2005 Annual Report

2005 Annual Report
“Globe will successfully
harness innovation in
communication
technology to provide
more relevant products
and services that are able
to transform and enrich
people’s lives .”
- Gerardo C. Ablaza, Jr.
President and CEO,
Globe Telecom, Inc.
Autoload Max
With Globe Autoload Max, Globe
and TM subscribers can reload
instantly almost anywhere—from
convenience stores, groceries,
market stalls, drugstores, gas
stations, “tiangges” and over
500,000 retail stores nationwide.
With prepaid credits as low as
P25 for Globe and P10 for TM, up
to P150 in increments, reloading
has become more convenient and
affordable for our subscribers. This
has also been a source of additional
income for enterprising sari-sari
store owners like Arnold.
globe wiz
WIZ or Wireless Internet Zones, provides connectivity even outside the office. With
partners such as McDonalds, mobile entrpreneurs and professionals are able to
access the Internet and their corporate applications, as well as make calls through
the GlobeQUEST Webphone, the first PC to phone VoIP service using Globe1 prepaid
phonecard. WiZ also allows GlobeQUEST Store Express subscribers to have online
access to their sales and inventory systems from their outlets in malls even remotely
from any WIZ hotspot location nationwide.
globelines
“Toll-free NDD calls from Globelines has
resulted in a reduction of our business’
expenses. Thanks to Innove’s innovative
rate scheme, we have been able to operate
Tambunting Pawnshops more efficiently,
allowing us to further grow our network of
branches all over the Philippines.”
mobile e-mail
For the on-the-go businessman, Globe’s mobile office
products are a technological boon that keeps him
connected to colleagues and business partners even
when he is miles from the nearest computer. With
Globe’s mobile e-mail applications, sending and receiving
business and personal emails is now just as easy as
picking up your mobile phone.
OUR VISION
Through Life-Changing Innovations, Globe is indispensable to the
Nation.
We provide our customers with a superior experience and are a
center of excellence for innovation worldwide.
We learn, we discover, we work together as a team, and we always
strive for excellence.
To make great things possible.
01
04
07
12
16
20
22
25
30
34
37
110
116
Financial Highlights
Message to Stockholders
Message of the President
2005 Operational Achievements
Management’s Discussion & Analysis
Wireless Products & Services
GlobeSolutions
Innove
Board of Directors
Senior Executive Group
Report of Independent Auditors
Business Centers
Corporate Social Responsibility
21
OUR VALUES
Commitment to the Customer
Our customers are our greatest passion, and our business reason
for being.
Accountability
Thus, we do whatever it takes and hold ourselves personally
responsible and accountable to satisfy, and even exceed their
expectations.
Innovation
We are relentless in the pursuit of innovation, willing to take risks to
enhance the quality of their lives.
Excellence and Personal Worth
We excel and realize our potential by constantly learning and making
ourselves better everyday.
Teamwork
As importantly, we value each other’s unique contributions and
commit ourselves to work as a team.
24
Integrity
In everything we do, we are ethical, just and honorable. Because
ultimately, these are what count to our Nation and our God.
“Your Company will also
sustain its initiatives
for achieving better
cost structures and for
enhancing execution
effectiveness.”
GLOBE TELECOM, INC.
OUR MISSION
We transform and enrich people’s lives through communications.
- Gerry Ablaza
07
28
FINANCIAL HIGHLIGHTS
Wireless Subscribers (in 000s)
01
4,588
02
02
6,572
03
01
15,811
02
26,704
04
05
31,972
05
04
05
6,918
9,953 **
11,396**
10,315
Market Capitalization (in Pm)
Property & Equipment, Intangible Assets and
Investment Property (in Pm)
03
4,379
03
27,772**
32,895**
02
54,897
Net Income (in Pm)
04
01
52,741
05
12,404
EBITDA* (in Pm)
03
47,535
04
12,514
05
02
39,761
03
8,860
04
01
28,235
01
89,101
02
96,270
03
95,946**
04
102,849**
05
99,915
80,620
67,978
120,317
133,608
96,947***
*Earnings Before Interest, Taxes, Depreciation, Amortization and other income/expense
**Restated due to the adoption of various Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS)
beginning January 2005
***Based on 132M outstanding common shares after a buyback of 8M shares in March 2005
1
ANNUAL REPORT 2005
01
Net Service Revenues (in Pm)
2. Lim Chuan Poh
GLOBE TELECOM, INC.
1. Jaime Augusto Zobel de Ayala II
2
3. Delfin L. Lazaro
In all that we do,
Globe has always
been about giving
Filipinos what they
want, and providing
what they need.
ANNUAL REPORT 2005
Gerardo C. Ablaza, Jr.
3
MESSAGE TO STOCKHOLDERS
The changing dynamics in the domestic telecommunications industry has
posed increased challenges and intensified competition in the market which put
pressure on your Company’s profitability in 2005. This prompted Globe to focus
heavily on refining its business model to better adapt and respond to these
challenging market conditions.
We continued to lay the
groundwork for the next wave of
growth in the sector.
Globe has also continued to tap the vast potentials of the mobile phone beyond
Our efforts this year centered on strengthening Globe’s competitiveness to
its traditional use in communication to allow services that include microfinance
achieve better topline performance while enhancing value and returns for
transactions through G-Cash. We have expanded our G-Cash partnerships with
our customers and stakeholders. More importantly, we continued to lay the
more merchants, retailers and banks as it continues to build momentum for this
groundwork for the next wave of growth in the sector. The new trends toward
service. All these initiatives proved to be effective in increasing patronage which
greater convergence of fixed and mobile services, the advent of new generation
reflected positively in the growth of Globe’s wireless revenues during the year.
technologies and regulatory-driven changes with the licensing of new services
such as Voice over Internet Protocol and broadband wireless services are
Investments in the past years to develop the wireline segment of our business
certain to usher in a new dimension in Philippine telecommunications services.
have also yielded positive results as indicated by the strong growth in wireline
subscribers and revenues this year. Various initiatives were introduced to expand
IMPROVING PRICE AND MARKET COMPETITIVENESS
and increase market presence for all types of wireline voice and data services.
In line with moves to reinforce competitiveness, Globe directed its marketing
INSTITUTING BETTER COST MANAGEMENT
services. Given an increasingly price-sensitive market and less robust prospects
Equally important are the cost-management initiatives that are an integral part
for subscriber growth in the wireless segment, it was important to shape
of our efforts to enhance our competitiveness. Cost-cutting measures across
services that yielded the optimum price and value equation for our customers
all areas of operations have been implemented. Apart from more cost-effective
to encourage greater usage and sustain subscriber loyalty. Underlying this is an
marketing programs, we continued with semi-turnkey arrangements in the build
emphasis on customer satisfaction which has always been central to Globe and
up of our network coverage providing us greater control over our expansion
key to its success over the past decade.
initiatives.
GLOBE TELECOM, INC.
efforts towards price-based promotions and more innovative value added
4
and exacerbated by the expiration of our income tax holiday in March 2005.
Despite the decline in earnings this year, your Company maintains solid
profitability and is in a very strong financial position with EBITDA margin at a high
58% and return on equity at 19%. Free cash flow remains robust and was up
60% versus last year to P19.4 billion.
EXPANDING NETWORK COVERAGE AND REGIONAL REACH
We continued to invest in expanding our network which we believe is essential
This healthy financial position has enabled us to enhance value for our
not only in delivering the desired quality of services we have today, but in
shareholders. This year, Globe successfully concluded a P7.7 billion share
establishing the delivery platform for new services. We have further widened
buyback in March, a move that brought the Company’s net debt to equity ratio
our nationwide reach in 2005, bringing our total number of cell sites to 5,159
closer to target levels of 1:1 while keeping total debt to EBITDA within a 2 to 1
by year end. This network infrastructure is capable of serving up to 97% of the
ratio. Furthermore, consistent with our cash dividend policy of distributing 50%
country’s entire population.
of the prior year’s net income, your Board of Directors declared the first semiannual cash dividend of P20 per common share outstanding as of February 21,
Globe has also extended its reach regionally via its membership with the Bridge
2006. Total dividends amounting to P2.6 billion will be paid out on
Mobile Alliance which opened its membership this year to two new members,
March 15, 2006.
CSL Hong Kong and Air Tel India. We believe the expansion of the Alliance will
not only enhance the synergistic benefits for the member companies but more
importantly render more seamless service for its combined subscriber base.
2005
2004
% var
We believe these initial strategic efforts are beginning to bear fruit given the
Basic Earnings per Share
76.74
80.92 *
-5%
positive momentum we have built during the year. This was further affirmed as
Fully Diluted Earnings per Share
76.60
80.78 *
-5%
Dividend per share
40.00
36.00
11%
735.00
955.00
-23%
52%
44%
5%
4%
we ended the last quarter of 2005 with historic high quarterly earnings. Given
the fundamental changes we have instituted with the clean-up of non-revenue
Share Price**
generating SIMs, we believe we will increasingly realize the benefits of these
initiatives moving forward.
Ratios
Payout Ratio
MAINTAINING STRONG FINANCIAL POSITION
Dividend Yield
Notwithstanding the challenging operating environment, our service revenues
grew 4% during the year. Costs, however, outpaced revenue growth largely
*Restated
**As of last trading day for the year
ANNUAL REPORT 2005
underpinned by our investments in network expansion and marketing initiatives
5
TAPPING AN EXCITING FUTURE
As we pioneered ways to provide greater value for our customers, we continue
More importantly, Globe has spawned a host of entrepreneurial activity
to pursue new revenue streams with the emerging broadband market. We are
built around the industry, enabling a new class of entrepreneurs to
even more excited by the prospects of our next generation 3G mobile services
contribute not only to our company’s growth but to the broader economy.
as we roll out the first phase of commercial service in 2006. We believe 3G
They are wide and varied, from the extensive retail network for Autoload
will redefine mobile communication and applications given the faster data
Max reload to application programming for mobile content ranging from
transmission speeds afforded by this technology.
simple ringtones and phone logos to Java-based games for GPRS, and to
industries devoted to prepaid call card sales, handset and accessories
The emerging VoIP service which enables international calls over the internet
sales as well as service centers. As we enter a new phase in telephony
at a very affordable rate is also expected to support the Philippine broadband
with the advent of new technologies, we hope to remain of service to
revolution as nationwide internet connectivity increases.
many Filipinos around the world in countless ways. As we are privileged
to be stewards of thriving businesses, we are honored to have a hand
Our nationwide license to operate our wireline service via our subsidiary Innove
in empowering others by helping them realize their own entrepreneurial
Communications will also further widen its base of customers, ultimately
aspirations.
enabling more consumers to benefit economically from broadband connection
and its conveniences.
We are grateful for the continued faith of many of these entrepreneurs
who form a crucial ground-level frontline for our business and are thankful
These new trends and technologies promise new possibilities and Globe will
to our customers for their loyal patronage. We are likewise grateful to
remain at the forefront to pursue its mandate to pioneer the future of Philippine
our business partners for their shared expertise and knowledge, our
telecommunications. We certainly take great pride in the developmental role that
management team and employees for their dedicated service, our board of
Globe has played in catalyzing the growth of the Philippine telecommunications
directors for their wisdom and guidance, and for our shareholders for their
industry as the government created an enabling environment for greater private
continued confidence in the vision of Globe to make great things possible.
sector participation over a decade ago. Today, telecommunications services
have improved substantially since the breakup of its monopolistic structure. The
industry has become a robust pillar of growth for the economy as a whole and is
a consistently strong contributor to the country’s GDP growth.
Jaime Augusto Zobel de Ayala II
Chairman
Delfin L. Lazaro
GLOBE TELECOM, INC.
Co-Vice Chairman
Lim Chuan Poh
Co-Vice Chairman
6
MESSAGE OF THE PRESIDENT
2005 was a year of transformation for Globe Telecom. It will be remembered as
WIRELESS BUSINESS
the year that challenged the entire telecommunications industry to deliver value
Improved Pricing Competitiveness and Enhanced Customer Value
to a new breed of subscribers who want more for far less, in an environment
where the customer’s telecommunications spend had to take a back seat to
Innovation and pinpoint marketing efforts were the broad themes behind all our
rapidly rising fuel prices. Intense price competition and changing consumer
efforts in the wireless business in 2005. Throughout the year, Globe sought
profiles tested your company’s ability to stay relevant and responsive, but also
new and highly focused ways to address the market first by repositioning Touch
provided your Company with an opportunity to step back and sharpen the entire
Mobile (TM) to appeal to the mass market, and second by recasting price
organization’s focus towards improving its competitive position by enhancing
promotions across all of the Company’s brands to lead the market away from
customer value propositions, attacking its cost structures, and building the
value-destroying unlimited offers and onto price initiatives targeting key segments
foundations for long-term success.
and specific consumer needs.
We are pleased to report that many of these efforts have begun to bear
Relaunched as “TM, ang Bagong Touch Mobile” with the rallying cry “Power
fruit as we ended the year with a robust performance that will provide us
to the Piso”, the new TM targeted the Filipino worker through the Power Piso
positive momentum as we move forward to what will certainly be an equally
service, which charges a friendly rate of P1 for TM-to-TM calls starting on the
challenging 2006.
third minute. TM made significant inroads into the mass market and surged
ahead in 2005, growing its subscriber base from 1.7 million in 2004 to
A NEW MISSION AND VISION FOR THE COMPANY
3.1 million in 2005.
In 2000, Globe wrote its first Vision, Mission and Values statement anchored on
the proposition that we provide more than just lines, but solutions to customers’
Globe also led the market with improved price propositions for its three brands:
communications-based needs. Since that time, Globe has come into its own as a
Globe Handyphone, Globe Prepaid, and TM. Your Company not only responded to
force that not only provides communications solutions but breakthrough services
unlimited price offers in the market but went well beyond traditional discounting
that change the way people do things. In 2005, Globe defined for itself a new
and unlimited price plans by offering price packages tailored for specific needs
VMV statement that reflects this mission to transform and enrich people’s lives
under the Globe CelebRATE! and TM Todo Tawag / Todo Text offerings.
through communication and its vision to make great things possible for every
Filipino. This new VMV statement, cascaded throughout the organization in
In the fourth quarter of 2005, Globe again led the market by launching per
2005, has reinvigorated the company’s competitive spirit, serving as our battle
second charging for mobile calls, enabling subscribers to be charged only 10
cry as we venture into exciting new territories while continuing to build on past
centavos for actual usage measured to the second rather than rounded up to
successes. Sa Globe, Posible.
the minute, for all Globe-to-Globe and TM-to-TM calls.
Our persistent efforts in reinventing our price proposition and honing our
communication with the market to target specific segments and needs have
ANNUAL REPORT 2005
yielded positive results through increased usage as well as healthy additions
7
NETWORK ROLL-OUT
Cell Sites
Capex (in P bn)
01
01
1,782
02
03
04
05
3,000
4,000
5,000
21.2
05
5,159
2,000
15.8
04
3,736
1,000
20.5
03
2,580
0
29.8
02
2,190
6,000
14.8
0
• Cell site count reached 5,159
• Enhanced Network Coverage
• 93% of total municipalities
• 97% of population
5.0
10.0
15.0
20.0
25.0
30.0
• 2005 capex amounted to P14.8B
• Earmarked approximately P13B for 2006 capital expenditures
to upgrade the necessary facilities for 3G and increase capacity
for areas where traffic is expected to surge.
to our subscriber base. A number of these promotions eventually became
via the ATM, internet banking or mobile banking. The tie-up with Bancnet also
permanent offers, a testament to the market’s understanding and enthusiastic
enables funds transfer from a subscriber’s ATM account in a Bancnet member-
response to Globe’s clear value propositions.
bank to another person’s G-Cash wallet via the Bancnet Interbank Fund Transfer
facility. We also continue to work with the Rural Banks Association of the
Superior Network Coverage
Philippines to enable microfinance payments in the countryside via G-Cash.
The company mandate to pursue closer alignment with segment-specific needs
permeated even the network roll-out as we calibrated our 2005 network build to
We are delighted that the market has caught on to the benefits of G-Cash.
increase penetration in new areas and increase capacity and coverage in
By the end of 2005, G-Cash had more than 1.2 million registered users and
areas where demand was largest. Your Company added 1,423 cell sites to
formed alliances with over 500 local and international partners to provide our
its network in 2005, augmenting coverage strength to total 5,159 cell sites.
subscribers access to 4,500 merchant partners. We are also elated at the
This represents a far-reaching 93% geographic coverage and 97% population
local and international recognition that it has received.
coverage of the Philippines.
Moving forward, we will continue to build an increasingly robust ecosystem to
Breakthrough Services
support G-Cash and make even greater things possible with this life-changing
G-Cash
technology.
In 2004, Globe introduced G-Cash, our mobile micropayments system, to the
world. In 2005, we worked to explore new horizons with G-Cash by partnering
Bridge Services
with various establishments who have not only agreed to accept payment via G-
In 2005, Globe leveraged on its membership in Bridge Mobile Alliance,
Cash but have even helped Globe create new applications for this breakthrough
Asia Pacific’s largest mobile consortium, to enhance its menu of services
product.
– specifically for roaming clients. This strong alliance continues to represent
unique opportunities to redefine mobile experience in Asia Pacific, offering a
Our collaboration with BancNet connected G-Cash to the banking system,
suite of exclusive benefits and privileges to 70 million subscribers in the region.
enabling subscribers to top-up their G-Cash wallets from their bank accounts
New services came in the form of Bridge Roaming, Bridge Prepaid and Bridge
GLOBE TELECOM, INC.
Concierge.
8
Bridge Roaming enables our subscribers to benefit from a more seamless
Emerging Technologies
roaming coverage and wider range of communication options. Bridge Prepaid
Globe is at the forefront of the Philippines’ adoption of 3G, the third generation
provides convenience for our customers and Bridge member country customers
mobile service that offers high-speed video and data service capabilities. Globe
as they are able to top up credits at any Bridge counter in member countries.
was the first to be granted a 3G trial license by the NTC in July 2005. It was
Lastly, Bridge Concierge offers personalized services to roamers of any Bridge
also the first to conduct a video call over mobile using our 3G test network. As
member country traveling to Bridge member destinations such as technical
early as July, we launched 3G roaming services for our subscribers with 3G
assistance, queries on roaming, and lost phones. Special assistance services
capable handsets roaming over SingTel, Maxis and KDDI networks in Singapore,
include SIM replacement, as well as free IDD calls to the home customer service
Malaysia and Japan, respectively.
facility.
Globe showcased its 3G capability at the 23rd Southeast Asian Games held
Globe Kababayan
in Manila, of which Globe was a proud sponsor. In the spirit of competition
In 2005 Globe went on a concerted effort to connect to the growing number of
and bringing people closer together, your Company stood as the Games’ sole
Overseas Filipino Workers through Globe Kababayan, our program for various
wireless provider, reaching out to inspire the country and its athletes as the
cross border remittance and reload services offered in top OFW destinations
Philippines, for the first time, topped the regional athletic event.
such as Hong Kong, Singapore,Taiwan, Japan, UK and the US. Services like
G-Cash International Remittance via Text and Quick Remit and Load offered
In December, Globe was granted a license to offer the service. Work on a
the OFW new ways to send money home, while International Share-A-Load and
commercial launch of the 3G service is at its peak.
International Autoload Max allowed overseas Filipinos to send load to relatives
in the Philippines. We also partnered with telecom operators such as Singtel
and Maxis of Malaysia to launch co-branded Prepaid SIMs for the OFWs that
offered special rates and promos such as IDD calls at local call rates and lower
international text messaging rates to subscribers who are on Globe or TM in
the Philippines.
To complement these efforts, we also reached out to the OFW families by
expanding the Globe Kababayan value proposition to offer special IDD rates and
perks in partner retail establishments.
As more and more Filipinos travel to opportunities in the region, so too do we
improve our ability to support the Filipino wherever he goes. Bridge helps make
ANNUAL REPORT 2005
this possible.
9
WIRELINE BUSINESS
Our wireline business has gained significant headway amidst a very competitive
We also started offering VoIP service which lets our subscribers place calls to
environment.
other countries at much lower international rates. Towards the end of 2005,
Globe Broadband offered 30 free minutes of IDD through its VoIP services.
Our wireline subscribers continued to grow, reaching over 360,000
subscribers at year end. And as Innove secured a license to operate a Local
On another front, we introduced the Globe1 card which is a universal call
Exchange Carrier service nationwide, we will gear up to offer voice services to
card that offered a new level of convenience to our customers. It allows users
locations in the country that present an opportunity. The nationwide franchise
to make local, national, and international calls from any Globelines, Globe
would allow Innove greater flexibility in maximizing previously invested capacities
Handyphone, or TM facility, and provides access to the Internet through dial-up
while helping the Government attract foreign investments by providing a better,
from any prepaid internet service provider.
reliable and state-of–the-art telecommunication facilities all over the country.
Customers, especially in areas where virtual monopolies exist, will then be given
We also introduced Globelines Worldpass, a service that gives our subscribers
the choice of service provider and the opportunity to enjoy world-class service.
internet connection from multiple access points: via Globelines Broadband,
or dial-up from any computer and landline within the country, via international
Innove took steps to tap new revenue streams and expand its range of
access through the iPass network or via WiFi from any WiZ hotspot using WiFi
services.
enabled devices such as PDAs, laptops and cell phones.
Among these is Globelines Broadband which offers value-priced, high-speed
OUR 2005 PERFORMANCE
data services over a nationwide broadband network. We are excited about
2005 was a time of stepping back and understanding where our efforts in
the potential of this service which offers our customers, through the Internet,
the past several years have brought us in the light of the new challenges that
better communication, knowledge, and entertainment services through richer
now shape a dynamic and highly competitive industry. 2005 called upon the
and faster connectivity.
company to change the way it did things so that it could, in turn, become
more competitive. The recalibration of our marketing efforts to respond to the
Another is GlobeQuest’s Wireless Internet Zone (WiZ) which utilizes WiFi
changing market realities and sharpen our focus on key consumer segments,
technology that allows wireless broadband surfing at popular consumer
our conscious choice to offer the market a different value proposition, and our
hangouts. As of year end, we had the largest WiFi hotspot footprint covering
embrace of new – and potentially disruptive – technologies was not without cost.
236 outlets nationwide.
That notwithstanding, we committed ourselves to pursue a sound, long-term
...we committed ourselves to
pursue a sound, long-term strategy
that will build the underpinnings of
sustainable growth...
strategy that will build the underpinnings of sustainable growth: customer-centric
propositions, greater usage habits, superior network coverage, and the ability to
enrich the Filipino’s life wherever he may be.
On the wireless front, we retained leadership in the postpaid segment of the
wireless market, while making inroads into the prepaid segment with TM.
The
positive response of subscribers to our value offers and more competitive
GLOBE TELECOM, INC.
pricing, as well as wider network coverage, contributed to the 3% growth in our
wireless net service revenues to P48.5 billion.
10
2005 REVENUE BREAKDOWN
Wireline Data
4%
Wireline Voice
8%
Your Company’s balance sheet continues to be solid, with a healthy leverage
profile well within covenants and debt service capabilities. Our free cash flows
Wireless
88%
have grown by P7.3 billion, registering a year-on-year growth of 60% from
Data
40%
Total net service revenues up by
2004.
Voice
60%
2006 OUTLOOK
Our determined efforts at providing our subscribers with superior values have
4% to P54.9 billion
yielded better financial results as 2005 ended, and have brought forth a positive
momentum moving into 2006.
This year, our macro-economic environment will continue to be dynamic and
On the other hand, our wireline business, with its increased market presence,
challenging.
resulted in double digit growth rates in our voice and data segments. Total
VoIP, the entry of new players and the availability of new technologies will add to
wireline net service revenues registered an increase of 13% to reach
P6.4 billion.
the complexity of the environment in which we operate. However, we believe
Armed with our newly-awarded nationwide LEC franchise, we will
expand our network reach towards enhancing our delivery capability and further
improve our market presence in the wireline market.
emerging opportunities.
product and service innovations, capitalizing on new revenue streams, leveraging
As Globe made significant investments in marketing initiatives
on our Bridge Mobile Alliance to provide better and seamless service to our
and doubled its cell site count in the past two years thereby increasing its
roaming subscribers, and pro-acting on new technologies. Your Company will
network-related operating costs, consolidated EBITDA was slightly down by 3%
also sustain its initiatives for achieving better cost structures and for enhancing
to P32 billion as operating expenses grew faster than revenues. Consequently,
execution effectiveness.
our EBITDA margin was down to 58% from 62% in 2004.
We also experienced the full impact of higher corporate taxes with the expiration
of our tax incentive in the first quarter, and Innove’s shift into a taxable income
position.
that we are better prepared to face these challenges and take advantage of
We will continue to focus on enhancing consumer value propositions, driving
For the full year of 2005, consolidated net service revenues grew by 4% to
P54.9 billion.
Continued pressures on price and margins, the deregulation of
With a deeper customer understanding, clearly defined strategies, and an
organization that shares a passion for excellence and continuous growth, we are
confident that in the years ahead, Globe will successfully harness innovation in
These developments caused our provision for income tax to triple to
communication technology to provide more relevant products and services that
P3.9 billion.
are able to transform and enrich people’s lives.
While reduction in interest expense and foreign exchange gains accruing from
an appreciation of the peso cushioned the impact of margin reductions, net
Gerardo C. Ablaza, Jr.
President and Chief Executive Officer
11
ANNUAL REPORT 2005
income decreased to P10.3 billion, 9% lower than the previous year.
2005 OPERATIONAL ACHIEVEMENTS
How does an enterprise thrive in a multi-player industry that is highly competitive?
What will set it apart from its rivals?
These are basic questions that drove and shaped
Focused strategies allowed for more cost-
allowed subscribers to make 15 minute TM-to-TM
your Company’s strategy in 2005. To go about
effective management that helped us maximize
calls for only P15, TM Todo Text which allowed
facing the challenges at hand, Globe Telecom went
our resources, as well as enabled your Company
unlimited texting for only P10 for one day for its
back to the foundation of its operations – its passion
to provide value offerings and loyalty programs to
subscribers, and the 75 centavos/text promo for all
for customer satisfaction. Indeed, its consumer-
subscribers through a more efficient cost structure.
TM-to-TM text.
and evolution of unique and innovative services that
CONSUMER-CENTERED RESTRUCTURING
By the end of 2005, these promotions not only
have responded to the needs of a discriminating
To stay on top of the competition, your Company
strengthened consumer offer, but also proved to
market. More than ever, Globe has become an
launched a series of price-based promotions aimed
be revenue accretive for your Company. With the
indispensable part of daily life for an increasing
at improving its competitveness in an increasingly
success of these offerings, our CelebRATE! and
number of people. As it pushes the envelope of
price-sensitive market. Indeed, the intense tariff
various TM promos were extended due to increased
telecommunications and forges new paths from new
plays in the market have made promotions a
demand.
technologies, it keeps a close watch on the needs
requisite for acquisition and retention and are
branded as “UnlimiTXT”, has also been made a
of a diverse consumer base with various needs. The
expected to be staple items on the Globe menu in
permanent offer to subscribers.
year 2005 was about this and more – yet invariably
the near future.
centered approach enabled the continuous creation
staying connected to the consumers who are our
passion and reason for being.
Year 2005 also saw the launching of the 10
Through our series of Globe CelebRATE! and TM
centavos-per-second promotion which enabled
Todo Tawag, Todo Text offerings, your Company
per-second charging for all intra-network Globe and
STRENGTHENED COMPETITIVENESS
was able to provide subscribers with price-value
TM calls. With no required nor upfront payment to
Nimbleness can spell the difference between
packages designed to increase usage, while
avail of this service, subscribers could easily use
stagnation and success. In 2005, Globe rose to
ensuring sustainable network quality at all levels.
this service by dialing the 232 and 803 prefixes for
the challenges of a restless, changing industry by
Globe-to-Globe and TM-to-TM calls, respectively.
initiating moves to realize its goals. For one, focus
Our CelebRATE! promos introduced the following
was placed on strengthening competitiveness to
offers:
Globe also evolved its marketing strategy and
improve market and financial performance . Globe
• P10-per-3-minute call for all Globe-to-Globe calls
organization into product and segment business
continued to further develop markets where we are
• Budget IDD calls at a low rate of US$ 0.20 per
management to heighten insight and response to
strong, simultaneously taking bold steps to venture
minute starting on the first minute for IDD calls to
different markets. This affords us the chance to
into new areas. Our aggressive market expansion
selected countries
make our relentless innovations relevant to our
over the last two years has solidified our presence
• Globe Text Nonstop promo afforded unlimited
in different segments, punctuated by the successful
texting for only P50 for 5 days, P25 for 2 days,
relaunch of TM in establishing greater presence in
or P15 for 1 day
the mass market.
GLOBE TELECOM, INC.
Our promo Globe Text Nonstop, now
targeted specific client segments, and useful in the
improvement of our consumers’ quality of life.
Take, for instance, your Company’s highly successful
In addition, TM provided its subscribers with value
Globe Kababayan service specifically designed to
offerings such as TM Todo Tawag 15/15 which
cater the needs of the OFW and his family.
12
The service has penetrated major OFW destinations
Innovative breakthroughs such as the partnership
around the world with its array of various cross-
between G-Cash and BancNet headlined the
border remittances and reload services. A package
celebration which enables connectivity of G-Cash to
of new offerings for OFWs, aspiring OFWs, and their
banking systems. Through G-Cash, our subscribers
families expanded your Company’s value proposition
can also pay for utility bills such as Manila Water
with offerings such as special IDD rates and IDD
and Meralco bills, insurance premiums, fast food
usage-based rewards, exclusive perks and privileges
purchases and school tuition fees.
with partner merchants, and a mobile menu that
provides relevant information to OFW dependents
G-Cash reaped recognition both in the Philippines
and aspirants. The Globe Kababayan service was
and abroad, winning various prestigious awards:
also spiced up with the special IDD and ISMS
“Most Innovative Mobile Operator Service” at the
promotion specifically for our subs who call and text
Asian MobileNews Awards in Singapore (June
between the Philippines and destinations including
2005); “Best M-Commerce Application or Service”
Singapore and Malaysia.
at the Global Messaging Awards in London (June
2005); Philippines’ Mobile Communications
G-Cash Celebrates Its 1st Year
Effectiveness Award (August 2005); and Agora
Year 2005 also marked the first year of G-Cash
Awards for World Class Excellence in Philippine
with over 1.2 million registered users generating
Marketing (November 2005). These have helped
an average of almost P3 million in total daily
G-Cash become more accepted across 14 countries
transactions. Your Company has achieved this with
in Asia, Middle East, Europe and North America.
the support of over 500 partner establishments
ANNUAL REPORT 2005
with over 4,500 outlets nationwide.
13
Maxis Malaysia to offer special IDD rates to our
subscribers who call Singtel and Maxis subscribers.
Our wireline business also tapped on new revenue
streams arising from broadband, WiFi and VoIP
services.
Globelines and GlobeQUEST Broadband’s valuepriced, high-speed data services over the Innove
broadband network continue to increase awareness,
interest and adoption of broadband services among
independent consumers and corporations.
INCREASING MARKET REACH
establishing an extensive WiFi hotspot footprint
Our network rollout has also continued, albeit with a
covering 236 outlets nationwide, including branches
GlobeQuest’s Wiz service allows wireless broadband
steadier gait, compared to our aggressive push
of Starbucks and McDonalds. We also installed the
surfing at the most convenient places in and around
in 2004.
first WiFi mesh in Boracay, making the entire main
favorite consumer hang-outs – including Glorietta
beach area WiFi capable.
and Greenbelt in Makati, Ayala Center in Cebu,
Your Company’s network expansion showed results
Microtel Inn in Cavite and Batangas, and Davao
via increased penetration in new areas for both our
The continued expansion of both our wireless and
Globe Handyphone and TM brands. By the end of the
wireline network will continue to serve as our vehicle
year, our network reached 93% of all municipalities,
to enhance leverage in this increasingly competitive
With the advent of Voice over Internet Protocol
enabling 97% of the Philippine population to have
market.
(VoIP) technology, your Company also launched VoIP
access to Globe. Our total capital expenditure for the
International Airport.
service in 2005, allowing broadband subscribers to
year 2005 amounted to P14.8 billion, with our cell
TAPPING NEW REVENUE STREAMS
make calls to 51 countries for only US$0.05 per
site count topping 5,159 after the addition of 1,423
The Bridge Mobile Alliance continues to provide a
minute.
from last year.
unique experience that has redefined the mobile
experience for its 70 million subscribers in the Asia-
LEADING IN TECHNOLOGY
With the recent awarding by the NTC of a national
Pacific. The suite of mobile services includes Bridge
3G: Globe’s Many Firsts
LEC license to our wholly-owned subsidiary Innove
Roaming, Bridge Prepaid and Bridge Concierge. This
Your Company is also looking forward to the next-in-
Communications, our wireline business is poised to
innovative and convenient service provides roaming
line technological advancements such as 3G.
become even more competitive.
benefits and exclusive privileges to subscribers. For
line with our commitment to be at the forefront
launch of various initiatives to further promote our
instance, during the December 2005 SEA Games
of new technologies, your Company proactively
suite of products and services, the most significant
in Manila, Bridge partners were extended reduced
embarked on the 3G technology, establishing many
being Globelines Broadband, our consumer
rates for voice, SMS and GPRS roaming.
firsts in the area of obtaining a trial license, fulfilling
2005 saw the
broadband service. We also continued to build
on our Wireless Internet Zone (Wiz) services,
In
formal NTC requirements for application of 3G
Your Company also leveraged on the alliance
GLOBE TELECOM, INC.
with our Bridge partners such as Singtel and
14
license, providing live demonstrations of 3G video
calls using our 3G network, as well as offering 3G
Improved Credit Rating
We at Globe strongly believe that we are well poised
roaming services to subscribers with 3G-capable
Taking into account Globe’s strong balance sheet
to capitalize on opportunities and face challenges
handsets roaming over selected countries.
and financial position, and after a new rating
ahead. Our stronger network presence will enhance
methodology was introduced, Moody’s rating of
subscriber additions from the broader market
GAINING POSITIVE MOMENTUM
Globe debt was raised to Ba2. This underscores
expansion. We will continue to develop winning
TM Relaunch: Banner Year
Globe’s position as a leading telecommunications
formulas to give our customers good value and
2005 was a banner year for our revitalized TM
operator in a strong two-player market.
stimulate revenue-generating usage.
its relaunch has resulted in significant growth in its
In addition, your Company’s healthy profitability and
Your Company will continue to keep its eyes
subscriber base, reaching an impressive 3.1 million
cash flow generation, along with sound debt maturity
on the horizon and work on strengthening its
at year end.
and liquidity profile, resulted in Standard & Poor’s
competitiveness through innovations and other
such as TM’s Todo-Text /Todo-Tawag have been
rating upgrade to BB+ after reviewing our reduced
value propositions. As we navigate Globe through
equally successful with our subscribers yielding a
risk of foreign exchange controls.
short-term challenges, we are ever committed to
brand.
The exceptional performance by TM since
Various promotions and initiatives
total of P2.7 billion in incremental revenues.
The
pursuing a sound, long-term growth strategy for
continued growth in this segment is testament to
A BRAVE NEW WORLD
the promotion of the greater usage and utility of the
our success in providing our Filipino workers with the
We expect that potentially game-changing new
mobile phone, enabling us to make more and more
power to use mobile phone services through better
technology and intense price competition will
great things possible.
affordability.
continue to challenge us. In response, we will
continue to focus on our key business strengths
Subscribers’ Strong Uptake for Services
and values that will enable us to sustain and
The robust performance of our wireless business is
improve our competitiveness. We intend to
greatly attributable to the strong uptake of value-
further improve our customer value propositions
based promotions which led to increased usage
and price-competitiveness. Globe will continue
by subscribers, and driving a 4% year-on-year
to enhance cost management effectiveness,
increase in total net service revenues. Our SIM base
while continuing to take the lead on emerging
was steady at 12.4 million, but is of better quality
technologies.
following the clean-up of non-revenue-generating
subscribers.
With our customer-focused strategies, together
with our recently acquired 3G and nationwide LEC
Our wireline service, which continues to register
licenses, we will be able to extend our market
double digit growth rates, generated 362,143
reach and offer various products and services
subscribers by the end of the year, a solid increase
with a view to continuously address the needs of
of 12% from last year. Total net service revenues
target market segments.
also grew by 13%, reaching P6.4 billion. This
contributed 12% to Globe’s total revenue, broadly in
ANNUAL REPORT 2005
line with last year’s revenue contribution.
15
MANAGEMENT’S DISCUSSION & ANALYSIS
OVERVIEW OF OUR BUSINESS
Net Operating Revenues by Line of Business
Our company is a leading telecommunications company in the Philippines. We
continue to grow and engage our customers through our clear commitment of
“Making Great Things Possible”.
The Globe Group is comprised of the following three focused companies:
•
•
Globe provides our wireless telecommunications services;
line telecommunications services and information and communications
infrastructure and services for internal applications, internet protocol
based solutions and multimedia content delivery. Innove currently offers
cellular services under the TM prepaid brand.The TM brand is supported in
the integrated cellular networks of Globe and Innove; and
•
As part of its wireless business, Globe also provides mobile commerce
services through its wholly-owned subsidiary, G-Xchange, Inc. (GXI) which
was incorporated in 2004.
GROUP OPERATING REVENUES
47,054
27,630
19,424
3%
5%
1%
………………………………………..
.………………………………….......
6,416
4,396
2,020
5,687
3,945
1,742
13%
11%
16%
Net Service Revenues .…………...…………..
Non-Service Revenues 5 ..…………….….......
Net Operating Revenues .……………..........
54,897
3,851
58,748
52,741
2,868
55,609
4%
34%
6%
4
2
Wireless data net service revenues consist of revenues from value-added
services such as inbound and outbound SMS and MMS, content downloading
and infotext net of any interconnection or settlement payouts to international
and local carriers and content providers.
3
Wireline voice net service revenues consist of the following: (a) Monthly service
fees including CERA; (b) Revenues from local, international and national long
distance calls made by postpaid, prepaid wireline subscribers and payphone
customers, net of (i) prepaid and payphone call card discounts (ii) bonus credits
and (iii) marketing promotions credited to subscriber billings; (c) Revenues from
inbound local, international and national long distance calls from other carriers
terminating on our network; and (d) Installation charges and other one-time
fees associated with the establishment of the service. Revenues from (a) and
(b) are net of any interconnection or settlement payments to domestic and
international carriers.
4
Wireline data net service revenues consist of revenues from: (a) International
and domestic leased lines; (b) Internet services (c) Other wholesale transport
services and (d) Revenues from value-added services.
5
Non-service revenues consist principally of sales of handsets, accessories and
SIM packs and phonekits.
revenues increased by 4% to P54,897 million in 2005 from P52,741 million in
2004.
Wireless service revenues, which accounted for 88% of net service revenues in
2005, grew by 3% year-on-year to P48,481 million. Meanwhile, wireline service
revenues, which accounted for the remaining 12% of net service revenues in
2005, grew by 13% year-on-year to P6,416 million.
Non-Service Revenues
We also registered non-service revenues of P3,851 million for the full year
year-on-year handset sales contributed by subscriber acquisitions.
GLOBE TELECOM, INC.
48,481
28,945
19,536
(*Included airtime on SIM cards provided under Globe’s SIM swap program
which was concluded last May 2005.)
For the full year 2005, the Globe Group’s total net operating revenues improved
2005, a 34% increase from last year’s P2,868 million due mostly to higher
Net Operating Revenues from:
Service Revenues
Wireless
Voice ¹ ….………………………………………
Data 2 .…………………………………….…
3
YoY
Change
(%)
¹ Wireless voice net service revenues include the following: (a) Monthly service
fees on postpaid plans & subscription fees on prepaid services; (b) Charges for
intra-network and outbound calls in excess of the free minutes for various Globe
Handyphone postpaid plans, including currency exchange rate adjustments, or
CERA net of marketing promotions credited to subscriber billings; (c) Airtime
fees from prepaid reload denominations (for Globe Handyphone Prepaid and
TM) for intra network and outbound calls recognized upon the earlier of actual
usage of the airtime value or expiration of the unused value of the prepaid
reload denomination which occurs between 1 and 60 days after activation
depending on the prepaid value reloaded by the subscriber net of (i) bonus
credits* ii) prepaid reload discounts; and (d) Revenues generated from inbound
international and national long distance calls and international roaming calls;
and Revenues from (a) to (d) are net of any interconnection or settlement
payouts to international and local carriers.
Service Revenues
by 6% to P58,748 million from P55,609 million in 2004 while total net service
31 Dec
2005
Wireline
Voice
Data
Innove, a wholly-owned subsidiary, provides our fixed
Globe Group
31 Dec
2004
For the full year ended
(in millions of pesos)
16
Wireless Business
net operating revenues to reach P52,229 million for the full year ended
Our Company offers its wireless services including local, national long distance,
31 December 2005. This is mainly attributable to growth experienced in both
international long distance, international roaming and other value-added services
our voice and data sectors as well as in our non-service revenues.
through three brands: Globe Handyphone, Globe Handyphone Prepaid and TM.
Wireless net service revenues registered a 3% year-on-year growth from
Globe Handyphone is the postpaid brand of Globe. This includes all postpaid
P47,054 million to P48,481 million for the full year 2004 and 2005,
plans such as G-Plans and consumable G-Flex Plans, Platinum (for the high-end
respectively. This 3% growth was driven by a 5% increase in voice service
market), and GlobeSolutions (for corporate and business needs).
revenues, particularly in international voice and roaming services, despite a 1%
drop in wireless subscribers. Wireless data net service revenues increased by
Globe Handyphone Prepaid and TM are the prepaid brands of the Globe Group.
1% to P19,536 million in 2005 from P19,424 million in 2004.
Each brand is positioned at different market segments to better address various
subscribers’ needs.
Total gross subscriber additions for the full year 2005 decreased by 2% yearon-year to 11.6 million compared to 11.9 million in 2004. On the other hand,
To cater to a wide variety of our prepaid subscribers, we provide various top
net additions contracted by 103% to a net reduction of 110,000 subscribers
up facilities at each subscriber’s convenience. Our Globe Handyphone Prepaid
for the full year 2005 against 3.7 million net additions in 2004, hence, a higher
and TM subscribers can reload airtime value or credits using various reloading
churn rate of 7.9% at the consolidated level from 6.4% in 2004. The higher
channels.
year-on-year consolidated churn was driven by higher terminations of non-revenue
generating subscribers in the Globe Handyphone Prepaid segment.
Overall, the wireless business recorded a 5% year-on-year increase on its
For the full year ended 2005, our postpaid sector comprised approximately 5%
of our total subscriber base. The postpaid subscriber base reached 594,142
KEY INDICATORS
Cumulative Subscribers (or SIMs*) –
Net Subscribers* (End of period)
Postpaid . …………………………………
Prepaid .……………………………………
Globe Handyphone Prepaid ………………
TM …………………………………………
Net ARPU
Postpaid . …………………………………
Prepaid
Globe Handyphone Prepaid …………….
TM …………………………………………
Subscriber Acquisition Cost (SAC)
Postpaid . …………………………………
Prepaid
Globe Handyphone Prepaid …………….
TM …………………………………………
Average Monthly Churn Rate (%)
Postpaid . …………………………………
Prepaid
Globe Handyphone Prepaid …………….
TM ………………………………………....
31 Dec
2005
31 Dec
2004
YoY
Change
(%)
12,403,575
594,142
11,809,433
8,699,687
3,109,746
12,513,973
630,495
11,883,478
10,185,154
1,698,324
-1%
-6%
-1%
-15%
83%
1,635
1,605
2%
268
214
305
183
-12%
17%
7,026
9,886
-29%
248
90
267
151
-7%
-40%
3.1%
2.6%
7.8%
9.5%
5.5%
12.7%
in 2005 which is 6% lower than the previous year.
This is mainly due to the
increased incidence of Globe-initiated credit-related terminations resulting in a
slight increase in average monthly churn of 3.1% in 2005 from 2.6% in 2004.
Overall, our consolidated prepaid subscribers decreased by 1% to 11.8 million
in 2005 from 11.9 million in 2004, as Globe culled out the non-revenue
generating subscribers related to its SIM swap program starting May 2005. Net
incremental prepaid subscriber base fell by 74,075 in 2005 compared to the
3,708,621 incremental prepaid subscribers generated in 2004. However, gross
prepaid additions remained strong driven mostly by 57% year-on-year growth
in gross additions from the TM brand from 2.6 million in 2004 to 4.1 million
in 2005. Globe Handyphone Prepaid likewise had gross adds of 7.3 million
subscribers in 2005 but this is a 19% decrease compared to the 9.1 million
new subscribers in 2004.
ANNUAL REPORT 2005
*The word “subscriber” may be used interchangeably with the term “SIM.”
17
Wireline Business
Innove, a wholly-owned subsidiary, provides our wireline voice communications
As of 31 December 2005, Innove increased its total wireline voice subscribers
services, including local, national long distance, international long distance and
by 12% to 362,143 from 323,094 in 2004.
other value-added services, through its postpaid, prepaid and payphone lines,
of total subscribers were postpaid while 38% were prepaid while business/
under the brand name Globelines. On June 17, 2005, Innove was awarded by
residential mix was 18:82 for both years.
For 2005 and 2004, 62%
the NTC with a nationwide franchise for our wireline business, allowing us to
With our growing broadband business, consumer broadband subscribers
expand our network to bring together the whole nation.
registered a remarkable year-on-year increase of 189% to 22,479 by the end
Globelines provides state-of-the-art digital communications technologies to
of 2005. This is attributable to the various marketing promotions and services
homes and small and medium enterprises. With the availability of postpaid or
launched during the third and fourth quarters of 2005 such as the GLBB PC
prepaid options, subscription to Globelines comes with standard features and
Bundle Promo and the Broadband Sales Blitzes.
value-added services such as IDD, NDD, Phone Lock, Caller ID, Call Waiting,
The increase in subscribers as well as the higher traffic volume have contributed
Multi-Calling, Call Forwarding, Voice Mail and Duplex Number.
to the 11% increase in total net service revenues in 2005. However, due
For our wireline data services, Innove’s GlobeQUEST brand offers end-to-end
to a drop in collection rates, net and gross ARPUs have registered marginal
corporate data solutions including international and domestic data services,
decreases.
wholesale and corporate internet access services, data center services and
Wireline Data
segment-specific solutions customized to the needs of vertical industries.
On the wireline data front, total operating revenues grew by a remarkable
For the full year 2005, our wireline business recorded a double-digit growth
21% to P2,112 million at year end from P1,742 million in 2004. This
of 14% in total wireline net operating revenues. The overall 14% growth is
strong revenue growth was driven mostly by DL (Domestic Lease Lines), IPL
attributable to growth experienced in both our voice and data segments, as well
(International Private Lease Lines) and corporate internet services in terms of
as in our non-service revenues.
better bandwidth and circuit indicators.
For the full year ended (in millions of pesos)
Wireline Voice
Our voice segment grew by 11% year-on-year to register P4.4 billion in net
Data
International …..………………………………......
Domestic ……. ……………………………………..
Others 1 …………………………………………….
Net Non Service Revenues……………………….
Total Data Operating Revenues………………….
service revenues in 2005. The year-on-year growth in our wireline voice
revenues is mainly driven by the increase in net subscribers of voice and
broadband subscribers.
1
KEY INDICATORS
31 Dec
2005
31 Dec
2004
YoY
Change
(%)
362,143
323,094
12%
22,479
7,780
189%
Average Revenue Per Subscriber (ARPU)
Gross ARPU…………………………….
Net ARPU……………………………….
1,233
1,087
1,272
1,112
-3%
-2%
Average Monthly Churn Rate ..………….
1.7%
1.5%
GLOBE TELECOM, INC.
Cumulative Voice Subscribers Net (End of period)……………...................
Consumer Broadband Subscribers –
Net (End of period) ¹ …………………..
¹ Broadband subscriptions by existing fixed line subscribers.
18
31 Dec
2005
31 Dec
2004
YoY
Change
(%)
679
770
571
92
2,112
670
644
428
0
1,742
1%
20%
33%
100%
21%
Includes revenues from value-added services and corporate internet services.
International Long Distance (ILD) Services
LIQUIDITY AND CAPITAL RESOURCES
On a consolidated basis, ILD revenues from the Wireless and Wireline services
Globe Group’s consolidated assets as of 31 December 2005 amounted to
increased by 7% to P13,526 million in 2005 compared to P12,622 million
P125,102 million compared to P129,704 million as of 31 December 2004.
in 2004. The increase was mostly driven by higher traffic during the second
half of 2005 due to the strong holiday demand and encouraged by various IDD
As of 31 December 2005 and 2004, current ratio on a consolidated basis
promotions from the wireless (Globe Budget IDD) and wireline (Globelines Lowest
was 0.90:1 and 0.87:1, repectively. Consolidated cash, cash equivalents and
