
to 3,736 at the end of 2004 – 45% more
than a year ago. Our 2004 expansion
program was the most extensive ever
undertaken, and was the main component
of the Company’s capex program which
amounted to P21billion.
Network Expansion
2004
2003
21.2
80%
92%
72
15.8
50%
75%
100
4000
Total Capex (in P b)
Geographic Coverage
Population Coverage
Capex per Sub (in US$)
2004
Number of Retailers
OTA as %of total value
OTA as % of total transactions
736,604
62%
90%
3000
29.8
26.25
2,580
2,190
1,782
2000
1000
35.00
3,736
17.50
1,168
21.2
20.5
19.2
15.8
8.75
0
0.00
00
01
02
03
04
00
Cellsites
01
02
Capex (in P b)
Our total capex increased by only 34% in 2004 while providing us more than double
our 2003 roll-out which expanded our geographic coverage to 80% from just 50%
at the start of the year while population coverage reached 92% from 75% at the
end of 2003.
As a result, geographic coverage expanded
to 80% from just 50% at the start of 2004
while population coverage reached
92% from 75% at the end of 2003.
Our enhanced network capabilities and
expanded presence in untapped markets,
particularly the provincial areas, will enable
us to continue growing in 2005.
As a result, Globe Handyphone and Touch
Mobile Autoload Max and Share-a-load have
continued to increase their contribution to
Globe’s total prepaid reload volumes. For
the month of December 2004, these
top-up options accounted for 90% of
total reload transactions and 62% of total
reload value.
In the distribution arena, we pushed
hard to make our over-the-air reloading
network pervasive. We exceeded our full
year target of half a million retailers by 47%
with 737 thousand registered Autoload
Max retailers by the end of 2004.
For our wireline business, we accomplished
significant achievements despite a very
challenging operating environment. GlobeQUEST,
our wireline data brand, was able to register a
26% revenue growth. Moreover, we maintained
our leadership position in key market segments
GLOBE TELECOM, INC.
9
ANNUAL REPORT 2004
03
04
Total Wireless Market
(in millions)
35.00
40%
26.25
30%
17.50
20%
8.75
10%
0.00
such as business process outsourcing (BPO),
call centers and internet service providers (ISP)
through the introduction of innovative services
in the area of broadband access. These services
allow convenient and reliable data transmission
at top speeds and the most cost-efficient rates.
0%
00
01
Wireless Subcribers
Penetration Rate
02
03
04
2000 2001 2002
6.4 11.0 15.2
8% 14% 19%
2003
22.3
27%
2004
32.9
39%
Quarterly International
Long Distance (ILD)
600
4000
450
3000
300
2000
150
1000
We also expanded our broadband service
into Cebu, which is being promoted by the
Arroyo government as an investment hub next
to Metro Manila, and more recently, in Davao,
which just had its first call center opened.
On the wireline voice front, we led industry
growth with more than 60,000 new Globelines
subscribers. From only 500 subscribers at
the start of the year, we grew broadband
subscribers to more than 8,000, making us the
number two operator in this segment. Our
rollout during the year made our network 65%
broadband capable and extended broadband
service even in the countryside.
4Q03 1Q04 2Q04 3Q04 4Q04
ILD Minutes (in M)
352 341
322
289 320
ILD Revenues (PM) 3,476 3,448 3,202 2,887 3,085
All in all, your Company’s 2004 initiatives
translated into healthy financial results.
Subscriber base grew 41% to over 12.8 million
wireless and wireline subscribers. Net service
revenue rose to almost P53 billion, with net
income reaching over P11.3 billion.
Both ILD volume and revenues improved
in the fourth quarter of 2004.
Your Company’s balance sheet also remains
strong with an asset base of P138 billion and
with a healthy leverage profile. Increased efforts
to decrease debt combined with the growth in
0
0
4Q03 1Q04 2Q04 3Q04 4Q04
GLOBE TELECOM, INC.
10
ANNUAL REPORT 2004
EBITDA resulted in an improvement in key
financial ratios across the board.
Despite all these successes, 2004 brought a
number of serious challenges:
The Globe subscriber base continued to
be under pressure from a competitive
Free SIM Swap attack that started in
2003. In order to restore equilibrium,
we engaged in our own Free SIM Swap
Program early in the first quarter. As a
result, we experienced a significant lift in
our subscriber net additions in the last
three quarters – leading to a full year
net expansion of 3.7 million subscribers,
the highest ever accomplished by Globe.
However, as free SIM swap programs
increase the likelihood of rotational
churn, we revised our policy for counting
subscribers. Starting in the third quarter,
new subscribers are recognized as part of
our base only when they are capable of
generating outgoing service revenue.
Inbound International Long Distance
(ILD) volume and revenues suffered
from the effects of illegal International
Simple Resale or ISR operations, wherein
inbound international calls do not
pass through licensed operators. To
reduce ISR activities, Globe increased
monitoring procedures in coordination
with the National Telecommunications
Commission and other industry players,
tightening the fraud and risk-evaluation
process. As a result, both ILD volumes and
revenues improved in the fourth quarter of
2004, after having declined significantly in
the first three quarters of the year.
As competition continued aggressive
promotional campaign aimed at our
postpaid base, we increased acquisition
and loyalty spending to strengthen
our defense.
This has resulted in
the commitment of higher marketing
expenditures, towards maintaining our
leadership position in this segment.
As we intensify our initiatives into
the mass market, we expect further
downward pressure on Average Revenue
Per User (ARPU) going forward. We
are continuing efforts to streamline costs
and expand our network at relatively
lower capital expenditure levels to
enable us to effectively and efficiently
serve this growing, albeit lower ARPU
subscriber market.
The year 2005 is likely to be filled with even
more significant changes for the country’s
wireless landscape. Significant developments
in the regulatory environment will impact the
telecommunications industry. Third-generation
technology (3G) guidelines are already in
the preliminary discussion stage, and Globe
continues to actively participate in this dialogue.
The National Telecommunication Commission
plans to issue, within the first half of 2005, rules
and regulations on 3G, the mobile technology
for high-speed internet access, video streaming,
and high-end data exchange. On the other
hand, the government has made clear its plan
to impose additional taxes to improve the
Philippines’ fiscal position, an initiative that is
likely to affect not only the telecommunications
industry, but all other sectors and consumers.
Nonetheless, even if these tax-collection efforts
may have a negative impact on overall consumer
spending over the near-term, we believe it will
help elevate the Philippine economy going
forward, thus creating a more attractive
consumer environment in the long-run. As
good corporate citizens, we will continue to be
open and cooperate with the government in its
quest for improved national revenues.
The favorable growth curve of the Philippine
wireless industry may start to even out in 2005
as the market matures. We expect 45 - 50% of
Filipinos to own a wireless phone by 2005 as
opposed to 39% in 2004. With this in mind, we
will take every effort to take a proportionate
share of the new market opportunities before
the growth settles down to a level largely driven
by population growth and improvements in the
gross domestic product.
This year is also likely to be filled with interesting
new turns. We see increased activity in tapping
GLOBE TELECOM, INC.
11
ANNUAL REPORT 2004
into the vast largely unexplored areas of mcommerce and overseas mobile services, and
these will propel us towards developing more
innovative and revolutionary services. There will
be a new horizon of opportunities for our valued
partners across the industries as we provide
access to the widest possible market through
Globe Handyphone or Touch Mobile phones.
We are transcending traditional boundaries
as G-Cash and Globe Kababayan bring new
dimensions into the mobile experience.
We are committed as ever before to
revolutionizing the way consumers use wireless
technology. As we stand at the threshold of
an evolving era of wireless communication, we
continue to work hard towards realizing the vast
potential and the exciting possibilities this new
era brings. We take courage in the enduring
faith and backing of our shareholders and
stakeholders. And our confidence is improved
by the unwavering loyalty of our people. So
long as we are innovatively, competitively, and
constantly exceeding expectations, we know we
will continue to be pioneering the future.
Gerardo C. Ablaza, Jr.
President & Chief Executive Officer
2004 Operational Achievements
Best Mobile
Messaging Service
WINNER
Globe Telecom, Inc. (Philippines)
G-Cash M-Commerce Service
Success with
Strategic Initiatives
The importance of innovation
Innovation lies at the heart of building and
nurturing the Globe Handyphone and Touch
Mobile brands. However, not just innovation
for its own sake. Rather, innovation defined
by a deep insight into consumer needs, and
matched with a passion to fulfill these consumer
needs. This allows the Globe Handyphone and
Touch Mobile brands to be able to stay relevant
and meaningful in the face of change, thereby
providing added value to both consumer and
ultimately the shareholder.
Segment innovation
The Philippine population is not homogenous.
An extensive research program indicated
that it is made up of different segments, each
having different needs. Recognizing this, Globe
launched different segment packages -- each
with its unique distribution, pricing, product and
service, and communications mix – to uniquely
address these different markets. The ultimate
objective is to provide each subscriber, unique
as he is, a superior experience so that he can
truly say, “My brand (Globe Handyphone or
Touch Mobile) understands my needs. My brand
is especially made for me.”
Detailed discussion of Strategic Initiatives are
as follows:
G-Cash awarded m-commerce
service breakthrough for 2004
Out of the many innovative services launched
in 2004, G-Cash—the only mobile service that
delivers key facets of m-commerce over one
single platform—is the most exciting service
launched during the year.
GLOBE TELECOM, INC.
12
ANNUAL REPORT 2004
The first in the Philippines, this ground-breaking
service transforms a Globe Handyphone and a
Touch Mobile phone into a mobile "wallet" that is
entirely cardless and cashless, and transacts at the
speed of text. With the mobile wallet, subscribers
can send and receive money person to person or
P2P; purchase goods and services; and send and
receive domestic and international remittances.
Completely safe, G-Cash mobile wallets are
PIN-protected. In place of receipts, text
advisories with unique trace numbers are sent
to both the sender and recipient. Easy to use, a
subscriber can load G-Cash in his mobile wallet
at any authorized outlet; virtual wallet can hold
from P1 to P10,000 and have daily transactions
up to P40,000. Subscribers are charged only P1
per message for G-Cash transactions, Globe
Business Centers and Globelines Payment and
Service Centers charge a service fee of 1% of
the total transaction, while G-Cash transactions
at certain authorized outlets may be subject to
processing fees.
G-Cash is an example of the synergy and
collaboration between Globe and trade and
merchant partners. G-Cash accelerates the
evolution of m-commerce, giving consumers a
convenient, easy-to-use mobile payment option.
As a testament to this revolutionary innovation,
G-Cash won Best Mobile Messaging Service for
2004 during the 2005 GSM Awards ceremony
held in Cannes, France last February. Globe
has the distinction of being the only Filipino
telecommunications company shortlisted and
awarded at this prestigious gathering of the
world’s top mobile operators, manufacturers
and suppliers. The event was part of the annual
3GSM Congress, a prestigious gathering of
Chief Executive Officers and decision makers
in the global telecommunications industry. An
international panel of judges, composed of
independent industry experts, executives and
analysts determined the 13 winners for 13
categories, out of 61 finalists and 480 entries.
Calling the mass market: new
product and platforms
In our bid to sharpen our competitiveness, we
pursued our innovation initiative and launched
an array of new and non-traditional, value-filled
products and services. Each new innovation
reflects your Company’s commitment and
sensitivity to the needs of the diverse segments
of the consumer market.
We launched Globe Gizmo Prepaid, a new mobile
service for youngsters that lets them access
learning tools and fun downloads, and keeps
them instantly connected with their parents,
GLOBE TELECOM, INC.
13
ANNUAL REPORT 2004
who can monitor their prepaid expenses closely.
For the business-oriented Globe Postpaid
Corporate Managed Accounts, we launched
a leading wireless connectivity solution service
with a wide range of applications: integrated
phone, SMS, browser and organizer in a single
handheld device. BlackBerry® subscribers can
access email wirelessly with BlackBerry®’s
unique “push” technology, browse internet
pages, view and manage email attachments
in popular formats, and be used in over one
hundred countries by our subscribers who roam
abroad. We created an exclusive club for Globe
female subscribers. Globe Girlfriends invites
members to enjoy special perks and privilegessans traditional membership cards by presenting
specific messages downloaded from their
Globe Handyphone to partner establishments.
Each new innovation
reflects your Company’s
commitment and sensitivity
needs of the diverse
segments of the consumer
market.
to the
Your Company is once again at the forefront of
value-transfer services. These new introductions
bring the exchange of load to new levels of
convenience and affordability, thus enhancing
the sustainability of the wireless service.
To provide loyal subscribers with added reload
flexibility, Globe launched its Ask A Load
service which allows Globe Handyphone Prepaid
subscribers, with or without load credits, to
request for prepaid credits from another Globe
Postpaid or Prepaid subscriber. Your Company
then pioneered the first and only Call and
Text Collect service in the Philippines, enabling
a pre-registered Globe Prepaid subscriber to
send SMS or make voice calls to others in the
Globe network even when they’ve run out of
load credits. Leaving little to chance, we set up
our Txt Bak Mo Libre Ko messaging service that
ensures a sending subscriber that the receiving
GLOBE TELECOM, INC.
14
ANNUAL REPORT 2004
subscriber will be able to text back even if he
has no load. The sender shoulders the cost of
the text reply.
Recognizing the need for OFWs to connect
with their families at home, your Company
launched its Globe Kababayan cross-border
reload services in Hong Kong, Singapore and
Japan with Share A Load and Globe AutoLoad
Max facilities. OFWs in these countries can
send prepaid credits to loved ones on the
Globe Prepaid or Touch Mobile service. Globe
Kababayan intends to offer its wide array
of mobile services in top-priority OFW
territories globally.
Growing the network: aggressive
expansion into new areas
In 2004, we sought a pervasive network
presence. We wanted to be where we had
never been and we wanted to do it quickly.
We added 1,156 new cell sites, exceeding our
year end target. By the end of 2004 our total
cell site count was 3,736. Geographic coverage
increased also to 80% while population
coverage reached 92%.
establishments further promoted the sales
and distribution of the AutoLoad Service and
reinforced the increase in distribution.
Wireless Subscribers
(in thousands)
14000
12,514
Subscriber Growth
10500
8,860
6,572
7000
Although this was our most aggressive
expansion to date, we retained comparatively
low capital expenditures. Improvements in
network design, overall efficiency, dropping
equipment prices and bargaining leverage
provided by our regional alliance helped keep
costs down. In total, the capital expenditure
amounted to P21.2 billion. Our total capex
increased by only 34% from last year, even as
we more than doubled our 2003 roll-out.
Distribution boom
As our network grew, so did our distribution.
Our over-the-air top-up services (Autoload
Max, Family Autoload, and Share-a-Load)
became significant contributors to your
Company’s prepaid reload volumes. For the
month of December alone, these top-up
options accounted for 90% of the total reload
transactions and 62% of the total reload value.
The number of Globe retailers also surged.
By the end of 2004, we had almost 740
thousand Autoload Max retailers, far exceeding
our year-end target of half a million retailers.
Co-marketing alliances with reputable retail
As projected, 2004 was ripe for market growth.
So much so that we’ve done even better than
expected. Globe’s total wireless subscriber base
reached 12.5 million by the end of 2004, up by
41% with net additions of 3.7 million for the year.
The record net additions were 60% higher than
the 2.3 million net subscribers added in 2003.
Still ahead in the postpaid segment
Although the competition barraged the market
with aggressive acquisition programs, Globe
defended its leadership position in the postpaid
segment. Your Company re-established its
dominance in 2004 with a principal market
share at around 70% while keeping subscriber
acquisition costs at reasonable levels.
Rise in prepaid services
As our focus was on market share, we paid
close attention to our prepaid services. Clearly
the investment paid off: our prepaid services
posted record growth with net additions of
3.7 million subscribers from the previous year.
From 8.2 million subscribers in 2003, our
prepaid subscribers grew 45% to 11.9 million
in 2004.
GLOBE TELECOM, INC.
15
ANNUAL REPORT 2004
3500
4,588
2,563
0
00
01
02
Postpaid
03
04
Prepaid
Acknowledging the changing dynamics of the
industry, Globe updated its policy in the third
quarter to include new subscribers in its final
count only if they are generating outgoing
service revenue. Thus, a SIM swapper is included
in the subscriber count only when he generates
outgoing revenue or upon his first reload.
Continued Strength of
Strategic Partnerships
SingTel increases stake by 7
million shares
In the past, Singapore Telecom had shown
its interest in increasing its stake in Globe
and was pleased at the chance to follow
through last year. SingTel purchased seven
million common shares in Globe, which was
5% of Globe’s common shares, at P950 per
GLOBE AWARDED
BY INTERNATIONAL
INSTITUTIONS
No good thing ever goes unnoticed. Your Company
prides itself in pursuing excellence from our products
to our services—that pride is warranted. This year,
Globe’s efforts have earned validation from a number
of prestigious international award-giving bodies:
• Globe is the first Filipino telecom firm awarded the
Best GSM Carrier in the Asian region at the
renowned Telecom Asia Awards.
• Globe is hailed by Euromoney as the
Best Managed Telecom Company in
the Philippines.
share from Ayala. The shares, representing
about 2.35% of Globe’s total voting shares,
are part of the block Ayala acquired from
Deutsche Telecom in October 2003 at P680
per share.
Operating through a Singapore-incorporated
company, Bridge Mobile Pte Ltd (‘Bridge
Mobile’), will push commercial benefits for the
regional operators and will deliver the regional
mobile services to their subscribers.
The sale leaves Ayala’s holdings at 35% from 40%
of the common shares, while SingTel increased
its ownership to 45% from 40%. Ayala, however,
retains 48.3% of the voting shares. Ayala raised
P6.65 billion from the sale, which the company
intends to use to partly settle debt at the parent
level and further strengthen its financial position,
without diminishing its interest in a high-growth
company like Globe.
Together, the group has a combined base
of over 56 million subscribers, making it the
largest mobile joint venture in the Asia Pacific
region. Operator partners are Bharti (India),
Maxis (Malaysia), Optus (Australia), SingTel
(Singapore), Taiwan Cellular Corporation
(Taiwan) and Telkomsel (Indonesia).
Ayala and SingTel’s commitment to Globe
remains stronger than ever. Both shareholders
continue to work closely together and with
SingTel’s extensive presence in the region,
this continued collaboration enables Globe
to be a pioneer in digital technology and
other mobile communications services in
the Philippines.
Connecting the Region:
Bridge Mobile Alliance
In a move that blurs the lines of geography,
Globe and six other leading Asia Pacific mobile
operators signed an agreement to form a
regional partnership, Bridge Mobile Alliance.
• Globe received the Most Innovative Service
of the Year for Share a Load from Asian
MobileNews.
GLOBE TELECOM, INC.
16
ANNUAL REPORT 2004
Bridge Mobile will develop new products
and services on a regional basis and create
competitive advantages and differentiation
for the mobile operators in their respective
markets. The common service platform will also
enable a seamless delivery of services across
the respective mobile operator’s network, so
that operators can cost-effectively serve their
customers when they are abroad.
Based on the initial business plan, Bridge Mobile
is expected to invest up to US$40 million
over three years; the seven mobile operators
will subscribe for an equal number of shares
in Bridge Mobile for cash at par. As founding
shareholders, they each will have a permanent
seat on its board of directors. In the future,
memberships will be offered to other mobile
operators in the Asia Pacific region and strategic
partners such as technology and application
solution vendors in order to establish a
community of strategic partnerships for
alliance members.
to build our subscriber base: to develop our
corporate and postpaid market and to devote
our efforts to penetrate the vast potential of
the mass market. The 2004 expansion of our
coverage, our new product initiatives, and
our growing sales distribution network should
provide the momentum needed for us to
maximize gains from those opportunities.
Even as we recap the challenges and victories of
the past year, we’ve got our sights set and minds
locked on 2005, carrying out the initiatives we
had set for your Company. We will continue
to face the challenges as much as the bright
prospects of the new year. While we can
only expect more intense competition in the
wireless market, we are confident that our
improved position, our capacity to adapt to
industry shifts, and our ability to capitalize on
market opportunities will allow us to deliver
solid operating and financial results that are in
the best interest of our stockholders; so that we
would truly pioneer the future.
Fortified with funding to support its aggressive
expansion plans, your Company is prepared
Improvement in leverage profile as
EBITDA and Equity growth outpaced debt.
Gross Debt/EBITDA1
EBITDA/Gross Interest2
4.00
10.00
3.00
2.92
2.19
2.00
5.00
1.58
2.50
0.00
2
3
4
02
1.50
0.75
03
04
1.05 1.15 1.10
0.92
0.50
0.00
01
1.00
1.00
4.64
Net Debt/Equity4
2.00
6.19 6.18
2.02
1.00
1
7.68
7.50
Gross Debt/Equity3
02
03
04
0.66
0.00
01
17
0.81
0.50
02
03
04
Gross Debt/EBITDA - Total interest-bearing short-term and long-term debt divided by Earnings before Interest, Taxes, Depreciation, Amortization and other Income/Expense
EBITDA/Gross Interest - EBITDA divided by Inteterest Expense without deducting Interest Income
Gross Debt/Equity - Total Interest-bearing short-term and long-term debt divided by Total Stockholders’ Equity
Net Debt/Equity - Total Interest-bearing short-term and long-term debt less cash, cash equivalents and short-term investments divided by Total Stockholders’ Equity
GLOBE TELECOM, INC.
