Globe Telecom Annual Report 2006
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.
OUR MISSION
We transform and enrich people’s lives through communications.
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.
ABOUT OUR COVER
As a pioneer, Globe Telecom continues to be a
part of the revolution that’s connecting millions of
people across the Philippines and around the world
Excellence and Personal Worth
We excel and realize our potential by constantly learning and making
ourselves better everyday.
— a testament to our continuing commitment to
nation-building. Beyond technology, we feel that
our business is truly shaped by the bonds that tie
Filipinos together. We believe that communications
Teamwork
As importantly, we value each other’s unique contributions and commit
ourselves to work as a team.
is ultimately about relationships, and this drives
us to innovate and constantly find new ways to
enhance our portfolio of services. Looking ahead,
as multimedia becomes more pervasive, we fully
Integrity
In everything we do, we are ethical, just and honorable. Because
ultimately, these are what count to our Nation and our God.
intend to introduce compelling new products to
further enrich the lives of Filipinos everywhere.
True to our vision, as the needs of our subscribers
evolve, so will Globe Telecom.
Financial Highlights
1
Corporate Social Responsibility
26
Financial Statements
Message to Stockholders
2
Board of Directors
30
Globe Telecom Business Centers 111
Message of the President
5
Senior Executive Group
34
Overview of the Business
10
Audit Committee Report
36
Globelines Payments and
Services Center
Management Discussion &
Analysis
16
Statement of Management’s
Responsibility
37
Corporate Governance
21
Report of Independent Auditors
38
39
115
Financial Highlights
Wireless Subscribers (in 000s)
6,572
2002
12,514
12,404
2004
2005
Net Service Revenues (In P Mn)
52,741
15,660
39,761
8,860
2003
2006
2002
25,293
27,943
33,331
33,434
57,034
47,535
2003
EBITDA* (In P Mn)
54,897
2004
2005
2006
Net Income (In P Mn)
37,220
11,396
9,953
11,755
10,315
6,918
2002
2003
2004
2005
2002
2006
2003
2004
2005
2006
* Earnings before Interest, Taxes, Depreciation and Amortization
Property & Equipment, Intangible Assets
and Investment Property (In P Mn)
Market Capitalization (In P Mn)
163,119
102,849
120,317
99,915
96,270
2002
96,947
97,518
95,946
2003
133,608
67,978
2004
2005
2006
2002
2003
2004
2005
2006
“Looking ahead into 2007, we
intend to retain our competitive
rigor. We will remain focused and
continue to build on our successful
strategies.”
Message to Stockholders
We are pleased to report that Globe Telecom’s consolidated
net income in 2006 reached P11.8 billion, 14% higher
than the previous year and the highest in the history of the
Company. Our return on equity reached 22%, higher than
last year’s level of 19%. The wireless subscriber base grew
by 26%, to almost 15.7 million SIMs, as Globe regained
its position in the market, a complete reversal from the
declines that we saw in 2005. While the wireless business
continued to be the major growth contributor, we are
nevertheless encouraged by the performance of the wireline
segment, particularly our consumer broadband business,
which posted a 129% growth in subscribers and reached
over 51,000 users by year-end.
Driven by our increasing profits, strong cash flow, and
improvements in our market position, the Company’s share
price has likewise appreciated by 68% from the beginning
of the year, outpacing the growth of the local index. With a
focus on improving total return to shareholders, your Board
of Directors increased your Company’s dividend pay-out
from 50% to 75% of prior year’s net income. A total of
P6.6 billion in cash dividends were paid out in 2006, up
21% from last year’s level of P5.4 billion.
2006
2005
Basic Earnings per Share
88.56
76.74
Fully Diluted Earnings per Share
88.32
76.60
Dividends per Share
Share Price*
Dividend Yield
* As of last trading day of the year
3
50.00
40.00
1,235.00
735.00
4%
5%
We will continue to build the appropriate foundations for future
growth and accelerate infrastructure investments in consumer
broadband, which we believe will provide new demand for services
in the Philippine telecommunications industry.
We believe that the Company’s strong performance in
Finally, we will continue to build the appropriate
2006 reflects the soundness of our business models
foundations for this future growth and accelerate
and strategies. We have learnt some valuable lessons
infrastructure investments in consumer broadband, which
from a difficult year in 2005, when our bottom line was
we believe will provide new demand for services in the
weakened by a value destructive SIM swap program which
Philippine telecommunications industry. We will drive
we were drawn into, and we have successfully repositioned
access prices down and work with suppliers and resellers
our organization and strategic focus. We made price
to make PCs more affordable and accessible, as we remain
competitiveness a key imperative in 2006 and enhanced
committed to our mission to enrich people’s lives by
our understanding of the needs of our priority customer
making the internet relevant and available to all.
segments. We introduced a steady stream of unique and
relevant product offers to drive subscriber acquisition and
With these key initiatives in place and with the continued
retention. Coupled with aggressive cost management and
engagement of our shareholders, employees, and various
enhanced network service quality, your Company achieved
stakeholders, we are confident that Globe will continue to
new levels of profitability and competitiveness. Globe
expand its services to customers and maintain its track
Telecom has grown significantly from its position seven
record of value creation for its investors.
years ago, at the beginning of the new millennium, when it
had less than one million wireless subscribers and recorded
We thank the members of our Board of Directors for
profits that were less than one tenth of our current level.
their advice and support of our strategic initiatives; our
management team, employees and business partners for
Looking ahead into 2007, we intend to retain our
their rigor and passion; our fellow shareholders for their
competitive rigor. We will remain focused and continue
trust in us; and finally we thank our subscribers, who we
to build on our successful strategies. Our priority in 2007
hope will continue to entrust us with their business in the
is to continue to extract growth from our core wireless
year ahead.
business, building on the gains that we have established
in 2006. While subscriber growth rates are tapering off to
the single digit levels, the wireless business continues to
present attractive growth opportunities as mobile phones
expand their services.
JAIME AUGUSTO ZOBEL DE AYALA II
Chairman
We will also strengthen our corporate data business to take
advantage of the upbeat business climate, and assert our
presence in the smaller-scale business segments. We will
DELFIN L. LAZARO
introduce more value-added content and services, and
Co-Vice Chairman
explore partnership opportunities outside of our traditional
borders to diversify our portfolio and create new avenues
of growth.
LIM CHUAN POH
Co-Vice Chairman
4
Message of the President
Strong growth amidst stiff competition
2006 was a good year for Globe. Our competitive position
strengthened, our financial results improved, and the
Company’s market value reached new highs as we reaped
the benefits of the strategies we put into play the year
before. Focused execution of key initiatives begun in 2005
enabled us to achieve significantly better performance,
despite an ever challenging market.
The industry continued to be a dynamic and fiercely
competitive one. As the market inched towards the 50%
penetration level, competition intensified even more as
operators worked on further increasing the accessibility and
affordability of communication services. The downward
pressure on price that we saw in 2005 thus carried
through last year as the key players bid for a bigger share
of the consumer wallet and sought to retain the loyalty of
subscribers who have grown increasingly value conscious.
At the same time, consumer spending and usage habits
continued to evolve with the slew of unlimited use tariff
offers. Because of attractive intra-network promotions,
many consumers now carry multiple SIMs, switching from
one network to another to avail of choice offers.
5
Cellsites
CAPEX (In P Mn)
5,159
5,884
3,736
2,190
2002
21,219
20,478
15,814
2,580
2003
2004
2005
2006
2002
2003
2004
14,758
14,832
2005
2006
We promoted greater usage, expanded both our subscriber and
revenue base, and created significant value growth by further
sharpening our understanding of the market, and anticipating the
shifting needs of our priority segments.
Amidst this challenging backdrop, Globe successfully built
industries in the Philippines. Using the Globe Kababayan
on the gains of 2005 by following through on strategies
program as our primary vehicle, we strengthened our tie-ups
focused on four key areas: (1) strengthening our foothold
with operators in key global capitals where our Filipino
in key customer segments; (2) deepening network coverage
kababayans work and live. We extended our per-second
and improving service quality; (3) developing relevant,
charging offer to international voice calls, and introduced
easy-to-use services for our customers by leveraging on
discounted call rates to the US, Canada, Saudi Arabia,
innovations and new technologies; and (4) aggressively
Japan, and various other destinations with large Filipino
managing our costs.
communities. Taking off from the resounding success
of our Kababayan tie-up with Singtel in Singapore, we
Stronger foothold in key segments
launched another co-branded prepaid SIM to serve Filipino
We promoted greater usage, expanded both our subscriber
workers in Taiwan, offering reduced call and text rates.
and revenue base, and created significant value growth by
We leveraged the synergies offered by the Bridge Mobile
further sharpening our understanding of the market, and
Alliance, and tied up with Maxis Malaysia and HK CSL
anticipating the shifting needs of our priority segments.
to allow our subscribers to call their customers at special
This enabled us to deliver more meaningful offers attuned
rates. Beyond connectivity solutions, we also developed
to our customers’ needs – whether flat rate offerings for
remittance, livelihood, and other cross-border programs for
heavy voice users, or unlimited text services for the prolific
this community through our GCash m-commerce services
text senders.
and our Kabalikat programs, in partnership with the
Overseas Workers Welfare Administration.
At the same time, we improved our price competitiveness
through innovative propositions that went beyond mere
Finally, we launched various loyalty and churn management
discounting, such as our unparalleled per-second charging
programs to address the unique preferences of our postpaid
for local and international voice calls, and our highly
subscriber base and successfully defended our dominant
popular unlimited SMS offerings.
position in this segment. At the end of the year, our
postpaid SIM base grew by 8% to just over 640,000 SIMs,
We also zoomed in on
reversing the decline we experienced in 2005.
serving the needs of our
growing overseas Filipino
All these efforts have translated to a stronger, much
community, a segment that
improved competitive position for our Globe and TM brands.
has catalyzed consumer
As of the end of 2006, our wireless SIM base of 15.7
spending across various
million is up a robust 26% from last year. Our mass market
6
brand TM was a major driver to this SIM base growth.
higher levels, bridging our OFWs to their families in the
Following its relaunch in 2005 with a stronger, more
Philippines through video IDD, and allowing full mobility
focused Power Piso proposition, TM‘s SIM base jumped
and enhanced productivity for the executives, professionals,
57%, from 3.1 million at the start of 2006 to 4.9 million
and individuals who are always on the go. Looking ahead,
by year-end. Through compelling value for money offers, an
as 3G handset prices go down and as more and more
energized brand image, and supported by a strengthened
compelling content becomes available, we expect that
regional distribution network, TM SIMs now comprise
the mainstream markets will increasingly take to the
31% of Globe’s total SIM base, accounting for 55% of
conveniences and richer connections that 3G and wireless
subscriber growth in 2006, and contributing P8.7 billion
broadband brings.
in revenues.
Last July, in partnership with Hypercash, we introduced
Meanwhile, our consolidated service revenues grew over
G-Pass, our breakthrough payment application for the
P2 billion or 4% even with a significant reduction in
MRT (Metro Rail Transit) commuters. Using RFID (radio
marketing expenses and subsidies. International service
frequency identification) technology, MRT passengers can
revenues was a major growth driver, rising P440 million
now pay for their fare with a simple tap of their RFID chip
or 3%, on the back of double-digit growth in inbound and
on the turnstiles. Value reloads can be made anytime and
outbound traffic, and despite a much stronger peso.
anywhere via GCash, our equally innovative SMS-based
mobile commerce service. Shortly after its introduction,
Ensuring superior network experience
G-Pass already gained international recognition by making
As we developed easy-to-use and more meaningful offers
it to the shortlist of finalists nominated under the Most
to our customers, we continued to invest in improving
Innovative Technology Development category in the 2007
network reach, depth and quality. Globe’s cellular
Global Mobile Awards of the GSM Association.
phone network of 5,884 cellsites now covers 94% of the
Philippine geography and reached 98% of the country’s
Leveraging on VoIP technology, G-WebCall also made its
population. This was achieved after having invested over
debut in 2006. The service enables frequent travelers to
P45 billion in capital expenditures over the past three
call any Globe or TM subscriber via internet for the price of
years. We also proactively embraced new technologies
a local Philippine call.
and platforms and commenced roll out of our 3G network,
exceeding our target of 1,000 sites by year-end.
While these and other similar innovations have yet to
achieve a critical usership mass, they are contributing
Anchoring growth on innovation
meaningfully to an environment of discovery towards the
In the early part of 2006, we became the first operator
creation of new services.
in the Asia-Pacific region to introduce Mobile Broadband
3G with HSDPA (High
Keeping an eye on costs
Speed Downlink Packet
In addition to growing our revenues and subscribers, we
Access) capabilities to the
continued to be vigilant about our costs, in order to improve
general public. Joining a
the earnings yield on our sales. We calibrated the use of
handful of mostly European
handset subsidies for customer acquisition, and utilized
and American companies
more pinpoint marketing programs targeted at specific
who have introduced the
customer segments rather than amorphous audiences.
HSDPA service, we are
We examined the way we expanded our wireless network,
proud that a Filipino company is the first in the region to
deconstructed the entire roll-out process and reviewed each
bring this promising technology for live use by customers.
major activity and cost item in detail, in order to identify
The faster transmission speed of Mobile Broadband 3G
those components which we could do better, cheaper,
with HSDPA has enabled us to bring connectivity to
and faster. All of these actions contributed to significant
savings and helped us reduce total operating expenses by
Broadband as the next growth frontier
P1.6 billion or 8% year on year.
We believe that the internet access space in general, and
broadband connectivity in particular, is on the cusp of
Our 2006 Performance
witnessing a swell in demand similar to the exponential
We are very pleased that our efforts have resulted to a
growth we saw in the mobile phone industry a few years
significantly improved financial performance in 2006.
back. We intend to be at the forefront of this opportunity,
Consolidated net income stood at P11.8 billion, a healthy
harnessing the capabilities of both wired and wireless
14% improvement over the previous year and an all-time
broadband technologies to make the internet available
high for the Company. Core net income, excluding foreign
and relevant to all. For 2007, we have allocated a
exchange and mark-to-market gains and losses, grew by
substantial portion of our capital budget for infrastructure
an even more buoyant 24%. Moreover, this net income
investments in 3G with HSDPA, DSL, and other broadband
growth was achieved despite a 48% increase in our
technologies as we work towards establishing a pervasive
corporate income taxes to P5.7 billion from P3.9 billion
access network.
the year before, due to the expiration of our tax holiday, the
increase in statutory rates to 35%, and the increase in our
We will likewise set our sights on opportunities outside of
taxable base.
our traditional borders to create new areas of growth for
our portfolio. Where attractive acquisition candidates and
With an improved market position, higher profitability, and
partnership opportunities exist, we will invest in allied
competitive dividend yields, our share prices have grown
industries, technologies, and services complementary to our
68% since the beginning of 2006, outstripping the local
core business, and which builds on the competencies and
composite index which has increased 42% during the same
lessons we have learned in the telco market.
period. Helped by the strength of the peso, our market
capitalization has risen by 82% to US$3.3 billion at the
Strengthening our core businesses
end of 2006, up from US$1.8 billion at the end of 2005.
We will continue to sharpen our competitiveness in our core
wireless business, and drive growth there. Taking the cue
Beyond financial results, we are as encouraged by the
from the success of the past two years, the introduction of
recognition and awards Globe received last year. We
distinctive and meaningful value-based packages based on
were happy to have been named Mobile Operator of the
a better understanding of the market will be our primary
Year during the Asian Mobile News Awards held last July
means to keep the momentum going and to assiduously
in Singapore. The Institute of Corporate Directors also
mine the remaining potentials of the wireless market.
named Globe as one of the Top 5 Companies on Corporate
Governance in the Philippines. Finally, in the Wall Street
As Filipino workers continue to seek fortunes in other
Journal’s Asia’s 200 Most Admired Companies, Globe
lands, we will likewise remain focused on serving the
was ranked third in the Philippines. We were especially
needs of the overseas Filipino communities. We intend
pleased that Globe was also top ranked in the High Quality
to unveil more Kababayan offerings in the coming year
Products and Services category, and placed second in
while building more partnerships with operators within the
Innovation.
Bridge Mobile Alliance.
2007 Prospects
We will also further improve on our service delivery
Looking ahead into 2007, we will focus on three main
platforms and reinforce our customer service capabilities to
imperatives – (1) laying the foundation for future growth
provide our customers a superior experience.
through investments in the broadband business, (2)
continuing to strengthen our consumer wireless business,
Delivering further improvements in our cost model
and (3) delivering further improvements in our cost model.
Finally, we will continue to challenge the way we do things
Looking ahead, we will focus on three main imperatives – (1) laying
the foundation for future growth through investments in the broadband
business, (2) continuing to strengthen our consumer wireless
business, and (3) delivering further improvements in our cost model.
and deliver further improvements in our financing and
Our broadband expansion is in step with the government’s
operating cost structures, starting with the prepayment and
drive to develop the infrastructure to uplift the country’s
re-financing of our 2012 bonds that will generate over P2
ICT (information and communications technology) sector.
billion in estimated interest expense savings over the next
Our leadership role in Innove’s Internet in Schools Program
five years.
and our active participation in GILAS (Gearing Up Internet
Literacy and Access for Students) are aimed to help raise
While 2006 provided some relatively quick wins from the
the computer literacy of our youth by bringing the internet
calibration of marketing and subsidy spending, moving
direct to public school classrooms nationwide. Meanwhile,
forward, we will pursue more structural and fundamental
our long-running support for the award-winning Text2Teach
changes in our cost model. As before, our primary
program gives our public school teachers and students
objective will be to improve the effectiveness with which
access to a wide range of educational videos and lesson
our spending is converted to top-line growth.
plans. Finally, through our livelihood and entrepreneurship
programs under BridgeCom, we hope to provide the skills
All our investments in infrastructure and technology
and opportunities to some of our marginalized communities
would be fruitless without parallel investments in human
to allow them to meaningfully participate in and benefit
capital. We will continue to search for best-in-market
from the over-all growth of our economy.
talent, develop competencies in our people that would
prepare them for the future, and engage the rest of our
In closing, the strides we made in 2006 would not have
stakeholders in realizing the Globe vision of making great
been possible without the support of our subscribers who
things possible for our customers and for our nation.
entrusted us with their loyalty; our business partners
who shared our passion for continuous innovation; our
Giving back to communities
employees who responded to many challenges with
As one of the largest corporations in the country, we
unflagging dedication and hard work; our Board of
recognize and embrace our role in the bigger Filipino
Directors for their continuing guidance and valuable
community. We will continue to support nation building,
perspectives; and our shareholders who gave us their solid
be it through the taxes that we dutifully pay, the
and unwaning support.
community-based initiatives that we pursue, or the disaster
relief operations that we spearhead during times of crisis.
Our sincerest thanks to you all.
GERARDO C. ABLAZA, JR.
President and Chief Executive Officer
9
An Overview of our Business
We are committed to
providing our customers with
superior experience across
all touch points...
Customer-centric Organization
With Globe’s Mobile Broadband 3G with
HSDPA service, a field worker checks his
e-mail through wireless connection.
The Philippine telecommunications industry continues to
evolve – driven by changes in technologies and shifts in
consumer behavior. With the advent of convergence and
new technologies, the array of solutions in the marketplace
has exponentially increased. Consumers are becoming
more discerning and value-conscious and are increasingly
demanding a new generation of product offerings to suit a
variety of voice and data needs, presenting various service
creation and delivery opportunities as well as challenges for
the operators.
To differentiate ourselves from competition and to
strengthen our market position, we have adopted a
customer-centric focus in various aspects of our operations.
We are committed to providing our customers with superior
experience across all touch points, and recognize that the
0
crucial first step in ensuring this unrivaled experience lies
Products and Services
in understanding the distinct needs of groups of subscribers
In 2006, the Globe Group offered various product and
in order to create and deliver the most relevant and
service packages to meet the different usage profile of each
innovative products and services.
segment.
In line with this, we reshaped and re-aligned our
Consumer segment
organization and internal processes in 2006 to revolve more
In line with our mission to transform and enrich people’s
closely around the needs, values, and aspirations of our
lives, we delivered innovative and compelling value
clients. We integrated business units formerly focused on
propositions to priority consumer segments. We offered a
product lines into teams organized around consumers and
slew of product packages customized to serve their various
corporate clients sharing similar requirements. We further
needs – be they unlimited offers for our heavy SMS users,
segmented our consumer organization around key customer
flat-rate offers for our heavy voice users, G-Pass services
groupings – be they the youth, the mass markets, our
for our MRT (Metro Rail Transit) commuters, or Visibility
professionals, frequent travelers, or the Overseas Filipino
packages for our subscribers who require unlimited, mobile
Workers and their families. We also formed an Enterprise
internet access.
Business Group which is now empowered to provide
fixed-mobile convergent solutions and integrated account
• Our Globe Super Sulit and TM Power Piso initiatives
management to our large corporate clients. Finally, we
provided a suite of voice and text offers for our
formed dedicated, cross-functional teams to focus on and
Globe and TM subscribers, including our industry-
be more responsive to the requirements of our smaller-size
setting and unrivaled per-second charging promo for
business ventures and microbusinesses.
local and international calls. We also introduced
various discounted IDD call and text rates to selected
As customer needs shift and evolve, we are committed to
destination countries under our Super Sulit Tipid IDD
regularly re-scope the roles and functions of these business
program.
units to ensure alignment. Our end goal is to deliver
• We continued to lead the pack with the introduction
sustained excellence in customer experience, service and
of our Globe Mobile Broadband 3G with HSDPA (High
responsiveness by adopting the viewpoint of our customers
Speed Downlink Packet Access) service which allows
in all our product, service, and business process choices.
for high-speed internet browsing and multi-media
streaming. Meanwhile, through our Visibility plans, we
offered unlimited mobile internet access via 3G with
HSDPA, EDGE and GPRS, as well as unlimited dial-up
and WiFi access to our subscribers through over 520
WiZ hotspots nationwide.
• Based on Voice over Internet Protocol (VoIP) technology,
G-WebCall is a service that allows our postpaid
subscribers from any part of the world to call any Globe
or TM subscriber via the internet for the price of a
local call. Similarly, our GlobeQUEST Webphone, a
groundbreaking web-based softphone service, allows PCto-PC and PC-to-PSTN outbound calls using our Globe 1
prepaid card.
11
For our hardworking Overseas Filipino Workers and their families in
the Philippines, we are creating an ecosystem that includes not just
connectivity, but also remittance, livelihood and other cross-border
capabilities under the Globe Kababayan program.
•
Globelines Postpaid Plus is a landline service bundled
and remittances, bill payments, and purchase of goods
with unlimited dial-up internet access and toll-free
and services.
NDD calls to any Globelines phone anywhere in the
•
•
We also introduced another innovation, G-Pass, that
country, all for a fixed monthly service fee. Recently,
allows our MRT commuters to pay for their fare with a
we launched the Globelines Broadband Budget
simple tap of their RFID (radio frequency identification)
Bundles, a landline service with unlimited broadband
chip on the MRT turnstile. Value reloads can be made
access of up to 384 kbps for only P995/month.
anytime and anywhere via GCash.
MyGlobe IMEVRYWHR is an instant messaging service
•
Our mass market brand TM also introduced its Barangay
that also offers unlimited chatting, voice messaging
Cellphone service – a phone kit that enables barangay
and unlimited photo sending for a fixed daily, weekly or
operators to rent it out to their neighbors as a public phone.
monthly fee.
•
•
Globe Bida Card is an electronic card that rewards
For our hard-working Overseas Filipino Workers and their
our loyal Globe and TM subscribers with discounts
families in the Philippines, we are creating an ecosystem
and promotional items and services at almost 200
that includes not just connectivity, but also remittance,
establishments nationwide.
livelihood, and other cross-border capabilities under the
Our SMS-based mobile commerce service, GCash,
Globe Kababayan program.
allows for convenient person-to-person money transfers
Our special IDD rates under our Kababayan program enable our Overseas Filipino Workers and their families to stay connected.
•
Through our affiliation with the Bridge Mobile
Business and corporate segments
Alliance, our overseas workers in Singapore, Taiwan
We launched a rich stream of service innovations and
and Hong Kong can now enjoy discounted rates when
customized solutions for our corporate and enterprise clients.
calling Globe and TM subscribers through our Globe
Kababayan co-branded SIM with Singtel, Taiwan Mobile
•
•
OK Kababayan SIM and Hong Kong CSL Kumusta Ka
solution that allows entrepreneurs to monitor their
Kababayan SIM.
businesses in other locations throughout the country
We also offer Kababayan IDD phone cards in selected
through the internet.
countries such as Japan and Hong Kong to provide
•
•
GlobeQUEST Store Express enables timely and reliable
discounted international call rates to Globe and TM
exchange of sales and inventory information between a
subscribers.
retail company’s headquarters and its branches. It also
Our Quick Remit and Load service allows our overseas
allows for the hosting of other voice, video and point-of-
workers to send cash and load straight to their family
sale applications.
and friends who are Globe and TM subscribers. This
•
Globe Broadband Webeye offers a remote web-based
•
Biz Starter Kit is a total internet package designed
service is available in Hong Kong, Singapore, Taiwan,
to assist start-ups, allowing entrepreneurs to
Japan, Saipan, Guam, USA and Canada.
systematically run their company with a relevant bundle
Our Globe Kabalikat program, in association with the
of services. Its modern programs also let small-scale
Overseas Workers Welfare Administration, aims to
businesses keep up with the changing needs of its
provide additional support to the OFW families in the
clients, potentially opening its doors to customers here
Philippines through various information campaigns and
and abroad.
livelihood projects.
3
•
GlobeQUEST VoBB (voice over broadband) is a voice
SIM card with a set “load” by the company via our
service that allows subscribers to take advantage of the
AutoloadMAX facility.
VoIP technology via broadband connection.
•
•
GlobeQUEST ICON (IP-Converged Optical Network)
GSM PABX router which Globe connects to the
is the first network in the country that incorporates
company’s existing phone system. By just dialing an
multi-protocol label switching as its core technology,
access number, any employee now has option to make
and which allows traffic prioritization and more cost-
discounted IDD or Globe calls at preferred rates.
effective interworking of various access technologies.
•
Mobile IDD and PABX is a PABX system with a wireless
•
Mobile Deskphone is a telephone unit which has the
We have also introduced various corporate voice
functionality of a cellphone. This enables field offices
plans such as Company Capped which provides the
in the most remote areas to stay connected to the head
employees with a postpaid line subscription under the
office and still enjoy special IDD and cost efficient rates
name of the company with a set “load” or credit limit
through the business loop.
that automatically shifts to a prepaid line when the set
•
Globe Energy Management Solutions (GEMS) allows the
credit has been consumed. We also offer Employee
monitoring of expenses on an hourly, weekly, monthly,
Line Plus which provides employees with a prepaid
or yearly basis through reports that can be sent using
email or SMS.
The faster transmission speed of Globe’s Mobile Broadband 3G with
HSDPA allows full mobility and enhanced productivity for entrepreneurs.
4
Globe Broadband Webeye allows entrepreneurs to monitor their
businesses through the Internet.
We offer convergent SOLUTIONS
to enable entrepreneurs to
monitor and expand their
businesses.
•
Message Connect provides employees real-time access
to the company’s various databases such as inventory
levels, order status, and sales reports through SMS.
•
Managed voice services provide a suite of managed
voice solutions specifically tailored for the burgeoning
Looking ahead into 2007, we will continue to develop a
call center sector.
rich product pipeline that will speak to the unique needs
• MLaunchPad allows the marketer to instantly create,
define, conceptualize, implement and monitor his own
of our priority customers. As we remain faithful to our
programs with the use of a client web user interface,
avowed mission of enriching the Filipino’s daily life through
accessible from his office PC.
communications, we will continue to leverage on strengths
and resources already in place to enable us to develop and
deliver SOLUTIONS that will make greater things possible
for our customers.
5
Management Discussion & Analysis
EXPENSES
Consolidated Results of Operations
Total subsidy, operating and depreciation and amortization
REVENUES
expenses decreased by 1% to P36,952 million from P37,197
Consolidated net service revenues grew by 4% to reach
million for the same period in 2005. As a percentage of total
P57,034 million at year end compared to P54,897 million
service revenues, total marketing expenses and subsidy declined
in 2005. This growth is in spite of revenue losses resulting
year-on-year from 13% in 2005 to 9% by the end of 2006.
from the effects of Typhoons Milenyo, Reming and Seniang
and the earthquake in Taiwan on 26 December that damaged
For the full year ended
(In millions of pesos)
international submarine cables linking the Philippines to the
Wireless service revenues accounted for 89% of consolidated
net service revenues for the year, posting a 5% growth year-onyear to P50,672 million. Wireline service revenues accounted
for the remaining 11%, declining slightly by 1% to P6,362
million due to the strengthening of the peso.
Consolidated non-service revenues dropped by 24% to P2,915
million for the year from last year’s P3,851 million. This is
mainly due to lower handset, SIM pack and SIM card sales
related to subscriber acquisitions following the Company’s
overall thrust towards more cost-effective acquisition and
Globe Group
31 Dec
2005
4,619
2,915
1,704
6,025
3,851
2,174
YoY
Change
(%)
-23%
-24%
-22%
Selling, Advertising and Promotions
3,525
Staff Costs
3,564
Utilities, Supplies & Other
Administrative Expenses
2,121
Rent
2,081
Repairs and Maintenance
2,122
Provisions
446
Services and Others
Insurance and security
1,441
Professional and Other contracted services 1,394
Taxes and Licenses
756
Others
660
Operating Expenses
18,110
4,697
3,519
-25%
1%
1,982
1,840
1,877
683
7%
13%
13%
-35%
1,478
1,495
832
886
19,289
-3%
-7%
-9%
-26%
-6%
Depreciation and Amortization
Total Cost and Expenses
15,734
37,197
9%
-1%
Cost of sales
Less: Non-service revenues
Subsidy
rest of the world.
