1. technology and computing

COVER SHEET
1 4 5 1 1 1
SEC Registration Number
D I G I T A L
,
I N C .
T E L E C OMM U N I C A T I O N S
A N D
P H I L S .
S U B S I D I A R I E S
(Company’s Full Name)
U R C
r .
C o m p o u n d ,
A v e n u e ,
1 1 0
E .
R o d r i g u e z ,
B a g u m b a y a n ,
Q u e z o n
J
C i t
y
(Business Address: No. Street City/Town/Province)
Ronildo E. Manahan
397-8888
(Contact Person)
(Company Telephone Number)
1 2
3 1
Month
Day
1 7 - A
(Form Type)
(Fiscal Year)
0 5
2 8
Month
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
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To be accomplished by SEC Personnel concerned
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Remarks: Please use BLACK ink for scanning purposes.
TABLE OF CONTENTS
Page No.
PART I - BUSINESS AND GENERAL INFORMATION
Item 1
Item 2
Item 3
Item 4
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
4
14
16
16
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5
Item 6
Item 7
Item 8
Market for Issuers’ Common Equity and
Related Stockholder Matters
Management’s Discussion and
Analysis or Plan of Operation
Financial Statements
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
17
19
28
28
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9
Item 10
Item 11
Item 12
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Record and
Beneficial Owners and Management
Certain Relationships and Related Transactions
29
37
38
39
PART IV - CORPORATE GOVERNANCE
Item 13
Corporate Governance
40
PART V - EXHIBITS AND SCHEDULES
Item 14a.
14b.
Exhibits
Reports on SEC Form 17-C
40
40
SIGNATURES
41
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
42
INDEX TO EXHIBITS
120
2
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1. For the year 2006
2. SEC Identification Number 145111
3. BIR Tax Identification No. 000-449-918-000
4. Exact name of registrant as specified in its charter: DIGITAL TELECOMMUNICATIONS PHILS., INC.
5.
Philippines
6. _________ (SEC Use Only)
Province, Country or other jurisdiction of
incorporation or organization
Industry Classification Code:
7. 110 E. Rodriguez Jr. Ave., Bagumbayan, Quezon City
Address of principal office
8.
1110
Postal Code
(632)397-8888
Issuer’s telephone number, including area code
9. Not applicable
Former Name, former address, and former fiscal year, if changed since last report.
10. Securities registered pursuant to Sections 8 and 12 of the SRC or Sec. 4 and 8 of the RSA
Title of Each Class
Common stock, P1.00 par value
Number of Shares of Common Stock
Outstanding and Amount of Debt Outstanding
6,356,976,300
11. Are any or all of these securities listed on the Philippine Stock Exchange.
Yes [ X ]
No [ ]
12. Check whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder
or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the
Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter
period that the registrant was required to file such reports):
Yes [ X ]
No [ ] , All securities are listed as common stock
(b) has been subject to such filing requirements for the past 90 days.
Yes [ X ]
No [ ]
13. Aggregate market value of the voting stock held by non-affiliates as of December 31, 2006:
6,235,384,099
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PART I - BUSINESS AND GENERAL INFORMATION
Item 1. Business
General
Established on August 31, 1987, Digital Telecommunications Phils., Inc. or DIGITEL is
majority–owned by JG Summit Holdings Inc. or JGSHI, one of the largest and most diversified
conglomerates in the Philippines. DIGITEL continues to be the second largest provider of wirelines in
the country in terms of working lines. Through 694 regional and local exchanges, DIGITEL telephones
are now available in 281 towns and cities throughout Luzon. As of December 31, 2006, DIGITEL had a
total of 656,656 installed lines and 446,530 working lines.
DIGITEL’s voice products and services include the provisioning of local call, national and
international toll services, enhanced through DIGITEL’s suite of value added services, payphones and
prepaid phone cards via Digikard & DGMax brands. Existing foreign and domestic carrier
interconnection agreements enable sufficient transmission capacities for efficient and cost-effective
routing. Interconnection with Philippine-based and some international Carriers involves the use of IP
(Internet Protocol). Quality customer service assistance is provided through the improved LEC Helper
and the Kamustahan Program Web Application. These systems support standardization of the Customer
Care interfaces.