0.70
0.25
0.00
01
0.88
ANNUAL REPORT 2004
01
02
03
04
Management’s Discussion & Analysis
Net Operating Revenues by Line of Business
As of and for the year ended 31 December
(in Pm)
Net Operating Revenues from:
Service Revenues:
Wireless1
Voice
Data
2
3
Globe is one of the two
YoY*
change (%)
2004
2003
47,054
27,722
19,332
42,594
27,821
14,773
10%
31%
5,687
3,833
1,854
4,941
3,469
1,472
15%
10%
26%
Net Service Revenues
52,741
Non-Service Revenues
2,868
Net Operating Revenues
55,609
* Year-on-year: 2004 percentage increase/decrease from 2003
47,535
1,943
49,478
11%
48%
12%
Wireline
Voice2
Data3
1
Globe Consolidated
leading providers of wireless
communications services in
the Philippines and accounts
for approximately 40% of the
total wireless subscribers in
the country with dominance
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 Touch Mobile) for intra network 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.
in
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 and (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
wireline voice and wireline
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.
GLOBE TELECOM, INC.
18
the
postpaid
service
segment with around 70%
market share. Your Company
also offers a broad range of
data communication services
through its subsidiary, Innove
Communications, Inc.
ANNUAL REPORT 2004
Globe’s net service revenue increased by
11% year-on-year to P52,741 million while
operating cost and expenses increased only 4%
to P22,570 million. For the year, EBITDA stood
at P33,040 million, which was up by 19%, with
EBITDA margin reaching 63%. Consolidated
net income also increased 9% year-on-year to
P11,257 million in 2004 from the profit P10,345
million of last year.
Wireless Services
Globe offers its wireless services including
local, national long distance, international long
distance, international roaming and other valueadded services through three brands, Globe
Handyphone, Globe Handyphone Prepaid Plus
and Touch Mobile. 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
Touch Mobile are the prepaid brands of Globe
– each positioned at different segments of the
market – the broad market classes for Globe
Handyphone Prepaid Plus and mass-based, blue
collar market classes for Touch Mobile.
Wireless net service revenues increased by
P4,460 million or 10% to P47,054 million in
2004 from P42,594 million in 2003. Revenues
from wireless data services accounted for 41%
of wireless net services revenues in 2004, as
compared to 35% in 2003.
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-onyear growth in the prepaid segment due to a
wider distribution network with the introduction
of Globe’s Over-the-Air reload service, increased
network coverage in the provincial areas and SIM
swap programs (which allowed subscribers of
another mobile network to switch to Globe by
exchanging their active non-Globe and non-Touch
Mobile SIM cards for Globe Handyphone Prepaid
Plus or Touch Mobile SIMs).
Wireline Services
Innove provides wireline voice communication
services, including local, national long distance,
international long distance and other valueadded services, through its postpaid, prepaid and
payphone lines, under the brand name Globelines.
Innove’s GlobeQuest brand offers wireline data
services, including international and domestic
lease lines, internet, data center support services
and wholesale transport services.
Key Indicators
Innove
As of and for the year ended 31 December
2004
Wireless
Subscribers-Net (End of period)
Postpaid
630,495
Prepaid
10,185,154
TouchMobile
1,698,324
2003
685,026
6,673,013
1,501,844
YoY
change (%)
As of and for the year ended 31 December
(in Pm)
2004
Wireline Voice
Subscribers-Net (End of period)
323,094
ARPU
P1,112
Monthly Churn Rate (%)
1.5
-8%
53%
13%
2003
261,254
P1,164
1.6
YoY
change (%)
24%
-5%
Innove
Net ARPU
Postpaid
Prepaid
TouchMobile
1,605
305
183
1,637
389
218
-2%
-22%
-16%
SAC1
Postpaid
Prepaid
TouchMobile
9,886
267
151
9,834
291
185
0.5%
-8%
-18%
Monthly Churn
Postpaid
Prepaid
TouchMobile
1
Subscriber Acquisition Cost
As of and for the year ended 31 December
(in Pm)
Wireline Data
International Lease
Domestic Lease
Internet
Others2
Net Operating Revenues
1
2.6%
5.5%
12.7%
2.7%
3.3%
6.7%
GLOBE TELECOM, INC.
2
19
2004
20031
670
663
384
137
P1,854
555
544
308
65
P1,472
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.
ANNUAL REPORT 2004
Globe Consolidated
As of and for the year ended 31 December
Total ILD Minutes (in million minutes)1
Inbound
Outbound
ILD Inbound/Outbound Ratio (x)
1
2004
1,271
1,082
189
5.7
2003
1,435
1,242
193
6.4
Globe Consolidated
YoY
change (%)
-11%
-13%
-2%
As of and for the year ended 31 December
Total NLD Minutes (in million minutes)
Inbound
Outbound
NLD Inbound/Outbound Ratio (x)
2004
428
208
220
0.95
2003
473
240
233
1.03
YoY
change (%)
-10%
-13%
-6%
ILD minutes originating from and terminating to Globe and Innove networks.
Wireline – Voice
Wireline voice net operating revenues increased
by 10% to P3,833 million in 2004 from P3,469
million in 2003. The increase primarily reflected
an improved subscriber base due to lower
churn and higher subscriber acquisitions.
Wireline – Data
Wireline data net operating revenues increased
by 26% to P1,854 million for the full year of
2004 from P1,472 million for the same period
in 2003. The higher growth was mainly due to
international and domestic lease businesses.
International Long Distance
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 last year.
GLOBE TELECOM, INC.
20
ANNUAL REPORT 2004
National Long Distance
Consolidated NLD revenues, from wireless and
wireline services stood at P1,537 million for
the full year of 2004, or a 24% decrease from
P2,030 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.
Results of Operations
For the full year of 2004, your Company’s
consolidated costs and expenses increased
by 14% to P38,466 million, which includes
total operating costs and expenses of
P22,570 million, compared to P33,786 million
and P21,625 million, respectively, for the same
period in 2003. This is due mainly to higher
depreciation charges brought about by the
combined effect of shorted estimated economic
useful life (EUL) applied to cable systems and
switching equipment starting January 2004,
accelerated EUL for certain wireless equipment,
and higher depreciation for the year.
Liquidity and Capital Resources
Consolidated assets as of 31 December 2004
amounted to P138,125 million compared to
P140,130 million in 2003.
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. 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. Principal repayments in
the next three years are between P7.2 billion
to P9.6 billion and are much lower in the
succeeding years until 2012. The maturity in
2012 includes the US$300 million Senior Notes
for which Globe has an option to call starting in
2007. Consolidated cash, cash equivalents and
short term investments was at P14,303 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.
Consolidated net cash flow from operations
amounted to P27,294 million for the
period ended 31 December 2004 from
P23,290 million in 2003.
Consolidated net cash used in investing
activities amounted to P17,679 million for the
full year of 2004 compared to P14,778 million
for the same period in 2003. Consolidated
capital expenditures for the full year of 2004
amounted to P21,219 million. For 2005, Globe
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 P9,074 million compared to P14,433 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 P18,874 million.
Globe Consolidated
For the year ended 31 December
(in Pm)
Cost of sales
Service 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 Expenses1
2004
6,675
4,307
3,753
2,729
1,715
1,420
1,325
10
2003
6,214
3,388
3,119
2,471
1,546
1,604
1,779
10
YoY
change (%)
7%
27%
20%
10%
11%
-11%
-26%
-
1,052
73
12
(501)
22,570
941
15
304
234
21,625
12%
387%
-96%
-314%
4%
Depreciation and Amortization
15,896
Total Costs and Expenses
38,466
1 Operating costs and expenses now include provisions (reversals of allowance).
12,161
33,786
31%
14%
GLOBE TELECOM, INC.
21
ANNUAL REPORT 2004
Other Wireless Products and Services
Globe HandyPhone is a premier mobile service
in the Philippines. Together with TouchMobile,
Globe had 12.5 M subscribers at the end of 2004.
Your Company continued to grow and engage its
subscriber base through its clear commitment of
“Making Great Things Possible.”
Extensive research conducted over the back half
of 2004 indicated huge potential for refocusing
Touch Mobile against the male blue collar
worker. This forms the basis for the brand’s
relaunch that takes effect. Beginning January
2005, the Touch Mobile brand will be repositioned
and be branded as TM.
Globe Platinum is an elite brand that caters to our top-tier postpaid
subscribers, those who have their own rules and enjoy life to the fullest. 2004
saw the Platinum imagery further defined as advertising showcased industry
captains, movers and shakers, and their satisfaction with the service. While
we continued superior customer service from the Globe Platinum hotline, a
spare SIM and loyalty privilege cards, 2004 likewise saw customer service
move to the next level with proactive upgrading of handsets and the launch
of the Globe Platinum Lounge. The Globe Platinum lounge is situated in the
heart of the Makati business district, providing Platinum members an elite and
exclusive business center, complete with WiFi access.
In July 2004, The Gentxt segment was redefined to target a younger teen
market, although cutting across a broader economic spectrum. Relevant
offers such as school-related value added services helped make studying a
breeze. We broadened the list of youth merchant partners, running the
gamut of teen clothing, fastfood chains and entertainment. And because we
are committed to the future, 2004 saw the launch of School Trip, a youth
leadership and development program conducted in various schools and
universities to help shape and connect with the next generation.
GLOBE TELECOM, INC.
22
ANNUAL REPORT 2004
Inter national Services
International Services continued to expand its reach, launching a satellite
service, and being in more countries and partnering with more partner
operators vs competition for true international connectivity. In 2004 for
example, Globe international services was first to enable international texting
in Korea and first to cover Japan, inclusive of non-GSM operators.
Value Added Services (VAS)
VAS is becoming an increasingly important leg of the business, with ringbacks
the fast growing product. Globe raised the bar by being the first in celebrity
ringbacks and then following this innovation via personalized ringback
services. Globe likewise brought content quality to a whole new level via
exclusive licensing content and original international music.
Globe is likewise the first and only provider of GTV, which enables subscribers
to watch TV programming from the two largest TV networks on their phones,
anytime, anywhere – clearly expanding the boundaries of telecommunications
from communication to information and even entertainment.
Globe Autoload Max , an over-the-air reloading service allows retailers
all over the country to electronically reload credits to prepaid subscribers. A
minimum load denomination of 25 pesos for Globe Handyphone and a lowestin-market 10 pesos for Touch Mobile, with increments of 1 peso thereafter,
ensured that the service would be affordable to the mass market.
Globe Share A Load enables Globe Handyphone and Touch Mobile
subscribers to send load credits of as low as a peso at a time, via SMS, between
Globe postpaid to prepaid subscribers, and among prepaid subscribers. Call
and Text Collect , the first of its kind in the Philippines enables a Globe
Prepaid subscriber, with or without load, to call and send text to any Globe
subscriber who registered the subscriber originating the call or text message.
Cost is then shouldered by the receiving party. We also launched another
first: Txt Bak Mo Libre Ko, a messaging service that allows a recipient
SMS reply to be shouldered by the original sender.
GLOBE TELECOM, INC.
23
ANNUAL REPORT 2004
GlobeSolutions: Corporate Wireless
Products and Services
In an economy where every second counts,
the question posed for every business is not
anymore, “Can you deliver?” but, “How soon?”
Requirements are always needed yesterday. Supplies have to be delivered ondemand. Stacks of receipts have to be sorted, and corporate bills paid—fast. The
main reasons why GlobeSolutions—the mobile technology for the business on
the move—has developed products and services that would answer the need of
corporations for round-the-clock connectivity and high-speed business processes.
Its products and services, which go hand-in-hand with a dedicated after-sales
team, make for a powerful combination. Helping businesses manage costs,
increase productivity, serve customers better and boost profit.
The latest edition to the line of innovative services is the Blackberry Enterprise
Solution, a wireless business solution that gives users access to up to 10 email
accounts via push technology, while allowing them to tap corporate back-end
systems. Moreover, Blackberry® also functions as a tri-band phone, an internet
browser and an organizer.
GlobeSolutions is empowered even more with value-added services that include:
MobileMail – enables employees to access their office e-mails anytime,
anywhere with any kind of PDA/WAP enabled phone.
TxtConnectV.2 – allows sending of high-volume text broadcasts to employees
and clients from the Web. Cuts down costs as it eliminates the need for printing
and delivery.
TxtHotline – serves as a virtual customer service line by text.
ServDirect – works as a virtual warehouse, accessible by text.
BusinessLoop – gives discounted rates on calls for corporate accounts.
AutoloadMax Corporate Edition – the only Web-based load management
facility for prepaid accounts.
BillAnalyzer – a first in the industry; cuts communication costs by allowing users to
identify trends, patterns and changes in consumption of corporate accounts.
All products are constantly tested and improved, giving subscribers superior
and innovative services that they deserve. Plus, GlobeSolutions offers high-value
subscription packages, making it the mobile technology service of choice for the
corporate market. GlobeSolutions continues to offer a vast world of life-changing
technology. And more and more businesses have thrived on it.
The BlackBerry and RIM families of related marks, images and symbols are the exclusive properties of and
trademarks or registered trademarks of Research In Motion Limited - used by permission.
GLOBE TELECOM, INC.
24
ANNUAL REPORT 2004
Innovation. Teamwork.
Winning. Integrity. Balance.
These are the values
we live by
while keeping
focused on what
matters most:
the people
we serve.
Lead the country
into the broadband age
Innove: Vision and Mission
Innove Communications has one vision: to
bring the Philippines into the broadband
age and transform it as the information and
communications technology (ICT) hub of the
ASEAN region.
Only by igniting a broadband revolution can
we make the Internet the great equalizer it was
meant to be. Only then can we give access to
knowledge for all, transforming how individuals
lead their lives and how enterprises do business.
Access to the Internet will help reshape the
Filipino educational system so it can better
prepare our citizens to compete globally.
Transforming individuals and enterprises will
transform our nation. This belief is embedded
in our Company’s mission to give broadband
access to local households, develop the full
potential of the country’s economic backbone,
the small and medium enterprises, and fulfill the
requirements of an expanding enterprise sector.
addressed. Filipinos continue to engineer low
cost PCs. As these PCs become widely available
and broadband becomes more pervasive, a true
technology revolution will happen.
Today, local broadband penetration at less
than 1% in the Philippines is but a drop in an
ocean of 18 million households. In contrast,
many of our neighbors have enjoyed rapid
growth in broadband penetration. Korea is at
80% penetration after its government awarded
broadband licenses, subsidized deployments and
ignited competition. Taiwan is at 60% while Japan
is at 50% penetration. In the United States, over
a quarter of the adult population, or more than
50 million people, use broadband connections.
The enterprise sector keeps forging ahead,
as companies rise to the challenge of finding
more efficient ways to operate and reach
their customers. New applications or upgrades,
disaster recovery systems and data storage
drives demand for bandwidth. Innove responds
to this trend through continued investments, not
only in network and reach, but in new products
and services.
We in Innove see much room for growth with
so much underdeveloped potential.
We believe the Philippines can catch up with
the trend as international bandwidth costs
continue to decrease rapidly, generating more
demand and encouraging further investment
and deployment. Customers will pay less and
less as the industry reaches critical mass.
Of national strategic interest in the enterprise
sector is the rise of IT-enabled services
(ITES) such as call centers, business process
outsourcing, software development and
animation companies. ITES companies provide
people with high value employment and
enhance the Philippines’ competitiveness as a
premier investment destination.
The relatively high cost of personal computers
(PCs), the major barrier to higher broadband
penetration in the Philippines, is also being
Your company is confident of its strength and
abilities to pursue its vision and implement
its mission.
GLOBE TELECOM, INC.
26
ANNUAL REPORT 2004
Innove is a communications and information
solutions company. We sell solutions, not products.
We have the resources to do so. We are one
of the strongest wireline companies in the
Philippines, with the strongest balance sheet,
and cash flow generation sufficient to meet our
investment needs.
In 2004, we had 320,000 lines in service by year
end, and annual revenues of P6 billion, both up
sharply from the previous year.
Behind the financial and operating metrics
are our customer segment efforts. We
launched our Globelines Broadband offering.
We developed innovative solutions for
specific enterprise customer segments such
as those for hotels, resorts and retail chains.
We are excited about the wealth of
opportunities we see in 2005. We intend to
tap the country’s unserved demand for Internet
through greater coverage and availability
and a variety of access methods. We remain
committed to finding new solutions for
companies in their search for efficiency and new
ways to reach customers. And we continue to
serve other service providers and partner with
third party sales channels or resellers of our
services for an even more extensive reach.
The Philippines is emerging as a preferred
destination for ITES, and exposure to the Internet
is helping improve the competitiveness of the
country’s workforce. One day, we just might be
the ICT hub of Asia. Then the Philippines would
truly be in the broadband age.
Five Segments, Two Groups
After just one year into the telecom fray, Innove
can boast of a better network, alongside a
better relationship with clients.
But your company does not intend to stop there.
GLOBE TELECOM, INC.
27
ANNUAL REPORT 2004
Your company has developed a reputation
for being more responsive than average, with a
better understanding of the industry’s challenges
because it had the foresight to organize its
business into five segments – consumer, small
and medium business, enterprise, wholesale,
and channels – under two groups.
The first group, Residential and Business, under
the Globelines Brand, handles consumers and
SMEs. The second group, Corporate, under the
GlobeQUEST brand, is in charge of enterprises,
wholesalers, resellers and channel partners.
Innove organized itself by customer segments
in order to satisfy focused customer demands,
seize and grow specific market segment
opportunities and build market leadership.
It is the best structure for us because we do not
sell products, we sell solutions.
Developing innovative solutions
Real Lives in Real Time
Real Businesses in Real Time
With the introduction of Globelines Broadband,
Innove transformed its consumer offering to
broadband. Innove is expanding broadband
coverage throughout our service area, creating
additional redundancy, and increasing capacity
for postpaid and prepaid lines to ensure better
quality of service, efficiency and flexibility.
Improved service availability is likewise assured
with full service customer care, maximized third
party sales agents and customer operations
support groups.
Globelines Broadband has a strong presence
in Metro Manila where about 40% of its
total network is deployed. Most of the
broadband presence is concentrated in
Makati with extensive coverage in Marikina,
Pasig, Mandaluyong and San Juan. Globelines
Broadband is also in Cavite and Batangas, and
in the Visayas provinces of Cebu, Negros
Occidental, Negros Oriental, Panay, Leyte,
Samar, and Bohol.
To complement Globelines Broadband, we also
introduced WorldPass, a unique Value Added
Service. Targeting the mobile professional and
savvy students, WorldPass allows Globelines
Broadband customers to access the Internet
anytime, anywhere through GlobeQuest WiZ
Wireless Fidelity (WiFi) hotspots and dial-up
access from any landline phone. Tying these
three services together is the convenience of
using the same username and password.
To serve our customers better, by the end
of 2004 we had 36 Globelines Payments and
Services (GPS). Our GPS network manages
payment transactions for Globe Handyphone,
Globelines and GlobeQuest services. GPS
manages the Globelines Technical Helpdesk, with
a new Customer Hotline created exclusively for
Globelines customers.
We Sell Solutions, Not Products
The Corporate Group, on the other hand,
continues to innovate and create solutions
that are highly focused on its target industry
segments, through its name GlobeQUEST.
GlobeQUEST revenues grew 26 per cent despite
intensifying competition and continued erosion
of prices.
The group has become a premier provider
to key industry segments such as business
GLOBE TELECOM, INC.
28
ANNUAL REPORT 2004
processing outsourcing, call centers and ISPs,
through the introduction of innovative services
such as BAX (Broadband Access), StoreXpress
(Retail Solution), Freeway (Managed IPL),
and Burstable GIX (Bandwidth-On-Demand
Broadband Internet), NetDrive and Remote
View. GlobeQUEST continues to support ICT
initiatives through advocacy and investment
promotions as well as specific solutions such
as “Cebu-to-World”.
Such solutions have
allowed companies access to world class
communication technologies.
GlobeQUEST launched in March 2004 its
Broadband Access (BAX), a cost-effective,
reliable and high capacity solution to answer
the needs of customers who are becoming
bandwidth-hungry because of the applications
that run over their network. GlobeQUEST BAX is
a last mile access solution that gives a customer
very high-speed data transmission speeds of up
to 10 gigabits per second (Gbps), and using
multiple protocols for various applications such
as Fast Ethernet, Gigabit Ethernet, Enterprise
Systems Connection, Fibre Channel, wavelength
or Lambda, in addition to the traditional E1,
DS3 and STM1 protocols. BAX is delivered to
the customer premises via Dense Wavelength
Division Multiplexing (DWDM) technology
using fiber optic lines.