31 Dec
2006
17,138
36,952
loyalty programs.
NET INCOME
2006 Revenue Breakdown
Total consolidated net income increased by 14% year-on-year
to P11,755 million from last year’s P10,315 million despite a
higher consolidated effective income tax rate of 33% from 27%
in 2005. Excluding foreign exchange and mark-to-market gains
Wireless Data
Wireline Voice
7%
Wireline Data
4%
43%
Wireless
Revenues
89%
and losses, core earnings would have been P10,833 million, a
24% improvement from last year’s P8,715 million.
Wireless Voice
57%
Accordingly, consolidated basic earnings per common share
were P88.56 and P76.74 and consolidated diluted earnings per
common share were P88.32 and P76.60 for the year 2006 and
2005, respectively.
6
LIQUIDITY AND CAPITAL RESOURCES
Year end Cash Balance
Total consolidated assets as of end 2006 amounted to
In
P124,580 million compared to P125,102 million in 2005.
Mn
14,812
12,165
Consolidated cash, cash equivalents and short term investments
(including investments in assets available for sale and held to
maturity) was at P14,812 million at the end of the year, 22%
higher than the P12,165 million registered in 2005. Gross
debt to equity ratio as of 31 December 2006 was 0.69:1 on
2005
a consolidated basis and remains well within the 2:1 debt to
2006
equity limit dictated by certain debt covenants. Net debt to
equity ratio was at 0.43:1 as of 31 December 2006.
Consolidated net cash flow from operations amounted to
Year end Consolidated Debt
P32,565 million for the full year ended 31 December 2006, a
In
Mn
12% increase from P28,952 million from last year.
46,693
39,207
Consolidated net cash used in investing activities amounted
to P18,908 million for the year, a 19% increase from the
P15,943 million in 2005. Consolidated capital expenditure,
of P14,832 million remained at par with previous year’s level.
For 2007, Globe is allocating approximately US$350 million
2005
2006
for capital expenditures to deepen coverage for its 2G wireless
network, accelerate broadband network roll-out, and upgrade
necessary support facilities. The 2007 capital expenditure
program will be funded through internally-generated cash and
Gross Debt / Equity
debt financing.
2.00
Maximum per debt covenants
Consolidated net cash used in financing activities for the year
amounted to P17,062 million, a 9% increase compared to
0.96
P15,680 million in 2005. Consolidated total debt as of year
0.69
end amounted to P39,207 million, a 21% decrease from the
P49,693 million from last year. Loan repayments of Globe for
2006 amounted to P10,429 million compared to the P12,527
2005
million paid for in 2005.
As of 31 December 2006, gross debt dropped to P39,207
million, 62% of which are denominated in US$. Of the 62%
US$ denominated debt, 33% has been swapped to pesos.
As a result, the amount of US$ debt swapped into pesos and
peso-denominated debt accounts for approximately 59% of
consolidated loans as of 31 December 2006.
2006
Wireless Business
BUSINESS SEGMENTS
Our Company offers its wireless services including local,
For the full year ended
(In millions of pesos)
Net Operating Revenues by segment
Service Revenues
Wireless
Voice ¹
Data ²
Wireline
Voice ³
Data 4
Net Service Revenues
Non-Service Revenues 5
Total Net Operating Revenues
31 Dec
2006
Globe Group
31 Dec
2005
national long distance, international long distance, international
YoY
Change
(%)
28,982
21,690
28,111
20,370
3%
6%
4,312
2,050
57,034
2,915
59,949
4,396
2,020
54,897
3,851
58,748
-2%
1%
4%
-24%
2%
roaming and other value-added services through three brands:
Globe Postpaid, Globe Prepaid and TM.
Globe Postpaid is the postpaid brand of Globe. This includes
all postpaid plans such as G-Plans and consumable G-Flex
Plans, Platinum (for the high-end market), and GlobeSolutions
(for corporate and business needs).
Globe Prepaid and TM are the prepaid brands of the Globe
Group. Each brand is positioned at different market segments.
¹ Wireless voice net service revenues include the following:
a) Monthly service fees on postpaid plans;
b) Charges for intra-network and outbound calls in excess of the consumable
minutes for various Globe Postpaid plans, including currency exchange rate
adjustments, or CERA net of loyalty discounts credited to subscriber billings;
c) Airtime fees from prepaid reload denominations (for Globe 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 and (ii)
prepaid reload discounts; and revenues generated from inbound international and
national long distance calls and international roaming calls;
Globe Prepaid is focused on the mainstream, broad market
while TM is focused on value-conscious mass market.
Additionally, Globe has customized services and benefits to
address specific market segments, each with its own unique
positioning and service offerings.
To cater to a wide variety of our prepaid subscribers, we provide
various top up facilities at each subscriber’s convenience. Our
Revenues from (b) to (c) are net of any interconnection or settlement payouts to
international and local carriers and content providers.
Globe Prepaid and TM subscribers can reload airtime value or
credits using various reloading channels, including through our
² Wireless data net service revenues consist of revenues from value-added services
such as inbound and outbound SMS and MMS, content downloading, subscription
fees on prepaid services and infotext net of any interconnection or settlement
payouts to international and local carriers and content providers.
over-the-air reload facility, AMAX, available nationwide.
Overall, the wireless business recorded a 3% year-on-year
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) loyalty discounts
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.
operating revenue growth, with P53,561 million in net
operating revenues for the full year ended December 2006 from
last year’s P52,229 million. This increase was mainly driven
by a 5% improvement in total wireless service revenues from
P48,481 million to P50,672 million.
Revenues from (b) and (c) are net of any interconnection or settlement payments
to domestic and international carriers.
Wireless voice revenues contributed 57% to total wireless
Wireline data net service revenues consist of revenues from:
a) Monthly service fees from International and domestic leased lines;
b) Monthly service fees on Corporate Internet services and charges in excess of
free allocation;
c) One-time connection charges associated with the establishment of service;
d) Other wholesale transport services; and
e) Revenues from value-added services.
to P28,982 million on the back of higher usage of local and
Revenues from (b) are net of any interconnection or settlement payments to other
carriers.
main revenue drivers have been the higher subscriptions
Non-service revenues are reported net of discounts on phonekits and SIM
(Subscriber Identification Module) packs. The cost related to the sale of handsets
and SIM packs are shown under cost of sales. The difference between non-service
revenues and cost of sales is referred to as subsidy.
higher usage of value-added services from an expanded prepaid
service revenues. Wireless voice grew by 3% year-on-year
4
international voice services. Wireless data revenues accounted
for the remaining 43% of total wireless service revenues.
Wireless data continued to register positive growth, increasing
6% year-on-year to close the year at P21,690 million. The
acquired from our unlimited SMS offers coupled with the
5
subscriber base.
Key Indicators
Net Cumulative Subscribers/SIMs
Postpaid
Prepaid
Globe Prepaid
TM
Net Average Revenue Per Subscriber
(ARPU)
Postpaid
Prepaid
Globe Prepaid
TM
Subscriber Acquisition Cost (SAC)
Postpaid
Prepaid
Globe Prepaid
TM
Average Monthly Churn Rate (%)
Postpaid
Prepaid
Globe Prepaid
TM
31 Dec
2006
31 Dec
2005
15,659,742 12,403,575
643,901
594,142
YoY
Change
(%)
26%
8%
15,015,841 11,809,433
10,118,897
8,699,687
4,896,944
3,109,746
27%
16%
57%
Our prepaid segment made up 96% of our total subscriber
base. Overall, our consolidated prepaid subscribers significantly
increased by 27% from 11.8 million in 2005 to around 15
million at year end. With lower year-on-year churn levels across
both prepaid brands, consolidated prepaid net additions
improved to 3.2 million in 2006 compared to 74 thousand net
reductions in 2005.
1,673
1,635
2%
262
181
268
214
-2%
-15%
6,787
7,026
-3%
83
91
248
90
-67%
1%
Globe Prepaid registered a 16% year-on-year growth in its SIM
base to close the year with 10.1 million subscribers. TM had
another banner year as it continues to expand its reach and
establish its presence in the market. TM closed the year with
4.9 million cumulative subscribers, a remarkable 57% year-onyear growth in its subscriber base.
Globe Prepaid gross additions were 8% lower year-on-year at 6.8
1.8%
million compared to 7.3 million in 2005. However, the significant
3.1%
improvement in its churn rate from 7.8% down to 4.7% has led to
4.7%
5.9%
healthy net additions of 1.4 million compared to the 1.5 million net
7.8%
9.4%
reductions the previous year. Competitive and unique value offers
and effective retention and loyalty programs are the drivers behind
Our subscriber base continued on an upward trajectory posting
the brand’s strong performance this year.
a significant year-on-year growth of 26%, ending the year with
15.7 million subscribers. Total gross subscriber additions for
TM posted 4.6 million in gross additions compared to last year’s
the year amounted to 11.6 million which is at par with 2005
4.1 million. TM successfully acquired new subscribers and
level. However, gross subscriber additions in 2005 still included
drove down its churn rate. From a high of 12.70% recorded for
acquisitions of prepaid subscribers from the SIM swap program
full year 2004 and 9.4% for 2005, TM’s churn rate stood at a
which created a number of non-revenue generating subscribers
stronger 5.9% for full year 2006. With strong gross additions
that were subsequently churned out after their second expiry.
and healthier churn rate through steady introductions of
With improved churn rates across all brands, Globe’s net
compelling value promotions customized to its target market’s
additions for the full year reached 3.3 million, a reversal from
needs, TM’s net additions for the year stood at 1.8 million, up
the net reduction of 110 thousand in 2005.
27% from last year’s 1.4 million.
Our postpaid segment comprised approximately 4% of our
Wireline Business
total subscriber base. Our cumulative postpaid subscribers
Innove, a wholly-owned subsidiary, provides our wireline voice
grew 8% from last year to reach 643,901 at the end of 2006.
communications, private data networks and internet services
Total postpaid gross additions registered 185,801 for the
to individuals and enterprises in the Philippines under the
year while net additions reached 49,759 as a result of lower
Globelines and GlobeQuest brands.
churn at 1.8%, which is significantly below last year’s churn
rate of 3.1%. The improvements in churn during the year can
Our Globelines brand provides state-of-the-art digital
be attributed to continuing subscriber loyalty programs and
communications technologies to homes and small and medium-
competitive service offers.
sized enterprises. With the availability of postpaid or prepaid
options, subscription to Globelines comes with standard
9
features and value-added services such as IDD, NDD, Phone
On the wireline data front, wireline data business registered
Lock, Caller ID, Call Waiting, Multi-Calling, Call Forwarding,
service revenues of P2 billion, broadly in line with the previous
Voice Mail, Duplex Number, Hotline and Special Numbers.
year. Despite the higher circuit base, total revenues were flat
largely due to the appreciation of the peso.
For our wireline data services, Innove’s GlobeQUEST brand
For the full year ended
(In millions of pesos)
offer end-to-end solutions for corporate clients through valuepriced, high-speed data services over a nationwide broadband
Wireline Data
International
Domestic
Others ¹
Total Wireline Data Service Revenues
network. This includes domestic and international data services,
wholesale and corporate internet access data center services
and segment-specific solutions customized to the needs of
31 Dec
2006
31 Dec
2005
YoY
Change
(%)
604
834
612
2,050
679
797
544
2,020
-11%
5%
13%
1%
vertical industries.
¹ Includes revenues from value-added services and corporate internet services.
Overall, the wireline sales reported P6,362 million in net
service revenues for 2006 compared to P6,416 million in
International Long Distance (ILD) Services
2005. Lower wireline revenues resulted mainly from the
On a consolidated basis, ILD revenues from the Wireless
appreciation of the peso which impacted the business’ US$-
and Wireline services increased by 3% to P13,967 million
linked revenues. In 2006, wireline foreign-currency linked
during the year compared to P13,526 million for the same
revenues comprised 60% of its net revenues.
period in 2005. We continue to see positive results from
the successful launches of various IDD tariff promotions
Innove increased its total wireline voice subscribers by 6%
starting the second half of 2005. This has resulted in higher
to 383,876 from 362,143 in 2005. This subscriber base
inbound and outbound ILD minutes and increased revenue
is comprised of 63% postpaid and 37% prepaid, with the
for our wireless business.
business to residential mix ratio of 22:78 and 23:77 for the
Both Globe and Innove offer ILD services which cover
years 2006 and 2005, respectively.
international calls between the Philippines and over 200
Our broadband business continues to show robust growth,
countries. This service generates revenues from both
registering a year-on-year increase in subscribers of 129%,
inbound and outbound international call traffic with pricing
bringing our cumulative base to 51,426 by the end of 2006.
based on agreed international termination rates for inbound
This growth is attributable to the increasing affordability of our
traffic revenues and NTC-approved ILD rates for outbound
consumer broadband offerings.
traffic revenues.
For the full year ended
While cumulative subscribers grew, churn rates for the year
increased year-on-year from 1.7% to 1.9% owing to the higher
from company-initiated clean up of delinquent accounts.
31 Dec
2006
Cumulative Voice Subscribers Net (End of period)
383,876
Average Revenue Per Subscriber (ARPU)
Gross ARPU
1,110
Net ARPU
978
Average Monthly Churn Rate
1.9%
Broadband Subscribers-Net
(End of period)
51,426
31 Dec
2005
YoY
Change
(%)
362,143
6%
1,233
1,088
1.7%
-10%
-10%
22,479
129%
31 Dec
2005
24%
25%
Total ILD Minutes (in million minutes) ¹
1,948
1,469
33%
Inbound
Outbound
1,689
259
1,251
218
35%
19%
6.5
5.7
Total ILD Revenues as a percentage
of net service revenues
disconnections experienced in the postpaid service resulting
Key Indicators
31 Dec
2006
ILD Inbound / Outbound Ratio (x)
YoY
Change
(%)
¹ ILD minutes originating from and terminating to Globe and Innove networks.
0
Corporate Governance
BOARD OF DIRECTORS
Globe Telecom recognizes the importance of good governance
in realizing its vision, carrying out its mission and living out its
values to create and sustain increased value and returns for its
Key Roles
customers and stakeholders.
The Board is the supreme authority in matters of governance.
The Board establishes the vision, mission, and strategic
As strong advocates of accountability, transparency and integrity
direction of the Company, monitors over-all corporate
in all aspects of the business, the Board of Directors (“Board”),
performance, and protects the long-term interests of the various
management, officers, and employees of Globe Telecom commit
stakeholders by ensuring transparency, accountability, and
themselves to the principles and best practices of governance in
fairness. The Board also ensures the adequacy of internal
the attainment of its corporate goals.
control mechanisms to safeguard company assets, reliability of
financial reporting, and compliance with applicable laws and
The machinery for corporate governance is principally contained
regulations.
in the Company’s Articles of Incorporation and By-Laws
which lay down the basic structure of governance, minimum
In addition, certain matters are reserved specifically for
qualifications of directors, Board membership of at least two
the Board’s disposition, including the approval of corporate
independent directors, as well as the principal duties of the
operating and capital budgets, major acquisitions and disposals
Board and officers of the Company.
of assets, major investments, and changes in authority and
approval limits.
To further strengthen its governance framework and in
compliance with the Securities and Exchange Commission’s
Board Composition
Memorandum Circular No. 2 Series of 2002, the Company
The Board is composed of eleven (11) members, elected by
adheres to a Manual of Corporate Governance which clearly
stockholders entitled to vote during the Annual Stockholders
sets out the principles of appropriate supervision and good
Meeting (ASM). The Board members hold office for one
management, and which defines the specific responsibilities of
year and until their successors are elected and qualified in
the Board, the Board Committees, and management within the
accordance with the By-laws of the Company.
over-all governance framework.
The roles of the Chairman of the Board and the Chief Executive
The Company has likewise adopted a Code of Conduct for
Officer (CEO) are clearly delineated and are held by two (2)
employees as a guide to matters involving work performance,
separate individuals to ensure balance of power and authority
dealings with employees and customers, handling of assets,
and to promote independent decision-making. The Chairman
records and information, and the avoidance of conflict of
is a non-executive director who is not involved in the day-to-day
interest situations and corrupt practices.
management of the business.
Initiatives are regularly being pursued to develop and adopt
The Board includes two (2) independent directors of the caliber
corporate governance best practices, and to build the right
necessary to effectively weigh in on Board discussions and
corporate culture across the organization.
decisions. Globe defines an independent director as a person
who is independent from management and free from any
The following section summarizes the key corporate governance
business or other relationship which could materially interfere
processes and practices adopted by Globe Telecom.
with his exercise of independent judgment in carrying out his
responsibilities as a director.
All board members have the expertise, professional experience,
and background that allow for a thorough examination and
deliberation of the various issues and matters affecting the
Company. In accordance with SEC Memorandum No. 16 Series
of 2002, the qualifications of all nominees are reviewed by the
Nominations Committee, which is chaired by an independent
director. The names and profiles of each individual director are
found in the “Board of Directors” section of this annual report.
21
As of 31 December 2006, the Board comprised the following
Board Committees
members:
To further support the Board in its performance of its functions
and to aid in good governance, the Board has established five
Name
Position
Jaime Augusto Zobel de Ayala II
Delfin L. Lazaro
Lim Chuan Poh
Gerardo C. Ablaza, Jr.
Romeo L. Bernardo
Roberto F. de Ocampo
Koh Kah Sek
Xavier P. Loinaz
Guillermo D. Luchangco
Chairman
Co-Vice Chairman
Co-Vice Chairman
Director
Director
Director
Director
Director
Director
Jesus P. Tambunting
Director
Fernando Zobel de Ayala
Director
(5) committees. The Board Committees regularly met in 2006
Nature of
Appointment
Non-executive
Non-executive
Non-executive
Executive
Non-executive
Non-executive
Non-executive
Non-executive
Non-executive/
Independent
Non-executive/
Independent
Non-executive
to perform their respective functions.
Executive Committee
The Executive Committee (ExCom) is comprised of four (4)
members, at least three of whom are members of the Board.
The ExCom acts by majority vote and in accordance with the
authority granted by the Board or in the absence of the Board.
All actions of the ExCom are reported to the Board at the
meeting following such action and are subject to ratification or
revision and alteration by the Board.
Audit Committee
Jaime Augusto Zobel de Ayala II and Fernando Zobel de Ayala are brothers.
The Audit Committee supports the corporate governance
process through its oversight responsibility relating to the
Board Remuneration
financial statements and the financial reporting process, system
In accordance with the Company’s By-Laws, the Board members
of internal and financial reporting controls, internal audit,
receive stock options and remuneration in the form of a specific
external audit, risk management, and compliance with legal and
sum for attendance at each regular or special meeting of the
regulatory matters.
Board. A per diem of P 100,000 per Board or committee
meeting was agreed and approved by the shareholders during
The committee relies on the expertise of management, internal
the ASM held last April 1, 2003. The remuneration is intended
and external auditors, and ensures that adequate checks and
to provide a reasonable compensation to the directors in
balances exist. It conducts executive sessions with external
recognition of their responsibilities and the potential liability
auditors to review their independence, and with the internal
they assume as a consequence of the high standard of best
auditors to ensure their free and unrestricted access to records,
practices required of the Board as a body, and of the directors
properties, and personnel.
individually, under the SEC-promulgated Code of Corporate
Governance. Also, the level of per diem is in line with
The committee is composed of three (3) members, at least one
standards currently practiced among publicly listed companies
of whom is an independent director. An independent director
similar to Globe Telecom.
chairs the Audit Committee.
Board Performance
Compensation Committee
The Board met eleven (11) times during 2006, including the
The Compensation Committee is tasked to review the
ASM and an organizational meeting. For 2006, all directors
compensation philosophy and structure of the Company and
have complied with the Securities and Exchange Commission’s
the reasonableness of its compensation and incentive plans.
(SEC) minimum attendance requirement of 50%.
It is also responsible for setting the remuneration packages of
certain corporate officers. The committee is composed of three
(3) members, one of whom is an independent director.
Prior to the Board meetings, all of the Directors are provided
with Board papers which include reports on the Company’s
strategic, operational, and financial performance and other
Nominations Committee
regulatory matters. The Board also has access to the Corporate
The Nominations Committee reviews the qualifications of members
Secretary and the Assistant Corporate Secretary who, among
of the Board to ensure that they have all the qualifications and
other functions, oversee the flow of information to the Board
none of the disqualifications stated in the By-Laws and the Manual
prior to the meetings and who serve as advisers to the directors
of Corporate Governance of the Company. They also preview and
on their responsibilities and obligations. The members of
evaluate the qualifications of candidates nominated to positions
the Board also have access to management should they
which require appointment by the Board. The committee is
need to clarify matters concerning items submitted for their
composed of three (3) members, including one independent
consideration.
director. An independent director chairs the committee.
Finance Committee
enterprise-wide risk management framework to enhance the
The Finance Committee is responsible for reviewing and
risk management process and institutionalize a more structured
evaluating the financial affairs of the Company, including
approach to managing the Company’s business risks.
conducting an annual review of all financial activities during the
immediately preceding year prior to each ASM. The committee
A Chief Risk Officer now champions and oversees the entire
is composed of three (3) members.
risk management function. A risk management unit has also
been formally set up to make the function a regular one, rather
The members of each committee are set forth below:
than an ad hoc activity. Risk owners have been designated,
trained, and made responsible and accountable for managing
Executive Committee
Delfin L. Lazaro*
Lim Chuan Poh
Gerardo C. Ablaza, Jr.
Gil B. Genio
Compensation Committee
Delfin L. Lazaro*
Lim Chuan Poh
Guillermo D. Luchangco
Audit Committee
Jesus P. Tambunting*
Delfin L. Lazaro
Lim Chuan Poh
Nominations Committee
Guillermo D. Luchangco*
Delfin L. Lazaro
Lim Chuan Poh
risks, consistent with management’s belief that risks are best
Finance Committee
Delfin L. Lazaro*
Koh Kah Sek
Delfin C. Gonzalez, Jr.
understood and managed by the employees who are responsible
for the particular process or activity from which the risk arises.
The Board provides an oversight role for the Company’s risk
management activities and approves Globe Group’s risk
management policies and any revisions thereto. The CEO,
as the over-all risk executive, oversees the risk management
activities of the Company and ensures that the responsibilities
* Chairman
for managing risk is clear, the level of risk accepted by
MANAGEMENT
the Company is appropriate, and that an effective control
The CEO, with the assistance of the rest of the Senior Executive
environment exists for the Company as a whole.
Group (SEG), is responsible for the development and execution
of strategies in line with the Company’s vision, mission, and
AUDIT AND INTERNAL CONTROLS
values statements, the day-to-day management of the business,
To effectively carry out its objectives, the Audit Committee
and the implementation of the Board’s policies and decisions.
maintains independence from management and the controlling
The SEG meets at least twice a month.
shareholders. It has commissioned the services of the
Internal Audit group to provide independent advisory services
Accountable to the Board, management is obligated to
to the Company to help improve effectiveness and efficiency
provide the Board with complete and accurate information
of operations. The group is also tasked to ensure that the
on the operations and affairs of the Company in a timely
Company’s key organizational and procedural controls are
manner. Management is also required to prepare financial
effective, appropriate and complied with. The Internal Audit
statements for each preceding financial year in accordance
group reports functionally to the Board, through the Audit
with generally accepted accounting standards in the
Committee, and administratively to the President and CEO.
Philippines. Management’s statement of responsibility with
regards to the Company’s financial statements is included in
The Board, through the Audit Committee, also recommends an
this annual report.
independent auditor to perform an independent audit of the
Company’s operations, as well as provide an objective assurance
The annual compensation of the CEO and the seven (7) other
on the reasonableness of the financial statements and relevant
top officers of the company are disclosed in the Definitive
disclosures.
Information Statement distributed to the shareholders. The
total annual compensation includes the basic salary, guaranteed
The representatives of the independent auditor are expected
bonuses, fixed allowances, and variable pay (performance-based
to be present at the ASM and have the opportunity to make a
annual incentive).
statement on the Company’s operations if they desire to do so.
The auditors are also expected to be available to respond to
appropriate questions during the meeting.
ENTERPRISE RISK MANAGEMENT
Recognizing the dynamism of the business and industry, Globe
Telecom aims to continuously improve its corporate governance
The elected principal accountants and external auditors for
and risk management capabilities to maximize profit and
Globe Telecom for 2006 is SyCip, Gorres, Velayo & Company
minimize loss. As early as 2000, the Company completed a
(SGV & Co.). In accordance with regulations issued by the SEC,
risk self-assessment to identify risks and their likely impact
the audit partner handling the Company’s account is rotated
to operations. Since that time, the Company has adopted an
every five (5) years or sooner.
3
Billings for services rendered in connection with the engagement
FINANCIAL REPORTING
for 2006 amounted to P13.9 million as compared to P16.6
The consolidated financial statements of Globe Telecom and its
million for 2005.
subsidiaries have been prepared in accordance with Philippine
Financial Reporting Standards, which are aligned with International
In addition to performing the audit of Globe Group’s
Financial Reporting Standards. The financial statements are
financial statements, SGV & Co. was also selected, in
reviewed by the Audit Committee (with the support of the Internal
accordance with established procurement policies, to
Audit group) and the external auditors to ensure that they fairly
provide other services in 2006.
present, in all material respects, the financial position of the
Company. The Board also reviews and approves the consolidated
The aggregate fees billed by SGV & Co. are shown below (with
financial statements prior to public release.
comparative figures for 2005):
The financial statements include a breakdown of the Company’s
(In millions of pesos)
Audit fees 1
Billed during the current year
Billed in succeeding year
Total Audit fees
Audit-related fees 2
Tax fees 3
All other fees 4
Total
2006
2005
9.1
4.8
13.9
0.4
3.2
17.5
10.5
6.1
16.6
0.8
0.4
0.8
18.6
assets, liabilities, equity, cash flows, and results of operations.
Information showing the performance of the wireless and wireline
segments is also disclosed to show their respective contributions
to total corporate performance. Finally, the financial statements
include a detailed discussion of the Company’s accounting policies
and any estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
DEALINGS IN SECURITIES
Includes audit of Globe Group’s annual financial statements and review of quarterly
financial statements in connection with the statutory and regulatory filings or
engagements for the years ended 2006 and 2005.
1
Globe Telecom has adopted strict policies and guidelines for trades
involving the Company’s shares made by key officers and those
with access to material non-public information. Key officers and
Includes assurance services related to the review of Globe Group’s financial
statements.
2
those with access to the quarterly results in the course of review
are prohibited from trading in Globe’s shares starting from the
Includes tax consultancy and advisory services outside the scope of financial audits
and reviews.
3
4
time when quarterly results are internally reviewed until after
Globe publicly discloses its results. Notices of trading blackouts
Includes one-time, non-recurring special projects/consulting services and seminars.
are regularly issued to the officers concerned and compliance is
monitored by the Corporate and Regulatory Affairs group. Also,
The Audit Committee has an existing policy to review and to
all key officers are required to submit a report on their trades to
pre-approve the audit and non-audit services rendered by the
a designated compliance officer, for submission to the SEC in
Company’s independent auditors. It does not allow the Globe
accordance with the Securities Regulation Code.
Group to engage the independent auditors for certain non-audit
services expressly prohibited by SEC regulations to be performed
DISCLOSURES ON OWNERSHIP STRUCTURE
by an independent auditor for its audit clients. This is to ensure
Globe Telecom annually discloses the top 20 shareholders of
that the independent auditors maintain the highest level of
the common and preferred equity securities of the Company.
independence from the Company, both in fact and appearance.
Disclosure is also made of the security ownership of certain record
and beneficial owners who hold more than 5% of the Company’s
The Audit Committee has reviewed the nature of non-audit
common and preferred shares. Finally, the shareholdings and
services rendered by SGV & Co. and the corresponding fees
percentage ownership of the directors and key officers are disclosed
and concluded that these are not significant to impair the
in the Definitive Information Statement sent to the shareholders
independence of the auditors.
prior to the ASM.
There were no disagreements with the Company’s independent
SHAREHOLDER RELATIONS
auditors on any matter of accounting principles or practices,
Globe Telecom recognizes the importance of regular communication
financial statement disclosure, or auditing scope or procedure.
with its investors, and is committed to high standards of disclosure,
transparency, and accountability. The Company aims to provide
a fair, accurate, and meaningful assessment of the Company’s
4
financial performance and prospects through the annual report,
sessions, the Company’s employees learn, discover, and work
quarterly financial reports, and analyst presentations.
together in striving for excellence. Balanced performance metrics
are also put in place to support leadership with integrity to ensure
The Company’s quarterly financial results are disclosed to the SEC
that performance targets made are delivered, and eventually
and Philippine Stock Exchange (PSE) within 24 hours from their
reinforced, recognized, and rewarded.
approval by the Board. The Company also files its quarterly and
year-end financial statements and the detailed management’s
The Company believes that leadership and talent management is a
discussion and analysis within forty-five (45) and one hundred and
competitive advantage for winning the future. As such, succession
five (105) calendar days respectively from the end of the financial
planning and talent development processes are institutionalized.
period covered by the report, in compliance with the financial
These are reinforced by feedback, coaching, and career planning
reporting and disclosure requirements of the SEC and the PSE.
programs. Opportunities are also provided for key talents to learn
These reports are also made available to the analysts immediately
from other best practice companies here and in the region. Various
upon confirmation by the SEC of receipt of disclosure, and are
talent pipelines have been put in place to make sure that Globe
posted on the Company’s website.
Telecom is able to grow and develop the next generation of leaders
who will drive the business of the future.