In addition to wireline voice services, DIGITEL’s data division, DigitelOne, offers corporate
customers and consumer access to high-speed data transmission and Internet services through domestic
and international leased line services, frame relay and dedicated Internet service. In response to future
requirements for convergent technologies enabling simultaneous voice and data service transmissions, the
ongoing expansion of the highly successful Assymetric Digital Subscriber Line (ADSL) project addresses
the growing demand for broadband access in both business and high-end residential markets in Luzon.
DIGITEL’s current network expansion commitment to build a fiber-optic broadband facility strategically
strengthens the company’s transmission coverage throughout Luzon, Visayas and Mindanao, ensuring
reliable and efficient nationwide connectivity to major metropolitan business and commercial districts.
DIGITEL Crossing, a joint venture between DIGITEL, East Asia Netcom Philippines, Inc. (a
wholly owned company of Asia Netcom) and Asia Netcom Philippines, Inc. (formerly Philippine
Crossing Land Corporation) was granted its franchise last November 2003 to construct, install, establish,
operate and maintain telecommunications systems throughout the Philippines by Congress under
Republic Act No. 9235. It brings competitive and high speed capacities to the local telecoms
environment, thus enabling the growth of new businesses such as call centers, software design, and other
IT services that leverage the Philippines’ competitive advantage in the world economy. Together with
DigitelOne’s Luzon-wide broadband backbone, this joint venture will help spur wide-spread Internet and
high-speed data usage familiarity around the country.
To sustain its position as the number one landline telecommunications provider in Luzon (outside
of metro Manila) and serve requirements in all its service areas, the Company is upgrading its South
Luzon Transmission Backbone (including IP requirements) and other facilities. This is to accommodate
the transmission capacity and connectivity requirements of the DSLAM deployment project, GSM’s
redundancy requirements (ring), and the traffic migration from selected Bosch radio equipment. In
addition, the Company intends to extend coverage of the last mile to serve more data and ADSL
customers in NCR and other areas where LEC has limited cable facilities. DIGITEL pioneered an IPbased Code Division Multiple Access (CDMA WLL) next generation technology service marketed under
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the MANGO brand name envisioned to cater to the professional “Man or Woman-on-the-go” since not
only does it offer the perks of a landline service but it also offers high speed internet service and the
freedom to make calls and access internet while on the move within one to five kilometers from the base
station.
In September 2001, DIGITEL wholly owned wireless subsidiary Digitel Mobile Philippines, Inc.
(DMPI) was established to provide wire and wireless public and private telecommunication services. On
December 11, 2002, DMPI was granted a congressional franchise to construct, install, establish, operate,
and maintain telecommunications systems throughout the Philippines through RA 9180. On August 28,
2003, the National Telecommunications Commission (NTC) approved the application for authority to
assign and transfer the operations and maintenance of the nationwide Cellular Mobile Telephone Service
(CMTS) from DIGITEL to DMPI.
DIGITEL began development of its cellular network in 2001 and contracted Alcatel as its vendorof-choice for the roll-out of Phases 1 and 2. The digital cellular network is compliant with Global System
for Mobile (GSM) standards, operating in the 1800 MHz frequency band with access to 17.5 MHz of
bandwidth. In addition, the network can handle millions of text messages per day, and is fully enabled for
General Packet Radio Service (GPRS) applications.
DIGITEL commercially launched its wireless service “SUN Cellular” on March 29, 2003. It
offers the latest in GSM technology, provisioning voice services (local, national, international calling),
messaging services (short text or multi-media messaging), outbound and inbound International Roaming
(currently available in selected countries in Asia, Africa, Europe, and North America), and Value-Added
Services using SUN Cellular’s navigational menu called “The Mall”.
In October 2004, SUN Cellular pioneered the unprecedented 24/7 Call and Text Unlimited (CTU)
and made a huge impact on the market by virtue of an innovative and better value service offering that
spawned a phenomenal growth in its subscriber base. The strategy was launched to encourage existing
wireless customers to use SUN Cellular as a second phone or as a fixed-line alternative while the
Company tapped into new subscribers segments among the young and mass market. This strategy was
undertaken as part of SUN’s continuing desire to offer consumers a value proposition superior to those
offered by competitors. With the subsequent launches of its product variants like Daylight Call and Text
Unlimited, Text Unlimited and Call Unlimited, it presented consumers with more choices to suit their
various lifestyle needs.