Internet in education: a great equalizer.
Also in March 2004, GlobeQUEST launched the
“Cebu-to-World” or “C2W” facility to support the
transformation of Cebu City into a haven for IT
enabled services companies such as call centers
and software development companies. This
C2W facility, complemented with BAX, allows
companies in Cebu to be directly connected
to international cable facilities, bypassing the
traditional routing of data transmission through
Metro Manila.
In May 2004, we also launched GlobeQUEST
NetDrive, the first Philippines based, Internet
accessible file storage service designed for
companies and professionals who regularly
store or share large files.
Launched in July 2004, GlobeQUEST StoreXpress
answers the network and IT requirements of
retailers, no matter what retail format and
regardless of the size. The service is currently
available in three access methods – On
Demand, Online and Premium – providing retail
companies with a scaleable solution and flexible
connectivity options.
GlobeQUEST continues to expand the presence
of its WiZ wireless Internet hotspots, ending
2004 with 40 locations.
Finally, GlobeQUEST BiZ continues to be the
leading
broadband-to-the-room
Internet
Solution chosen by the majority of the top
business hotels in the country today.
Linking Filipino Students and
Empowering the Broadband Generation
Innove believes that Internet and education
are the best equalizers in transforming our
workforce to a globally competitive one.
In its desire to bring the country into the
broadband age and transform it into the ICT
hub of the ASEAN region, Innove has gone all
out to translate ambition into reality.
Over the past years, it has introduced stateof-the art innovations to keep up with the
demands of the “digitized public” wherein
all activities – ranging from the economic to
entertainment and even to governance – is
centered on networks and the Internet. While
we provide the best products, services, solutions
and connectivity to people and enterprises, we
also make sure that our presence advances the
quality of lives in the communities we serve.
GLOBE TELECOM, INC.
29
ANNUAL REPORT 2004
The innovative use of technology is your
company’s most powerful tool in corporate
social responsibility (CSR) programs. We are
helping promote computer literacy among
the youth in public high schools, by providing
Internet access to public high schools and local
barangay governments. By end of the year we
had provided Internet access to 88 public high
schools, including 36 broadband connections.
We have made three promises to our
customers in every segment: First, we will
continue to expand our network, at the same
time providing best in class and cost effective
technologies. Second, we will continue to
innovate and create solutions best fit for the
industries we serve. Third, we will continue
to listen, understand, and act on customer
requirements and demands. Ultimately, our
continued investments in networks and solutions
lead to better services and a transformation of
the lives of people and organizations we serve.
Your company has vowed to be on the
forefront of the bandwidth revolution and we
will fulfill our promise.
Jaime Augusto Zobel de Ayala II
Chairman of the Board since 1997;
Director since 1989
Co-Vice Chairman, President and Chief Executive
Officer (CEO) of Ayala Corporation (Ayala); Vice
Chairman of Ayala Land, Inc. (ALI), Chairman of
the Bank of the Philippine Islands (BPI); Member of
the Asia-Pacific Advisory Committee of the New
York Stock Exchange, Member of the J.P. Morgan
International Council, Mitsubishi Corporation and
Toshiba International Advisory Groups; Member
of the Harvard Business School Asia Advisory
Committee and the World Wildlife Fund (U.S.)
National Council.
Board of Directors
Gerardo C. Ablaza, Jr.
Romeo L. Bernardo
Director since 1998; currently
President and CEO of Globe
Director since 2001
Chairman of Innove
Communications, Inc., Senior
Managing Director of Ayala.
Member of the Board of Directors
of BPI, BPI Family Bank and Azalea
Technology Investment, Inc.
(formerly iAyala).
President of Lazaro Bernardo Tiu
and Associates Inc. Also a Director
of Lighthouse Credit Technologies
Corporation and PSI Technologies
Holdings, Inc., as well as the
President of the Williams College
Alumni Association.
Guillermo D. Luchangco
Jesus P. Tambunting
Director since 2001
Director since 2003
Chairman and Chief Executive Officer of
Investment & Capital Corporation of the
Philippines, Science Park of the Philippines, Inc.
and RFM-Science Park of the Philippines, Inc.
Also a Director of Bacnotan Industrial Park
Corporation and Ionics Circuits, Inc.
Chairman and CEO of Planters Development
Bank; Chairman of SME Solutions.com, Inc., PDB
Insurance Agency, Inc. and Plantersbank Properties,
Inc.; President of Manila Polo Club; Vice Chairman
of Micro Enterprise Bank of the Philippines and
Philippine-British Business Council; Formerly
Ambassador Extraordinary and Plenipotentiary
to the United Kingdom of Great Britain and
Northern Ireland, Ambassador to the Republic of
Ireland and Permanent Philippine Representative
to the International Maritime Organization.
Globe Corporate Governance Committees
AUDIT COMMITTEE Ambassador Jesus P. Tambunting - Chairman . Lim Chuan Poh . Delfin L. Lazaro
NOMINATION COMMITTEE Guillermo D. Luchangco - Chairman . Delfin L. Lazaro . Lim Chuan Poh
COMPENSATION COMMITTEE Delfin L. Lazaro - Chairman . Guillermo D. Luchangco . Lim Chuan Poh
. Gerardo C. Ablaza, Jr.
Delfin L. Lazaro
Lim Chuan Poh
Co-Vice Chairman
Co-Vice Chairman
Director since 1997; Chairman of Executive
Committee and former President of Globe;
CFO and Treasurer and Management
Committee Member of Ayala; CEO of the AC
Capital Group (an internal division within Ayala
Corporation); President and CEO of Azalea
Technology Investments; Member of the Board
of Directors of ALI; Former Secretary of the
Department of Energy (Philippine government);
Named Management Man of the Year 1999 by
the Management Association of the Philippines.
Director since 2001. He was appointed Executive
Vice President of the Corporate Business Group
in 1999. Assumed current position as SingTel’s
Executive Vice President (Consumer Business)
and SingTel Mobile’s Chief Executive Officer in
April 2004; currently sits on the board of several
companies, including SingTel’s mobile associates
such as AIS (Thailand) and Telkomsel (Indonesia).
Formerly a Deputy Secretary of the Ministry of
Communications and served in different senior
appointments in the Singapore Civil Services
prior to joining SingTel.
Lucas Chow
Dr. Roberto F. de Ocampo
Xavier P. Loinaz
Director since 1999
Director since 2003
Director since 2001
Chief Executive Officer of
SingTel Mobile in 1999 and
was appointed SingTel’s
Executive Vice President
(Consumer Business) in
2000. Assumed current
position as SingTel’s Executive
Vice President (Corporate
Business) in April 2004. Prior
to joining SingTel, held
various positions at
Hewlett-Packard for 20 years.
Currently President of the
Asian Institute of Management
and Chairman and/or Board Member of
Centennial Group (Washington, D.C.),
ABS-CBN Broadcasting Corp.,
Alaska Milk Corp., Metrobank and
Salcon Power Corp.
Also served as Secretary of the
Department of Finance of the
Philippine government.
Currently Senior Managing Director
of Ayala Corporation and
President of BPI; Director of
Agricultural Development Bank,
BPI Capital Corporation,
BPI Computer Systems Corporation,
BPI 1851 Club, Inc., BPI International
Finance, Ltd., BPI Investment
Management, Inc., BPI Family Bank
and BPI Foundation, Inc.
Fernando Zobel de Ayala
Renato O. Marzan
Director since 1995
Corporate Secretary since 1993
Chairman of the Board of Directors of ALI,
Co-Vice Chairman of the Board of Directors and
Executive Committee Member of Ayala; Chairman
of Honda Cars Makati, Inc., Isuzu Automotive
Dealership, Inc. , AC International Finance
Ltd., Ayala Hotels, Inc. (AHI), and Integrated
Microelectronics, Inc. (IMI); Co-Vice Chairman and
Trustee of the Ayala Foundation, Inc. (AFI);
and Director of BPI.
Stepped down as Director in 2004;
Managing Director of Ayala;
Director and Corporate Secretary of
Michigan Holdings, Inc., HCMI and IADI;
Corporate Secretary of AHI, Cebu
Insular Hotel Co. Inc., Ayala Aviation Corp., IMI,
LPHI, Laguna Technopark, Inc., Ayala Systems
Technology, Inc., and Azalea Technology
Investment, Inc.; Asst. Corporate Secretary of
Mermac, Inc., Ayala, ALI, and AFI.
EXECUTIVE COMMITTEE Delfin L. Lazaro - Chairman . Lim Chuan Poh . Gerardo C. Ablaza, Jr.
FINANCE COMMITTEE Delfin L. Lazaro . Bena Toh . Delfin C. Gonzalez, Jr.
PROXY VALIDATION COMMITTEE Rebecca V. Ramirez . Caridad D. Gonzales
. Gil. B. Genio
Senior Executive Group
Gerardo C. Ablaza, Jr.
Delfin C. Gonzalez, Jr.
Gil B. Genio
President & Chief Executive Officer
Chief Financial Officer
Wireline Business Head
Cesar M. Maureal
Rebecca V. Ramirez
Human Resources Head
Internal Audit Head
Ferdinand M. de la Cruz
Rodolfo A. Salalima
Rodell A. Garcia
Wireless Business Head
Corporate & Regulatory Affairs Head
Information Systems Head
Consultants
Andrew Buay
Robert L. Wiggins
Chief Operating Advisor
Chief Technical Advisor
Management Committees
Wireless Business
Ferdinand M. de la Cruz
Wireless Business Head
Ma. Concepcion C. Alcedo
Emmanuel A. Aligada
Leah R. Besa-Jimenez
Walter C. Ricarte
Globe Handyphone Marketing Head
Customer Service Head
Customer Relationship Mgt. Head
Wireless Comptroller Head
Nicanor V. Santiago III
Daniel S. David
Vicki G. Tan-Yao
Lizanne C. Uychaco
New Products Development Head
Corporate Business Head
Handset & Cards Management Head
Sales & Distribution Head
Jose Roberto V. Mendoza
Rita M. Nisperos
Patricio S. Pineda III
M. Catherine P. Santamaria
M-Commerce Business Devt. Head
Corporate Marketing Head
Wireless Planning & Strategy Head
Touch Mobile Head
Innove
Gil B. Genio
President & Chief Executive Officer (Innove)
Other Key Officers
Wireless Business
Dennis R. Abella Wireless Network Operations Head
Ma. Cecilia T. Cruzabra Treasury Head
Rizza D. Maniego-Eala Financial Planning and Analysis Head
Racquel R. Cagurangan
Ramon Antonio L. Pineda
Chief Administrative Officer
Residential & Business Group Head
Emmanuel Lazaro R. Estrada Wireless Network Master
Planning Head
Atty. Ma. Caridad D. Gonzales Legal Services Head
Ronald Luis S. Goseco Logistics and Administration
Support Head
Teresa V. Kong Wireless Network Engineering Head
Edith C. Santiago Financial Control Head
Innove
Jesus C. Romero
Edna L. de la Cruz
Corporate Business Group Head
Technical Solutions Head
Ramon Nonato C. Aesquivel, Jr. Network Management &
Operations Division Head
Jose Antonio T. Mapa, Jr. Marketing Division Head
Peter C. Tan Technical Division Head
Statement of
Management’s Responsibility
The management of GLOBE TELECOM, Inc. is responsible for all information and representations contained in the consolidated financial statements for the years
ended December 31, 2004, 2003 and 2002. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the Philippines and reflect amounts that are based on the best estimates and judgment of management with an appropriate consideration to materiality.
In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly
authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the
Company’s Audit Committee and to its external auditors: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its
ability to record, process, and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other employees
who exercise significant roles in internal controls.
The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the Company.
SyCip Gorres Velayo & Co, the independent auditors appointed by the stockholders, have audited the consolidated financial statements of the Company in
accordance with auditing standards generally accepted in the Philippines and have expressed their opinion on the fairness of presentation upon completion of such
audit, in its report to the Stockholders and the Board of Directors.
Delfin C. Gonzalez, Jr.
Gerardo C. Ablaza, Jr.
Senior Vice President & Chief Financial Officer
President & Chief Executive Officer
GLOBE TELECOM, INC.
36
ANNUAL REPORT 2004
Report of
Independent Auditors
The Stockholders and the Board of Directors
Globe Telecom, Inc.
We have audited the accompanying consolidated balance sheets of Globe Telecom, Inc. and its Subsidiaries as of December 31, 2004, 2003 and 2002, and the related
consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Philippines. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Globe Telecom, Inc. and its
Subsidiaries as of December 31, 2004, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the Philippines.
February 1, 2005
Makati City, Philippines
GLOBE TELECOM, INC.
37
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Consolidated Balance Sheets
2004
ASSETS
Current Assets
Cash and cash equivalents (Notes 22 and 24)
Short-term investments (Note 22)
Receivables - net (Notes 4, 14 and 22)
Inventories and supplies - net (Note 5)
Prepayments and other current assets (Notes 6, 14 and 22)
Total Current Assets
Noncurrent Assets
Property and equipment - net (Notes 7, 9, 14, 19, 22 and 24)
Deferred charges and others - net (Notes 8, 12 and 22)
Miscellaneous deposits and
investments - net (Notes 9, 19 and 22)
Deferred income tax - net (Notes 2 and 18)
Total Noncurrent Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses
(Notes 6, 10, 14, 15, 16, 19, 22 and 24)
Unearned revenues
Notes payable (Note 11)
Current portion of:
Long-term debt (Notes 12 and 22)
Other long-term liabilities (Notes 13, 14, 19 and 22)
Total Current Liabilities
Noncurrent Liabilities
Deferred income tax - net (Notes 2 and 18)
Long-term debt - net of current portion (Notes 12 and 22)
Other long-term liabilities - net of current portion
(Notes 13, 14, 19 and 22)
Total Noncurrent Liabilities
Total Liabilities
Stockholders’ Equity (Note 15)
Paid-up capital
Retained earnings
Treasury stock - common
Total Stockholders’ Equity
December 31
2003
(In Thousand Pesos)
2002
P13,581,842
720,831
10,913,105
1,136,885
1,126,760
27,479,423
P13,041,048
1,962,889
17,543,425
616,741
1,651,869
34,815,972
P18,963,154
3,994,050
12,433,183
382,616
2,425,775
38,198,778
107,012,763
1,355,417
101,177,528
1,952,056
96,269,815
1,601,801
782,860
1,494,516
110,645,556
P138,124,979
1,496,137
687,945
105,313,666
P140,129,638
2,150,055
100,021,671
P138,220,449
P19,517,136
1,732,747
-
P24,197,143
2,376,906
-
P20,618,141
2,113,681
6,639
9,018,650
292,589
30,561,122
9,022,535
325,374
35,921,958
7,430,233
231,680
30,400,374
4,769,541
43,199,301
3,550,226
47,109,200
3,108,049
51,144,018
2,578,526
50,547,368
81,108,490
2,694,255
53,353,681
89,275,639
2,712,078
56,964,145
87,364,519
39,434,813
25,774,446
(8,192,770)
57,016,489
P138,124,979
39,418,022
19,628,747
(8,192,770)
50,853,999
P140,129,638
39,377,803
11,478,127
50,855,930
P138,220,449
See accompanying Notes to Consolidated Financial Statements.
GLOBE TELECOM, INC.
38
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Consolidated Statements of Income
2004
NET OPERATING REVENUES (Note 14)
Wireless
Voice
Data
Others
Wireline
Voice
Data
Others
COSTS AND EXPENSES
Operating (Notes 14, 16, 17 and 19)
Depreciation and amortization (Notes 7, 8 and 12)
Provisions (reversals of provisions) for:
Doubtful accounts
Losses on property and equipment and
other probable losses (Notes 7 and 10)
Inventory losses, obsolescence and market decline
Years Ended December 31
2003
(In Thousand Pesos, Except Per Share Figures)
P27,722,035
19,332,387
2,848,824
P27,820,688
14,772,873
1,871,392
P22,611,293
12,574,267
5,975,662
3,832,776
1,854,149
18,809
55,608,980
3,468,693
1,472,255
72,034
49,477,935
3,470,086
1,103,653
65,436
45,800,397
21,934,073
15,896,419
20,131,098
12,160,520
18,047,690
10,887,513
1,052,222
940,751
452,243
(489,163)
72,388
38,465,939
17,143,041
537,926
15,241
33,785,536
15,692,399
616,332
(19,744)
29,984,034
15,816,363
(4,023,904)
(1,818,185)
756,840
(3,941)
(3,799,872)
(1,299,811)
458,855
697
(906,683)
113,347
(201,690)
1,047,883
(4,834,643)
10,857,756
512,503
P10,345,253
(2,196,621)
422,218
(6,616,224)
9,200,139
2,281,903
P6,918,236
P68.79
68.65
P14.00
P45.12
45.12
P-
INCOME FROM OPERATIONS
OTHER INCOME (EXPENSES) - Net
Interest expense (Notes 11 and 12)
(4,300,551)
Swap costs and other financing charges (Notes 12 and 22)
(1,749,580)
Interest income (Notes 22 and 24)
454,038
Equity in net earnings (losses) of an associate (Note 9)
(62)
Reversals of provisions (provisions) for:
Impairment of investments in shares of stock (Note 9)
Restructuring costs on network integration (Notes 3 and 10)
Losses on shutdown of CMTS network arising from
wireless business integration (Note 3)
Others - net (Notes 14, 19 and 22)
503,153
(5,093,002)
INCOME BEFORE INCOME TAX
12,050,039
PROVISION FOR INCOME TAX - Net (Note 18)
792,673
NET INCOME
P11,257,366
Earnings Per Share (Note 21)
Basic
P79.93
Diluted
79.80
Cash dividends declared per common share (Note 15)
P36.00
See accompanying Notes to Consolidated Financial Statements.
GLOBE TELECOM, INC.
2002
39
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
2004
Preferred Stock - Series “A” (Note 15)
Common Stock (Note 15)
Balance at beginning of year
Exercise of stock option
Cancellation of stocks previously issued under
stock option plan
25% stock dividends
Subscribed
Balance at end of year
Additional Paid-in Capital - Common (Note 15)
Balance at beginning of year
Exercise of stock option
Stock option purchase price
25% stock dividends
Subscribed
Expenses on stock offering
Balance at end of year
Subscriptions Receivable - Common (Note 15)
Balance at beginning of year
Collections - net of refunds
Balance at end of year
Total Paid-up Capital
Retained Earnings (Note 15)
Balance at beginning of year
Dividends on:
Common stock
Preferred stock - Series “A”
Net income
Balance at end of year
Treasury Stock - Common (Note 15)
P792,575
Years Ended December 31
2003
(In Thousand Pesos)
P792,575
P792,575
7,595,272
135
7,595,272
-
6,054,872
-
(135)
7,595,272
7,595,272
1,518,984
21,416
7,595,272
31,110,194
1,383
213
31,111,790
31,109,975
219
31,110,194
32,609,708
(1,518,984)
48,890
(29,639)
31,109,975
(80,019)
15,195
(64,824)
38,642,238
(120,019)
40,000
(80,019)
38,625,447
(169,166)
49,147
(120,019)
38,585,228
39,434,813
39,418,022
39,377,803
19,628,747
11,478,127
4,623,891
(5,036,539)
(75,128)
11,257,366
25,774,446
(2,126,676)
(67,957)
10,345,253
19,628,747
(64,000)
6,918,236
11,478,127
(8,192,770)
P57,016,489
(8,192,770)
P50,853,999
P50,855,930
See accompanying Notes to Consolidated Financial Statements.
GLOBE TELECOM, INC.
2002
40
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
2004
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization of property
and equipment
Interest expense
Provisions (reversals of provisions) for:
Doubtful accounts
Losses on property and equipment and other
probable losses
Inventory losses, obsolescence and market decline
Impairment of investments in shares of stock
Restructuring costs on network integration
Interest income
Amortization of deferred charges and others
Loss on disposal of property and equipment
Dividend income
Equity in net losses (earnings) of an associate
Losses on direct write-off of inventories
Losses on shutdown of CMTS network arising
from wireless business integration
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 tax paid
Net cash flows provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property and equipment
Interest received
Proceeds from sale of property and equipment
Dividends received
Decrease (increase) in:
Short-term investments
Deferred charges and others
Miscellaneous deposits and investments
Net cash flows used in investing activities
Years Ended December 31
2003
(In Thousand Pesos)
P12,050,039
P10,857,756
P9,200,139
15,732,178
4,300,551
12,075,663
4,023,904
10,840,480
3,799,872
1,052,222
940,751
452,243
(489,163)
72,388
(454,038)
164,241
17,777
(350)
62
-
537,926
15,241
906,683
(113,347)
(756,840)
84,857
67,097
(307)
3,941
109
616,332
(19,744)
201,690
(458,855)
47,033
234,073
(282)
(697)
-
32,445,907
28,643,434
2,196,621
27,108,905
5,576,463
(627,693)
(24,877)
(6,039,520)
(228,276)
496,534
(551,161)
474,283
1,874,044
(4,590,379)
(644,159)
11,986
32,147,248
(4,727,341)
(125,702)
27,294,205
5,505,926
263,225
141,459
28,782,782
(4,588,050)
(905,019)
23,289,713
(1,643,315)
1,082,768
55,695
28,401,219
(4,146,097)
(1,273,521)
22,981,601
(20,283,533)
461,051
27,370
350
(17,452,338)
779,321
51,983
307
(17,918,193)
436,203
40,136
282
1,941,537
160,039
13,885
(17,679,301)
2,102,649
(3,790)
(256,578)
(14,778,446)
(3,994,050)
(223,052)
(977,461)
(22,636,135)
(Forward)
GLOBE TELECOM, INC.