Additionally, any material, market-sensitive information such as
dividend declarations are also disclosed to the SEC and PSE, as
The Globe Group has 5,161 active regular employees as of
well as released through various media including press releases and
December 31, 2006, of which about 14% are covered by a
Company website posting.
Collective Bargaining Agreement (CBA) with the Globe Telecom
Workers Union (GTWU). The CBA is valid until December 31,
The Company regularly holds quarterly investor briefings to discuss
2010 with a renegotiation on the economic aspects in 2008, a
the quarterly financial results. A conference call facility is set up
process that is expected to arrive at a peaceful and swift conclusion
during these investor briefings to enable wider participation. The
as in the previous CBAs. The Company has a long-standing,
Company also participates in both local and international investor
cordial, and constructive relationship with the GTWU characterized
conferences as part of its investor communications program.
by industrial peace. It is a partnership that mutually agrees to
focus on shared goals – one that has in fact allowed the attainment
Globe Telecom likewise holds an annual stockholders’ meeting
of higher levels of productivity and consistent quality of service to
where shareholders are given the opportunity to raise questions and
customers across different segments.
clarify issues relevant to the Company. The Board, CEO, members
of management, and external auditors are present to address any
PLANS TO FURTHER IMPROVE CORPORATE GOVERNANCE
questions raised at these meetings.
Globe Telecom, through its Board of Directors, is continually
reviewing its policies and processes to improve corporate
Enquiries by shareholders, whether by telephone, mail, or electronic
governance within the Company. It is currently evaluating
mail, are dealt with as promptly as possible. Shareholders,
the inclusion of a Whistleblower Policy in its Code of Conduct
investors, and the public may also access the Company’s website to
for employees. The policy will cover the handling, receiving,
obtain information on the Company.
investigating, and reporting of complaints from whistleblowers,
including reports on fraudulent reporting practices. The
EMPLOYEE RELATIONS
Company is likewise reviewing and updating its risk
Globe Telecom is committed to enhancing not just human capital
management structure and policies to continuously strengthen
but also human potential. The Company’s people strategy is
the Company’s risk management capabilities and ensure its on-
centered on empowering, engaging, and constantly energizing its
going relevance and viability.
talents so that no business challenge proves impossible.
As an organization needing to reinvent itself constantly, continuous
improvement, managing change and developing competencies are
disciplines that are being ingrained in various teams. Whether
in training programs, in project post-mortems, through employee
engagement and organization diagnosis surveys, in quarterly
business reviews or in lunch-time brownbag informal learning
25
Corporate Social Responsibility
EDUCATING FUTURE LEADERS
Helping Filipinos to benefit from
methods and know-how, such as cost
improved communications and increased
reduction techniques and logistics, to
connectivity is at the heart of Globe and
enable communities to tackle seemingly
In order to improve the lives of young
Innove. We recognize that our business
intractable problems in the fields of
people and give them world-class
has a vital role to play in developing
education and entrepreneurship.
education, our Text2Teach Program
empowered individuals and communities
brought in learning tools and training
Our flagship programs, Globe’s Bridging
to communities all over the archipelago
Communities (Bridgecom) and Innove’s
through educational videos downloaded
We have moved our concept of Corporate
Internet in Schools Program (ISP), both
via Short Messaging System (SMS).
Social Responsibility (CSR) beyond
reflect our commitment to education
the boundaries of compliance, public
and entrepreneurship as enablers for
Text2Teach proved that multi-media
relations and philanthropy to become
excellence and progress.
assisted learning were effective
ready to lead in a changing world.
a more integral part of corporate
teaching aids, firing up the imagination
governance and strategy. We contribute
This year, we made significant strides in
of students with moving images and
our expertise in problem solving and
bringing our CSR programs to a wider base.
boosting their test scores.
project planning, sharing business
We have moved our concept of Corporate Social Responsibility
beyond the boundaries of compliance, public relations and
philanthropy to become a more integral part of corporate governance
and strategy.
26
Now, teachers can order over 480 kinds
Information Technology (IT) revolution.
We provided free internet access to the
of educational videos in Science, Math,
In 2006, ISP provided web access to
University of the Philippines High School
English and Pilipino from Pearson
551 schools, the bulk of which are in the
in Cebu, enabling them to design the
Education and other sources that were
Visayas, with 371 schools; followed by
website which won the Gold in the 2006
stored in the Nokia Mediamaster after
Mindanao, with 103 and Luzon, 77.
Globalnet’s International Cyberfair.
downloading through Dream Cable. These
videos are supported by 480 lesson
Innove, which led the pack in testing
guides with exercises plus supplemental
Wi-Max (Wireless Inter-operability for
activities designed by the South East
Microwave Access) in the ASEAN region,
Asia Ministers of Education Organization
likewise pioneered the use of the latest IT
(SEAMEO-Innotech). Today, Text2Teach
such as Wi-Max in the public educational
is in 210 public elementary schools
system whereby it launched the first
nationwide (majority of which is found
Wi-Max school in the country this year
in the Autonomous Region of Muslim
- Governor Ferrer Municipal National High
Mindanao) benefiting 122,000 students
School in General Trias, Cavite.
and 920 teachers.
Innove complemented ISP with its
Our Globe Tulong Eskwela (GT Eskwela)
iTEACH, iCARE program, which engaged
We also contributed P100,000
mobilizes employee volunteers to teach
employee volunteers to raise the level
worth of school supplies for Mindoro
students. The program which also
of computer literacy of some 1,500
elementary students in a tie-up with
provides educational TV packages, books
students in 25 public high schools.
“GMA Kapuso for Unang Hakbang-alay
and computers is now present in 5
sa Kabataang Pinoy”.
schools in Quezon City, Oriental Mindoro,
We also continued our partnerships
Quezon and Cebu. Some 210 Globe
with the Ayala Foundation’s Gearing Up
EMPOWERING GRASSROOTS
employee-volunteers invested 4,460
Internet Literacy and Access for Students
COMMUNITIES
volunteer hours in our GT Eskwela. Our
(GILAS), Growth with Equity in Mindanao
employee volunteers tutored 3,000
(GEM)-US Agency for International
By forging sustainable bonds with
students from the selected schools,
Development (USAID)’s Computer
grassroots micro-entrepreneurs, we make
visiting them at least twice a month,
Literacy and Internet Connection Project
them our true partners in progress.
mentoring them in various subjects and
for public high schools in Autonomous
introducing new media teaching methods
Region of Muslim Mindanao (ARMM)
Globe’s three-year old BridgeCom gave
for teachers as well as enterprise
and Conflict Affected Areas in Mindanao
community-based capability-building
development for the students’ parents.
(CAAM) and Ateneo de Manila’s
assistance to barangays where our
Pathways to Higher Education Computer
almost 6,000 cellular sites are located.
Literacy Program.
In all, Globe BridgeCom covered over
More than 60 college students also
benefit from our annual Globe Future
700 barangays in 2006, providing
Business Leaders Conference which
Innove donated continuous internet
livelihood training programs to over
prepares business and management
subscriptions worth P6 million to
2,500 barangay leaders and micro-
students for the competitive world of
institutions such as the Cebu Educational
entrepreneurs.
telecommunications.
Development Foundation for IT, the
Marcelo Fernan Press Center, Cebu
Our Globe Bridgecom sa Bayan (BSB)
Innove’s ISP placed the Philippine public
and the Center for Teacher Excellence
trains barangay officials, micro-
school system at the forefront of the
computer laboratory.
entrepreneurs, micro-finance and
27
cooperative officers, youth groups and
and flexibility, rather than always-on
Albay, Sorsogon, Camarines Sur and
families of Overseas Filipino Workers to
connections and megabits-per-second.
Camarines Norte, thousands more flocked
be the backbone of tomorrow’s economy.
to our “Libreng Tawag” Centers.
To bring the broadband experience to
Our 60 enterprise development training
SMEs, we also provided kiosks with desktop
Globe, Innove and its employees raised
programs taught over 20 livelihood
computers and free broadband access in
P4.3 million in cash and in kind through
and small business opportunities to
10 DTI-identified pilot centers in Makati,
Globe BridgeCom’s Disaster Relief
2,500 barangay leaders and micro-
Lipa, Iloilo, Cebu, Tagbilaran, Cavite,
Operations and Innove’s iGIVE, iCARE
entrepreneurs in 600 barangays and
Bacolod, Tacloban, Iligan and Bulacan.
program. Relief goods were distributed
16 people’s organizations and microfinance institutions in 230 cities and
to families in 32 barangays devastated
CARING FOR THE ENVIRONMENT
municipalities.
by Typhoon Milenyo and Reming. Some
400 volunteers spent 4,000 volunteer
Your Company has an ongoing Safety
hours in this undertaking.
In 2006, our BSB reached out to far-flung
Health and Environment (SHE) program
areas, training local folks in fruit and
to ensure responsible use of resources in
Innove’s iGIVE, iCARE also mobilized
vegetable processing as well as farming,
our business.
relief operations for victims of the
herbal medicine and soap production. We
Southern Leyte mudslide. Our employee
forged partnerships with the private sector
Globe’s “Bantay Baterya” recycled 100%
volunteers called for donations of food,
to develop community-based tourism and
of all used lead-acid batteries from all
mineral water and clothes, repacked and
help barangays manufacture, package
of our operations. Globe employees also
distributed goods.
and market local goods.
volunteered 125 hours for tree planting
while Innove volunteers planted trees
Innove also launched Hotline 167 for the
PREPARING THE FUTURE PILLARS OF
around the Cebu Business Park in co-
Provincial Disaster Coordinating Council
COMMERCE
celebration of Earth Day with the Ayala
in Cebu, thereby ensuring dependable
Foundation and provided a venue for
communications for calamities affecting
Haribon Foundation briefings.
the Visayas region.
Philippine economy, comprising 99.6%
COMMUNITY SERVICE & DISASTER
Our “Makipasko 2006” reached out
of all registered firms nationwide and
RELIEF
to Cebu’s 120 abandoned and abused
Small and medium-sized enterprises
(SMEs) form the backbone of the
employing 69.9% of the labor force.
children aged 4 to 10 years. Over half
SMEs find computer technology useful
Your Company conducted several
a hundred Innove employee volunteers
but regularly require support to better
medical missions and disaster relief
treated these children to a party with
harness broadband to make their
operations in 2006.
games, food, entertainment and gifts.
Globe BridgeCom brought medical missions
Finally, Globe, Innove and its employees
In 2006, Innove partnered with the
to the provinces of Batanes, Ilocos Norte,
helped build the Gawad Kalinga
Department of Trade and Industry
Biliran, Palawan and Cavite to 100
communities in Bagong Silang, Caloocan
(DTI) to educate SMEs in high-speed
barangays and treated 4,500 indigent
City and Mansilingan, Negros Occidental.
connection technology and allow them
patients. Over 100 volunteers rendered
Hundreds of our employee volunteers
to capitalize on the advantages of
2,836 hours of service in these missions.
helped construct homes and provided
businesses more competitive.
broadband.
various assistance projects in these
Our Globe BridgeCom “Libreng Tawag”
communities. To date, there are 21
Innove conducted briefing sessions on
provided free prepaid calls to thousands
houses that were turned-over to the
e-commerce addressing prime SME
of families in war-torn Lebanon and
beneficiaries of Gawad Kalinga.
concerns such as profit, efficiency, speed
Israel. When disaster hit Southern Leyte,
28
All our CSR programs challenge and
GT Eskwela also won the International
in the International Collaboration
bring out the best in our employees,
Association of Business Communicators
Festival in the US, a gathering of
encouraging volunteerism, leadership,
(IABC) Gold Quill Awards.
CSR development strategists, NGOs,
and social responsibility in our workforce.
government and business. Bridgecom
We are pleased to note that there is no
Globe Bridgecom and its
was one of only two CSR programs from
shortage of volunteers amongst employees
entrepreneurship program Bridgecom sa
the Philippines to have been given this
for the Company’s many CSR programs.
Bayan garnered the IABC’s Gold Quill
honor. We also presented BSB in the Asia
and the Public Relations Society of the
Business Perspectives on CSR Forum in
RECOGNITION FOR SERVICE TO THE
Philippines’ Anvil Awards of Excellence
Kuala Lumpur, Malaysia.
COMMUNITY
in 2006. BSB was again cited for
excellence in Corporate-NGO partnership
In 2007, we will further strengthen our
We are pleased to report that our CSR
category in the Kyra Awards of Venture
advocacy to champion education and
programs have been recognized by the
for Fund Raising.
nurture and interconnect the country’s
community in various ways.
present and future entrepreneurs. We
These awards reaffirm and renew our
strongly believe that educated young
Our Text2Teach Program won the 2006
commitment to continue to deliver
Filipinos and empowered community
Asian CSR Awards in the Support and
relevant CSR programs that change the
entrepreneurs are today’s wealth creators
Improvement of Education Category.
lives of the communities we have the
and will be tomorrow’s big companies.
privilege to serve.
Through our CSR programs, we in Globe
and Innove will be a significant part of
The Asian Development Bank also
cited Innove’s iTEACH, iCARE for its
We have had the unique honor of being
contribution to ICT education and youth
asked to share our vision for CSR with
development.
other countries. We presented Bridgecom
that vision.
In 2007, we will further strengthen our advocacy to champion
education and nurture and interconnect the country’s present and
future entrepreneurs.
29
Board of Directors
Jaime Augusto
Zobel de Ayala II
Lim
Chuan
Poh
Delfin L.
Lazaro
Jaime Augusto Zobel de Ayala II.
Chairman of the Board since 1997 and
a Director since 1989. Chairman of the
Board of Directors and Chief Executive
Officer of Ayala Corporation; Chairman
of the Board of Directors of Bank of
the Philippine Islands and Integrated
Micro-electronics, Inc.; Vice Chairman
of Ayala Land, Inc., Co-Vice Chairman
of Ayala Foundation, Inc. Member of 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). Awardee of the Ten
Outstanding Young Men in the Philippines
in 1999. Awarded Management Man of
the Year for 2006 by the Management
Association of the Philippines.
Delfin L. Lazaro. Director since 1997.
Lim Chuan Poh. Director since 2001.
Chairman of the Executive Committee of
Executive Vice President (Strategic
Globe; Chief Finance Officer from 2003
Investments) of Singapore Telecom;
to 2006 and member of the Management
Chairman of Bridge Mobile Alliance, which
Committee of the Ayala Corporation;
is Asia Pacific’s largest mobile alliance
President of Azalea Technology
Investments; Member of the Board of
Directors of Ayala Land, Inc., Manila Water
Co., Inc., Integrated Micro-electronics,
Inc. and Ayala Automotive Holdings
Corporation. Formerly the President
of Globe Telecom, Inc. and President
and CEO of Benguet Corporation and
Secretary of the Department of Energy
of the Philippine government; Awarded
Management Man of the Year 1999
by the Management Association of the
Philippines.
30
group. Former Deputy Secretary of the
Ministry of Communications. Also served
in different senior appointments in the
Singapore Civil Services.
Gerardo
C. Ablaza, Jr.
Fernando
Zobel de Ayala
Koh
Kah Sek
Gerardo C. Ablaza, Jr. Director since
1998. Currently President and Chief
Executive Officer of Globe Telecom. Senior
Managing Director of Ayala Corporation;
Former Vice President and Country
Business Manager for the Philippines
and Guam of Citibank, N.A. for Global
Consumer Banking business. Former Vice
President of Citibank, N.A. Singapore for
Consumer Banking.
Fernando Zobel de Ayala. Director since
1995. President and Chief Operating
Officer of Ayala Corporation. Chairman
of Ayala Land, Inc., Manila Water Co.,
Inc., AC International Finance Ltd., Ayala
International Pte. Ltd., Ayala Automotive
Holdings Corporation, Roxas Land
Corporation and Alabang Commercial
Corp.; Director of Integrated Microelectronics Inc. and Bank of the Philippine
Islands.; Co-Vice Chairman and Trustee
of Ayala Foundation, Inc.; Member of the
Board of Directors of Habitat for Humanity
International; Member of the East Asia
Council of INSEAD; and Member of the
Board of Trustees of the International
Council of Shopping Centers.
31
Koh Kah Sek. Director since 2006.
Joined SingTel in March 2005 as Group
Financial Controller. Formerly with Far East
Organisation – Yeo Hiap Seng Limited as
Vice President (Finance) responsible for
the financial functions of the Singapore
and US operations. Prior to joining Far
East Organization, spent a number of years
in PricewaterhouseCoopers and Goldman
Sachs.
Romeo L.
Bernardo
Xavier P.
Loinaz
Guillermo D.
Luchangco
Romeo L. Bernardo. Director since 2001.
Xavier P. Loinaz. Director since 2001.
President of Lazaro Bernardo Tiu &
Former President of the Bank of the
Associates, Inc. Member of the Board of
Philippine Islands (BPI). Director of
several private companies such as Bank of
BPI, BPI Capital Corporation, BPI Direct
the Philippine Islands, RFM Corporation,
Savings Bank, Inc., BPI/MS Insurance
PHINMA, Ayala Life Assurance, Philippine
Corporation, BPI Family Savings Bank, Inc.
Institute for Development Studies (PIDS)
Chairman of the Board of Directors of Ayala
Inc.; Chairman of Ayala Life Fixed Income
Life Assurance, Inc. Member of the Board
Fund. Former alternate director of the
of Trustees of BPI Foundation, Inc.
Asian Development Bank and Finance
Undersecretary for International Finance,
Privatization & Treasury Operations of the
Department of Finance of the Republic of
the Philippines. Former President of the
Philippine Economic Society and Chairman
of the Federation of ASEAN Economic
Societies.
32
Guillermo D. Luchangco. Director since
2001. Chairman and Chief Executive
Officer of Investment & Capital Corporation
of the Philippines, Cebu Light Industrial Park, Hermosa Ecozone Development Corp., ICCP Land Management,
Inc., Pueblo de Oro Development Corp.,
Regatta Beacon Land Corporation, Regatta
Properties, Inc, Tech Venture Partners,
Ltd., RFM -Science Park of the Philippines, Inc.; Chairman and President of
Beacon Property Ventures, Inc.; President
and CEO of ICCP Venture Partners, Inc.U.S.A.; Chairman of Bottecelli Holdings,
Inc., ICCP Group Foundation, Inc., ICCP
Venture Partners, Inc., Manila Exposition Complex, Inc. Director of Bacnotan
Consolidated Industries, Inc., Bacnotan
Industrial Park Corp., Iomni Precision,
Inc., Planters Development Bank, Ionics,
Inc., Ionic Circuits, Inc., Ionics EMS, Inc.,
Ionics EMS, Ltd., Ionics Properties, Inc.,
Science Park of the Philippines, Inc. and
Synertronix, Inc.
Roberto F.
de Ocampo
Renato O.
Marzan
Roberto F. de Ocampo. Director since
2003. Immediate past President of the
Asian Institute of Management (AIM); A
member of the AIM Board of Trustees;
Chairman of the Board of Advisors of
the RFO Center for Public Finance and
Regional Economic Cooperation; Former
Secretary of Finance of the Republic of the
Philippines; Former Chairman and Chief
Executive Officer of the Development Bank
of the Philippines; Recipient of Finance
Minister of the Year, Philippine Legion of
Honor, ADFIAP Man of the Year, Chevalier
of the Legion Honor of France, Ten
Outstanding Young Men Award (TOYM),
Several Who’s Who awards and the
2006 Asian HRD Award for Outstanding
Contribution to Society. Member/ Advisory
Board member of The Conference Board,
the Trilateral Commission, the BOAO
Forum for Asia and the Emerging Markets
Forum.
Jesus P.
Tambunting
Renato O. Marzan. Corporate Secretary
since 1993 and a former Director of Globe;
Managing Director of Ayala Corportion;
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.
33
Jesus P. Tambunting. Director since 2003.
Chairman and Chief Executive Officer of
Planters Development Bank, Chairman
of Planters DB Properties Inc., PDB
Insurance Agency, SME.com.ph., PDBFMO Development Center; Association
of Development Financing Institutions in
Asia and the Pacific (ADFIAP); Director
of Philam Asset Management, Inc. ;
Former Ambassador Extraordinary and
Plenipotentiary to the United Kingdom
of Great Britain and Northern Ireland;
Conferred Management Man of the Year
2003 by the Management Association of
the Philippines; “Knight of the Equestrian
Order of the Holy Sepulchre of Jerusalem”
by the Vatican in 2004 and the Lifetime
achievement Award in 2005 by the Asian
Bankers Association.
Senior Executive Group
Gerardo C.
Delfin C.
PRESIDENT & CHIEF EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER
GONZALEZ, Jr.
ABLAZA, Jr.
Gil B.
Rodolfo A.
CHIEF EXECUTIVE OFFICER - INNOVE
CORPORATE AFFAIRS &
REGULATORY MATTERS
HEAD
GENIO
SALALIMA
Rodell A.
GARCIA
CHIEF INFORMATION OFFICER
34
Ferdinand M.
DE LA CRUZ
CONSUMER BUSINESS HEAD
Rebecca V.
Susan
STRATEGY MANAGEMENT HEAD
HUMAN RESOURCES HEAD
ECLIPSE
Consultants
RIVERA-MANALO
Andrew
Robert L.
CHIEF OPERATING ADVISOR
CHIEF TECHNICAL ADVISOR
BUAY
35
WIGGINS
Audit Committee Report
Report of the Audit Committee to the Board of Directors
For the Year Ended 31 December 2006
The Audit Committee’s roles and responsibilities are defined in the Audit Committee Charter approved by the Board of Directors.
It assists the Board of Directors in fulfilling its oversight responsibility to the shareholders relating to the a) financial statements
and financial reporting process; b) system of internal controls; c) risk management; d) performance of internal and independent
auditors; and e) compliance with legal and regulatory matters.
In compliance with the Audit Committee Charter, we confirm that:
• An independent director chairs the Audit Committee;
• We had six meetings during the year, five of which were in-person meetings and included an executive session with the internal
auditors;
• We have reviewed and discussed the quarterly unaudited financial statements and the audited annual financial statements of
Globe Telecom, Inc. and Subsidiaries (Globe Group), including Management’s Discussion and Analysis of Financial Condition and
Results of Operations, with the management, internal auditors and SGV & Co., the independent auditor of the Globe Group. These
activities were performed in the following context:
» That management has the primary responsibility for the financial statements and the financial reporting process; and
» That SGV & Co. is responsible for expressing an opinion on the conformity of the Globe Group’s consolidated audited
financial statements with Philippine Financial Reporting Standards;
• We have discussed and approved the overall scope and the respective audit plans of the internal auditors and SGV & Co. We
have also discussed the results of their audits and their assessment of the Globe Group’s internal controls and the overall quality
of the financial reporting process;
• We have reviewed and approved all audit, audit-related and permitted non-audit services provided by SGV & Co. to the
Globe Group and the related fees for such services and concluded that the non-audit fees are not significant to impair their
independence;
• We have reviewed the reports of the internal auditors and regulatory agencies, where applicable, ensuring that management is
taking appropriate corrective actions in a timely manner, including addressing internal control and compliance issues; and
• We have reviewed and discussed the adequacy of the Globe Group’s enterprise-wide risk management process, including the
nature of significant risk exposures, the related risk mitigation efforts and initiatives. This activity was reviewed in the context
that management is primarily responsible for the risk management process.
Based on the reviews and discussions undertaken, and subject to the limitations on our roles and responsibilities referred to above,
the Audit Committee recommends to the Board of Directors that the audited financial statements be included in the Annual Report
for the year ended December 31, 2006 for filing with the Securities and Exchange Commission. We are also recommending to the
Board of Directors the re-appointment of SGV & Co. as the Globe Group’s independent auditor for 2007 based on the review of their
performance and qualifications.
5 February 2007
Ambassador JESUS P. TAMBUNTING
DELFIN L. LAZARO
Audit Committee Chairman
Audit Committee Member
36
LIM CHUAN POH
Audit Committee Member
Statement of Management’s Responsibility
The management of GLOBE TELECOM, INC. is responsible for all information and representations contained in the consolidated
balance sheets as at December 31, 2006 and 2005, and the consolidated statements of income, consolidated statements of
changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2006,
and the summary of significant accounting policies and other explanatory notes. The consolidated financial statements have been
prepared in accordance with Philippine Financial Reporting Standards and reflect amounts that are based on the best estimates and
informed 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 auditor: (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 consolidated 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 Board of Directors and stockholders, has audited the
consolidated financial statements of the Company and its Subsidiaries in accordance with Philippine Standards on Auditing and has
expressed their opinion on the fairness of presentation upon completion of such audit, in their report to the Stockholders and Board
of Directors.
JAIME AUGUSTO ZOBEL DE AYALA II
GERARDO C. ABLAZA, JR.
DELFIN C. GONZALEZ, JR.
Chairman, Board of Directors
President and Chief Executive Officer
Chief Financial Officer
37
Report of Independent Auditors
The Stockholders and the Board of Directors
Globe Telecom, Inc.
5th Floor, Globe Telecom Plaza, Pioneer Highlands
Pioneer corner Madison Streets
Mandaluyong City
We have audited the accompanying consolidated financial statements of Globe Telecom, Inc. and Subsidiaries, which comprise the
consolidated balance sheets as at December 31, 2006, 2005 and 2004, and the consolidated statements of income, consolidated
statements of changes in equity and consolidated statements of cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine
Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to
the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance
with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Globe Telecom,
Inc. and Subsidiaries as of December 31, 2006, 2005 and 2004, and their financial performance and their cash flows for the years
then ended in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Luis Y. Benitez
Partner
CPA Certificate No. 19698
SEC Accreditation No. 0067-AR-1
Tax Identification No. 105-339-766
PTR No. 0266529, January 2, 2007, Makati City
February 5, 2007
38
CONSOLIDATED BALANCE SHEETS
2006
ASSETS
Current Assets
Cash and cash equivalents (Notes 27 and 29)
Short-term investments (Note 27)
Available-for-sale investments (Note 27)
Held-to-maturity investments (Note 27)
Receivables - net (Notes 4 and 27)
Inventories and supplies (Note 5)
Derivative assets (Note 27)
Prepayments and other current assets (Note 6)
Total Current Assets
Noncurrent Assets
Property and equipment - net (Note 7)
Investment property - net (Note 8)
Intangible assets - net (Note 9)
Investments in an associate and a joint venture (Note 10)
Deferred income tax - net (Note 23)
Derivative assets (Note 27)
Other noncurrent assets - net (Note 11)
Total Noncurrent Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses (Notes 12 and 27)
Provisions (Note 13)
Derivative liabilities (Note 27)
Income taxes payable (Note 23)
Unearned revenues
Current portion of:
Long-term debt (Notes 14 and 27)
Other long-term liabilities (Notes 15 and 27)
Total Current Liabilities
Noncurrent Liabilities
Deferred income tax - net (Note 23)
Long-term debt - net of current portion (Notes 14 and 27)
Derivative liabilities (Note 27)
Other long-term liabilities - net of current portion (Notes 15 and 27)
Total Noncurrent Liabilities
Total Liabilities
Equity
Paid-up capital (Note 17)
Cost of share-based payments (Notes 16 and 18)
Cumulative translation adjustment (Note 27)
Retained earnings
Treasury stock - common (Note 17)
Total Equity
See accompanying Notes to Consolidated Financial Statements.