IDD Rates) groups.
short term investments was at P12,165 million at the end of 2005, 15% lower
For the full year ended
Total ILD Minutes (in million minutes) ¹…………………….
Inbound……………………………………………………
Outbound.…………………………………………………
ILD Inbound / Outbound Ratio (x) ………………………
1
31 Dec
2005
Globe Group
31 Dec
2004
YoY
Change
(%)
1,469
1,251
218
1,271
1,082
189
16%
16%
15%
5.7
5.7
than the P14,303 million in 2004 due to dividend payments and the buyback
of shares in March 2005. Gross debt to equity ratio as of 31 December 2005
was 0.96:1 on a consolidated basis and remains well within the 2:1 debt to
equity limit dictated by certain debt covenants. Net debt to equity ratio was at
0.73:1 as of 31 December 2005.
Consolidated net cash flow from operations (excluding capex) amounted to
ILD minutes originating from and terminating to Globe and Innove networks.
P28,841 million for the period ended 31 December 2005, a 7% increase from
P26,927 million in 2004.
GROUP OPERATING EXPENSES
For the full year 2005, the Globe Group’s operating expenses increased by
Consolidated net cash used in investing activities amounted to P15,832 million
29% to P20,751 million from P16,039 million in 2004 as Globe continued its
for the full year 2005, a 10% decrease from the P17,679 million in 2004.
aggressive marketing promotions and shouldered increased network operating
Consolidated capital expenditures amounted to P14,786 million in 2005, a
costs related to its expansion in the past year. Of the total operating expenses
decrease of 30% from the previous year. For 2006, Globe has earmarked
of P20,751 million in 2005, network support or network-related expenses
approximately P13 billion (US$250 million) for capital expenditures to expand
accounted for 43%, marketing contributed 23%, business support added 29%
its wireless network, and upgrade the necessary facilities for 3G, and increase
and corporate-related expenses made up the remaining balance of 5%.
capacity for areas where traffic is expected to surge. The 2006 capital
expenditure program will be funded through internally-generated cash and debt
31 Dec
2005
Globe Group
31 Dec
2004
(as restated)1
YoY
Change
(%)
Cost of sales……………………………………………..
6,025
6,675
-10%
Selling, Advertising and Promotions ………………..
Staff Costs …………………………………………………
Utilities, Supplies & Other Administrative Expenses
Rent…………………………………………………………
Repairs and Maintenance………………………………
Provisions (Reversal of Allowance) for:
Doubtful Accounts …………………………………
Inventory Losses, Obsolescence and Market Decline
Losses on Property and Equipment and
Other Probable losses..................................
Losses on retirement of property and equipment….
Services and Others……………………………………..
Professional Fees & Other Contracted Services
Insurance and Security Services…………………
Taxes and Licenses…………………………………
Others ………………………………………………..
Operating Expenses………………………………......
Depreciation and Amortization …………………….
Financing………………………………………………….
Equity in Net Losses of An Associate & Joint Venture
Interest Income…………………………………………
Others – net………………………………………………
4,697
3,519
1,982
1,840
1,877
3,753
2,874
1,715
1,420
1,325
25%
22%
16%
30%
42%
616
80
1,052
72
-41%
11%
179
734
(489)
-
-137%
100%
1,496
1,478
832
1,421
20,751
15,734
3,141
13
(520)
(578)
1,295
1,035
616
1,371
16,039
14,706
6,327
(454)
(407)
16%
43%
35%
4%
29%
7%
-50%
100%
15%
42%
Costs and Expenses……………………………………
44,566
42,886
4%
For the full year ended (in millions of pesos)
financing.
Consolidated net cash used in financing activities for the full year 2005
amounted to P15,680 million, an 80% increase compared to P8,707 million in
2004 due to Globe’s reacquisition of its common shares via a tender offer and
higher dividend payments in 2005. Consolidated total debt as of 31 December
2005 amounted to P49,693 million, a 5% decrease from the P52,218 million
in 2004 as Globe prepaid US$41 million of its long term loans in addition to
US$161 million of maturing loans in 2005. Loan repayments of Globe for the
full year 2005 amounted to P12,527 million (US$236 million) compared to the
ANNUAL REPORT 2005
P18,874 million (US$335 million) paid in 2004.
¹ Prior year’s figures were restated as a result of various PAS adoptions.
19
WIRELESS PRODUCTS & SERVICES
Globe Handyphone, together with a rejuvenated
TM, captured the hearts and minds of its 12.4M
subscribers with the introduction of a series of
groundbreaking services and offers - fulfilling its
mission to transform lives and make even greater,
more enriching human connections possible.
Globe Kababayan also launched the first and only Kababayan cellphone menu,
which lets subscribers browse important information about Globe Kababayan
GLOBE CelebRATE!
services and offers straight from their cellphones. These are but a few of the
Tariff offers were the big headline for 2005, and Globe aggressively launched
services lined up for Globe Kababayan, all geared towards ensuring deeper
its very own program, Globe CelebRATE!. Globe subscribers were treated to
connections between OFWs and their families, building lasting relationships no
substantial text, call and IDD rate value offers in the second half of the year,
matter how many miles separate them.
giving them, as the campaign proclaimed, “even more reasons to celebrate”.
G-CASH
In June 2005, Globe Prepaid offered its subscribers the most economical Globe-
G-Cash, Globe’s flagship mobile commerce service, was born from a simple goal
to-Globe call & text rates to date, with Globe CelebRATE! pricing schemes of
of transforming a mobile phone into a wallet enabling Globe and TM subscribers
P0.50 per text sent and an affordable call rate of P5.00 for the first call minute
access to a cashless and cardless method of making money-transfers from
and P2.50 per succeeding minute. This was soon followed by the Prepaid Text
person to person (or from mobile phone to mobile phone) by simply sending a
Nonstop offer of 24-hour unlimited texting for P15, with a range of choices all
text message.
the way up to 10-day unlimited texting for P100. On the heels of this innovative
offer was Globe’s bulk-purchase promo of P10-for-3-minute budget Globe-to-
From G-Cash’s initial thrust towards money-transfers, purchase of goods
Globe calls. Later in the year, the Globe CelebRATE! offers were opened to Globe
and services from retail outlets, and sending and receiving domestic and
postpaid subscribers as well, while Globe’s International Services weighed in with
international remittances, the service, over a span of one year, created a whole
the Budget IDD rate of US $0.20 per minute.
new series of creative possibilities in the field of mobile commerce. Today,
G-Cash allows Globe and TM subscribers to pay for the following using their
Globe then heralded the coming of the New Year with the introduction of its
mobile phone’s text messaging service:
revolutionary 10 centavos per second call rate. This new way of charging calls
• utility bills
answered the market’s demand for value, allowing them to budget their calls
• interest and amortization of loans
down to the last second. The 10 centavos-per-second call rate was the pinnacle
• insurance premiums
of an exciting year of relevant tariff plays focusing on affordability and value for
• donations to various institutions and organizations
money. Truly, 2005 was the year that Globe made great rates possible.
• sales commissions
• school tuition fees
In the end, Globe CelebRATE!’s ever-growing menu of value offers exemplifies
• micro tax payments (for annual business registration)
Globe’s commitment to giving its subscribers the best deals, thus enriching the
relationships that mean most to them, keeping them constantly connected to
In addition, G-Cash also tallied impressive statistics in 2005, its first full-year of
friends, family and business partners.
being in service. Registered subscribers have exceeded 1.2 million with over
GLOBE TELECOM, INC.
500 partners both nationwide and abroad providing Globe and TM subscribers
GLOBE KABABAYAN
access to 4,500 outlets offering the G-cash service. Locally, its merchant
Globe continues to dominate the burgeoning OFW market in 2005 with the
partners include shopping mall chains, bookstores, drug stores, convenience
introduction of even more key services and offers for OFWs and their families
stores, universities, rural banks, cooperatives, restaurants, insurance
back home. These include the Special IDD Rates & Rewards program, which
companies, remittance companies, pawnshops, and utility companies. G-Cash
gives OFW family members an inexpensive and beneficial way to call their loved
is also already accepted across 14 countries in Asia, Middle East, Europe and
ones abroad, and Exclusive Benefits & Discounts, which include substantial
North America.
markdowns at major retail outlets and institutions.
20
TM: ANG PINALAKAS NA TOUCH MOBILE
G-Cash has also won four prestigious awards to date. Aside from the GSM
Association Awards in France (February 2005), G-Cash also received the Asian
Mobile News Awards in Singapore (June 2005), the Global Messaging Award
in London (June 2005), the Philippines’ very own Mobile Communications
Effectiveness Award (August 2005), and the Agora Awards for World Class
Excellence in Philippine Marketing (November 2005).
In 2006, we see Globe taking G-Cash to even greater heights. G-Cash
will continue increasing its registration base, usage among Globe and TM
subscribers, and the strengthening of its alliances with additional partner
merchants. G-Cash remains steadfast to the vision of improving the lives of
Filipinos here and abroad by providing them with a fast and easy way to do
money transfers and transactions using their mobile phones.
3G
2005 also saw the rebirth of the Touch Mobile brand as TM, the mobile phone
A decade ago, Globe became the first mobile service provider to introduce GSM
service provider for the male blue-collar worker. Standing firmly on a Value For
technology, a move that cemented its claim as the industry’s “technology leader”.
Money proposition, it captured its chosen market with a powerful promise: TM
Today, that coveted title is again being fought over. The race for 3G technology
empowers the working man and enables him to be resourceful, maximizing every
will reach fever pitch in 2006, with competitors attempting to co-opt the title of
hard-earned peso.
3G Pioneer.
TM was the first brand to own the Power Piso proposition, launching a series of
But Globe aggressively took the lead in
value-driven Power Piso offers throughout the year: a P1 per minute call rate
2005, recording the very first public and
after the first 2 minutes, P1 per text sent and P1 downloads.
live 3G demonstrations in the Philippines,
showcasing Globe’s 3G capabilities at high-
This value message was further strengthened by TM’s strong lineup of tariff
profile events attended by top executives
offers: Todo Text (Unlimited texting for TM-to-TM texts), Todo Tawag 15/15
from the country’s major corporations as
(P15 for up to 15 minutes of TM-to-TM calls), Budget IDD (US $0.20 per
well as distinguished media and advertising
minute for IDD calls to selected countries), 10 centavos-per-second TM-to-TM
practitioners.
calls and 75 centavos per TM-to-TM text.
In addition, Globe sponsored
Singapore, reuniting OFW Delia Bautista
The relaunch of TM has given the brand a distinct and focused market to which
with members of the Manila-based family
it can establish stronger, more meaningful connections. The revitalized TM has
that she had not seen in eight years.
given Globe Telecom a strong foothold in the mass market - a segment that has
These displays proved that Globe remains
historically been underserved, but which now exhibits massive growth potential
one of the pioneers in leading-edge
and will be a key frontier in Globe’s drive for market dominance.
telecommunications technology.
21
ANNUAL REPORT 2005
the first international 3G video call to
GlobeSolutions Corporate Wireless
Solutions and Services
The communication requirements for top corporations are slowly growing more
complex over time. In order to compete and succeed in their chosen arenas,
corporations must be able to communicate effectively and instantly with their
partners, their clients and within their own organizations.
When corporations want to communicate wirelessly, their needs go beyond voice
and text; it includes other forms of data such as email, sharing documents,
pictures and other mission critical files. Corporations want to do more than just
talk to one person at a time, they need to cascade information to entire divisions
instantly, manage their equipment and know where everything is located at any
given time.
GlobeSolutions is up to that challenge.
As the corporate arm of Globe Telecom, GlobeSolutions provides not just voice,
text and data for its subscribers, but more importantly, solutions to help them
grow their companies and compete in today’s world. Complete with its own
dedicated technical and customer relationship teams, GlobeSolutions provides
the unique mix of products and solutions tailored for each corporation’s needs:
Enterprise Mobility Solutions
MOBILEMAIL
MobileMail keeps employees securely connected to the corporate email server.
With MobileMail, employees can access email anywhere, view attachments,
contact lists and corporate calendars even on the go.
BLACKBERRY®
BlackBerry® Enterprise Solution is the leading wireless solution for keeping
mobile professionals connected on the go. Its award-winning platform provides
integrated, secure, and wireless connectivity to a range of business applications
- corporate data, e-mail, phone, web, SMS and organizer applications - all from a
single wireless handheld.
MOBILEOFFICE
MobileOffice enables corporate clients to connect and collaborate even outside
GLOBE TELECOM, INC.
of the office. It allows them to get mail, browse and download files, share notes,
presentations, databases, schedules and documents within a group of users
– making sure that the job gets done, even on the go.
22
SMS Messaging Solutions
TXTCONNECT
TxtConnect enables clients to reach their customers and employees wherever they
may be, by allowing them to send high-volume text broadcasts to pre-registered
groups. Instant, targeted, two-way communication in just one click – without the
expense of printing and delivery.
TXTHOTLINE
TxtHotline - the virtual customer service line by text. With TxtHotline,
customers can send queries or feedback via SMS and customer relations
representatives receive and respond to these concerns via email.
INFOTEXT
Customers can get up-to-date information via SMS through InfoText by simply
using keywords to trigger the appropriate response. Clients can streamline
customer service with automated responses to frequently asked queries.
Cost Management Solutions
AUTOLOADMAX CORPORATE EDITION
AutoLoadMAX CE is a web-based application which allows corporate clients to
control prepaid communication costs with features like: scheduled reloading
and real-time reporting of prepaid expenses by department, by location, etc.
TRACKER CORPORATE EDITION
Keep track of company assets through their Globe Handyphone. Tracker CE enables
clients to view location reports via the web or on their phones via SMS.
BILLANALYZER
BillAnalyzer - a web-based service that analyzes monthly billing data to reveal
information inside. This allows the clients to identify trends, patterns, and
changes in consumption to unlock greater efficiencies and more savings.
CORPORATE RINGBACK
The Corporate Ringback is a cellular technology that allows companies to
have their own customized audio clip played back on their employees’ mobile
phones. It is an innovative solution that will have the corporate or productrelated jingles ringing in the ears of callers - may they be colleagues, partners,
ANNUAL REPORT 2005
or most importantly, customers.
GlobeSolutions makes great things possible - For Business.
The Blackberry® and RIM families of related marks, images and symbols are the exclusive properties of
and trademarks of Research In Motion Limited – Used by permission
For more information, please call (02) 730-1999 or email [email protected]
23
Visibility
In today’s busy world, don’t you wish you could do two things at the same time?
Like swapping files with your co-workers while swapping stories in a café?
Or working together while being apart?
Your files need not to be too far from you when you are away from your
office desk.
With Visibility by Globe, experience unlimited data access anytime and
anywhere through GPRS, EDGE, WiFi, or Dial-Up connections. Rest assured
you will never be out of touch or out of sight!
Visibility is also all about customizability.
You can opt to bundle your plans with a wide range of devices like PDA’s and
laptops, as well as relevant applications such as Mobile Office and Remote
Office.
GLOBE TELECOM, INC.
All of these give you the power to make your business visible to you despite
the distance!
24
We are the leader
in this broadband
revolution, a revolution
that will have three
winners: the Filipino
consumer, the
business community
ANNUAL REPORT 2005
and our nation.
25
Innove has vowed to be at the forefront of the bandwidth
revolution, transforming the lives of the people and
organizations we serve – the individual, the community,
the entrepreneurs, the corporations, and the nation.
Contributions we make at each level affect all, growing
exponentially as the reach of each group increases in size
and scope.
OUR SERVICE TO THE INDIVIDUAL
Before the Broadband Revolution, Filipinos found it a chore
to study, to work and to live.
Now, Information and Communications Technology gives
Filipinos the gift of choice. Being disabled, too poor, too far
from school, or saddled with family obligations or full-time
jobs are no longer reasons for people not to be in school.
Without leaving his room, through the power of the Internet,
anyone can register for classes, attend, retrieve lessons,
review, take exams, chat, shop, buy books and supplies
online, publish diaries and blogs to reach out to people
regardless of age, social class or race. With a personal
computer (PC) before him and a Globelines Broadband
subscription, everything is at his fingertips.
Whether a student or a mobile professional, a Globelines
or GlobeQUEST broadband customer does not need to
lug around a PC with him wherever he goes. He can take
his Internet account with him anywhere and anytime, via
Globelines’ all-in-one Worldpass.
GLOBE TELECOM, INC.
As a second option, he can use his mobile phone, laptop
or personal digital assistant (PDA) to log in at GlobeQUEST
Wireless Internet Zone (WiZ) hotspots in shopping malls,
residential buildings, hotels, airports, food courts, cafes,
schools, lounges and restaurants.
26
GlobeQUEST WiZ has over 200 WiFi hotspot locations
throughout the Philippines. GlobeQUEST WiZ links personal
gadgets to the Internet within a 100-meter radius of an
Access Point (AP) in these establishments, for work or for
play.
GlobeQUEST WiZ allows clients to access their e-mail,
chat with friends, family and loved ones, connect to their
corporate VPN (virtual private network), watch videos, play
games and call using Voice over the Internet Protocol (VoIP).
GlobeQUEST, our corporate voice and data arm, has
partnered with Ayala Center to unwire Glorietta, Greenbelt,
Ayala Center Cebu and Alabang Town Center and make them
WiFi hotspots. Most major hotels and airports also went
wireless: Waterfront Hotels and Casinos in Lahug, Cebu City,
Holiday Inn Mimosa in Clark, Pampanga, Waterfront Hotel
in Davao, Legend Hotel in Mandaluyong, Microtel Suites in
Cavite; Lipa and Sto.Tomas, Batangas, as well as the Mactan
International Airport and Davao International Airport.
We also provide broadband-to-the-room and WiFi service to
most of the major hotels: Mandarin Oriental Hotel, Oakwood
Premiere Ayala Center, Intercontinental Hotel Manila, Dusit
Hotel Nikko, The Linden Suites, Somerset Olympia, Marriot
Cebu City, and Marco Polo Hotel in Davao.
At home, at school, or on the move, Innove offers Filipinos
not just a knowledge tool or a bridge over the digital divide,
but a vital link to people they love. That’s why your company
was the first to offer toll-free NDD (National Direct Distance)
for the whole archipelago and the cheapest (International
Direct Dial) IDD service.
Globelines, our residential and Small and Medium Enterprise
(SME) arm, charges only US$0.20 per minute for postpaid
subscribers making IDD calls to 51 countries.
Globe1 card IDD rates are lower still, at P4.50 per minute from Globelines
postpaid and prepaid lines, including payphones, to selected countries.
In Globe1, we put all the connectivity needs of an individual into a single pre-paid
PIN-based card that gives him the flexibility to choose what device to call local
or overseas, through any Globelines landline or payphone, Globe Handyphone or
Touch Mobile cellphone.
Globelines has also started offering VoIP services, allowing broadband
subscribers to make calls from their PCs to 51 countries, for just US$0.05 per
minute.
In addition, VoIP has value-added services not available on traditional telephony.
Callers can bring their phone number anywhere as long as they are connected
to the internet. They just log in to make and receive calls wherever they are.
With our core business and our core competency, we help develop our service
areas, where we empower not just the individual, but the family and the whole
community as well.
By the end of 2005, Globelines, our consumer broadband group, had a
total wireline voice subscriber base exceeding 362 thousand and more than
22 thousand broadband customers. These numbers are expected to grow
substantially as broadband services and speed improve and prices come down.
We want to serve as many customers as possible in this area of highest growth.
Being in a public school in a remote area, for instance, no longer places a
student at a disadvantage. Innove sees to it that he can access the worldwide
web from wherever he is.
OUR SERVICE TO THE COMMUNITY
We believe that corporate governance and social responsibility go together. We
are not just a provider of telecommunications services but a good corporate
citizen and a true partner in progress.
By end 2005, we connected 402 public high schools under our Innove Internet
in Schools Program (ISP), in support of the Gearing up Internet Literacy
Access for Students (GILAS), which is a consortium of private companies and
government agencies that aims to connect the more than 5,000 public high
schools in the country within 5 years.
Volunteerism is also high in your company. Some 10% of our over 1,000
workforce have signed up for our iTeach, iCare Program.
Over a hundred of our employees participate in the iTeach, iCare program,
where they volunteer to teach computer applications and Internet skills in
public schools for at least 6 work hours per year. It has become a mutually
enriching initiative which provides an outlet for an employee’s desire to give back
to society, even as it creates goodwill, endearing Innove to the communities
it serves. Our high school student beneficiaries gain both professional and
personal knowledge, while our Innove employee volunteers practice the company
values of Balance and Teamwork.
ANNUAL REPORT 2005
Contributions we make at
each level affect all, growing
exponentially as the reach of
each group increases in size
and scope.
27
Innove grows along
with its business clients.
and start his own business, procure and inventory his goods, outsource his
requirements, take care of his sales, marketing and back-office needs.
Our entrepreneur can simply telecommute – enabling him to accomplish much in
very little time, without shuttling between home and office, between plant sites
or branches and headquarters. He can attend conferences over the phone or
over the Internet.
OUR SERVICE TO THE EMPLOYEES
While respected institutions, like the Asian Development Bank (ADB), laud
Innove’s Corporate Social Responsibility (CSR) programs, we never forget to
recognize our own.
The same Globelines and GlobeQUEST broadband connection that helped him
and his family as a student continues to help him as a businessman via valuepriced, high-speed data services over a modem network.
Every year, the Innove Leadership Awards (ILAW) commends both individuals and
teams whose consistent, outstanding and excellent performance exemplifies our
corporate values and unique brand of leadership.
Innove grows along with its business clients. Equipped with its new nationwide
license, your company will roll out additional lines in business and residential
areas all over the Philippines in the next three years in P5-Billion internally-funded
capital expenditures.
Through the ILAW awards, we aspire to create a culture of excellence in our
internal community and nurture more leaders from within our ranks.
In just a few years, we can provide universal access in unserved and
underserved areas and ensure efficient competition in local access services.
Inasmuch as charity begins at home, Innovealso takes care of its human
resources through a flexible benefits program, mychoices@innove. Launched
in November 2005, the Flexben scheme assists employees in choosing benefits
packages to suit their lifestyle, background, and financial situation.
OUR SERVICE TO CORPORATIONS
Innove caters to the needs of top 5,000 Corporations, covering a significant
segment of the country’s corporate market, allowing growth in revenue from this
segment at 21% per annum.
OUR SERVICE TO ENTREPRENEURS
Innove’s broadband revolution has dramatically improved business and consumer
transactions for entrepreneurs and Small and Medium Enterprises (SMEs), the
backbone of the Philippine economy.
Visibility, an offering from our Enterprise Business Group (GlobeQUEST and
GlobeSolutions), allows clients to access their business anytime and anywhere,
regardless of whatever device or connection is used.
GLOBE TELECOM, INC.
When our Filipino youth graduates, Innove makes it easy for him to find work
We have services suited to each corporation’s unique requirements, the latest
of which is Visibility.
28
It was the first to successfully integrate connectivity options such as General
Packet Radio Service (GPRS), Enhanced Data for Global Evolution (EDGE),
Wireless Fidelity (WiFi), and dial-up using a single log on, under one account and
presented in an integrated bill.
The Enterprise Business Group also delivers its promise to make lives easier for
those in the hotel and in the retail industries, call centers and Business Process
Outsourcing (BPO) companies.
We continue to develop network services, Internet solutions and value-added
services, such as: managed router services, data center services and disaster
recovery systems for enterprises, wireless intranet communication, hosted
emails and applications shared infrastructure to improve the operations of
various industries in the enterprise market.
entire Asian region, creating connected digital villages, municipalities and nations
that enjoy the full capabilities of technology.
In 2006 onwards, your company expects to accomplish more, especially after
the NTC has issued our nationwide license to install landlines outside of our
service areas.
We are witnessing the early years of our broadband revolution, with great
expectations of our future. We are happy to have achieved this year’s targets
and to have become the fastest growing broadband service provider in the
country today.
We believe that three transport revolutions transformed the world. Although as
a company we are too young to be part of the first two, we take immense pride
in bringing about the last.
As the Philippines becomes an Information and Communications Technology
(ICT) hub, your company maintains its lead in innovation, building on its strong
network as well as its strong customer relations.
The first revolution was the transport of goods; the second, the transport of
people. Today, we are in the third: the transport of information.
Our work creates an impact in the lives of our employees, in our communities,
in the way our individual or institutional customers managed their lives or
operations, and ultimately create a positive impact to society and our country.
We are the leader in this broadband revolution, a revolution that will have three
winners: the Filipino consumer, the business community and our nation.
OUR SERVICE TO THE NATION
In the end, your company connects not just people and companies. We link the
Philippines to Asia and to the rest of the world.
That’s why Innove was an early mover in WiMAX (Wireless Inter-operability for
Microwave Access) in the ASEAN region. In fact, GlobeQUEST and Globelines
launched the country’s first WiMAX service through a commercial trial with Intel
in Cavite in 2005.
WiMAX provides faster broadband connectivity over longer-range distances than
WiFi and can best deliver technology to areas previously not served. It promises
to integrate not just the over 7,100 islands in our archipelago but also the
ANNUAL REPORT 2005
We link the Philippines to
Asia and to the rest of
the world.
29
‘05
BOARD
OF
DIRECTORS
Jaime Augusto
Zobel de Ayala II
Chairman of the Board
since 1997; Director
since 1989
Director of Ayala Corporation (since 1987). Co-Vice Chairman, President and CEO
of Ayala Corporation; Bank of the Philippine Islands, Ayala International Pte., Ltd.,
and Integrated Microelectronics Inc.; Vice Chairman of Ayala Land, Inc. and Co-Vice
Chairman of Ayala Foundation, Inc.; Member of the Board of Trustees of the JP Morgan
International Council, Mitsubishi Corporation International Advisory Committee, Toshiba
International Advisory Group, Harvard University Asia Center Advisory Committee, Board
of Trustees of the Asian Institute of Management and a national council member of the
World Wildlife Fund (US) and Chairman of World Wildlife Fund (Philippines).
Delfin L. Lazaro
Co-Vice Chairman
Lim Chuan Poh
GLOBE TELECOM, INC.
Co-Vice Chairman
Director since January 1997; Chairman of the Executive Committee
and former President of Globe; Chief Finance Officer and a member
of the Management Committee of the Ayala Corporation; President of
Azalea Technology Investments; Member of the Board of Directors of
Ayala Land, Inc. (ALI), Manila Water Co., Inc. (MWC) and Integrated
Micro-electronics, Inc. (IMI); Former President and CEO of Benguet
Corporation and Secretary of the Department of Energy of the Philippine
government; Named Management Man of the Year 1999 by the
Management Association of the Philippines.
30
Director since 2001; Executive Vice President (Strategic
Investments) of Singapore Telecom; Chairman of Bridge
Mobile Alliance, which is Asia Pacific’s largest mobile
alliance group; Former Deputy Secretary of the Ministry
of Communications; Also served in different senior
appointments in the Singapore Civil Services.
Senior Managing Director of Ayala Corporation;
Former Vice President and Country Business Manager for
the Philippines and Guam of Citibank, N.A; Former Vice
President of Citibank, N.A. Singapore for
Consumer Banking.
Gerardo C. Ablaza, Jr.
Director since 1998; currently
President and CEO of Globe
Fernando Zobel
de Ayala
Director since 1995
Romeo L. Bernardo
Director of Ayala Corporation (since 1994). Co-Vice Chairman and
Executive Managing Director of Ayala Corporation; Chairman of Ayala
Land, Inc., Manila Water Company, Inc., AC International Finance Ltd.,
Ayala Automotive Holdings, Inc., Alabang Commercial Corporation, Roxas
Land Corporation; Vice Chairman of Ayala International Pte. Ltd.; Co-Vice
Chairman Ayala Foundation, Inc.; and Director of Bank of the Philippine
Islands, Integrated Micro-electronics, Inc.; Member of the Board of
Directors of Habitat for Humanity International, Member of the East Asia
Council of INSEAD; Member of the Board of Trustees of the International
Council of Shopping Centers.
President of Lazaro Bernardo Tiu and Associates;
Chairman and/or member of the Board of several private
companies including the Bank of the Philippine Islands,
RFM Corporation, Phinma, PSI Technologies (a Nasdaqlisted company), and ALFM Peso, Dollar and Euro Bond
Funds; Former Undersecretary of Finance of the Philippine
Government and Alternate Executive Director of the Asian
Development Bank.
31
ANNUAL REPORT 2005
Director since 2001
Xavier P. Loinaz
Director since 2001
Guillermo D.
Luchangco
Director since 2001
Chairman and Chief Executive Officer of Investment & Capital Corporation
of the Philippines, ICCP Venture Partners, Inc., Pueblo de Oro Development
Corp., Manila Exposition Complex, Inc. and RFM-Science Park of the
Philippines, Inc. Also a Director of Bacnotan Consolidated Industries, Inc.,
Planters Development Bank, Ionics EMS, Inc., and Ionics Circuits, Inc.
Former President of the Bank of the Philippine Islands (BPI); Director
of BPI, BPI Capital Corporation, BPI Direct Savings Bank, Inc., BPI/MS
Insurance Corporation and BPI Family Savings Bank, Inc.; Chairman of the
Board of Directors of Ayala Life Assurance, Inc.; Member of the Board of
Trustees of BPI Foundation, Inc.
Currently President of the Asian Institute of Management. and Chairman
and/or Board Member of several companies both in the Philippines and
abroad including the Centennial Group (Washington, D.C.), Dun & Bradstreet
(Asia Pacific) Pte. Ltd., Alaska Milk Corporation, United Overseas Bank,
ABS-CBN Broadcasting Corporation, Philippine Airlines, Philamlife Savings
Bank, Metrobank, Seaboard Eastern Insurance Co., House of Investments;
Also served as Secretary of the Department of Finance of the Philippine
government; Recently elected to the Board of Advisors of the Conference
Board, one of the world’s leading authorities in international business
economics (based in New York).
Dr. Roberto F.
de Ocampo
GLOBE TELECOM, INC.
Director since 2003
32
Jesus P. Tambunting
Director since 2003
Renato O. Marzan
Corporate Secretary
since 1993
Chairman and CEO of Planters Development Bank (Plantersbank).
Chairman of SME Solutions, Inc., the PDB-FMO Development Center
and the Micro Enterprise Bank of the Philippines; Current Chairman
of the Association of Development Financing Institutions in Asia
and the Pacific (ADFIAP); Served as Ambassador Extraordinary and
Plenipotentiary to the United Kingdom of Great Britain and Northern
Ireland from 1993 to 1998. Conferred “Management Man of the
Year 2003” by the Management Association of the Philippines,
“Knight of the Equestrian Order of the Holy Sepulchre of Jerusalem” by
the Vatican in 2004 and Lifetime Achievement Award in 2005 by the
Asian Bankers Association
Former Director of Globe; Managing Director of Ayala Corporation; Director
and Corporate Secretary of Honda Cars Makati, Inc., Isuzu Automotive
Dealership, Inc. and Michigan Holdings, Inc.; Corporate Secretary of Avida
Land, Corp. (formerly Laguna Properties Holdings, Inc.), Ayala Systems
Technology, Inc., Azalea Technology Investment, Inc., Ayala Hotels, Inc.,
Laguna Technopark, Inc., Integrated Micro-electronics, Inc., Community
Innovations, Inc., and Roxas Land Corporation; Assistant Corporate
Secretary of Ayala Corporation, Ayala Land, Inc. and Ayala Foundation, Inc.
Jeann Low*
Director since 2005
ANNUAL REPORT 2005
Chief Financial Officer of Optus since Feb 2006;
Former Group Financial Controller for SingTel for
5 years before being appointed as Executive Vice
President (Strategic Investments) in Nov 2005;
Former Vice President of Aztech Systems responsible
for the Aztech Group’s Finance, Human Resource and
Administration departments.
*Resigned as of February 7, 2006
33
‘05
SENIOR
EXECUTIVE
GROUP
Gerardo C. Ablaza, Jr.
President & Chief Executive Officer
Delfin C. Gonzalez, Jr.
Gil B. Genio
Rodell A. Garcia
Cesar M. Maureal*
Chief Financial Officer
GLOBE TELECOM, INC.
Information Systems Head
Wireline Business Head
Human Resources Head
*Resigned as of June 30, 2005
34
Ferdinand M. de la Cruz
Consumer Business Head
Rodolfo A. Salalima
Corporate & Regulatory Affairs Head
CONSULTANTS
Strategy Execution Center Head
Andrew Buay
Chief Operating Advisor
Robert L. Wiggins
Chief Technical Advisor
ANNUAL REPORT 2005
Rebecca V. Eclipse
35
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, 2005, and 2004. 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.
Chief Financial Officer
GLOBE TELECOM, INC.
Gerardo C. Ablaza, Jr.
President & Chief Executive Officer
36
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 Subsidiaries as of
December 31, 2005, 2004 and 2003, 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 Subsidiaries as of December 31, 2005, 2004 and 2003, 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.
SyCip Gorres Velayo & Co.
Luis Y. Benitez
Partner
CPA Certificate No. 19698
SEC Accreditation No. 0067-A
Tax Identification No. 105-339-766
PTR No. 4180813, January 2, 2006, Makati City
ANNUAL REPORT 2005
February 7, 2006
37
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
2004
(As Restated)
(In Thousand Pesos)
2003
(As Restated)
P
= 10,910,961
1,253,759
6,764,130
1,372,459
1,232,525
21,533,834
P
= 13,581,842
720,831
5,457,913
1,136,885
1,083,408
21,980,879
P
= 13,041,048
1,962,889
7,760,694
616,741
1,602,192
24,983,564
98,554,670
259,538
1,100,727
1,163,943
76,897
2,412,781
103,568,556
P
= 125,102,390
101,643,592
261,516
944,265
2,413,253
91,925
2,368,498
107,723,049
P
= 129,703,928
95,069,687
270,988
604,951
1,759,412
727,726
3,008,349
101,441,113
P
= 126,424,677
P
= 14,236,333
291,348
1,301,684
P
= 14,054,337
47,655
1,732,747
P
= 14,192,402
215,934
2,376,906
7,858,150
269,737
23,957,252
9,018,650
292,589
25,145,978
9,022,535
325,373
26,133,150
4,432,867
41,835,238
3,258,223
49,526,328
73,483,580
3,474,732
43,199,301
3,377,015
50,051,048
75,197,026
1,874,082
47,109,200
3,237,478
52,220,760
78,353,910
2005
ASSETS
Current Assets
Cash and cash equivalents (Notes 25 and 27)
Short-term investments (Note 25)
Receivables - net (Notes 3, 5, 16 and 25)
Inventories and supplies (Note 6)
Prepayments and other current assets (Notes 3, 7, 16, 22 and 25)
Total Current Assets
Noncurrent Assets
Property and equipment - net (Notes 3, 8, 15, 16 and 22)
Investment property - net (Notes 3 and 9)
Intangible assets - net (Notes 3 and 10)
Deferred income tax - net (Notes 3 and 21)
Investments in associates, joint venture and others - net (Notes 3, 11 and 25)
Other noncurrent assets (Notes 3, 12, 18, 22 and 25)
Total Noncurrent Assets
GLOBE TELECOM, INC.
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses
(Notes 13, 16, 22 and 25)
Income taxes payable (Note 21)
Unearned revenues
Current portion of:
Long-term debt (Notes 14 and 25)
Other long-term liabilities (Notes 3, 15, 16, 22 and 25)
Total Current Liabilities
Noncurrent Liabilities
Deferred income tax - net (Notes 3 and 21)
Long-term debt - net of current portion (Notes 14 and 25)
Other long-term liabilities - net of current portion (Notes 3, 15, 16, 22 and 25)
Total Noncurrent Liabilities
Total Liabilities
Stockholders’ Equity (Note 17)
Paid-up capital
Cost of share-based payment (Note 2)
Cumulative translation adjustment (Notes 2 and 25)
Retained earnings (Note 2)
Treasury stock - common
Total Stockholders’ Equity
33,315,408
312,644
(235,892)
18,226,650
–
51,618,810
P
= 125,102,390
See accompanying Notes to Consolidated Financial Statements. 38
39,435,577
193,096
–
23,070,999
(8,192,770)
54,506,902
P
= 129,703,928
39,418,022
59,091
–
16,786,424
(8,192,770)
48,070,767
P
= 126,424,677
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
2005
2004
(As Restated)
2003
(As Restated)
P
= 54,896,813
3,850,788
P
= 52,741,358
2,867,622
P
= 47,534,537
1,943,398
(In Thousand Pesos, Except Per Share Figures)
NET OPERATING REVENUES (Note 16)
Service revenues
Nonservice revenues
58,747,601
COSTS AND EXPENSES
Operating (Notes 16, 18, 19 and 22)
Depreciation and amortization (Notes 3, 8, 9, 10 and 26)
Cost of sales
Financing costs (Notes 14, 20 and 25)
Interest income
Losses on retirement of property and equipment (Note 8)
Provisions (reversal of provision) for:
Doubtful accounts (Note 3)
Property and equipment and other
probable losses (Notes 3, 8 and 13)
Inventory losses, obsolescence and market decline
Impairment of investments in shares of stocks (Note 11)
Equity in net losses of an associate and joint venture (Note 11)
Others - net (Notes 9 and 22)
19,142,262
15,733,959
6,024,711
3,140,593
(519,648)
733,819
615,729
179,259
80,049
–
13,334
(577,476)
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 21)
Current
Deferred
NET INCOME
55,608,980
15,403,963
14,705,825
6,675,198
6,326,879
(454,038)
–
1,052,222
(489,163)
72,388
–
62
(407,290)
49,477,935
13,998,568
11,588,748
6,213,683
6,739,026
(756,840)
177,733
940,751
246,846
15,241
906,683
3,941
(773,082)
44,566,591
42,886,046
39,301,298
14,181,010
12,722,934
10,176,637
1,747,249
2,119,253
379,928
946,764
3,866,502
1,326,692
P
= 10,314,508
P
= 11,396,242
758,271
(534,270)
224,001
P
= 9,952,636
Earnings Per Share (Notes 2 and 24)
Basic
P
= 76.74
P
= 80.92
P
= 66.16
Cash dividends declared per common share (Note 17)
P
= 40.00
P
= 36.00
P
= 14.00
P
= 76.60
P
= 80.78
P
= 66.04
ANNUAL REPORT 2005
Diluted
See accompanying Notes to Consolidated Financial Statements. 39
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
Capital
Stock*
P
= 8,323,023
P
= 31,111,790
P
=–
–
764
193,096
–
8,323,023
–
31,112,554
–
193,096
–
(1,003,283)
–
(5,179,349)
–
–
(8,192,770)
P
=–
–
P
= 25,774,446
(151,008)
(151,008)
31,290
23,102,289
(119,718)
54,387,184
(429,336)
–
(429,336)
237,619
–
237,619
114,167
–
114,167
(7,334)
–
(7,334)
(84,884)
–
–
10,314,508
(84,884)
10,314,508
(84,884)
10,314,508
10,229,624
–
15,868,428
–
(9,685,796)
–
–
–
–
–
–
(5,436,017)
(68,334)
–
–
–
161,731
10,968
3,033
P
= 7,333,741
–
48,462
P
= 25,981,667
–
(42,183)
P
= 312,644
–
–
P
=–
P
= 57,016,489
(2,509,587)
–
–
–
Total
(2,703,447)
(7,675,658)
–
–
40
(P
= 8,192,770)
–
–
–
GLOBE TELECOM, INC.
As of January 1, 2005,
as previously reported
Effect of changes in accounting
policies (Note 2)
Cumulative effect of change in
accounting policy for financial
instruments as of January 1, 2005
(Notes 2 and 25)
As of January 1, 2005, as restated
Changes in fair value of cash
flow hedges
Transferred to income and expense for
the year for cash flow hedges
Tax effect of items taken directly to or
transferred from equity
Changes in fair value of
available- for-sale equity
investments
Net income recognized
directly in equity
Net income for the year
Total recognized income
for the year
Acquisition of treasury shares
for the year (Note 17)
Retirement of treasury
shares (Note 17)
Dividends on (Note 17):
Common stock
Preferred stock
Cost of share-based
payment (Note 18)
Collections of subscriptions
receivable - net of refunds
Exercise of stock options
As of December 31, 2005
(Forward) Additional
Cumulative
Treasury
Cost of
Paid-in
Translation
Retained
Stock Share-Based
Capital
Adjustment
Earnings
Common
Payment
Common
For The Year Ended December 31, 2005 (In Thousand Pesos)
–
–
(P
= 235,892)
–
–
–
P
= 18,226,650
(7,675,658)
–
(5,436,017)
(68,334)
161,731
10,968
9,312
P
= 51,618,810
Capital
Stock*
As of January 1, 2004,
as previously reported
Effect of changes in accounting
policies (Note 2)
As of January 1, 2004, as restated
Net income for the year, as restated
Dividends on (Note 17):
Common stock
Preferred stock
Cost of share-based
payment (Note 18)
Exercise of stock options
Stock option purchase price
Collections of subscription
receivable - net of refunds
As of December 31, 2004, as restated
Additional
Cumulative
Treasury
Cost of
Paid-in
Translation
Retained
Stock Capital - Share-Based
Adjustment
Earnings
Common
Payment
Common
For the Year Ended December 31, 2004 (In Thousand Pesos)
P
= 8,307,828
P
= 31,110,194
P
=–
(P
= 8,192,770)
P
=–
–
8,307,828
–
–
31,110,194
–
59,091
59,091
–
–
(8,192,770)
–
–
–
–
(2,842,323)
16,786,424
11,396,242
(2,783,232)
48,070,767
11,396,242
–
–
–
–
–
–
–
–
–
–
(5,036,539)
(75,128)
(5,036,539)
(75,128)
–
–
–
–
2,147
213
–
–
–
–
–
–
15,195
P
= 8,323,023
134,769
(764)
–
P
= 19,628,747
Total
P
= 50,853,999
–
–
–
134,769
1,383
213
–
–
–
–
–
P
= 31,112,554
P
= 193,096
(P
= 8,192,770)
P
=–
P
= 23,070,999
For The Year Ended December 31, 2003 (In Thousand Pesos)
15,195
P
= 54,506,902
As of January 1, 2003,
as previously reported
P
= 8,267,828
P
= 31,109,975
P
=–
P
=–
P
=–
P
= 11,478,127
Effect of changes in accounting policies
(Note 2)
–
–
–
–
–
(2,449,706)
As of January 1, 2003, as restated
8,267,828
31,109,975
–
–
–
9,028,421
Net income for the year, as restated
–
–
–
–
–
9,952,636
Acquisition of treasury shares
–
–
–
(8,192,770)
–
–
Dividends on (Note 17):
Common stock
(2,126,676)
Preferred stock
–
–
–
–
–
(67,957)
Cost of share-based
payment (Note 18)
–
–
59,091
–
–
–
Stock option purchase price
–
219
–
–
–
–
Collections of subscription
receivable - net of refunds
40,000
–
–
–
–
–
As of December 31, 2003, as restated
P
= 8,307,828
P
= 31,110,194
P
= 59,091
(P
= 8,192,770)
P
=–
P
= 16,786,424
*Net of subscriptions receivable of P
= 53.86 million, P
= 64.82 million and P
= 80.02 million as of December 31, 2005, 2004 and 2003, respectively.
P
= 50,855,930
(2,449,706)
48,406,224
9,952,636
(8,192,770)
(2,126,676)
(67,957)
59,091
219
40,000
P
= 48,070,767
ANNUAL REPORT 2005
See accompanying Notes to Consolidated Financial Statements.
41
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2005
GLOBE TELECOM, INC.
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 8, 9 and 10)
Interest expense (Note 20)
Provisions (reversal of provisions) for:
Property and equipment and other probable losses
Impairment of investments in shares of stock
Losses on retirement of property and equipment (Note 8)
Interest income
Loss on derivative instruments - net (Notes 20 and 25)
Cost of share-based payment (Notes 16 and 18)
Loss (gain) on disposal of property and equipment
Equity in net losses of an associate and joint venture (Note 11)
Amortization of deferred charges and others
Dividend income
Operating income before working capital changes
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables
Inventories and supplies
Prepayments and other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Unearned revenues
Other long-term liabilities
Cash generated from operations
Interest paid
Income taxes paid
Net cash flows provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment and
intangible assets (Notes 8 and 10)
Proceeds from sale of property and equipment
Decrease (increase) in:
Short-term investments
Other noncurrent assets
Interest received
Dividends received
Net cash flows used in investing activities
(Forward) 42
Years Ended December 31
2004
(As Restated)
(In Thousand Pesos)
2003
(As Restated)
P
= 14,181,010
P
= 12,722,934
P
= 10,176,637
15,732,204
4,657,748
14,541,584
4,368,716
11,503,891
4,088,209
179,259
–
733,819
(519,648)
264,435
161,731
(28,398)
13,334
1,755
(105)
35,377,144
(489,163)
–
–
(454,038)
–
134,769
17,777
62
164,241
(350)
31,006,532
246,846
906,683
177,733
(756,840)
–
59,091
67,206
3,941
84,857
(307)
26,557,947
(1,792,779)
(233,421)
(624,734)
6,628,685
(555,305)
(24,877)
(5,098,769)
(213,035)
496,535
1,967,465
(431,063)
(25,373)
34,237,239
(4,646,042)
(750,342)
28,840,855
(4,687,223)
(644,159)
56,675
31,780,328
(4,727,341)
(125,702)
26,927,285
5,377,392
263,225
251,866
27,635,161
(4,588,050)
(905,019)
22,142,092
(15,949,875)
183,434
(20,283,533)
27,370
(17,452,338)
51,983
(545,554)
(12,524)
492,828
105
(15,831,586)
1,941,537
173,924
461,051
350
(17,679,301)
2,102,649
(260,368)
779,321
307
(14,778,446)
2005
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Long-term borrowings
Short-term borrowings
Repayments of:
Long-term borrowings
Short-term borrowings
Purchase of treasury stock - common (Note 17)
Payments of dividends to (Note 17):
Common shareholders
Preferred shareholders
Collection of subscription receivable and exercise of stock
options - net of related expenses
P
= 9,992,181
21,000
Years Ended December 31
2004
(As Restated)
(In Thousand Pesos)
P
= 15,194,743
60,000
2003
(As Restated)
P
= 7,498,290
–
(12,505,808)
(21,000)
(7,675,658)
(18,814,228)
(60,000)
–
(10,390,104)
(6,639)
(8,192,770)
(5,436,017)
(75,128)
(5,036,539)
(67,957)
(2,126,676)
(108,072)
20,280
16,791
40,219
Net cash flows used in financing activities
(15,680,150)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
(2,670,881)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
13,581,842
13,041,048
18,963,154
P
= 10,910,961
P
= 13,581,842
P
= 13,041,048
CASH AND CASH EQUIVALENTS AT END OF YEAR
(8,707,190)
540,794
(13,285,752)
(5,922,106)
ANNUAL REPORT 2005
See accompanying Notes to Consolidated Financial Statements. 43
GLOBE TELECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Globe Telecom, Inc. (hereafter referred to as “Globe Telecom” or the “Parent Company”) is a stock corporation organized under the
laws of the Philippines, and enfranchised under Republic Act (RA) No. 7229 and its related laws to render any and all types of
domestic and international telecommunications services. Globe Telecom is one of the leading providers of digital wireless
communications services in the Philippines using a full digital network based on the Global System for Mobile Communication (GSM)
technology. It also offers domestic and international long distance communication services or carrier services. Globe Telecom’s
principal executive offices are located at 5th Floor, Globe Telecom Plaza, Pioneer Highlands, Pioneer corner Madison Streets,
Mandaluyong City, Metropolitan Manila, Philippines. Globe Telecom is listed in the Philippine Stock Exchange (PSE) and has been
included in the PSE composite index since September 17, 2001.
Globe Telecom owns 100% of Innove Communications, Inc. (“Innove”). Innove is a stock corporation organized under the laws of the
Philippines and enfranchised under RA No. 7372 and its related laws to render any and all types of domestic and international
telecommunications services. Innove is one of the providers of digital wireless communication services in the Philippines. Innove
currently offers cellular service under the Touch Mobile (TM) prepaid cellular brand. The TM brand is supported in the integrated
cellular networks of Globe Telecom and Innove. Innove also offers a broad range of wireline voice communication services, as well
as domestic and international long distance communication services or carrier services. Innove’s principal executive office is located
at 18th Floor, Innove IT Plaza corner Samar and Panay Roads, Cebu Business Park, Cebu City, Philippines.
Globe Telecom is a grantee of various authorizations and licenses from the National Telecommunications Commission (NTC) as
follows: (1) license to offer and operate telex, facsimile, other traditional voice and data services and domestic line service using
Very Small Aperture Terminal (VSAT) technology; (2) license for inter-exchange services; and (3) Certificate of Public Convenience
and Necessity (CPCN) for: (a) international digital gateway facility (IGF) in Metro Manila, (b) nationwide digital cellular mobile
telephone system under the GSM standard (CMTS-GSM), and (c) local exchange carrier (LEC) services in Makati and surrounding
areas in Metro Manila, Batangas, Cavite, Mindoro, Palawan and certain areas in Mindanao.
On August 7, 2003, the NTC granted Globe Telecom’s application to transfer its wireline business, assets, obligations and subscribers
to Innove. With the transfer of Globe Telecom’s wireline voice and data services to Innove on September 30, 2003, Innove now holds
the following: (a) the authorizations and licenses from the NTC issued to Globe Telecom to offer and operate telex, facsimile, and
other traditional voice and data services and domestic leased line service using VSAT technology; and (b) the CPCN previously
issued to Globe Telecom on July 23, 2002 to offer LEC services in Makati and surrounding areas in Metro Manila, Batangas, Cavite,
Mindoro, Palawan and certain areas in Mindanao.
On July 23, 2002, the NTC also issued the CPCN for Innove’s IGF, CMTS and LEC services which is valid and renewable after
25 years.
GLOBE TELECOM, INC.
On June 17, 2005, NTC issued a provisional authority to Innove to establish, install telephone, operate and maintain LEC service,
particularly integrated local telephone service with public payphone facilities and public calling stations in all regions, provinces, cities
and municipalities across the nation that are not yet covered by its existing CPCN and to charge therefore monthly rates at par with
the approved rates of the LEC operators in the area, subject to certain conditions.
44
On December 28, 2005, NTC approved Globe Telecom’s application for third generation (3G) radio frequency spectra to support the
upgrade of its CMTS network to be able to provide 3G services. Globe Telecom has been assigned the 10-Megahertz (MHz) of
3G radio frequency spectrum.
On August 23, 2004, Globe Telecom invested in G-Xchange, Inc. (GXI), a wholly-owned subsidiary, with the primary purpose of
developing, designing, administering, managing and operating software applications and systems, including systems designed for the
operations of bills, payment and money remittance, payment and delivery facilities through various telecommunications systems
operated by telecommunications carriers in the Philippines and throughout the world and to supply software and hardware facilities
for such purposes. GXI handles the mobile payment and remittance service using Globe Telecom’s network as transport channel
under the G-Cash brand. The service, which is integrated into the cellular services of Globe Telecom and Innove, enables easy and
convenient person-to-person fund transfers via short messaging services (SMS) and allows Globe Telecom and Innove subscribers
to easily and conveniently put cash into and get cash out of the G-Cash system. GXI started commercial operations on
October 16, 2004. GXI is a stock corporation organized under the laws of the Philippines. GXI is registered with the Bangko Sentral
ng Pilipinas as a remittance agent. GXI’s principal executive office is located at 6th Floor, Globe Telecom Plaza, Pioneer Highlands,
Pioneer corner Madison Streets, Mandaluyong City, Metropolitan Manila, Philippines.
2. Summary of Significant Accounting Policies
Basis of Financial Statement Preparation
The accompanying consolidated financial statements of Globe Telecom and its wholly-owned subsidiaries, Innove and GXI
collectively referred to as the “Globe Group”, have been prepared in accordance with generally accepted accounting principles in the
Philippines (Philippine GAAP), as set forth in Philippine Financial Reporting Standards (PFRS). This is Globe Group’s first annual
consolidated financial statements prepared in accordance with PFRS.
The Globe Group applied PFRS 1, First-time Adoption of PFRS, in preparing the consolidated financial statements, with
January 1, 2003 as the date of transition. The Globe Group applied the accounting policies set forth below to all the years presented,
except those relating to the classification and measurement of financial instruments.
The consolidated financial statements of the Globe Group have been prepared under the historical cost convention method, except
for derivative financial instruments and available-for-sale financial assets that are measured at fair value. The carrying values of
recognized assets and liabilities that are hedged are adjusted to record changes in the fair values attributable to the risks that are
being hedged.
The consolidated financial statements of the Globe Group are presented in Philippine peso and rounded to the nearest thousands
except when otherwise indicated.
ANNUAL REPORT 2005
Explanation of Transition to PFRS
As stated above, these are the Globe Group’s first annual consolidated financial statements in accordance with PFRS. The transition
to PFRS resulted in certain changes to the Globe Group’s previous accounting policies. The comparative figures for 2004 and 2003
were restated to reflect the changes in accounting policies discussed below resulting from transition to PFRS, except those relating to
financial instruments. The Globe Group has made use of the exemption available under PFRS 1, and as allowed by the Securities
and Exchange Commission (SEC), to apply Philippine Accounting Standards (PAS) 32, Financial Instruments: Disclosure and
Presentation and PAS 39, Financial Instruments: Recognition and Measurement, to financial instruments outstanding as of
January 1, 2005. The cumulative effect of adopting PAS 39 was charged to the January 1, 2005 retained earnings. The policies
applied to financial instruments beginning January 1, 2005 and prior to January 1, 2005 are disclosed separately.
45
New Accounting Standards