2002
41
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
-2-
2004
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Long-term borrowings
Short-term borrowings
Repayments of:
Long-term borrowings
Short-term borrowings
Payments of dividends to:
Common shareholders
Preferred shareholders
Subscription of capital stock, net of stock-related expenses
Purchase of treasury stock - common
Payments of due to an affiliate
Net cash flows provided by (used in) financing activities
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT
END OF YEAR
Years Ended December 31
2003
(In Thousand Pesos)
P14,827,823
60,000
P6,350,668
-
P21,405,919
1,026,230
(18,814,228)
(60,000)
(10,390,104)
(6,639)
(6,977,273)
(3,120,617)
(5,036,539)
(67,957)
16,791
(9,074,110)
(2,126,676)
(108,072)
40,220
(8,192,770)
(14,433,373)
(3,000)
90,578
(1,556,445)
10,865,392
540,794
(5,922,106)
11,210,858
13,041,048
18,963,154
7,752,296
P13,581,842
P13,041,048
P18,963,154
See accompanying Notes to Consolidated Financial Statements.
GLOBE TELECOM, INC.
2002
42
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1.
Corporate Information
The NTC also issued the CPCN for Innove’s IGF, CMTS and LEC services. In
March 2004, Innove filed an application to the NTC for the issuance of CPCN
for LEC services, particularly integrated local telephone service with public calling
stations in areas nationwide not yet covered by its existing CPCN.
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 communication 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 included in the
PSE composite index since September 17, 2001.
On August 23, 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.
The service, which is integrated into the cellular services of Globe Telecom and
Innove, enables easy and convenient peer-to-peer fund transfers via SMS and
allows Globe Group subscribers to easily and conveniently put cash into and get
cash out of the system. GXI started commercial operations on October 16, 2004.
GXI is also a stock corporation organized under the laws of the Philippines. GXI’s
principal executive office is located at 5th floor, Globe Telecom Plaza, Pioneer
corner Madison Streets, Mandaluyong City, Metropolitan Manila, Philippines.
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 telecommunication 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. It also offers a broad range of wireline voice communication services,
as well as domestic and international long distance communication services or
carrier services. Starting October 1, 2003, all wireline voice and data services of
the Globe Group are being offered under Innove (see Note 3b). Innove’s principal
executive office is located at 18th floor, Innove IT Plaza, corner Samar and Panay
Roads, Cebu Business Park, Cebu City, Philippines.
2.
Basis of Financial Statement Preparation
The accompanying consolidated financial statements have been prepared under
the historical cost convention method and in accordance with accounting
principles generally accepted in the Philippines (Philippine GAAP).
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.
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.
Basis of Consolidation
The consolidated financial statements include the accounts of Globe Telecom
and its wholly-owned subsidiaries, Innove and GXI (collectively referred to as
“Globe Group”). 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.
On August 7, 2003, the NTC granted Globe Telecom’s application to transfer its
wireline business to Innove (see Note 3b). Pursuant to the approval by the NTC,
Innove now holds the following: (1) the authorizations and licenses to offer telex,
facsimile, and other traditional voice and data services and domestic leased line
service using VSAT technology and (2) the CPCN previously issued to Globe
Telecom to offer LEC services in Makati and surrounding areas in Metro Manila,
Batangas, Cavite, Mindoro, Palawan and certain areas in Mindanao.
GLOBE TELECOM, INC.
Summary of Significant Accounting Policies
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).
43
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
•
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
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 (see Note 18).
•
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 or income 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 consolidated financial statements (see Note 19).
(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 short messaging services (SMS) in excess
of free SMS and multimedia messaging services (MMS), content downloading
and infotext services, net of payout to content providers; (3) inbound revenues
from other carriers which terminate their calls to the 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 wireline voice, wireline data and wireless subscribers);
(7) proceeds from sale of handsets, phonekits and other phone accessories;
(8) one-time registration fees (for postpaid wireless subscribers), one-time
activation or upfront fees for the excess of the selling price of simpack over the
preloaded airtime (for prepaid subscribers) and one-time service connection fee
(for wireline voice and wireline data subscribers); and (9) income on transaction
fees for remittance transactions related to GXI’s business in Globe Group’s
business or payment centers.
Postpaid service arrangements include fixed monthly charges, which are recognized
over the subscription period on a pro-rata basis. Telecommunication 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, 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-theair reloading services are deferred and shown as “Unearned revenues” in the
consolidated balance sheets. Revenue is recognized upon actual usage of the airtime
value for voice, SMS, MMS and content downloading, net of free service allocation
and bonus reload, or expiration of the unused value, whichever comes earlier.
The Globe Group also provides wireline data communications services under
postpaid payments arrangements. Revenues from wireline data communications
services include monthly service fees, which are recognized as earned over the
subscription period on a pro-rata basis, usage of broadband and internet services
in excess of monthly service fees, and one-time fixed line service connection
fees. Installation fees received from wireline subscribers are also credited to
“Net operating revenues” shown in the consolidated statements of income upon
receipt from wireline subscribers. The related labor costs on installation exceeding
the installation fees are charged against current operations.
Revenue Recognition
The Globe Group provides wireless communication services and wireline voice
communication services under postpaid and prepaid payment arrangements.
Revenue is recognized when the delivery of the product or service 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
and overseas communication tax.
Inbound revenues and outbound charges are accrued based on actual volume of
traffic monitored on the traffic settlement system. These are based on agreed
transit and termination rates and/or revenue sharing agreements with other
foreign and local carriers and content providers. Inbound revenues represent
settlements received from telecommunications providers that sent traffic to
the Globe Group’s network, while outbound charges represent settlements
Revenues principally consist of: (1) per minute 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
GLOBE TELECOM, INC.
44
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
to telecommunication providers for traffic originating from the Globe Group’s
network and settlements to content providers for 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. These adjustments are recognized as these
are determined and 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.
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 aging 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 non-payment by postpaid subscribers.
Such permanent disconnections generally occur within a predetermined
period from statement date. Full allowance is generally provided for active
individual and business 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 subscribers with outstanding receivables that are past due by 90 and
150 days, respectively.
Proceeds from sale of handsets, phonekits, and other phone accessories are
recognized upon delivery of the products.
Lease income from operating lease is recognized on a straight-line basis over the
lease term.
Interest income is recognized as it accrues.
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 subsidies and marketing expenses. Handset subsidies
represent the difference between the book value of handsets, accessories and SIM
cards (included in “Cost of Sales” account under Operating Costs and Expenses),
and the corresponding selling price to a subscriber (included in “Others” under
Net Operating Revenue). Retention costs for existing subscribers are in the
form of free handsets and bill credits. Free handsets are charged against current
operations and included in “Operating expenses” account as selling, advertising
and promotions expenses. Bill credits are deducted from operating revenues.
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
a review of the status of settlement with other carriers.
Additional provisions are made for accounts specifically identified to be doubtful
of collection.
Inventories and Supplies
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 simpacks, 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.
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 placement and that are
subject to an insignificant risk of changes in value.
Short-term Investments
Short-term investments are carried at cost, adjusted for any permanent loss on
price decline of the investments. Such permanent decline is recognized as loss and
credited directly to investments. The resulting balance becomes the new cost basis
of the investments. Subsequent recoveries of market value beyond the new cost
basis are not recognized until the investments are sold or otherwise disposed of.
Supplies of simpacks/simcards and telephone handsets are consumed upon
activation of the wireless and wireline services.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and
amortization, and accumulated provision for impairment loss, if any. Cost of
property and equipment 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) foreign
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
GLOBE TELECOM, INC.
45
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
exchange differentials (foreign exchange losses net of foreign exchange gain)
arising from remeasurement to prevailing exchange rates of foreign currencydenominated liabilities related to the acquisition of property and equipment.
The cost of distribution dropwires included under telecommunications equipment
is depreciated over five years.
Expenditures after the property and equipment have been put into operation such
as repairs and maintenance are charged against current operations. In situations
where it can be clearly demonstrated that the expenditures have resulted in an
increase in the future economic benefits expected to be obtained from the use
of an item of property and equipment beyond its original assessed standard of
performance, the expenditures are capitalized as additional costs of property and
equipment. When assets are retired or otherwise disposed of, the cost and the
related accumulated depreciation and amortization, and accumulated provision for
impairment loss, if any, are removed from the accounts and any resulting gain or
loss is credited to or charged against current operations.
Foreign exchange losses, interest and other financing charges are no longer
included as part of cost if the resulting carrying amount of the related property
and equipment exceeds the lower of the replacement cost and the amount
recoverable from the use or sale of the property and equipment.
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 its intended use are completed, and the
property and equipment are ready for service.
Depreciation of assets commences once the assets are put into operational use
and is computed using the straight-line method over the estimated useful lives
of the assets regardless of utilization. The foreign exchange differential, interest
and other financing charges capitalized as part of the cost of the property and
equipment are depreciated over the remaining estimated useful life of the related
property and equipment.
The carrying values of property and equipment are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable. If any such indication exists and where the carrying
values exceed its estimated recoverable amounts, the assets or cash generating
units are written down to their recoverable amounts. The recoverable amount of
property and equipment is the greater of 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. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects the
current market assessment of the time value of money and the risks specific to the
assets. For an asset that does not generate largely independent cash inflows, the
recoverable amount is determined for the cash-generating unit to which the asset
belongs. Impairment losses, if any, are recognized in the consolidated statements
of income.
Leasehold improvements are amortized over the shorter of their useful lives or
the lease terms.
The estimated useful lives of the property and equipment are reviewed
periodically, based on factors that include asset utilization, technological changes,
environmental factors and anticipated use of the property and equipment, to
ensure that the period of depreciation is consistent with the expected pattern of
economic benefits from items of property and equipment.
The revised estimated useful lives of property and equipment of the Globe Group
are as follows:
For the Globe Group, the cash-generating unit is the combined wireless
and wireline asset group of Globe Telecom and Innove. This asset grouping
is predicated upon the requirement contained in Executive Order (E.O.)
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.
Years
Telecommunications equipment:
Tower
Switch
Outside plant
Customer premises equipment
Others
Buildings
Leasehold improvements
Investments in cable systems
Furniture, fixtures and equipment
Transportation equipment
Work equipment
15
3-10
10-20
2-5
3-20
20
5
5-15
3-5
3-5
3
Debt Issuance Costs
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. Unamortized debt issuance costs are
included under “Deferred charges and others” account in the consolidated balance
sheets. When the related debt instrument is retired, the related unamortized debt
issuance cost at the date of retirement is charged against current operations.
GLOBE TELECOM, INC.
46
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Investments in Associates, Joint Venture and Others
Investments in associates [50% investment in Pintouch Telecom, LLC (PTL) (a
limited partnership organized in the United States of America) and 32.67%
investment in Globe Telecom Holdings, Inc. (GTHI)] and joint venture (14.29%
investment in Bridge Mobile Alliance) are accounted for under the equity method.
An associate is an entity in which the Group has a significant influence and which
is neither a subsidiary nor a joint venture. A joint venture is an entity not being
a subsidiary or an associate in which the Globe Group exercise joint control
together with one or more venturers. Under the equity method, the investments
in associates and joint venture are carried in the consolidated balance sheets
at cost plus post-acquisition changes in the Globe Group’s share in net assets
of associates and joint venture, less any impairment in value. The consolidated
statements of income reflect the Globe Group’s share of the results of operations
of the associates and joint venture.
The carrying amount of deferred income tax assets is 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
asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are
expected to apply in the year when the asset is realized or the liability is settled
based on tax rates (and tax laws) that have been substantially enacted at the
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 each balance sheet date and
adjusted to reflect the current best estimate.
Other investments in shares of stock where the Globe Group’s ownership
interest is less than 20% or where control is likely to be temporary are stated at
cost. When there is a significant and apparently permanent decline in value of an
individual investment, the carrying amount of the individual investment is written
down to its recoverable value.
Stock Option
The Globe Group has stock option plans for the granting of nontransferable
options to executives and other employees of the Globe Group, whereby
executives and other employees are granted an option to purchase a fixed
number of shares of stock at a stated price during a specified period. Options
exercised are recorded at the option price and accounted for as a regular issuance
of capital stocks.
Investments in bonds and Dollar-Linked Peso Notes (DLPN) are carried at
amortized cost using the straight-line method based on the terms of the notes
less any provision for permanent impairment in value.
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.
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 plus amortization of past service cost, experience adjustments and
changes in actuarial assumptions over the expected average future service years
of the current plan members.
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.
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 the property and equipment.
The capitalization of these borrowing costs as part of the cost of the property and
equipment: (a) commences when the expenditures and borrowing costs are being
incurred during installation and related activities necessary to prepare the 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
Deferred income tax, however, 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 the taxable
profit or loss. Deferred income tax liabilities are not provided on nontaxable
temporary differences associated with investment in a domestic associate.
GLOBE TELECOM, INC.
47
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
substantially all the activities necessary to prepare the property and equipment for
its intended use are complete. These costs are amortized using the straight-line
method over the estimated useful lives of the related property and equipment.
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.
Other borrowing costs are recognized as expense in the period in which these
are incurred.
The Parent Company enters into deliverable prepaid forward contracts that entitle
the Parent Company to a discount on the contracted forward rate. The discount
is recognized as income over the term of the forward exchange contract.
Premiums on long-term debt are included under “Long-term debt” account in
the consolidated balance sheets and are amortized using the effective interest
rate method.
For certain long-term foreign currency-denominated loans, the Parent Company
enters into long-term currency swap contracts to manage its foreign currency
and interest rate exposures. Such contracts are sometimes entered into in
combination with options. The Parent Company also sells currency options as
cost subsidy for outstanding currency swap contracts.
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 fair 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.
The Parent Company also enters into interest rate swap contracts to manage its
interest rate exposures on underlying fixed and floating-rate foreign currencydenominated long-term debts, on underlying fixed-rate peso-denominated longterm debt and on short-term floating rate peso investments.
Translation gains or losses on these currency forward and swap contracts are
computed by multiplying the notional amounts by the difference between the
exchange spot rates prevailing on the balance sheet date and the exchange spot
rates on the contract inception date (or the last reporting date), whichever is
applicable. 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 “Deferred charges and others” 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, included in “Swap costs and other financing charges” account in the
consolidated statements of income.
Capitalized leased assets are depreciated over the shorter of their estimated
useful lives 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 collections or
payments are recognized as an income or expense in the consolidated statements
of income on a straight-line basis over the lease term.
Advertising Expenses
Advertising expenses are charged against current operations as incurred.
Foreign Currency Transactions
Transactions denominated in foreign currencies are recorded in Philippine
Pesos based on the exchange rates prevailing at the transaction dates. Foreign
currency-denominated monetary assets and liabilities are translated to Philippine
Pesos at exchange rates prevailing at the balance sheet dates. Foreign exchange
differentials between rate at transaction date, and rate at settlement date or
balance sheet date of unhedged foreign currency-denominated monetary assets
or liabilities are credited to or charged against current operations, except those
pertaining to foreign currency-denominated liabilities related to the acquisition
of property and equipment, which are added to or deducted from the carrying
amount of the related property and equipment account.
The mark-to-market gains or losses on these contracts are not considered in the
determination of consolidated net income but are disclosed in the related notes
to consolidated financial statements.
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.
Financial Instruments
The Globe Group enters into short-term deliverable and non-deliverable
currency forward contracts to manage its exchange exposure related to short-
GLOBE TELECOM, INC.
Diluted EPS is computed by dividing net income by the weighted average number
of common shares outstanding during the year, after giving retroactive effect
48
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
of 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 year 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 convertible preferred shares are
converted to common shares 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.
The Globe Group will adopt beginning January 1, 2005 the following new and
revised accounting standards that are relevant to the Globe Group:
New Accounting Standards
•
Segment Reporting
The Globe Group’s major operating business units are the basis upon which
the Globe Group reports its primary segment information. The Globe Group’s
business segments consist of: (1) wireless communication services; (2) wireline
voice communication services; and (3) wireline data communication services. The
Globe Group generally accounts for inter-segment revenues and expenses at
agreed transfer prices.
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.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements.
They 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 disclosed when an inflow of economic
benefits is probable.
•
Subsequent Events
Any post year-end event up to the date of the auditor’s report 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 when material to the
consolidated financial statements.
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 January 1, 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 December 31, 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 (see Note 7). The adoption of PAS 21 is estimated to
decrease the 2005 beginning retained earnings by P2,416.59 million, net of
deferred income tax.
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 January 1, 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 adopted IFRS. Previously, standards
issued by the ASC were designated as SFAS.
GLOBE TELECOM, INC.
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 of 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.
•
49
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
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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.
•
Under PAS 39, all derivative instruments (both freestanding and embedded)
as well as financial instruments classified under the categories “Financial
Instruments at Fair Value through 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’ consolidated financial statements will not be
restated as allowed under Securities and Exchange Commission (SEC) rules.
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 heldto-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 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.
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:
a.
b.
c.
d.
e.
•
review of all financial and non-financial contracts to identify and
bifurcate (where required) embedded derivatives;
classification and measurement of financial assets and financial liabilities;
evaluation of financial instruments as to whether these should be
classified as debt or equity, depending on their features;
review of existing hedge accounting treatment for qualifying hedges
and compliance with hedge accounting criteria, particularly on
documentation and effectiveness testing; and,
enhancement of existing processes and systems relating to validation
of mark-to-market 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.
GLOBE TELECOM, INC.
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, the 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.
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
November 7, 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.
Upon adoption of PFRS 2 in 2005, the estimated cost as of December 31,
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.
•
50
PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, specifies
the accounting for assets held for sale and the presentation and disclosure
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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.
•
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.
As of December 31, 2004, the 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 assets, 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 accumulated 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.
GLOBE TELECOM, INC.
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.
51
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
•
•
3.
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 be allowed in the separate financial
statements. However, the equity method is still an allowed alternative in the
consolidated financial statements.
b.
On August 7, 2003, the NTC approved on 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, 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 whollyowned subsidiary of Globe Telecom.
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.
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.
4.
Receivables
This account consists of receivables from:
2004
Customers
Traffic settlements (see
Notes 14 and 22)
Others
Changes in Organization
a.
Wireline Operations
7,770,243
242,789
16,001,897
Less allowance for doubtful accounts:
Customers
4,787,070
Traffic settlements and others 301,722
5,088,792
P10,913,105
Wireless Operations
In September 2002, Globe Telecom announced the operational integration
of Globe Telecom 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 TM service, allowing
them to enjoy superior coverage and service offering available through
the Globe Telecom-Innove integrated network. Certain elements of
the Innove’s network which cannot be redeployed to the Globe network
were shutdown in 2002 to avoid unnecessary duplication. The shutdown
necessitated Innove’s recognition of losses on retirement of certain property
and equipment and restructuring cost in 2002.
GLOBE TELECOM, INC.
P7,988,865
52
ANNUAL REPORT 2004
2003
2002
(In Thousand Pesos)
P7,109,926 P6,301,967
14,296,811
197,687
21,604,424
9,783,069
271,335
16,356,371
3,879,846
3,411,704
181,153
511,484
4,060,999
3,923,188
P17,543,425 P12,433,183
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5.
Inventories and Supplies
6.
This account consists of:
This account consists of:
2004
At cost:
Wireline telephone sets
Call cards and others
At NRV:
Simpacks, spare parts
and supplies
Handsets and accessories
2003
(In Thousand Pesos)
2004
2002
P69,767
6,116
75,883
P35,326
49,367
84,693
P48,161
48,161
667,199
393,803
1,061,002
P1,136,885
223,243
308,805
532,048
P616,741
91,134
243,321
334,455
P382,616
Input value added tax - net
(see Note 10)
Other current assets (see
Notes 14 and 22)
2003
(In Thousand Pesos)
2002
P312,566
P746,648
P1,765,313
814,194
P1,126,760
905,221
P1,651,869
660,462
P2,425,775
Input value added tax as of December 31, 2003 and 2002 is presented net of
output value added tax of P1,250.80 million and P1,610.80 million, respectively.