December 31
2005
(In Thousand Pesos)
2004
P
= 7,505,715
6,155,349
293,614
857,563
5,527,905
993,495
1,626,667
1,254,682
24,214,990
P
= 10,910,961
–
1,220,318
33,441
6,764,130
1,372,459
1,477,257
1,115,469
22,894,035
P
= 13,581,842
720,831
–
–
5,457,913
1,136,885
–
1,083,408
21,980,879
96,073,413
314,503
1,129,624
37,332
801,863
–
2,008,108
100,364,843
P
= 124,579,833
98,554,670
259,538
1,100,727
43,263
1,163,943
71,634
1,014,580
102,208,355
P
= 125,102,390
101,643,592
261,516
944,265
91,925
2,413,253
–
2,368,498
107,723,049
P
= 129,703,928
P
= 16,485,265
P
= 13,972,222
P
= 13,772,028
248,310
558,087
831,381
1,270,075
231,455
308,688
291,348
1,301,684
282,309
–
47,655
1,732,747
6,271,601
93,422
25,758,141
7,858,150
269,737
24,233,284
9,018,650
292,589
25,145,978
5,539,999
32,935,256
528,036
2,870,250
41,873,541
67,631,682
4,432,867
41,835,238
423,058
2,559,133
49,250,296
73,483,580
3,474,732
43,199,301
–
3,377,015
50,051,048
75,197,026
33,484,361
340,743
(193,790)
23,316,837
–
56,948,151
P
= 124,579,833
33,315,408
312,644
(235,892)
18,226,650
–
51,618,810
P
= 125,102,390
39,435,577
193,096
–
23,070,999
(8,192,770)
54,506,902
P
= 129,703,928
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
2006
2005
2004
(In Thousand Pesos, Except Per Share Figures)
REVENUE
Service revenues (Note 16)
Nonservice revenues
Interest income (Note 19)
Others - net (Notes 8,16 and 24)
P
= 57,033,619
2,915,389
715,337
445,183
61,109,528
P
= 54,896,813
3,850,788
519,648
577,476
59,844,725
P
= 52,741,358
2,867,622
454,038
407,290
56,470,308
18,080,931
17,137,553
4,618,735
3,272,362
534,948
19,142,262
15,733,959
6,024,711
3,140,593
1,608,856
15,403,963
14,705,825
6,675,198
6,326,879
635,447
5,834
43,650,363
13,334
45,663,715
62
43,747,374
17,459,165
14,181,010
12,722,934
4,251,899
1,452,593
5,704,492
1,747,249
2,119,253
3,866,502
379,928
946,764
1,326,692
P
= 11,754,673
P
= 10,314,508
P
= 11,396,242
Earnings Per Share (Note 26)
Basic
P
= 88.56
P
= 76.74
P
= 80.92
Diluted
P
= 88.32
P
= 76.60
P
= 80.78
Cash dividends declared per common stock (Note 17)
P
= 50.00
P
= 40.00
P
= 36.00
COSTS AND EXPENSES
General, selling and administrative expenses (Note 20)
Depreciation and amortization (Notes 7, 8 and 9)
Cost of sales
Financing costs - net (Note 21)
Impairment losses and others (Note 22)
Equity in net losses of an associate and a joint venture
(Note 10)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 23)
Current
Deferred
NET INCOME
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Capital
Stock
At January 1, 2006
P
= 7,333,741
Changes in fair value of cash
flow hedges (Note 27)
–
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
investments
–
Net income recognized directly
in equity
–
Net income for the year
–
Total income for the year
–
Dividends on (Note 17):
Common stock
–
Preferred stock
–
Cost of share-based payments
(Notes 16 and 18)
–
Collection of subscriptions
receivable - net of refunds
6,946
Exercise of stock options
(Note 17)
8,967
At December 31, 2006
P
= 7,349,654
(Forward)
Cost of
Treasury Cumulative
ShareAdditional
Retained
Stock- Translation
Based
Paid-in
Earnings
Common Adjustment
Capital Payments
For the Year Ended December 31, 2006 (In Thousand Pesos)
P
= 25,981,667
P
= 312,644
P
=–
(P
= 235,892) P
= 18,226,650
Total
P
= 51,618,810
–
–
–
(254,589)
–
(254,589)
–
–
–
277,736
–
277,736
–
–
–
7,716
–
7,716
–
–
–
11,239
–
11,239
–
–
–
–
–
–
–
–
–
42,102
–
42,102
–
11,754,673
11,754,673
42,102
11,754,673
11,796,775
–
–
–
–
–
–
–
–
–
161,628
–
–
–
161,628
–
–
–
–
–
6,946
–
–
(P
= 193,790) P
= 23,316,837
28,478
P
= 56,948,151
153,040
P
= 26,134,707
(133,529)
P
= 340,743
–
P
=–
(6,599,817)
(64,669)
(6,599,817)
(64,669)
Capital
Stock
Cost of
Cumulative
Treasury
ShareAdditional
Retained
Stock- Translation
Based
Paid-in
Earnings
Common Adjustment
Capital Payments
For the Years Ended December 31, 2005 and 2004 (In Thousand Pesos)
At December 31, 2004
P
= 8,323,023 P
= 31,112,554
Cumulative effect of change in
accounting policy for
financial instruments as of
January 1, 2005
–
–
At January 1, 2005
8,323,023
31,112,554
Changes in fair value of cash
flow hedges (Note 27)
–
–
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
investments
–
–
Net loss recognized directly in
equity
–
–
Net income for the year
–
–
Total income (expense) for the
year
–
–
Acquisition of treasury stock
for the year (Note 17)
–
–
Retirement of treasury shares
(Note 17)
(1,003,283)
(5,179,349)
Dividends on (Note 17):
Common stock
–
–
Preferred stock
–
–
Cost of share-based payments
(Notes 16 and 18)
–
–
Collection of subscriptions
receivable - net of refunds
10,968
–
Exercise of stock options
(Note 17)
3,033
48,462
At December 31, 2005
P
= 7,333,741 P
= 25,981,667
At January 1, 2004
P
= 8,307,828
Net income for the year
–
Dividends on (Note 17):
Common stock
–
Preferred stock
–
Cost of share-based payments
(Notes 16 and 18)
–
Collections of subscriptions
receivable - net of refunds
15,195
Exercise of stock options
(Note 17)
–
At December 31, 2004
P
= 8,323,023
P
= 193,096
(P
= 8,192,770)
–
193,096
–
(8,192,770)
P
=–
P
= 23,070,999
Total
P
= 54,506,902
(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
–
(7,675,658)
–
–
15,868,428
–
(9,685,796)
–
–
–
–
–
–
(5,436,017)
(68,334)
161,731
–
–
–
161,731
–
–
–
–
10,968
–
–
(P
= 235,892) P
= 18,226,650
9,312
P
= 51,618,810
(42,183)
P
= 312,644
–
P
=–
(5,436,017)
(68,334)
–
–
–
–
–
–
–
–
–
134,769
–
–
–
134,769
–
–
–
–
–
15,195
–
P
=–
–
P
= 23,070,999
1,596
P
= 54,506,902
See accompanying Notes to Consolidated Financial Statements.
P
= 16,786,424
11,396,242
–
P
= 59,091
–
(764)
–
P
= 193,096 (P
= 8,192,770)
P
=–
–
(7,675,658)
P
= 31,110,194
–
2,360
P
= 31,112,554
(P
= 8,192,770)
–
–
(5,036,539)
(75,128)
P
= 48,070,767
11,396,242
(5,036,539)
(75,128)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2006
2005
(In Thousand Pesos)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 7, 8 and 9)
Interest expense - net of amortization of bond premium
(Note 21)
Loss on derivative instruments - net (Note 21)
Cost of share-based payments (Notes 16 and 18)
Impairment losses on property and equipment (Note 22)
Provisions for (reversals of) other probable losses (Note 22)
Equity in net losses of an associate and a joint venture
(Note 10)
Loss (gain) on disposal of property and equipment
Interest income (Note 19)
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 (Note 7)
Intangible assets (Note 9)
Capitalized borrowing costs (Note 7)
Proceeds from sale of property and equipment
Decrease (increase) in:
Short-term investments
Available-for-sale investments
Held-to-maturity investments
Other noncurrent assets
Interest received
Dividends received
Net cash flows used in investing activities
(Forward)
2004
P
= 17,459,165
P
= 14,181,010
P
= 12,722,934
17,137,553
15,733,959
14,705,825
4,213,976
324,082
161,628
88,673
84,833
4,657,748
264,435
161,731
925,772
(12,694)
4,368,716
–
134,769
11,726
(500,889)
5,834
(22,597)
(715,337)
–
38,737,810
13,334
(28,398)
(519,648)
(105)
35,377,144
62
17,777
(454,038)
(350)
31,006,532
2,165,694
378,964
(299,287)
(1,792,779)
(233,421)
128,480
6,628,685
(555,305)
153,935
(342,264)
(31,609)
(192,634)
40,416,674
(4,140,041)
(3,711,866)
32,564,767
2,078,805
(431,063)
(25,373)
35,101,793
(4,646,042)
(1,503,556)
28,952,195
(4,609,553)
(644,159)
56,675
32,036,810
(4,727,341)
(304,514)
27,004,955
(12,265,742)
(320,206)
(48,080)
68,520
(15,325,931)
(595,621)
(139,663)
183,434
(19,529,468)
(620,600)
(211,135)
27,370
(6,155,349)
937,942
(824,122)
(993,432)
692,636
–
(18,907,833)
–
(512,113)
(33,441)
(12,524)
492,828
105
(15,942,926)
1,941,537
–
–
173,924
461,051
350
(17,756,971)
2006
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of borrowings:
Long-term (Note 14)
Short-term
Proceeds from borrowings:
Long-term (Note 14)
Short-term
Payments of dividends to stockholders (Note 17):
Common
Preferred
Collection of subscriptions receivable and exercise of
stock options - net of related expenses (Note 17)
Purchase of treasury stock - common (Note 17)
Net cash flows used in financing activities
(P
= 10,429,453)
–
(P
= 12,505,808)
(21,000)
2004
(P
= 18,814,228)
(60,000)
9,992,181
21,000
15,194,743
60,000
(6,599,817)
(68,334)
(5,436,017)
(75,128)
(5,036,539)
(67,957)
35,424
–
(17,062,180)
20,280
(7,675,658)
(15,680,150)
16,791
–
(8,707,190)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(3,405,246)
(2,670,881)
540,794
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
(Notes 27 and 29)
10,910,961
13,581,842
13,041,048
CASH AND CASH EQUIVALENTS AT END OF YEAR
(Notes 27 and 29)
P
= 7,505,715
P
= 10,910,961
P
= 13,581,842
See accompanying Notes to Consolidated Financial Statements.
–
–
Years Ended December 31
2005
(In Thousand Pesos)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Corporate Information
Globe Telecom, Inc. (hereafter referred to as “Globe Telecom”) 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 under the Globe brand using a fully digital network. 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. On June 17, 2005, Innove was granted a
Provisional Authority (PA) from the National Telecommunications Commission (NTC) for a nationwide local exchange carrier (LEC)
service, allowing Innove to expand the reach of its network. A motion for a Certificate of Public Convenience Necessity (CPCN)
and/or extension of the PA was filed in November 2006. Innove’s principal executive office is located at 18th Floor, Innove IT Plaza,
Samar Loop corner Panay Road, Cebu Business Park, Cebu City, Philippines.
Globe Telecom owns 100% of G-Xchange, Inc. (GXI), a corporation formed 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 is registered with the Bangko Sentral ng Pilipinas (BSP) as a remittance agent. GXI handles the mobile payment and
remittance service using Globe Telecom’s network as transport channel under the GCash 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 GCash system. GXI started commercial operations on October 16, 2004. GXI’s principal executive office is located at
6th Floor, Globe Telecom Plaza, Pioneer Highlands, Pioneer corner Madison Streets, Mandaluyong City, Metropolitan Manila,
Philippines.
On February 5, 2007, the Board of Directors (BOD) approved and authorized the release of the audited consolidated financial
statements of Globe Telecom, Inc. and Subsidiaries as of and for the years ended December 31, 2006, 2005 and 2004.
2.
Accounting Policies
2.1 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 under the historical cost convention method, except for
derivative financial instruments and available-for-sale (AFS) 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 (PHP), the Globe Group’s functional
currency, and rounded to the nearest thousands except when otherwise indicated.
2.2 Statement of Compliance
The consolidated financial statements of the Globe Group have been prepared in compliance with Philippine Financial
Reporting Standards (PFRS).
2.3 Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Globe Telecom and its subsidiaries as of and for
the years ended December 31, 2006, 2005 and 2004. The subsidiaries, which are both incorporated in the Philippines, are as
follows:
Name of Subsidiary
Principal Activity
Innove
Wireless and wireline voice and data communication services
Percentage of Ownership
100%
GXI
Software development for telecommunications applications
100%
Subsidiaries are consolidated from the date on which control is transferred to the Globe Group and cease to be consolidated
from the date on which control is transferred out of the Globe Group. The financial statements of the subsidiaries are prepared
for the same reporting year as Globe Telecom using uniform accounting policies for like transactions and other events in similar
circumstances. All significant intercompany balances and transactions, including intercompany profits and losses, were
eliminated during consolidation in accordance with the accounting policy on consolidation.
2.4 Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial years except as follows:
The Globe Group has adopted the following new and amended PFRS and Philippine Interpretations from International Financial
Reporting Interpretation Committee (IFRIC) during the year. Adoption of these revised standards and interpretations did not
have any effect on the Globe Group except for additional disclosures included in the consolidated financial statements.
•
Amendments to Philippine Accounting Standards (PAS) 19, Employee Benefits - Actuarial Gains and Losses, Group Plans
and Disclosures, introduce an additional option for recognition of actuarial gains and losses in post-employment defined
benefit plans. The amendment permits an entity to recognize actuarial gains and losses in the period in which they occur
outside profit or loss. The amendment also requires additional disclosures on the financial statements to provide
information about trends in the assets and liabilities in the defined benefit plans and the assumptions underlying the
components of the defined benefit cost. The adoption of amendments to PAS 19 does not have an effect on the Globe
Group’s result of operations and financial position. The Globe Group elected to continue to recognize a portion of actuarial
gains and losses in profit and loss 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 obligation or 10% of the fair value of plan
assets. Additional disclosures required by the amendments were included in the consolidated financial statements, where
applicable (see Note 18).
•
Amendments to PAS 21, The Effects of Changes in Foreign Exchange Rates, state that all exchange differences arising
from a nonmonetary item that forms part of the company’s net investment in foreign operations are recognized in a
separate component of equity in the financial statements regardless of the currency in which the monetary item is
denominated. The Globe Group does not have a net investment in foreign operations. These amendments have no impact
on the consolidated financial statements.
•
Amendments to PAS 39, Financial Instruments: Recognition and Measurement, (a) Amendment for financial guarantee
contracts (issued August 2005), amended the scope of PAS 39 to require financial guarantee contracts that are not
considered as insurance contracts to be recognized initially at fair value and to be remeasured at the higher of the amount
determined in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets and the amount initially
recognized less, when appropriate, cumulative amortization recognized in accordance with PAS 18, Revenue;
(b) Amendment for hedges of forecast intragroup transactions (issued April 2005), allow the foreign currency risk of a
highly probable forecast intragroup transaction to qualify as a hedged item in a cash flow hedge provided that the
transaction is denominated in a currency other than the functional currency of the entity entering into transaction and that
the foreign currency risk will affect the statements of income; and (c) Amendment for the fair value option (issued June
2005), prescribes the conditions under which the fair value option on classification of financial instruments at fair value
through profit or loss (FVPL) maybe used. Adoption of these amendments did not have a significant impact on the
consolidated financial statements.
•
Philippine Interpretation IFRIC 4, Determining Whether an Arrangement Contains a Lease, provides for guidance in
determining whether arrangements contain a lease to which lease accounting must be applied. Adoption of this
Interpretation did not have a significant impact on the consolidated financial statements.
2.5 Future Changes in Accounting Policies
PFRS 7, Financial Instruments: Disclosures
PFRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of
qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum
disclosures about credit risk, liquidity risk and market risk, as well as sensitivity analysis to market risk. It replaces PAS 30,
Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and the disclosure requirements in PAS 32,
Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under PFRS. The Globe Group will
adopt PFRS 7 beginning January 1, 2007.
Amendments to PAS 1, Presentation of Financial Statements
The amendments to PAS 1 introduce disclosures about the level of an entity’s capital and how it manages capital. The Globe
Group will apply the amendments to PAS 1 starting January 1, 2007.
The Globe Group is currently assessing the impact of PFRS 7 and the amendments to PAS 1 and expects that the main
additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by PFRS 7 and the
amendments to PAS 1.
Philippine Interpretation IFRIC 8, Scope of PFRS 2
This Interpretation becomes effective for financial years beginning on or after May 1, 2006. This Interpretation requires
PFRS 2 to be applied to any arrangements where equity instruments are issued for consideration which appears to be less than
fair value. The Globe Group will adopt Philippine Interpretation IFRIC 8 starting January 1, 2007. As equity instruments are
only issued to employees in accordance with the employee share scheme, the Globe Group does not expect the Interpretation
to have significant impact on its consolidated financial statements.
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
This Interpretation was issued in March 2006 and becomes effective for financial years beginning on or after June 1, 2006. This
Interpretation establishes that the date to assess the existence of an embedded derivative is the date an entity first becomes a
party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows. The
Globe Group will adopt Philippine Interpretation IFRIC 9 starting January 1, 2007. The Globe Group expects that the adoption
of this Interpretation will have no impact on the consolidated financial statements.
Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment
This Interpretation, which becomes effective for financial years beginning on or after November 1, 2006, provides that the
frequency of financial reporting does affect the amount of impairment charge to be recognized in the annual financial reporting
with respect to goodwill and AFS investments. It prohibits the reversal of impairment losses on goodwill and AFS equity
investments recognized in the interim financial reports even if impairment is no longer present at the annual balance sheet date.
The Globe Group will adopt Philippine Interpretation IFRIC 10 starting January 1, 2007. This Interpretation is not expected to
have a significant impact on the consolidated financial statements of the Globe Group.
Philippine Interpretation IFRIC 11, IFRS 2 - Group and Treasury Share Transactions
This Interpretation will be effective January 1, 2008 for the Globe Group. This Interpretation requires arrangements whereby an
employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme by the entity even if
(a) the entity chooses or is required to buy those equity instruments (e.g. treasury shares) from another party, or
(b) the shareholder(s) of the entity provide the equity instruments needed. It also provides guidance on how subsidiaries, in
their separate financial statements, account for such schemes when their employees receive rights to the equity instruments of
the parent. The Globe Group does not expect this Interpretation to have a significant impact on its consolidated financial
statements.
Philippine Interpretation IFRIC 12, Service Concession Arrangement
This Interpretation will become effective January 1, 2008. This Interpretation covers contractual arrangements arising from
public-to-private service concession arrangements if control of the assets remain in public hands but the private sector operator
is responsible for construction activities as well as for operating and maintaining the public sector infrastructure. This
Interpretation will have no impact on the consolidated financial statements of the Globe Group as this is not relevant to the
Globe Group’s current operations.
PFRS 8, Operating Segments
The Globe Group will adopt PFRS 8, Operating Segments, effective January 1, 2009. PFRS 8 will replace PAS 14, Segment
Reporting, and adopts a management approach to reporting segment information. The information reported would be that
which management uses internally for evaluating the performance of operating segments and allocating resources to those
segments. Such information may be different from that reported in the balance sheet and statement of income and companies
will need to provide explanations and reconciliations of the differences. The Globe Group will assess the impact of this
standard to its current manner of reporting segment information.
2.6 Significant Accounting Policies
2.6.1
Revenue Recognition
The Globe Group provides wireless services and wireline voice and data communication services which are both
provided under postpaid and prepaid arrangements.
Revenue is recognized when the delivery of the products or services has occurred and collectibility is reasonably
assured.
Revenue is stated at amounts invoiced and accrued to customers, taking into consideration the bill cycle cut-off (for
postpaid subscribers), the amount charged against preloaded airtime value (for prepaid subscribers), switchmonitored traffic (for carriers and content providers) and excludes value added tax (VAT) and overseas
communication tax. Inbound traffic revenues, net of estimated prompt payment discount, and outbound traffic
charges, are accrued based on actual volume of traffic monitored by Globe Group’s network and in the traffic
settlement system.
2.6.1.1
Service Revenue
2.6.1.1.1
Subscribers
Revenues from subscribers principally consist of: (1) fixed monthly service fees (for postpaid
wireless and wireline voice and data subscribers and wireless prepaid subscription fees for
discounted promotional short messaging services (SMS); (2) usage of airtime and toll fees
for local, domestic and international long distance calls in excess of consumable fixed
monthly service fees, less (a) bonus airtime credits, airtime on free Subscribers’
Identification module (SIM) for SIM swap transactions and loyalty discounts, (b) prepaid
reload discounts, and (c) interconnection fees; (3) revenues from value added services
(VAS) such as SMS in excess of consumable fixed monthly service fees (for postpaid) and
free SMS allocations (for prepaid) and multimedia messaging services (MMS), content
downloading and infotext services, net of interconnection fees and payout to content
providers; (4) inbound revenues from other carriers which terminate their calls to the Globe
Group’s network less estimated prompt payment discount; (5) revenues from international
roaming services; (6) usage of broadband and internet services in excess of fixed monthly
service fees; and (7) one-time registration fees (for postpaid wireless subscribers) and onetime service connection fees (for wireline voice and data subscribers).
Postpaid service arrangements include fixed monthly service fees, 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 consumable usage using historical ratio of consumable usage over
billable usage.
Proceeds from over-the-air reloading services and the sale of prepaid cards are deferred
and shown as “Unearned revenues” in the consolidated balance sheets. Revenue is
recognized upon actual usage of airtime value net of discounts on promotional calls and
SMS and bonus reload. Unused airtime value is recognized as revenue upon expiration.
2.6.1.1.2
Traffic
Inbound revenues refer to traffic originating from other telecommunications providers
terminating to the Globe Group’s network, while outbound charges represent traffic sent out
or mobile content delivered using agreed termination rates and/or revenue sharing with
other foreign and local carriers and content providers. 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 mutually
agreed upon by the parties. Uncollected inbound revenues are shown as traffic settlements
receivable under the “Receivables” account, while unpaid outbound charges are shown as
accounts payable and traffic settlements payable under the “Accounts payable and accrued
expenses” account in the consolidated balance sheets unless a legal right of offset exists.
Prompt payment discount is recognized based on the Globe Group’s estimate of the
probability and amount of availment. Based on the established historical pattern of discount
availments of the carriers, the Globe Group recorded inbound revenues net of the estimated
prompt payment discount as of December 31, 2006.
2.6.1.2
Nonservice revenue
Proceeds from sale of handsets, phonekits, wireline telephone sets, SIM packs, and other phone
accessories are recognized upon delivery of the item to customers. The related costs of handsets,
phonekits, wireline telephone sets, SIM packs and accessories sold to customers are presented as “Cost of
sales” in the consolidated statements of income.
2.6.1.3
Others
Interest income is recognized as it accrues using the effective interest rate method.
Lease income from operating lease is recognized on a straight-line basis over the lease term.
Dividend income is recognized when the Globe Group’s right to receive payment is established.
2.6.2
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 selling expenses.
Handset and phonekit subsidies represent the difference between the book value of handsets, accessories and SIM
cards (included in the “Cost of sales” account), and the price offered to the subscribers (included in the “Nonservice
revenues” account). 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 under the “General, selling and administrative
expenses” account in the consolidated statements of income. Bill credits are deducted from service revenues upon
application against qualifying subscriber bills.
2.6.3
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 date of placement and that
are subject to an insignificant risk of changes in value.
2.6.4
Financial Instruments
2.6.4.1
Accounting Policies Effective January 1, 2005
2.6.4.1.1
General
Financial instruments are recognized in the Globe Group’s consolidated balance sheets
when the Globe Group becomes a party to the contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or convention in the marketplace are recognized on the settlement
date.
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). Except for financial instruments at
FVPL, the initial measurement of financial assets includes transaction costs. The Globe
Group classifies its financial assets into the following categories: financial assets at FVPL,
held-to-maturity (HTM) investments, AFS investments, and loans and receivables. The
Globe Group classifies its financial liabilities into financial liabilities at FVPL and other
financial liabilities. The classification depends on the purpose for which the investments
were acquired and whether they are quoted in an active market. Management determines
the classification of its investments at initial recognition and, where allowed and appropriate,
re-evaluates such designation at every reporting date.
The fair value for financial instruments traded in active markets at the balance sheet date is
based on their quoted market price or dealer price quotations (bid price for long positions
and ask price for short positions), without any deduction for transaction costs. When current
bid and asking prices are not available, the price of the most recent transaction provides
evidence of the current fair value as long as there has not been a significant change in
economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined
by using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist,
option pricing models, and other relevant valuation models. Any difference noted between
the fair value and the transaction price is treated as expense or income, unless it qualifies
for recognition as some type of asset or liability.
Where the transaction price in a non-active market is different from the fair value of other
observable current market transactions in the same instrument or based on a valuation
technique whose variables include only data from observable market, the Globe Group
recognizes the difference between the transaction price and fair value (a “Day 1” profit) in
the consolidated statements of income. In cases where not observable data is used, the
difference between the transaction price and model value is only recognized in the
consolidated statements of income when the inputs become observable or when the
instrument is derecognized. For each transaction, the Globe Group determines the
appropriate method of recognizing the “Day 1” profit amount.
2.6.4.1.2
Financial Assets or Financial Liabilities at FVPL
This category consists of financial assets or financial liabilities that are held for trading or
designated by management as at FVPL on initial recognition. Derivative instruments,
except those covered by hedge accounting relationships, are classified under this category.
Financial assets or financial liabilities at FVPL are recorded in the consolidated balance
sheets at fair value, with changes in fair value being recorded in the consolidated
statements of income. Interest earned or incurred is recorded in interest income or
expense, respectively, while dividend income is recorded when the right of payment has
been established.
Financial assets or financial liabilities are classified in this category as designated by
management on initial recognition when any of the following criteria are met:
•
the designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses
on a different basis; or
•
the assets and liabilities are part of a group of financial assets, financial liabilities or
both which are managed and their performance are evaluated on a fair value basis, in
accordance with a documented risk management or investment strategy; or
•
the financial instrument contains an embedded derivative, unless the embedded
derivative does not significantly modify the cash flows or it is clear, with little or no
analysis, that it would not be separately recorded.
As of December 31, 2006, the Globe Group has not designated any financial asset or
financial liability at FVPL.
2.6.4.1.3
HTM investments
HTM investments are non-derivative financial assets with fixed or determinable payments
and fixed maturities for which the Globe Group’s management has the positive intention and
ability to hold to maturity. Where the Globe Group sells other than an insignificant amount
of HTM investments, the entire category would be tainted and reclassified as AFS
investments. After initial measurement, HTM investments are subsequently measured at
amortized cost using the effective interest rate method, less any impairment losses.
Amortized cost is calculated by taking into account any discount or premium on acquisition
and fees that are an integral part of the effective interest rate. The amortization is included
in “Interest income” in the consolidated statements of income. Gains and losses are
recognized in income when the HTM investments are derecognized and impaired, as well
as through the amortization process. The effects of restatement of foreign currencydenominated HTM investments are recognized in the consolidated statements of income.
2.6.4.1.4
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not
quoted in an active market. They are not entered into with the intention of immediate or
short-term resale and are not classified as financial assets held for trading, designated as
AFS investments or designated at FVPL. This accounting policy relates both to the balance
sheet caption “Receivables”, which arise primarily from subscriber and traffic revenues and
other types of receivables, and “Short-term investments”, which arise primarily from
unquoted debt securities.
Receivables are recognized initially at fair value, which normally pertains to the billable
amount. After initial measurement, receivables are subsequently measured at amortized
cost using the effective interest rate method, less any allowance for impairment losses.
Amortized cost is calculated by taking into account any discount or premium on the issue
and fees that are an integral part of the effective interest rate. Penalties, termination fees
and surcharges on past due accounts of postpaid subscribers are recognized as revenues
upon collection. The losses arising from impairment of receivables are recognized in the
“Impairment losses and others” account in the consolidated statements of income. The
level of allowance for impairment losses is evaluated by management on the basis of
factors that affect the collectibility of accounts (see accounting policy on 2.6.4.2 Impairment
of Financial Assets).
Short-term investments are recognized initially at fair value, which normally pertains to the
consideration paid. Similar to receivables, subsequent to initial recognition, short-term
investments are measured at amortized cost using the effective interest rate method, less
any allowance for impairment losses. In 2006, certain short-term investments were
presented as AFS and HTM investments in the consolidated balance sheets. Accordingly,
the 2005 comparative figures have been re-presented to conform to the current year’s
presentation.
2.6.4.1.5
AFS investments
AFS investments are those investments which are designated as such or do not qualify to
be classified as designated as FVPL, HTM investments or loans and receivables. They are
purchased and held indefinitely, and may be sold in response to liquidity requirements or
changes in market conditions. They include equity investments, money market papers and
other debt instruments.
After initial measurement, AFS investments are subsequently measured at fair value.
Interest earned on holding AFS investments are reported as interest income using the
effective interest rate. The unrealized gains and losses arising from the fair valuation of
AFS investments are excluded from reported earnings and are reported as “Cumulative
translation adjustment” (net of tax where applicable) in the equity section of the consolidated
balance sheets. When the investment is disposed of, the cumulative gains or losses
previously recognized in equity is recognized in the consolidated statements of income.
When the fair value of AFS investments cannot be measured reliably because of lack of
reliable estimates of future cash flows and discount rates necessary to calculate the fair
value of unquoted equity instruments, these investments are carried at cost, less any
allowance for impairment losses. Dividends earned on holding AFS investments are
recognized in the consolidated statements of income when the right of payment has been
established.
The losses arising from impairment of such investments are recognized as “Impairment
losses and others” in the consolidated statements of income.
2.6.4.1.6
Other financial liabilities
Issued financial instruments or their components, which are not designated at FVPL are
classified as other financial liabilities where the substance of the contractual arrangement
results in the Globe Group having an obligation either to deliver cash or another financial
asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount
of cash or another financial asset for a fixed number of own equity shares. The components
of issued financial instruments that contain both liability and equity elements are accounted
for separately, with the equity component being assigned the residual amount after
deducting from the instrument as a whole the amount separately determined as the fair
value of the liability component on the date of issue. After initial measurement, other
financial liabilities are subsequently measured at amortized cost using the effective interest
rate method. Amortized cost is calculated by taking into account any discount or premium
on the issue and fees that are an integral part of the effective interest rate. Any effects of
restatement of foreign currency-denominated liabilities are recognized in the consolidated
statements of income.
This accounting policy applies primarily to the Globe Group’s debt, accounts payable and
other obligations that meet the above definition (other than liabilities covered by other
accounting standards, such as income tax payable).
2.6.4.1.7
Derivative Instruments
2.6.4.1.7.1
General
The Globe Group enters into short-term deliverable and nondeliverable currency
forward contracts to manage its exchange exposure related to short-term foreign
currency-denominated monetary assets and liabilities. The Globe Group also enters
into structured currency forward contracts where call options are sold in combination
with such currency forward contracts.
The Globe Group enters into deliverable prepaid forward contracts that entitle the
Globe Group to a discount on the contracted forward rate. Such contracts contain
embedded currency derivatives that are bifurcated and marked-to-market through the
consolidated statements of income, 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 Globe
Group 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 covered currency options as cost subsidy for outstanding currency
swap contracts.
2.6.4.1.7.2
Recognition and measurement
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.
2.6.4.1.7.3
Types of Hedges
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 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, 2006 and 2005, there were no derivatives designated and
accounted for as fair value hedges.
Cash Flow Hedges
The Globe Group designates as cash flow hedges the following derivatives: (a) certain
floating-to-fixed cross currency swaps as cash flow hedges of both the currency and
interest rate risks of the floating rate foreign currency-denominated obligations; (b)
certain principal only swaps and fixed-to-fixed cross currency swaps as cash flow
hedges of the currency risk of certain fixed rate foreign currency-denominated
obligations; and (c) interest rate swaps as cash flow hedge of the interest rate risk of a
floating rate foreign currency-denominated obligation.