In December 2005, NTC granted 3G licenses to SUN Cellular, Globe Telecom, Smart
Communications and Connectivity Unlimited Resource Enterprise (CURE). SUN Cellular and two other
operators were assigned radio frequency allocation of 10 MHz while Smart was assigned a radio
frequency allocation of 15 MHz for 3G.
On December 14, 2006, DIGITEL and SUN Cellular were registered with Board of Investments
(BOI) as new operator of infrastructure and telecommunications facilities (i.e. 3G telecommunications
system) on pioneer status with registered capacities of 950 base transceiver stations (BTS) and 378 BTS
for DIGITEL and SUN Cellular, respectively.
SUN Cellular believes consumers should be given the power to choose what is truly important to
them. With that in mind, the Company forges ahead partnering with leading global technology
consultants and infrastructure providers to better serve the growing mobile market by providing
consumers with meaningful choices to address individual needs.
To ensure efficient delivery of services to its subscribers nationwide, SUN Cellular’s Business
Centers, known as the SUN Shops, located in 41 locations nationwide, offer convenience for walk-in
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customers and customer care requirements. SUN Cellular products and after-sales services are also
available in close to 70 of over 100 DIGITEL Customer Centers located in key cities and towns all
throughout Luzon.
Products
Wireline Communications – Voice Services
DIGITEL offers a wide range of products and services to its customers which includes DIGITEL
Choice Plans, DGtxt Plus landline texting service, IDD and NDD Services, NDD Services, 108 and 109
Operator–Assisted Services, Domestic 1-800 Toll Free Services, Domestic 1-900 Premium Services,
Netdirect Dial-up Internet Service, Digikard, Payphone Services, and Internet Data and Broadband
Services such as DSL, VoIP, and CDMA.
To capture a significant market share in the fierce Telecommunications Industry competition, the
Company is offering various products and services, few of which are as follows:
NETVantage DSL provided subscribers uninterrupted high-speed internet connection for various
Internet applications such as on-line gaming, e-learning, instant messaging, e-mail and web surfing
among others. It also serves as a transport for the VoIP service, which gives customers lower IDD and
NDD toll rates.
MANGO or “Mobility Access Network for the Man on the Go” is a wireless internet-ready landline
service using the latest in Code Division Multiple Access (CDMA) fixed wireless system technology. It
is more than a landline because not only does it offer the perks of a landline service but it also offers high
speed internet service and the freedom to make calls and access internet while on the move within one to
five kilometers from the base station.
DIGIKARD is DIGITEL’s hassle-free pre-paid phone card that gives subscriber convenient access to
phone, fax, and internet from any DIGITEL postpaid and prepaid landline phone, including payphones.
DGMAX IDD Prepaid Card is another prepaid service of DIGITEL that allows international call either
through DIGITEL’s postpaid lines, prepaid lines or payphones. With as low as P3/minute to top
international destinations, callers, especially families of Overseas Filipino Workers, can now make
frequent voice calls and engage in longer talk time, breaking all affordability barriers.
IP-VPN or Virtual Private Network is DIGITEL’s most reliable, flexible, scalable, manageable, and
cost effective wide-area multi-service network based on Multi-Protocol Label Switching (MPLS)
technology. This provides customers with the technology to securely access private information on their
corporate network over DIGITEL’S Internet Protocol enabled network or over a shared public
infrastructure, such as the Internet. IP-VPN can carry any type of IP Traffic with differentiated classes of
service (CoS), thus, it is well-suited for converged voice, data and video applications.
DIA or Dedicated Internet Access is DIGITEL’s service that continues to provide the much-needed
Internet bandwidth requirements of large corporations and Business Process Outsourcing (BPO)
companies, particularly the Call Center industry. DIA keeps our customers’ businesses on track, with a
reliable Internet connectivity, allowing them to communicate with their various offices and partners
anywhere in the country and across the world. Customers are able to complete purchase/selling or any
other business transactions, and even go on-line and check how their business is doing, through a real
video-streaming running over their internet facility.
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Wireline Communications – Data
DIGITEL provides the following wireline data communications services to its subscribers
through its data services arm DigitelOne and through a joint venture, DIGITEL Crossing.
Data Services
Leased Line provides point-to-point telecommunication line with a 24-hour link to the
business. It is an ideal tool for exchanging information in the form of data, voice, video or a
combination of the three, through terrestrial microwave copper cable or fiber optic technology.
Frame Relay Service is a Wide Area Network (WAN) communications technology that
provides a certain company with a point-to-point or point-to-multi point dedicated connection.