As of December 31, 2004, Globe Telecom reported net output value added tax
amounting to P150.38 million, net of input value added tax of P224.74 million,
included in “Accounts payable” under “Accounts Payable and Accrued Expenses”
account (see Note 10). As of December 31, 2004, input value added tax
represents Innove’s net input value added tax amounting to P312.57 million, net of
output value added tax of P172.98 million.
As discussed in Note 2, the Globe Group considers any adjustment necessary for
obsolescence in determining the NRV.
7.
Prepayments and Other Current Assets
Property and Equipment
The rollforward analysis of this account follows:
Telecommunications
Equipment
Buildings and
Leasehold
Improvements
Investments
in Cable
Systems
Furniture, Transportation
Fixtures and
and Work
Equipment
Equipment
Land
Assets
Under
Construction
Total
(In Thousand Pesos)
Cost
As of December 31, 2003
P110,564,475
P11,926,521
Additions
951,758
113,981
Retirements/disposals
(530,886)
(48,686)
Reclassifications/adjustments
13,020,591
4,209,081
As of December 31, 2004
124,005,938
16,200,897
Accumulated depreciation and amortization and accumulated
provision for impairment losses
As of December 31, 2003
33,877,822
2,703,723
Additions
12,809,054
1,218,384
Retirements/disposals
(286,775)
(18,992)
Reclassifications/adjustments
(492,578)
(442)
As of December 31, 2004
45,907,523
3,902,673
Net Book Value as of
December 31, 2004
P78,098,415 P12,298,224
Net book value as of December 31, 2003
P76,686,653
P9,222,798
Net book value as of December 31, 2002
P73,408,374
P10,461,939
64,748
–
58,202
10,584,889
P4,229,542
1,173,420
(93,010)
509,544
5,819,496
P997,716
272,767
(56,275)
(790)
1,213,418
P927,858
364
–
–
928,222
P3,137,453
19,125,299
(12,404)
(18,097,009)
4,153,339
P142,245,504
21,702,337
(741,261)
(300,381)
162,906,199
970,357
713,597
–
–
1,683,954
2,844,503
837,434
(59,203)
(5,944)
3,616,790
671,571
153,709
(42,903)
119
782,496
–
–
–
–
–
–
–
–
–
–
41,067,976
15,732,178
(407,873)
(498,845)
55,893,436
P8,900,935
P9,491,582
P2,202,706
P1,385,039
P430,922
P326,145
P928,222
P927,858
P4,153,339
P3,137,453
P107,012,763
P101,177,528
P6,720,657
P1,393,072
P329,685
P923,227
P5,632,946
P96,269,815
P7,861,854
GLOBE TELECOM, INC.
53
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The carrying values of property and equipment held under finance leases where
the Globe Group is the lessee are as follows (see Note 19c):
Upon business combination with Innove in
2001, Globe Telecom
recorded the new cost basis for Innove’s assets and liabilities arising
from the allocation of the purchase price over the fair value of Innove’s
net assets. The balance of net foreign exchange losses amounting to
P3,894.73 million capitalized by Innove as part of property and equipment prior to
the business combination and other fair market value adjustments amounting to
P434.14 million formed part of Globe Telecom’s new cost basis of Innove property
and equipment as of June 30, 2001. As of December 31, 2004, the net book value
of the capitalized foreign exchange losses and other fair value adjustments forming
part of the new cost basis of Innove’s property and equipment amounted to
P2,131.87 million and P168.27 million, respectively.
2004
2003
2002
(In Thousand Pesos)
Furniture, fixtures and equipment P186,031
P199,560
P206,541
Transportation and
work equipment
4,400
4,400
4,400
190,431
203,960
210,941
Less accumulated depreciation
167,062
167,188
142,778
Net book value
P23,369
P36,772
P68,163
Investments in cable systems include the cost of the 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 Telecom is the landing party (see Notes 9 and 14).
In 2004, as a result of periodic review of the estimated useful lives 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 Telecom revised the estimated useful lives of
certain switch equipment from 15 to 10 years and investments in cable systems
from 20 to 15 years. In addition, Globe Telecom revised the remaining estimated
useful lives of certain telecommunications equipment, which are specifically
identified to be useful for specific periods shorter than the previously estimated
useful lives. These changes have been accounted for as changes in accounting
estimates. The changes increased depreciation expense in 2004 by about
P2,047.07 million or P14.63 reduction in basic earnings per share, before related
income taxes.
In 2003, certain cable system and radio equipment which have been
retired due to technical and regulatory factors with net book values
amounting to P177.73 million were written off from the accounts. Total
losses on property and equipment including provisions amounted to
P11.73 million, P306.30 million and P386.87 million in 2004, 2003 and 2002,
respectively.
Globe Telecom’s total capitalized borrowing costs amounted to
P203.55 million, P621.89 million and P610.06 million (including
capitalized
interest
of
P77.67
million,
P481.97
million
and
P514.72 million) in 2004, 2003 and 2002, respectively.
8.
Deferred Charges and Others
This account consists of:
2004
The Globe Group’s net cumulative capitalized foreign exchange losses amounted to
P4,538.29 million, net of accumulated depreciation of P3,376.17 million,
P5,476.14 million, net of accumulated depreciation of P2,133.63 million, and
P4,976.25 million, net of accumulated depreciation of P1,526.08 million as of
December 31, 2004, 2003 and 2002, respectively.
GLOBE TELECOM, INC.
Revaluation of foreign currency
swaps and unamortized
forward premiums - net
(see Note 22)
P1,116,414
Debt issuance cost - net
(see Note 12)
239,003
Others
P1,355,417
54
ANNUAL REPORT 2004
2003
(In Thousand Pesos)
2002
P1,631,758
P1,200,436
316,428
3,870
P1,952,056
400,625
740
P1,601,801
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9.
Equity in net earnings (losses) for the year is shown under “Equity in net earnings
(losses) of an associate” account in the consolidated statements of income.
Miscellaneous Deposits and Investments
This account consists of:
2004
2003
(In Thousand Pesos)
Investments in shares of stock carried
at equity:
Acquisition cost:
GTHI
P98
PTL
12,366
12,464
Accumulated equity in net earnings:
Balance at beginning of year
20,278
Equity in net earnings (losses) of
GTHI for the year
(62)
Balance at end of year
20,216
32,680
Less allowance for impairment
of investment in PTL
32,415
Carrying values at end of year:
GTHI
265
PTL
265
Investments in shares of stock carried at cost:
C2C Holdings, Pte. Ltd.
894,551
Others
47,460
942,011
Less allowance for impairment of investments:
C2C Holdings, Pte. Ltd.
894,551
Others
12,132
906,683
Carrying values at end of year:
C2C Holdings, Pte. Ltd.
Others
35,328
35,328
Total investments in shares of stock 35,593
Investment in joint venture - Bridge
Mobile Alliance
56,332
Investments in ROP Bonds and
DLPN (see Note 22)
Miscellaneous deposits and
others (see Note 19a)
690,935
P782,860
Investment in GTHI
GTHI is a special purpose vehicle 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 Board of Directors (BOD) of GTHI approved
the dissolution of GTHI.
2002
P98
12,366
12,464
P98
12,366
12,464
24,219
23,522
(3,941)
20,278
32,742
697
24,219
36,683
32,415
32,415
327
327
4,268
4,268
894,551
47,345
941,896
894,551
46,821
941,372
894,551
12,132
906,683
-
35,213
35,213
35,540
894,551
46,821
941,372
945,640
-
-
692,187
-
768,410
P1,496,137
1,204,415
P2,150,055
GLOBE TELECOM, INC.
Investment in PTL
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 United States (U.S.) Bankruptcy Court, District Court of California
(San Francisco Division) to recover U.S.$5.39 million in receivables from PGE. The
Proof of Claim was filed on May 11, 2001. Proceedings before the U.S. Bankruptcy
Court remain pending.
Investment in C2C Holdings, Pte. Ltd (C2C Holdings)
Innove has a 4.25% ownership in C2C Holdings consisting of 20 million
Class A shares at an acquisition cost of P894.55 million. C2C Holdings is the holding
company for the equity investments of all the cable landing parties in C2C Pte. Ltd.
(C2C). C2C 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 U.S.. The C2C cable network started full commercial operations in
March 2002.
In 2003, Innove recognized a full provision for its equity investment in C2C
Holdings amounting to P894.55 million (or P6.39 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.
55
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
10. Accounts Payable and Accrued Expenses
Aside from Innove’s equity stake in C2C Holdings, the Globe Group has separately
purchased capacity on the C2C cable network and has invested in a cable landing
station located in Nasugbu, Batangas.
This account consists of:
2004
Notwithstanding Innove’s full provision against the equity investment in the holding
company, the Globe Group recognizes the long-term benefits of its purchased
capacity in the C2C cable network and its investment in the cable landing station
(see Note 7). Aside from servicing the network requirements of the fixed line and
data businesses of the Globe Group, the Globe Group has started benefiting from
savings on lower bandwidth costs.
Traffic settlements payable
(see Notes 14 and 22)
P6,560,054
Accounts payable (see
Notes 14 and 22)
5,085,525
Accrued expenses (see
Notes 14 and 22)
4,044,151
Accrued project costs
(see Note 19)
3,454,285
Provisions
282,309
Dividends payable (see Note 15) 75,128
Liabilities to partner establishments
(see Note 1)
15,684
Accrual for restructuring costs
(see Note 3)
P19,517,136
Investment in Bridge Mobile Alliance (BMA)
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, BMA, which will operate through a Singapore-incorporated company,
Bridge Mobile Pte. Ltd. (Bridge Mobile). The joint venture company where Globe
Telecom has 14.29% interest, 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.
2002
P11,243,955
P6,654,841
4,251,625
4,320,707
4,818,040
4,891,872
3,003,053
793,066
67,957
3,805,166
635,822
108,072
-
-
19,447
201,661
P24,197,143 P20,618,141
Provisions relate to various pending regulatory claims and assessments. 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. The provisions include those related
to the Globe Group’s wireless and wireline business amounting to P165.05 million,
P675.80 million and P518.56 million as of December 31, 2004, 2003 and 2002,
respectively. The Globe Group recognized a net reversal in 2004 amounting to
P510.76 million resulting mainly from the recent favorable developments that called
for a reassessment of existing provisions. As of February 1, 2005, the remaining
pending regulatory claims and assessments are still being resolved.
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) and PT Telekomunikasi Selular (Indonesia).
Under the JV Agreement, each partner (shareholder) shall contribute
U.S.$4 million scheduled as follows:
Year 1
Year 2
Year 3
2003
(In Thousand Pesos)
The balance of the provisions also includes Innove’s provision relating to NTC
permit fees amounting to P117.26 million, which were assessed by the 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.
about U.S.$1.5 million
about U.S.$1.3 million
about U.S.$1.2 million
As of December 31, 2004, Globe Telecom has paid U.S.$1.0 million
(P56.33 million) as initial subscription.
“Liabilities to partner establishments” account represents balances due to GXI
partner establishments arising from the mobile payment and remittance service
transactions as discussed in Note 1.
GLOBE TELECOM, INC.
56
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Notes Payable
The interest rates and maturities of the above loans follow:
In 2002, Globe Telecom’s notes payable consisted of short-term unsecured notes
payable to supplier, local and foreign bank with interest rates ranging from 6.44%
to 15.18% for peso-denominated notes and from 3.10% to 7.56% for dollardenominated notes.
Senior Notes
2012
2009*
Banks:
Foreign
Maturities
Interest Rates
2012
2009
9.75%
13.00%
2005-2008
1.16% to 6.83% in 2004,
1.18% to 7.35% in 2003 and
1.76% to 7.35% in 2002
2.50% to 11.73% in 2004,
7.56% to 12.52% in 2003 and
4.57% to 14.55% in 2002
8.40% to 16.00% in 2004,
7.14% to 16.00% in 2003 and
6.88% to 16.00% in 2002
7.79% to 11.70% in 2004
2.71% to 6.88% in 2004,
1.06 to 13.96% in 2003 and
1.23% to 11.75% in 2002
12. Long-term Debt
This account consists of:
Local
2004
2003
(In Thousand Pesos)
Senior Notes:
2012 (including unamortized
premium of P485,078
in 2004)
P17,387,378
2009*
Banks:
Foreign
22,121,664
Local
5,975,162
Corporate notes
3,070,000
Retail bonds
3,000,000
Suppliers’ credits
663,747
52,217,951
Less current portion
9,018,650
P43,199,301
2002
P11,117,200 P10,650,800
9,705,872 11,715,880
25,556,947 26,966,070
4,772,692
3,307,888
3,665,000
3,665,000
1,314,024
2,268,613
56,131,735 58,574,251
9,022,535
7,430,233
P47,109,200 P51,144,018
2005-2012
Retail bonds
Suppliers’ credits
2007-2009
2005-2007
2009 Senior Notes completing the retirement of the entire U.S.$220 million 2009 Senior Notes.
Long-term debt as of December 31, 2002 amounting to P3,852.04 million
was secured by chattel mortgages on certain property and equipment. On
February 28, 2003, the secured lenders approved the release of chattel mortgages.
The chattel mortgages were subsequently released and cancelled by the Registry
of Deeds on June 21, 2004.
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.
P9,018,650
9,511,020
7,236,113
2,977,433
23,474,735
P52,217,951
GLOBE TELECOM, INC.
Corporate notes
* On August 2, 2004, Globe Telecom exercised its call option and redeemed the balance of the
The maturities of long-term debt as of December 31, 2004 follow
(in thousand pesos):
Due in:
2005
2006
2007
2008
2009 and thereafter
2005-2008
57
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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)
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 rights of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date):
2009 Senior Notes (b)
April 4, 2002
April 12, 2012
9.75% p.a.
August 6, 1999
August 1, 2009
13% 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.
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
30-day months.
Bondholders of record
on January 15 or July 15
immediately preceding each
interest payment date.
(a)
On July 23, 2004, Globe Telecom issued U.S.$100 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 U.S.$300 million
2012 Senior Notes have been listed and quoted on the Singapore 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 U.S.$142.72 million at 106.5%. Prior to the exercise of the call
option, Globe Telecom has redeemed U.S.$77.28 million of the 2009 Senior
Notes. Total redemption costs of the 2009 Senior Notes amounting to
P693.39 million in 2004 is included in “Swap costs and other financing
charges” account in the consolidated statements of income. Unamortized
debt issuance costs at the date of redemption of the 2009 Senior Notes
amounting to P100.49 million were fully amortized upon redemption and
included in “Depreciation and amortization” account in the consolidated
statements of income. U.S.$88.00 million of swaps and forwards used to
hedge the 2009 Senior Notes have also matured.
Redemption date On or after April 15, 2007
Redemption price 2007
2008
2009
2010 and thereafter
Prior to April 15, 2005, Globe Telecom, upon not less than 30 nor more than
60 days’ prior notice, may redeem the 2012 Senior Notes up to a maximum of
33 1/3% of the original aggregate principal amount of the Notes, with the proceeds
of one or more Public Equity Offerings or from a Strategic Equity Investment at a
redemption price equal to 109.75% of the principal amount thereof, 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); provided, however, that after
giving effect to any such redemption, at least 66 2/3% of the original aggregate
principal amount of the Senior Notes remain outstanding. Any such redemption
shall be made within 75 days of such Public Equity Offering or Strategic Equity
Investment, as applicable. The 2012 Senior Notes are also redeemable at the
option of Globe Telecom at any time in whole at the price specified in the event
of certain changes relating to Philippine taxation.
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 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
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
GLOBE TELECOM, INC.
104.875%
103.250%
101.625%
100.000%
58
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 maturities of other long-term liabilities as of December 31, 2004 follow (in
thousand pesos):
Due in:
2005
2006
2007
2008
2009 and thereafter
The 2012 Senior Notes provide certain restrictions, which include, among others,
incurrence of additional debt, certain dividend payments, liens, repayments of
certain debts, merger/ consolidation and sale of assets in general.
Corporate Notes and Bank Loans
Globe Telecom’s corporate notes, which consist of fixed and floating rate notes,
and peso-denominated loans, bear interest at stipulated and prevailing market
rates. The U.S. dollar-denominated loans extended by commercial banks bear
interest based on U.S. Dollar London Interbank Offered Rate (USD LIBOR) or
Commercial Interest Reference Rate (CIRR) plus margins.
14.
Related Party Transactions
Globe Telecom and Innove, in their regular conduct of business, enter into
transactions with their 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:
Retail Bonds
In February 2004, Globe Telecom issued P3.00 billion 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.
Globe Telecom
(a) Globe Telecom has interconnection agreements with ST and Deutsche
Telecom AG (DT). Transactions with DT in 2004, 2003 and 2002 were not
material. Effective October 20, 2003, De Te Asia Holding GMBH (DTA), a
wholly-owned subsidiary of DT, divested its shareholdings in Globe Telecom
and is no longer a related party (see Note 15).
The net traffic receivable (included in “Receivables” in the consolidated
balance sheets) and the interconnection toll income (included in “Net
operating revenues” in the consolidated statements of income) earned as of
and for the years ended December 31 follow:
Suppliers’ Credits
The Globe Group’s suppliers’ credits accrue interests that are either fixed or
based on USD LIBOR plus margins.
13.
2004
2003
2002
(In Thousand Pesos)
Net traffic receivable
P31,212
P548,395
P736,665
Interconnection toll income 1,083,859
2,239,630
1,437,494
Other Long-term Liabilities
2004
2003
(In Thousand Pesos)
Other long-term liabilities
(see Notes 14c and 19c)
Less current portion
P2,871,115
292,589
P2,578,526
P3,019,629
325,374
P2,694,255
2002
(b)
P2,943,758
231,680
P2,712,078
GLOBE TELECOM, INC.
P292,589
256,819
243,016
243,016
1,835,675
P2,871,115
59
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.
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The details of fees (included in “Operating expenses” in the consolidated
statements of income) incurred under these agreements are as follows:
2004
2003
(In Thousand Pesos)
Lease of cable facilities, maintenance
and restoration costs
and other transactions
P137,111
Technical assistance fee
44,360
Software development, supply,
license and support fee
40,409
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,
the remaining liability of Globe Telecom to C2C for the cable supply
agreement amounted to P2,262.28 million, P2,430.36 million and
P2,518.48 million as of December 31, 2004, 2003 and 2002, respectively,
which were included in “Other long-term liabilities” in the consolidated
balance sheets.
2002
P54,026
78,095
P50,679
63,420
56,316
98,860
Globe Telecom entered into agreements with C2C for the
purchase of IRUs in the C2C and Japan-US Cable Networks.
The cost of capacity purchased from C2C amounted to
P1,133.79 million. This was part of property and equipment transferred to
Innove on June 30, 2004 (see Note 3b).
The net outstanding balances due to STI (included in “Accounts payable
and accrued expenses” in the consolidated balance sheets) arising from
these transactions are as follows:
2004
2003
(In Thousand Pesos)
Lease of cable facilities, maintenance
and restoration costs and
other transactions
P62,675
Software development, supply,
license and support fee
21,322
Technical assistance fee
8,899
(c)
In July 2002, Globe Telecom received advance service fees from C2C
amounting to U.S.$1.60 million, which will be offset against its share in the
operations and maintenance costs of the cable landing facilities of Globe
Telecom pursuant to a landing party agreement entered into by both parties
in August 2000. 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 U.S.$4.11 million.
2002
P14,193
P-
13,756
16,895
19,503
64,018
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 P16.32 million and P51.00 million in 2004 and 2003,
respectively, and service fees amounting to P43.76 million and
P42.33 million in 2004 and 2003, respectively.
The current
and noncurrent portions of the said advances shown as part of “Other longterm liabilities” account in the consolidated balance sheets follow:
In 2001, Globe Telecom signed a cable equipment supply
agreement with C2C, a related party of ST. The aggregate cost
of equipment purchased under this agreement amounted to
P2,815.11 million which were included in “Property and equipment”
account in the consolidated balance sheets.
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
GLOBE TELECOM, INC.
Current
Non-current
60
ANNUAL REPORT 2004
2004
2003
2002
(In Thousand Pesos)
P17,760
P59,483
P146,449
161,970
85,206
P164,209
P221,453
P85,206
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(d)
Globe Telecom reimburses AC for certain operating expenses. The
net outstanding liabilities to AC related to these transactions as of
December 31, 2004, 2003 and 2002 were not material.
The summary of consolidated outstanding balances resulting from transactions
with related parties follows:
2004
Innove
Innove and DT entered into a Technical Assistance Agreement (the Agreement)
whereby DT will provide technical advisory services for a fee. DT subsequently
assigned all its rights, title, interests, duties and obligations in the Agreement
to Consultancy by Technicus Corporation with the conformity of Innove. On
August 12, 2002, the Agreement was extended from December 31, 2002 to
December 31, 2003, with no other changes in the original provisions. Technical fees
charged to operations amounting to P0.64 million and P9.90 million in 2003 and
2002, respectively, are included in “Operating expenses” account in the consolidated
statements of income. The outstanding balances of P2.90 million and P4.98 million
as of December 31, 2003 and 2002, respectively, are included in “Accounts payable
and accrued expenses” account in the consolidated balance sheets.