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 equity. Any
hedge ineffectiveness is immediately recognized in the consolidated statements of
income.
If the hedged cash flow results in the recognition of a nonfinancial asset or liability,
gains and losses previously recognized directly in equity are transferred from equity
and included in the initial measurement of the cost or carrying value of the asset or
liability. Otherwise, for all other cash flow hedges, gains and losses initially recognized
in equity are transferred from equity to consolidated statements of income in the same
period or periods during which the hedged forecasted transaction or recognized asset
or liability affect earnings.
Hedge accounting is discontinued prospectively when the hedge ceases to be highly
effective. When hedge accounting is discontinued, the cumulative gains or losses on
the hedging instrument that has been reported in “Cumulative translation adjustment”
is retained in the consolidated statements of changes in equity until the hedged
transaction impacts the consolidated statements of income. When the forecasted
transaction is no longer expected to occur, any net cumulative gains or losses
previously reported in “Cumulative translation adjustment” is recognized immediately in
the consolidated statements of income.
2.6.4.1.7.4
Other Derivative Instruments Not Accounted for as Hedges
Certain freestanding derivative instruments that provide economic hedges under the
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 in financial and nonfinancial contracts
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.
2.6.4.1.8
Offsetting
Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated balance sheets if, and only if, there is a currently enforceable legal right to
offset the recognized amounts and there is an intention to settle on a net basis, or to realize
the asset and settle the liability simultaneously. This is not generally the case with master
netting agreements; thus, the related assets and liabilities are presented gross in the
consolidated balance sheets.
2.6.4.2
Impairment of Financial Assets
The Globe Group assesses at each balance sheet date whether a financial asset or group of financial
assets is impaired.
2.6.4.2.1
Assets carried at amortized cost
If there is objective evidence that an impairment loss on financial assets carried at amortized
cost (e.g., receivables) 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. Time value is generally not
considered when the effect of discounting is not material. The carrying amount of the asset is
reduced through the use of an allowance account. The amount of the loss shall be recognized
in the consolidated statements of income.
The Globe Group first assesses whether objective evidence of impairment exists individually
for financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the
asset is included in a group of financial assets 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 consolidated statements of income to the extent that
the carrying value of the asset does not exceed its amortized cost at the reversal date.
With respect to receivables, the Globe Group performs a regular review of the age and
status of these accounts, designed to identify accounts with objective evidence of
impairment and provide the appropriate allowance for impairment losses. The review is
accomplished using a combination of specific and collective assessment approaches, with
the impairment losses being determined for each risk grouping identified by the Globe
Group.
2.6.4.2.1.1
Subscribers
Full allowance for impairment losses 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.
For receivables from active subscriber accounts, prior to the third quarter of 2006, full
allowance for impairment losses is generally provided for those that are past due by 90
days for individual wireless accounts and 120 days for corporate wireless accounts.
Starting September 2006, the allowance for impairment losses is determined based on
the results of the net flow to write-off methodology. Net flow tables are derived from
account-level monitoring of subscriber accounts between different age brackets, from
current to 1 day past due to 210 days past due. The net flow to write-off methodology
relies on the historical data of net flow tables to establish a percentage (“net flow rate”)
of subscriber receivables that are current or in any state of delinquency as of reporting
date that will eventually result in write-off. The allowance for impairment losses is then
computed based on the outstanding balances of the receivables as of balance sheet
date and the net flow rates determined for the current and each delinquency bracket.
The impact of these enhancements on the Globe Group’s recorded impairment losses
on receivables is not material.
For active residential and business wireline voice subscribers, full allowance is
generally provided for 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.
Regardless of the age of the account, additional impairment losses are also made for
wireless and wireline accounts specifically identified to be doubtful of collection when
there is information on financial incapacity after considering the other contractual
obligations between the Globe Group and the subscriber.
2.6.4.2.1.2
Traffic
Full allowance is generally provided after review of the status of settlement with the
carriers for net receivables not settled within 10 months and 6 months for international
roaming partners.
Additional impairment losses are made for accounts specifically identified to be
doubtful of collection regardless of the age of the account.
2.6.4.2.2
AFS financial assets carried at cost
If there is objective evidence that an impairment loss has been incurred 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, 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. The carrying amount of the
asset is reduced through use of an allowance account.
2.6.4.2.3
AFS financial assets carried at fair value
If an AFS asset carried at fair value is impaired, an amount comprising the difference
between its cost and its current fair value, less any impairment loss previously recognized in
the consolidated statements of income, is transferred from equity to the consolidated
statements of income. Reversals of impairment losses in respect of equity instruments
classified as AFS are not recognized in the consolidated statements of income. Reversals
of impairment losses on debt instruments are reversed through the consolidated statements
of income if the increase in fair value of the instrument can be objectively related to an event
occurring after the impairment loss was recognized in the consolidated statements of
income.
2.6.4.3
Derecognition of Financial Instruments
2.6.4.3.1
Financial Asset
A financial asset (or, where applicable a part of a financial asset or part of a group of
financial assets) is derecognized where:
•
the rights to receive cash flows from the asset have expired;
•
the Globe Group retains the right to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to a third party under a
“pass-through” arrangement; or
•
the Globe Group has transferred its rights to receive cash flows from the asset and
either (a) has transferred substantially all the risks and rewards of ownership or (b) has
neither transferred nor retained the risk and rewards of the asset but has transferred
the control of the asset.
Where the Globe Group has transferred its rights to receive cash flows from an asset and
has neither transferred nor retained substantially all the risks and rewards of the asset nor
transferred control of the asset, the asset is recognized to the extent of the Globe Group’s
continuing involvement in the asset.
2.6.4.3.2
Financial Liability
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or expired. Where an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, and the difference in the respective
carrying amounts is recognized in the consolidated statements of income.
2.6.4.4
Accounting Policies Prior to January 1, 2005
Investments in government securities are carried at amortized cost. The amortization of premium or
accretion of discount is computed using the straight-line method.
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 the
“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.
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.
2.6.5
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 generally
provided 100% for nonmoving items for more than one year. Cost is determined using the moving average method.
Supplies of SIM packs are consumed upon activation of the services.
2.6.6
Property and Equipment
Property and equipment, except land, are carried at cost less accumulated depreciation, amortization and impairment
losses. Land is stated at cost less any impairment losses.
The initial cost of an item of property and equipment includes its purchase price and any cost attributable in bringing
the property and equipment to its intended location and working condition. Cost also includes: (a) interest and other
financing charges on borrowed funds used to finance the acquisition of property and equipment to the extent incurred
during the period of installation and construction; and (b) asset retirement obligations (ARO) specifically on property
and equipment installed/constructed on leased properties.
Subsequent costs are capitalized as part of property and equipment only when it is probable that future economic
benefits associated with the item will flow to the Globe Group and the cost of the item can be measured reliably. All
other repairs and maintenance are charged against current operations as incurred.
Assets under construction are carried at cost and 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 complete, 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.
When property and equipment is retired or otherwise disposed of, the cost and the related accumulated depreciation,
amortization and impairment losses, are removed from the accounts and any resulting gain or loss is credited to or
charged against current operations.
2.6.7
ARO
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
present value of these obligations and capitalizes these costs as part of the balances of the related property and
equipment accounts, which are depreciated on a straight-line basis over the useful life of the related property and
equipment or the contract period, whichever is shorter.
2.6.8
Investment Property
Investment property is initially measured at cost, including transaction costs. Subsequent to initial recognition,
investment property is carried at cost less accumulated depreciation and any impairment losses.
Expenditures incurred after the investment property has been put in operation, such as repairs and maintenance
costs, are normally charged against income in the period in which the costs are incurred.
Depreciation of investment property is computed using the straight-line method over its useful life, regardless of
utilization. The EUL and the depreciation method are reviewed periodically to ensure that the period and method of
depreciation are consistent with the expected pattern of economic benefits from items of investment properties.
Transfers are made to investment property, when, and only when, there is a change in use, evidenced by the end of
the owner occupation, commencement of an operating lease to another party or completion of construction or
development. Transfers are made from investment property when, and only when, there is a change in use,
evidenced by the commencement of owner occupation or commencement of development with the intention to sell.
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 statements of income in the period of derecognition.
2.6.9
Intangible Assets
Intangible assets acquired separately are capitalized at cost. Subsequently, intangible assets are measured at cost
less accumulated amortization and any impairment losses. The EUL of intangible assets with finite lives are assessed
at the individual asset level. Intangible assets with finite life are amortized over their useful lives. The periods and
method of amortization for intangible assets with finite useful lives are reviewed annually or more frequently when an
indicator of impairment exists.
Costs incurred to acquire software (not an integral part of its related hardware or equipment ) and
telecommunications equipment licenses and bring it to its intended use are capitalized as intangible assets. Costs
directly associated with the development of identifiable software that generate expected future benefits to the Globe
Group are recognized as intangible assets. All other costs of developing and maintaining 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.
2.6.10
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 the “Other noncurrent assets” account in the consolidated balance
sheets. Effective January 1, 2005, these 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
(see accounting policy on 2.6.4 Financial Instruments).
2.6.11
Investments in an Associate and a Joint Venture
Investments in an associate and a joint venture (JV) are accounted for under the equity method, less any impairment
losses. An associate is an entity in which the Globe Group has a significant influence and which is neither a
subsidiary nor a JV. A JV is an entity, not being a subsidiary nor an associate, in which the Globe Group exercises
joint control together with one or more venturers.
Under the equity method, the investments in an associate and a 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 associate and JV, less any
allowance for impairment losses. The consolidated statements of income reflect the share of the results of operations
of the associate and JV. Where there has been a change recognized directly in the associate’s and JV’s equity, the
Globe Group recognizes its share of any changes and discloses this, when applicable, in the consolidated statements
of changes in equity.
2.6.12
Impairment of Nonfinancial Assets
An assessment is made at the balance sheet date to determine whether there is any indication that an asset may be
impaired, or whether there is any indication that an impairment loss previously recognized for an asset in prior periods
may no longer exist or may have decreased. If any such indication exists and when the carrying value of an asset
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. Recoverable amounts are estimated for individual assets or investments or, if it is not possible, for the cashgenerating unit to which the asset belongs. For impairment loss on specific assets or investments, the recoverable
amount represents the net selling price.
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.
2.6.13
Income Taxes
2.6.13.1
Current Tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the tax authority. The tax rates and tax laws used to compute
the amount are those that are enacted or substantively enacted as at the balance sheet date.
2.6.13.2
Deferred Tax
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 with
certain exceptions and carryforward benefits 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 benefits of unused MCIT and NOLCO can be used.
Deferred income tax is not recognized when it arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the time of transaction, affects neither the
accounting profit nor taxable profit or loss. Deferred income tax liabilities are not provided on
nontaxable temporary differences associated with investment in a domestic associate and a JV.
The carrying amounts of deferred income tax assets are reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient taxable income will be available to
allow all or part of the deferred income tax assets to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in
the year when the assets are realized or the liabilities are settled based on tax rates (and tax laws)
that have been enacted or substantially enacted as at the balance sheet date.
2.6.14
Provisions
Provisions are recognized when: (a) the Globe Group has 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 pretax 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
interest expense under “Financing costs” in the consolidated statements of income.
2.6.15
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 26).
2.6.16
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 and the excess of cost over par value upon retirement is debited to
additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were
issued and to retained earnings for the remaining balance.
2.6.17
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 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 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 an 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.
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 plan.
2.6.18
Borrowing Costs
Borrowing costs are capitalized if these are directly attributable to the acquisition, construction or production of a
qualifying asset. Capitalization of borrowing costs commences when the activities for the asset’s intended use are in
progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets
are ready for their intended use. These costs are amortized using the straight-line method over the EUL of the related
property and equipment. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment
loss is recognized. Borrowing costs include interest charges and other related financing charges incurred in
connection with the borrowing of funds. Premiums on long-term debt are included under the “Long-term debt”
account in the consolidated balance sheets and are amortized using the effective interest rate method.
Other borrowing costs are recognized as expense in the period in which these are incurred.
2.6.19
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement
and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset
or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease
only if one of the following applies:
•
there is a change in contractual terms, other than a renewal or extension of the arrangement;
•
a renewal option is exercised or an extension granted, unless that term of the renewal or extension was initially
•
there is a change in the determination of whether fulfillment is dependent on a specified asset; or
•
there is a substantial change to the asset.
included in the lease term;
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in
circumstances gave rise to the reassessment for any of the scenarios above, and at the date of renewal or extension
period for the second scenario.
For arrangements entered into prior to January 1, 2005, the date of inception is deemed to be January 1, 2005 in
accordance with the transitional requirements of IFRIC 4.
2.6.19.1
Group as Lessee
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 fair value of the
leased property or, if lower, at the present value of the minimum lease payments and included in the
“Property and equipment” account with the corresponding liability to the lessor included in the “Other
long-term liabilities” account. Lease payments are apportioned between the 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 as interest expense.
Capitalized leased assets are depreciated over the shorter of the EUL of the assets and the respective
lease terms.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as an expense in the
consolidated statements of income on a straight-line basis over the lease term.
2.6.19.2
Group as Lessor
Finance leases, where the Globe Group transfers substantially all the risk and benefits incidental to
ownership of the leased item to the lessee, are included in the consolidated balance sheets under
“Prepayments and other current assets” account. A lease receivable is recognized equivalent to the
net investment (asset cost) in the lease. All income resulting from the receivable is included in the
“Interest income” account in the consolidated statements of income.
Leases where the Globe Group does not transfer substantially all the risk and benefits of ownership of
the assets are classified as operating leases. Initial direct costs incurred in negotiating operating
leases are added to the carrying amount of the leased asset and recognized over the lease term on
the same basis as the rental income. Contingent rents are recognized as revenue in the period in
which they are earned.
2.6.20
Selling, Advertising and Promotions Expenses
Selling, advertising and promotions expenses are charged against current operations as incurred.
2.6.21
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.
2.6.22
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 period.
Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding
during the period, after giving retroactive effect for any stock dividends, stock splits or reverse stock splits during the
period, 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.
2.6.23
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
intersegment revenues and expenses at agreed transfer prices.
2.6.24
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.
2.6.25
Subsequent Events
Any post period-end event up to the date of approval of the 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 period-end event that is not an adjusting event is disclosed in the
notes to the consolidated financial statements when material.
3.
Management’s Significant Accounting Judgments and Use of Estimates
3.1 Judgments and Estimates
The preparation of the accompanying consolidated financial statements in conformity with PFRS 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.
Judgments and estimates are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
3.1.1
Judgments
3.1.1.1
Leases
The Globe Group has entered into various lease agreements as lessee and lessor. The Globe Group has
determined that it retains all the significant risks and rewards on equipment and office spaces leased out on
operating lease and various items of property and equipment acquired through finance lease.
3.1.1.2
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the consolidated balance
sheets cannot be derived from active markets, they are determined using a variety of valuation techniques
that include the use of mathematical models. The input to these models is taken from observable markets
where possible, but where this is not feasible, a degree of judgment is required in establishing fair values.
The judgments include considerations of liquidity and model inputs such as correlation and volatility for
longer dated derivatives.
3.1.1.3
HTM investments
The classification as HTM investments requires significant judgment. In making this judgment, the Globe
Group evaluates its intention and ability to hold such investments to maturity. If the Globe Group fails to
keep these investments to maturity other than in certain specific circumstances - for example, selling an
insignificant amount close to maturity - it will be required to reclassify the entire portfolio as AFS
investments. The investments would therefore be measured at fair value and not at amortized cost.
3.1.1.4
Financial assets not quoted in an active market
The Globe Group classifies financial assets by evaluating, among others, whether the asset is quoted or
not in an active market. Included in the evaluation on whether a financial asset is quoted in an active
market is the determination on whether quoted prices are readily and regularly available, and whether
those prices represent actual and regularly occurring market transactions on an arm’s length basis.
3.1.2
Estimates
3.1.2.1
Revenue recognition
The Globe Group’s revenue recognition policies require management to make use of estimates and
assumptions that may affect the reported amounts of the revenues and receivables.
The Globe Group’s agreements with local and foreign carriers for inbound and outbound traffic subject to
settlements require traffic reconciliations before actual settlement is done, which may not be the actual
volume of traffic as measured by management. Initial recognition of revenues is based on observed traffic
in the network since normal historical experience adjustments are not material to the consolidated financial
statements. Differences between the amounts initially recognized and actual settlements are taken up in
the accounts upon reconciliation. However, there is no assurance that such use of estimates will not result
in material adjustments in future periods.
Starting fourth quarter of 2006, based on the established historical pattern of discount availments of the
carriers, the Globe Group recorded inbound revenues net of the estimated prompt payment discount
amounting to P
= 170.01 million as of December 31, 2006.
Total unsettled net inbound traffic revenues from local and foreign traffic carriers as of December 31, 2006,
2005 and 2004 (included under “Receivables”) amounted to P
= 1,959.17 million, P
= 3,120.37 million and
P
= 2,315.05 million, respectively (see Note 4). Total unsettled net outbound traffic to local and foreign
carriers as of December 31, 2006, 2005 and 2004 (included under “Accounts payable and accrued
expenses”) amounted to P
= 1,501.93 million, P
= 1,544.66 million and P
= 1,104.86 million, respectively (see Note
12).
3.1.2.2
Allowance for impairment losses on receivables
The Globe Group maintains an allowance for impairment losses at a level considered adequate to provide
for potential uncollectible receivables. The Globe Group performs a regular review of the age and status of
these accounts, designed to identify accounts with objective evidence of impairment and provide the
appropriate allowance for impairment losses. The review is accomplished using a combination of specific
and collective assessment approaches, with the impairment losses being determined for each risk grouping
identified by the Globe Group. The amount and timing of recorded expenses for any period would differ if
the Globe Group made different judgments or utilized different methodologies. An increase in allowance for
impairment losses would increase the recorded operating expenses and decrease current assets.
Impairment losses on receivables amounted to P
= 422.83 million, P
= 615.73 million and P
= 1,052.22 million in
2006, 2005 and 2004, respectively (see Note 22). Receivables, net of allowance for impairment losses,
amounted to P
= 5,527.91 million, P
= 6,764.13 million and P
= 5,457.91 million as of December 31, 2006, 2005
and 2004, respectively (see Note 4).
3.1.2.3
Obsolescence and market decline
The Globe Group, in determining the NRV, considers any adjustment necessary for obsolescence which is
generally provided 100% for nonmoving items for more than one year. The Globe Group adjusts the cost
of inventory to the recoverable value at a level considered adequate to reflect market decline in the value of
the recorded inventories. The Globe Group reviews the classification of the inventories and generally
provides adjustments for recoverable values of new, actively sold and slow-moving inventories by reference
to prevailing values of the same inventories in the market.
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 allowance for obsolescence and market decline would
increase recorded operating expenses and decrease current assets.
Inventory obsolescence and market decline amounted to P
= 80.05 million and P
= 72.39 million in 2005 and
2004, respectively. Reversal of inventory obsolescence and market decline in 2006 amounted to
P
= 61.39 million (see Note 22).
Inventories and supplies, net of allowances, amounted to P
= 993.50 million, P
= 1,372.46 million and
P
= 1,136.89 million as of December 31, 2006, 2005 and 2004, respectively (see Note 5).
3.1.2.4
ARO
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 an in-house estimate, which incorporates estimates of asset retirement costs
and interest rates. The Globe Group recognizes the present value of 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 or the
lease term, whichever is shorter. 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
present value of dismantling costs is computed based on an average credit adjusted risk free rate of 7.50%
and 14.62% in 2006 and 2005, respectively. Assumptions used to compute ARO are reviewed and
updated annually.
The amount and timing of recorded expenses for any period would differ if different judgments were made
or different estimates were utilized. An increase in ARO would increase recorded operating expenses and
increase noncurrent liabilities.
As of December 31, 2006, 2005 and 2004, ARO amounted to P
= 1,316.61 million, P
= 907.05 million and
P
= 769.80 million, respectively (see Note 15).
3.1.2.5
EUL of property and equipment, investment property and intangible assets
Globe Group reviews annually the EUL of these assets 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, investment property and intangible assets would increase the recorded depreciation and
amortization expense and decrease noncurrent assets.
The EUL of property and equipment of the Globe Group are as follows:
Years
Telecommunications equipment:
Tower
15
Switch
10 and 15
Outside plant
10-20
Distribution dropwires
5
Cellular facilities and others
3-10
Buildings
Leasehold improvements
20
5 years or lease term, whichever is shorter
Investments in cable systems
15
Furniture, fixtures and equipment
3-5
Transportation and work equipment
2-5
The EUL of investment property is 15 years.
Intangible assets are amortized over the EUL of the related hardware or equipment ranging from 3 to 5
years or life of the telecommunications equipment where it is assigned.
In the fourth quarter of 2006, the Globe Group recognized additional depreciation on telecommunications
equipment amounting to P
= 790.06 million due to shortened remaining useful lives of certain assets resulting
from continuing upgrades made to the network and changes in estimated remaining useful lives of certain
components of network assets as a result of the application of a more comprehensive approach to
component accounting. These changes have been accounted for as change in accounting estimates.
As of December 31, 2006, 2005 and 2004, property and equipment, investment property and intangible
assets amounted to P
= 97,517.54 million, P
= 99,914.94 million and P
= 102,849.37 million, respectively (see
Notes 7, 8 and 9).
3.1.2.6
Asset impairment
The Globe Group assesses impairment of assets (property and equipment, investment property, intangible
assets and investments in an associate and a JV) whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The factors that the 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 the overall
•
significant negative industry or economic trends.
business; and
An impairment loss is recognized whenever the carrying amount of an asset or investment 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 investments or, if it is not possible, for the cash-generating unit to which the asset belongs. For
impairment loss on specific assets or investments, 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 or holding of an investment, the Globe Group is required to make estimates
and assumptions that can materially affect the consolidated financial statements.
For the Globe Group, the cash-generating unit 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 Cellular Mobile Telephone System (CMTS) and
International Digital Gateway Facility (IGF) services to provide 400,000 and 300,000 LEC lines,
respectively, as a condition for the grant of such licenses.
In 2005, the Globe Group recognized impairment losses on certain network assets amounting to
P
= 925.77 million as a result of impairment reviews and reconciliation exercise based on count activity (see
Note 22).
Property and equipment, investment property, intangible assets and investment in an associate and a joint
venture amounted to P
= 97,554.87 million,P
= 99,958.20 million and P
= 102,941.30 million as of December 31,
2006, 2005 and 2004, respectively (see Notes 7, 8, 9 and 10).
3.1.2.7
Deferred income tax assets
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.
As of December 31, 2006, 2005 and 2004, Innove and GXI has net deferred income tax assets of
P
= 801.86 million, P
= 1,163.94 million and P
= 2,413.25 million, respectively, while Globe Telecom has net
deferred income tax liabilities of P
= 5,540.00 million, P
= 4,432.87 million and P
= 3,474.73 million, respectively
(see Note 23). Globe Telecom and Innove have no unrecognized deferred income tax assets as of
December 31, 2006, 2005 and 2004. GXI has not recognized deferred income tax assets on its NOLCO
since there is no assurance that GXI will generate sufficient taxable income to allow all or part of its
NOLCO to be utilized.
3.1.2.8
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 the
consolidated statements of income and consolidated statements of changes in equity.
Financial assets carried at fair values as of December 31, 2006 and 2005, amounted to P
= 1,920.28 million
and P
= 2,769.21 million, respectively, and financial liabilities carried at fair values as of December 31, 2006
and 2005, amounted to P
= 1,086.12 million and P
= 731.75 million, respectively (see Note 27).
3.1.2.9
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 (see Note 18). In
accordance with PAS 19, 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.
As of December 31, 2006, the Globe Group has unrecognized actuarial losses of P
= 259.74 million while
unrecognized actuarial gains of P
= 153.59 million and P
= 105.46 million were reported in 2005 and 2004,
respectively (see Note 18).
The Globe Group also determines the cost of equity-settled transactions using assumptions on the
appropriate pricing model. Significant assumptions include, among others, share price, exercise price,
option life, risk-free interest rate, expected dividend and expected volatility rate for the cost of share-based
payments.
Cost of share-based payments in 2006, 2005 and 2004 amounted to P
= 161.63 million, P
= 161.73 million and
P
= 134.77 million, respectively (see Notes 16 and 18).
The Globe Group also estimates other employee benefit obligations and expenses, including cost 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 (included under the “Accounts payable and accrued
expenses” account and in the “Other long-term liabilities” account in the consolidated balance sheets) as of
December 31, 2006 and 2005 amounted to P
= 246.98 million and P
= 217.26 million, respectively.
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.
3.1.2.10 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 internal and
external counsel handling Globe Telecom and Innove’s 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 25).
4.
Receivables
This account consists of receivables from:
2006
2005
2004
(In Thousand Pesos)
Subscribers
Traffic settlements - net (Note 16a)
Others
P
= 5,947,904
P
= 8,022,307
P
= 7,988,865
1,959,169
3,120,374
2,315,050
305,615
305,076
242,789
8,212,688
11,447,757
10,546,704
2,485,188
4,468,009
4,787,070
199,595
215,618
301,721
2,684,783
4,683,627
5,088,791
P
= 5,527,905
P
= 6,764,130
P
= 5,457,913
Less allowance for impairment losses
Subscribers
Traffic settlements and others
Traffic settlements receivable are presented net of traffic settlements payable of P
= 3,675.43 million, P
= 1,979.29 million and
P
= 1,196.82 million as of December 31, 2006, 2005 and 2004, respectively.
5.
Inventories and Supplies
This account consists of:
2006
2005
2004
(In Thousand Pesos)
At cost:
Wireline telephone sets
P
=–
P
=–
21,390
10,601
6,116
21,390
10,601
75,883
Handsets and accessories
520,352
840,244
393,803
SIM packs, spare parts and supplies
385,795
469,335
667,199
65,958
52,279
–
972,105
1,361,858
1,061,002
P
= 993,495
P
= 1,372,459
P
= 1,136,885
2005
2004
Call cards and others
P
= 69,767
At NRV:
Wireline telephone sets
6.
Prepayments and Other Current Assets
This account consists of:
2006
(In Thousand Pesos)
Prepayments
Input VAT - net
Other current assets (Notes 16 and 24d)
P
= 392,840
P
= 297,109
P
= 331,591
43,000
286,784
312,566
818,842
531,576
439,251
P
= 1,254,682
P
= 1,115,469
P
= 1,083,408
Innove and GXI’s net input VAT amounting to P
= 43.00 million, P
= 286.78 million and P
= 312.57 million as of December 31, 2006, 2005
and 2004, respectively, is presented net of output VAT of P
= 85.26 million, P
= 102.74 million and P
= 172.98 million, respectively.
7.
Property and Equipment
The rollforward analysis of this account follows:
2006
Buildings
Furniture,
and
Fixtures Transportation
Telecommunications
Leasehold Investments in
and
and Work
Equipment Improvements Cable Systems Equipment
Equipment
(In Thousand Pesos)
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
Accumulated Depreciation,
Amortization and
Impairment Losses
At January 1
Depreciation and amortization
Impairment/retirements/
disposals
Reclassifications/adjustments
At December 31
Net Book Value at
December 31
P
= 125,123,066
2,295,585
(437,156)
5,000,324
131,981,819
P
= 18,932,872
119,722
(41,548)
1,371,319
20,382,365
P
= 9,062,539 P
= 4,091,131
1,085,012
371,135
–
(67,870)
(129,589)
114,731
10,017,962
4,509,127
Assets
Under
Land Construction
P
= 1,332,701 P
= 897,914
301,702
–
(156,446)
–
134
–
1,478,091 897,914
Total
P
= 2,875,734 P
= 162,315,957
10,387,091
14,560,247
(16,946)
(719,966)
(6,600,376)
(243,457)
6,645,503 175,912,781
52,824,235
13,150,285
5,355,595
1,786,495
2,060,827
622,633
2,625,964
872,593
894,666
205,351
–
–
–
–
63,761,287
16,637,357
(313,795)
11,191
65,671,916
(25,032)
1,769
7,118,827
–
(42,120)
2,641,340
(66,240)
798
3,433,115
(125,814)
(33)
974,170
–
–
–
–
–
–
(530,881)
(28,395)
79,839,368
P
= 503,921 P
= 897,914
P
= 6,645,503
P
= 96,073,413
Assets
Under
Land Construction
Total
P
= 66,309,903
P
= 13,263,538
P
= 7,376,622 P
= 1,076,012
2005
Buildings
and
Telecommunications
Leasehold Investments in
Equipment Improvements Cable Systems
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
Accumulated Depreciation,
Amortization and
Impairment Losses
At January 1
Depreciation and amortization
Impairment/retirements/
disposals
Reclassifications/adjustments
At December 31
Net Book Value at
December 31
P
= 117,423,719 P
= 15,688,934
1,616,476
108,003
(3,549,702)
(19,819)
9,632,573
3,155,754
125,123,066
18,932,872
Furniture,
Fixtures Transportation
and
and Work
Equipment
Equipment
(In Thousand Pesos)
P
= 9,011,832* P
= 3,436,886
33,350
414,988
(2,581)
(446,965)
19,938
686,222
9,062,539
4,091,131
P
= 1,191,320 P
= 928,222 P
= 4,142,164 P
= 151,823,077
222,410
36 12,529,070
14,924,333
(85,182) (30,344)
–
(4,134,593)
4,153
– (13,795,500)
(296,860)
1,332,701
897,914
2,875,734
162,315,957
42,953,548
12,107,710
3,791,378
1,583,301
1,441,963*
618,345
2,182,047
811,762
760,902
193,734
–
–
–
–
51,129,838
15,314,852
(2,232,425)
(4,598)
52,824,235
(7,952)
(11,132)
5,355,595
(961)
1,480
2,060,827
(396,103)
28,258
2,625,964
(64,752)
4,782
894,666
–
–
–
–
–
–
(2,702,193)
18,790
63,761,287
P
= 438,035 P
= 897,914
P
= 2,875,734
P
= 72,298,831
* Includes PAS 39 adjustment (see Note 24).