International Private Leased Circuit provides an international connectivity using a
dedicated circuit. Through the partnership with Asia Netcom, DIGITEL can connect
companies to major cities around the world.
International Frame Relay – Working together with Asia Netcom, DIGITEL offers the
resources and expertise to meet the subscriber’s global telecommunication needs under a
single contract with exceptional services.
Internet Services
Internet Access is a dedicated connection to the internet with the flexibility to grow with
subscriber’s business. This may either be:
Premium Internet Service – designed for Internet Service Provider (ISP) clients who
demand the fastest connection to the Internet backbone at a 1:1 bandwidth ratio
The Corporate Internet Service – for corporate clients that have lower utilization
compared to ISPs, they may choose to avail of shared bandwidth for Corporate Internet
Service available at 2:1 and 4:1 bandwidth ratio.
Peering Service is the arrangement of traffic exchange between ISPs. Larger ISPs with their
backbone networks agree to allow traffic from other large ISPs to pass through their
backbones so that local Internet traffic does not need to pass through expensive bandwidth.
Virtual Internet Presence allows the Internet connection to become a secure data pipe
between regional sites. This service will offer ISP business establishments a Local Presence
without investing on expensive equipment, thus lowering total cost of operations compared to
opening up and maintaining their own internet equipment.
Wireless
SUN Cellular offers the latest in GSM technology, providing voice services (local, national,
international calling), messaging services (short text or multimedia messaging), outbound and inbound
international roaming (currently available in selected countries in Asia, Africa, Europe, and North and
South America), and value-added services as available through SUN Cellular’s navigational menu called
“The Mall”.
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Postpaid Service
The postpaid subscription plans of SUN Cellular offer fully consumable monthly service fees for
voice usage (including IDD calls). The range of plans has also proven to be an advantage as
consumers have a choice among 5 postpaid plans: Plan 350 (from an initial lowest Plan of 250 to
Plan 350 upon expiration of the subscription contract), Plan 600, Plan 1000, Plan 2000, and Plan
3500, with the option for personalizing profiles, namely, I-Speak and I-Text:
I-Speak – This profile best describes people who frequently make voice calls.
Subscribers selecting this profile enjoy voice call rates of as low as PhP4.00 per minute
on SUN-to-SUN calls
I-Text – This profile is best suited to people who frequently send text messages.
Subscribers selecting this profile enjoy rates as low as PhP0.50 per SUN-to-SUN text
message and more free text allowance compared to the other plans.
In its commitment to provide subscribers innovative services at affordable prices, SUN Cellular
offers subscribers the following:
Group Plans – This offering comes in three (3) variants: Plan 699, Plan 899 and Plan
999. Each plan allows the subscriber to apply for multiple line packages at a discounted
price.
Fixed Load Plan – This offering is basically an extension that allows postpaid
subscribers to avail of additional line subscription at a fixed low monthly cost.
This service offering aims to address the needs of families or small businesses for
convenience and budget control.
SUN Bond Subscription - For students and customers who do not have the
necessary requirements for a postpaid plan line application, the SUN Bond
Subscription allows subscribers to avail of postpaid lines without the need to
submit application document requirements. Instead, a subscriber pays the
consumable deposit to get a line and a handset for free. The consumable deposit
would then be credited to the subscriber’s account in 24 equal monthly
installments.
IDD Service - Top 10 IDD service extends to the subscribers a reduce rate of $0.10 per
minute for IDD call to selected countries.
Call & Text Unlimited Service – Available to both Postpaid and Prepaid subscribers,
this service allows calling and texting Sun-to-Sun for unlimited number of times for a
certain number of days.
Prepaid Service
SUN Cellular’s prepaid service is aimed at providing subscribers with the best-value choices
tailored to fit each user’s specific needs and wants. SUN Cellular prepaid reloads are available in
PhP 50, PhP 150, PhP 300 and PhP 500 denominations, in call cards or electronic reloads.
Prepaid subscribers also have an option to choose between the I-Speak and I-Text profiles.
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In support of SUN Cellular’s subscriber acquisition efforts, various products and services were
introduced such as the Text Unlimited, Daylite CTU and Top 10 IDD, which further reinforced
SUN Cellular’s position as an innovative mobile network service provider.