PFRS 1, First Time Adoption of PFRS, requires an entity to comply with each PFRS effective at the reporting date for its first
PFRS financial statements. The Globe Group has adopted PFRS for these financial statements as of and for the year ended
December 31, 2005 and has also restated the comparative amounts for the years ended December 31, 2004 and 2003, except
for PAS 32 and PAS 39 based on the exemption provided by PFRS 1. In addition, the following courses of action have been
taken as allowed under PFRS 1:
Share-based payment transactions
The Globe Group has applied PFRS 2, Share-based Payment, only to equity-settled awards granted after November 7, 2002 that
had not vested on or before January 1, 2005, similar to the transitional provisions under PFRS 2 for equity-settled transactions.
Post retirement benefits - Defined benefit schemes
The Globe Group has chosen not to recognize using the “corridor approach” cumulative actuarial gains or losses that resulted from
the measurement of such schemes in accordance with PAS 19, Employee Benefits, at the date of transition. Instead, the Globe
Group has elected to recognize all cumulative actuarial gains and losses at the date of transition to PFRS.

PFRS 2, Share-based Payment, sets out the measurement principles and accounting requirements for share-based payment
transactions, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of
the entity. Under this standard, the Globe Group is required to recognize in the statements of income the cost of share options
granted after November 7, 2002 that had not vested on or before January 1, 2005. Prior to January 1, 2005, the Globe Group did
not recognize any expense for share options granted but disclosed required information for such options.
The adoption of PFRS 2 decreased net income by P
= 254.08 million, P
= 63.56 million and P
= 30.75 million in 2005, 2004 and 2003,
respectively. Retained earnings decreased by P
= 94.31 million and P
= 30.75 million as of January 1, 2005 and 2004, respectively.
Additional paid-in capital increased by P
= 0.76 million as of January 1, 2005. Cost of share-based payment presented in the
stockholders’ equity section of the consolidated balance sheets increased by P
= 193.10 million and P
= 59.09 million as of
January 1, 2005 and 2004, respectively.

PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, specifies the accounting for assets held for sale and the
presentation and disclosure requirements for discontinued operations. Under this standard, qualifying noncurrent assets or
disposal groups held for sale shall be carried at fair value less cost to sell if this amount is lower than its carrying amount. The
company shall not depreciate (or amortize) noncurrent assets (or disposal groups) while classified as held for sale. Any gain or
loss on the remeasurement of a noncurrent asset (or disposal group) classified as held for sale shall be included in the profit or
loss from continuing operations.
As of December 31, 2005, 2004 and 2003, the Globe Group has no qualifying noncurrent assets that are held for sale.
PAS 19, Employee Benefits, prescribes the accounting and disclosures by employers for employee benefits (including short-term
employee benefits, post-employment benefits, other long-term employee benefits and termination benefits). For postemployment benefits classified as defined benefit plans, the standard requires: (a) the use of the projected unit credit method to
measure an entity’s obligations and costs; (b) an entity to determine the present value of defined benefit obligations and the fair
value of any plan assets with sufficient regularity; and (c) the recognition of a specific portion of net cumulative actuarial gains
and losses when the net cumulative amount exceeds 10% of the greater of the present value of the defined benefit obligation or
10% of the fair value of the plan assets, but also permits the immediate recognition of these actuarial gains and losses.
GLOBE TELECOM, INC.