P
= 13,577,277
P
= 7,001,712 P
= 1,465,167
P
= 98,554,670
2004
Buildings
and
Telecommunications
Leasehold Investments in
Equipment Improvements Cable Systems
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
Accumulated Depreciation,
Amortization and
Impairment Losses
At January 1
Depreciation and amortization
Impairment/retirements/
disposals
Reclassifications/adjustments
At December 31
Net Book Value at
December 31
P
= 104,069,288
951,758
(530,886)
12,933,559
117,423,719
P
= 11,431,609
113,981
(48,686)
4,192,030
15,688,934
32,055,043
11,671,431
2,633,507
1,177,305
(286,775)
(486,151)
42,953,548
(18,992)
(442)
3,791,378
P
= 74,470,171
P
= 11,897,556
Furniture,
Fixtures Transportation
and
and Work
Equipment
Equipment
(In Thousand Pesos)
P
= 10,071,745 P
= 2,307,792
64,748
552,820
–
(93,010)
37,613
669,284
10,174,106
3,436,886
940,287
713,597
–
–
1,653,884
Assets
Under
Land Construction
Total
P
= 976,109 P
= 927,857 P
= 3,109,261 P
= 132,893,661
272,767
365 19,125,299
21,081,738
(56,275)
–
(12,404)
(741,261)
(1,281)
– (18,079,992)
(248,787)
1,191,320 928,222
4,142,164 152,985,351
1,543,056
704,138
652,081
151,605
–
–
–
–
37,823,974
14,418,076
(59,203)
(5,944)
2,182,047
(42,903)
119
760,902
–
–
–
–
–
–
(407,873)
(492,418)
51,341,759
P
= 8,520,222 P
= 1,254,839
P
= 430,418 P
= 928,222 P
= 4,142,164 P
= 101,643,592
The carrying values of property and equipment held under finance leases where Globe Group is the lessee are as follows
(see Note 24c):
2006
2005
2004
(In Thousand Pesos)
Furniture, fixtures and equipment
P
= 144,372
P
= 138,978
4,043
3,850
4,400
148,415
142,828
170,817
Less accumulated depreciation
147,793
136,481
147,902
Net book value at December 31
P
= 622
P
= 6,347
P
= 22,915
2005
2004
Transportation and work equipment
P
= 166,417
The Globe Group’s information about borrowing costs follows:
2006
(In Thousand Pesos)
Capitalized interest
Other capitalized borrowing costs
P
= 45,530
P
= 111,340
2,550
28,323
P
= 77,670
133,465
P
= 48,080
P
= 139,663
P
= 211,135
The Globe Group uses its borrowed funds to finance the acquisition of property and equipment and bring it to its intended location
and in working condition. Borrowing costs incurred relating to these acquisitions were included in the cost of property and equipment
using 9.75% capitalization rate in 2006 and 2005 while capitalization rates ranged from 9.75% to 10.47% in 2004.
Investments in cable systems include the cost of the Globe Group’s ownership share in the capacity of certain cable systems under a
joint venture or a consortium or private cable set-up and indefeasible rights of use (IRUs) of circuits in various cable systems. It also
includes the cost of cable landing station and transmission facilities where the Globe Group is the landing party.
8.
Investment Property
The rollforward analysis of this account follows:
2006
2005
2004
(In Thousand Pesos)
Cost
At January 1
Additions
At December 31
P
= 308,455
P
= 290,834
95,232
17,621
P
= 281,821
9,013
403,687
308,455
290,834
Accumulated Depreciation
At January 1
48,917
29,318
10,833
Depreciation
19,196
19,599
18,485
Reclassifications/adjustments
21,071
–
–
At December 31
Net Book Value at December 31
89,184
48,917
29,318
P
= 314,503
P
= 259,538
P
= 261,516
Investment property represents the portion of a building that is currently being held for lease to third parties (see Note 24b). Additions
to investment property during the year represent new leases of office spaces to third parties.
The details of income and expenses related to the investment property follow:
2006
Lease income
Direct expenses
P
= 33,445
40,788
2005
(In Thousand Pesos)
P
= 29,011
20,091
2004
P
= 20,844
19,005
The fair value of the investment property as of December 31, 2006, as determined by market data approach, amounted to
P
= 285.74 million based on the report issued by an independent appraiser dated December 6, 2006.
9.
Intangible Assets
The rollforward analysis of this account follows:
2006
2005
2004
(In Thousand Pesos)
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
P
= 2,756,829
P
= 2,265,820
320,206
595,621
620,600
(91,012)
(154,682)
(742)
191,470
(13,600)
P
= 1,807,059
(7,157)
3,267,763
2,756,829
2,265,820
At January 1
1,656,102
1,321,555
1,202,108
Amortization
481,000
399,508
269,264
(64,852)
(144,928)
Accumulated Amortization
Retirements/disposals
Reclassifications/adjustments
At December 31
Net Book Value at December 31
(6)
1,043
(109)
(4,889)
2,138,139
1,656,102
1,321,555
P
= 1,129,624
P
= 1,100,727
P
= 944,265
Intangible assets pertain to software license costs and other VAS software applications that are not integral to the hardware or
equipment.
10. Investments in an Associate and a Joint Venture
This account consists of:
2006
Investments carried at equity
Acquisition cost:
Bridge Mobile Pte. Ltd. (BMPL)
Globe Telecom Holdings, Inc. (GTHI)
Accumulated equity in net earnings (losses):
At January 1
BMPL
GTHI
Add equity in net losses:
BMPL
GTHI
At December 31
BMPL
GTHI
Other investments in shares of stock carried at cost
P
= 56,332
–
56,332
(13,166)
–
(13,166)
(5,834)
–
(5,834)
37,332
–
37,332
–
P
= 37,332
2005
(In Thousand Pesos)
2004
P
= 56,332
98
56,430
P
= 56,332
98
56,430
–
167
167
–
229
229
(13,311)
(23)
(13,334)
43,021
242
43,263
–
P
= 43,263
–
(62)
(62)
56,332
265
56,597
35,328
P
= 91,925
Investment in BMPL
On November 3, 2004, Globe Telecom and 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. The joint
venture company is a commercial vehicle for the JV partners to build and establish a regional mobile infrastructure and common
service platform and deliver different regional mobile services to their subscribers.
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 shall contribute US$4.00 million based on an agreed schedule of contribution. Globe
Telecom may be called upon to contribute on dates to be determined by the JV. As of December 31, 2006, Globe Telecom has paid
US$1.00 million (P
= 56.33 million) as initial subscription. BMPL started commercial operations in April 2005.
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 (SingTel)], and
1.66% by its directors and officers. On December 26, 2002, GTHI, having completed and concluded its only business activity related
to issuance of Philippine Deposit Receipts (PDR), filed with the Philippine Securities and Exchange Commission (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. The remaining
assets of GTHI have been fully liquidated as of August 14, 2006.
11. Other Noncurrent Assets
This account consists of:
2006
2005
2004
(In Thousand Pesos)
Deferred input VAT
Advance payments to suppliers and contractors
P
= 938,513
P
= 92,264
P
=–
355,959
279,206
418,677
Miscellaneous deposits
340,134
342,492
251,547
Prepaid pension (Note 18)
247,437
264,024
309,226
–
–
1,116,414
Revaluation of foreign currency swaps and
unamortized premium
AFS investment in equity securities
at cost - net of allowance for impairment
losses of P
= 894.55 million in 2005
Others - net
–
–
–
126,065
36,594
272,634
P
= 2,008,108
P
= 1,014,580
P
= 2,368,498
AFS Investment in Equity Securities at Cost
Innove had a 4.25% ownership in C2C Holdings, Pte. Ltd. (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. A full provision was recorded on this
investment in 2003 based on the increased potential risk to the restructuring of C2C’s debt.
The creditors of C2C appointed receivers in October 2005 and in January 2006, manifested their intention to take over the
management of C2C. C2C’s creditors subsequently served notice to C2C Holdings that it was taking ownership of the shares of
C2C Holdings in C2C due to the failure to achieve agreement on the restructuring of C2C’s debt. On August 7, 2006, the C2C
shares were formally transferred to C2C Group Limited, the company formed by the creditors to take ownership of the C2C shares
(see Note 24).
12. Accounts Payable and Accrued Expenses
This account consists of:
2006
2005
2004
(In Thousand Pesos)
Accounts payable (Note 16)
P
= 5,855,423
P
= 5,744,393
P
= 4,903,175
Accrued project costs (Note 24)
4,548,838
2,444,114
3,454,285
Accrued expenses (Note 16)
4,378,534
4,101,400
4,084,200
Traffic settlements - net
1,501,931
1,544,657
1,104,861
135,870
69,324
150,379
64,669
68,334
75,128
P
= 16,485,265
P
= 13,972,222
P
= 13,772,028
Output VAT
Dividends payable (Note 17)
Traffic settlements payables are presented net of traffic settlements receivables amounting to P
= 5,135.88 million, P
= 7,478.60 million
and P
= 3,761.56 million as of December 31, 2006, 2005 and 2004, respectively.
As of December 31, 2006, 2005 and 2004, Globe Telecom reported a net output VAT amounting to P
= 135.87 million,
P
= 69.32 million and P
= 150.38 million, net of input VAT of P
= 156.16 million, P
= 207.07 million and P
= 224.74 million, respectively.
13. Provisions
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
= 248.31 million, P
= 231.46 million and P
= 282.31 million as of December 31, 2006, 2005 and 2004, respectively. As of February 5,
2007, the remaining pending regulatory claims and assessments are still being resolved.
The balance of the provisions also includes Innove’s provision relating to NTC permit fees amounting to P
= 117.26 million, which were
assessed by NTC on March 27, 1996 as required under Section 40 (g) of the Public Service Act. Innove, together with other
telecommunications companies, particularly the members of the Telecommunications Operators of the Philippines, had decided not
to pay the assessed permit fees. Innove has retained these provisions pending the resolution of the ongoing Supreme Court (SC)
case on the matter. The expected timing of the settlement of the permit fees cannot be anticipated pending resolution of these
matters.
14. Long-term Debt
This account consists of:
2006
2005
2004
(In Thousand Pesos)
2012 Senior Notes
P
= 14,768,630
P
= 16,386,579
P
= 17,387,378
22,121,664
Banks:
Foreign
9,365,119
15,973,138
Local
8,475,367
10,137,664
5,975,162
Corporate notes
3,607,000
4,109,000
3,070,000
Retail bonds
2,990,741
2,983,743
3,000,000
–
103,264
663,747
39,206,857
49,693,388
52,217,951
6,271,601
7,858,150
9,018,650
P
= 32,935,256
P
= 41,835,238
P
= 43,199,301
Suppliers’ credits
Less current portion
The maturities of long-term debt at nominal values excluding unamortized debt premium and issuance costs as of December 31,
2006 follow (in thousand pesos):
Due in:
2007
P
= 6,475,004
2008
4,823,881
2009
7,409,844
2010
2011 and thereafter
3,586,812
16,548,613
P
= 38,844,154
The interest rates and maturities of the above loans are as follows:
2012 Senior Notes
Banks:
Foreign
Maturities
2012
Interest Rates
9.75%
2007-2011
4.20% to 8.62% in 2006
2.17% to 12.45% in 2005
1.16% to 6.83% in 2004
Local
2007-2010
6.22% to 11.02% in 2006
7.36% to 11.73% in 2005
2.50% to 11.73% in 2004
Corporate notes
2010-2012
6.22% to 16.00% in 2006
7.36% to 16.00% in 2005
8.40% to 16.00% in 2004
Retail bonds
2007-2009
6.57% to 11.83% in 2006
7.26% to 11.70% in 2005
7.79% to 11.70% in 2004
Suppliers’ credits
2006
4.70% to 6.48% in 2006
4.39% to 6.69% in 2005
2.71% to 6.88% in 2004
Unamortized debt premium and issuance costs included in the above long-term debt as of December 31, 2006 are as follows (in
thousand pesos):
Premium on 2012 Senior Notes (net of related debt issuance cost)
Unamortized debt issuance costs on retail bonds
P
= 371,961
(9,258)
P
= 362,703
Senior Notes
Pertinent terms of Globe Telecom’s 2012 Senior Notes are as follows:
Date of issue
April 4, 2002
Maturity
April 12, 2012
Interest rate
9.75% 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 period comprised of twelve 30-day months.
Eligible holders
Bondholders of record on April 1 or October 1 immediately preceding each interest payment date.
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
On or after April 15, 2007
Redemption price
2007
2008
2009
2010 and thereafter
104.875%
103.250%
101.625%
100.000%
On August 22, 2006 and September 1, 2006, Globe Telecom repurchased US$6.46 million in face value of its 2012 Senior Notes.
Bond redemption costs (included in “Financing costs” account) incurred in 2006 amounted to P
= 23.24 million.
On January 12, 2007, the BSP approved Globe Telecom’s application to redeem the 2012 Senior Notes in 2007. Globe Telecom
plans to issue a formal call to the trustee after refinancing has been secured.
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 includes among others, incurrence of additional debt, certain dividend
payments, liens, repayments of certain debts, merger/consolidation and sale of assets in general.
Bank Loans and Corporate Notes
Globe Telecom’s unsecured 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 unsecured 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.
The loan agreements with 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 longterm indebtedness or guarantees and creation of property encumbrances.
Retail Bonds
In February 2004, Globe Telecom issued P
= 3,000.00 million unsecured retail bonds locally with fixed and floating interest rates based
on MART 1 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
Unsecured suppliers’ credits accrue interests that are either fixed or based on USD LIBOR plus margins.
15. Other Long-term Liabilities
This account consists of:
2006
2005
2004
(In Thousand Pesos)
ARO
Noninterest bearing liabilities (Note 24)
P
= 1,316,612
P
= 907,053
P
= 769,795
1,062,635
1,235,810
2,262,283
Advance lease and service revenues (Note 24)
114,094
137,925
164,209
Accrued lease obligations and others (Note 24)
470,331
548,082
473,317
P
= 2,963,672
2,828,870
3,669,604
93,422
269,737
292,589
P
= 2,870,250
P
= 2,559,133
P
= 3,377,015
Less current portion
The maturities of other long-term liabilities at nominal amounts as of December 31, 2006 follow (in thousand pesos):
Due in:
2007
2008
2009
2010
2011 and thereafter
P
= 93,177
99,400
107,185
115,674
2,548,236
P
= 2,963,672
The rollforward analysis of the Globe Group’s ARO follows:
2006
2005
2004
(In Thousand Pesos)
At January 1
P
= 907,053
P
= 769,795
P
= 519,309
281,557
44,433
182,363
128,002
92,825
68,123
P
= 1,316,612
P
= 907,053
P
= 769,795
Capitalized to property and equipment during the
year - net of reversal (Note 29)
Accretion expense during the year
At December 31
16. Related Party Transactions
Globe Telecom and Innove, in their regular conduct of business, enter into transactions with their principal shareholders, AC and STI,
and certain related parties. These transactions, which are accounted for at market prices normally charged to unaffiliated customers
for similar goods and services, include the following:
Globe Telecom
(a)
Globe Telecom has interconnection agreements with SingTel. The related net traffic settlements receivable (included in
“Receivables” account in the consolidated balance sheets) and the interconnection toll income (included in “Service revenues”
account in the consolidated statements of income) earned are as follows:
2006
2005
2004
(In Thousand Pesos)
Traffic settlements receivable - net
Interconnection toll income
(b)
P
= 61,061
P
= 335,766
P
= 31,212
1,028,552
1,422,249
1,083,859
Globe Telecom and STI have a technical assistance agreement whereby STI will provide consultancy and advisory services,
including those with respect to the construction and operation of Globe Telecom’s networks and communication services,
equipment procurement and personnel services. In addition, Globe Telecom has software development, supply, license and
support arrangements, lease of cable facilities, maintenance and restoration costs and other transactions with STI.
The details of fees (included in repairs and maintenance under the “General, selling and administrative expenses” account in
the consolidated statements of income) incurred under these agreements are as follows:
2006
Maintenance and restoration costs and other transactions
Software development, supply, license and support
Technical assistance fee
P
= 240,542
29,467
78,872
2005
(In Thousand Pesos)
P
= 266,793
143,450
35,652
2004
P
= 137,111
44,360
40,409
The net outstanding balances due to STI (included in the “Accounts payable and accrued expenses” account in the
consolidated balance sheets) arising from these transactions are as follows:
2006
Maintenance and restoration costs and other transactions
Software development, supply, license and support
Technical assistance fee
(c)
P
= 24,203
31,004
25,606
2005
(In Thousand Pesos)
P
= 13,738
11,940
81,019
2004
P
= 62,675
21,322
8,899
Globe Telecom reimburses AC for certain operating expenses. The net outstanding liabilities to AC related to these transactions
as of December 31, 2006 were not material.
(d)
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 from BMPL for regional top-up service
provided by the JV partners. As of December 31, 2006, balances related to these transactions were not material.
The summary of consolidated outstanding balances resulting from transactions with related parties follows:
2006
2005
2004
(In Thousand Pesos)
Traffic settlements receivable - net (included in
“Receivables” account) (Note 4)
P
= 61,061
Other current assets (Note 6)
Accounts payable and accrued expenses (Note 12)
Other long-term liabilities (Notes 15 and 24)
31,212
P
= 335,766
1,651
927
946
100,413
129,420
122,959
–
1,373,735
2,426,492
Globe Group’s compensation of key management personnel by benefit type are as follows:
2006
Short-term employee benefits
Share-based payments (Note 18)
Post-employment benefits
P
= 308,039
161,628
21,682
P
= 491,349
2005
(In Thousand Pesos)
P
= 296,191
161,731
32,938
P
= 490,860
2004
P
= 261,174
134,769
35,667
P
= 431,610
There are no agreements between the 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 the Globe Group’s retirement plans.
17. Equity
Globe Telecom’s authorized capital stock consists of:
Preferred stock - Series “A” P
= 5 per share
Common stock - P
= 50 per share
Shares
2006
2005
Amount
Shares
Amount
Shares
(In Thousand Pesos and Number of Shares)
2004
Amount
250,000
179,934
P
= 1,250,000
8,996,719
250,000
200,000
P
= 1,250,000
10,000,000
2006
2005
Amount
Shares
Amount
Shares
(In Thousand Pesos and Number of Shares)
158,515
P
= 792,575
158,515
P
= 792,575
158,515
132,080
6,603,989
131,900
6,595,022
151,905
(46,910)
(53,856)
P
= 7,349,654
P
= 7,333,741
2004
Amount
250,000 P
= 1,250,000
179,934
8,996,719
Globe Telecom’s issued and subscribed capital stock consists of:
Shares
Preferred stock
Common stock
Subscriptions receivable
P
= 792,575
7,595,272
(64,824)
P
= 8,323,023
Preferred Stock
Preferred stock - Series “A” has the following features:
(a)
Convertible to one common share after 10 years from issue date at not less than the prevailing market price of the common
stock less the par value of the preferred shares;
(b)
Cumulative and nonparticipating;
(c)
Floating rate dividend;
(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.
The dividends for preferred shares are declared upon the sole discretion of the Globe Telecom’s BOD. As of December 31, 2006,
the Globe Group has no dividends in arrears to its preferred stockholders.
Common Stock
The rollforward of outstanding common shares are as follows:
2006
At January 1
Acquisition of treasury shares
Exercise of stock options
At December 31
Shares
Amount
131,900
–
180
132,080
P
= 6,595,022
–
8,967
P
= 6,603,989
2005
Shares
Amount
Shares
(In Thousand Pesos and Number of Shares)
139,904
(8,064)
60
131,900
P
= 6,995,200
(403,211)
3,033
P
= 6,595,022
139,904*
–
–
139,904
2004
Amount
P
= 6,995,200
–
–
P
= 6,995,200
* Net of 12.00 million treasury shares acquired in 2003.
Treasury Stock
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. On March 15, 2005, Globe
Telecom acquired 8.06 million shares at a total cost of P
= 7,675.66 million, including incidental costs.
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 in 2003 and the 8.06 million shares acquired during the March 2005 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. The Philippine SEC approved Globe Telecom’s application for the
retirement and cancellation of the existing treasury shares on October 28, 2005. Accordingly, Globe Telecom cancelled the existing
treasury shares at cost. The difference between the par value and cost of treasury stock was charged to the “Additional paid-in
capital” and “Retained earnings” accounts amounting to P
= 5,179.35 million and P
= 9,685.80 million, respectively.
Cash Dividends
Information on the Globe Group’s BOD declaration of cash dividends follows:
Date
Per share
Amount
Record
Payable
(In Thousand Pesos, Except Per Share Figures)
Preferred stock dividends declared on:
December 15, 2004
December 13, 2005
December 11, 2006
Common stock dividends declared on:
January 29, 2004
August 2, 2004
February 1, 2005
August 2, 2005
February 7, 2006
July 31, 2006
P
= 0.47
0.43
0.41
P
= 75,128
68,334
64,669
18.00
18.00
20.00
20.00
20.00
30.00
2,518,270
2,518,269
2,798,077
2,637,940
2,638,072
3,961,745
December 31, 2004
December 31, 2005
December 31, 2006
March 15, 2005
March 15, 2006
March 15, 2007
February 18, 2004
August 20, 2004
February 18, 2005
August 19, 2005
February 21, 2006
August 17, 2006
March 14, 2004
September 15, 2004
March 15, 2005
September 14, 2005
March 15, 2006
September 12, 2006
On January 29, 2004, the BOD of Globe Telecom approved a dividend policy to declare cash dividends to its common stockholders
on a regular basis as may be determined by the BOD from time to time. The BOD had set out a dividend payout rate of
approximately 50% of prior year’s net income payable semi-annually in March and September of each year. This will be reviewed
annually, taking into account Globe Telecom’s operating results, cash flows, debt covenants, capital expenditure levels and liquidity.
On July 31, 2006, the BOD of Globe Telecom amended the dividend policy increasing the dividend payout rate at approximately 75%
of prior year’s net income to be implemented starting 2006’s second semi-annual cash dividend declaration.
Cash Dividends Declared After Balance Sheet Date
On February 5, 2007, the BOD approved the declaration of the first semi-annual cash dividend in 2007 of P
= 4,358.63 million (P
= 33.00
per common share) to common stockholders of record as of February 19, 2007 payable on March 15, 2007.
Restrictions on Retained Earnings
The retained earnings include the undistributed net earnings of consolidated subsidiaries and the accumulated equity in net earnings
of an associate and JV accounted for under the equity method totaling P
= 6,431.54 million as of December 31, 2006. This amount is
not available for dividend declaration until received in the form of dividends from subsidiaries, the associate and the JV. The Globe
Group is also subject to loan covenants that restrict its ability to pay dividends (see Note 14).
18. Employee Benefits
Stock Option Plans
The 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.
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
covered by each grant 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 maximum periods 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 1.71 million
shares with a weighted average exercise price of P
= 196.75 per share. The remaining unexercised stock options under ESOWN and
ESOP1 expired in 2004.
Following are the additional stock option grants to key executives and senior management personnel of the Globe Group under
Executive Stock Option Plan 2 (ESOP2) from 2003 to 2006:
Fair Value
of each
Option
P
= 283.11
Date of
Grant
April 4, 2003
Number of
Options
Granted
680,200
Exercise
Price
P
= 547.00 per share
July 1, 2004
803,800
840.75 per share
50% of options
exercisable from July 1, 2006 to
June 30, 2014; the remaining 50%
from July 1, 2007 to June 30, 2014
P
= 357.94
Black-Scholes
option pricing
model
June 30, 2006
749,500
854.74 per share
50% of the options become
exercisable from March 24, 2008 to
March 23, 2016; the remaining 50%
become exercisable from
March 24, 2009 to March 23, 2016
P
= 292.12
Trinomial option
pricing model
Exercise Dates
50% of options
exercisable from April 4, 2005 to
April 14, 2013; the remaining 50%
exercisable from April 4, 2006 to
April 4, 2013
Fair Value
Measurement
Black-Scholes
option pricing
model
The exercise price is based on the average quoted market price for the last 20 trading days preceding the approval date to offer the
stock options.
ESOP2 required the grantees to pay a nonrefundable option purchase price of P
= 1,000.00. In order to avail of the privilege, the
grantees must remain with Globe Telecom or its affiliates from grant date up to the beginning of the exercise period of the
corresponding shares.
A summary of the Globe Group’s stock option activity and related information follows:
2006
Outstanding, at January 1
ESOP2 granted on:
April 4, 2003
July 1, 2004
June 30, 2006
Exercised
Expired/forfeited/cancelled
Outstanding, at December 31
Exercisable, at December 31
2005
2004
Weighted
Average
Exercise
Price
P
= 709.77
Number of
Shares
643,782
Weighted
Average
Exercise
Price
P
= 546.51
41,000
795,800
–
(2,700)
(27,282)
1,450,600
547.00
829.17
–
547.00
535.32
P
= 709.77
Number of
Shares
1,281,350
Weighted
Average
Exercise
Price
P
= 730.01
–
–
749,500
(435,810)
(4,100)
1,590,940
–
–
854.75
647.80
604.32
P
= 811.62
–
8,000
–
(149,000)
(28,250)
1,281,350
–
547.00
–
547.00
604.19
P
= 730.01
447,540
P
= 712.80
172,350
P
= 547.00
Number of
Shares
1,450,600
–
P
=–
The average share price at date of exercise of stock options in 2006, 2005 and 2004 amounted to P
= 989.03, P
= 807.08 and P
= 909.17,
respectively.
As of December 31, 2006, 2005 and 2004, the weighted average remaining contractual life of options outstanding is 8.17 years,
8.03 years and 8.94 years, respectively.
The following assumptions were used to determine the fair value of the stock options at effective grant dates:
June 30, 2006
July 1, 2004
April 4, 2003
Share price
P
= 930.00
P
= 835.00
P
= 580.00
Exercise price
P
= 854.75
P
= 840.75
P
= 547.00
29.51%
39.50%
34.64%
10 years
10 years
10 years
Expected volatility
Option life
Expected dividends
Risk-free interest rate
5.38%
4.31%
2.70%
10.30%
12.91%
11.46%
The expected volatility measured at the standard deviation of expected share price returns was based on analysis of share prices for
the past 365 days.
Cost of share-based payments in 2006, 2005 and 2004 amounted to P
= 161.63 million, P
= 161.73 million and P
= 134.77 million,
respectively.
Pension Plans
The Globe Group 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 information below includes the
additional disclosures required under the amendments to PAS 19.
The components of pension expense (included in staff costs under “General, selling and administrative expenses”) in the
consolidated statements of income are as follows:
2006
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial losses (gains)
Total pension expense
Actual return on plan assets
P
= 92,191
67,443
(108,839)
(2,605)
P
= 48,190
P
= 191,848
2005
(In Thousand Pesos)
P
= 93,305
81,207
(112,833)
(2,454)
P
= 59,225
P
= 80,456
2004
P
= 98,332
68,752
(91,790)
133
P
= 75,427
P
= 97,940
The funded status included under “Other noncurrent assets” account for the pension plan of Globe Telecom and Innove are as
follows:
2006
Benefit obligation
Plan assets
Unrecognized net actuarial gains (losses)
Asset recognized in the consolidated balance sheets
P
= 1,267,209
(1,254,906)
12,303
(259,740)
(P
= 247,437)
2005
(In Thousand Pesos)
P
= 648,825
(1,066,441)
(417,616)
153,592
(P
= 264,024)
2004
P
= 603,622
(1,018,309)
(414,687)
105,461
(P
= 309,226)
The following tables present the changes in the present value of defined benefit obligation and fair value of plan assets:
Defined benefit obligation
2006
Balance at January 1
Interest cost
Current service cost
Benefits paid
Actuarial (gains) losses
Balance at December 31
P
= 648,825
67,443
92,191
(62,354)
521,104
P
= 1,267,209
2005
(In Thousand Pesos)
P
= 603,622
81,207
93,305
(69,980)
(59,329)
P
= 648,825
2004
P
= 622,508
68,752
98,332
(36,721)
(149,249)
P
= 603,622
Fair value of plan assets
2006
Balance at January 1
Expected return
Contributions
Benefits paid
Actuarial gains (losses)
Balance at December 31
P
= 1,066,441
108,839
31,603
(62,354)
110,377
P
= 1,254,906
2005
(In Thousand Pesos)
P
= 1,018,309
112,833
14,023
(69,980)
(8,744)
P
= 1,066,441
The Globe Group does not expect to make any contributions to its defined benefit pension plan in 2007.
2004
P
= 920,989
91,790
28,015
(36,721)
14,236
P
= 1,018,309
The allocation of the fair value of the plan assets of Globe Telecom as of December 31 follows:
2006
2005
2004
Investments in debt securities
72.00%
84.00%
84.00%
Investments in equity securities
25.00%
15.00%
13.00%
3.00%
1.00%
3.00%
2005
89.00%
87.00%
Others
The allocation of the fair value of the plan assets of Innove as of December 31 follows:
2006
2004
Investments in debt securities
74.00%
Investments in equity securities
17.00%
7.00%
9.00%
9.00%
4.00%
4.00%
Others
As of December 31, 2006, the pension plan assets of Globe Telecom and Innove include shares of stock of Globe Telecom with total
fair value of P
= 32.76 million, and shares of stock of other related parties with total fair value of P
= 84.79 million.