In 2006, various prepaid SIM card variants were designed to address the needs of its target
market. These consisted of: the Supreme SIM pre-loaded with Free 7 days Call & Text
Unlimited; the Text Unlimited SIM pre-loaded with 4 days 24/7 Text Unlimited and free 30
minutes local intra-network voice calls per month for 3 months; and the Super Value SIM, preloaded with 24/7 Call & Text Unlimited valid for 4 days.
Value-Added Services
Aside from the unique menu-driven navigational tool called the “Mall”, SUN Cellular introduced
several other value-added services in 2006, such as:
iMessenger - This is the first mobile instant messaging (IM) service that lets cellular
phone subscribers communicate with their online buddies on the four largest IM services
- Yahoo! Messenger, MSN Messenger, AOL Instant Messenger and ICQ. Just like SUN's
other value-packed products, iMessenger is offered on unlimited, time-based
subscriptions that allow subscribers to enjoy sending and receiving IMs without fear of
exorbitant per-message charges. Moreover, subscribers get their first day free!
DialTunes – This is a service that allows subscribers to download "ringback tones" that
their callers hear before the call is connected. DialTunes make the voice-calling
experience interesting and fun as subscribers download songs, jokes and sound effects to
their accounts. This makes calling them an entertaining treat for their friends and
associates.
TxtBlitz - SUN also commenced a venture into corporate solutions with the introduction
of TxtBlitz. TxtBlitz is an easy-to-use and cost-effective way for businesses to send and
receive text messages to and from their local and international audiences, via a simple
Internet-protocol connection.
Competition
According to the NTC, the Philippines is one of the countries that has the fastest growing
telecommunications network in Asia. Consequently, DIGITEL faces a number of competitors such as
Philippine Long Distance Telephone Co., Smart Telecommunications, Bayantel and Globe. The principal
bases of competition in both wireline and wireless segment are price, coverage, quality of service support,
and speed of network access and availability of calling features.
Currently, DIGITEL dominates the Luzon wireline market in terms of the total number of towns
and cities served and lines installed. As of December 2006, DIGITEL had installed lines of 656,656 with
446,530 working lines in 281 served towns and cities throughout Luzon including Quezon City in the
National Capital Region.
DMPI, on the other hand, is making inroads as a third player in the wireless market. In fact, in
January 2005, competitors Pilipino Telephone Corp. (Piltel) and Innove Communications, Inc., units of
Smart Communications, Inc. and Globe Telecom, respectively, asked the NTC to stop SUN Cellular from
offering its competitive tariff on the grounds that it constituted predatory and discriminatory pricing and
that its service failed to pass the required NTC standards under NTC Memorandum Circular No. 07-06-
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2002. Piltel and Innove’s complaints were docketed as NTC Administrative Cases Nos. 2005-018 and
2005-021, respectively, and were later consolidated by Order of the Commission. In response to the
complaints, DIGITEL asked the NTC to dismiss the complaints filed for lack of merit and that the
Company complied with all the requirements before the launch of the contested scale of charges.
On May 24, 2005, the NTC issued an interim order in the above-consolidated cases. In said order,
the Commission declared that pending its resolution of said cases on their merits, it would allow SUN
Cellular and all other mobile phone operators offering innovative services to continue selling unlimited
voice and text price plans, subject to the safeguards and standards which the Commission laid down in the
same order. The Commission issued said order because it was “greatly concerned that an inflexible
application of NTC MC No. 07-06-2002 could result in (a) depriving consumers of wider choice in
services; and (b) a failure to encourage the very competitive and innovative offerings that it should
increasingly encourage and protect as the sector’s regulator.” The Commission also took cognizance of
the fact that “at present, consumer desires and needs appear to be more varied and have expanded beyond
basic quality satisfaction. The popularity of the new and innovative price plans introduced by the parties
themselves reflect the appreciation that consumers have options that enable them to shop for and choose
the price-quality package that best suits their needs. It is relevant to point out that when the Commission
did not issue the Cease and Desist Order prayed for by Smart and Globe on SUN’s 24/7 Plan, these two
(2) dominant carriers launched shortly thereafter their own innovative price plans (i.e., Smart and
PILTEL’s 25/8 Plan and Globe’s Call and Text Promo, etc.).”