46
The adoption of PAS 19 has decreased net income by P
= 21.78 million and P
= 18.12 million in 2004 and 2003, respectively, and
increased retained earnings by P
= 92.89 million, P
= 114.67 million and P
= 132.79 million as of January 1, 2005, 2004 and 2003,
respectively. Pension cost and accrual of short-term benefits amounted to P
= 258.32 million in 2005.
 PAS 21, The Effects of Changes in Foreign Exchange Rates, eliminates the capitalization of foreign exchange differentials
related to the acquisition of property and equipment.
The adoption of PAS 21 decreased retained earnings by P
= 2,443.53 million, P
= 2,739.20 million and P
= 2,463.50 million as of
January 1, 2005, 2004 and 2003, respectively. Net income increased by P
= 295.67 million in 2004 and decreased by
P
= 275.69 million in 2003.
 PAS 32, Financial Instruments: Disclosure and Presentation, covers the disclosure and presentation of all financial instruments.
The standard requires more comprehensive disclosures about a company’s financial instruments, whether recognized or
unrecognized in the financial statements. New disclosure requirements include terms and conditions of financial instruments used
by the entity, types of risks associated with both recognized and unrecognized financial instruments (market risk, foreign
exchange risk, price risk, credit risk, liquidity risk and cash flow risk), fair value information of both recognized and unrecognized
financial assets and financial liabilities, and the entity’s financial risk management policies and objectives. The standard also
requires financial instruments to be classified as debt or equity in accordance with their substance and not their legal form.
The standard also requires presentation of financial assets and financial liabilities on a net basis when, and only when, an entity:
(a) currently has a legally enforceable right to set off the recognized amounts; and (b) intends either to settle on a net basis, or to
realize the asset and settle the liability simultaneously (see Notes 5 and 13).
 PAS 39, Financial Instruments: Recognition and Measurement, establishes the accounting and reporting standards for the
recognition and measurement of the entity’s financial assets and financial liabilities. When financial assets are recognized
initially, they are measured at fair value plus, in the case of investments not at fair value through profit or loss, directly
attributable transaction costs. Subsequent to initial recognition, an entity should measure financial assets at their fair values,
except for loans and receivables and held-to-maturity investments, which are measured at amortized cost using the effective
interest rate method. Financial liabilities are subsequently measured at amortized cost, except for liabilities classified under fair
value through profit and loss and derivatives, which are subsequently measured at fair value.
PAS 39 also establishes the accounting and reporting standards requiring that every derivative instrument (including certain
derivatives embedded in other contracts) be recorded in the balance sheets as either an asset or liability measured at its fair
value. PAS 39 requires that changes in the derivative’s fair value be recognized currently in the statements of income unless
specific hedges allow a derivative’s gains and losses to offset related results on the hedged item in the statements of income, or
deferred in the stockholders’ equity as “Cumulative translation adjustment”. PAS 39 requires that an entity must formally
document, designate and assess the effectiveness of transactions that receive hedge accounting treatment.
Derivatives that are not designated and do not qualify as hedges are adjusted to fair value through income.
The Globe Group has adopted the hedge accounting treatment of PAS 39 for certain derivative instruments.
ANNUAL REPORT 2005
As allowed by the SEC and PFRS 1, the adoption of PAS 39 did not result in the restatement of prior year financial statements.
The cumulative effect of adopting this accounting standard was included in the January 1, 2005 retained earnings and cumulative
translation adjustment.
47
The adoption of PAS 39 decreased net income by P
= 148.29 million in 2005 and increased cumulative translation adjustment
(presented as a reduction in the stockholders’ equity) by P
= 84.88 million in 2005. Retained earnings increased by
P
= 31.29 million while cumulative translation adjustment decreased by P
= 151.01 million, as of January 1, 2005.

PAS 40, Investment Property, establishes the accounting and reporting standards for investment property. Investment property is
property (land or a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital
appreciation or both, rather than for: (a) use in the production or supply of goods or supply of goods or services or for
administrative purposes; or (b) sale in the ordinary course of business. Under this standard, an entity is permitted to choose either
the fair value model or cost model in the subsequent measurement of a qualifying investment property. Fair value model requires
an investment property to be measured at fair value with fair value changes recognized directly in the statements of income.
Cost model requires an investment property to be measured at cost less any accumulated depreciation and impairment losses.
The Globe Group adopted the cost model for investment property.
The adoption of PAS 40 resulted in reclassification of the carrying value of the portion of a building being leased to third parties
amounting to P
= 261.52 million, P
= 270.99 million and P
= 281.41 million as of January 1, 2005, 2004 and 2003, respectively, from
property and equipment to investment property (see Note 9).
Revised Accounting Standards

PAS 16, Property, Plant and Equipment, (a) provides additional guidance and clarification on recognition and measurement of
items of property, plant and equipment; (b) requires the capitalization of the costs of asset dismantling, removal or restoration as
a result of either acquiring or having used the asset for purposes other than to produce inventories during the year; and
(c) requires measurement of an item of property, plant and equipment acquired in exchange for a nonmonetary asset or a
combination of monetary and nonmonetary assets at fair value, unless the exchange transaction lacks commercial substance.
Under the previous version of the standard, an entity measured such an acquired asset at fair value unless the exchanged assets
were similar.
The adoption of PAS 16 decreased net income by P
= 104.13 million, P
= 71.45 million and P
= 68.05 million in 2005, 2004 and 2003,
respectively. Retained earnings decreased by P
= 258.50 million, P
= 187.05 million and P
= 118.99 million as of January 1, 2005, 2004
and 2003, respectively.
The adoption of the following revised accounting standards did not have a material effect on the Globe Group’s financial statements.
Additional disclosures required by the revised accounting standards were included in the Globe Group’s financial statements, where
applicable:
PAS 1, Presentation of Financial Statements, (a) provides the framework within which an entity assesses how to present fairly the
effects of transactions and other events; (b) provides the base criteria for classifying liabilities as current or noncurrent;
(c) prohibits the presentation of income from operating activities and extraordinary items as separate line items in the statements
of income; and (d) specifies the disclosures about key sources of estimation, uncertainty and judgments management has made
in the process of applying a company’s accounting policies (see Note 3).

PAS 2, Inventories, reduces the alternatives for measurement of inventories by disallowing the use of the last in, first out formula.
Moreover, the revised accounting standard does not permit foreign exchange differences arising directly on the recent acquisition
of inventories invoiced in a foreign currency to be included in the cost of inventories.

PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, (a) removes the concept of fundamental errors and the
allowed alternative to retrospective application of voluntary changes in accounting policies and retrospective restatement to
correct prior period errors; (b) updates the previous hierarchy of guidance to which management refers and whose applicability it
GLOBE TELECOM, INC.

48
considers when selecting accounting policies in the absence of standards and interpretations that specifically apply; (c) defines
material omissions or misstatements; and (d) describes how to apply the concept of materiality when applying accounting policies
and correcting errors.

PAS 10, Events after the Balance Sheet Date, provides a limited clarification of the accounting for dividends declared after the
balance sheet date.

PAS 17, Leases, provides a limited revision to clarify on the classification of a lease of land and buildings and prohibits
expensing of initial direct costs in the financial statements of lessors.

PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope of the standard, the definitions and
disclosures for related parties. It also requires disclosure of the total compensation of key management personnel by benefit type
(see Note 16).

PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in accounting for investments in subsidiaries in
the separate financial statements of a parent, venturer or investor. Investments in subsidiaries will be accounted for either at cost
or in accordance with PAS 39 in the separate financial statements. Equity method of accounting will no longer be allowed in the
separate financial statements.

PAS 28, Investments in Associates, reduces alternatives in accounting for investments in associates in the separate financial
statements of an investor. Investments in associates will be accounted for either at cost or in accordance with PAS 39 in the
separate financial statements. Equity method of accounting will no longer be allowed in the separate financial statements.
PAS 27 and 28 require strict compliance with adoption of uniform accounting policies and require the parent company/investor to
make appropriate adjustments to the subsidiary’s/associate’s financial statements to conform them to the parent
company’s/investor’s accounting policies for reporting like transactions and other events in similar circumstances.
PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for interests in joint ventures in the separate financial
statements of a venturer. Interests in joint ventures are accounted for either at cost or in accordance with PAS 39 in the separate
financial statements. Equity method of accounting is no longer allowed in the separate financial statements.

PAS 33, Earnings per Share, prescribes principles for the determination and presentation of earnings per share for entities with
publicly traded shares, entities in the process of issuing ordinary shares to the public, and any entities that calculate and disclose
earnings per share. This standard also provides additional guidance in computing earnings per share, including the effects of
mandatorily convertible instruments and contingently issuable shares, among others.

PAS 36, Impairment of Assets, establishes frequency of impairment testing for certain intangibles and provides additional
guidance on the measurement of an asset’s value in use.

PAS 38, Intangible Assets, provides additional clarification on the definition and recognition of certain intangibles. Moreover, this
revised accounting standard requires that an intangible asset with an indefinite useful life should not be amortized but will be
tested for impairment by comparing its recoverable amount with its carrying amount annually and whenever there is an indication
that the intangible asset may be impaired.
ANNUAL REPORT 2005

49
The increasing (decreasing) effects of transition to PFRS follow:
December 31, 2004
PFRS 2 - Share-based Payment
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in
Foreign Exchange Rates
Noncurrent
Assets
Current
Liabilities
P
= 10,795
418,057
279,304
P
=–
–
40,049
(3,674,015)
(P
= 2,965,859)
–
P
= 40,049
Noncurrent
Liabilities
Equity*
(In Thousand Pesos)
(P
= 88,760)
P
= 193,860
676,556
–
146,365
–
(1,230,482)
(P
= 496,321)
January 1,
2004
Retained
Earnings
(P
= 30,746)
(187,048)
114,669
– (2,739,198)
P
= 193,860 (P
= 2,842,323)
Net Income
(P
= 63,559)
(71,451)
(21,779)
295,665
P
= 138,876
December 31, 2003
Noncurrent
Assets
PFRS 2 - Share-based Payment
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in Foreign
Exchange Rates
P
= 3,094
266,580
239,213
(4,431,116)
(P
= 3,922,229)
Current
Liabilities
Noncurrent
Liabilities
Equity*
(In Thousand Pesos)
P
=–
(P
= 25,251)
P
= 59,091
–
453,628
–
–
(6,076)
130,620
– (1,691,918)
= 1,132,921)
(P
= 6,076) (P
January 1,
2003
Retained
Earnings
Net Income
P
=–
(118,994)
132,793
(P
= 30,746)
(68,054)
(18,124)
– (2,463,505)
P
= 59,091 (P
= 2,449,706)
(275,693)
(P
= 392,617)
*Represents effect on additional paid-in capital-common and cost of share-based payment.
The reconciliation of the increasing (decreasing) effects of transition to PFRS as they apply to stockholders’ equity as of
January 1, 2005, 2004 and 2003 and the net income and earnings per share in 2004 and 2003 follows:
Stockholders’ equity
2005
2004
(In Thousand Pesos)
P
= 57,016,489
P
= 50,853,999
99,555
28,345
(258,499)
(187,048)
92,890
114,669
(2,443,533)
(2,739,198)
(119,718)
–
P
= 54,387,184
P
= 48,070,767
GLOBE TELECOM, INC.
As previously reported
PFRS 2 - Share-based Payment
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in Foreign Exchange Rates
PAS 39 - Financial Instruments
As restated
50
2003
P
= 50,855,930
–
(118,994)
132,793
(2,463,505)
–
P
= 48,406,224
Net income
2004
2003
(In Thousand Pesos)
P
= 11,257,366
P
= 10,345,253
(63,559)
(30,746)
(71,451)
(68,054)
(21,779)
(18,124)
295,665
(275,693)
P
= 11,396,242
P
= 9,952,636
As previously reported
PFRS 2 - Share-based Payment
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in Foreign Exchange Rates
As restated
Basic earnings per share
As previously reported
PFRS 2 - Share-based Payment
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in Foreign Exchange Rates
As restated
2004
2003
P
= 79.93
(0.45)
(0.51)
(0.16)
2.11
P
= 80.92
P
= 68.79
(0.21)
(0.46)
(0.12)
(1.84)
P
= 66.16
The Globe Group did not early adopt the following Standards that have been approved but are not yet effective:

PFRS 6, Exploration for and Evaluation of Mineral Resources - This standard does not apply to the activities of the Globe Group.

PFRS 7, Financial Instruments: Disclosures - The revised disclosure on financial instruments provided by this standard will be
included in the Globe Group’s financial statements when the standard is adopted in 2007.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Globe Telecom, Innove and GXI. Innove’s and GXI’s
principal activities are wireless and wireline services, and software management for telecom applications, respectively.
Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar
circumstances. All significant intercompany balances and transactions, including intercompany profits and unrealized profits and
losses, were eliminated during consolidation in accordance with the accounting policy on consolidation.
Revenue Recognition
The Globe Group provides wireless services and wireline voice and data communication services. Wireless and wireline voice
services are provided under postpaid and prepaid arrangements while wireline data services are all under postpaid arrangement.
Revenue is recognized when the delivery of the products or services has occurred and the collectibility is reasonably assured.
ANNUAL REPORT 2005
Revenue is stated at amounts invoiced and accrued to customers, taking into consideration the bill cycle cut-off (for postpaid
subscribers), and charged against preloaded airtime value (for prepaid subscribers), and excludes value added tax (VAT) and
overseas communication tax.
51
Revenues principally consist of: (1) airtime and toll fees for local, domestic and international long distance calls in excess of free call
allocation, less (a) bonus airtime credits, airtime on free Subscribers’ Identification Module (SIM) for SIM swap transactions and
marketing promotions credited to subscriber billings, (b) prepaid reload discounts, and (c) interconnection fees; (2) revenues from
value added services such as SMS in excess of free SMS allocation and multimedia messaging services (MMS), content
downloading and infotext services, net of interconnection fees and payout to content providers; (3) inbound revenues from other
carriers which terminate their calls to Globe Group’s network; (4) revenues from international roaming services; (5) usage of
broadband and internet services in excess of fixed monthly service fees; (6) fixed monthly service fees (for postpaid wireless and
wireline voice and data subscribers and wireless prepaid subscription fees for discounted promotional calls and SMS); (7) proceeds
from sale of handsets, phonekits, and other phone accessories; and (8) one-time registration fees (for postpaid wireless subscribers),
one-time service connection fees (for wireline voice and data subscribers), and one-time activation or upfront fees for the excess of
the selling price of SIM packs over the preloaded airtime (for prepaid subscribers).
Postpaid service arrangements include fixed monthly charges, which are recognized over the subscription period on a pro-rata basis.
Telecommunications services provided to postpaid subscribers are billed throughout the month according to the bill cycles of
subscribers. As a result of bill cycle cut-off, monthly service revenues earned but not yet billed at end of the month are estimated and
accrued. These estimates are based on actual usage less estimated free usage using historical ratio of free over billable usage.
Proceeds from the sale of prepaid cards and airtime value through over-the-air reloading services are deferred and shown as
“Unearned revenues” in the consolidated balance sheets. Revenue is recognized upon actual charging of subscription fees for
promotional discounted calls or SMS services and the actual usage of the airtime value for voice, SMS, MMS and content
downloading, and net of free service allocation and bonus reload, or upon expiration of the unused value, whichever comes earlier.
Inbound revenues and outbound charges are accrued based on actual volume of traffic monitored by the Group’s network and in the
traffic settlement system and the agreed termination rates and on revenue sharing agreement with other foreign and local carriers
and content providers. Prompt payment discounts on settlement of inbound revenues are recorded when incurred upon settlement of
accounts. Inbound revenues represent settlements recognized from telecommunications providers that sent traffic to the Globe
Group’s network, while outbound charges represent settlements to telecommunications providers for traffic originating from the Globe
Group’s network and settlements to service providers for value added contents downloaded by subscribers. Adjustments are made to
the accrued amount for discrepancies between the traffic volume per Globe Group’s records and per records of the other carriers and
content providers as these are determined and/or are mutually agreed by the parties. Uncollected inbound revenues are shown as
traffic settlements receivable under “Receivables”, while unpaid outbound charges are shown as traffic settlements payable under
“Accounts payable and accrued expenses” in the consolidated balance sheets, unless a right of offset exists.
Proceeds from sale of handsets, phonekits, SIM packs, and other phone accessories are recognized upon delivery of the item to
customers. The related costs of handsets, phonekits, SIM packs and accessories sold to customers are presented as “Cost of sales”
in the consolidated statements of income.
Lease income from operating lease is recognized on a straight-line basis over the lease term.
Interest income is recognized as it accrues using effective interest rate method.
GLOBE TELECOM, INC.
Subscriber Acquisition and Retention Costs
The related costs incurred in connection with the acquisition of subscribers are charged against current operations. Subscriber
acquisition costs primarily include commissions, handset and phonekit subsidies and marketing expenses. Handset and phonekit
subsidies represent the difference between the book value of handsets, accessories and SIM cards (included in “Cost of sales”
account), and the price offered to the subscribers (included in “Nonservice revenues” under Net operating revenues). Retention costs
for existing postpaid subscribers are in the form of free handsets and bill credits. Free handsets are charged against current
operations and included in selling, advertising and promotion expenses under “Operating costs and expenses”.
52
Bill credits are deducted from operating revenues upon application against qualifying subscriber bills.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to
known amounts of cash with original maturities of three months or less from dates of placements and that are subject to an
insignificant risk of changes in value.
Receivables
Receivables are recognized and carried at billable amounts less an allowance for doubtful accounts. Penalties, termination fees and
surcharges on past due accounts of postpaid subscribers are recognized as revenues upon collection. An allowance for doubtful
accounts is maintained at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is
evaluated by management on the basis of factors that affect the collectibility of the accounts. A review of the age and status of
receivables, designed to identify accounts to be provided with allowance, is performed regularly.
Customers
Full allowance is provided for receivables from permanently disconnected wireless and wireline subscribers. Permanent
disconnections are made after a series of collection steps following nonpayment by postpaid subscribers. Such permanent
disconnections generally occur within a predetermined period from statement date. Except for specific individual and corporate
wireless subscribers subjected to specific evaluation and special credit management handling, full allowance is generally
provided for active individual and corporate wireless subscribers with outstanding receivables that are past due by 90 and
120 days, respectively, and those with temporary disconnected status that are subject for termination within the succeeding
month. Full allowance is also provided for active residential and business wireline voice subscribers with outstanding receivables
that are past due by 90 and 150 days, respectively. Full allowance is likewise provided for receivables from wireline data
corporate accounts that are past due by 150 days.
Traffic Settlements
Full allowance is generally provided for the net receivable from international and national traffic carriers and roaming partners
which are not settled within 10 months and 6 months, respectively, from transaction date and after review of the status of
settlement with other carriers.
Additional provisions are made for accounts specifically identified to be doubtful of collection regardless of age of the account.
Inventories and Supplies
Inventories and supplies are stated at the lower of cost or net realizable value (NRV). NRV for handsets and accessories and wireline
telephone sets is the selling price in the ordinary course of business less direct costs to sell, while NRV for SIM packs, call cards,
spare parts and supplies consists of the related replacement costs. In determining the NRV, the Globe Group considers any
adjustment necessary for obsolescence, which is provided 100% for nonmoving items for more than one year and 50% for
slow-moving items. Cost is determined using the moving average method.
Supplies of SIM packs and telephone handsets are consumed upon activation of the wireless and wireline services.
ANNUAL REPORT 2005
Property and Equipment
Property and equipment, except land, are carried at cost less accumulated depreciation, amortization and accumulated provision for
impairment losses. Land is stated at cost less any accumulated provision for impairment losses. The cost of an item of property and
equipment includes its purchase price and any cost attributable in bringing the asset to its intended location and working condition.
Cost also includes: (a) interest and other financing charges on borrowed funds used to finance the acquisition of property and
equipment to the extent incurred during the period of installation and construction; and (b) asset retirement obligations (ARO)
specifically on property and equipment installed/constructed on leased properties.
53
Subsequent costs are capitalized as part of property and equipment only when it is probable that future economic benefits associated
with the item will flow to the Globe Group and the cost of the item can be measured reliably. All other repairs and maintenance are
charged against current operations as incurred.
Effective January 1, 2005, foreign exchange differentials arising from the acquisition of property and equipment are charged against
current operations and no longer capitalized. The comparative 2004 and 2003 financial statements were restated to reflect this
change in accounting policy.
Assets under construction are transferred to the related property and equipment account when the construction or installation and
related activities necessary to prepare the property and equipment for their intended use are completed, and the property and
equipment are ready for service.
Depreciation and amortization of property and equipment commences once the property and equipment are available for use and
computed using the straight-line method over the estimated useful lives (EUL) of the assets regardless of utilization.
Leasehold improvements are amortized over the shorter of their EUL or the corresponding lease terms.
The EUL of property and equipment are reviewed annually based on expected asset utilization as anchored on business plans and
strategies that also consider expected future technological developments and market behavior to ensure that the period of
depreciation and amortization is consistent with the expected pattern of economic benefits from items of property and equipment.
The EUL of property and equipment of the Globe Group are as follows:
Telecommunications equipment:
Tower
Switch
Outside plant
Distribution dropwires
Cellular facilities and others
Buildings
Leasehold improvements
Investments in cable systems
Furniture, fixtures and equipment
Transportation and work equipment
Years
15
10 and 15
10-20
5
3-10
20
5 years or lease term, whichever is shorter
15
3-5
2-5
When property and equipment is retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization
and accumulated provision for impairment losses, if any, are removed from the accounts and any resulting gain or loss is credited to
or charged against current operations.
GLOBE TELECOM, INC.
Asset Retirement Obligations
The Globe Group is legally required under various contracts to restore leased property to its original condition and to bear the cost of
dismantling and deinstallation at the end of the contract period. The Globe Group recognizes the fair value of the liability for these
obligations and capitalizes these costs as part of the balance of the related property and equipment accounts, which are depreciated
and amortized on a straight-line basis over the useful life of the related property and equipment or the contract period, whichever is
shorter.
54
Investment Property
Investment property is initially measured at cost including transaction costs. Investment property is derecognized when it has either
been disposed of or permanently withdrawn from use and no future benefit is expected from its disposal. Any gain or loss on the
derecognition of an investment property is recognized in the consolidated statement of income in the year of derecognition.
Transfers are made to investment property when, and only when, there is a change in use, evidenced by the end of
owner-occupation, commencement of an operating lease to another party or by the end of construction or development. Transfers are
made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or
commencement of development with a view to sell.
Depreciation of investment property is computed using the straight-line method over its useful life, regardless of utilization. The EUL
of the investment property is 15 years.
Intangible Assets
Intangible assets acquired separately are capitalized at cost. Subsequently, intangible assets are measured at cost less accumulated
amortization and provisions for impairment losses, if any. The useful lives of intangible assets with finite life are assessed at the
individual asset level. Intangible assets with finite life are amortized over their useful life. Periods and method of amortization for
intangible assets with finite useful lives are reviewed annually or earlier when an indicator of impairment exists.
Costs incurred to acquire computer software (not an integral part of its related hardware) and bring it to its intended use are
capitalized as intangible assets. These costs are amortized over the EUL of the related computer software ranging from 3 to 5 years.
Costs directly associated with the development of identifiable computer software that generate expected future benefits to the Globe
Group are recognized as intangible assets. All other costs of developing and maintaining computer software programs are recognized
as expense when incurred.
A gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposal proceeds and
the carrying amount of the asset and is recognized in the consolidated statements of income when the asset is derecognized.
Debt Issuance Costs
Prior to January 1, 2005, issuance, underwriting and other related expenses incurred in connection with the issuance of debt
instruments are deferred and amortized over the terms of the instruments using the straight-line method and unamortized debt
issuance costs are shown under “Other noncurrent assets” account in the consolidated balance sheets.
Effective January 1, 2005, debt issuance costs were amortized using the effective interest method and unamortized debt issuance
costs are netted against the related carrying value of the debt instrument in the consolidated balance sheets.
When the related instrument is retired, the related unamortized debt issuance costs at the date of retirement are charged against
current operations.
Investments in Associates, Joint Venture and Others
Investments are accounted for under the equity method. An associate is an entity in which the Globe Group has a significant
influence and which is neither a subsidiary nor a joint venture (JV). A JV is an entity not being a subsidiary nor an associate in which
the Globe Group exercises joint control together with one or more venturers.
ANNUAL REPORT 2005
Under the equity method, the investments in associates and JV are carried in the consolidated balance sheets at cost plus
post-acquisition changes in the Globe Group’s share of net assets of the associates and JV, less any accumulated impairment in
value. The consolidated statements of income reflect the share of the results of operations of the associates and JV. Where there has
55
been a change recognized directly in the associates’ equity, the Globe Group recognizes its share of any changes and discloses this,
when applicable, in the consolidated statements of changes in equity.
Other investments include shares of stock where the Globe Group’s ownership interest is less than 20% or where control is likely to
be temporary. These are initially recognized at cost, being the fair value of the consideration given and including acquisition charges
associated with the investments. Gains or losses on these investments are recognized directly in equity, through the statement of
changes in stockholders’ equity. When the investment is derecognized, the cumulative gain or loss previously recognized in equity is
recognized in the consolidated statements of income.
Impairment of Assets
An assessment is made at the balance sheet date to determine whether there is any indication that the asset may be impaired, or
whether there is any indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may
have decreased. If any such indication exists and when the carrying value of an assets exceeds its estimated recoverable amount,
the asset or cash generating unit to which the asset belongs is written down to its recoverable amount. The recoverable amount of an
asset is the greater of its net selling price and value in use. An impairment loss is recognized only if the carrying amount of an asset
exceeds its recoverable amount. An impairment loss is charged against operations in the year in which it arises. A previously
recognized impairment loss is reversed only if there has been a change in estimate used to determine the recoverable amount of an
asset, however, not to an amount higher than the carrying amount that would have been determined (net of any accumulated
depreciation and amortization for property and equipment) had no impairment loss been recognized for the asset in prior years. A
reversal of an impairment loss is credited to current operations.
For the Globe Group, the cash-generating unit for purposes of impairment assessment of property and equipment is the combined
wireless and wireline asset groups of Globe Telecom and Innove. This asset grouping is predicated upon the requirement contained
in Executive Order (EO) No. 109 and RA No. 7925 requiring licensees of CMTS and IGF services to provide 400,000 and
300,000 LEC lines, respectively, as a condition for the grant of such licenses.
Treasury Stock
Treasury stock is recorded at cost and is presented as a deduction from equity. When the shares are retired, the capital stock account
is reduced by its par value. The excess of cost over par value upon retirement is debited to the following accounts in the order given:
(a) additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were issued, and
(b) retained earnings.
Income Taxes
Deferred income tax is provided using the balance sheet liability method on all temporary differences, with certain exceptions, at
balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, with certain exceptions. Deferred income tax
assets are recognized for all deductible temporary differences and carryforward benefit of unused tax credits from excess minimum
corporate income tax (MCIT) over regular corporate income tax and net operating loss carryover (NOLCO) to the extent that it is
probable that taxable income will be available against which the deductible temporary differences and the carryforward benefit of
unused MCIT and NOLCO can be used.
GLOBE TELECOM, INC.
Deferred income tax is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of transaction, affects neither the accounting profit nor taxable profit or loss. Deferred income
tax liabilities are not provided on nontaxable temporary differences associated with investment in a domestic associate. The carrying
amounts of deferred income tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized.
56
Deferred income tax assets and liabilities are measured at the tax rate that is expected to apply in the year when the asset is realized
or the liability is settled based on tax rates (and tax laws) that have been enacted or substantially enacted as of balance sheet date.
Provisions
A provision is recognized only when the Globe Group has: (a) a present obligation (legal or constructive) as a result of a past event;
(b) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the
obligation; and (c) a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet
date and adjusted to reflect the current best estimate. If the effect of the time value of money is material, provisions are determined
by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money
and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage
of time is recognized as an interest expense.
Share-based Payment Transactions
Certain employees (including directors) of the Globe Group receive remuneration in the form of share-based payment transactions,
whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’) (see Note 18).
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are
granted. In valuing equity-settled transactions, vesting conditions, including performance conditions, other than market conditions
(conditions linked to share prices), shall not be taken into account when estimating the fair value of the shares or share options at the
measurement date. Instead, vesting conditions are taken into account in estimating the number of equity instruments that will vest.
The cost of equity-settled transactions is recognized in the consolidated statements of income, together with a corresponding
increase in equity, over the period in which the service conditions are fulfilled, ending on the date on which the relevant employees
become fully entitled to the award (‘vesting date’). The cumulative expense recognized for equity-settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of awards that, in the
opinion of the management of the Globe Group at that date, based on the best available estimate of the number of equity
instruments, will ultimately vest.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other
performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum, an expense is recognized as if the terms had not been
modified. In addition, an expense is recognized for any increase in the value of the transaction as a result of the modification,
measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet
recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award, and designated
as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the
original award, as described in the previous paragraph.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share
(see Note 24).
The Globe Group has taken the advantage of the transitional provision of PFRS 2 in respect of equity-settled awards and has applied
PFRS 2 only to equity-settled awards granted after November 7, 2002 that had not vested on January 1, 2005. For equity-settled
ANNUAL REPORT 2005
awards granted on or before November 7, 2002, the Globe Group did not recognize any expense but disclosed
information for such options.
57
Pension Cost
Pension cost is actuarially determined using the projected unit credit method. This method reflects services rendered by employees
up to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are
conducted with sufficient regularity, with option to accelerate when significant changes to underlying assumptions occur. Pension cost
includes current service cost, interest cost, expected return on any plan assets, actuarial gains and losses, past service cost and the
effect of any curtailment or settlement.
The net pension asset recognized by the Globe Group in respect of the defined benefit pension plan is the lower of: (a) the fair value
of the plan assets less the present value of the defined benefit obligation at the balance sheet date, together with adjustments for
unrecognized actuarial gains or losses and past service costs that shall be recognized in later periods; or (b) the total of any
cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the
form of refunds from the plan or reductions in future contributions to the plan. The defined benefit obligation is calculated annually by
independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by
discounting the estimated future cash outflows using risk-free interest rates of government bonds that have terms to maturity
approximating the terms of the related pension liabilities.
In accordance with PFRS 1, the effect of change in accounting policy includes all cumulative actuarial gains and losses at the date of
transition to PFRS. In subsequent periods, a portion of actuarial gains and losses is recognized as income or expense if the
cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the greater of 10% of the
present value of defined benefit obligation or 10% of the fair value of plan assets. These gains and losses are recognized over the
expected average remaining working lives of the employees participating in the plans.
Borrowing Costs
Interest and other related financing charges on borrowed funds used to finance the acquisition of property and equipment to the
extent incurred during the period of installation are capitalized as part of the cost of property and equipment. The capitalization of
borrowing costs as part of the cost of an item of property and equipment: (a) commences when the expenditures and borrowing costs
being incurred during the installation and related activities necessary to prepare the item of property and equipment for its intended
use are in progress; (b) is suspended during extended periods in which active development is interrupted; and (c) ceases when
substantially all the activities necessary to prepare the item of property and equipment for its intended use are completed. These
costs are amortized using the straight-line method over the EUL of the related property and equipment.
Other borrowing costs are recognized as expense in the period in which these are incurred.
Premiums on long-term debt are included in “Long-term debt” account in the consolidated balance sheets and are amortized using
the effective interest rate method.
Leases
Finance leases, which transfer to the Globe Group substantially all the risks and benefits incidental to ownership of the leased item,
are capitalized at the inception of the lease at the lower of the value of the leased property and the present value of the minimum
lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against current operations.
Capitalized leased assets are depreciated over the shorter of the EUL of the assets or the corresponding lease terms.
GLOBE TELECOM, INC.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases.
Operating lease collection or payment is recognized in the consolidated statements of income on a straight-line basis over the lease
terms.
58
Advertising Expenses
Advertising expenses are charged against current operations as incurred.
Foreign Currency Transactions
The functional and presentation currency of the Globe Group is the Philippine Peso. Transactions denominated in foreign currencies
are recorded in Philippine Peso based on the exchange rates prevailing at the transaction dates. Foreign currency-denominated
monetary assets and liabilities are translated to Philippine Peso at the exchange rate prevailing at the balance sheet date. Foreign
exchange differentials between rate at transaction date, and rate at settlement date or balance sheet date of foreign
currency-denominated monetary assets or liabilities are credited to or charged against current operations.
Financial Instruments
Accounting Policies Effective January 1, 2005
Financial instruments are recognized initially at fair value of the consideration given (in the case of an asset) or received (in the case
of a liability). The fair values of the consideration given or received are determined by reference to the transaction price or other
market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all
future cash payments or receipts, discounted using the prevailing market rates of interest for similar instruments with similar
maturities. The initial measurement of financial instruments, except for those designated at fair value through profit or loss, includes
transaction costs.
Financial instruments are recognized in the consolidated balance sheets when the Globe Group becomes a party to the contractual
provisions of the instrument. Financial assets are derecognized either when the Globe Group has transferred substantially all the
risks and rewards of ownership or when it has neither transferred nor retained substantially all the risks and rewards of ownership but
it no longer has control over the financial assets. Financial liabilities are derecognized when the obligation is extinguished.
The subsequent measurement bases for financial instruments depend on classification. Financial instruments that are classified as
held-to-maturity, loans and receivables, and financial liabilities other than liabilities measured at fair value through profit and loss are
measured at amortized cost using the effective interest rate method. Investments are classified as held-to-maturity when those are
nonderivatives with fixed or determinable payments and fixed maturity that the Globe Group has positive intention and ability to hold
to maturity. Investments to be held for an undefined period are not included in this classification. Amortized cost is calculated by
taking into account any discount, premium and transaction costs on acquisition, over the year to maturity. Amortizations of discounts,
premiums and transaction costs are taken directly to the consolidated statements of income. For investments carried at amortized
cost, gains and losses are recognized in income when the investments are derecognized or impaired, as well as through the
amortization process.
Changes in the fair value of financial assets and liabilities measured at fair value of: (a) all derivatives (except those eligible for
hedge accounting); (b) other items that are held for trading; and (c) any item designated as held “at fair value through profit and loss”
at origination, are taken directly to the consolidated statements of income. Changes in the fair value of investments classified as
available-for-sale securities are recognized in equity, except for the foreign exchange fluctuations on available-for-sale debt
securities and the related effective interest which are taken directly to the consolidated statements of income. These changes in fair
values are recognized in equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined
to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated statements of
income.
ANNUAL REPORT 2005
Financial assets and liabilities include financial instruments which may be a non-derivative instrument, such as receivables, payables
and equity securities, or a derivative instrument, such as financial options, forwards and swaps.
59
The Globe Group enters into short-term deliverable and non-deliverable currency forward contracts to manage its exchange
exposure related to short-term foreign currency-denominated monetary assets and liabilities. The Globe Group also enters into
structured currency forward contracts where call options are sold in combination with such currency forward contracts.
The Globe Group enters into deliverable prepaid forward contracts that entitle the Globe Group to a discount on the contracted
forward rate. Such contracts contain embedded currency derivatives that are bifurcated and marked-to-market through earnings, with
the host debt instrument being accreted to its face value.
The Globe Group enters into short-term interest rate swap contracts to manage its interest rate exposures on certain short-term
floating rate peso investments. The parent company also enters into long-term currency and interest rate swap contracts to manage
its foreign currency and interest rate exposures arising from its long-term loan. Such swap contracts are sometimes entered into in
combination with options. The Globe Group also sells currency options as cost subsidy for outstanding currency swap contracts.
Derivative financial instruments are recognized and measured in the consolidated balance sheets at fair values. The method of
recognizing the resulting gain or loss depends on whether the derivative is designated as a hedge of an identified risk and qualifies
for hedge accounting treatment. The objective of hedge accounting is to match the impact of the hedged item and the hedging
instrument in the consolidated statements of income. To qualify for hedge accounting, the hedging relationship must comply with
strict requirements such as the designation of the derivative of an identified risk exposure, hedge documentation, probability of
occurrence of the forecasted transaction in a cash flow hedge, assessment and measurement of hedge effectiveness, and reliability
of the measurement bases of the derivative instruments.
Upon inception of the hedge, the Globe Group documents the relationship between the hedging instrument and the hedged item, its
risk management objective and strategy for undertaking various hedge transactions, and the details of the hedging instrument and
the hedged item. The Globe Group also documents its hedge effectiveness assessment methodology, both at the hedge inception
and on an ongoing basis, as to whether the derivatives that are used in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items. Hedge effectiveness is likewise measured, with any ineffectiveness being reported
immediately in the consolidated statements of income.
The Globe Group designates derivatives which qualify as accounting hedges as either: (a) a hedge of the fair value of a recognized
fixed rate asset, liability or unrecognized firm commitment (fair value hedge); or (b) a hedge of the cash flow variability of recognized
floating rate asset and liability or forecasted transaction (cash flow hedge).
Fair Value Hedges
Fair value hedges are hedges of the exposure to variability in the fair value of recognized assets, liabilities or unrecognized firm
commitments. The gain or loss on a derivative instrument designated and qualifying as a fair value hedge as well as the offsetting
loss or gain on the hedged item attributable to the hedged risk are recognized currently in the consolidated statements of income in
the same accounting period. Hedge effectiveness is determined based on the hedge ratio of the fair value changes of the hedging
instrument and the underlying hedged item. When the hedge ceases to be highly effective, hedge accounting is discontinued.
As of December 31, 2005, there were no derivatives designated and accounted for as fair value hedges.
GLOBE TELECOM, INC.
Cash Flow Hedges
The Globe Group designates as cash flow hedges the following derivatives: (a) certain floating-to-fixed cross currency swaps as cash
flow hedges of both the currency and interest rate risks of the floating rate foreign currency-denominated obligations; (b) certain
principal only swaps and fixed-to-fixed cross currency swaps as cash flow hedges of the currency risk of certain fixed rate foreign
currency denominated obligations; and, (c) interest rate swap as cash flow hedge of the interest rate risk of a floating rate foreign
currency-denominated obligation.
60
A cash flow hedge is a hedge of the exposure to variability in future cash flows related to a recognized asset, liability or a forecasted
transaction. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are recognized in
“Cumulative translation adjustment,” which is a component of stockholders’ equity. Any hedge ineffectiveness is immediately
recognized in the consolidated statements of income.
Where the forecasted transaction result in the recognition of an asset or liability, the gains and losses previously included in
“Cumulative translation adjustment” are included in the initial measurement of the asset or liability. Otherwise, amounts recorded in
equity are transferred to the consolidated statements of income in the same period in which the forecasted transaction affects the
consolidated statements of income.
Hedge accounting is discontinued prospectively when the hedge ceases to be highly effective. When hedge accounting is
discontinued, the cumulative gain or loss on the hedging instrument that has been reported in “Cumulative translation adjustment” is
retained in the stockholders’ equity until the hedged transaction impacts earnings. When the forecasted transaction is no longer
expected to occur, any net cumulative gain or loss previously reported in “Cumulative translation adjustment” is recognized
immediately in the consolidated statements of income.
Other Derivative Instruments Not Accounted for as Hedges
Certain freestanding derivative instruments that provide economic hedges under Globe Group’s policies either do not qualify for
hedge accounting or are not designated as accounting hedges. Changes in the fair values of derivative instruments not designated
as hedges are recognized immediately in the consolidated statements of income.
For bifurcated embedded derivatives that are not designated or do not qualify as hedges, changes in the fair values of such
transactions are recognized in the consolidated statements of income.
Accounting Policies Prior to January 1, 2005
Translation gains or losses on currency forward and swap contracts are computed by multiplying the notional amounts by the
difference between the exchange spot rates prevailing at the balance sheet date and the exchange spot rates at the contract
inception date (or the last reporting date). The resulting translation gains or losses on the currency forward and swap contracts are
offset against the translation losses or gains on the underlying foreign currency-denominated monetary assets and liabilities. The
related revaluation amounts on the translation of currency forward and currency swap contracts are included in “Other noncurrent
assets” account in the consolidated balance sheets, including the carrying amounts of forward premiums or discounts which are
amortized over the term of the related contracts. Swap costs accruing on long-term currency and interest rate swap contracts that are
currently due to or from the swap counterparties are charged against current operations.
The mark-to-market gains or losses on these contracts as well as the other types of derivative contracts are not considered in the
determination of consolidated net income but are disclosed in the related notes to the consolidated financial statements.
Impairment of financial assets
The Globe Group assesses at each balance sheet date whether a financial or group of financial assets is impaired.
Assets carried at amortized cost
If there is objective evidence that an impairment loss on financial assets carried at amortized cost has been incurred, the amount
of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows discounted at the asset’s original effective interest rate. The carrying amount of the asset shall be reduced either directly or
through use of an allowance account. The amount of the loss shall be recognized in the statements of income.
ANNUAL REPORT 2005
The Globe Group first assesses whether objective evidence of impairment exists individually for financial assets that are
individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined
that no objective evidence of impairment exist for an individually assessed financial asset, whether significant or not, the asset is
61
included in a group of financial asset with similar credit risk characteristics and that group of financial assets is collectively
assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to
be recognized are not included in a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal
of an impairment loss is recognized in the statements of income, to the extent that the carrying value of the asset does not
exceed its amortized cost at the reversal date.
Asset carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because
its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such
unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial
asset.
Available-for-sale financial asset
If an available-for-sale asset is impaired, an amount comprising the difference between its cost and its current fair value, less any
impairment loss previously recognized in statements of income, is transferred from equity to the statements of income. Reversals
in respect of equity instruments classified as available-for-sale are not recognized in profit. Reversals of impairment losses on
debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an
event occurring after the impairment loss was recognized in profit or loss.
Earnings Per Share (EPS)
Basic EPS is computed by dividing earnings applicable to common stock by the weighted average number of common shares
outstanding, after giving retroactive effect for any stock dividends, stock splits or reverse stock splits during the year.
Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding during the year,
after giving retroactive effect for any stock dividends, stock splits or reverse stock splits during the year, and adjusted for the effect of
dilutive options and dilutive convertible preferred shares. Outstanding stock options will have a dilutive effect under the treasury
stock method only when the average market price of the underlying common share during the period exceeds the exercise price of
the option. If the required dividends to be declared on convertible preferred shares divided by the number of equivalent common
shares, assuming such shares are converted, would decrease the basic EPS, then such convertible preferred shares would be
deemed dilutive. Where the effect of the assumed conversion of the preferred shares and the exercise of all outstanding options
have anti-dilutive effect, basic and diluted EPS are stated at the same amount.
Segment Reporting
The Globe Group’s major operating business units are the basis upon which the Globe Group reports its primary segment
information. In 2005, the Globe Group started monitoring its wireline voice and data businesses as one major converged service with
similar risks and returns. The Globe Group’s business segments consist of: (1) wireless communication services and (2) wireline
communication services. The Globe Group generally accounts for inter-segment revenues and expenses at agreed transfer prices.
GLOBE TELECOM, INC.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the possibility of an
outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial
statements but are disclosed when an inflow of economic benefits is probable.
62
Subsequent Events
Any post year-end event up to the date of approval of the Board of Directors (BOD) of the consolidated financial statements that
provides additional information about the Globe Group’s position at balance sheet date (adjusting event) is reflected in the
consolidated financial statements. Any post year-end event that is not an adjusting event is disclosed in the notes to the consolidated
financial statements when material.
3. Management’s Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with Philippine GAAP requires management to
make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s
evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from
such estimates.
PAS 1, Presentation of Financial Statements, which was adopted by the Globe Group effective January 1, 2005, requires disclosures
about key sources of estimation, uncertainty and judgments management has made in the process of applying accounting policies.
The following presents a summary of these significant estimates and judgments:
Estimated allowance for doubtful accounts
The Globe Group maintains allowances for doubtful accounts at a level considered adequate to provide for potential uncollectible
receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectibility of the
accounts. These factors include, but are not limited to, the length of the Group’s relationship with the customer, the customer’s
payment behavior and known market factors. The Globe Group reviews the age and status of receivables, and identifies accounts
that are to be provided with allowances on a continuous basis.
The amount and timing of recorded expenses for any period would differ if the Globe Group made different judgments or utilized
different estimates. An increase in allowance for doubtful accounts would increase the recorded operating expenses and decrease
current assets.
= 615.73 million, P
= 1,052.22 million and P
= 940.75 million in 2005, 2004 and 2003,
Provision for doubtful accounts amounted to P
respectively. Receivables, net of allowance for doubtful accounts, amounted to P
= 6,764.13 million, P
= 5,457.91 million and
P
= 7,760.69 million as of December 31, 2005, 2004 and 2003, respectively (see Note 5).
Estimating asset retirement obligations
The Globe Group is legally required under various contracts to restore leased property to its original condition and to bear the costs of
dismantling and deinstallation at the end of the contract period. These costs are accrued based on in-house an estimate, which
incorporates estimates of asset retirement costs, third party margins and interest rates. The Globe Group recognizes the fair value of
the liability for these obligations and capitalizes the present value of these costs as part of the balance of the related property and
equipment accounts, which are being depreciated and amortized on a straight-line basis over the useful life of the related asset. The
market risk premium was excluded from the estimate of the fair value of the ARO because a reasonable and reliable estimate of the
market risk premium is not obtainable. Since a market risk premium is unavailable, fair value is assumed to be the present value of
the obligations. The fair value and present value of dismantling costs is computed based on an average credit adjusted risk free rate
of 14.62%. Assumptions used to compute ARO are reviewed and updated annually.
ANNUAL REPORT 2005
The amount and timing of recorded expenses for any period would differ if different judgments were made or different estimates were
utilized. An increase in ARO would increase recorded operating expenses and increase noncurrent liabilities.
63
As of December 31, 2005, 2004 and 2003, ARO has a carrying value of P
= 907.05 million, P
= 769.80 million and P
= 519.31 million,
respectively (see Note 15).
Estimated useful lives of property and equipment, intangible assets and investment property
Globe Group reviews annually the estimated useful lives of property and equipment, intangible assets and investment property based
on expected asset utilization as anchored on business plans and strategies that also consider expected future technological
developments and market behavior. It is possible that future results of operations could be materially affected by changes in these
estimates brought about by changes in the factors mentioned. A reduction in the EUL of property and equipment, intangible assets
and investment property would increase the recorded depreciation and amortization expense and decrease noncurrent assets.
As of December 31, 2005, 2004 and 2003, property and equipment, intangible assets and investment property amounted to
P
= 99,914.94 million, P
= 102,849.37 million and P
= 95,945.63 million, respectively (see Notes 8, 9 and 10).
Asset impairment
Globe Group assesses impairment on assets whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The factors that Globe Group considers important which could trigger an impairment review include
the following:



significant underperformance relative to expected historical or projected future operating results;
significant changes in the manner of use of the acquired assets or the strategy for overall business; and
significant negative industry or economic trends.
An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of
an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from
the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual
assets or, if it is not possible, for the cash-generating unit to which the asset belongs. For impairment loss on specific assets, the
recoverable amount represents the net selling price.
In determining the present value of estimated future cash flows expected to be generated from the continued use of the assets,
Globe Group is required to make estimates and assumptions that can materially affect the consolidated financial statements.
The carrying value of property and equipment, investment property, intangible assets and investment in subsidiaries, associates, joint
ventures and others amounted to P
= 99,991.83 million, P
= 102,941.30 million and P
= 96,673.35 million as of December 31, 2005, 2004
and 2003, respectively, (see Notes 8, 9, 10 and 11).
Deferred income tax assets
Globe Group reviews the carrying amounts of deferred income tax assets at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient income will be available to allow all or part of the deferred income tax assets to be utilized.
However, there is no assurance that Globe Group will generate sufficient taxable profit to allow all or part of its deferred income tax
assets to be utilized.
GLOBE TELECOM, INC.
As of December 31, 2005, 2004 and 2003, Innove has net deferred income tax assets of P
= 1,163.94 million, P
= 2,413.25 million and
P
= 1,759.41 million, respectively, while Globe Telecom has net deferred income tax liabilities of P
= 4,432.87 million, P
= 3,474.73 million
= 1,874.08 million, respectively. Globe Telecom and Innove has no unrecognized deferred income tax assets as of
and P
December 31, 2005. GXI has not recognized deferred income tax assets on its net operating loss carry over.
64
Financial assets and liabilities
Globe Group carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and
judgment. While significant components of fair value measurement were determined using verifiable objective evidence (i.e., foreign
exchange rates, interest rates, volatility rates), the amount of changes in fair value would differ if the Globe Group utilized different
valuation methodologies. Any changes in fair value of these financial assets and liabilities would affect profit and loss and equity.
Financial assets and liabilities carried at fair values as of December 31, 2005 amounted to P
= 1,548.89 million and P
= 731.75 million,
respectively (see Note 25).
Pension and other employee benefits
The determination of the obligation and cost of pension and other employee benefits is dependent on the selection of certain
assumptions used in calculating such amounts. Those assumptions include, among others, discount rates, expected returns on plan
assets and salary increase rates and price, and projected dividend yields, risk free interest rate and volatility rate, for the retirement
of pension and cost of share-based payments, respectively (see Note 18). In accordance with Philippine GAAP, actual results that
differ from the Globe Group’s assumptions, subject to the 10% corridor test, are accumulated and amortized over future periods and
therefore, generally affect the recognized expense and recorded obligation in such future periods.
While the Globe Group believes that the assumptions are reasonable and appropriate, significant differences between actual
experiences and assumptions may materially affect the cost of employee benefits and related obligations.
As of December 31, 2005 and 2004, Globe Telecom has unrecognized actuarial gains of P
= 35.39 million and P
= 31.42 million,
respectively, while unrecognized actuarial losses for 2003 amounted to P
= 75.33 million. Innove’s unrecognized actuarial gains
amounted to P
= 118.20 million, P
= 74.04 million and P
= 17.17 million as of December 31, 2005, 2004 and 2003, respectively
(see Note 18).
The Globe Group also estimates other employee benefit obligations and expenses, including costs of paid leaves based on historical
leave availments of employees, subject to the Globe Group’s policy. These estimates may vary depending on the future changes in
salaries and actual experiences during the year.
The accrued balance of other employee benefits as of December 31, 2005 amounted to P
= 217.26 million.
Contingencies
Globe Telecom and Innove are currently involved in various legal proceedings. The estimate of the probable costs for the resolution
of these claims has been developed in consultation with outside counsel handling the companies’ defense in these matters and is
based upon an analysis of potential results. Globe Telecom and Innove currently do not believe that these proceedings will have a
material adverse effect on the consolidated financial position. It is possible, however, that future results of operations could be
materially affected by changes in the estimates or in the effectiveness of the strategies relating to these proceedings (see Note 23).
4. Integration of Wireline Business
ANNUAL REPORT 2005
On August 7, 2003, the NTC approved the legal rights transfer of Globe Telecom’s wireline business authorizations, properties,
assets and obligations to Innove. In September 2003, pursuant to the approval granted by the NTC, Globe Telecom’s wireline voice
and data assets and liabilities were transferred to Innove and the wireline business of Globe Group was integrated into Innove. On
June 30, 2004 and November 30, 2005, Globe Telecom transferred additional wireline assets and certain investments in cable
systems to Innove. On a consolidated basis, the transfers had no impact on net revenues, EBITDA [earnings before interest, income
tax, depreciation and amortization and other income (expense)] and net income. Innove remains a wholly-owned subsidiary of Globe
Telecom.
65
The transfer of the wireline business of Globe Telecom to Innove is part of the Globe Group’s operational integration activities to
achieve increased focus and streamlined operations. The integrated and focused wireline operations signal the Globe Group’s
commitment to innovation, customer focus and operational excellence.
5. Receivables
This account consists of receivables from:
2003
(As Restated)
P
= 8,022,307
3,120,374
305,076
11,447,757
2004
(As Restated)
(In Thousand Pesos)
P
= 7,988,865
2,315,050
242,789
10,546,704
P
= 4,468,009
215,618
4,683,627
P
= 6,764,130
P
= 4,787,070
301,721
5,088,791
P
= 5,457,913
P
= 3,879,846
181,153
4,060,999
P
= 7,760,694
2005
Customers
Traffic settlements receivables - net (Notes 16 and 25)
Others
Less allowance for doubtful accounts (Note 3):
Customers
Traffic settlements and others
P
= 7,109,926
4,514,080
197,687
11,821,693
Traffic settlements receivables are presented net of traffic settlements payables of P
= 1,979.29 million, P
= 1,196.82 million and
P
= 5,040.98 million as of December 31, 2005, 2004 and 2003, respectively.
6. Inventories and Supplies
This account consists of:
At cost:
Call cards
Wireline telephone sets
GLOBE TELECOM, INC.
At NRV:
Handsets and accessories
SIM packs, spare parts and supplies
Wireline telephone sets
66
2005
2004
(In Thousand Pesos)
2003
P
= 10,601
–
10,601
P
= 6,116
69,767
75,883
P
= 49,367
35,326
84,693
840,244
469,335
52,279
1,361,858
P
= 1,372,459
393,803
667,199
–
1,061,002
P
= 1,136,885
308,805
223,243
–
532,048
P
= 616,741
7. Prepayments and Other Current Assets
This account consists of:
2005
P
= 297,109
286,784
117,056
531,576
P
= 1,232,525
Prepayments
Input VAT - net
Derivative assets (Notes 2 and 25)
Other current assets (Note 25)
2004
(As Restated)
(In Thousand Pesos)
P
= 331,591
312,566
–
439,251
P
= 1,083,408
2003
(As Restated)
P
= 365,101
746,648
–
490,443
P
= 1,602,192
As of December 31, 2005 and 2004, Globe Telecom reported a net output VAT amounting to P
= 69.32 million and P
= 150.38 million,
= 207.07 million and P
= 224.74 million, respectively, included in “Accounts payable and accrued expenses” account
net of input VAT of P
in the consolidated balance sheets (see Note 13). Innove’s net input VAT as of December 31, 2005 and 2004 is presented
= 102.65 million and P
= 172.98 million, respectively.
net of output VAT of P
Input VAT as of December 31, 2003 is presented net of output VAT of P
= 1,250.80 million.
8. Property and Equipment
The rollforward analysis of this account follows:
Telecommunications
Equipment
Cost
At January 1, 2005, as restated
Additions (Note 15)
Retirements/disposals
Reclassifications/adjustments
At December 31, 2005
Accumulated depreciation
and amortization
At January 1, 2005, as restated
Depreciation and amortization
Retirements/disposals
Reclassifications/adjustments
At December 31, 2005
Net book value as of December 31, 2005
Net book value as of December 31, 2004,
as restated
Net book value as of December 31, 2003,
as restated
Buildings and
Furniture, Transportation
Leasehold Investments in
Fixtures and
and Work
Improvements Cable Systems
Equipment
Equipment
(In Thousand Pesos)
Assets Under
Land Construction
P
= 928,222 P
= 4,142,164
36 12,529,070
(30,344)
–
– (13,795,500)
897,914
2,875,734
Total
P
= 117,423,719
1,616,476
(3,549,702)
9,338,435
124,828,928
P
= 15,688,934
108,003
(19,819)
3,155,754
18,932,872
P
= 9,011,832*
33,350
(2,581)
19,938
9,062,539
P
= 3,436,886
440,860
(446,965)
642,608
4,073,389
P
= 1,191,320
222,410
(85,182)
4,153
1,332,701
P
= 151,823,077
14,950,205
(4,134,593)
(634,612)
162,004,077
42,953,548
12,107,710
(2,526,563)
(4,598)
52,530,097
P
=72,298,831
3,791,378
1,583,301
(7,952)
(11,132)
5,355,595
P
=13,577,277
1,441,963*
618,345
(961)
1,480
2,060,827
P
=7,001,712
2,182,047
811,762
(413,845)
28,258
2,608,222
P
=1,465,167
760,902
193,734
(64,752)
4,782
894,666
P
=438,035
–
–
–
–
–
P
=897,914
–
–
–
–
–
P
=2,875,734
P
= 74,470,171
P
= 11,897,556
P
= 8,520,222
P
= 1,254,839
P
= 430,418
P
= 928,222
P
= 4,142,164
P
= 101,643,592
P
= 72,014,245
P
= 8,798,102
P
= 9,131,458
P
= 764,736
P
= 324,028
P
= 927,857
P
= 3,109,261
P
= 95,069,687
51,129,838
15,314,852
(3,014,073)
18,790
63,449,407
P
=98,554,670
ANNUAL REPORT 2005
* January 1, 2005 restated balance includes PAS 39 adjustment (see Note 16).
67
The carrying values of property and equipment held under finance leases where Globe Group is the lessee are as follows
(see Note 22c):
2005
P
= 138,978
3,850
142,828
136,481
P
= 6,347
Furniture, fixtures and equipment
Transportation and work equipment
Less accumulated depreciation
Net book value
2004
(As Restated)
(In Thousand Pesos)
P
= 166,417
4,400
170,817
147,902
P
= 22,915
2003
(As Restated)
P
= 180,103
4,400
184,503
148,028
P
= 36,475
Investments in cable systems include the cost of Globe Group’s ownership share in the capacity of certain cable systems under a
joint venture or a consortium or private cable set-up and indefeasible rights of use (IRUs) of circuits in various cable systems. It also
includes the cost of cable landing station and transmission facilities where Globe Group is the landing party (see Note 16).
In 2004, as a result of periodic review of the EUL and depreciation and amortization methods of items of property and equipment,
management came to the conclusion that there has been a significant change in the expected pattern of economic benefits from
certain telecommunications equipment and investments in cable systems. Globe Group revised the EUL of certain switch equipment
from 15 to 10 years and investments in cable systems from 20 to 15 years.
In addition, Globe Group revised the remaining EUL of certain telecommunications equipment, which are specifically identified to be
useful for specific periods shorter than the previous EUL. These changes have been accounted for as changes in accounting
estimates. The changes increased depreciation expense by about P
= 1,618.27 million or P
= 11.26 reduction in basic earnings per share,
before related income taxes in 2004.
As discussed in Note 2, the Globe Group adopted PAS 16 beginning January 1, 2005. It requires the capitalization of the costs of
dismantling and restoration of the leased property at the end of the leased term. Additional capitalized ARO in 2005, 2004 and 2003
amounted to P
= 44.43 million P
= 182.36 million and P
= 70.26 million, respectively (see Notes 15 and 27).
In 2005, 2004 and 2003, total capitalized borrowing costs amounted to P
= 123.56 million, P
= 203.55 million and P
= 704.31 million
(including capitalized interest of P
= 111.34 million, P
= 77.67 million and P
= 557.40 million), respectively.
Losses on Property and Equipment
In 2005, the Globe Group recognized losses on retirement on certain property and equipment of P
= 733.82 million as a result of
impairment reviews and reconciliation exercise based on the recent count activity. The Globe Group used the net selling price to
determine the recoverable amount for specific assets.
GLOBE TELECOM, INC.
Globe Telecom also provided for impairment of certain assets amounting to P
= 191.95 million net of reversals. These assets are
expected to be no longer usable when Globe Telecom upgrades its network in 2006.
68
9. Investment Property
The rollforward analysis of this account follows:
2005
Cost
Balance at beginning of year
Additions
Balance at end of year
Accumulated depreciation
Balance at beginning of year
Depreciation for the year
Balance at end of year
Net Book Value
2004
(As Restated)
(In Thousand Pesos)
2003
(As Restated)
P
= 290,834
17,621
308,455
P
= 281,821
9,013
290,834
P
= 281,821
–
281,821
29,318
19,599
48,917
P
= 259,538
10,833
18,485
29,318
P
= 261,516
412
10,421
10,833
P
= 270,988
Investment property represents the portion of a building that is currently being held for lease to third parties.
Additions to investment property during the year represent new leases of office spaces to third parties.
Total lease income from investment property included under “Others - net” in the consolidated statements of income amounted to
= 29.01 million, P
= 20.84 million and P
= 13.19 million in 2005, 2004 and 2003, respectively. Total direct operating expenses
about P
related to investment property that generated rental income amounted to about P
= 20.09 million, P
= 19.01 million and P
= 11.09 million in
2005, 2004 and 2003, respectively.
The fair value of the investment property computed using market data approach as of December 31, 2005 amounted to
P
= 204.85 million based on the report issued by an independent appraiser dated January 6, 2006.
10. Intangible Assets
The rollforward analysis of this account follows:
2005
2004
2003
(In Thousand Pesos)
Cost
Balance at beginning of year
Additions
Retirements/disposals
Reclassifications/adjustments
Balance at end of year
(Forward)
P
= 1,807,059
620,600
(154,682)
(7,157)
2,265,820
P
= 1,617,077
203,191
(55,108)
41,899
1,807,059
ANNUAL REPORT 2005
P
= 2,265,820
595,621
(91,012)
(13,600)
2,756,829
69
2005
Accumulated Amortization
Balance at beginning of year
Amortization
Retirements/disposals
Reclassifications/adjustments
Balance at end of year
Net Book Value
P
= 1,321,555
397,753
(63,097)
(109)
1,656,102
P
= 1,100,727
2004
(In Thousand Pesos)
P
= 1,202,108
269,264
(144,928)
(4,889)
1,321,555
P
= 944,265
2003
P
= 1,021,187
221,660
(46,493)
5,754
1,202,108
P
= 604,951
Intangible assets pertain to software costs that are not integral to the computer hardware.
11. Investments in Associates, Joint Venture and Others
This account consists of :
2005
2004
2003
(In Thousand Pesos)
Investments carried at equity:
Acquisition cost:
Bridge Mobile Pte. Ltd. (BMPL)
Globe Telecom Holdings, Inc. (GTHI)
Pintouch Telecom, LLC (PTL)
Accumulated equity in net earnings:
Balance at beginning of year
GTHI
PTL
Add equity in net losses:
BMPL
GTHI
P
= 56,332
98
12,366
P
= 56,332
98
12,366
P
=–
98
12,366
68,796
68,796
12,464
167
20,049
20,216
229
20,049
20,278
4,170
20,049
24,219
(13,311)
(23)
(13,334)
Balance at end of year:
BMPL
GTHI
PTL
Less allowance for impairment of investment in PTL
Carrying values at end of year:
BMPL
GTHI
GLOBE TELECOM, INC.
(Forward)
70
–
(62)
(62)
–
(3,941)
(3,941)
43,021
242
32,415
75,678
32,415
–
264
32,415
32,679
32,415
–
326
32,415
32,741
32,415
43,021
242
43,263
56,332
265
56,597
–
327
327
2005
Investments in shares of stock carried at cost:
C2C Holdings, Pte. Ltd.
Others
Less allowance for impairment of investments:
C2C Holdings, Pte. Ltd.
Others
Carrying values at end of period:
C2C Holdings, Pte. Ltd.
Others
Total investments in associates and joint venture
Investments in ROP Bonds and DLPN (Note 25)
2004
(In Thousand Pesos)
2003
P
= 894,551
45,766
940,317
P
= 894,551
47,460
942,011
P
= 894,551
47,345
941,896
894,551
12,132
906,683
894,551
12,132
906,683
894,551
12,132
906,683
–
33,634
33,634
76,897
–
P
= 76,897
–
35,328
35,328
91,925
–
P
= 91,925
–
35,213
35,213
35,540
692,186
P
= 727,726
Equity in net losses for the year is shown under “Equity in net losses of an associate and joint venture” account in the consolidated
statements of income.
Investment in GTHI
GTHI is a special purpose vehicle incorporated in the Philippines, owned 32.67% each by Globe Telecom and Ayala Corporation
(AC), 33% by Singapore Telecom International Pte. Ltd. (STI) [a wholly owned subsidiary of Singapore Telecom (ST)], and 1.66% by
its directors and officers. On December 26, 2002, GTHI, having completed and concluded its only business activity, related to
Philippine Deposit Receipts (PDR), filed with the Philippine SEC a request for the revocation of its permit to sell PDRs. On
December 8, 2003, the Philippine SEC approved the revocation of the Order of Registration and Certificate of Permit to Sell
Securities to the Public issued to GTHI. On December 15, 2004, the BOD of GTHI approved the dissolution of GTHI, which was
subsequently approved by the Philippine SEC on December 13, 2005.
ANNUAL REPORT 2005
Investment in PTL
PTL is a limited partnership organized in the United States (US) which Globe Telecom has a 50% ownership. On October 19, 2000,
the BOD approved a resolution to seek the dissolution of PTL and the termination of Globe Telecom’s Limited Liability Agreement
with Pacific Gateway Exchange (PGE) and other agreements with PGE and/or PTL. On January 17, 2001, PGE gave its consent to
the dissolution of PTL. The dissolution has not been effected in order to enable PTL to file its Proof of Claim against PGE before the
US Bankruptcy Court, District Court of California (San Francisco Division) to recover US$5.39 million of receivables from PGE. The
Proof of Claim was filed on May 11, 2001. However, on December 27, 2002, the Official Committee of Unsecured Creditors of PGE
(Committee) filed a complaint for recovery of money/property against PTL and Globe Telecom alleging that PGE made preferred
transfers in favor of PTL and Globe Telecom prior to the filing of the bankruptcy proceedings. PTL and Globe Telecom filed their
respective answers alleging that the payments were part of a contemporaneous exchange of new value. Thereafter, PTL, Globe
Telecom and Committee agreed to settle the dispute with a mutual release of claims. On December 17, 2004, the US Bankruptcy
Court for the Northern District of California approved the settlement agreement among the parties. PTL has not been operating since
2000 and its status is deemed administratively cancelled as of December 31, 2005.
71
Investment in C2C Holdings, Pte. Ltd. (C2C Holdings)
Innove has a 4.25% ownership in C2C Holdings consisting of 20 million Class A common shares at an acquisition cost of
P
= 894.55 million. C2C Holdings is the holding company for the equity investments of all the cable landing parties in C2C Pte. Ltd.
(C2C). C2C, a related party of STI, is a private cable company with a network reaching 17,000 kilometers that links China, Hong
Kong, Japan, Singapore, South Korea, Taiwan, Philippines and the US.
In 2003, Innove recognized a full provision for its equity investment in C2C Holdings amounting to P
= 894.55 million (or P
= 6.39 on a
per share basis). The provision was made following the assessment by C2C Holdings of the estimated future cash flows expected
from the continuing use of the cable network assets of C2C until the end of its economic useful lives and after considering the
increased potential risk to the restructuring of C2C’s debt. This considered an independent market study commissioned to revalidate
the bandwidth market potential and its effect on C2C Holdings.
In October 2005, the creditors of C2C appointed receivers and in January 2006, manifested their intention to take over the
management of C2C. Innove is awaiting the resolution of the matter between C2C and STI.
Investment in BMPL
On November 3, 2004, Globe Telecom and six other leading Asia Pacific mobile operators (JV partners) signed an Agreement
(JV Agreement) to form a regional mobile alliance, which will operate through a Singapore-incorporated company, BMPL. In 2005,
the JV consisted of eight partners. The joint venture company will look at driving commercial and other benefits for the operators and
delivering regional mobile services to their subscribers.
BMPL will be a commercial vehicle in which the eight JV partners jointly invest to build and establish a regional mobile infrastructure
and common service platform. This will enable the creation and seamless delivery of regional mobile services across geographical
borders, and enhance the service experience of their mobile customers when they roam from one country to another. BMPL will also
develop new products and services on a regional basis and create competitive advantages and differentiation for the mobile
operators in their respective markets.
The other joint venture partners with equal stake in the alliance include Bharti Tele-Ventures Limited (India), Maxis Communications
Berhad (Malaysia), Optus Mobile Pty. Limited (Australia), Singapore Telecom Mobile Pte. Ltd. (Singapore),Taiwan Cellular
Corporation (Taiwan), PT Telekomunikasi Selular (Indonesia) and Hongkong CSL Ltd. (Hongkong).
Under the JV Agreement, each partner (shareholder) shall contribute US$4.00 million scheduled as follows:
Year 1
Year 2
Year 3
about US$1.50 million
about US$1.30 million
about US$1.20 million
GLOBE TELECOM, INC.
As of December 31, 2005, Globe Telecom has paid US$1 million (P
= 56.33 million) as initial subscription. BMPL started commercial
operations in April 2005.
72
12. Other Noncurrent Assets
This account consists of:
2003
(As Restated)
P
= 1,431,835
342,492
279,206
253,718
2004
(As Restated)
(In Thousand Pesos)
P
=–
251,547
418,677
300,701
–
105,530
P
= 2,412,781
1,116,414
281,159
P
= 2,368,498
1,631,758
268,199
P
= 3,008,349
2005
Derivative assets (Notes 2 and 25)
Miscellaneous deposits (Notes 22a and 25)
Advance payments to suppliers and contractors
Prepaid pension (Note 18)
Revaluation of foreign currency swaps and unamortized
premium (Notes 2 and 25)
Others
P
=–
218,896
535,058
354,438
13. Accounts Payable and Accrued Expenses
This account consists of:
2005
P
= 5,813,717
4,101,400
2,444,114
1,544,657
231,455
68,334
32,656
P
= 14,236,333
Accounts payable (Notes 7, 16 and 25)
Accrued expenses (Notes 16d and 25)
Accrued project costs (Note 22)
Traffic settlements - net (Notes 3 and 25)
Provisions
Dividends payable (Note 17)
Derivative liabilities (Notes 2, 3 and 25)
2004
(As Restated)
(In Thousand Pesos)
P
= 5,053,554
4,084,200
3,454,285
1,104,861
282,309
75,128
–
P
= 14,054,337
2003
(As Restated)
P
= 4,055,138
4,811,964
3,003,053
1,461,224
793,066
67,957
–
P
= 14,192,402
Traffic settlements payables are presented net of traffic settlements receivables amounting to P
= 7,478.60 million, P
= 3,761.56 million
and P
= 3,745.67 million as of December 31, 2005, 2004 and 2003, respectively.
Provisions relate to various pending regulatory claims and assessments. The information usually required by PAS 37, Provisions,
Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be expected to prejudice the outcome of
these claims and assessments. The provisions include those related to Globe Group’s wireless and wireline business amounting to
P
= 114.19 million, P
= 165.05 million and P
= 675.80 million as of December 31, 2005, 2004 and 2003, respectively. The Globe Group
recognized a net reversal of provision in 2005 amounting to P
= 50.85 million. As of February 7, 2006, the remaining pending regulatory
claims and assessments are still being resolved.
ANNUAL REPORT 2005
The balance of the provisions also includes Innove’s provision relating to NTC permit fees amounting to P
= 117.26 million, which were
assessed by NTC on March 27, 1996 as required under Section 40 (g) of the Public Service Act. Innove, together with other
telecommunications companies, particularly the members of the Telecommunications Operators of the Philippines, had decided not
73
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.
14. Long-term Debt
This account consists of:
2005
Senior Notes
2012
2009
Banks:
Foreign
Local
Corporate notes
Retail bonds
Suppliers’ credits
Less current portion
2004
(In Thousand Pesos)
P
= 16,386,579
–
P
= 17,387,378
–
P
= 11,117,200
9,705,872
15,973,138
10,137,664
4,109,000
2,983,743
103,264
49,693,388
7,858,150
P
= 41,835,238
22,121,664
5,975,162
3,070,000
3,000,000
663,747
52,217,951
9,018,650
P
= 43,199,301
25,556,947
4,772,692
3,665,000
–
1,314,024
56,131,735
9,022,535
P
= 47,109,200
The maturities of long-term debt at nominal values as of December 31, 2005 follow (in thousand pesos):
Due in:
2006
2007
2008
2009
2010 and thereafter
GLOBE TELECOM, INC.
P
= 7,806,535
6,829,642
4,982,030
7,832,200
21,791,258
P
= 49,241,665
74
2003
The interest rates and maturities of the above loans follow:
Maturities
Interest Rates
2012
2009
9.75%
13.00%
2006-2011
2.17% to 12.45% in 2005
1.16% to 6.83% in 2004
1.18% to 7.35% in 2003
2006-2010
7.36% to 11.73% in 2005
2.50% to 11.73% in 2004
7.56% to 12.52% in 2003
Corporate notes
2010-2012
7.36% to 16.00% in 2005
8.40% to 16.00% in 2004
7.14% to 16.00% in 2003
Retail bonds
2007-2009
7.26% to 11.70% in 2005
7.79% to 11.70% in 2004
Suppliers’ credits
2005-2006
4.39% to 6.69% in 2005
2.71% to 6.88% in 2004
1.06% to 13.96% in 2003
Senior Notes
2012
2009
Banks:
Foreign
Local
Unamortized debt premium and issuance costs included in the following long-term debt as of December 31, 2005 are as follows
(in thousand pesos) (see Note 25):
Premium on 2012 Senior Notes (net of related debt issuance cost)
Unamortized debt issuance costs on retail bonds
P
= 467,979
(16,256)
P
= 451,723
ANNUAL REPORT 2005
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.
75
Senior Notes
Pertinent terms of Globe Telecom’s Senior Notes follow:
Date of issue
2012 Senior Notes (a)
April 4, 2002 and July 23, 2004
2009 Senior Notes (b)
August 6, 1999
Maturity
April 12, 2012
August 1, 2009
Interest rate
9.75% p.a.
13% p.a.
Interest payments
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
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
Eligible holders
Bondholders of record on April 1 or
October 1 immediately preceding each interest payment date
Bondholders of record on January 15 or July 15
immediately preceding each interest payment date
(a) On July 23, 2004, Globe Telecom issued US$100.00 million notes (the Notes) at 109% under an indenture with the Bank of New
York as Trustee. The Notes are consolidated and form a single series with the 2012 Senior Notes issued on April 4, 2002. On
October 29, 2004, the US$300.00 million Senior Notes have been listed and quoted on the Singapore Stock Exchange.
(b) On August 2, 2004, Globe Telecom exercised its call option on the 2009 Senior Notes and redeemed the balance of the 2009
Senior Notes amounting to US$142.72 million at 106.5%. Prior to the exercise of the call option, Globe Telecom has redeemed
US$77.28 million of the 2009 Senior Notes. US$88.00 million of swaps and forwards used to hedge the 2009 Senior Notes have
also matured. Bond redemption costs (included in “Financing costs” account) incurred in 2004 and 2003 amounted to
P
= 693.39 million and P
= 410.44 million, respectively.
Redemption Options
The 2012 Senior Notes are redeemable in whole or in part at the option of Globe Telecom at the redemption dates set forth below,
after giving the required notice under the indenture, and, if at the time of such notice the Notes are listed on the Luxembourg Stock
Exchange, by publishing a notice in the Luxembourg Wort. The 2012 Senior Notes may be redeemed at the following prices
(for Senior Notes redeemed during the 12-month period commencing on each of the years below, expressed as percentages of the
principal amount), plus accrued and unpaid interest and additional amounts thereon, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due on the relevant interest payment date):
Redemption date
Redemption price
On or after April 15, 2007
2007
104.875%
2008
103.250%
2009
101.625%
2010 and thereafter
100.000%
GLOBE TELECOM, INC.
Consent Solicitation
On July 6, 2004, Globe Telecom solicited consents from holders of its 2012 Senior Notes to amend the indenture under which the
2012 Senior Notes were issued in April 2002. On July 20, 2004, Globe Telecom obtained the required consents from the holders of
the 2012 Senior Notes. The amendments changed certain covenants and other terms in the indenture, including covenants related to
the provision of the consolidated financial statements and reports, limitations on restricted payments and designation of restricted
and unrestricted subsidiaries.
76
Covenants
The 2012 Senior Notes are unsecured obligations, equal in ranking among themselves and with all of the existing and future
unsecured and unsubordinated debt, subject to Article 2244 (14) of the Civil Code of the Philippines, and senior in right of payment to
all future subordinated debt. Secured debt of Globe Telecom will be effectively senior to the Senior Notes to the extent of the value
of the assets securing such debt and also to the extent any such indebtedness is incurred by a restricted subsidiary. In addition, under
the laws of the Philippines, in the event a borrower submits to insolvency or liquidation proceedings in which the borrower’s assets
are liquidated, unsecured debt of the borrower that is evidenced by a public instrument as provided in Article 2244 (14) of the Civil
Code of the Philippines will rank ahead of unsecured debt of the borrower that is not evidenced by a public instrument.
The 2012 Senior Notes provide certain restrictions, which include among others, incurrence of additional debt, certain dividend
payments, and liens, repayments of certain debts, merger/consolidation and sale of assets in general.
Bank Loans and Corporate Notes
Globe Telecom’s corporate notes, which consist of fixed and floating rate notes, and peso-denominated bank loans, bear interest at
stipulated and prevailing market rates. The US dollar-denominated loans extended by commercial banks bear interest based on
US Dollar London Interbank Offered Rate (USD LIBOR) or Commercial Interest Reference Rate (CIRR) plus margins.
Retail Bonds
In February 2004, Globe Telecom issued P
= 3,000.00 million retail bonds locally with fixed and floating interest rates based on MART1
plus margins. The retail bonds have maturities ranging from 3 to 5 years. The retail bonds may be redeemed in whole, but not in part,
at any time, by giving not less than 30 nor more than 60 days prior notice, at a price equal to 100% of the principal amount of the
bonds, together with accrued and unpaid interest to the date fixed for redemption, if Globe Telecom will pay additional amounts due
to change in tax and/or other regulations. The agreements covering the retail bonds provide restrictions with respect to, among
others, maintenance of certain financial ratios, sale, transfer, assignment or disposal of assets and creation of property
encumbrances.
Suppliers’ Credits
Suppliers’ credits accrue interests that are either fixed or based on USD LIBOR plus margins.
15. Other Long-term Liabilities
This account consists of:
2005
P
= 1,235,810
907,053
699,090
137,925
548,082
3,527,960
269,737
P
= 3,258,223
Non-interest bearing liabilities to an affiliate (Note 16c)*
ARO (Notes 2, 8 and 27)
Derivative liabilities (Notes 2 and 25)
Advance lease and service revenues (Note 16c)
Accrued lease obligations and others (Note 22c)
Less current portion
2004
(As Restated)
(In Thousand Pesos)
P
= 2,262,283
769,795
–
164,209
473,317
3,669,604
292,589
P
= 3,377,015
2003
(As Restated)
P
= 2,430,363
519,309
–
221,453
391,726
3,562,851
325,373
P
= 3,237,478
ANNUAL REPORT 2005
*2005 balance is net of PAS 39 adjustments with no restatement of prior years (see Note 2).
77
The maturities of other long-term liabilities at nominal amounts as of December 31, 2005 follow (in thousand pesos):
Due in:
2006
2007
2008
2009
2010 and thereafter
P
= 269,737
100,342
107,814
116,237
2,933,830
P
= 3,527,960
The rollforward analysis of Globe Group’s ARO follow:
2005
P
= 769,795
44,433
92,825
P
= 907,053
Balance at beginning of year
Capitalized to property and equipment during the year
Accretion expense during the year
Balance at end of year
2004
(As Restated)
(In Thousand Pesos)
P
= 519,309
182,363
68,123
P
= 769,795
2003
(As Restated)
P
= 384,747
70,256
64,306
P
= 519,309
16. Related Party Transactions
As discussed in Note 2, Globe Group adopted PAS 24, Related Party Disclosures, effective January 1, 2005. The information includes
the additional disclosures required by the revised accounting standard.
Globe Telecom and Innove, in their regular conduct of business, enters into transactions with its principal shareholders, AC and STI,
and certain related parties. These transactions, which are accounted for at market prices normally charged to unaffiliated customers
for similar goods and services, include the following:
Globe Telecom
(a) Globe Telecom has interconnection agreements with STI. The related net traffic settlements receivable (included in
“Receivables” in the consolidated balance sheets) and the interconnection toll income (included in “Service revenues” in the
consolidated statements of income) earned as of and for the years ended December 31 follow:
2005
P
= 335,766
1,422,249
Traffic settlements receivable - net
Interconnection toll income
2004
(In Thousand Pesos)
P
= 31,212
1,083,859
2003
P
= 548,395
2,239,630
(b) Globe Telecom and STI have a technical assistance agreement whereby STI will provide consultancy and advisory services,
including those with respect to the construction and operation of Globe Telecom’s networks and communication services,
equipment procurement and personnel services. In addition, Globe Telecom has software development, supply, license and
support arrangements, lease of cable facilities, maintenance and restoration costs and other transactions with STI.
GLOBE TELECOM, INC.
The details of fees (included in “Operating costs and expenses” account in the consolidated statements of income) incurred under
these agreements are as follows:
78
2005
Lease of cable facilities, maintenance and restoration costs and other
transactions
Technical assistance fee
Software development, supply, license and support
P
= 266,793
143,450
35,652
2004
(In Thousand Pesos)
P
= 137,111
44,360
40,409
2003
P
= 54,026
78,095
56,316
The net outstanding balances due to STI (included in “Accounts payable and accrued expenses” account in the consolidated balance
sheets) arising from these transactions are as follows:
2005
Lease of cable facilities, maintenance and restoration costs and other
transactions
Technical assistance
Software development, supply, license and support
P
= 13,738
81,019
11,940
2004
(In Thousand Pesos)
P
= 62,675
8,899
21,322
2003
P
= 14,193
13,756
16,895
(c) In 2001, Globe Telecom signed a cable equipment supply agreement with C2C, a related party of STI. In March 2002, Globe
Telecom entered into an equipment lease agreement for the same equipment obtained from C2C with GB21 Hong Kong Limited
(GB21). Subsequently, GB21, in consideration of C2C’s agreement to assume all payment obligations pursuant to the lease
agreement, assigned all its rights, obligations and interest in the equipment lease agreement to C2C. As a result of the said
assignment of receivables and payables by GB21 and C2C under the two agreements, Globe Telecom’s liability arising from the
cable equipment supply agreement with C2C was effectively converted into a noninterest bearing long-term obligation. Upon
adoption of PAS 39 in 2005, the noninterest bearing long-term obligation was restated to its fair value, representing the present
value of future cash flows. The difference between the principal amount and the present value of the obligation is reported as an
adjustment to the property and equipment account. As of December 31, 2005, the remaining liability of Globe Telecom to C2C
for the cable equipment supply agreement amounted to P
= 1,235.81 million (inclusive of the accumulated accretion of
P
= 486.98 million) included under “Other long-term liabilities” account in the consolidated balance sheets. The fair value of the
equipment purchased amounted to P
= 1,453.89 million included under “Property and equipment” account in the consolidated
balance sheets.
Globe Telecom entered into agreements with C2C for the purchase of IRUs in the C2C and Japan-US Cable Networks. The
= 1,133.79 million. This was part of the property and equipment
aggregate cost of capacity purchased from C2C amounted to P
transferred to Innove in June 2004.
In July 2002, Globe Telecom received advance service fees from C2C amounting to US$1.60 million, which will be offset against
its share in the operations and maintenance costs of the cable landing facilities of Globe Telecom. Also, in January 2003, Globe
Telecom received advance lease payments from C2C for its use of a portion of Globe Telecom’s cable landing station facilities
amounting to US$4.11 million.
ANNUAL REPORT 2005
The parties have agreed on a lease amortization schedule and application of a portion of the advance service fees for C2C’s
share in the 2002 operations and maintenance costs of the cable landing facilities. Accordingly, Globe Telecom recognized lease
income amounting to P
= 15.06 million, P
= 16.32 million and 51.00 million in 2005, 2004 and 2003, respectively. Globe Telecom also
recognized service fees amounting to P
= 2.33 million, P
= 43.76 million and P
= 42.33 million in 2005, 2004 and 2003, respectively.
79
The current and noncurrent portions of the said advances shown as part of “Other long-term liabilities” account in the consolidated
balance sheets follow:
2005
2004
(In Thousand Pesos)
P
= 17,760
146,449
P
= 164,209
P
= 14,759
123,166
P
= 137,925
Current
Noncurrent
2003
P
= 59,483
161,970
P
= 221,453
(d) Globe Telecom reimburses AC for certain operating expenses. The net outstanding liabilities to AC related to these transactions
as of December 31, 2005 were not material.
(e) Globe Telecom has preferred roaming service contract with BMPL. Under this contract, Globe Telecom will pay BMPL for
services rendered by the latter which include, among others, coordination and facilitation of preferred roaming arrangement
among JV partners, and procurement and maintenance of telecommunications equipment necessary for delivery of seamless
roaming experience to customers. Globe Telecom also earns or incurs commission form BMPL for regional top-up service
provided by the JV partners. As of December 31, 2005, balances related to these transactions were not material.
The summary of consolidated outstanding balances resulting from transactions with related parties follows:
Traffic settlements receivable - net
(included in Receivables) (Note 5)
Other current assets (Note 7)
Accounts payable (included in Accounts payable and
accrued expenses) (Note 13)
Other long-term liabilities (Note 15)
2005
2004
(As Restated)
(In Thousand Pesos)
2003
(As Restated)
P
= 335,766
927
P
= 31,212
946
P
= 548,395
1,118
129,420
1,373,735
122,959
2,426,492
45,962
2,651,816
Globe Group’s compensation of key management personnel by benefit type follows:
2005
P
= 296,191
161,731
32,938
P
= 490,860
Short-term employee benefits
Share-based payment (Note 18)
Post-employment benefits
2004
(As Restated)
(In Thousand Pesos)
P
= 261,174
134,769
35,667
P
= 431,610
2003
(As Restated)
P
= 186,727
59,091
33,945
P
= 279,763
GLOBE TELECOM, INC.
There are no agreements between Globe Group and any of its directors and key officers providing for benefits upon termination of
employment, except for such benefits to which they may be entitled under Globe Group’s retirement plans.
80
17. Stockholders’ Equity
Globe Telecom’s capital stock consists of:
2005
2004
2003
Shares
Amount
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares, Except Per Share Figures)
Preferred stock - Series “A” - P
= 5 per share
Authorized
Issued and outstanding
Common stock - P
= 50 per share
Authorized
Issued and subscribed
Outstanding
250,000
158,515
P
= 1,250,000
792,575
250,000
158,515
P
= 1,250,000
792,575
250,000
158,515
P
= 1,250,000
792,575
179,934
131,900
131,900
8,996,719
6,595,022
6,595,022
200,000
151,905
139,904
10,000,000
7,595,272
6,995,200
200,000
151,905
139,904
10,000,000
7,595,272
6,995,200
The rollforward of outstanding common shares follows:
2005
2004
2003
Shares
Amount
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares, Except Per Share Figures)
At January 1
Exercise of stock options
Acquisition of treasury shares
139,904 P
= 6,995,200
60
3,033
(8,064)
(403,211)
139,904 P
= 6,995,200
–
–
–
–
151,905
–
(12,001)
P
= 7,595,272
–
(600,072)
At December 31
131,900
139,904 P
= 6,995,200
139,904
P
= 6,995,200
P
= 6,595,022
Treasury Shares
On February 1, 2005, the BOD approved an offer to purchase one share for every fifteen shares (1:15) of the outstanding common
stock of Globe Telecom from all stockholders of record as of February 10, 2005 at P
= 950.00 per share. The approval allowed Globe
Telecom to purchase up to 9,326,924 shares representing 6.67% of Globe Telecom’s outstanding common shares. Each shareholder
is entitled to tender a proportionate number of shares at the 1:15 ratio for purchase by Globe Telecom upon and subject to the terms
and conditions of the tender offer. Globe Telecom also filed with the SEC the tender offer report with a copy of the letter to the
shareholders, the terms and conditions of the tender offer and the tender form. Globe Telecom commenced the tender offer on
February 3, 2005 and ended on March 3, 2005.
On March 15, 2005, Globe Telecom acquired 8,064,094 shares at a total cost of P
= 7,675.66 million, including incidental costs.
ANNUAL REPORT 2005
On April 4, 2005, Globe Telecom’s stockholders approved the cancellation of the 20.06 million treasury shares consisting of the
12.00 million shares acquired from Deutsche Telekom (DT) in 2003 and the 8.06 million shares acquired during the share buyback,
and the amendments of the articles of incorporation of Globe Telecom to reduce accordingly the authorized capital stock of the
corporation from P
= 11,250.00 million to P
= 10,246.72 million. On April 29, 2005, Globe Telecom applied for the retirement and
cancellation of the existing treasury shares with the SEC, which the latter approved on October 28, 2005. Accordingly, Globe
Telecom cancelled the existing treasury shares at cost. The difference between the par value and cost of treasury shares was
charged to “Additional paid in capital” and “Retained earnings” accounts amounting to P
= 5,179.35 million and P
= 9,685.80 million,
respectively.
81
Preferred Shares
Preferred stock - Series “A” has the following features:
(a) Convertible to one common share after 10 years from issue date at not less than the prevailing market price of the common
stock less the par value of the preferred shares;
(b) Cumulative and non-participating;
(c) Floating rate dividend (set at MART 1 plus 2% average for a 12-month period);
(d) Issued at P
= 5 par;
(e) With voting rights;
(f) Globe Telecom has the right to redeem the preferred shares at par plus accrued dividends at any time after 5 years from date of
issuance; and
(g) Preferences as to dividend in the event of liquidation.
Preferred “A” shares were listed on July 29, 2001 with the PSE.
The dividends for preferred shares are declared upon the sole discretion of Globe Telecom’s BOD.
In 2003, the BOD approved the declaration of cash dividends to preferred shareholders “Series A” as of record date
= 67.96 million, which were paid on September 28, 2004.
December 31, 2003 amounting to P
On December 15, 2004, the BOD approved the declaration of cash dividends to preferred shareholders “Series A” as of record date
= 75.13 million, which were paid on March 15, 2005.
December 31, 2004 amounting to P
On December 13, 2005, the BOD approved the declaration of cash dividends to preferred shareholders “Series A” as of record date
= 68.33 million.
December 31, 2005 amounting to P
Cash Dividends
On April 1, 2003, the BOD of Globe Telecom approved the declaration of cash dividends of P
= 2,126.68 million
(P
= 14.00 per common share) to common stockholders of record as of April 21, 2003. Payment was made on May 6, 2003.
On January 29, 2004, the BOD of Globe Telecom approved a new dividend policy to declare cash dividends to its common
stockholders on a regular basis as may be determined by the BOD from time to time. The BOD had set out a dividend payout rate of
approximately 50% of prior year’s net income payable semi-annually in March and September of each year. This will be reviewed
annually, taking into account Globe Group’s operating results, cash flows, debt covenants, capital expenditure levels and liquidity.
The BOD also declared the first semi-annual cash dividend in 2004 of P
= 18 per share payable to common stockholders of record as of
February 18, 2004 and subsequently paid dividends amounting to P
= 2,518.27 million on March 15, 2004. The second semi-annual
cash dividend of P
= 18 per share payable to common stockholders of record as of August 20, 2004 was declared on August 2, 2004
and paid on September 15, 2004.
On February 1, 2005, the BOD declared the first semi-annual cash dividend in 2005 of P
= 20.00 per share payable to common
stockholders of record as of February 18, 2005 and subsequently paid dividends amounting to P
= 2,798.10 million on March 15, 2005.
On August 2, 2005, the BOD declared the second semi-annual cash dividend for 2005 amounting to P
= 20.00 per common share
outstanding as of record date August 19, 2005, and was paid on September 14, 2005.
GLOBE TELECOM, INC.
Restrictions on Retained Earnings
The retained earnings include the accumulated equity in undistributed net earnings of consolidated subsidiaries, associates and joint
venture accounted for under the equity method totaling P
= 4,162.75 million as of December 31, 2005. This amount is not available for
82
dividend declaration until received in the form of dividends from subsidiaries and associates. The Globe Group is also subject to loan
covenants that restrict its ability to pay dividends (see Note 14).
18. Employee Benefits
As discussed in Note 2, the Globe Group adopted PFRS 2, Share-based Payment and PAS 19, Employee Benefits on
January 1, 2005. The information below includes the disclosure requirements under these new standards.
Stock Option Plans
Globe Group has various stock-based compensation plans. The number of shares allocated under the plans shall not exceed the
aggregate equivalent of 6% of the authorized capital stock or up to 12.00 million common shares.
The Employees Stock Ownership Plan (ESOWN) for all regular employees (granted in 1998 and 1999) and the Executive Stock
Option Plan 1 (ESOP1) for key senior executives (granted in 1998 and 2000) provide for an initial subscription price for shares
subject of each option granted equivalent to 85% of the initial offer price. Any subsequent subscription for the ESOP1 shall be for a
price equivalent to 85% of the average closing price for the month prior to the month of eligibility. These options are settled in equity
once exercised. The qualified officers and employees shall pay for the shares subscribed under the ESOWN and ESOP1 through
installments over a maximum period of 5 years and 10 years, respectively. The shares of stock have a holding period of five years
and the employees must remain with Globe Telecom or its affiliates over such period. The plans also provide restrictions on sale or
assignment of shares for five years from date of subscription. The number of exercised shares under ESOP1 totaled
1,712,133 shares with a weighted average exercise price of P
= 196.75 per share. The remaining stock options under ESOWN and
ESOP1 expired in 2004.
On April 4, 2003, Globe Telecom granted additional stock options to key executives and senior management personnel of the Globe
Group under Executive Stock Option Plan 2 (ESOP2). It required the grantees to pay a nonrefundable option purchase price of
P
= 1,000.00. As of December 31, 2005, a total of 680,200 stock options were granted to key executives and senior management
personnel. ESOP2 provides for an exercise price of P
= 547.00 a share, which is the average quoted market price of the last 20 trading
days preceding April 4, 2003. These options are settled in equity once exercised. Fifty percent of the options will be exercisable from
April 4, 2005 to April 4, 2013, while the remaining fifty percent will be exercisable from April 4, 2006 to April 4, 2013. In order to avail
of the privilege, the grantees must remain with Globe Telecom or its affiliates from grant date up to the beginning of the exercise
period of the corresponding shares.
ANNUAL REPORT 2005
On July 1, 2004, the Globe Group granted additional stock options to key executives and senior management personnel of the Globe
Group under ESOP2. It required the grantees to pay a nonrefundable option purchase price of P
= 1,000.00. As of December 31, 2005,
a total of 803,800 stock options were granted to key executives and senior management personnel. The agreement provides for an
exercise price of P
= 840.75 per share. These options will be settled in equity once exercised. Fifty percent of the options become
exercisable from July 1, 2006 to June 30, 2014, while the remaining fifty percent become exercisable from July 1, 2007 to
June 30, 2014. In order to avail of the privilege, the grantees must remain with Globe Telecom or its affiliates from grant date up to
the beginning of the exercise period of the corresponding shares.
83
A summary of Globe Group’s stock option activity and related information follows:
Outstanding, at beginning of year
(ESOP1,ESOP2 and ESOWN)
Granted (ESOP2)
Exercised (ESOP2)
Expired/forfeited/cancelled
(ESOP1,ESOP2 and ESOWN)
Outstanding, at end of year
Exercisable, at end of year
2005
Weighted
Number
Average
of
Exercise
Shares
Price
2003
2004
Number of
Shares
Weighted
Average
Exercise
Price
Number of
Shares
Weighted
Average
Exercise
Price
1,450,600
8,000
(149,000)
P
= 709.77
547.00
547.00
643,782*
836,800
(2,700)
P
= 546.51
829.17
547.00
4,582*
639,200
–
P
= 477.51
547.00
–
(28,250)
1,281,350
604.19
P
= 730.01
(27,282)*
1,450,600
535.32
P
= 709.77
–
643,782
–
P
= 546.51
172,350
P
= 547.00
4,582
P
= 477.51
–
P
=–
*Included within these balances are stock options of 4,582 that have not been recognized in accordance with PFRS 2 as the
options were granted on or before November 7, 2002.
The average share price at the date of exercise for the options exercised in 2005 and 2004 amounted to P
= 807.08 and
P
= 909.17, respectively.
The options have a contractual term of 10 years. As of December 31, 2005, 2004 and 2003, the weighted average remaining
contractual life of options outstanding is 8.03 years, 8.94 years and 9.22 years, respectively.
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. The fair values of stock
= 283.11 and P
= 357.94, respectively. The following
options granted under ESOP2 on April 4, 2003 and July 1, 2004 amounted to P
assumptions were used to determine the fair value of the stock options at grant date:
July 1, 2004
P
= 835.00
P
= 840.75
39.50%
10 years
4.31%
12.91%
Share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate
April 4, 2003
P
= 580.00
P
= 547.00
34.64%
10 years
2.70%
11.46%
The expected volatility measured at the standard deviation of expected share price returns was based on analysis of share prices for
the past 365 days.
GLOBE TELECOM, INC.
Cost of share-based payment in 2005, 2004 and 2003 amounted to P
= 161.73 million, P
= 134.77 million and P
= 59.09 million, respectively.
84
Pension Plans
Globe Telecom
Globe Telecom has a funded, noncontributory, defined benefit pension plan covering substantially all of its regular employees.
The benefits are based on years of service and compensation on the last year of employment.
The components of pension expense (included in staff costs under “Operating costs and expenses”) in the consolidated
statements of income are as follows:
2005
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial loss
Total pension expense
P
= 73,591
58,697
(85,305)
–
P
= 46,983
Actual return on plan assets
P
= 56,151
2004
(As Restated)
(In Thousand Pesos)
P
= 75,843
47,814
(70,053)
133
P
= 53,737
P
= 77,229
2003
(As Restated)
P
= 67,552
46,437
(60,226)
939
P
= 54,702
P
= 89,883
The funded status and amounts recognized under “Other noncurrent assets” in the consolidated balance sheets for the pension
plan of Globe Telecom are as follows:
2005
P
= 481,754
(770,860)
(289,106)
35,388
(P
= 253,718)
Benefit obligation
Plan assets
Unrecognized net actuarial gains (losses) (Note 3)
Asset recognized in the consolidated balance sheets
2004
(As Restated)
(In Thousand Pesos)
P
= 434,771
(766,890)
(332,119)
31,418
(P
= 300,701)
2003
(As Restated)
P
= 433,106
(712,219)
(279,113)
(75,325)*
(P
= 354,438)
*Net of portion of actuarial losses recognized in 2003 amounting to P
= 72.04 million related to curtailment.
Changes in the present value of the defined benefit obligation are as follows:
2005
P
= 434,771
58,697
73,591
–
(58,347)
(26,958)
P
= 481,754
2003
(As Restated)
P
= 432,717
46,437
67,552
(229,508)
(97,961)
213,869
P
= 433,106
ANNUAL REPORT 2005
Balance at January 1
Interest cost
Current service cost
Curtailments/settlements
Benefits paid
Actuarial (gains)/losses
Balance at December 31
2004
(As Restated)
(In Thousand Pesos)
P
= 433,106
47,814
75,843
–
(25,889)
(96,103)
P
= 434,771
85
Changes in the fair value of plan assets are as follows:
2005
P
= 766,890
85,306
–
(58,347)
–
(22,989)
P
= 770,860
Balance at January 1
Expected return
Contributions
Benefits paid
Settlements
Actuarial gains/(losses)
Balance at December 31
2004
(As Restated)
(In Thousand Pesos)
P
= 712,219
70,053
–
(25,889)
–
10,507
P
= 766,890
2003
(As Restated)
P
= 708,062
60,226
199,557
(97,961)
(224,489)
66,824
P
= 712,219
Globe Telecom expects not to make contribution to its defined benefit pension plan in 2006.
The allocation of the fair value of plan assets of Globe Telecom as of December 31, 2005 follows:
2005
84.00%
15.00%
1.00%
Investments in debt securities
Investments in equity securities
Others
2003
87.00%
8.00%
5.00%
2004
84.00%
13.00%
3.00%
Innove
Innove has a funded, noncontributory, defined benefit pension plan covering substantially all of its regular employees. The
benefits are based on years of service and compensation on the last year of employment.
The components of pension expense (included in staff costs under “Operating costs and expenses”) in the consolidated
statements of income are as follows:
2005
P
= 19,714
22,510
(27,528)
(2,454)
P
= 12,242
P
= 24,305
GLOBE TELECOM, INC.
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial loss
Total pension expense
Actual return on plan assets
86
2004
(As restated)
(In Thousand Pesos)
P
= 22,489
20,938
(21,737)
–
P
= 21,690
P
= 20,711
2003
(As restated)
P
= 7,176
4,814
(6,085)
–
P
= 5,905
P
= 1,251
The funded status and amounts recognized in prepayments under “Prepayments and other current assets” in the consolidated
balance sheets for the pension plan of Innove are as follows:
2005
Unrecognized net actuarial gains (Note 3)
P
= 167,071
(295,581)
(128,510)
118,204
Asset recognized in the consolidated balance sheets
(P
= 10,306)
Benefit obligation
Plan assets
2004
(As Restated)
(In Thousand Pesos)
P
= 168,851
(251,419)
(82,568)
74,043
(P
= 8,525)
2003
(As Restated)
P
= 189,402
(208,770)
(19,368)
17,168
(P
= 2,200)
Changes in the present value of the defined benefit obligation are as follows:
2005
P
= 168,851
22,510
19,714
(11,633)
(32,371)
P
= 167,071
Balance at January 1
Interest cost
Current service cost
Benefits paid
Actuarial gains on obligation
Balance at December 31
2004
(As Restated)
(In Thousand Pesos)
P
= 189,402
20,938
22,489
(10,832)
(53,146)
P
= 168,851
2003
(As Restated)
P
= 206,933
4,813
7,176
(2,584)
(26,936)
P
= 189,402
Changes in the fair value of plan assets are as follows:
2005
P
= 251,419
27,528
14,023
(11,633)
–
14,244
P
= 295,581
Balance at January 1
Expected return
Contributions
Benefits paid
Settlements
Actuarial gains/(losses) on obligation
Balance at December 31
2004
(As Restated)
(In Thousand Pesos)
P
= 208,770
21,737
28,015
(10,832)
–
3,729
P
= 251,419
2003
(As Restated)
P
= 200,161
6,085
15,405
(2,584)
(6,066)
(4,231)
P
= 208,770
ANNUAL REPORT 2005
Innove expects to make contribution to its defined benefit pension plan in 2006.
87
The allocation of the fair value of plan assets of Innove as of December 31, 2005 follows:
2005
2004
2003
89.00%
87.00%
96.00%
Investments in equity securities
7.00%
9.00%
2.00%
Others
4.00%
4.00%
2.00%
Investments in debt securities
As of December 31, 2005, the pension plan assets of Globe Telecom and Innove include shares of stock of Globe Telecom with
total fair value of P
= 32.44 million, and shares of stock of other related parties with total fair value of P
= 41.10 million.
The assumptions used to determine pension benefits of Globe Telecom and Innove in December 31 are as follows:
Discount rate
Salary rate increase
Expected rate of return on plan assets
2005
2004
2003
13.75%
13.75%
11.38%
8.50%
8.00%
8.00%
10.50%
10.50%
10.00%
The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date, applicable to
the period over which the obligation is to be settled.
19. Operating Costs and Expenses
This account consists of:
2005
P
= 4,697,406
3,518,910
1,982,396
1,877,425
1,839,999
1,495,634
1,477,739
831,629
1,421,124
P
= 19,142,262
4,987
Selling, advertising and promotions
Staff costs (Note 18)
Utilities, supplies and other administrative expenses
Repairs and maintenance
Rent (Note 22)
Professional and other contracted services
Insurance and security services
Taxes and licenses
Others
Number of employees at end of year
2004
(As restated)
(In Thousand Pesos)
P
= 3,753,134
2,874,338
1,714,677
1,325,098
1,420,069
1,295,369
1,034,835
616,257
1,370,186
P
= 15,403,963
4,956
2003
(As restated)
P
= 3,119,264
2,552,465
1,545,426
1,779,154
1,604,418
793,067
702,516
956,311
945,947
P
= 13,998,568
4,186
Revenue Regulation No. 10-2002 defines expenses to be classified as entertainment, amusement and recreation (EAR) expenses
and sets a limit for the amount that is deductible for tax purposes.
GLOBE TELECOM, INC.
EAR expenses are limited to 0.5% of net sales for sellers of goods or properties or 1% of net revenue for sellers of services. For
sellers of both goods or properties and services, an apportionment formula is used in determining the ceiling on such expenses.
In 2005, 2004 and 2003, Globe Group recognized EAR expenses (included in others under “Operating costs and expenses”)
amounting to P
= 14.09 million, P
= 9.45 million and P
= 10.07 million, respectively.
88
20. Financing Costs
This account consists of:
2005
Interest expense - net of accretion of bond
premium (Note 14)
Foreign exchange loss (gain) - net (Note 25)
Loss on derivative instruments - net (Note 25)
Swap and other financing costs ( Notes 14 and 25)
P
= 4,657,748
(2,303,327)
104,301
681,871
P
= 3,140,593
2004
(As Restated)
(In Thousand Pesos)
2003
(As Restated)
P
= 4,368,716
213,995
–
1,744,168
P
= 6,326,879
P
= 4,088,209
803,058
–
1,847,759
P
= 6,739,026
21. Income Taxes
The significant components of the deferred income tax assets and liabilities of the Globe Group represent the deferred income tax
effects of the following:
2005
Deferred income tax assets on:
Allowances for:
Doubtful accounts
Property and equipment and
other probable losses
Inventory losses, obsolescence and
market decline
Impairment in value of investments in
shares of stock
Unearned revenues and advances already subjected to
income tax
Net unrealized foreign exchange losses
Excess of depreciable cost of equipment for tax purposes
ARO
Accrued rent expense
Deferred charges
Accrued vacation leave
Cost of share-based payments
MCIT
NOLCO
2003
(As Restated)
P
= 1,664,166
P
= 1,646,573
P
= 571,435
266,546
210,735
281,629
91,620
63,661
35,568
9,725
10,373
10,373
518,293
400,440
285,106
154,956
70,328
51,868
47,583
31,370
–
–
3,592,001
1,022,142
1,329,102
–
121,647
36,705
96,010
9,182
99,554
255,215
32
4,900,931
1,166,476
2,287,531
–
88,023
–
73,520
7,653
28,345
42,592
106,021
4,699,166
ANNUAL REPORT 2005
(Forward)
2004
(As Restated)
(In Thousand Pesos)
89
2005
Deferred income tax liabilities on:
Excess of accumulated depreciation and amortization of
(a)
equipment for tax purposes over financial reporting
(b)
purposes
Capitalized borrowing costs already claimed
as deduction for tax purposes
Gains on derivative transactions
Unamortized discount on non-interest bearing liability
Unamortized pension cost
Gain on sale of land
Net deferred income tax liabilities
(a)
Sum-of-the-years digit method
(b)
Straight-line method
2004
(As Restated)
(In Thousand Pesos)
2003
(As Restated)
P
= 5,101,101
P
= 4,542,588
P
= 3,503,994
1,352,303
136,650
194,060
70,554
6,257
6,860,925
P
= 3,268,924
1,319,288
–
–
100,534
–
5,962,410
P
= 1,061,479
1,229,481
–
–
80,361
–
4,813,836
P
= 114,670
Net deferred tax assets and liabilities presented in the consolidated balance sheets on a net basis by entity are as follows:
2005
P
= 1,163,943
4,432,867
Net deferred tax assets (Innove and GXI)
Net deferred tax liabilities (Globe Telecom)
2004
(As Restated)
(In Thousand Pesos)
P
= 2,413,253
3,474,732
2003
(As Restated)
P
= 1,759,412
1,874,082
As of December 31, 2005, deferred tax asset of GXI that has not been recognized and is available for offset against future taxable
income or tax payable amounted to P
= 6.37 million.
As of December 31, 2005, 2004 and 2003, deferred income tax liabilities have not been recognized on the undistributed earnings
(losses) of subsidiaries, associates and joint venture amounting to P
= 4,162.35 million, P
= 2,029.85 million and (P
= 198.04) million,
respectively, since such amounts are not taxable.
Following are the movements in Innove’s and GXI’s NOLCO and MCIT:
GLOBE TELECOM, INC.
NOLCO:
At January 1
Additions
Applications/expirations
At December 31
90
2005
2004
(In Thousand Pesos)
P
= 101
18,176
–
P
= 18,277
P
= 331,315
101
(331,315)
P
= 101
2003
P
= 4,041,270
–
(3,709,955)
P
= 331,315
2005
(In Thousand Pesos)
MCIT:
At January 1
Additions
Applications/expirations
P
= 255,215
–
(255,215)
P
=–
At December 31
2004
2003
P
= 260,957
36,850
(42,592)
P
= 164,184
96,773
–
P
= 255,215
P
= 260,957
The reconciliation of the provision for income tax at statutory tax rate and the provision for income tax follows:
2005
P
= 4,609,234
Provision at statutory income tax rate
Add (deduct) tax effects of:
Unearned revenues under income tax holiday (ITH)
Income under ITH
Change in income tax rates
Income subjected to lower tax rates
Equity in net losses of an associate and joint venture
Provision for impairment of investment in shares of stock
Expired NOLCO
Changes in unrecognized deferred tax assets
Additional deferred tax liability on wireline assets
transferred due to different tax rates
Others
Provision for income tax
(365,344)
(254,486)
(222,142)
(103,462)
4,334
–
–
–
–
198,368
P
= 3,866,502
2004
(As restated)
(In Thousand Pesos)
P
= 4,071,339
(98,418)
(1,074,326)
–
(124,864)
20
–
–
(2,058,254)
167,373
443,822
P
= 1,326,692
2003
(As restated)
P
= 3,256,524
463,762
(1,536,559)
–
(206,240)
1,261
286,256
11,508
(2,076,376)
–
23,865
P
= 224,001
As discussed in Note 1, Globe Telecom and Innove is enfranchised under RA No. 7229 and 7372, respectively, and its related laws to
render any and all types of domestic and international telecommunications services. Globe Group is entitled to certain tax and nontax
incentives under its franchise and has availed of incentives for tax and duty-free importation of capital equipment for its services
under its franchise.
On July 19, 2001, the Board of Investments (BOI) approved Globe Telecom’s application as an expanding operator of
telecommunications systems (Nationwide CMTS-GSM Network) and granted its Phase 8 Expansion Project a pioneer status. The
BOI issued the certificate of registration on March 5, 2002 which entitled Globe Telecom to ITH for 3 years. The ITH commenced on
April 1, 2002, the date when Phase 8 Expansion was placed in commercial operations. The availment of the ITH resulted in an
increase of P
= 1.90, P
= 8.38, and P
= 7.18 in the basic EPS in 2005, 2004 and 2003, respectively. The ITH expired on March 31, 2005.
ANNUAL REPORT 2005
On June 25, 2002, the BOI issued a Certificate of Registration to Globe Telecom and granted a pioneer status as a new operator of
Infrastructure and Telecommunications Facilities (Cable Landing Station Facilities). On June 30, 2004, Globe Telecom transferred
additional wireline assets and certain investments in cable systems to Innove. Included in the assets transferred are various
capacities in the C2C cable network forming part of the registered project. Ownership and operation of such capacities are now
transferred to Innove. In anticipation of such transfer, on June 23, 2004, Globe Telecom voluntarily surrendered its certificate of
registration on the Cable Landing Station Facilities to the BOI. Effective June 23, 2004, Globe Telecom will no longer be entitled to
the ITH on Cable Landing Station Facilities.
91
RA No. 9337
RA No. 9337 was enacted into law amending various provisions in the existing 1997 National Internal Revenue Code. On
October 18, 2005, the SC has rendered its final decision declaring the validity of the RA No. 9337. Among the reforms introduced by
the said RA, which became effective on November 1, 2005, are as follows:





Increase in the corporate income tax rate from 32% to 35% with a reduction thereof to 30% beginning January 1, 2009;
Increase in VAT rate from 10% to 12% effective February 1, 2006 as authorized by the Philippine President pursuant to the
recommendation of the Secretary of Finance;
Revised invoicing and reporting requirements for VAT;
Expanded scope of transactions subject to VAT; and
Provide thresholds and limitations on the amounts of VAT credits that can be claimed.
22. Agreements and Commitments
Lease Commitments
(a) Operating lease commitments - Globe Group as lessee
Globe Telecom and Innove leases certain premises for some of telecommunications facilities and equipment and for most of its
business centers and cell sites. The operating lease agreements are for periods ranging from 1 to 10 years from the date of the
contracts and are renewable under certain terms and conditions. The agreements generally require certain amounts of deposit
and advance rentals, which are shown as part of “Other noncurrent assets” account in the consolidated balance sheets. The
Globe Group’s rentals incurred on these leases (included in “Operating costs and expenses’ account in the consolidated
statements of income) amounted to P
= 1,840.00 million, P
= 1,420.07 million and P
= 1,604.42 million in 2005, 2004 and 2003,
respectively.
As of December 31, 2005, the future minimum lease payments under these operating leases are as follows (in thousand pesos):
Not later than one year
After one year but not more than five years
After five years
P
= 765,915
2,267,823
1,029,121
P
= 4,062,859
(b) Operating lease commitments - Globe Group as lessor
Globe Telecom and Innove have certain lease agreements on equipment and office spaces. The operating lease agreements are
for periods ranging from 1 to 10 years from the date of contracts.
GLOBE TELECOM, INC.
Globe Telecom has an equipment lease agreement with C2C for a period of 14 years. Lease income (included under
“Others - net” account in the consolidated statements of income) amounted to P
= 194.01 million, P
= 200.08 million and
P
= 196.33 million in 2005, 2004 and 2003, respectively.
92
The future minimum lease payments receivable under this operating lease are as follows (in thousand pesos):
Within one year
After one year but not more than five years
After five years
P
= 189,388
757,554
994,289
P
= 1,941,231
Innove entered into a lease agreement covering the lease of office space at the Innove IT Plaza to a third party. The lease has a
remaining lease term of less than a year renewable under certain terms and conditions. As of December 31, 2005, the future
minimum lease receivables under this operating lease amounted to P
= 50.15 million which is due within two years.
(c) Finance lease commitments - Globe Group as lessee
Globe Telecom and Innove have entered into finance lease agreements for various items of property and equipment. The said
leased assets are capitalized and are depreciated over their estimated useful life of three years, which is also equivalent to the
lease term.
As of December 31, 2005, the consolidated future minimum lease payments under finance leases and the present value of the
net minimum lease payments are as follows (in thousand pesos):
Within one year
After one year but not more than five years
Total minimum lease payments
Less interest
Present value of minimum lease payments
P
= 13,058
138
13,196
533
P
= 12,663
Current
Noncurrent
12,537
126
P
= 12,663
The present value of the minimum lease payments under finance leases is included under “Other long-term liabilities” account in
the consolidated balance sheets.
(d) Finance lease commitments - Globe Group as lessor
Innove has existing finance lease arrangements with a lessee for Innove’s office equipment. As of December 31, 2005, the gross
investment and the present value of the net minimum lease payments receivable included under “Prepayments and other current
assets” account in the consolidated balance sheets are P
= 12.00 million and P
= 11.48 million, respectively. No collections were
received from the lessee as of December 31, 2005.
ANNUAL REPORT 2005
Agreements and Commitments with Other Carriers
Globe Telecom and Innove have existing correspondence agreements with various foreign administrations and interconnection
agreements with local telecommunications companies for their various services. They also have international roaming agreements
with other CMTS-GSM operators in foreign countries, which allow its CMTS-GSM subscribers access to foreign GSM networks. The
agreements provide for sharing of toll revenues derived from the mutual use of interconnection facilities.
93
Arrangements and Commitments with Suppliers
Globe Telecom and Innove have entered into agreements with various suppliers for the delivery, installation, or construction of its
property and equipment. Under the terms of these agreements, delivery, installation or construction commences only when purchase
orders are served. Billings are based on the progress of the project installation or construction. While the construction is in progress,
project costs are accrued based on the billings received. When the installation or construction is completed and the property is ready
for service (see Note 2), the balance of the related purchase orders is accrued. The consolidated accrued project costs as of
December 31, 2005, 2004 and 2003 included in “Accounts payable and accrued expenses” account in the consolidated balance
sheets amounted to P
= 2,444.11 million, P
= 3,454.29 million and P
= 3,003.05 million, respectively. As of December 31, 2005, the
consolidated expected future payments amounted to P
= 1,889.18 million. The settlement of these liabilities is dependent on the
payment terms agreed with the suppliers and contractors.
As of December 31, 2005, the Globe Group has available short-term credit facilities of US$43.00 million and P
= 5,050.00 million.
23. Contingencies
Globe Telecom and Innove are contingently liable for various claims arising in the ordinary conduct of business and certain tax
assessments which are either pending decision by the courts or are being contested, the outcome of which are not presently
determinable. In the opinion of management and legal counsel, the eventual liability under these claims, if any, will not have a
material or adverse effect on the Globe Group’s financial position and results of operations.
NTC Memorandum Circular No. 13-6-2000
Globe Telecom is an intervenor in and Innove (formerly Isla Communications Co., Inc.) is a party to Civil Case No. Q-00-42221
entitled “Isla Communications Co., Inc. et. al. versus NTC, et. al.” before the Regional Trial Court (RTC) of Quezon City by virtue of
which Globe Telecom and Innove together with other cellular operators, sought and obtained a preliminary injunction against the
implementation of NTC Memorandum Circular No. 13-6-2000. NTC Memorandum Circular No. 13-6-2000 sought, among others, to
extend the expiration of prepaid call cards to two years. The NTC appealed the grant of the injunction to the Court of Appeals (CA).
On October 25, 2001, Globe Telecom and Innove received a copy of the decision of the CA ordering the dismissal of the case before
the RTC for lack of jurisdiction, but without prejudice to the cellular companies’ seeking relief before the NTC which the CA claims
had jurisdiction over the matter. On November 7, 2001, Globe Telecom and Innove filed a Motion for Reconsideration. On
January 10, 2002, the Motion was denied. Globe Telecom and Innove filed a Petition for Review by way of Certiorari to the SC on
February 10, 2002. On April 16, 2002, the SC required the Solicitor General to comment on the Petition. On September 17, 2002, the
NTC filed its comment. On July 23, 2002, the Globe Group filed its comment.
The SC, in its resolution dated September 9, 2002, denied the Petition for Review, a copy of which was received by Globe Telecom
and Innove on September 26, 2002. On October 10, 2002, Globe Telecom and Innove filed a motion for reconsideration (with motion
to consolidate) of the SC’s resolution. On February 17, 2003, the SC granted the motion for reconsideration and reinstated the
petition. On April 15, 2003, Globe Group received the order of the SC requiring the Group to file the memorandum in the case.
Subsequently, the SC reversed the decision of the CA and declared the RTC as having jurisdiction over the case. The SC remanded
the case to the RTC for further hearing. As of February 7, 2006, Globe Telecom is still awaiting the resumption of proceedings before
the RTC.
GLOBE TELECOM, INC.
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.
94
NTC Administrative Case No. 2005-18
On February 11, 2005, Innove filed a case against Digitel Mobile Philippines, Inc. (Digitel) for predatory pricing and violation of NTC
Memorandum Circular No. 07-06-2002 on service performance standards. The case has been consolidated with NTC Administrative
Case No. 2005-18 entitled PILTEL vs. Digitel. A hearing was conducted on April 5, 2005 and NTC was requested to conduct a drive
test measurement on Digitel’s performance which will be witnessed by NTC and signed-off by representatives of the parties involved.
This is pending resolution by the NTC. During the April 26, 2005 hearing, Digitel manifested that it will no longer present evidence.
On August 3, 2005, the NTC issued an order that states that carriers are free to provide whatever service quality they wanted on
innovative price plans for so long as they advertised their service quality. Certain service quality improvements and minimum
standards should, however, be provided over time. The order is not yet final and Innove is still considering its options to deal with the
said order.
Development with US Carriers
On February 7, 2003, AT&T and Worldcom (MCI) filed a petition before the US Federal Communications Commission (US FCC)
seeking a stop payment order on settlement to the Philippine carriers on the ground that Philippine carriers were “whipsawing” AT&T
and MCI into agreeing to an increase in termination rates to the Philippines. On March 10, 2003, the Chief International Bureau of the
US FCC issued an order suspending all settlement payments of US facilities-based carriers to a number of Philippine carriers,
including Globe Telecom, until such time as the US FCC issues a Public Notice stating otherwise. This order had the effect of
preventing US facilities-based carriers such as AT&T from paying the affected Philippine carriers for switched voice services,
whether rendered before or after the date of the Order. In response, the NTC issued an Order on March 12, 2003 ordering Philippine
carriers not to accept traffic from US carriers who do not pay for services rendered and to take all steps necessary to collect payment
for services rendered.
On January 26, 2004, the US FCC lifted its stop-payment order against Globe Telecom following confirmation by US carriers that
service with Globe Telecom had been normalized. US carriers were required to resume payments for termination services.
In June 2004, the US FCC issued an order denying the petitions for review filed by the different Philippine carriers and upholding the
finding of whipsawing. In the same order, the US FCC stated that the matter of lifting the International Settlement Policy (ISP) over
the Philippine route will be decided in FCC proceedings relative to its ISP reform order. Pursuant to the ISP Reform Order, countries
whose rates are at or below benchmark will be dropped from the coverage of the ISP unless serious concerns are raised on the route.
In August 2004, the US FCC, in the proceedings on the ISP Reform Order, required US Carriers to certify that the rates charged by
the Philippine Carriers are benchmark compliant. As of October 11, 2004, all three major US Carriers (AT&T, MCI and Sprint) have
certified to the benchmark compliance of the Philippine route.
On August 15, 2005, the US FCC released its order upholding the findings of whipsawing. Despite this, however, it ordered the lifting
of the ISP on the Philippine route on the ground that the rates on the route were still benchmark-compliant and there was no further
evidence of continuing anti-competitive conduct on the route.
ANNUAL REPORT 2005
On January 10 and 11, 2004, the United States Department of Justice (US DOJ) served subpoenas on several Philippine telecom
executives, including two Globe Telecom managers and the chief executive officer of Innove, requiring them to appear before a
grand jury investigation in Hawaii. The investigation is for the purpose of determining if the conduct of the Philippine carriers in
relation to the termination rate disputes with US carriers may have violated US laws. On March 24, 2005, the District Court of Hawaii
granted Globe Telecom’s motion to quash the subpoena duces tecum against it on the ground that US courts have no jurisdiction. On
April 28, 2005, the US DOJ filed a notice of appeal stating its intention to appeal the ruling of the district court of Hawaii.
On July 5, 2005, Globe Telecom received an advice from US DOJ that its investigation has been closed.
95
24. Earnings Per Share
Globe Group’s earnings per share amounts were computed as follows:
2004
2003
2005
(As Restated)
(As Restated)
(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
Net income attributable to common shareholders
for diluted earnings per share
Weighted average number of shares for basic earnings per share
Dilutive shares arising from:
Convertible preferred shares
Stock options
Adjusted weighted average number of common stock for diluted
earnings per share
Basic earnings per share
Diluted earnings per share
P
= 10,246,174
P
= 11,321,114
P
= 9,884,679
68,334
75,128
67,957
10,314,508
133,520
11,396,242
139,904
9,952,636
149,405
982
146
872
297
1,227
74
134,648
P
= 76.74
P
= 76.60
141,073
P
= 80.92
P
= 80.78
150,706
P
= 66.16
P
= 66.04
25. Financial Instruments
Financial Risk Management Objectives and Policies
The main purpose of the Globe Group’s financial instruments is to fund its operations and capital expenditures. The main risks arising
from the use of financial instruments are liquidity risk, foreign currency risk, interest rate risk, and credit risk. Globe Telecom also
enters into derivative transactions, the purpose of which is to manage the currency and interest rate risk arising from its financial
instruments.
The BOD reviews and approves the policies for managing each of these risks. The Globe Group monitors market price risk arising
from all financial instruments and regularly reports financial management activities and the results of these activities to the BOD.
The Globe Group’s risk management policies are summarized below:
Interest Rate Risk
The Globe Group’s exposure to market risk for changes in interest rates relates primarily to the companies’ long-term debt
obligations.
GLOBE TELECOM, INC.
Globe Telecom’s policy is to manage its interest cost using a mix of fixed and variable rate debt. The Globe Group’s policy is to keep
a maximum of 75% of its borrowings at fixed rates of interest. To manage this mix in a cost-efficient manner, the Globe Group enters
into interest rate swaps, in which the companies agree to exchange, at specified intervals, the difference between fixed and variable
interest amounts calculated by reference to an agreed-upon notional principal amount.
96
As of December 31, 2005, after taking into account the effect of interest rate swaps, 67% of the Globe Group’s borrowings are at a
fixed rate of interest.
Foreign Exchange Risk
The Globe Group’s foreign exchange risk results primarily from movements of the Philippine Peso (PHP) against the United States
Dollar (USD) with respect to USD denominated financial assets (such as cash and cash equivalents and short-term investments) and
USD denominated financial liabilities. Majority of revenues are generated in PHP, while substantially all of capital expenditures are in
USD. In addition, 65% of debt as of December 31, 2005 was denominated in USD.
It is Globe Telecom’s policy to hedge its foreign currency denominated debt such that the sum of PHP debt and USD debt that has
been swapped to PHP shall comprise at least 50% of total outstanding debt. Globe Telecom enters into short-term foreign currency
forwards and long-term foreign currency swap contracts in order to achieve this target. As of December 31, 2005, the amount of USD
debt that has been swapped to PHP and PHP-denominated loans amounted to approximately 53% of the total debt.
Credit Risk
All regular applicants for postpaid service are subject to standard credit verification procedures. The Credit Management unit of
Globe Group continuously provides credit notification and implements differentiated credit actions, depending on assessed risks, to
minimize credit exposure. Receivable balances of postpaid subscribers are being monitored on a regular basis and appropriate
actions are executed. Likewise, net receivable balances from carriers of traffic are also being monitored and subjected to appropriate
actions to manage credit risk.
With respect to credit risk arising from the other financial assets of the Globe Group, which comprise cash and cash equivalents,
available-for-sale financial assets and certain derivative instruments, the Globe Group’s exposure to credit risk arises from default of
the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Globe Group has a counterparty
credit risk management policy which allocates investment limits based on counterparty credit ratings and credit risk profile.
Liquidity Risk
The Globe Group seeks to manage its liquidity profile to be able to finance capital expenditures and service maturing debts. To cover
its financing requirements, the Globe Group intends to use internally generated funds and available long-term and short-term credit
facilities. As of December 31, 2005, the Globe Group has available short-term credit facilities of US$43.00 million and
P
= 5,050.00 million.
As part of its liquidity risk management, Globe Telecom regularly evaluates its projected and actual cash flows. It also continuously
assesses conditions in the financial markets for opportunities to pursue fund raising activities, in case any requirements arise. Fund
raising activities may include bank loans, export credit agency facilities, and capital market issues.
Hedging Objectives and Policies
The Globe Group uses a combination of natural hedges and derivative hedging to manage its foreign exchange exposure. It uses
interest rate derivatives to reduce earnings volatility related to interest rate movements.
ANNUAL REPORT 2005
It is the Globe Group’s policy to ensure that capabilities exist for active but conservative management of its foreign exchange and
interest rate risks. The Globe Group does not engage in any speculative derivative transactions. Authorized derivative instruments
include currency forward contracts (freestanding and embedded), currency swap contracts, interest rate swap contracts and currency
option contracts (freestanding and embedded). Certain currency swaps are entered into in combination with options or contain a
structured provision.
97
Financial Assets and Liabilities
The table below presents a comparison by category of carrying amounts and estimated fair values of all the Globe Group’s financial
instruments as of December 31, 2005.
Financial assets:
Cash and cash equivalents
Receivables - net
Derivative assets (included in prepayments
and other current assets and other
noncurrent assets accounts)
Investments in available-for-sale securities
(included in short-term investments and
investments in associates, joint venture
and other accounts)
Investments in held-to-maturity securities
(included in short-term investments account)
Financial liabilities:
Accounts payable and accrued expenses
(excluding derivative liabilities)
Long-term debt (including current portion)
Derivative liabilities (included in accounts
payable and accrued expenses and
other long-term liabilities accounts)
Other long-term debt (including current
portion and excluding derivative
liabilities)
Carrying Value
Fair Value
(In Thousand Pesos)
P
= 10,910,961
6,764,130
P
= 10,910,961
6,764,130
1,548,891
1,548,891
1,253,951
1,253,951
33,441
33,404
14,203,677
49,693,388
14,203,677
53,550,632
731,746
731,746
1,783,892
2,219,844
Traffic settlement receivable and payable accounts, included as part of the Receivables - net and Accounts payable and accrued
expenses accounts, respectively, in the above table, are presented net of any related payable or receivable balances with the same
telecommunications carriers only when there is a right of offset under the traffic settlement agreements and that the accounts are
settled on a net basis.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is
practicable to estimate such value:
Nonderivative Financial Instruments
The fair values of cash and cash equivalents, short-term investments, trade accounts and traffic settlements receivable are
approximately equal to their carrying amounts.
GLOBE TELECOM, INC.
The fair value of Globe Telecom’s outstanding Senior Notes due 2012 is based on the quoted market price of the Notes. The price of
the Notes (after bifurcating the value of the embedded prepayment option) is 118.25%, with an effective interest rate of 6.20%. The
fair value of other fixed rate interest bearing loans is based on the discounted value of future cash flows using the applicable rates for
similar types of loans. The discount rates used range from 6.47% to 10.16% (for PHP loans) and 5.43% (for USD loans).
98
For variable rate loans that reprice every three months, the carrying value approximates the fair value because of recent and regular
repricing based on current market rates. For variable rate loans that reprice every six months, the fair value is determined by
discounting the principal amount plus the next interest payment using the prevailing market rate for the period up to the next repricing
date. The discount rates used range from 4.65% to 7.81% (for USD loans). The variable rate PHP loans reprice every three months.
For noninterest bearing obligations, the fair value is estimated as the present value of all future cash flows discounted using the
prevailing market rate of interest for a similar instrument.
Derivative Instruments
The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar
maturity profiles.
The fair value of embedded foreign exchange derivatives in notes that have been purchased by Globe Telecom is calculated by
reference to the current price of the note and the change in the foreign exchange rate that is linked to the note.
The fair values of interest rate swaps, currency and cross currency swap transactions are determined using valuation techniques with
assumptions that are based on market conditions existing at balance sheet date. The fair value of interest rate swap transactions is
the net present value of the estimated future cash flows. The fair values of currency and cross currency swap transactions are
determined based on changes in the term structure of interest rates of each currency and the spot rate. The fair values of structured
swaps transactions are determined based on quotes obtained from counterparty banks.
Embedded currency option and forward contracts are valued using the simple option pricing model of Bloomberg. The embedded call
option on the 2012 Senior Notes is also valued using Bloomberg models.
Derivative Financial Instruments
Globe Group’s freestanding and embedded derivative financial instruments are accounted for as hedges or transactions not
designated as hedges. The table below sets out the information about Globe Group’s derivative financial instruments and the related
fair value as of December 31, 2005:
Notional
Amount
Derivative
Asset
Derivative
Liability
$91,944
56,162
P
=–
–
P
= 16,657
57,491
(P
= 431,320)
–
83,061
5,000
–
1,000,000
19,863
69,112
(249,007)
(18,763)
27,700
–
15,013
(2,330)
300,000
11,720
1,080
$576,667
–
–
–
P
= 1,000,000
1,268,712
101,808
235
P
= 1,548,891
–
(30,326)
–
(P
= 731,746)
ANNUAL REPORT 2005
Derivative instruments designated as hedges:
Cash flow hedges:
Currency and cross currency swaps
Interest rate swaps
Derivative instruments not designated as hedges:
Freestanding:
Currency swaps and cross
currency swaps
Interest rate swaps
Sold currency call options (including
premiums receivable)
Embedded:
Call option on 2012 Senior Notes
Embedded forwards
Embedded options
Net
Notional
Amount
(In Thousands)
99
The subsequent sections will discuss Globe Group’s derivative financial instruments according to the type of financial risk being
managed and the details of derivative financial instruments that are categorized into those accounted for as hedges and those that
are not designated as hedges.
Foreign exchange and interest rate risks
Information on Globe Group’s foreign currency-denominated monetary assets and liabilities and their Philippine peso equivalents are
as follows:
2005
US
Peso
Dollar
Equivalent
Assets
Cash and cash equivalents
Short-term investments
Traffic settlements receivables
Other current assets
Other noncurrent assets
Liabilities
Accounts payable and accrued
expenses
Traffic settlements payable
Long-term debt
Other long-term liabilities
2003
(As Restated)
US
Peso
Dollar
Equivalent
$78,901
–
50,162
5,238
–
134,301
P
= 4,186,627
–
2,661,691
277,948
–
7,126,266
= 9,778,713
$173,563 P
9,574
539,409
38,516 2,170,045
2,490
140,289
–
–
224,143 12,628,456
$141,414
33,416
84,689
3,129
12,523
275,171
P
= 7,860,639
1,857,462
4,707,496
173,929
696,103
15,295,629
42,240
11,294
611,487
25,889
690,910
2,241,384
599,306
32,446,723
1,373,734
36,661,147
52,626 2,965,001
18,338 1,033,196
713,258 40,185,669
48,197 2,715,467
832,419 46,899,333
66,315
12,274
858,022
53,185
989,796
3,686,186
682,236
47,694,036
2,956,316
55,018,774
$556,609
P
= 29,534,881
$608,276 P
= 34,270,877
GLOBE TELECOM, INC.
Net foreign currencydenominated liabilities
2004
(As Restated)
US
Peso
Dollar
Equivalent
(In Thousands)
100
= 39,723,145
$714,625 P
The following table shows information about the Globe Telecom’s financial instruments that are exposed to interest rate risk and
presented by maturity profile. The table also sets out information about the Globe Telecom’s derivative instruments as of
December 31, 2005 that were entered into to manage interest and foreign exchange risks (in thousands).
Liabilities:
Long-term debt
Fixed rate
US$ notes
Interest rate
Philippine
peso
Interest rate
Floating rate
US$ notes
Interest rate
Philippine
peso
Interest rate
<1 year
>1-<2 years
$20,329
$18,383
4.81% -6.55% 4.81% -6.55%
>2-<3 years
>3-<4 years
$11,116
6.44%
$6,140
6.44%
P
= 2,208,550
10.37% 10.72%
>4-<5 years
Total
(in PHP)
Carrying
Value
(In PHP)
Fair Value
P
= 467,979 P
= 19,356,348 P
= 21,870,614
$300,000
10.83%
$355,968 P
= 18,888,369
P
= 5,002,000
10.47% 13.79%
P
= 1,607,000
13.49% 16%
11,041,600
(16,256)
11,025,344 12,201,003
$23,822
$91,695
$69,902
$28,254
Libor only; Libor Libor only; Libor Libor + .6755% - Libor +1.20% + .45% - Libor + + .45% - Libor +
Libor +1.63% Libor + 1.63%
3.20%
3.20%
$22,222
$11,111
Libor +1.63% Libor +1.63%
$247,006 13,106,632
−
13,106,632 13,273,951
P
= 876,400
10.37% 10.72%
P
= 1,347,650
10.37% 10.72%
P
= 985,898
P
= 797,447
Mart 1 + 1.3% Mart 1 + 1.3%
margin;
margin;
Mart 1 + 1.5% Mart 1 + 1.5%
margin;
margin;
Mart 1 + 1%
Mart 1 + 1%
margin
margin
3 mo Mart +
3 mo Mart +
1% margin
1% margin
3 mo Mart +
3 mo Mart +
1.38% margin 1.38% margin
P
= 684,423
P
= 1,240,373
Mart 1 + 1.3%
Mart 1 + 1%
3 mo Mart +
margin;
Mart 1 + 1.5%
1.375%
margin; 3 mo Mart + 1%
Mart 1 + 1%
margin
$–
>5 years
Total
(In USD)
Premium
and
Issuance
Costs
P
= 2,496,923
3 mo Mart1 +
1.75%
Mart 1 + 1%
margin
P
=–
P
=–
6,205,064
P
= 49,241,665
−
6,205,064
6,205,064
P
= 451,723 P
= 49,693,388 P
= 53,550,632
ANNUAL REPORT 2005
(Forward)
101
Derivatives:
Currency Swaps:
Notional amount
Weighted swap rate
Pay fixed rate
Cross-Currency Swaps:
Floating-Fixed
Notional amount
Pay-fixed rate
Receive-floating rate
Weighted swap rate
Floating-Floating
Notional amount
Pay-floating rate
Receive-floating rate
Weighted swap rate
Interest Rate Swaps
Fixed-Floating
Notional Peso
Notional USD
Pay-floating rate
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
Total
(In USD)
$21,548
$13,880
$10,000
$10,000
$5,000
$80,000
$140,428
P
= 53.16
4.62% - 10.25%
$13,755
$6,094
$417
–
–
–
$20,266
11% - 15.23%
USD Libor
P
= 51.64
$10,152
$3,742
$417
–
–
–
$14,311
Mart + 1.25% - 2.85%
USD Libor
P
= 51.34
–
–
–
–
–
–
P
= 1,000,000
–
–
–
–
$5,000
$18,846
$5,000
Libor+ 4.23%Mart+1.375%
9.75% - 11.7%
$32,065
$24,098
–
–
–
–
$56,162
USD 2.3% - 4.2%
USD Libor
GLOBE TELECOM, INC.
Receive-fixed rate
Floating- Fixed
Notional USD
Pay-fixed rate
Receive-floating Rate
<1 year
102
Derivative Instruments Accounted for as Hedges
The following sections discuss in detail the derivative instruments accounted for as cash flow hedges.