Traffic settlements receivable (included
in Receivables)(see Note 4)
P57,222
Other current assets (see Note 6)
946
Traffic settlements payable (included in
Accounts payable and accrued
expenses) (see Note 10)
26,010
Accounts payable (included in
Accounts payable and accrued
expenses) (see Note 10)
122,959
Other long-term liabilities
(see Note 13)
2,426,491
2003
2002*
(In Thousand Pesos)
P569,891
1,118
P801,145
732
21,496
65,420
45,962
97,329
2,651,816
2,603,683
* Includes balances of transactions with DT.
15.
Stockholders’ Equity
Globe Telecom’s capital stock consists of:
2004
2003
2002
Shares
Amount
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares, Except Per Share Figures)
Preferred stock-Series “A” - P5 per share
Authorized
Issued and outstanding
Common stock - P50 per share
Authorized
Issued and subscribed
Outstanding
250,000 P1,250,000
158,515
792,575
250,000
158,515
P1,250,000
792,575
250,000
158,515
P1,250,000
792,575
200,000 10,000,000
151,905 7,595,272
139,904 6,995,200
200,000
151,905
139,904
10,000,000
7,595,272
6,995,200
200,000
151,905
151,905
10,000,000
7,595,272
7,595,272
On March 5, 2001, Globe Telecom’s BOD approved the creation of new
20 million series “B” preferred shares with a par value of P50 per share by further
increasing the authorized capital stock from P11.25 billion to P12.25 billion and the
amendment to Article Seven of the Amended Articles of Incorporation to reflect
the changes thereof. The BOD also approved the issuance of new 16 million
common shares in one or more offerings (other than rights issues) or private
placements and, for this purpose, to further amend Article Seven of the Amended
Articles of Incorporation to exclude such new issues of common shares from the
pre-emptive rights of the existing shareholders. On April 2, 2001, the stockholders
approved the above proposals to issue series “B” preferred shares, to issue the
16 million new common shares, and to exclude the shares from the shareholders’
pre-emptive rights. The proposal for the creation of series “B” preferred shares
GLOBE TELECOM, INC.
had been put on hold and there were no developments as of February 1, 2005,
leading to its authorization and issuance.
Treasury Shares
In October 2003, DTA sold its 24.8% equity ownership in Globe Telecom as
follows: (1) 10.04 million shares to AC; (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 P8.19 billion, representing the
total consideration for the 12 million shares at P680 per share and incidental costs
associated with the acquisition.
61
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 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; and
(g) Preferences as to dividend in the event of liquidation.
to 85% of the average closing price for the month prior to the month of eligibility.
The qualified officers and employees shall pay for the shares subscribed under the
ESOP1 and ESOWN through installments over a maximum period of ten years
and five 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. Exercised shares under ESOP1 totaled 1,712,133
shares with a weighted average exercise price of P196.75 a share.
On April 4, 2003, Globe Telecom granted additional stock options to key
executives and senior management personnel of the Globe Group under the
Executive Stock Option Plan 2 (ESOP2). It required the grantees to pay a
nonrefundable option purchase price of P1,000 until June 30, 2003, which is the
closing date for the acceptance of the offer. As of December 31, 2004, a total of
672,200 stock options were granted to key executives and senior management
personnel. ESOP2 provides for an exercise price of P547, which is the average
quoted market price of the last 20 trading days preceding April 4, 2003. Fifty
percent of the options becomes exercisable from April 4, 2005 to April 4, 2013,
while the remaining fifty percent becomes 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.
Preferred stock-series “A” shares were listed on June 29, 2001 with the PSE.
On December 15, 2004, the BOD approved the declaration of cash dividends
to preferred shareholders as of record date December 31, 2004 amounting to
P75.13 million, which remains outstanding as of December 31, 2004, and was
included in “Accounts payable and accrued expenses” account in the consolidated
balance sheets. The 2003 dividends payable to convertible preferred shareholders
amounting to P67.96 million was paid on September 28, 2004.
On July 1, 2004, Globe Telecom granted additional stock options to key executives
and senior management personnel of the Globe Group under the ESOP2.
The grantees were given until September 30, 2004 to accept the offer. As of
December 31, 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.
Stock Option Plans
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 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
GLOBE TELECOM, INC.
62
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A summary of Globe Telecom’s stock option activity and related information for the years ended December 31 follows:
2004
Outstanding, January 1 (ESOP1,
ESOP2 and ESOWN)
Granted (ESOP2)
Exercised (ESOP2)
Expired/forfeited/cancelled (ESOP1,
ESOP2 and ESOWN)
Outstanding, December 31
Exercisable, December 31 (ESOP1
and ESOWN)
2003
Number
of Shares
Weighted
Average
Exercise
Price
643,782
836,800
(2,700)
2002
Number
of Shares
Weighted
Average
Exercise
Price
Number
of Shares
Weighted
Average
Exercise
Price
P546.51
829.17
547.00
4,582
639,200
–
P477.51
547.00
–
4,582
–
–
P477.51
–
–
(27,282)
1,450,600
535.32
P709.77
–
643,782
–
P546.51
–
4,582
–
P477.51
–
P–
4,582
P477.51
4,582
P477.51
associates. The Globe Group is also subject to loan covenants that restrict its
ability to pay dividends (see Note 12).
Cash Dividends
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 annually
taking into account Globe Telecom’s operating results, cash flows, debt covenants,
capital expenditure levels and liquidity. The BOD also declared the first semiannual 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
P2,518.27 million on March 15, 2004. The second semi-annual cash dividend of
P2,518.27 million or 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.
16. Pension Plan
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. Unrealized past
service costs are amortized over the expected average future service years of
plan members estimated to be 20 years. Total pension expense amounted to
P88.00 million, P111.54 million and P96.94 million in 2004, 2003 and 2002,
respectively (included in staff costs under “Operating Costs and Expenses” in the
consolidated statements of income).
On April 1, 2003, the BOD of Globe Telecom approved the declaration of
cash dividends of P2,126.68 million (P14.00 per common share) to common
stockholders of record as of April 21, 2003. Globe Telecom paid cash dividends
on May 6, 2003.
Based on the latest actuarial valuation as of October 1, 2003 computed using
the projected unit credit method, the actuarial accrued liability amounted to
P545.27 million and the fair value of the plan assets amounted to P569.06 million,
resulting in an overfunding of P23.79 million. The principal actuarial assumptions
used to determine pension benefits included investment yield rate of 10% and
salary increase rate of 8% per annum. Globe Telecom’s annual contribution to the
pension plan consists of a payment covering the current service cost for the year
(included in staff costs under “Operating Costs and Expenses” in the consolidated
statements of income).
Restrictions on Retained Earnings
As of December 31, 2004, Globe Telecom’s retained earnings are restricted for the
payment of dividends to the extent of the acquisition cost of the treasury shares
amounting to P8,192.77 million.
The retained earnings also include the accumulated equity in
undistributed
net
earnings
of
consolidated
subsidiaries
and
associates
accounted
for
under
the
equity
method
totaling
P2,029.85 million as of December 31, 2004. This amount is not available for
dividend declaration until received in the form of dividends from subsidiaries and
GLOBE TELECOM, INC.
Innove
Innove has a funded, noncontributory, defined benefit pension plan covering
substantially all of its regular employees. Pension expense (included in staff costs
63
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
under “Operating Costs and Expenses in the consolidated statements of income)
amounted to P8.42 million and P4.38 million in 2003 and 2002, respectively.
Cost of sales represents mainly cost of handsets, phonekits, SIMs and
accessories sold to subscribers. Services and others include mainly professional
and management fees, taxes and licenses, costs of security and other
contractual services.
Based on the latest actuarial valuation as of October 1, 2003 computed using
the projected unit credit method, actuarial accrued liability amounted to
P223.30 million and the fair value of the plan assets amounted to P200.89 million.
The principal actuarial assumptions used to determine pension costs were a salary
increase of 8% per annum and an investment rate of return of 10% per annum.
Innove’s annual contribution to the pension plan consists of payments covering
the current service cost for the year plus a payment toward funding the actuarial
accrued liability.
Revenue Regulation (RR) No. 10-2002 defines expenses to be classified as EAR
expenses and set 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 2003, Innove implemented a separation program. There were 81 employees
who availed of the program at a total cost of P11.55 million. Innove’s separation
program constitutes a curtailment. A curtailment occurs when there is a
significant reduction in the number of employees covered by a plan or when an
element of future service in respect of existing employees will no longer qualify
for benefits. Accordingly, the resulting loss from the curtailment amounting to
P2.30 million was included in 2003 pension benefit cost (included in staff costs
under “Operating Costs and Expenses” in the consolidated statements of income).
18. Income Taxes
As discussed in Note 2, the Globe Group adopted SFAS 12/IAS 12, Income
Taxes, effective January 1, 2004. The information below includes the additional
disclosures required by the new standard.
Provision for income tax consists of:
17. Operating Costs and Expenses
Current
Deferred
This account consists of:
Cost of sales
Services and others
Selling, advertising
and promotions
Staff costs (see Note 16)
Utilities, supplies and other
administrative expenses
Rent (see Note 19a)
Repairs and maintenance
Entertainment, amusement and
recreation (EAR)
Number of employees
at end of period
2004
2003
2002
(In Thousand Pesos)
P6,675,198 P6,213,683 P6,678,570
4,307,201
3,387,776
2,104,198
3,753,134
2,729,251
3,119,264
2,471,312
2,070,141
2,348,833
1,714,677
1,420,067
1,325,098
1,545,426
1,604,418
1,779,154
1,277,093
2,056,727
1,480,133
The current provision for income tax in 2004 consists of current income tax
expense and the adjustments pertaining to current tax of prior periods, which
include the adjustment on the incentives availed by Globe Telecom from the
Income Tax Holiday (ITH).
9,447
10,065
31,995
P21,934,073 P20,131,098 P18,047,690
4,956
4,186
3,931
GLOBE TELECOM, INC.
2004
2003
2002
(In Thousand Pesos)
P379,929
P758,271 P1,252,601
412,744
(245,768)
1,029,302
P792,673
P512,503 P2,281,903
64
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The significant components of the deferred income tax assets and liabilities of the
Globe Group represent the deferred income tax effects of the following:
2004
2003
(In Thousand Pesos)
Net deferred tax assets and liabilities presented in the consolidated balance sheets
on a net basis by entity are as follows:
2004
2002
Deferred tax assets on:
Unearned revenues and
advances already subjected
to income tax
P1,022,142 P1,166,476
PAllowance for:
Doubtful accounts
1,646,573
571,435
557,944
Losses on property and equipment
and other probable losses 210,735
281,629
237,547
Inventory losses, obsolescence
and market decline
63,661
35,568
36,640
Impairment in value of investments
in shares of stock
10,373
10,373
10,373
Net unrealized foreign
exchange losses
149,616
244,744
133,840
Deferred charges
96,013
73,520
104,828
Unamortized pension cost
25,806
32,990
94,365
Accrued rent expense
36,704
NOLCO(c)
32
106,021
MCIT
255,215
42,592
P3,516,870 P2,565,348 P1,175,537
Deferred tax liabilities on:
Excess of accumulated
depreciation and amortization
of certain equipment for tax
purposes(a) over financial
reporting purposes(b) - net of
amortization of capitalized
expenses already claimed for
tax purposes
P3,798,220 P3,149,447 P2,390,563
Capitalized borrowing costs
already claimed as deduction
for tax purposes
1,319,288
1,229,481
1,028,279
Net realized foreign exchange
losses capitalized
1,674,387
1,048,701
864,963
Unamortized capitalized expenses
already claimed as deductions
in prior years
(219)
P6,791,895 P5,427,629 P4,283,586
(a) Sum-of-the-years digit method
(b) Straight-line method
(c) The remaining NOLCO pertains to GXI. As discussed in Note 1, GXI
started commercial operations on October 16, 2004.
GLOBE TELECOM, INC.
2003
(In Thousand Pesos)
2002
Net deferred tax assets
(Innove and GXI)*
P1,494,516
P687,945
PNet deferred tax liabilities (Globe) 4,769,541
3,550,226
3,108,049
* Includes net deferred tax assets of GXI amounting to P0.03 million in 2004.
Deferred tax assets are recognized only to the extent that taxable income will
be available against which the deferred tax assets can be used. In 2004 and
2003, Innove recognized deferred tax assets amounting to P2,058.25 million
and P903.28 million, respectively, from its previously unrecognized deferred tax
assets based on the result of management’s periodic review of the recoverability
of deferred tax assets that considers the sufficiency of future taxable income
from which all or part of the deferred tax assets would be utilized. As of
December 31, 2004, total deferred tax assets recognized in the books of Innove
amounted to P2,112.19 million.
As of December 31, 2003 and 2002, deferred tax assets of Innove have not
been recognized in respect of the deductible temporary differences in the table
below that are available for offset against future taxable income or tax payable,
including MCIT which shall be available for the three succeeding years (amounts in
thousand pesos).
Unearned revenues and advances already
subjected to income tax
Allowance for:
Doubtful accounts
Losses on property and equipment
and other probable losses
Inventory losses, obsolescence
and market decline
Deferred charges
MCIT
Provision for restructuring cost
Unamortized pension cost
NOLCO
2003
2002
P2,755,527
P5,188,334
2,332,016
2,254,288
378,406
384,934
25,566
37,966
231,951
295,774
218,365
164,184
19,447
201,661
6,734
3,416
4,041,270
P5,968,012 P12,571,827
As of December 31, 2004, 2003 and 2002, deferred income tax
liabilities (assets) have not been recognized on the undistributed
earnings (losses) of subsidiaries and associates amounting to
P2,029.85 million, (P198.04 million) and (P3,764.36 million), respectively, since such
amounts are not taxable.
65
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of December 31, 2004, Innove’s MCIT that can be used as deduction against
income tax liabilities for the next three years from the year incurred are as follows
(in thousand pesos):
The reconciliation of the provision for income tax at statutory tax rate and the
actual provision for income tax follows:
2004
Year Incurred
2002
2003
2004
Date of Expiration
2005
2006
2007
MCIT
P121,592
96,773
36,850
P255,215
Provision at statutory income
tax rate
P3,856,012
Add (deduct) tax effect of:
Changes in unrecognized
deferred tax assets
(2,058,254)
Income under income
tax holiday
(1,074,326)
Additional deferred tax liability
on wireline assets transferred
due to different tax rates
167,373
Income subjected to lower
tax rates
(124,864)
Unearned revenues under income
tax holiday
(98,418)
Equity in net losses (earnings)
of an associate
20
Provision for impairment of
investments in shares of stock
Expired NOLCO
Others
125,130
Actual provision for income tax P792,673
Following are the movements in Innove’s and GXI’s NOLCO and MCIT:
2004
NOLCO:
At January 1
Additions
Applications/expirations
At December 31
P331,315
101
(331,315)
P101
2003
2002
(In Thousand Pesos)
P4,041,270
(3,709,955)
P331,315
P6,930,594
(2,889,324)
P4,041,270
The remaining NOLCO will expire in 2007.
2004
MCIT:
At January 1
Additions
Expirations
At December 31
P260,957
36,850
(42,592)
P255,215
2003
2002
(In Thousand Pesos)
P164,184
96,773
P260,957
P42,592
121,592
P164,184
2003
2002
(In Thousand Pesos)
P3,474,482
P2,944,044
(2,076,376)
779,325
(1,536,559)
(1,543,860)
-
-
(206,240)
(139,312)
463,762
-
1,261
(223)
286,256
11,508
94,409
P512,503
97,726
144,203
P2,281,903
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. The Globe Group is
entitled to certain tax and non-tax 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 BOI approved Globe Telecom’s application under E.O.
No. 226 as an Expanding Operator of Telecommunication 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 three years, from May 2002 or from the actual start
of commercial operation, whichever is earlier but in no case earlier than the date
of registration. Application of the ITH commenced on April 1, 2002, the date
when Phase 8 Expansion was placed in commercial operation. Only income from
Phase 8 Expansion are entitled to ITH. The availment of the ITH resulted in an
increase of P8.38, P7.18 and P10.16 in basic earnings per share in 2004, 2003 and
2002, respectively.
GLOBE TELECOM, INC.
66
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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). Globe Telecom
is entitled to ITH for a period of six years from May 2002 or actual start of
commercial operations, whichever is earlier but in no case earlier than the date of
registration. Commercial operations commenced in May 2002. There were no
benefits availed from the ITH under the Cable Landing Station Facilities.
(b)
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 P21.22 million and P13.19 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.
On June 30, 2004, Globe Telecom transferred additional wireline assets and
certain investments in cable systems to Innove (see Note 3b). 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.
(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 December 31, 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):
19. Agreements and Commitments
Lease Commitments
(a) Operating lease commitments - Globe Group as lessee
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
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 P1,420.07 million, P1,604.42 million and
P2,056.73 million in 2004, 2003 and 2002, respectively (see Note 17).
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.
P528,239
1,895,387
1,049,610
P3,473,236
GLOBE TELECOM, INC.
P24,890
14,816
39,706
3,100
P36,606
P22,845
13,761
P36,606
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 (see Note 13).
As of December 31, 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
Operating lease commitments - Globe Group as lessor
67
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 (see
Note 3a).
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.
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 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 (see Note 2),
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 P3,454.29 million, P3,003.05 million and P3,805.17 million,
respectively (see Note 10). As of December 31, 2004, the consolidated expected
future payments amounted to P6.77 billion. The settlement of these liabilities is
dependent on the payment terms agreed with the suppliers and contractors. The
normal repayment credit terms commence once the projects are finally accepted
by Globe Telecom and Innove.
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, the Globe Group received the order of the SC
requiring the Companies 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 1, 2005, Globe Telecom is still awaiting the resumption of proceedings
before the RTC.
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.
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.
20. Contingencies
Development with U.S. Carriers
On February 7, 2003, AT&T and MCI WorldCom (MCI) filed a petition before
the U.S. Federal Communications Commission (U.S. FCC) seeking a stop payment
order on settlements to 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 U.S. FCC issued an Order suspending all settlement payments of U.S. facilitiesbased carriers to a number of Philippine carriers, including Globe Telecom, until
such time as the U.S. FCC issues a Public Notice stating otherwise.
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 Globe Group’s financial position and results of operations.
NTC Memorandum Circular No. 13-6-2000
Globe Telecom is an intervenor in and Innove 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,
GLOBE TELECOM, INC.
The 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, NTC issued an order
last 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.
68
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
On October 17, 2003, the NTC issued a Memorandum Order instructing all
Philippine carriers to immediately accept terminating traffic via direct circuits from
U.S. facilities-based carriers on mutually acceptable final or interim termination
rates and on terms and conditions agreed upon by the parties.
had been normalized. U.S. carriers are now 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 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.
In November 2003, MCI and Sprint concluded interim commercial arrangements
with Globe Telecom for termination rates covering the period February 1, 2003 to
March 31, 2004. On January 9, 2004, Globe Telecom and AT&T signed an interim
agreement for termination rates.
In August 2004, the 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 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. In the meantime, interim agreements remain in place and govern the
relationship between the parties, and both traffic and payments continue to flow.
Globe Telecom continues to consider its options in responding to the latest order
of the U.S. FCC.
On January 10 and 11, 2004, the U.S. Department of Justice served subpoenas
to three Globe Telecom executives 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 dispute may
have violated U.S. Laws. The executives of other Philippine telecommunications
companies were also served subpoenas. The outcome of the investigation is
presently not determinable.
On January 26, 2004, the U.S. FCC lifted the stop-payment order against Globe
Telecom following confirmation by U.S. carriers that service with Globe Telecom
21.
Earnings Per Share
Globe Telecom’s earnings per share amounts for the years ended December 31 were computed as follows:
2004
2003
2002
(In Thousand Pesos and Number of Shares, Except Per
Share Figures)
Net income attributable to common shareholders for basic earnings per share
Add dividends on preferred shares (see Note 15)
Net income attributable to common shareholders for diluted earnings per share
Weighted average number of shares for basic earnings per share
P11,182,238
P10,277,296
P6,854,236
75,128
67,957
–
P11,257,366
P10,345,253
P6,854,236
139,904
149,405
151,905
872
1,227
–
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
* The convertible preferred stock-series “A” were anti-dilutive in 2002.
297
74
1
141,073
150,706
151,906
P79.93
P68.79
P45.12
P79.80
P68.65
P45.12
As discussed in Note 14, Globe Telecom acquired 12 million of its common shares in October 2003 following DTA’s sale of its equity investment in Globe Telecom.
GLOBE TELECOM, INC.
69
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
22. Foreign Currency-Denominated Monetary Assets and Liabilities
The foreign currency-denominated monetary assets and liabilities and their Philippine peso equivalents follow:
2004
U.S.