Piltel and Innove filed separate motions for reconsideration of the above interim order, reiterating
their prayer for the NTC to stop SUN Cellular’s 24/7 plan. In its Order dated August 3, 2005 denying
said motions, the Commission declared: “It bears stress that the telecommunications business to which all
parties to the present case are engaged in is one impressed with a high degree of public interest. Thus, in
resolving the issue of whether or not to order a temporary and/or provisional cessation of DIGITEL’s
‘24/7 Plan’ because of allegedly sub-par performance standards, the Commission is positively enjoined
by law not only to take into consideration the material interests of the parties to the controversy but, more
importantly, to zealously guard the welfare of the public, who stand to lose their right to choose the pricequality package that might best suit their needs with the blanket abolition of innovative price plans by
reasons which are not totally imputable to them.” Furthermore, the Commission recognized “the need for
a healthy competitive environment in telecommunications which is a sufficient impetus for this
Commission to consider all those applicants who are willing to offer competition, develop the market and
provide the environment necessary for greater public service.”
Piltel and Innove thereafter filed separate petitions for certiorari with the Court of Appeals
questioning the NTC’s interim orders. To date, Piltel has withdrawn its petition while that of Innove is
still pending with the appellate court.
Regulation
The Company’s franchise which was granted in February 1994 and will expire after 25 years is
subject to amendment, termination or repeal by the Philippine Congress. The franchise provides that the
Company may offer particular services upon obtaining the permission of the NTC, which permission is
granted through the issuance of Certificates of Public Convenience and Necessity (“CPCNs”). Upon
receipt of an application for a CPCN, the NTC normally issues a PA, which can be renewed annually that
permits operation of the service pending issuance of the CPCN. PAs may be revoked by the NTC if the
Company fails to comply with the conditions thereof. In addition, the Company and its business are
subject to extensive regulation by the NTC, particularly with respect to rates.
The Provisional Authority (PA) granted to DIGITEL was originally valid for eighteen months
from date of issuance and was subsequently extended by the NTC up to February 7, 2005. In November
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2005, DIGITEL’s PA was further extended up to but not beyond February 7, 2008, following DIGITEL’s
application for a Certificate of Public Convenience and Necessity (CPCN) to install, operate and maintain
a nationwide CMTS using GSM and/or CDMA technology.
The Company is in compliance with all government regulations applicable to telecommunication
companies.
Customers
At the retail level, DIGITEL provides local metered service as well as domestic and international
long distance services to individual wireline and wireless subscribers both for outbound and inbound
calls. It also provides Data Communications to business subscribers and Internet Services to both
business and residential customers.
At the wholesale level, other telephone companies and private enterprises utilize DIGITEL’s
inter-exchange and IGF facilities, in effect becoming customers of the Company. DIGITEL now counts
companies in the manufacturing, trading, banking, utilities, hotel, BPOs, call centers and real estate
sectors among its corporate subscribers.
Suppliers
The Company has entered into construction contracts with Huawei, Alcatel and Ericsson to
undertake the implementation of DIGITEL’s GSM 1800 mobile project in the Philippines. The Company
will expand coverage from current 1,600 cell sites to about 2,300 by end of year 2007.
Contracts for other major projects with the following suppliers are ongoing:
1.
Huawei Technologies, to carry out Phase 5 GSM expansion project to enhance network coverage
and capacity in the National Capital Region, Phase 6 GSM expansion and upgrade project to
enhance network coverage and capacity in Luzon including Next Generation Network (NGN)
expansion; and to expand the CDMA WLL network coverage in remote and urban areas
providing the subscribers with excellent voice, SMS and high-speed data/internet services.
2.
ALCATEL, to provide the relevant services for the survey, engineering, warehousing, delivery,
labor, installation, testing and commissioning of the Inter-MSC Transmission Project; Phase 3
GSM expansion to increase its network capacity in NCR and Luzon to correspond with the
expected subscriber growth; Short Term Core Extension project for the supply and installation of
core equipment to cater demand of expected subscriber growth nationwide and for the
engineering, warehousing, delivery, labor, installation, testing and commissioning services
required in the upgrade of DWDM Network.
3.
ALCATEL and HUAWEI Technologies, for the supply, engineering and installation services,
testing and commissioning of Optical Transport (NG SDH and Core Routers / Switches)
facilities. The new facilities provide enhanced network redundancy and capacity to support the
combined expansion requirements of SUN and DIGITEL’s TDM and IP-based infrastructure.
4.