Currency and Cross-Currency Swaps
As of December 31, 2005, Globe Telecom has outstanding US$20.27 million foreign currency swap agreements with certain
banks, under which it effectively swaps the principal of certain USD-denominated loan exposures into fixed PHP-denominated
loan exposures with semi-annual payment intervals up to 2008.
Globe Telecom also has outstanding foreign currency swap agreements with certain banks, under which it effectively swaps the
principal of US$71.68 million loans into PHP up to April 2012. Under these contracts, swap costs are payable in semi-annual
intervals in PHP or USD.
The unrealized fair value after tax included under “Cumulative translation adjustment” in the stockholders’ equity section of the
consolidated balance sheets amounted to P
= 223.42 million as of December 31, 2005.
Notional
amount
Floating-fixed cross-currency swaps
Principal-only swaps

$20,266
71,678
Notional
amount
(In Thousands)
P
= 1,046,536
3,875,283
Maturities
2006 – 2008
2006 – 2012
Swap
rates
P
= 51.642
54.065
Interest Rate Swaps
As of December 31, 2005, Globe Telecom has US$56.16 million in notional amount of interest rate swap that has been
designated as cash flow hedge. The interest rate swap effectively fixed the benchmark rate of the hedged loan at 2.305% to
4.205% over the duration of the agreement, which involves semi-annual payment intervals up to August 2007.
As of December 31, 2005, the fair value of the outstanding swap amounted to a P
= 57.49 million gain, of which P
= 5.14 million
(net of tax) is reported as “Cumulative translation adjustment” in the stockholders’ equity section of the consolidated balance
sheets.
Other Derivative Instruments not Designated as Hedges
Globe Telecom enters into certain derivatives as economic hedges of certain underlying exposures. Such derivatives, which include
embedded and freestanding currency forwards, embedded call options, and certain currency swaps with option combination or
structured provisions, are not designated as accounting hedges. The gains or losses on these instruments are accounted for directly
to the consolidated statements of income. This section consists of freestanding derivatives and embedded derivatives found in both
financial and non-financial contracts.
Freestanding Derivatives
Freestanding derivatives that are not designated as hedges consist of currency forwards, options, swaps and interest rate swaps
entered into by Globe Telecom. Mark-to-market changes on these instruments are accounted for directly in the consolidated
statements of income.
Non-deliverable Forwards
Globe Telecom entered into short-term non-deliverable currency forward contracts to fix the peso cash flows from coupon and
redemption of certain DLPN issued by the ROP. These currency forward contracts with a notional amount of US$2.88 million,
matured in December 2005. The realized gain amounted to P
= 23.44 million.
ANNUAL REPORT 2005

103

Sold Currency Options
As of December 31, 2005, Globe Telecom has sold currency options with total outstanding notional amount of US$27.70 million
at an average strike price of P
= 58.97/US$ maturing up to March 2007. These were entered into to subsidize the cost of
outstanding currency swap contracts. The mark-to-market value on these currency options (including premiums receivable) as of
December 31, 2005 amounted to a gain of P
= 12.68 million.

Currency Swaps and Cross-Currency Swaps
Globe Telecom also has outstanding foreign currency swap agreements with certain banks, under which it swaps the principal of
US$68.75 million USD-denominated loans into PHP up to April 2012. Under these contracts, swap costs are payable in
semi-annual intervals in PHP or USD. Of the US$68.75 million, US$6.25 million is in combination with sold out-of-the-money
USD call options with a strike price of P
= 62.50, while another US$20.00 million provides Globe Telecom the option to reset lower
to a certain minimum the foreign exchange rate used to determine PHP equivalent amounts to be net settled by Globe Telecom
upon maturity or termination. The reset option has been exercised.
Globe Telecom also entered into cross-currency swap agreements with certain banks, under which it swaps the principal and
interest of certain USD-denominated loans into Philippine peso with quarterly or semi-annual payment intervals up to June 2008.
As of December 31, 2005, the total outstanding notional amounts of the cross-currency swaps amounted to US$14.31 million.
The mark-to-market values of the outstanding currency and cross-currency swaps as of December 31, 2005 amounted to a gain
of P
= 19.86 million and a loss of P
= 249.01 million, respectively on these instruments.