The assumptions used to determine pension benefits of Globe Telecom and Innove are as follows:
Discount rate
2006
2005
2004
6.25% - 7.00%
13.75%
13.75%
10.30%
10.50%
10.50%
6.50%
8.50%
8.00% - 8.50%
Expected rate of return on plan assets
Salary rate increase
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.
Amounts for the current and previous three years are as follows:
2006
Defined benefit obligation
Plan assets
Deficit (surplus)
P
= 1,267,209
1,254,906
12,303
2005
2004
2003
(In Thousand Pesos)
P
= 648,825
P
= 603,622
1,066,441
1,018,309
(417,616)
(414,687)
P
= 622,508
920,989
(298,481)
As of December 31, 2006, experience adjustments on plan liabilities amounted to P
= 72.59 million loss, while experience adjustments
on plan assets amounted to P
= 102.01 million gain.
19. Interest Income
Interest income is earned from the following sources:
2006
Short-term placements
Cash in banks
Others
P
= 582,497
131,274
1,566
P
= 715,337
2005
(In Thousand Pesos)
P
= 460,986
48,074
10,588
P
= 519,648
2004
P
= 303,868
100,385
49,785
P
= 454,038
20. General, Selling and Administrative Expenses
This account consists of:
2006
Staff costs (Note 18)
Selling, advertising and promotions
Repairs and maintenance (Note 16b)
Utilities, supplies and other administrative expenses
Rent (Note 24)
Insurance and security services
Professional and other contracted services
Taxes and licenses
Others
2005
(In Thousand Pesos)
P
= 3,518,910
4,697,406
1,877,425
1,982,396
1,839,999
1,477,739
1,495,634
831,629
1,421,124
P
= 19,142,262
P
= 3,564,239
3,524,546
2,122,192
2,121,369
2,080,746
1,441,091
1,394,191
756,313
1,076,244
P
= 18,080,931
2004
P
= 2,874,338
3,753,134
1,325,098
1,714,677
1,420,069
1,034,835
1,295,369
616,257
1,370,186
P
= 15,403,963
21. Financing Costs
This account consists of:
2006
2005
2004
(In Thousand Pesos)
Interest expense - net of amortization of bond premium (Note 14)
Foreign exchange loss (gain) - net (Note 27)
P
= 4,213,976
(1,706,387)
P
= 4,657,748
(2,303,327)
P
= 4,368,716
213,995
Loss on derivative instruments - net (Note 27)
338,061
104,301
–
Swap and other financing costs (Notes 14 and 27)
426,712
681,871
1,744,168
P
= 3,272,362
P
= 3,140,593
P
= 6,326,879
2006
2005
2004
(In Thousand Pesos)
P
= 3,982,743
4,389,733
228,768
216,437
1,993
47,512
472
4,066
4,210,778
75,777
75,910
6,251
Interest expense is incurred on the following:
Long-term debt (Note 14)
Accretion expense (Note 15)
Suppliers’ credit
Others
P
= 4,213,976
P
= 4,657,748
P
= 4,368,716
22. Impairment Losses and Others
This account consists of:
2006
2005
2004
(In Thousand Pesos)
Impairment losses on:
Receivables (Note 4)
Property and equipment (Note 7)
Inventory obsolescence and market decline (Note 5)
Provisions for (reversals of) other probable losses (Note 13)
P
= 422,834
P
= 615,729
88,673
925,772
11,726
(61,392)
80,049
72,388
84,833
P
= 534,948
(12,694)
P
= 1,608,856
P
= 1,052,222
(500,889)
P
= 635,447
23. 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:
Deferred income tax assets on:
Allowance for impairment losses on receivables
Unearned revenues and advances already
subjected to income tax
ARO
Cost of share-based payments
Accumulated impairment losses on property and
equipment
Provision for other probable losses
Accrued rent expense
Accrued vacation leave
Inventory obsolescence and market decline
Deferred charges
Net unrealized foreign exchange losses
MCIT
NOLCO
Deferred income tax liabilities on:
Excess of accumulated depreciation and
(a)
amortization of equipment for tax purposes
(b)
over financial reporting purposes
Capitalized borrowing costs already claimed
as deduction for tax purposes
Net unrealized foreign exchange gain
Unamortized discount on noninterest bearing
liability
Gains on derivative transactions
Prepaid pension
Gain on sale of land
Net deferred income tax liabilities
(a)
(b)
Sum-of-the-years digit method
Straight-line method
2006
2005
(In Thousand Pesos)
2004
P
= 954,927
P
= 1,664,166
P
= 1,646,573
484,780
212,967
155,520
518,293
154,956
31,370
1,022,142
121,647
99,554
144,164
94,973
91,212
57,591
47,374
14,525
–
–
–
2,258,033
223,562
42,984
70,328
47,583
101,345
51,868
400,440
–
–
3,306,895
143,744
66,991
36,705
9,182
74,034
96,010
1,329,102
255,215
32
4,900,931
5,077,030
4,815,995
4,542,588
1,369,788
241,894
1,352,303
–
1,319,288
–
164,094
74,072
69,291
–
6,996,169
P
= 4,738,136
194,060
136,650
70,554
6,257
6,575,819
P
= 3,268,924
–
–
100,534
–
5,962,410
P
= 1,061,479
Net deferred tax assets and liabilities presented in the consolidated balance sheets on a net basis by entity are as follows:
2006
2005
(In Thousand Pesos)
2004
Net deferred tax assets (Innove and GXI)
P
= 801,863
P
= 1,163,943
P
= 2,413,253
Net deferred tax liabilities (Globe Telecom)
5,539,999
4,432,867
3,474,732
The details of Innove and GXI’s NOLCO are as follows (in thousands):
Inception Year
2003
2004
2005
2006
Amount
P
= 331,315
101
18,176
36,889
P
= 386,481
Application
(P
= 331,315)
–
–
–
(P
= 331,315)
Balance
P
=–
101
18,176
36,889
P
= 55,166
Expiry Year
2006
2007
2008
2009
The remaining balance of unexpired NOLCO relates to GXI. GXI has not recognized deferred income tax assets on its NOLCO.
The reconciliation of the provision for income tax at statutory tax rate and the actual provision for income tax follows:
2006
Provision at statutory income tax rate
Add (deduct) tax effects of:
Tax rate difference arising from the change in
expected timing of deferred tax assets’/liabilities’
reversal
Income subjected to lower tax rates
Equity in net losses of an associate and joint venture
Changes in unrecognized deferred tax assets
Additional deferred tax liability on wireline assets
transferred due to different tax rates
Income under income tax holiday (ITH)
Unearned revenues under ITH
Others
Actual provision for income tax
P
= 6,110,708
(263,414)
(186,738)
2,042
–
–
–
–
41,894
P
= 5,704,492
2005
2004
(In Thousand Pesos)
P
= 4,608,828
P
= 4,071,339
(222,142)
(103,462)
4,334
–
–
(124,864)
20
(2,058,254)
–
(254,486)
(365,344)
198,774
P
= 3,866,502
167,373
(1,074,326)
(98,418)
443,822
P
= 1,326,692
Globe Telecom is enfranchised under RA No. 7229 and its related laws to render any and all types of domestic and international
telecommunications services. Globe Telecom is entitled to certain tax and nontax incentives and has availed of incentives for tax
and duty-free importation of capital equipment for its services under its franchise.
RA No. 9337
RA No. 9337 was enacted into law amending various provisions in the existing 1997 National Internal Revenue Code. Following are
some of the reforms introduced by the said RA which became effective on November 1, 2005:
•
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
•
Revised invoicing and reporting requirements for VAT;
recommendation of the Secretary of Finance;
•
Expanded scope of transactions subject to VAT; and
•
Increase in unallowable interest rate from 38% to 42% with a reduction thereof to 33% beginning January 1, 2009.
24. Agreements and Commitments
Lease Commitments
(a)
Operating lease commitments - Globe Group as lessee
Globe Telecom and Innove lease certain premises for some of its 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 the “Other noncurrent assets” account in the consolidated balance
sheets. The Globe Group’s rentals incurred on these leases (included in “General, selling and administrative expenses” account
in the consolidated statements of income) amounted to P
= 2,080.75 million, P
= 1,840.00 million and P
= 1,420.07 million in 2006,
2005 and 2004, respectively.
As of December 31, 2006, the future minimum lease payments under this operating lease are as follows (in thousand pesos):
Not later than one year
P
= 1,724,173
After one year but not more than five years
5,799,897
After five years
2,166,055
P
= 9,690,125
(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 14 years from the date of contracts. These include Globe Telecom’s lease agreement with
C2C (see related discussion on Agreements with C2C).
Total lease income amounted to P
= 182.02 million, P
= 194.01 million and P
= 200.08 million in 2006, 2005 and 2004, respectively.
The future minimum lease receivables under these operating leases are as follows (in thousand pesos):
Within one year
P
= 175,051
After one year but not more than five years
700,204
After five years
743,966
P
= 1,619,221
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 term of less than one year, renewable under certain terms and conditions. As of December 31, 2006, the future
minimum lease receivables under this operating lease amounted to P
= 30.34 million.
(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 its estimated useful life of three years, which is also equivalent to the
lease term.
As of December 31, 2006, the consolidated present value of the net minimum lease payments due within a year amounted to
P
= 1.15 million. The present value of the minimum lease payments under finance leases is included under the “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, 2006, 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
= 2.05 million and P
= 2.02 million, respectively. No collections
were received from the lessee as of December 31, 2006.
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. Globe and Innove also have international roaming
agreements with other operators in foreign countries, which allow its subscribers access to foreign networks. The agreements
provide for sharing of toll revenues derived from the mutual use of interconnection facilities.
Arrangements and Commitments with Suppliers
Globe Telecom and Innove have entered into agreements with various suppliers for the delivery, installation, or construction of their
property and equipment. Under the terms of these agreements, delivery, installation or construction commences only when purchase
orders are served. Billings are based on the progress of the project installation or construction. While the construction is in progress,
project costs are accrued based on the billings received. When the installation or construction is completed and the property is ready
for service, the balance of the related purchase orders is accrued. The consolidated accrued project costs as of December 31, 2006,
2005 and 2004 included in the “Accounts payable and accrued expenses” account in the consolidated balance sheets amounted to
P
= 4,548.84 million, P
= 2,444.11 million and P
= 3,454.29 million, respectively (see Note 12). As of December 31, 2006, the consolidated
expected future payments amounted to P
= 2,359.75 million. The settlement of these liabilities is dependent on the payment terms
agreed with the suppliers and contractors.
Agreements with C2C
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 accounted for
at net present value under PAS 39 starting 2005.
Globe Telecom entered into agreements with C2C for the purchase of IRUs in its network. The aggregate cost of capacity purchased
from C2C amounted to P
= 1,133.79 million.
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. Accordingly, based on agreed amortization schedule, Globe Telecom
recognized lease income amounting to P
= 13.97 million, P
= 15.06 million and P
= 16.32 million in 2006, 2005 and 2004, respectively.
As of December 31, 2005 and 2004, C2C was still a related party of Globe Group until the transfer of Innove’s shares in C2C to C2C
Group Limited on August 7, 2006 (see Note 11). As of December 31, 2006, C2C has ceased to be a related party.
The current and noncurrent portions of the said advances shown as part of the “Other long-term liabilities” account in the
consolidated balance sheets are as follows (see Note 15):
2006
Current
Noncurrent
P
= 13,389
100,705
P
= 114,094
2005
(In Thousand Pesos)
P
= 14,759
123,166
P
= 137,925
2004
P
= 17,760
146,449
P
= 164,209
25. 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. There are no new material legal claims
and no developments on previously disclosed legal cases for the year.
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)
which subsequently dismissed the case before the RTC for lack of jurisdiction. The SC subsequently 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
5, 2007, Globe Telecom is still awaiting the resumption of proceedings before the RTC.
In the event, however, that Globe Telecom and Innove are not eventually sustained in their position and NTC Memorandum Circular
No. 13-6-2000 is implemented in its current form, the Globe Group would probably incur additional costs for carrying and maintaining
prepaid subscribers in their networks.
26. Earnings Per Share
Globe Group’s earnings per share amounts were computed as follows:
2006
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
2005
2004
(In Thousand Pesos and Number of Shares,
Except Per Share Figures)
P
= 11,690,004
64,669
P
= 10,246,174
68,334
P
= 11,321,114
75,128
11,754,673
10,314,508
11,396,242
131,998
133,520
139,904
800
301
982
146
872
297
133,099
P
= 88.56
134,648
P
= 76.74
141,073
P
= 80.92
P
= 88.32
P
= 76.60
P
= 80.78
27. 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.
Globe Telecom’s BOD reviews and approves the policies for managing each of these risks. The Globe Group monitors market price
risk arising from all financial instruments and regularly reports financial management activities and the results of these activities to
the BOD.
The Globe Group’s risk management policies are summarized below:
Interest Rate Risk
The Globe Group’s exposure to market risk for changes in interest rates relates primarily to the companies’ long-term debt
obligations.
Globe Telecom’s policy is to manage its interest cost using a mix of fixed and variable rate debt.
Globe Telecom’s policy has been revised, to target a ratio of between 31-62% fixed rate United States Dollar (USD) debt to total
USD debt, and between 44-88% fixed rate PHP debt to total PHP debt. To manage this mix in a cost-efficient manner, Globe
Telecom enters into interest rate swaps, in which Globe Telecom agrees to exchange, at specified intervals, the difference between
fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount.
As of December 31, 2006, after taking into account the effect of currency and interest rate swaps, 74% of the Globe Group’s peso
borrowings are at a fixed rate of interest, while 66% of the Globe Group’s USD borrowings are at a fixed rate of interest.
Foreign Exchange Risk
The Globe Group’s foreign exchange risk results primarily from movements of the PHP against the USD with respect to USDdenominated 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, 62% of
debt as of December 31, 2006 was denominated in USD.
The Globe Group recently revised its foreign exchange risk management policy to hedge its foreign currency denominated debt such
that it maintains a fully hedged balance sheet position, after taking into account expected USD cash, USD swaps and expected USD
revenues. 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, 2006, USD debt that has been swapped to PHP and PHP-denominated loans amounted to
approximately 59% of the total debt.
Credit Risk
Applications for postpaid service are subjected to standard credit evaluation and verification procedures. The Credit Management
unit of the Globe Group continuously reviews credit policies and processes and implements various credit actions, depending on
assessed risks, to minimize credit exposure. Receivable balances of postpaid subscribers are being monitored on a regular basis
and appropriate credit treatments are applied at various stages of delinquency. 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,
AFS 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, 2006, Globe Group has available uncommitted short-term credit facilities of US$35.00 million and
P
= 5,200.00 million. The Globe Group also has P
= 5,800.00 million in committed long-term facilities which remain undrawn.
As part of its liquidity risk management, the Globe Group regularly evaluates its projected and actual cash flows. It also continuously
assesses conditions in the financial markets for opportunities to pursue fund raising activities, in case any requirements arise. Fund
raising activities may include bank loans, export credit agency facilities and capital market issues.
Hedging Objectives and Policies
The Globe Group uses a combination of natural hedges and derivative hedging to manage its foreign exchange exposure. It uses
interest rate derivatives to reduce earnings volatility related to interest rate movements.
It is the Globe Group’s policy to ensure that capabilities exist for active but conservative management of its foreign exchange and
interest rate risks. The Globe Group does not engage in any speculative derivative transaction. 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 with option combination or structured provisions.
Financial Assets and Liabilities
Fair Value of Financial Instruments
The following discussions are methods and assumptions used to estimate the fair value of each class of financial instrument for
which it is practicable to estimate such value.
Non-derivative Financial Instruments
The fair values of cash and cash equivalents, short-term investments, AFS investments, subscriber receivables, traffic settlements
receivable, accounts payable and accrued expenses are approximately equal to their carrying amounts considering the short-term
maturities of these financial instruments.
The fair value of AFS investments are based on quoted prices. Unquoted AFS equity securities are carried at cost, subject to
impairment.
The fair value of HTM investments is calculated by reference to current forward exchange rates for contracts with similar maturity
profiles.
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 115.90%, with an effective interest rate of 6.18%. 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 5.16% to 6.21% (for PHP loans) and 5.64% (for USD loans).
For variable rate loans that reprice every three months, the carrying value approximates the fair value because of recent and regular
repricing based on current market rates. For variable rate loans that reprice every six months, the fair value is determined by
discounting the principal amount plus the next interest payment using the prevailing market rate for the period up to the next repricing
date. The discount rates used range from 4.83% to 5.36% (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 the Globe Group 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 the 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 options and forwards in nonfinancial 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.
The table below presents a comparison by category of carrying amounts and estimated fair values of the Globe Group’s financial
instruments:
2006
Carrying Value
2005
Fair Value
Carrying Value
Fair Value
(In Thousand Pesos)
Financial assets:
Cash and cash equivalents
Short-term investments
AFS investments
P
= 7,505,715
P
= 7,505,715
P
= 10,910,961
6,155,349
6,155,349
–
P
= 10,910,961
–
293,614
293,614
1,220,318
1,220,318
HTM investments
857,563
857,825
33,441
33,404
Receivables - net
5,527,905
5,527,905
6,764,130
6,764,130
Derivative assets
1,626,667
1,626,667
1,548,891
1,548,891
16,485,265
16,485,265
13,972,222
13,972,222
1,086,123
1,086,123
731,746
731,746
39,206,857
40,758,312
49,693,388
53,550,632
1,532,966
1,561,973
1,783,892
2,219,844
Financial liabilities:
Accounts payable and
accrued expenses
Derivative liabilities
(including current portion)
Long-term debt (including
current portion)
Other long-term liabilities
(including current portion)
Traffic settlements receivable included as part of the “Receivables” account and traffic settlements payable, included as part of the
“Accounts payable and accrued expenses” account in the above tables, are presented net of any related payable or receivable
balances with the same telecommunications carrier only when there is a legal right of offset under the traffic settlement agreements
and that the accounts are settled on a net basis.
Derivative Financial Instruments
The 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 information about the Globe Group’s derivative financial instruments and the related
fair value as of December 31:
2006
Notional
Amount
Derivative instruments designated as
hedges:
Cash flow hedges:
Currency and cross currency
swaps
Interest rate swaps
Derivative instruments not
designated as hedges:
Freestanding:
Currency swaps and crosscurrency swaps
Nondeliverable forwards
Interest rate swaps
Sold currency call options
(including premiums receivable)
Embedded:
Call option on 2012 Senior Notes*
Embedded forwards
Embedded options
Net
Notional
Derivative
Amount
Assets
(In Thousands)
Derivative
Liabilities
$55,807
12,098
P
=–
–
P
=–
8,644
P
= 574,654
–
73,742
74,000
17,000
–
–
2,000,000
–
23,526
139,178
402,365
66,633
17,705
3,000
–
–
–
293,540
6,416
898
–
–
–
1,425,270
30,029
20
P
= 1,626,667
–
24,766
–
P
= 1,086,123
* Globe Telecom plans to exercise its option to redeem the 2012 Senior Notes in April 2007 (see Note 14).
2005
Notional
Amount
Derivative instruments designated as
hedges:
Cash flow hedges:
Currency and cross currency
swaps
Interest rate swaps
Derivative instruments not
designated as hedges:
Freestanding:
Currency swaps and crosscurrency swaps
Interest rate swaps
Sold currency call options
(including premiums receivable)
Embedded:
Call option on 2012 Senior Notes
Embedded forwards
Embedded options
Net
Notional
Derivative
Amount
Assets
(In Thousands)
Derivative
Liabilities
$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
–
–
–
1,268,712
101,808
235
P
= 1,548,891
–
30,326
–
P
= 731,746
Foreign exchange and interest rate risks
Information on the Globe Group’s foreign currency-denominated monetary assets and liabilities and their PHP equivalents as of
December 31 are as follows:
2006
Assets
Cash and cash equivalents
Short-term investments
Receivables
Prepayments and other current assets
Liabilities
Accounts payable and accrued expenses
Long-term debt
Other long-term liabilities
Net foreign currency-denominated liabilities
2005
US
Dollar
Peso
Equivalent
$140,430
88
53,849
750
195,117
P
= 6,887,362
4,326
2,641,048
36,774
9,569,510
$78,901
–
50,162
5,238
134,301
88,118
492,199
23,679
603,996
4,321,763
24,139,882
1,161,337
29,622,982
53,534
611,487
25,889
690,910
$408,879 P
= 20,053,472
US
Peso
Dollar
Equivalent
(In Thousands)
2004
US
Dollar
Peso
Equivalent
P
= 4,186,627
–
2,661,691
277,948
7,126,266
$173,563
9,574
38,516
2,490
224,143
P
= 9,778,713
539,409
2,170,045
140,289
12,628,456
2,840,690
32,446,723
1,373,734
36,661,147
70,964
713,258
48,197
832,419
3,998,197
40,185,669
2,715,467
46,899,333
$556,609 P
= 29,534,881
$608,276 P
= 34,270,877
The following table shows information about the Globe Group’s financial instruments that are exposed to interest rate risk and presented by maturity profile. The table also sets out information about the
Globe Group’s derivative instruments that were entered into to manage interest and foreign exchange risks as of December 31 (in thousands).
2006
<1 year
Liabilities:
Long-term debt
Fixed rate
USD notes
Interest rate
Philippine peso
Interest rate
Floating rate
USD notes
Interest rate
Philippine peso
Interest rate
(Forward)
$18,383
6.55%
P
= 1,306,400
10.18%-10.47%
>1-<2 years
$11,116
6.44%
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
Total
(in USD)
Total
(in PHP)
$6,140
6.44%
$–
–
$–
–
$293,540
10.83%
P
= 2,249,800
P
= 4,700,000
10.18%-10.47% 10.47%-11.70%
P
=–
0.00%
P
= 520,000
16%
P
= 1,087,000
13.79%
–
$11,111
Libor +.85%
$–
155,311
$69,902
Libor+.45%
Libor+1%
Libor+1.20%
Libor+1.375%
Libor+2%
Libor+2.05%
Libor+3.2%
Libor only; Libor +
.85%
$28,254
Libor + 3.20%
Libor+1.75%
Libor+1.20%
Libor +.85%
$23,822
Libor+1.20%
Libor + .85%
$22,222
Libor + .85%
P
= 797,447
Mart 1 + 1.3%
margin;
Mart 1 + 1%
margin
P
= 684,423
Mart 1 + 1.3%
margin;
Mart 1 + 1%
margin
P
= 1,240,373
Mart 1 + 1.3%
margin;
Mart 1 + 1%
margin
P
= 2,496,923
Mart 1 + 1%
3 mo Mart +
1.30%
$329,179 P
= 16,144,584
Premium and
Issuance
Carrying Value
Costs
(in PHP)
Fair Value
(in PHP)
P
= 371,961
P
= 16,516,545
P
= 18,829,694
9,863,200
(9,258)
9,853,942
11,488,488
7,617,204
–
7,617,204
5,220,964
5,219,166
–
5,219,166
5,219,166
P
= 38,844,154
P
= 362,703
P
= 39,206,857
P
= 40,758,312
3 mo Mart1 +
1.75%
Mart 1 + 1%
margin
<1 year
Derivatives:
Currency Swaps:
Notional amount
Weighted swap rate
Pay fixed rate
Cross-Currency Swaps:
Floating-Fixed
Notional amount
Pay-fixed rate
Receive-floating rate
Weighted swap rate
Floating-Floating
Notional amount
Pay-floating rate
Receive-floating rate
Weighted swap rate
Interest Rate Swaps
Fixed-Floating
Notional Peso
Notional USD
Pay-floating rate
Receive-fixed rate
Floating- Fixed
Notional Peso
Notional USD
Pay-fixed rate
Receive-floating Rate
Total
(in USD)
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
$13,879
$10,000
$10,000
$5,000
$15,000
$65,000
$118,879
P
= 53.524
4.62%-10.25%
$6,094
$417
–
–
–
–
$6,511
11% - 15.23%
USD Libor
P
= 51.520
$3,742
$417
–
–
–
–
$4,159
Mart + 1.25% 1.90%
USD Libor
P
= 51.028
–
–
–
–
P
= 1,000,000
–
–
–
–
–
–
$5,000
$20,389
$5,000
Libor+ 4.23%Mart+1.375%
9.75%-11.7%
–
$24,098
–
–
P
= 1,000,000
–
–
–
–
–
–
–
$20,389
$24,098
USD 2.3% 7.1%
USD Libor
Mart+1.375%
2005
<1 year
Liabilities:
Long-term debt
Fixed rate
USD notes
Interest rate
Philippine peso
Interest rate
Floating rate
USD notes
Interest rate
Philippine peso
Interest rate
(Forward)
$20,329
4.81% -6.55%
>1-<2 years
$18,383
4.81% -6.55%
P
= 876,400
P
= 1,347,650
10.37% - 10.72% 10.37% - 10.72%
$91,695
$69,902
Libor only; Libor + Libor only; Libor +
.45% - Libor +
.45% - Libor +
3.20%
3.20%
P
= 985,898
Mart 1 + 1.3%
margin;
Mart 1 + 1.5%
margin;
Mart 1 + 1%
margin
3 mo Mart + 1%
margin
3 mo Mart +
1.38% margin
>2-<3 years
$11,116
6.44%
>3-<4 years
$6,140
6.44%
P
= 2,208,550
P
= 5,002,000
10.37% - 10.72% 10.47% - 13.79%
>4-<5 years
>5 years
$–
–
$300,000 $355,968
10.83%
P
=–
P
= 1,607,000
– 13.49% - 16%
$28,254
Libor + .6755% Libor +1.63%
$23,822
Libor +1.20% Libor + 1.63%
$22,222
Libor +1.63%
P
= 797,447
P
= 684,423
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 + 1%
margin
3 mo Mart +
1.38% margin
P
= 1,240,373
Mart 1 + 1%
3 mo Mart +
1.375%
3 mo Mart + 1%
P
= 2,496,923
3 mo Mart1 +
1.75%
Mart 1 + 1%
margin
Total
(in USD)
Total
(in PHP)
P
= 18,888,369
Premium and Carrying Value
Issuance Costs
(in PHP)
P
= 467,979
Fair Value
(in PHP)
P
= 19,356,348 P
= 21,870,614
–
11,041,600
(16,256)
11,025,344
12,201,003
$11,111 $247,006
Libor +1.63%
13,106,632
−
13,106,632
13,273,951
6,205,064
−
6,205,064
6,205,064
P
= 49,241,665
P
= 451,723
P
= 49,693,388 P
= 53,550,632
<1 year
Derivatives:
Currency Swaps:
Notional amount
Weighted swap rate
Pay fixed rate
Cross-Currency Swaps:
Floating-Fixed
Notional amount
Pay-fixed rate
Receive-floating rate
Weighted swap rate
Floating-Floating
Notional amount
Pay-floating rate
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
$21,548
$13,880
$10,000
$10,000
$5,000
$80,000
$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
–
–
–
–
$56,163
USD 2.3% 4.2%
USD Libor
Receive-floating rate
Weighted swap rate
Interest Rate Swaps
Fixed-Floating
Notional Peso
Notional USD
Pay-floating rate
Receive-fixed rate
Floating- Fixed
Notional USD
Pay-fixed rate
Receive-floating rate
Total
The Globe Group’s other financial instruments that are exposed to interest rate risk are cash and cash equivalents, AFS investments
and HTM investments. These mature in less than a year and are subject to market interest rate fluctuations.
The Globe Group’s other financial instruments which are non-interest bearing and therefore not subject to interest rate risk are
receivables, accounts payable and accrued expenses and other long-term liabilities.
The subsequent sections will discuss the 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.
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, 2006, Globe Telecom has outstanding US$6.51 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$49.30 million loans into PHP up to April 2012. Under these contracts, swap costs are payable in semi-annual
intervals in PHP or USD.
As of December 31, 2006, the fair value of the outstanding swap amounted to P
= 574.65 million loss of which P
= 185.62 million
(net of tax) is reported as “Cumulative translation adjustment” in the equity section of the consolidated balance sheets.
Notional amount
Notional amount
Maturities
Swap rates
(In Thousands)
•
Floating-fixed cross-currency swaps
$6,511
P
= 335,438
2007 – 2008
51.520
Principal-only swaps
49,296
2,709,494
2007 – 2012
54.963
Interest Rate Swaps
As of December 31, 2006, Globe Telecom has US$12.10 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, 2006, the fair value of the outstanding swap amounted to P
= 8.64 million gain, of which P
= 12.07 million (net of
tax) is reported as “Cumulative translation adjustment” in the equity section of the consolidated balance sheets. Accumulated
swap income for the year ended December 31, 2006 amounted to P
= 18.31 million.
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
in the consolidated statements of income. This section consists of freestanding derivatives and embedded derivatives found in both
financial and nonfinancial 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. Fair value changes on these instruments are accounted for directly in the consolidated statements of
income.
•
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$69.58 million USD-denominated loans into PHP up to April 2012. Under these contracts, swap costs are payable in semiannual intervals in PHP or USD. Of the US$69.58 million, US$2.08 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 PHP with quarterly or semi-annual payment intervals up to June 2008. As of
December 31, 2006, the total outstanding notional amounts of the cross-currency swaps amounted to US$4.16 million.
The fair values of the outstanding currency and cross-currency swaps as of December 31, 2006 amounted to a loss of
P
= 402.37 million.
•
Nondeliverable Forwards
Globe Telecom entered into short-term nondeliverable currency forward contracts to fix the peso cash flows from coupon and
redemption of certain Dollar-Linked Peso Note (DLPN) issued by the Republic of the Philippines (ROP). These currency forward
contracts with a notional amount of US$74.00 million will mature in April 2007. The unrealized loss amounted to
P
= 43.11 million.