Dollar
Assets
Cash and cash equivalents
Short-term investments
Traffic settlements receivable
Other current assets
Miscellaneous deposits
and investments
Liabilities
Accounts payable and
accrued expenses
Traffic settlements payable
Long-term debt
Other long-term liabilities
Net foreign currencydenominated liabilities
2003
U.S.
Peso
Dollar
Equivalent
(In Thousands)
Peso
Equivalent
2002
U.S.
Dollar
Peso
Equivalent
$173,563
9,574
49,114
2,490
P9,778,713
539,409
2,767,132
140,289
$141,414
33,416
112,064
3,129
P7,860,639
1,857,462
6,229,189
173,929
$135,829
75,000
81,870
74
P7,233,438
3,994,050
4,359,905
3,940
234,741
13,225,543
12,523
302,546
696,103
16,817,322
–
292,773
–
15,591,333
52,626
28,936
713,258
48,197
843,017
2,965,001
1,630,283
40,185,669
2,715,467
47,496,420
66,315
39,649
858,022
53,185
1,017,171
3,686,186
2,203,929
47,694,036
2,956,316
56,540,467
89,575
27,127
973,340
55,107
1,145,149
4,770,205
1,444,621
51,834,248
2,934,690
60,983,764
$608,276
P34,270,877
$714,625
P39,723,145
$852,376
P45,392,431
As a result of the translation of these foreign currency-denominated assets
and liabilities, the Globe Group reported net foreign currency revaluation gain
amounting to P301.10 million in 2004 and losses amounting to P1,234.33 million
and P960.50 million in 2003 and 2002, respectively.
The Globe Group’s foreign exchange differentials arising from remeasurement
of foreign currency-denominated liabilities/borrowed funds covered by currency
swap contracts amounted to gain of P515.34 million in 2004 and losses of
P431.27 million and P553.08 million in 2003 and 2002, respectively. These foreign
exchange differentials were included in “Deferred charges and others - net”
account in the consolidated balance sheets.
The foreign exchange differentials arising from remeasurement of foreign
currency-denominated accounts (other than those relating to the liabilities/
borrowed funds attributed to financing the capital projects and those covered by
swap contracts) are charged against current operations. Globe Group’s foreign
exchange gains credited to current operations amounted to P90.45 million,
P304.37 million and P56.88 million in 2004, 2003 and 2002, respectively
[included in the “Others - net” account under Other income (expenses) in the
consolidated statements of income].
Financial Instruments
As of December 31, 2004, Globe Telecom has U.S.$85.65 million outstanding
foreign currency swap agreements with certain banks, under which it effectively
swaps the principal and interest of certain U.S. dollar-denominated loans into
Philippine pesos, with quarterly or semi-annual payment intervals up to June 2008.
Globe Telecom also has outstanding foreign currency swap agreements with
certain banks, under which it effectively swaps the principal of U.S.$150.27 million
U.S. dollar-denominated loans into Philippine pesos up to April 2012. Under these
contracts, swap costs are payable in semi-annual intervals in Philippine pesos or
U.S. dollars. Of the U.S.$150.27 million, U.S.$10.42 million is in combination with
sold out-of-the-money U.S. dollar call options with a strike price of P62.50, while
another U.S.$25.00 million provides Globe Telecom the option to reset lower
to a certain minimum the foreign exchange rate used to determine Philippine
The consolidated foreign exchange differentials attributed to the
remeasurement of foreign currency-denominated liabilities used to finance
the acquisition and installation of Globe Group’s property and equipment
consisted of net foreign exchange losses amounting to P304.69 million,
P1,107.43 million and P464.30 million in 2004, 2003 and 2002, respectively. These
foreign exchange differentials were added to or deducted from the cost of the
appropriate property and equipment accounts (see Note 7).
GLOBE TELECOM, INC.
70
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
peso equivalent amounts to be net settled by Globe Telecom upon maturity or
termination. The reset option has been exercised.
to the base interest rate payable semi-annually in arrears and to the redemption
amounts. As of December 31, 2004, the carrying amount of the DLPN
investments approximates its aggregate market value.
Globe Telecom has outstanding interest rate swap contracts, which effectively
swaps certain floating rate U.S. dollar-denominated loan into fixed rate, with
semi-annual payment intervals up to August 2007 and April 2012. The swap
has an aggregate outstanding notional amount of U.S.$88.73 million as of
December 31, 2004. Globe Telecom also has an outstanding interest rate swap
with a notional amount of U.S.$5 million under which it effectively swapped the
9.75% coupon on its outstanding 2012 Senior Notes into 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 other leg is
fixed subject to a daily range accrual. The range accrual is linked to the difference
between the 30-year and 10-year USD swap rates. Globe Telecom also has an
outstanding interest rate swap contract with a notional amount of P1 billion, which
effectively swaps a fixed rate Philippine peso-denominated bond into floating rate,
with quarterly payment intervals up to February 2009.
Globe Telecom entered into non-deliverable currency forward contracts to fix the
Philippine peso cashflows from coupon and redemption of certain DLPN. As of
December 31, 2004, the aggregate notional amount of these contracts amounted
to U.S.$2.96 million.
Globe Telecom enters into deliverable currency forward contracts to manage
its foreign exchange exposure on the redemption of its Senior Notes. Some of
these forward contracts were entered in combination with sold European-type
call options. Globe Telecom also enters into deliverable prepaid forward purchase
contracts. As of December 31, 2004, there are no such outstanding contracts.
Globe Telecom and Innove enter into investments in U.S. Dollar Notes and Deposits
(USD Notes and Deposits) issued by various financial institutions and which are
presented under “Short-term investments” account in the consolidated balance
sheets. The interest rates of the USD Notes and Deposits are based on LIBOR
plus spread payable either every three months or on specified dates. An early
redemption feature is provided in the USD Notes and Deposits, which is triggered
by specified credit events of the reference entity, the ROP. The credit events include
failure to pay, obligation acceleration, repudiation/ moratorium and restructuring of
the ROP’s reference obligations as defined in the agreements. If a credit event
occurs during the applicable period, issuers may redeem the USD Notes and
Deposits through delivery of the ROP reference obligations or the cash settlement
amounts, depending on specified criteria. The early redemption feature triggered by
specified credit events is a credit derivative linked to the ROP reference obligations.
As of December 31, 2004, there are no such outstanding contracts.
Globe Telecom enters into short-term floating to fixed interest rate swap
contracts to manage its floating interest rate exposure on certain shortterm peso investments. Under these contracts, Globe Telecom receives fixed
interest rate and pays floating interest rate based on compounded overnight
investment rate of the counterparty over a specified period of time. As of
December 31, 2004, there are no such outstanding contracts.
The Globe Group’s swap costs accruing on the long-term foreign currency and
interest rate swap contracts included in “Swap costs and other financing charges”
account in the consolidated statements of income amounted to P1,056.19 million,
P1,407.74 million and P1,299.81 million in 2004, 2003 and 2002, respectively.
For disclosure purposes, the estimated net aggregate unrealized mark-to-market
gain as of December 31, 2004 on these outstanding derivatives amounted to
P482.07 million based on mark-to-market valuation provided by counterparty
banks. Such unrealized mark-to-market gain is not included in the determination
of income.
Globe Telecom sold currency options with total notional amount of
U.S.$16.00 million at an average strike price of P58.50/U.S.$1.00 maturing on
March and September 2005. These were entered into to subsidize the cost of
outstanding currency swap contracts.
Globe Telecom has investments in U.S. Dollar-Linked Peso Notes (DLPN) issued
by the Republic of the Philippines (ROP) maturing December 2005. As of
December 31, 2004, the outstanding DLPN investments amounted to
P150.00 million. DLPN investments are included in the “Short-term investments”
and “Miscellaneous deposits and investments” accounts in the consolidated
balance sheets.
23. 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
The redemption amounts and interest rates of these DLPN investments are
based on a pre-agreed formula, which includes a foreign exchange factor applied
GLOBE TELECOM, INC.
71
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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.
consist principally of fixed monthly basic fee for service and equipment, one-time
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.
Wireline Data Communications Services - represents 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. On September 30, 2003, Globe Telecom has discontinued its
telex service due to declining revenues and for cost efficiency.
Wireline Voice 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
The Globe Group evaluates performance based on EBITDA.
The Globe Group’s segment information for the years ended December 31 is as follows (in millions):
2004
Revenues
Operating expenses
EBITDA[2]
Depreciation and amortization
EBIT
Other income (expenses) - net
Income (loss) before income tax
Capitalized expenditures
Segment assets[3]
Segment liabilities[3]
Wireless
Communications
Services
P49,903
(18,649)
31,254
(12,222)
19,032
(5,575)
P13,457
P19,158
P107,234
P73,177
Wireline Voice
Communications
Services[4]
P3,964
(1,517)
2,447
(2,390)
57
30
P87
P860
P19,719
P1,704
Wireline Data
Communications
Services
P1,742
(878)
864
(368)
496
8
P504
P404
P4,996
P352
Corporate[1]
P–
(1,526)
(1,526)
(916)
(2,442)
444
(P1,998)
P1,280
P4,681
P1,106
Total
P55,609
(22,570)
33,039
(15,896)
17,143
(5,093)
P12,050
P21,702
P136,630
P76,339
The bond redemption cost (see Note 12) and results of GXI operation (see Note 1) are reported under wireless communications services.
GLOBE TELECOM, INC.
72
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2003
Revenues
Operating expenses
EBITDA[2]
Depreciation and amortization
EBIT
Other income (expenses) - net
Income (loss) before income tax
Capitalized expenditures
Segment assets[3]
Segment liabilities[3]
Wireless
Communications
Services
Wireline Voice
Communications
Services[4]
Wireline Data
Communications
Services
Corporate [1]
Total
P44,465
(16,944)
27,521
(8,371)
19,150
(4,349)
P14,801
P10,037
P110,491
P82,389
P3,573
(1,620)
1,953
(2,431)
(478)
(314)
(P792)
P4,916
P21,361
P1,805
P1,440
(867)
573
(351)
222
(185)
P37
P137
P2,283
P236
P–
(2,193)
(2,193)
(1,008)
(3,201)
13
(P3,188)
P2,367
P5,307
P1,295
P49,478
(21,624)
27,854
(12,161)
15,693
(4,835)
P10,858
P17,457
P139,442
P85,725
The provision for impairment of the investment in C2C Holdings is reported under Corporate (see Note 9).
2002
Revenues
Operating expenses
EBITDA[2]
Depreciation and amortization
EBIT
Other income (expenses) - net
Income (loss) before income tax
Capitalized expenditures
Segment assets[3]
Segment liabilities[3]
[1]
[2]
[3]
[4]
Wireless
Communications
Services
Wireline Voice
Communications
Services[4]
Wireline Data
Communications
Services
Corporate[1]
Total
P41,161
(14,502)
26,659
(6,939)
19,720
(5,872)
P13,848
P14,156
P95,223
P69,670
P3,555
(1,676)
1,879
(2,843)
(964)
(489)
(P1,453)
P5,305
P32,621
P10,837
P1,084
(772)
312
(534)
(222)
(214)
(P436)
P547
P3,266
P1,143
P–
(2,146)
(2,146)
(572)
(2,718)
(41)
(P2,759)
P1,079
P7,110
P2,606
P45,800
(19,096)
26,704
(10,888)
15,816
(6,616)
P9,200
P21,087
P138,220
P84,256
Corporate represents support services that cannot be directly identified with any of the revenue generating services.
The term EBITDA is generally defined as earnings before interest, tax, depreciation and amortization expense and 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.
Includes value added services and internet subscriptions generated from wireline voice customers.
GLOBE TELECOM, INC.
73
ANNUAL REPORT 2004
Globe Telecom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
24. Notes to Consolidated Statements of Cash Flows
26. Events After the Balance Sheet Date
The principal noncash transactions for the years ended December 31
are as follows:
2004
2003
2002
(In Thousand Pesos)
Increase (decrease) in liabilities
related to the acquisition of
property and equipment
P935,909 (P1,637,835) P2,559,540
Dividends on preferred shares
75,128
67,957
61,000
On February 1, 2005, the BOD approved the following:
a.
Declaration of first semi-annual cash dividends in 2005 of P20 per share
payable to common stockholders of record as of February 18, 2005 payable
on March 15, 2005.
b.
An offer to purchase one share for every fifteen shares (1:15) of the
outstanding common stocks of Globe Telecom from all stockholders of
record as of February 10, 2005 at P950 per share. The approval allows
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 intends to commence the
tender offer on February 3, 2005 and to end the offer on March 2, 2005.
c.
Retirement of the shares to be purchased and the existing 12 million
treasury shares acquired in 2003 from DTA (see Note 15).
The cash and cash equivalents account consists of:
Cash on hand and in banks
Short-term placements
2004
2003
2002
(In Thousand Pesos)
P1,967,695 P2,615,191 P5,171,785
11,614,147 10,425,857 13,791,369
P13,581,842 P13,041,048 P18,963,154
Cash in banks earn 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 the Globe Group and earn interest at the
respective short-term placement rates.
27. Approval of the Consolidated Financial Statements
25.
Reclassification of Certain Accounts
On February 1, 2005, the BOD approved and authorized the release of the
consolidated financial statements of Globe Telecom, Inc. and Subsidiaries as of and
for the years ended December 31, 2004, 2003 and 2002.
Certain comparative figures have been reclassified to conform with the current
year’s presentation (see Note 2).
GLOBE TELECOM, INC.
74
ANNUAL REPORT 2004
Globe Telecom Business Centers
METRO MANILA
Ortigas
EASTWOOD
G/F Cybermall Megaworld Bldg., Eastwood City, Libis,
Quezon City (beside IBM) Tel. 687-7138
GREENHILLS HUB
G/F Greenhills Connecticut Carpark 1 Bldg., Ortigas
Avenue, San Juan Tel. 744-0866
PODIUM HUB (Sales Dedicated Center)
5th Level The Podium Bldg ADB Ave., Ortigas Center,
Madaluyong City (near SM Cinema) Tel. 914-3842
ROBINSONS GALLERIA
Ground Flr., Level 1, 1-A11 Robinson’s Galleria Mall
(near Pizza Hut) Tel. 914-3693
SHANGRI-LA LINK
Level 1 (across Marks & Spencer) Shangri-la Plaze,
EDSA cor. Shaw Blvd., Mandaluyong City (across Marc
& Spencer 1st level) Tel. 910-2048
SM MEGAMALL
5/F SM Megamall Bldg. Building B Ortigas Center, Pasig
City (near Megatrade) Tel. 910-6535
North East
ALI MALL CUBAO
Space 35 Ali Mall II Upper Ground Flr., Araneta Cubao,
Quezon City
Tel. 912-3407
ROBINSONS CAINTA
Robinsons Big R Super Center, Cainta Junction, Ortigas
Ave. Extension, Cainta, Rizal Tel. 656-4865
ROBINSONS METRO EAST LINK
Level 1 Robinsons Metro East, Marcos Hi-way cor.
Imelda Ave., Pasig City (cor. Big R/ across Greenwich)
Tel. 900-1207
SM FAIRVIEW
Unit 2004 2nd level SM Fairview Quirino Highway
Cor. Regalado Avenue Greater Lagro,Quezon City
(near Shakey’s) Tel. 419-6470
North West
CALOOCAN
Unit F-6 4/F Araneta Square, Bonifacio Monument
Circle, Caloocan City Tel. 362-9160
QUEZON AVENUE
Unit 103 -A Ground Floor, National Bookstore Inc.,
Quezon Ave., Quezon City
SM CENTERPOINT
3/F Unit 310 Magsaysay Blvd. Cor. Araneta Ave., Sta.
Mesa Manila (near Bingo Plaza) Tel. 713-1606
SM NORTH EDSA
Right Wing SM Car Park Plaza III, SM City North Edsa,
Quezon City (near Informatics) Tel. 454-8835
SM SUCAT LINK
3rd Level, SM SUPERSUCAT CENTER, Sucat Road,
Paranaque City (near SM Cinema) Tel. 820-7734
Makati
DIGITAL XCHANGE GLORIETTA 3 (Sales Dedicated
Center) Store#6 3/F, Glorietta 3, Ayala Center,
Makati City Tel. 752-9019
BINONDO
G/F & 2/F Enrique T. Yuchengco Bldg., 484 Quintin
Paredes St., Binondo, Manila (near RCBC Bank)
Tel. 245-9046
GREENBELT HUB (Sales Dedicated Center)
322-B, level 3, Greenbelt 3, Ayala Ave., Makati City
(beside Red Box Restaurant) Tel. 757-6340
ROBINSONS PLACE MANILA LINK
Space 020 Level 3 Pedro Gil Wing Robinsons Place
Manila (near Headway Barber Shop Salon)
Tel. 400-1430
GLORIETTA HUB (Sales Dedicated Center)
Unit 252/254 2nd level, HUB Glorietta 4 Building, Ayala
Center (near national Bookstore 2nd level)
Tel. 757-0525
MARKET MARKET
Unit 444 & 445 4/F Market Market, Lot C, Bonifacio
Globel City, Taguig, Metro Manila Tel. 757-2693
SM MANILA
4/Flr Unit 430 SM City Manila, Arroceros St. Cor.
Marcelino Sts and Concepcion Avenue Manila (near
Chowking) Tel. 522-8894
NORTH LUZON
METROPOINT MALL
Unit 417, 4th Level Metropoint Mall, Pasay Edsa cor.
Taft Ave., Pasay City Tel. 832-3569
ANGELES
Unit F & G, D.M. Gomez Bldg., Salapungan, Angeles
City Pampanga Tel. (02) 246-8320
GT PLAZA
Upper ground Globe Telecom Plaza Pioneer St., Cor.
Madison St. Mandaluyong City Tel. 730-2586
BALANGA LINK
G/F Recar Commercial Complex, J.P. Rizal St., Balanga
City, Bataan Tel. (047) 237-7742
PARK SQUARE1
Park square 1 South Drive Ayala Center Makati City
(near Exit of Park Square 1 parking) Tel. 752-8142
CABANATUAN LINK
Ground Level GL-4b NE Pacific Mall, Km. 111, Maharlika
Highway , Cabanatuan City, Nueva Ecija
Tel. (044) 463-7377
ROCKWELL HUB ( Sales Dedicated Center)
Unit 317 3rd level Powerplant Mall , Rockwell, Makati
City ( near bowling alley) Tel. 756-5091, 756-5090
TOWER ONE
G/F Unit C Tower One and Exchange Plaza Ayala
Avenue , Makati City (across The Enterprise)
Tel. 751-3286
South
ALABANG TOWN CENTER
3/F New Wing ATC Alabang, Muntinlupa City
Tel. 580-5236
FESTIVAL SUPERMALL
Unit 4064 A&B (4/F) Alabang Zapote Wing , Filinvest
Festival Supermall, Filinvest Corporate City, Alabang
Muntinlupa (near Game Worx) Tel. 842-8026
SM BICUTAN LINK
Bldg B, Unit 212 2/F SM Bicutan (near SM Cinema)
Tel. 776-1408
SM SOUTHMALL LINK
2/F Cyberzone SM Southmall Las Piñas City (near
National Bookstore) Tel. 805-2979
GLOBE TELECOM, INC.
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ANNUAL REPORT 2004
CANDON
KanPing Commercial Bldg., Maharlika Hway, Bgy. San
Antonio, Candon City, Ilocos Sur Tel. (077) 644-0139
DAGUPAN
G/F 127 Nepo Mall Dagupan, Arellano Ave., Dagupan,
Pangasinan Tel. (075) 523-4786
LAOAG
G/F Lazo Bldg., Rizal cor. Abadilla St., Barrio San
Lorenzo, Laoag City Tel. (077) 770-3895
MALOLOS LINK
103-A E & R Bldg., Malolos Crossing, Mc Arthur
Highway cor. Mabini, Malolos Bulacan (near Chowking)
Tel. (044) 662-2701
OLONGAPO
GF 1799 Rizal Ave., West Bajac-Bajac, Olongapo City
Tel. (047) 223-1327
PLARIDEL
Grid E-F & 1-2 Walter Mart Supermarket Cagayan
Valley Road, Barrio Banga 1, Plaridel, Bulacan
Tel. (044) 795-3253
SAN FERNANDO, LA UNION
G/F Provincial Administrative Bldg., Quezon Ave., San
Fernando, La Union Tel. (072) 242-0733
SANTIAGO, ISABELA
Unit 7 - VMG Bldg., Maharlika H-way, Centro East,
Santiago City, Isabela Tel. (078) 682-3955
SHELL NORTH SERVICE STATION
Shell North Service Station, Borol, Balagtas, Bulacan
Tel. (044) 639-3503
SM BAGUIO
Unit 349 & 350 - Level 3, SM City Baguio, Luneta Hill,
Upper Session Road, Baguio City Tel. (074) 443-8903
SM MARILAO
Unit 219 level 2, SM City Marilao, KM. 21
Barangay Ibayo, Mc Arthur Hway, Bulacan
Tel. (044) 933-2026
SM PAMPANGA
Ground Floor, SM City Pampanga, Lagundi,
Mexico, Pampanga (infront of Play & Display)
Tel. (045) 961-6339
TARLAC
G/F Metrotown Mall Juan Luna st. cor. McArthur HiWay, Tarlac City Tel. (045) 982-0416
TUGUEGARAO
Unit 57-B Chowking Bldg. Balzain Rd. Tuguegarao
City,Cagayan Valley (beside of Chowking)
Tel. (078) 844-5526
URDANETA
3/F Unit 303 Urdaneta Magic Mall, Alexander St., cor.