Interest Rate Swaps
Globe Telecom has an outstanding interest rate swap with a notional amount of
US$5.00 million under which it effectively swapped the 9.75% coupon on its outstanding 2012 Senior Notes into a floating rate of
interest based on LIBOR. The swap has a constant maturity swap (CMS) component that is intended to reduce swap costs. The
interest rate on one leg of the CMS is being reset periodically subject to a cap, while the interest rate on the fixed leg of the swap
is subject to a daily range accrual that is linked to the difference between the 30-year and 10-year USD swap rates.
Globe Telecom also has an outstanding interest rate swap contract with a notional amount of P
= 1,000.00 million, which effectively
swaps a fixed rate PHP-denominated bond into floating rate, with quarterly payment intervals up to February 2009.
The mark-to-market values on the interest rate swaps as of December 31, 2005 amounted to a net mark-to-market gain of
P
= 50.34 million.
Embedded Derivatives and Other Financial Instruments
Globe Group’s embedded derivatives include embedded currency derivatives noted in both financial and non-financial contracts and
embedded call options in debt instruments.
Embedded Currency Forwards
As of December 31, 2005, the total outstanding notional amount of currency forwards embedded in non-financial contracts
amounted to US$11.72 million. The non-financial contracts consist mainly of foreign-currency denominated purchase orders with
various expected delivery dates. The mark-to-market gain as of December 31, 2005 on the embedded currency forwards
amounted to P
= 71.48 million.

Embedded Currency Options
As of December 31, 2005, the total outstanding notional amount of currency options embedded in non-financial contracts
amounted to US$1.08 million. The mark-to-market gain as of December 31, 2005 on the embedded currency options amounted
to P
= 0.24 million.
GLOBE TELECOM, INC.

104

Embedded Call Option
Globe Telecom’s 2012 Senior Notes contain embedded call options which give Globe Telecom the right to prepay the notes at a
certain call price per year. As of December 31, 2005, the embedded call options have a notional amount of US$300.00 million
and mark-to-market gain of P
= 1,268.71 million.

Dollar-Linked Peso Notes
Globe Telecom’s investments in DLPN issued by the ROP matured in December 2005. These investments have a total face
value of P
= 150.00 million and were purchased at a premium with weighted average price of P
= 104.38. The redemption amounts
and interest rates of these DLPN investments are based on a pre-agreed formula, which includes a foreign exchange factor
applied to the base interest rate payable semi-annually in arrears and to the redemption amounts.
The DLPN investments contain embedded currency forwards that were bifurcated and marked-to-market through profit and loss.
Globe Group realized a net loss of P
= 2.74 million.
The host peso debt instruments on the DLPN investments were accounted for at amortized cost.
Fair Value Changes on Derivatives
The net movements in fair value changes of all derivative instruments in 2005 are as follows (amounts in thousand pesos):
Balance at beginning of year
Net changes in fair value of derivatives:
Designated as accounting hedges
Not designated as accounting hedges
P
= 1,266,411
(429,336)
27,006
864,081
46,936
P
= 817,145
Less fair value of settled instruments
Balance at end of year
Hedge Effectiveness Results
As of December 31, 2005, the effective mark-to-market value changes on Globe Telecom’s cashflow hedges that were deferred in
= 228.56 million, net of tax. Total ineffectiveness recognized immediately in the consolidated statements of
equity amounted to P
income for the year then ended is immaterial.
The distinction of the results of hedge accounting into “Effective” or “Ineffective” represent designations based on PAS 39 and are not
necessarily reflective of the economic effectiveness of the instruments.
26. Segment Reporting
The Globe Group’s reportable segments consist of:
ANNUAL REPORT 2005
Wireless Communications Services - represents cellular telecommunications services that allow subscribers to make and receive
local, domestic long distance and international long distance calls to and from any place within the coverage area. Revenues
principally consist of one-time registration fees, fixed monthly service fees, revenues from value-added services such as text
messaging, proceeds from sale of handsets and other phone accessories, upfront fees from activation of simpacks/simcards and per
minute airtime and toll fees for basic services which vary based primarily on the monthly volume of calls and the network on which
the call terminates.
105
Wireline Communications Services - represents fixed line telecommunications services, which offer subscribers, local, domestic long
distance and international long distance services in addition to a number of value-added services in various service areas covered by
the PA granted by the NTC (see Note 1). Revenues consist principally of fixed monthly basic fee for service and equipment, 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. Includes also a variety of telecommunications services tailored to meet the
specific needs of corporate communications such as leased lines, VSAT, telex, international packet-switching services, broadband,
and internet services.
On September 30, 2003, Globe Telecom has discontinued its telex service due to declining revenues and for cost efficiency.
The segment assets and liabilities and results of operations in 2004 and 2003 have been restated to reflect the effects of the change
in accounting policies.
The segment’s performance is evaluated based on earnings before income taxes and depreciation and amortization (EBITDA).
The Globe Group’s segment information follows (in millions):
2005
Wireless
Communications
Services
Revenues
P
= 52,229
Operating expenses
(22,341)*
[2]
EBITDA
29,888
Depreciation and amortization
(12,062)
EBIT
17,826
Other income (expenses) - net
(2,262)
Income (loss) before income tax
P
= 15,564
*Includes provision for property and equipment amounting to P
= 191.95 million.
Wireline
Communications
Services
P
= 6,519
(3,495)
3,024
(2,677)
347
73
P
= 420
[1]
Corporate
P
=–
(940)
(940)
(995)
(1,935)
132
(P
= 1,803)
Total
P
= 58,748
(26,776)
31,972
(15,734)
16,238
(2,057)
P
= 14,181
2004 (As Restated)
GLOBE TELECOM, INC.
Revenues
Operating expenses
EBITDA[2]
Depreciation and amortization
EBIT
Other income (expenses) - net
Income (loss) before income tax
Wireless
Communications
Services
P
= 49,903
(18,863)
31,040
(11,470)
19,570
(5,876)
P
= 13,694
106
Wireline
Communications
Services
P
= 5,706
(2,885)
2,821
(2,688)
133
240
P
= 373
Corporate[1]
P
=–
(967)
(967)
(548)
(1,515)
171
(P
= 1,344)
Total
P
= 55,609
(22,715)
32,894
(14,706)
18,188
(5,465)
P
= 12,723
2003 (As Restated)
Revenues
Operating expenses
[2]
EBITDA
Depreciation and amortization
EBIT
Other income (expenses) - net
Income (loss) before income tax
Wireless
Communications
Services
P
= 44,465
(18,846)
25,619
(8,505)
17,114
(5,881)
P
= 11,233
Wireline
Communications
Services
P
= 5,013
(2,859)
2,154
(3,069)
(915)
799
(P
= 116)
Corporate[1]
P
=–
(1)
(1)
(15)
(16)
(924)
(P
= 940)
Total
P
= 49,478
(21,706)
27,772
(11,589)
16,183
(6,006)
P
= 10,177
The segment assets and liabilities as of December 31, 2005, 2004 and 2003 are as follows (in millions):
2005
[3]
Segment assets
Segment liabilities[3]
Wireless
Communications
Services
P
= 97,537
65,729
Wireline
Communications
Services
P
= 20,110
2,228
Corporate
P
= 6,291
1,094
[1]
Total
P
= 123,938
69,051
Wireless
Communications
Services
P
= 98,978
68,895
Wireline
Communications
Services
P
= 23,579
1,654
Corporate[1]
P
= 4,734
1,173
Total
P
= 127,291
71,722
Wireline
Communications
Services
P
= 22,917
2,113
Corporate[1]
P
= 5,474
1,299
Total
P
= 124,665
76,480
2004 (As Restated)
[3]
Segment assets
Segment liabilities [3]
2003 (As Restated)
ANNUAL REPORT 2005
Segment assets [3]
Segment liabilities [3]
Wireless
Communications
Services
P
= 96,274
73,068
107
The Globe Group’s capitalized expenditures in December 31 follows (in millions):
2005
P
= 12,907
1,267
916
P
= 15,090
Wireless communications services
Wireline communications services
Corporate
[1]
[2]
[3]
2004
(As Restated)
P
= 19,158
3,235
1,280
P
= 23,673
2003
(As Restated)
P
= 15,829
1,210
593
P
= 17,632
Corporate represents support services that cannot be directly identified with any of the revenue generating services.
The term EBITDA is presented because it is generally accepted as providing useful information regarding a company’s ability to service and incur debt. The Globe
Group’s presentation of EBITDA differs from the above definition by excluding other income (expenses). The Globe Group’s presentation of EBITDA may not be
comparable to similarly titled measures presented by other companies and could be misleading because not all companies and analysts calculate EBITDA in the same
manner.
Segment assets and liabilities do not include deferred income taxes.
27. Notes to Consolidated Statements of Cash Flows
The principal noncash transactions are as follows:
2005
Increase (decrease) in liabilities related to the acquisition of
property and equipment
Dividends on preferred shares
Capitalized ARO
(P
= 1,163,860)
68,334
44,433
2004
(As Restated)
(In Thousand Pesos)
P
= 935,909
75,128
182,363
2003
(As Restated)
(P
= 1,637,835)
67,957
70,256
The cash and cash equivalents account consists of:
2005
P
= 736,200
10,174,761
P
= 10,910,961
Cash on hand and in banks
Short-term placements
2004
(In Thousand Pesos)
P
= 1,967,695
11,614,147
P
= 13,581,842
2003
P
= 2,615,191
10,425,857
P
= 13,041,048
Cash in banks earns interest at respective bank deposit rates. Short-term placements are made for varying periods of up to three
months depending on the immediate cash requirements of Globe Group and earn interest at the respective short-term placement
rates.
28. Reclassification of Certain Accounts
GLOBE TELECOM, INC.
Certain comparative figures have been reclassified to conform with the current year’s presentation (see Note 2).
108
29. Event After the Balance Sheet Date
On February 7, 2006, the BOD approved the declaration of the first semi-annual cash dividends in 2006 of P
= 2,638.00 million
(P
= 20.00 per common share) to common stockholders of record as of February 21, 2006 payable on March 15, 2006.
30. Approval of the Financial Statements
ANNUAL REPORT 2005
On February 7, 2006, the BOD approved and authorized the release of consolidated financial statements of Globe Telecom, Inc. and
Subsidiaries as of and for the years ended December 31, 2005, 2004 and 2003.
109
GLOBE TELECOM BUSINESS CENTERS
NORTH GMA
ALI MALL CUBAO
Space 35 Ali Mall II Upper Ground Flr.,
Araneta Cubao, Quezon City
CALOOCAN
Unit F-6 4/F Araneta Square,
Bonifacio Monument Circle, Caloocan City
EASTWOOD
G/F Cybermall Megaworld Bldg.,
Eastwood City, Libis, Quezon City (beside IBM)
GATEWAY
3/F Gateway Mall Araneta Center,
Cubao Quezon City
SM NORTH EDSA
Right Wing SM Car Park Plaza III,
SM City North Edsa , Quezon City
(near Informatics)
SM MAKATI
4th level, Concourse Area,
SM Makati Dept. Store, Ayala Center,
Makati City
CENTRAL GMA
SM MEGAMALL
5/F SM Megamall Bldg. Building B
Ortigas Center, Pasig City (near Megatrade)
DIGITAL XCHANGE GLORIETTA 3
(Sales Dedicated Center)
Store#6 3/F, Glorietta 3,
Ayala Center, Makati City
GLORIETTA HUB (Sales Dedicated Center)
Unit 252/254 2nd level, HUB Glorietta 4
Building, Ayala Center
(near national Bookstore 2nd level)
TOWER ONE
G/F Unit C Tower One and Exchange Plaza
Ayala Avenue , Makati City
(across The Enterprise)
ALABANG TOWN CENTER
3/F New Wing ATC Alabang, Muntinlupa City
GREENHILLS HUB
G/F Greenhills Connecticut Carpark 1 Bldg.,
Ortigas Avenue, San Juan
PARK SQUARE1
Park square 1 South Drive
Ayala Center Makati City
(near Exit of Park Square 1 parking)
BINONDO
G/F & 2/F Enrique T. Yuchengco Bldg.,
484 Quintin Paredes St., Binondo, Manila
(near RCBC Bank)
QUEZON AVENUE
Unit 103 -A Ground Floor,
National Bookstore Inc., Quezon Ave.,
Quezon City
PODIUM HUB (Sales Dedicated Center)
5th Level The Podium Bldg ADB Ave.,
Ortigas Center, Madaluyong City
(near SM Cinema)
FESTIVAL SUPERMALL
Unit 4064 A&B (4/F) Alabang Zapote Wing ,
Filinvest Festival Supermall, Filinvest Corporate
City, Alabang Muntinlupa (near Game Worx)
ROBINSONS METRO EAST LINK
Level 1 Robinsons Metro East,
Marcos Hi-way cor. Imelda Ave., Pasig City
(cor. Big R/ across Greenwich)
ROBINSONS GALLERIA
Ground Flr., Level 1, 1-A11
Robinson’s Galleria Mall (near Pizza Hut)
MARKET MARKET
Unit 444 & 445 4/F Market Market, Lot C,
Bonifacio Globel City, Taguig, Metro Manila
ROBINSONS PLACE PIONEER
2nd Floor, Robinsons Place ,
Pioneer St. Mandaluyong City
METROPOINT MALL
Unit 417, 4th Level Metropoint Mall,
Pasay Edsa cor. Taft Ave., Pasay City
ROCKWELL HUB ( Sales Dedicated Center)
Unit 317 3rd level Powerplant Mall ,
Rockwell, Makati City ( near bowling alley)
ROBINSONS PLACE MANILA LINK
Space 020 Level 3 Pedro Gil Wing
Robinsons Place Manila
(near Headway Barber Shop Salon)
SM CENTERPOINT
3/F Unit 310 Magsaysay Blvd. Cor. Araneta
Ave., Sta. Mesa Manila (near Bingo Plaza)
SHANGRI-LA LINK
Level 1 (across Marks & Spencer) Shangrila
Plaze, EDSA cor. Shaw Blvd., Mandaluyong
City (across Marc & Spencer 1st level)
GLOBE TELECOM, INC.
SM FAIRVIEW
Unit 2004 2nd level SM Fairview
Quirino Highway Cor. Regalado Avenue
Greater Lagro,Quezon City (near Shakey’s)
110
SM BICUTAN LINK
Bldg B, Unit 212 2/F SM Bicutan
(near SM Cinema)
SM SAN LAZARO
Unit 354 3rd Floor, SM City San Lazaro,
Felix Huertas Cor. A.H. Lacson St.,
Sta. Cruz Manila
SM SOUTHMALL LINK
2/F Cyberzone, SM Southmall ,
Zapote-Alabang Road, Las Piñas City
SM SUCAT LINK
3rd Level, SM SUPERSUCAT CENTER,
Sucat Road, Paranaque City (near SM Cinema)
NORTHWEST LUZON
ANGELES
Unit F & G, D.M. Gomez Bldg.,
Salapungan, Angeles City Pampanga
BALANGA LINK
G/F Recar Commercial Complex,
J.P. Rizal St., Balanga City, Bataan
CANDON
KanPing Commercial Bldg.,
Maharlika Hway, Bgy. San Antonio,
Candon City, Ilocos Sur
DAGUPAN
G/F 127 Nepo Mall Dagupan,
Arellano Ave., Dagupan, Pangasinan
LAOAG
G/F Lazo Bldg., Rizal cor. Abadilla St.,
Barrio San Lorenzo, Laoag City
OLONGAPO
GF 1799 Rizal Ave., West Bajac-Bajac,
Olongapo City
SAN FERNANDO, LA UNION
G/F Provincial Administrative Bldg.,
Quezon Ave., San Fernando, La Union
SM BAGUIO
Unit 349 & 350 - Level 3,
SM City Baguio, Luneta Hill,
Upper Session Road, Baguio City
SM MARILAO
Unit 219 level 2, SM City Marilao,
Km. 21 Barangay Ibayo, McArthur Hway,
Bulacan
SM PAMPANGA
Ground Floor, SM City Pampanga,
Lagundi, Mexico, Pampanga
(infront of Play & Display)
TARLAC
G/F Metrotown Mall,
Juan Luna St. Cor. McArthur Highway,
Tarlac City
SOLANO
225 J.P. Rizal Avenue, Maharlika Highway,
Solano Nueva Vizcaya
URDANETA
3/F Unit 303 Urdaneta Magic Mall,
Alexander St., cor. Poblacion St.,
Urdaneta, Pangasinan
TUGUEGARAO
Unit 57-B Chowking Bldg. Balzain Rd.
Tuguegarao City, Cagayan Valley
(beside Chowking)
VIGAN
Unit 3 Formoso Townhouse A. Mabini St.
Vigan, Ilocos Sur
SOUTH LUZON
CALAMBA
2/F J. Alcasid Bldg., Crossing,
Calamba, Laguna
(infront of Mercury Drug Store)
CENTRAL NORTHEAST LUZON
CABANATUAN LINK
Ground Level GL-4b NE Pacific Mall,
Km. 111, Maharlika Highway ,
Cabanatuan City, Nueva Ecija
MALOLOS LINK
103-A E & R Bldg., Malolos Crossing,
McArthur Highway cor. Mabini,
Malolos Bulacan (near Chowking)
PLARIDEL
Grid E-F & 1-2 Walter Mart Supermarket
Cagayan Valley Road, Barrio Banga 1,
Plaridel, Bulacan
SANTIAGO, ISABELA
Unit 7 - VMG Bldg., Maharlika H-way,
Centro East, Santiago City, Isabela
LEGASPI
2nd Level Pacific Mall, Landco Business Park,
Bitano, Legaspi City
NAGA
1st Level, LCC Central Mall,
Felix Plaza St., Naga City
ROBINSONS STA ROSA LINK
Robinsons Mall, Bgy. Tagapo
Old National Highway, Sta Rosa Laguna
SAN PABLO
Unit 30 Ultimart Shopping Mall,
M. Paulino St., San Pablo, Laguna
ANNUAL REPORT 2005
SM MANILA
4/Flr Unit 430 SM City Manila,
Arroceros St. Cor. Marcelino Sts and Concepcion
Avenue Manila (near Chowking)
111
SM LUCENA
Unit 343 L3 SM City Lucena,
Dalahican Road cor. Pagbilao Rd.,
Bgy. Ibabang Dupay Red V, Lucena City
ELIZABETH MALL, CEBU
Elizabeth Mall T-020 3rd Level
corners N Bacalso & Keon Kilat Sts.,
Cebu City
CDO LIMKETKAI
Unit M2-101 Limketkai Mall, Entrance 2,
Lapasan Highway, Cagayan De Oro
PUERTO PRINCESA
G-7 & M-7, Pacific Plaza Bldg.,
Rizal Avenue, Puerto Princesa City, Palawan
ROXAS CITY
Area #9 Gaisano Arcade
Arnaldo Boulevard, Roxas City
COTABATO CITY
G/F El Marco Bldg., Sinsuat Avenue
Cotabato City
CALAPAN
014 JP Rizal St. San Vicente Central,
Calapan City Oriental Mindoro
SM CEBU
3rd level SM City Cebu North Reclamation
Cebu City (near Megatrade)
DAVAO SM
3rd Level, SM City Davao, Ecoland Subd.,
Quimpo Blvd., Davao City (near SM Cinema)
ROBINSONS LIPA
Level 2 Robisons Place Lipa,
JP Laurel National H-way,
Mataas na Lupa, Lipa City
SM ILOILO
Level 2 SM City Iloilo,
B. Aquino Ave. Mandurriao, Iloilo City
DAVAO VP
2/F Victoria Plaza, J.P. Laurel Ave.,
Bajada, Davao City
TACLOBAN
Uyping Commercial Bldg.,
Justice Romualdez St., Tacloban City
GENERAL SANTOS
201, 2/F KCC Mall of Gensan,
J. Catololico Ave., General Santos City
TAGBILARAN
Digal Bldg., Carlos P. Garcia Ave.,
Tagbilaran City
ILIGAN
G/F Kimberly bldg. National Highway ,
Tibanga, Iligan City
KALIBO, AKLAN
LG-1 Gaisano City,
Kalibo Roxas Ave. Ext.,
Bgy. Andagao, Kalibo, Aklan
OZAMIS
B-5 G/F Gaisano Ozamis City Mall,
cor. Rizal Ave. & Zamora Extension,
Ozamis City, Misamis Occidental
CALBAYOG
Unit #2, Crown Bldg. Magsaysay Blvd.,
Calbayog City, Western Samar
TAGUM
GF NCCC Mall, National Highway,
Tagum City
SM DELGADO
GF SM Delgado Cor. Valeria & Delgado Sts.,
Iloilo City
ZAMBOANGA
Door 2&3 ARV Bldg., San Jose Road,
Zamboanga City
SM BACOOR
3 Level SM Bacoor Aguinaldo Highway
cor. Tirona, Bacoor, Cavite
(infront of Bingo Bonanza)
SM BATANGAS
2nd Level SM City Batangas,
Units 229& 230, Pastor Village,
Pallocan West, Batangas City
SM DASMARINAS
GT 2/F Level SM Dasmarinas,
Governor’s Drive 1, Brgy., Sampaloc,
Dasmarinas, Cavite
TAGAYTAY
K1-K3 Magallanes Square,
Tagaytay City
VISAYAS
BACOLOD
3rd Level, Robinsons Place,
Mandalagan, Bacolod City
CEBU AYALA CENTER
2nd Level Paseo Verde,
Ayala Center, Cebu Business Park, Cebu City
CAGAYAN DE ORO
Unit 313, 3rd level SM City-CDO,
Gran Via st. cor. Mastersons Ave.
Cagayan De Oro City
GLOBE TELECOM, INC.
DUMAGUETE
G/F Sol Y Mar Bldg; San Juan St cor Rizal
Blvd. Dumaguete City (infront of the Blvd.)
MINDANAO
BUTUAN
3rd level Gaisano Mall, J.C. Aquino Avenue,
Butuan City
112
INNOVE BUSINESS CENTERS
CUSTOMER CARE DIRECTORY
INNOVE BUSINESS CENTERS
SOUTH LUZON
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
Fax (02) 739-8000; (02) 797-5550
Site Management & Processes
17th Floor, Innove Plaza,
cor. Samar Loop & Panay Rd.,
Cebu Business Park, Cebu City
Tel (032) 415-8888 loc 829/ 415-8981
Fax (032) 415-8982
Globelines Payments & Services
Diversion Extension Rd, Brgy. Bolbok,
Batangas City, Batangas
Tel (043) 9807888
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
Fax (032) 415-8832
OPERATIONS SUPPORT
Centers Marketing, Training and Events
12th Floor, Valero Telepark,
111 Valero Street, Makati City
Tel (02) 730-3984; (02) 7975558
Fax (02) 739-8000; (02) 797-5560
Technical Support
12th Floor, Valero Telepark,
111 Valero Street, Makati City
Tel (02) 797-5556
Fax (02) 739-8000; (02) 797-5560
METRO MANILA
GT PLAZA
Upper Ground Floor,
Globe Telecom Plaza Tower 1,
cor. Pioneer & Madison Sts.,
Mandaluyong City
Tel (02) 730-3988
Fax (02) 739-8000
MARIKINA
2nd Level, Blue Wave Mall,
Sumulong Highway cor. G. Fernando Ave.,
Brgy. Sto. Nino, Marikina City
Tel (02) 943-4167
Fax (02) 943-4169
OM Luzon
15th Floor, Valero Telepark,
111 Valero St. Makati City
Tel (02) 7975551/7975552/7975553
Fax (02) 797-5560
PARK SQUARE 2
GF Park Square Bldg.,
Ayala Center, Makati City
Tel (02) 752-8658
Fax (02) 752-8582
OM Mindanao
GT Iligan Business Center,
Kimberly Bldg. Iligan City
Tel /Fax (063) 492-2097
SM MEGAMALL
4th level, Bldg. B, Cyberzone Area, SM Megamall,
Dona Julia Vargas Ave., Mandaluyong City
Tel (02) 914-8855
Fax (02) 914-4602
OM Visayas
17th Floor, Innove Plaza,
cor. Samar Loop & Panay Rd.,
Cebu Business Park, Cebu City
Tel (032) 415-8938/8940
Fax (032) 415-8982
SM MOLINO
2nd Level, SM Supercenter Molino,
Molino IV, Bacoor, Cavite
Tel (046) 517-2865
Fax (046) 517-2862
SM DASMARINAS
2nd Level , SM City Dasmarinas,
Governor’s Drive 1, Barangay Sampaloc,
Dasmarinas, Cavite
Tel (046) 9731888
Fax (046) 9735555
GENERAL TRIAS
2nd Floor, Trinidad Ybay Building,
National Highway, Brgy. Tejero,
Gen. Trias, Cavite
Tel (046) 5091888
Fax (046) 5091555
BOLBOK
Diversion Extension Rd,
Brgy. Bolbok, Batangas City, Batangas
Tel (043) 9807888
Fax (043) 9800123
SM BATANGAS
2nd Level, SM City Batangas,
Brgy. Pallocan Kanluran, Batangas City
Tel (043) 9841074
Fax (043) 9841067
ANNUAL REPORT 2005
Internal Communication
12th Floor, Valero Telepark,
111 Valero Street, Makati City
Tel (02) 730-3391; (02) 797-5559
Fax (02) 739-8000; (02) 797-5560
BACOOR
General Tirona Highway,
Barangay Dulong Bayan, Bacoor, Cavite
Tel (046) 970-8888
Fax (046) 970-1555
113
LEMERY
CJ Bldg., Independencia St.,
Lemery, Batangas
Tel (043) 409-0073
Fax (043) 409-0074
MANDAUE
G/F Khuz’ns Bldg., Northroad Hi-way,
Ibabao Estancia, Mandaue City
Tel (032) 420-6039
Fax (032) 420-6104
ORMOC
MFT Bldg., Real St.,
Ormoc City
Tel (053) 561-8402 / 561-9801
Fax (053) 561-4400
FIESTA MALL LIPA
GF Fiesta World Mall, Lipa,
Batangas City
Tel (043) 404-1400
Fax (043) 404-0123
PARDO
Prince Warehouse Club, Bulacao,
Pardo, Cebu City
Tel (032) 416-3811
Fax (032) 416-3812
BORONGAN
2nd Level, Wilsam Uptown Mall,
Borongan, Samar
Tel (55) 5509883
Fax (55) 5609881
CALAPAN
GF Ferraren Bldg., M. Leuterio St.,
San Vicente, Calapan City,
Oriental Mindoro
Tel (043) 441-0256
Fax (043) 441-0123
SM CEBU
2nd level SM City Cebu,
North Reclamation Area, Cebu City
Tel (032) 412-8973
Fax (032) 412-8979
TACLOBAN
22 P.Burgos St., Tacloban City
Tel (53) 5231102
Fax (053) 523-1972
EAST VISAYAS
AYALA CENTER
2nd Level, West Entrance,
Paseo Ciudad, Ayala Center Cebu, Cebu
Business Park, Cebu City
Tel (032) 415-9989
Fax (032) 412-2522
BOGO
Tel (032) 434-8473
Fax (032) 434-8472
CARCAR
P. Nellas St., Poblacion 3, Carcar, Cebu
Tel (032) 487-9100
Fax (032) 487-9101
TAGBILARAN
Door 5 EB Gallares Bldg.,
Carlos P. Garcia Ave., Tagbilaran City
Tel (038) 501-7222
Fax (038) 501-7100 /(038) 501-8810
TUBIGON
Pooc Occidental, Poblacion,
Tubigon, Bohol
Tel (038) 508-8001
Fax (038) 508-8003
UBAY
N. Reyes St., Poblacion,
Ubay, Bohol
Tel (038) 518-0435
Fax (038) 518-0435
ISLAND CITY MALL
2nd Floor, Island City Mall,
Dao District, Tagbilaran City
Tel (038) 501-0028
Fax (038) 501-0029
GLOBE TELECOM, INC.
ELIZABETH MALL
2nd level, Elizabeth Mall,
corners Sanciangko and L. Kilat Sts.,
Cebu City
Tel (032) 417-7972
Fax (032) 417-7978
TOLEDO
2/F Nesbel and Sons Bldg.,
P. Rodriguez St., Toledo City
Fax (032) 467-8501
114
MAASIN
Maasin Port Terminal Commercial Complex,
Demeterio St., Agbao, Maasin City
Tel (053) 570-8451
Fax (053) 570-8452
WEST VISAYAS
Globelines Payments & Services
27th cor. Lacson Sts.,
Mandalangan, Bacolod City
Tel (034) 709-6890
Fax (034) 709-9481
BACOLOD
27th cor. Lacson Sts.,
Mandalangan, Bacolod City
Tel (034) 709-8100
Fax (034) 709-9481
SAN CARLOS
CL Ledesma Sr. Avenue,
San Carlos City Negros Occidental
Tel (034) 729 8025
Fax (034) 7298026
HINIGARAN
2F Cor. Rizal and Aguinaldo Sts.,
Hinigaran, Negros Occidental
Tel (034) 740-7671
Fax (034) 740-7672
SAGAY
ATB Bldg., Maranon St.,
Poblacion II, Sagay City,
Negros Occidental
Tel (034) 722-8012
SM CITY ILOILO
2nd Level, SM City Iloilo, Diversion Road,
Mandurriao, Iloilo City
Tel (033) 5096880
Fax (033) 5096878
DUMAGUETE
GF Sol y Mar Bldg.,
Cor. Rizal Blvd.& San Juan Sts.,
Dumaguete City
Tel /Fax (035) 422-9284
POTOTAN
Teresa Magbanua St., Pototan, Iloilo
Tel (033) 529-7701
Fax (033) 529-7703
TANJAY
Kyle’s foodshoppe, Magallanes St.,
Tanjay City
Tel (035) 415-9675
Fax (035) 415-8098
GAISANO ILOILO
2/F Gaisano Iloilo, La Paz, Iloilo City
Tel (033) 5087877
Fax (033) 508-0003
ROXAS
P. Gomez cor. Legaspi Sts., Roxas City
Tel (036) 522-1033
Fax (036) 522-1032
SAN JOSE
T. Fornier St., San Jose, Antique
Tel (036) 540-7026
Fax (036) 540-7025
KALIBO
Arch. Reyes St., Kalibo, Aklan
Tel (036) 5007606
Fax (036) 5007
HOTLINE OPERATIONS (VERTEX)
33th Floor Wynsum Tower,
Emerald Avenue, Ortigas Center, Pasig City
Tel (02) 7976901
GT TECHNICAL HELPDESK
5th Floor, Globe Telecom Plaza 2,
Pioneer Corner Madison Streets, Mandaluyong
City Tel (02) 7302015 or (02) 7303606
GT CS ISF - WIRELINE
5th Floor, Globe Telecom Plaza 2,
Pioneer Corner Madison Streets,
Mandaluyong City
Tel (02) 7302068
Fax (02) 7393002
Subsidiaries
G-Xchange, Inc.
Innove Communications, Inc.
Innove Corporate Office (Luzon)
GT Telepark
111 Valero St., Salcedo Village,
Makati City
Tel (02) 7302000
Fax (02) 7392000
Innove Corporate Office (Visayas)
Innove Plaza
Samar Loop corner Panay Road
Cebu Business Park
Tel (032) 4158888
Fax (032) 4158822
Globe Telecom Plaza 1,
Pioneer corner Madison Sts.
Mandaluyong City
Tel (02) 7302000
Fax (02) 7392000
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:
Ms. Cherry Chan-Tan
Investor Relations-Head
Tel (02) 7302820, (02) 7303251
Fax (02) 7390072
Email: [email protected]
GLOBE TELECOM, INC.
5th Floor Globe Telecom Plaza I,
Pioneer corner Madison Streets,
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:
16th Floor, BPI Building
Ayala Avenue corner Paseo de Roxas
Makati City, Philippines
Tel (02) 8169067 and 8169898
Mr. Delfin C. Gonzalez, Jr.
Chief Financial Officer
115
ANNUAL REPORT 2005
Shareholder Information
CORPORATE SOCIAL RESPONSIBILITY
EMPOWERING COMMUNITIES, BRIDGING COMMUNITIES
to get actively involved in livelihood activities and promoted starting small
business for families and community welfare. Some 1,200 barangay leaders
Globe Telecom believes in making an impact on the communities in which we
and 650 women entrepreneurs participated in this project. Globe provided
operate. Managed well, this impact can bring significant benefits to both the
entrepreneurship opportunities through its Autoload Max retailership program
community and the business.
while a number of communities started their own barangay-based businesses.
In 2005, Globe’s Bridging Communities Program
(BridgeCom), your company’s flagship corporate
social responsibility program embarked on projects
benefiting over 400 communities nationwide that
enhanced and developed community
leadership and entrepreneurship and advanced
education through information technology.
Globe believes in
making an impact on
the communities in
which we operate.
BridgeCom Sa Bayan, a leadership and business
Globe also addressed the need for rural IT development
through the BridgeCom PCs for Barangays. This
program brought 50 sets of personal computers to
barangays and local civic organizations nationwide and
developed computer literacy skills of barangay officials
and their constituents and helped them semiautomate
applicable barangay transactions.
In the field of education and information technology, Globe
development training program for barangay leaders and women micro-
embarked on the third year of its involvement in Text2Teach and instituted the
entrepreneurs was implemented to develop leadership and entrepreneurial
Globe Technical Advancement Program (GTAP), among others.
skills in over 350 barangays nationwide. Community leaders identified potential
A collaboration of Globe, Nokia, International Youth Foundation (IYF), United
them with skills on strategic planning, financial management, marketing and
Nations Development Program (UNDP), Ayala Foundation, and other local
credit discipline. This program encouraged communities through LGU leaders
partners, Text2Teach provided teachers educational materials and information
GLOBE TELECOM, INC.
businesses and Globe, in partnership with ABS-CBN Foundation, Inc., provided
116
through the use of mobile telephones. Lectures in Science, English, and
•
Globe’s Bantay Baterya project (in partnership with ABS-CBN’s Bantay
Mathematics were requested through SMS and an instructional video was sent
Kalikasan) disposed 100% of the company’s used lead-acid batteries to
via satellite to a digital recorder connected to a television in the classroom.
fully comply with government and environmental standards.
Text2Teach was made available in more than 200 public elementary schools
•
nationwide. For the secondary level, Globe Kababayan, through a grant to the
BridgeCom Disaster Response provided relief operations for typhoon
affected provinces of Quezon and Oriental Mindoro.
“Classroom Galing Sa Mamamayan Abroad” program donated two classrooms in
Alulod Elementary School in Indang, Cavite.
We believe that the greatest contribution Globe can make to poverty alleviation
is through sustained corporate social responsibility programs. This is in line with
On the other hand, GTAP enriched the learning experience of Engineering and
our effort to ensure that the economic, social and environmental impacts of
IT students through curriculum update and development, hands-on-training and
these involvements are positive. And that one of the better ways to participate
internship. Its first beneficiary was the University of San Jose Recoletos Cebu.
in national development would be the effective use of our core products and
services to uplift the lives of marginalized Filipinos.
•
BridgeCom Medical Missions in Mandaluyong, Cebu, Nueva Ecija, Cavite
and Maripipi Island, Biliran province served more than 2,000 patients from
depressed communities.
GT Eskwela, the flagship employee volunteerism project of Globe, served
public elementary schools in Payatas, Quezon City, Quezon and Bohol
Concept + Design: k2 interactive (asia), inc.
Photography: Wyg Tysmans (Portraiture), Tom Epperson (Portraiture and Operationals), Warren Bituin (Globe Posible SEA Games), Raymond Saldaña (Operationals)
117
ANNUAL REPORT 2005
•
GLOBE TELECOM, INC.
A member of the Ayala group of companies
5th Floor Globe Telecom Plaza I,
Pioneer corner Madison Streets,
1552 Mandaluyong City,
Philippines