•
Interest Rate Swaps
Globe Telecom has an outstanding interest rate swap contract which swaps certain floating rate USD-denominated loans into
fixed rate with semi-annual payments, intervals up to August 2007. The swap has an outstanding notional amount of
US$12.00 million as of December 31, 2006. The Company also 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-period and 10-period 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.
Globe Telecom also has outstanding interest rate swap contracts which were entered into to subsidize the cost of the
outstanding currency swap contracts. The total notional amounts of these interest rate swaps amounted to P
= 1,000.00 million,
with quarterly payment intervals up to February 2009.
The fair value of the interest rate swaps as of December 31, 2006 amounted to a net gain of P
= 139.18 million and loss of
P
= 17.71 million.
•
Sold Currency Options
As of December 31, 2006, Globe Telecom has a sold currency option with an outstanding notional amount of US$3.00 million at
an average strike price of P
= 61.25/USD maturing up to March 2007. This was entered into to subsidize the cost of outstanding
currency swap contracts. The currency option has a zero fair value as of December 31, 2006.
Embedded Derivatives and Other Financial Instruments
Globe Group’s embedded derivatives include embedded currency derivatives noted in both financial and nonfinancial contracts and
embedded call options in debt instruments.
•
Embedded 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, 2006, the embedded call options have a notional amount of
US$293.54 million and fair value of P
= 1,425.27 million.
•
Embedded Currency Forwards
As of December 31, 2006, the total outstanding notional amount of currency forwards embedded in nonfinancial contracts
amounted to US$6.42 million. The nonfinancial contracts consist mainly of foreign currency-denominated purchase orders with
various expected delivery dates. The fair value of the embedded currency forwards as of December 31, 2006 on the embedded
currency forwards amounted to P
= 5.26 million.
•
Embedded Currency Options
As of December 31, 2006, the total outstanding notional amount of currency options embedded in nonfinancial contracts
amounted to US$0.90 million. The fair value of the embedded currency options as of December 31, 2006 amounted to
P
= 0.02 million.
Fair Value Changes on Derivatives
The net movements in fair value changes of all derivative instruments are as follows:
2006
2005
(In Thousand Pesos)
At January 1
P
= 817,145
P
= 1,266,411
Net changes in fair value of derivatives:
Designated as accounting hedges
Not designated as accounting hedges
Less fair value of settled instruments
At December 31
(254,589)
(429,336)
45,462
27,006
608,018
864,081
67,474
46,936
P
= 540,544
P
= 817,145
Hedge Effectiveness Results
As of December 31, 2006, the effective fair value changes on Globe Telecom’s cash flow hedges that were deferred in equity
amounted to P
= 197.69 million, net of tax. Total ineffectiveness recognized immediately in the consolidated statements of income for
the year then ended amounted to P
= 1.72 million.
The distinction of the results of hedge accounting into “Effective” or “Ineffective” represents designations based on PAS 39 and are
not necessarily reflective of the economic effectiveness of the instruments.
28. Segment Reporting
The Globe Group’s reportable segments consist of:
Wireless Communications Services - represents cellular telecommunications services that allow subscribers to make and receive
local, domestic long distance and international long distance and roaming calls to and from any place within the coverage area.
Revenues principally consist of one-time registration fees, fixed monthly service fees for postpaid, subscription fees for prepaid
discounted promotions, revenues from VAS such as text messaging and content downloads, proceeds from sale of handsets and
other phone accessories, one-time allocation of upfront fees for the excess of selling price of SIM packs over the preloaded airtime
and per minute airtime and toll fees for basic services which vary based primarily on the monthly volume of calls and the network on
which the call terminates.
Wireline Communications Services - represents fixed line telecommunications services which offer subscribers local, domestic long
distance and international long distance services in addition to a number of VAS in various service areas covered by the PA and
Franchise granted by the NTC. Revenues consist principally of fixed monthly basic fee for service and equipment, one-time fixed line
service connection fee, VAS, and toll fees for domestic and international long distance traffic usage for voice and data services and
internet subscription fees of wireline subscribers. This also includes a variety of telecommunications services tailored to meet the
specific needs of corporate communications such as leased lines, Very Small Aperture Terminal (VSAT), international packetswitching services, broadband, and internet services.
The Globe Group’s segment information are as follows (in thousands):
2006
Wireless
Communications
Services
Wireline
Communications
Services
Eliminations
Consolidated
P
= 50,671,825
P
= 6,361,794
P
=–
P
= 57,033,619
2,888,850
26,539
–
2,915,389
Intersegment revenues
385,475
117,467
Interest income
611,271
104,066
Service revenues
Nonservice revenues
Other income - net
Total revenue
(502,942)
–
–
715,337
1,173,530
3,492
(731,839)
445,183
55,730,951
6,613,358
(1,234,781)
61,109,528
1,242,843
(18,080,931)
General, selling and administrative
(15,653,285)
(3,670,489)
Depreciation and amortization
(14,211,642)
(2,574,042)
Cost of sales
(4,535,197)
(84,479)
941
(4,618,735)
Financing costs
(3,180,896)
(91,466)
–
(3,272,362)
(243,778)
(291,170)
–
(534,948)
Impairment losses and others
(351,869)
(17,137,553)
Equity in net earnings of an associate and
a joint venture
Income (loss) before income tax
Benefit from (provision for) income tax
Net income (loss)
(5,834)
17,900,319
(5,737,483)
P
= 12,162,836
–
(98,288)
32,991
(P
= 65,297)
–
(342,866)
–
(P
= 342,866)
(5,834)
17,459,165
(5,704,492)
P
= 11,754,673
Other segment information
Capital expenditure
P
= 12,598,829
P
= 2,281,624
P
=–
P
= 14,880,453
2005
Wireless
Wireline
Communications
Communications
Services
Services
Eliminations
Consolidated
P
= 48,481,323
P
= 6,415,490
P
=–
P
= 54,896,813
3,747,553
103,235
–
3,850,788
Intersegment revenues
645,090
361,265
Interest income
475,453
44,195
Service revenues
Nonservice revenues
Other income - net
(3,611)
–
–
519,648
(2,764,458)
577,476
56,694,964
6,920,574
(3,770,813)
59,844,725
General, selling and administrative
(17,542,682)
(3,578,904)
1,979,324
(19,142,262)
Depreciation and amortization
(12,920,623)
(2,449,546)
Cost of sales
(5,927,286)
Financing costs
Impairment losses and others
Total revenue
3,345,545
(1,006,355)
(363,790)
(15,733,959)
(142,936)
45,511
(6,024,711)
(3,037,812)
(102,781)
–
(3,140,593)
(1,455,431)
(153,425)
–
(1,608,856)
Equity in net earnings of an associate and a
joint venture
Income before income tax
Provision for income tax
Net income
(13,334)
15,797,796
(3,718,528)
–
492,982
(147,974)
P
= 12,079,268
P
= 345,008
P
= 14,252,981
P
= 1,266,973
–
(2,109,768)
–
(P
= 2,109,768)
(13,334)
14,181,010
(3,866,502)
P
= 10,314,508
Other segment information
Capital expenditure
P
=–
P
= 15,519,954
2004
Wireless
Wireline
Communications
Communications
Services
Services
Eliminations
Consolidated
P
= 47,054,481
P
= 5,686,877
P
=–
P
= 52,741,358
2,848,766
18,856
–
2,867,622
Intersegment revenues
563,129
309,780
(872,909)
–
Interest income
383,374
70,707
(43)
454,038
Service revenues
Nonservice revenues
Other income - net
1,501,376
109,280
(1,203,366)
407,290
52,351,126
6,195,500
(2,076,318)
56,470,308
General, selling and administrative
(13,655,870)
(2,887,998)
1,139,905
(15,403,963)
Depreciation and amortization
(11,569,616)
(2,379,011)
Cost of sales
(6,781,260)
(81,224)
Financing costs
(6,345,332)
Total revenue
Impairment losses and others
(369,379)
(757,198)
(14,705,825)
187,286
(6,675,198)
18,410
43
(6,326,879)
(266,068)
–
(635,447)
Equity in net earnings of an associate and a
joint venture
(62)
Income before income tax
13,629,607
Benefit from (provision for) income tax
Net income
(1,409,121)
–
599,609
82,429
P
= 12,220,486
P
= 682,038
P
= 18,467,282
P
= 3,235,056
–
(1,506,282)
–
(P
= 1,506,282)
(62)
12,722,934
(1,326,692)
11,396,242
Other segment information
Capital expenditure
P
=–
P
= 21,702,338
The segment assets and liabilities as of December 31, 2006, 2005 and 2004 are as follows (in thousand pesos):
2006
Segment assets
Investments in an associate and a joint venture
under equity method
[1]
Consolidated total assets
[1]
Consolidated total liabilities
Wireless
Communications
Services
P
= 125,242,295
Wireline
Communications
Services
P
= 17,463,845
Eliminations
(P
= 18,965,502)
Consolidated
P
= 123,740,638
37,332
P
= 125,279,627
–
P
= 17,463,845
–
(P
= 18,965,502)
37,332
P
= 123,777,970
P
= 63,070,580
P
= 1,974,920
(P
= 2,953,817)
P
= 62,091,683
Wireless
Communications
Services
P
= 122,852,929
Wireline
Communications
Services
P
= 18,921,175
Eliminations
(P
= 17,878,920)
Consolidated
P
= 123,895,184
43,263
P
= 122,896,192
–
P
= 18,921,175
–
(P
= 17,878,920)
43,263
P
= 123,938,447
P
= 64,854,937
P
= 6,416,199
(P
= 2,220,423)
P
= 69,050,713
2005
Segment assets
Investments in an associate and a joint venture
under equity method
[1]
Consolidated total assets
[1]
Consolidated total liabilities
2004
Segment assets
Investments in an associate and a joint venture
under equity method
[1]
Consolidated total assets
Wireless
Communications
Services
P
= 131,264,940
Wireline
Communications
Services
P
= 25,076,643
Eliminations
(P
= 29,107,505)
Consolidated
P
= 127,234,078
56,597
P
= 131,321,537
–
P
= 25,076,643
–
(P
= 29,107,505)
56,597
P
= 127,290,675
P
= 74,328,551
P
= 2,738,543
(P
= 5,344,800)
P
= 71,722,294
[1]
Consolidated total liabilities
[1]
Consolidated total assets and liabilities do not include deferred income taxes.
29. Notes to Consolidated Statements of Cash Flows
The principal noncash transactions for the years ended December 31, 2006, 2005 and 2004 are as follows:
2006
2005
2004
(In Thousand Pesos)
Increase (decrease) in liabilities related to the
acquisition of property and equipment
Capitalized ARO (Note 15)
Dividends on preferred shares
P
= 2,246,425
(P
= 1,163,860)
P
= 935,909
281,557
44,433
182,363
64,669
68,334
75,128
The cash and cash equivalents account consists of:
2006
Cash on hand and in banks
Short-term placements
P
= 2,861,698
4,644,017
P
= 7,505,715
2005
(In Thousand Pesos)
P
= 736,200
10,174,761
P
= 10,910,961
2004
P
= 1,967,695
11,614,147
P
= 13,581,842
Cash in banks earn interest at respective bank deposit rates. Short-term placements are made for varying periods of up to three
months depending on the immediate cash requirements of the Globe Group and earn interest at the respective short-term placement
rates.
Globe Telecom Business Centers
24-HOUR CUSTOMER SERVICE HOTLINE
730-1000 or 211 from your Globe/TM handset
GMA REGION
North GMA
SM FAIRVIEW
PODIUM HUB
Unit 2004, 2/F SM Fairview
(Sales Dedicated Center)
Quirino Highway corner Regalado Avenue
5/F The Podium Bldg
Greater Lagro, Quezon City (near Shakey’s)
ADB Avenue, Ortigas Center
Mandaluyong City
ALI MALL CUBAO
SM NORTH EDSA
Space 35, Upper Ground Ali Mall II
Right Wing, SM Car Park Plaza III
Araneta, Cubao
SM City North Edsa
ROBINSONS GALLERIA
Quezon City
Quezon City (near Informatics)
1-A11, G/F Robinson’s Galleria Mall
CALOOCAN
SM SUPERCENTER PASIG
Unit F-6, 4/F Araneta Square
Unit 101-102a SM Supercenter Pasig
Bonifacio Monument Circle
Frontera Drive, C-5
ROCKWELL HUB
Caloocan City
Pasig City
(Sales Dedicated Center)
GATEWAY
SM VALENZUELA
Rockwell, Makati City
3/F Gateway Mall
Unit 338-339
(near bowling alley)
Araneta, Cubao
3/F SM Valenzuela Super center
Quezon City
McArthur Highway
SHANGRI-LA LINK
Valenzuela City
1/F Shangri-la Plaza
(near SM Cinema)
Ortigas Avenue
(near Pizza Hut)
Unit 317, 3/F Powerplant Mall
Edsa corner Shaw Blvd.
GREENHILLS HUB
G/F Greenhills Connecticut
Carpark 1 Bldg., Ortigas Avenue
Mandaluyong City (across Marks & Spencer)
Central GMA
SM MAKATI
San Juan
DIGITAL XCHANGE GLORIETTA 3
4/F Concourse Area
QUEZON AVENUE
(Sales Dedicated Center)
SM Makati, Ayala Center
Unit 103-A, G/F National Bookstore Inc.
Store 6, 3/F Glorietta 3
Makati City
Quezon Avenue
Ayala Center, Makati City
SM MEGAMALL
Quezon City
GLORIETTA HUB
5/F SM Megamall Building B
ROBINSONS METRO EAST LINK
(Sales Dedicated Center)
Ortigas Center
Level 1 Robinsons Metro East
Unit 252/254
Pasig City
Marcos Highway corner Imelda Avenue
2/F Glorietta 4
(near Megatrade)
Pasig City (corner Big R)
Ayala Center, Makati City
(near National Bookstore)
TOWER ONE
Unit C
SM CENTERPOINT
Unit 310, 3/F SM Centerpoint
PARK SQUARE 1
G/F Tower One and Exchange Plaza
Magsaysay Blvd corner Araneta Avenue
Park Square 1, South Drive
Ayala Avenue, Makati City
Sta. Mesa, Manila (near Bingo Plaza)
Ayala Center, Makati City
(across The Enterprise)
(near exit of Park Square 1 parking)
111
South GMA
SM MANILA
OLONGAPO
Unit 430, 4/F SM City Manila
G/F 1799 Rizal Avenue
ALABANG TOWN CENTER
Arroceros corner Marcelino Streets
West Bajac-Bajac
3/F New Wing
Concepcion Avenue, Manila
Olongapo City
Alabang Town Center
(near Chowking)
SAN FERNANDO
Alabang, Muntinlupa City
SM SAN LAZARO
G/F Provincial Administrative Bldg.
BINONDO
3/F SM San Lazaro
Quezon Avenue
G/F & 2/F Enrique T. Yuchengco Bldg.
Feliz Huertas corner Lacson Streets
San Fernando, La Union
484 Quintin Paredes Street
Sta. Cruz, Manila
SM BAGUIO
Binondo, Manila
SM SOUTHMALL LINK
Unit 349 & 350
2/F Cyberzone, SM Southmall
3/F SM City Baguio, Luneta Hill
FESTIVAL SUPERMALL
Zapote-Alabang Road
Upper Session Road, Baguio City
Unit 4064 A&B
Las Piñas City
(near RCBC Bank)
SM CLARK
4/F Alabang Zapote Wing
Filinvest Festival Supermall
SM SUCAT LINK
Unit 203-204, 2/F SM City Clark
Filinvest Corporate City, Alabang
3/F SM Supersucat Center
Clarkfield, Pampanga
Muntinlupa City
Sucat Road
(near Game Worx)
Paranaque City
TARLAC (near SM Cinema)
G/F Metrotown Mall
MALL OF ASIA
Juan Luna Street corner McArthur Highway
Unit 202, 2/F North Parking Bldg
Tarlac City
SM Mall of Asia
NORTH LUZON REGION
URDANETA Pasay City
Unit 303, 3/F Urdaneta Magic Mall
MARKET! MARKET!
Northwest Luzon
Alexander corner Poblacion Street
Urdaneta, Pangasinan
Unit 444 & 445
4/F Market! Market!
BALANGA LINK
Lot C Bonifacio Global City
G/F Recar Commercial Complex
VIGAN Taguig
J.P. Rizal Street
Collegio Business Center, Mart 1
Balanga City, Bataan
Nueva Segovia Street
Vigan City
METROPOINT MALL
Unit 417, 4/F Metropoint Mall
CANDON
Edsa corner Taft Avenue
KanPing Commercial Bldg
Pasay City
Maharlika Highway, Bgy. San Antonio
Central Northeast Luzon
Candon City, Ilocos Sur
CABANATUAN LINK
ROBINSONS PLACE MANILA LINK Space 020, 3/F Pedro Gil Wing
DAGUPAN Unit 4B, G/F NE Pacific Mall
Robinsons Place
Unit 127, G/F Nepo Mall Dagupan
Km. 111, Maharlika Highway
Manila
Arellano Avenue
Cabanatuan City, Nueva Ecija
(near Headway Barber Shop Salon)
Dagupan, Pangasinan
MALOLOS LINK
SM BICUTAN LINK
LAOAG
103-A E & R Bldg.
Unit 212 Bldg B
G/F Lazo Bldg.
Malolos Crossing
2/F SM Bicutan
Rizal corner Abadilla Street
McArthur Highway corner Mabini
(near SM Cinema)
Barrio San Lorenzo
Malolos, Bulacan (near Chowking)
Laoag City
112
PLARIDEL
CALAPAN
SM LIPA
Grid E-F & 1-2
014 JP Rizal Street
2/F SM Mall
Walter Mart Supermarket
San Vicente Central Calapan City
Ayala Highway
Cagayan Valley Road
Oriental Mindoro
Lipa City
LEGASPI SM LUCENA 2/F Pacific Mall
Unit 343, 3/F SM City Lucena
SANTIAGO CITY Landco Business Park
Dalahican corner Pagbilao Road
Unit 7 - VMG Bldg.
Bitano, Legaspi City
Bgy. Ibabang Dupay Red V
Barrio Banga 1
Plaridel, Bulacan
Maharlika Highway, Centro East
Santiago City, Isabela
Lucena City
NAGA
1/F LCC Central Mall
SM MOLINO
SM MARILAO
Felix Plaza Street
Unit 230, 2/F Mezzanine
Unit 219, 2/F SM City Marilao
Naga City
SM Supercenter
KM. 21 Barangay Ibayo
McArthur Highway, Bulacan
Molino, Cavite
PUERTO PRINCESA
G-7 & M-7 Pacific Plaza Bldg.
SM STA. ROSA
SM PAMPANGA
Rizal Avenue, Puerto Princesa City
Unit 281, 2/F SM City Sta. Rosa
G/F SM City Pampanga
Palawan
Brgy. Tagapo
Lagundi, Mexico, Pampanga
(in front of Play & Display)
Sta. Rosa City, Laguna
SAN PABLO
Unit 30 Ultimart Shopping Mall
TAGAYTAY
SOLANO
M. Paulino Street
K1-K3 Magallanes Square
225 J.P. Rizal Avenue
San Pablo, Laguna
Tagaytay City
Maharlika Highway, Solano
Nueva Vizcaya
SM BACOOR 3/F SM Bacoor
TUGUEGARAO Aguinaldo Highway corner Tirona
Unit 57-B Chowking Bldg.
Bacoor, Cavite
Balzain Road
(in front of Bingo Bonanza)
VISAYAS
BACOLOD Tuguegarao City
Cagayan Valley
SM BATANGAS
3/F Robinsons Place
(beside Chowking)
2/F SM City Batangas
Mandalagan, Bacolod City
Units 229& 230, Pastor Village
Pallocan West, Batangas City
SOUTH LUZON REGION
CEBU AYALA CENTER 2/F Paseo Verde, Ayala Center
SM DASMARINAS Cebu Business Park
2/F SM Dasmarinas
Cebu City
South Luzon
Governors Drive 1 Brgy.
Sampaloc, Dasmarinas
DUMAGUETE
CALAMBA
Cavite
G/F Sol Y Mar Bldg
2/F J. Alcasid Bldg.
San Juan Street cor Rizal Blvd.
Crossing
Dumaguete City
Calamba, Laguna
(in front of the Blvd.)
(in front of Mercury Drug Store)
113
ELIZABETH MALL
TAGBILARAN
SM DAVAO T-020, 3/F Elizabeth Mall
Digal Bldg.
3/F SM City Davao
N Bacalso corner Keon Kilat Streets
Carlos P. Garcia Avenue
Ecoland Subdivision, Quimpo Blvd.
Cebu City
Tagbilaran City
Davao City (near SM Cinema)
TAGUM
KALIBO
G/F NCCC Mall
L/G Gaisano City
MINDANAO
National Highway
Roxas Avenue Extension
Tagum City
BUTUAN VP DAVAO 3/F Gaisano Mall
2/F Victoria Plaza
CALBAYOG
J.C. Aquino Avenue
J.P. Laurel Avenue
Unit 2 Crown Bldg.
Butuan City
Bajada, Davao City
CAGAYAN DE ORO ZAMBOANGA
Bgy. Andagao
Kalibo, Aklan
Magsaysay Blvd.
Calbayog City, Western Samar
Unit 313, 3/F SM City
Door 2&3 ARV Bldg.
ROXAS CITY
Gran Via Street corner Mastersons Avenue
San Jose Road
Area 9 Gaisano Arcade
Cagayan De Oro City
Zamboanga City
Arnaldo Boulevard
Roxas City
CDO LIMKETKAI
Unit M2-101 Limketkai Mall
SM CEBU
Entrance 2, Lapasan Highway
3/F SM City Cebu
Cagayan De Oro
North Reclamation
Cebu City
COTABATO CITY (near Megatrade)
G/F El Marco Bldg.
Sinsuat Avenue
SM DELGADO
Cotabato City
Ground Floor, SM Delgado
corner Valeria & Delgado Streets
GENERAL SANTOS
Iloilo City
Unit 201, 2/F KCC Mall of Gensan
J. Catololico Avenue
SM ILOILO General Santos City
2/F SM City Iloilo
B. Aquino Avenue
ILIGAN Mandurriao
G/F Kimberly Bldg.
Iloilo City
National Highway
Tibanga, Iligan City
TACLOBAN
Uyping Commercial Bldg.
OZAMIZ
Justice Romualdez Street
B-5, G/F Gaisano Ozamis City Mall
Tacloban City
Rizal Avenue corner Zamora Extension
Ozamiz City, Misamis Occidental
114
Globelines Payments and Services Center
CUSTOMER CARE DIRECTORY
Luzon
(02) 9198888
Visayas & Mindanao
(032) 4108888
or
171 from any Globelines
Metro Manila
SM NORTH EDSA
Batangas
Unit 158-B, G/F Cyberzone Carpark Bldg.
ALABANG
SM North Edsa
LEMERY
1014 G/F Festival Mall
North Avenue, Quezon City
CJ Bldg.
Independencia Street
Filinvest Corporate City
Alabang
UN AVENUE
Lemery, Batangas
G/F Globe Telecom UN Building
GLOBE TELECOM PLAZA (PIONEER)
United Nations Avenue
SM BATANGAS
Upper Ground Floor
Ermita, Manila
G/F SM City Batangas
Brgy. Pallocan West, Batangas City
Globe Telecom Plaza Tower 1
Pioneer corner Madison Streets
Mandaluyong City
South Luzon
MARIKINA
Cavite
SM LIPA
2/F SM City Lipa
Ayala Highway
Lipa City, Batangas
2/F, Blue Wave Mall
Sumulong Highway corner G. Fernando Ave.
BACOOR
Brgy. Sto. Nino
General Tirona Highway
Marikina City
Barangay Dulong Bayan
Oriental Mindoro
CALAPAN
Bacoor, Cavite
G/F Ferraren Bldg.
PARK SQUARE 2
G/F Park Square Bldg.
GENERAL TRIAS
M. Leuterio Street, San Vicente
Ayala Center, Makati City
2/F Trinidad Ybay Building
Calapan City, Oriental Mindoro
National Highway, Brgy. Tejero
SM MEGAMALL
General Trias, Cavite
East Visayas
4/F SM Megamall B
Cyberzone Area
MOLINO
Doña Julia Vargas Avenue
2/F SM Supercenter
Mandaluyong City
Molino IV
Cebu
AYALA CENTER
Bacoor, Cavite
2/F West Entrance
SM STA. MESA
3/F SM Sta. Mesa
SM DASMARINAS
Paseo Ciudad, Ayala Center
Aurora Boulevard
2/F SM City Dasmarinas
Cebu Business Park
Quezon City
Governor’s Drive 1, Barangay Sampaloc
Cebu City
Dasmarinas, Cavite
115
BOGO
UBAY
Fernan Street
N. Reyes Street
Negros Oriental
Bogo, Cebu
Poblacion Ubay
DUMAGUETE
Bohol G/F Sol y Mar Bldg.
CARCAR
Rizal Blvd. corner San Juan Street
Leyte
Dumaguete City MAASIN
TANJAY
Maasin Port Terminal
Kyle’s Foodshoppe
ELIZABETH MALL
Commercial Complex
Magallanes Street, Tanjay City
2/F Elizabeth Mall
Demeterio Street
Sanciangko corner L. Kilat Streets
Agbao, Maasin City
Panay
ORMOC
GAISANO ILOILO
MANDAUE
MFT Bldg.
2/F Gaisano City
2/F Fortune Square Bldg.
Real Street
La Paz, Iloilo City M.C. Briones Highway
Ormoc City
corner A.S. Fortuna Street
POTOTAN
Mandaue City
TACLOBAN
Teresa Magbanua Street
22 P. Burgos Street
Pototan, Iloilo
Door 2 Sharon Uy Bldg.
Poblacion 3, Awayan
Carcar, Cebu
Cebu City
PARDO
Tacloban City Prince Warehouse Club
SM CITY ILOILO
Bulacao, Pardo
Samar
2/F SM City Iloilo
Cebu City Diversion Road
BORONGAN
Mandurriao, Iloilo City
SM CEBU 2/F Wilsam Uptown Mall
2/F SM City Cebu
Borongan, Samar Capiz
North Reclamation Area
ROXAS
Cebu City West Visayas
TOLEDO
2/F Nesbel and Sons Bldg.
Negros Occidental
P. Gomez corner Legaspi Streets
Roxas City
Antique
P. Rodriguez Street
Toledo City
BACOLOD
27th corner Lacson Streets
SAN JOSE
Bohol
Mandalangan, Bacolod City
T. Fornier Street
San Jose, Antique
ISLAND CITY MALL (GPS I.C.M)
HINIGARAN
U/G Island City Mall
2/F Cor. Rizal and Aguinaldo Streets
Aklan
Dao District
Hinigaran, Negros Occidental
KALIBO
Tagbilaran City
SAN CARLOS
Arch. Reyes Street
TAGBILARAN
CL Ledesma Sr. Avenue
Kalibo, Aklan
Door 5 EB Gallares Bldg.
San Carlos City Negros Occidental Carlos P. Garcia Avenue
Tabilaran City SAGAY
Mindanao
ATB Bldg., Maranon Street
TUBIGON
Poblacion II
DAVAO
Pooc Occidental, Poblacion
Sagay City, Negros Occidental
3/F NCCC Mall
Tubigon, Bohol McArthur Highway
Matina, Davao
116
Corporate Offices
Shareholder Services
GLOBE TELECOM, INC.
For inquiries regarding dividend payments, change of address
and account status, and lost or damaged stock certificates,
5th Floor, Globe Telecom Plaza 1
please contact our stock transfer agent:
Pioneer corner Madison Streets
1552 Mandaluyong City
Bank of the Philippines Islands
Philippines
Stock Transfer Office
Trunkline (02) 7302000
16th Floor, BPI Building
Fax:
Ayala Avenue corner Paseo de Roxas
(02) 7392000
Makati City
Website: www.globe.com.ph
Philippines
Subsidiaries
INNOVE COMMUNICATIONS, INC.
Tel:
(02) 8169067
(02) 8169321
Fax:
(02) 8455515
Investor Relations
Innove Corporate Office (Luzon)
GT Telepark
For inquiries from institutional investors, the financial community
111 Valero Street, Salcedo Village
and analysts, please contact the Investor Relations team:
Makati City
Philippines
5th Floor, Globe Telecom Plaza 1
Tel:
(02) 7302000
Pioneer corner Madison Streets
Fax: (02) 7392000
1552 Mandaluyong City
Philippines
Innove Corporate Office (Visayas)
Tel: (02) 7302820
Innove Plaza
(02) 7303251
Samar Loop corner Panay Road
Fax: (02) 7390072
Cebu Business Park
Email: [email protected]
Philippines
Tel: (032) 4158888
Fax: (032) 4158822
Customer Services
For inquiries about our wireless and wireline products and
G-XCHANGE, INC.
services, please contact our customer service:
6th Floor, Globe Telecom Plaza 1
Pioneer corner Madison Streets
1552 Mandaluyong City
Philippines
Tel: (02) 7302000
Fax: (02) 7392000
Hotline: (02) 7301000
Email: [email protected]
Stock Trading Information
Globe Telecom, Inc. is listed on the Philippine Stock Exchange.
Ticker symbol: GLO
Agency K2 Interactive (Asia) Inc.
Photography Wig Tysmans (Portraiture / Cover), Tom Epperson (Portraiture / Operationals)
117
GLOBE TELECOM, INC.
A member of the Ayala group of companies
5F Globe Telecom Plaza I,
Pioneer corner Madison Streets,
1552 Mandaluyong City,
Pasig