Poblacion St., Urdaneta, Pangasinan Tel. (075) 6242042
VIGAN
Unit 3 Formoso Townhouse A. Mabini St. Vigan,
Ilocos Sur Tel. (077) 722-1697
SOUTH LUZON
VISAYAS
CALAMBA
2/F J. Alcasid Bldg., Crossing, Calamba Laguna (infront of
Mercury Drug Store) Tel. (049) 545-2594
BACOLOD
3rd Level, Robinsons Place, Mandalagan, Bacolod City
Tel. (034) 709-7600
LEGASPI
2nd Level Pacific Mall, Landco Business Park, Bitano,
Legaspi City Tel. (052) 480-8134
CEBU AYALA CENTER
2nd Level Center, Cebu Business Park, Cebu City
Tel. (032) 412-2525
NAGA
1st Level, LCC Central Mall, Felix Plaza St., Naga City
Tel. (054) 811-6169
DUMAGUETE
G/F Sol Y Mar Bldg; San Juan st cor Rizal blvd.
Dumaguete City (infront of the Blvd.)
Tel. (035) 422-0105
PUERTO PRINCESA
G-7 & M-7, Pacific Plaza Bldg., Rizal Avenue, Puerto
Princesa City, Palwan Tel. (048) 434-7853
ROBINSONS DASMARINAS
Level 3 Robisnsons Place, Dasmarinas, Governor’s
Drive cor E. Aguinaldo Highway, Bgy. Sampaloc 1 , PalaPala, Dasmarinas, Cavite Tel. (046) 8522134
ROBINSONS LIPA
Level 2 Robisons Place Lipa, JP Laurel
National H-way, Mataas na Lupa, Lipa City
Tel. (043) 404-0476 / 312-1331
ROBINSONS STA ROSA LINK
Robinsons Mall, Bgy. Tagapo Old National Highway, Sta
Rosa Laguna Tel. (02) 520-8102
SM BACOOR
3 Level SM Bacoor Aguinaldo Hway cor. Tirona,
Bacoor, Cavite (infront of Bingo Bonanza)
Tel. (046) 970-8134
SM DASMARINAS (will open December 30)
GT 2/F Level SM Dasmarinas, Governors Drive 1 Brgy.,
Sampaloc, Dasmarinas, Cavite Tel. (046) 973-0376
SM LUCENA
Unit 343 L3 SM City Lucena, Dalahican Road cor.
Pagbilao Rd., Bgy. Ibabang Dupay Red V, Lucena City
Tel. (042) 710-3439
SAN PABLO
Unit 30 Ultimart Shopping Mall, M. Paulino St., San
Pablo, Laguna Tel. (049) 561-2003
GLOBE TELECOM, INC.
76
ANNUAL REPORT 2004
ELIZABETH MALL, CEBU
Elizabeth Mall T-020 3rd Level cor. N Bacalso & Keon
Kilat Sts., Cebu City Tel. (032) 417-7792
KALIBO, AKLAN
LG-1 Gaisano City, Kalibo Roxas Ave. Ext., Bgy.
Andagao, Kalibo, Aklan Tel. (036) 500-7243
ROXAS CITY
Area #9 Gaisano Arcade Arnaldo
Roxas City Tel. (036) 522-2083
Boulevard,
SM CEBU
3rd level SM City Cebu North Reclamation Cebu City
(near Megatrade) Tel. (032) 412-9956 (032) 412-9957
SM ILOILO
Level 2 SM City Iloilo, B. Aquino Ave. Mandurriao, Iloilo
City 5000 Tel. (033) 320-7739
TACLOBAN
Uyping Commercial Bldg., Justice Romualdez St.,
Tacloban City Tel. (053) 523-9501
TAGBILARAN
Digal Bldg., Carlos P. Garcia Ave., Tagbilaran City
Tel. (038) 501-7203
MINDANAO
BUTUAN
3rd level Gaisano Mall, J.C. Aquino
Butuan City Tel. (085) 341-5216
Avenue,
CAGAYAN DE ORO
Unit 313, 3rd level SM City-CDO, Gran Via st. corner
Mastersons Ave. Cagayan De Oro City 9000
Tel. (088) 859-1159
CDO LIMKETKAI
Unit M2-101 Limketkai Mall, Entrance 2, Lapasan
Highway, Cagayan De Oro Tel. (088) 856-6750
COTABATO CITY
G/F El Marco Bldg. Sinsuat Avenue Cotabato City
Tel. (064) 482-0001
ILIGAN
G/F Kimberly bldg. National Highway , Tibanga,
Iligan City
Tel. (063) 223-9139
DAVAO SM
3rd Level, SM City Davao, Ecoland Subd., Quimpo
Blvd., Davao City (near SM Cinema)
Tel. (082) 297-7761
TAGUM
GF NCCC Mall, National Highway, Tagum City
Tel. (084) 400-4362
DAVAO VP
2/F Victoria Plaza, J.P. Laurel Ave., Bajada, Davao City
Tel. (082) 300-3666
GENERAL SANTOS
201, 2/F KCC Mall of Gensan J. Catololico Ave., General
Santos City Tel. (083) 553-1302
OZAMIS
B-5 G/F Gaisano Ozamis City Mall, cor. Rizal
Ave. & Zamora Extension, Ozamis City, Misamis
Occidental
Tel. (088) 521-4054
Innove Business Centers
Customer Care Directory
Luzon Office
Globelines Payments & Services, Upper Ground
Floor, Globe Telecom Plaza Tower 1, cor. Pioneer &
Madison Sts., Mandaluyong City
Tel. (02) 730-2757 (02) 7975554
VisMin Office
17th Floor Innove Plaza, cor. Samar Loop & Panay Rd.,
Cebu Business Park, Cebu City
Tel. (032) 415-8831 (032) 415-8888 loc 830
Operations Support
Globelines Payments & Services, Upper Ground
Floor, Globe Telecom Plaza Tower 1, cor. Pioneer &
Madison Sts., Mandaluyong City
Tel. (02) 730-3984 (02) 7975558
15th Floor, GT Telepark, 111 Valero St., Makati City
Tel. (02) 730-3391 (02) 797-5559
15th Floor, GT Telepark Bldg., Valero St. Makati City
Tel. (02) 7975551 to 53
15th Floor, GT Telepark Bldg., Valero St. Makati City
Tel. (02) 797-6792
PARK SQUARE 2
GF Park Square Bldg., Ayala Center, Makati City
Tel. (02) 752-8653
GT Iligan Business Center, Kimberly Bldg. Iligan City
Tel. (032) 415-8938/8940
SM MEGAMALL
4th level, Bldg. B, Cyberzone Area, SM Megamall,
Doña Julia Vargas Ave., Mandaluyong City
Tel. (02) 914-8888
17th Floor, Innove Plaza, cor. Samar Loop & Panay Rd.,
Cebu Business Park, Cebu City
Tel. (032) 415-8938/8940 (032) 415-8888 loc 829
or 415-8981
CAVITE
BACOOR
General Tirona Highway, Barangay Dulong Bayan,
Bacoor, Cavite Tel. (046) 970-8888
METRO MANILA
GT PLAZA
Upper Ground Floor, Globe Telecom Plaza Tower 1,
cor. Pioneer & Madison Sts., Mandaluyong City
Tel. (02) 730-3988
MOLINO
GF EVY Corp. Bldg., Molino Road, Molino, Bacoor,
Cavite Tel. (046) 517-2865
MARIKINA
282 A. Bonifacio Ave., Pascual Alcantara Bldg., Brgy.
De la Pena, Marikina City Tel. (02) 933-7730
GLOBE TELECOM, INC.
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ANNUAL REPORT 2004
SM DASMARIÑAS
2nd Level , SM City Dasmarinas, Governor’s Drive 1,
Barangay Sampaloc, Dasmarinas, Cavite
Tel. (046) 9731888
BATANGAS
BOLBOK
Diversion Extension Rd, Brgy. Bolbok, Batangas City,
Batangas
Tel. (043) 980-2123
TOLEDO
2/F Nesbel and Sons Bldg., P. Rodriguez St.,
Toledo City
LEMERY
CJ Bldg., Independencia St., Lemery, Batangas
Tel. (043) 409-0073
Bohol
TAGBILARAN
Door 5 EB Gallares Bldg., Carlos P. Garcia Ave.,
Tabilaran City Tel. (038) 501-0023 / 5017222
FIESTA MALL LIPA
GF Fiesta World Mall, Lipa, Batangas City
Tel. (043) 404-0256
TUBIGON
Pooc Occidental, Poblacion, Tubigon, Bohol
(038) 508-8001
ORIENTAL MINDORO
CALAPAN
GF Ferraren Bldg., M. Leuterio St., San Vicente,
Calapan City, Oriental Mindoro Tel. (043) 441-0256
UBAY
N. Reyes St., Poblacion, Ubay, Bohol
(038) 518-0435
EAST VISAYAS
Globelines Payments & Services, 22 P.Burgos St.,
Tacloban City Tel. (053) 523-1972
Cebu Tel. (053) 523-1972
AYALA CENTER
GF South Entrance, Paseo Marina, Ayala Center
Cebu, Cebu Business Park, Cebu City
Tel. (032) 415-1489
BOGO
Fernan St., Bogo, Cebu
Tel. (032) 434-8473
CARCAR
P. Nellas St., Poblacion 3, Carcar, Cebu
Tel. (032) 487-9100
ELIZABETH MALL
2nd level, Elizabeth Mall, Elizabeth Mall, cor. Sanciangko
and N. Bacalso Sts., Cebu City Tel. (032) 417-7972
MANDAUE
G/F Khuzn’s Bldg., National Highway, Ibabao, Mandaue
City Tel. (032) 420-6039 (032) 420-6039
PARDO
Prince Warehouse Club, Bulacao, Pardo, Cebu City
Tel. (032) 416-3810
SM CEBU
2nd level SM City Cebu, North Reclamation Area,
Cebu City Tel. (032) 412-8973
ISLAND CITY MALL
2nd Floor, Island City Mall, Dao District,
Tagbilaran City Tel. (038) 501-0028
Leyte
ORMOC
MFT Bldg., Real St., Ormoc City
Tel. (053) 561-8402 / 561-9801
TACLOBAN
22 P.Burgos St., Tacloban City
Tel. (053) 523-1972 / 523-1973
Southern Leyte
MAASIN
Maasin Port Terminal Commercial Complex,
Demeterio St., Agbao, Maasin City
Tel. (053) 570-8451
Negros Oriental
DUMAGUETE
GF Sol y Mar Bldg., Cor. Rizal Blvd.& San Juan Sts.,
Dumaguete City Tel. (035) 4226709
(035) 4226709
TANJAY
Kyle’s Foodshoppe, Magallanes St.,Tanjay City
Tel. (035) 415-8099
Panay
SM ILOILO
2nd Level SM City Diversion Rd Mandurriao, Iloilo City
Tel. (033) 508-6699 / 508-0011
GAISANO ILOILO
2/F Gaisano City, La Paz, Iloilo City
Tel. (033) 508-6699 / 508-0011
POTOTAN
Teresa Magbanua St., Pototan, Iloilo Tel. (033) 529-7701
Capiz
ROXAS
P. Gomez cor. Legaspi Sts., Roxas City
Tel. (036) 522-1033
Antique
SAN JOSE
T. Fornier St., San Jose, Antique Tel. (036) 540-7026
Aklan
KALIBO
Arch. Reyes St., Kalibo, Aklan
Tel. (036) 5007303
WEST VISAYAS
Globelines Payments & Services, 27th cor. Lacson Sts.,
Mandalangan, Bacolod City
Tel. (034) 709-8100 (034) 709-8100
GT HOTLINE OPERATIONS (VERTEX)
Negros Occidental
BACOLOD
27th cor. Lacson Sts., Mandalangan, Bacolod City
Tel. (034) 709-8100
GT TECHNICAL HELPDESK
HINIGARAN
2F Cor. Rizal and Aguinaldo Sts., Hinigaran, Negros
Occidental Tel. (034) 740-7671 (034) 740-7671
SAGAY
ATB Bldg., Maranon St., Poblacion II, Sagay City,
Negros Occidental Tel. (034) 722-8012
(034) 722-8012
GLOBE TELECOM, INC.
78
ANNUAL REPORT 2004
33th Floor Wynsum Tower, Emerald Avenue, Ortigas
Center, Pasig City Tel. (02) 7302164
5th Floor, Globe Telecom Plaza 2, Pioneer Cor
Madison Streets, Mandaluyong City
Tel. (02) 4551997
GT CS - INVESTIGATIONS
5th Floor, Globe Telecom Plaza 2, Pioneer Cor
Madison Streets, Mandaluyong City Tel. (02) 7302068
Subsidiaries
Innove Communications, Inc.
G-Xchange, Inc.
Innove Corporate Office (Luzon)
GT Telepark
111 Valero St., Salcedo Village, Makati City
Tel. (632) 7302000
Fax: (632) 7392000
Globe Telecom Plaza I,
Pioneer corner Madison Streets
1552 Mandaluyong City, Philippines
Tel: (632) 7302000
Fax: (632) 7392000
Innove Corporate Office (Visayas)
Innove Plaza
Samar Loop corner Panay Road
Cebu Business Park , Cebu City, Philippines
Tel: (6332) 4158888
Fax: (6332) 4158822
Shareholder Information
Upon the written request of the stockholders,
the Corporation undertakes to furnish said
stockholder a copy of SEC form 17-A free of
charge except for the exhibit attached thereto
which shall be charged at cost. Any written
request for a copy of SEC Form 17-A shall be
addressed to the following:
Or you may course your requests through:
GLOBE TELECOM, INC.
5th floor Globe Telecom Plaza I,
Pioneer corner Madison Sts., Mandaluyong City,
Philippines
For inquiries regarding dividend payments,
change of address and account status, lost or
damaged stock certificates, please write or call
Bank of the Philippine Islands
Attention: Mr. Delfin C. Gonzalez, Jr.
Chief Financial Officer
Address: 4th Floor, BPI Building
Ayala Avenue corner Paseo de Roxas
Makati City, Philippines
Tel. No.: (632) 816-9067 and 68
Ms. Malou Rustia-Santos
Investor Relations-Head
Tel. No.: (632) 730-2820; (632) 730-2911
Fax No.: (632) 739-0072
E-mail: [email protected]
GLOBE TELECOM, INC.
79
ANNUAL REPORT 2004
Lim Chuan Poh
Co-Vice Chairman
Delfin L. Lazaro
Jaime Augusto
Zobel de Ayala II
Co-Vice Chairman
Chairman
Globe Bridging Communities
In a country like the Philippines where constant
change is driven by forces that bring about
instability, sustainable development is a major
issue. Political and economic uncertainty as well
as the continuously depreciating peso make life
even harder for an ordinary Filipino.
Rising above these difficulties is no mean feat
but living it and making a difference with so
much dedication takes a different kind of spirit.
Anchored in its principle of doing-businessbeyond-profit, Globe best exemplified its
vision of social responsibility by engaging itself
in vital, vibrant and vigorous social development
programs and projects.
Bridging Communities (BridgeCom),
the integrated corporate-community relations
program was launched in mid-2004 to provide
capability-building assistance projects in the
fields of education, information technology
and livelihood. Over 130 barangays nationwide
benefited from this program where multimedia based education infrastructures, book
donations, and personal computer packages
were given to public elementary and high
schools, daycare centers and barangay councils.
These projects will equip young minds with the
right educational materials technologically fit for
the times. It also hopes to develop an attitude
for continuous learning from the different
publics who benefit from these projects.
Various community development assistance
projects were also supported by Globe to
enhance sustainability in these communities.
Under BridgeCom, the following projects are
being implemented.
Globe EdTV – A partnership with Broadcast
giant ABS-CBN Foundation, Inc., Globe
provided 150 public elementary and high
schools nationwide with the educational
television package consisting of a TV set, VHS
player and 70 volumes of video tapes for
elementary and 35 volumes of video tapes for
highschool. EdTV helps advance the learning
method of students through the use of mediabased instructions.
Globe Storybooks - A set of 250 books
are being donated to far-flung day care
centers. This project sees the importance
of love for reading in the early childhood
development stage.
GLOBE TELECOM, INC.
80
ANNUAL REPORT 2004
Globe Technical Advancement Program To further enhance engineering and IT education
in tertiary schools, your Company launched the
Globe Technical Advancement Program (GTAP).
The project is an industry-academe linkage
program that promotes student excellence in
the fields of IT and communications engineering
through curriculum update and development,
and hands-on training. The first beneficiary of
this project is University of San Jose – Recoletos
in Cebu City where members of its faculty were
trained to use the state-of-the-art digital GSM
cell site equipment, thus, help them integrate
this basic GSM technology training in their
curriculum. Globe also donated a digital GSM
base transceiver station, microwave transmission
equipment and antenna to the university, and
opened itself for internship of the academe’s
graduating students.
Globe Feeding Program in Iloilo - Globe
aided the local government of Iloilo in its food
fortification initiative through the Globe feeding
program. Iloilo City is among the sites where
over 50 malnourished children were fed by
Globe volunteers. The feeding program is
a successful endeavor that hopes to reduce
and ultimately eliminate the pattern of severe
malnutrition in the city. The program will soon
be replicated in various areas nationwide.
Globe Medical and Dental Missions - As
its contribution to the government’s health
program, Globe regularly conducts nationwide
free medical and dental services especially
to communities in far-flung areas. These
missions are implemented in coordination with
volunteer doctors, nurses, dentists and barangay
health workers.
Globe Disaster Response – Globe
responded to various natural disaster-stricken
provinces. Globe employees instantly raise
food, rice, water, clothes and cash that are
distributed to victims of natural calamities. In
2004 alone, 17 barangays affected by typhoons
Winnie and Yoyong were given aide by Globe.
Other Corporate Social
Responsibility Projects
Globe in Kalahi Ng Ayala – Done
in collaboration with the Ayala Group of
Companies, the project strategically assists the
government in poverty alleviation. Implemented
in the Makaturing Community in Mandaluyong
Unified Concept Ayala Corporation & Studio 5 Designs, Inc.
City, Globe provided a computer center and
IT training which will benefit the youth and
community leaders. Some 20 Globe employees
also took part in helping rehabilitate the homes.
Text2Teach is now available in 80 public
elementary schools in the Philippines.
Globe and TULAY TALINO – A Globeassisted project of the Coca-Cola Foundation
in the Philippines wherein Globe donated
a hefty amount to help build the Little Red
School Houses in answer to the ever-increasing
shortage of quality schoolrooms particularly
in poor, remote or isolated barangays in the
Philippines. Globe Telecom used its FanZone
Value-Added Service promo to involve its
subscribers in the fund-raising project.
Making a conscious effort to positively
contribute to the environment’s general wellbeing, Globe has adapted a Safety, Health
and Environmental (SHE) policy which
calls for the need to conserve the country’s
natural resources and prevent pollution through
waste reduction. Globe later entered into a
Memorandum of Agreement (MoA) with ABSCBN Foundation’s “Bantay Kalikasan” for
the proper disposal of Globe’s used lead-acid
or “junk batteries”, making Globe the first and
only Philippine telecommunications company
to fully comply with government regulations
governing the proper disposal of used lead
batteries generated in the course of day-to-day
industrial operations.
Text2Teach – Done in collaboration with
Nokia, International Youth Foundation, Pearson
of the United States, UNDP, Ayala Foundation,
DepED, SEAMEO INNOTECH, PMSI-Dream
Broadcasting and Chikka Asia, this project
provides teachers information with the use
of mobile telephones. Vital information on
Science, English, and Mathematics can now be
extracted from their cell phones just by texting.
It boasts of an 80 full-length video on Science.
Upon texting, the requested video will be sent
via satellite to a digital recorder connected
to a television in the teacher’s classroom.
Design and Production k2 interactive (asia) inc.
Environmental Projects
At the heart of Globe is the belief that in an
increasingly technology-driven environment,
our role in society is greater now than it has
ever been. Your Company, therefore commits
itself to more than just corporate philanthropy.
Globe’s commitment to society is our mindset,
philosophy, and our way of doing business.
Cover Photo Wig Tysman
Photography Toch Arellano