Ericsson, to handle Phase 6 GSM expansion project to enhance network coverage and capacity
in Visayas and Mindanao areas; Phase 4 GSM expansion to increase its network capacity in
Visayas and Mindanao for wider nationwide coverage and Phase 5 Base Switching
Subsystem(BSS) and core expansion project for the supply of equipment and services to upgrade
transmission and core capacity in Visayas and Mindanao.
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5.
Nokia Corporation, for PDH Radio and Accessories Transmission Project for the requirements of
Phase 6 GSM expansions in Luzon.
6.
Neural Technologies, Ltd. (NT), for the installation of software and hardware for the Fraud
Management System. This system is necessary to protect the Company from revenue loss due to
fraud.
7.
CMG Wireless Data Solutions for the supply of Multimedia Message Service Center (MMSC)
platform. This platform is a high availability system with a maximum throughput capacity of 75
Multimedia Messages per second (MM/s).
8.
ZTE Corporation, for the completion of the New Generation Network Tandem Project that will
support DIGITEL’s capability to provide IP-based services and exploit it as an alternative in
expanding its current PSTN and transmission network; and for Landline Texting to leverage on
the increasing attractiveness of the Mobile SMS.
9.
Fujitsu Philippines, Inc., Integrated Voice and Internet Platform (IVIP) to expand DIGITEL’s
current prepaid system to enable it to provide flexible prepaid and postpaid billing and hinge on
the popularity of the prepaid market for Internet and Voice Services.
10. Logica CMG, Intermediate Short Messaging Service Center (SMSC) project for network
optimization and to cater increased volume of SMS traffic as a result of subscriber growth.
11. Tekelec, Signalling Transfer Point (STP) project for the supply of high end STP equipment for
core network expansion.
12. Ceragon Network, Luzon Access Redundancy Project for the supply and installation of high
frequency, high capacity wireless networking equipment for increased network reliability and
availability in Luzon.
13. NERA/ JUNIPER-FOUNDRY, to expand international IP network to cater the bandwidth
requirements of IPL, ADSL and DIA services in 2007.
14. REDBACK to expand the BRAS network to support the bandwidth requirements of ADSL in
2007 at the same time improve ADSL service redundancy, reliability and operational efficiency
by further regionalization and decentralization of BRAS equipment.
Compliance with Environmental Laws
DIGITEL and DMPI have not been subject to any material penalties or legal or regulatory action
involving noncompliance with environmental regulations of the Philippines.
Employees
DIGITEL had 3,829 employees as of December 31, 2006 of which 76% were rank & file
employees, 21% were management/supervisory staff and 2% were executives. This represents an
increase in manpower rate of 6.39% from its 2005 manpower level of 3,599.
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Revenues
DIGITEL service revenues were primarily derived from service connection fees and local
monthly service charges and from charges generated by telephone calls that vary based on the distance,
duration and time of day of the call. With the launch of DIGITEL’s wireless service, revenues are also
generated from sale of phone kits and from charges for SMS and other Value Added Services (VAS)
aside from the traditional voice services.
Service revenue by business unit is presented below (in P’000):
2006
Amount
2005
% Total
Amount
2004
% Total
Amount
% Total
Wireline - voice
4,459,471
59%
5,013,302
61%
5,377,911
75%
Wireless
2,840,151
37%
2,919,823
36%
1,464,563
20%
302,585
4%
272,037
3%
330,530
5%
Wireline - data
7,602,207
100%
8,205,162
100%
7,173,004
100%
Information as to domestic and foreign revenues and their contributions to total service revenues
follow (in P’000):
2006
Amount
2005
% Total
Amount
2004
% Total
Amount
% Total
Domestic
5,731,312
75%
6,013,175
73%
4,753,870
66%
Foreign
1,870,895
25%
2,191,987
27%
2,419,134
34%
7,602,207
100%
8,205,162
100%
7,173,004
100%
Other Matters
The Company established Digitel Capital Philippines, Ltd. (DCPL), a wholly owned subsidiary,
to engage in any activity allowed under any law of the British Virgin Island. In November 2004, DCPL
issued Zero Coupon Convertible Bonds due in 2013 (DCPL Bonds) with a face value of US$590.1
million and issue price of US$190.0 million. JG Summit Philippines, Ltd. fully subscribed to the DCPL
Bonds.
13
Item 2. Properties
The Company’s major properties, located in its various areas of operation, consist of central
office equipment, land, vehicle and work equipment, outside plant facilities, telecommunications projects
under construction and telecommunications facilities being leased from the DOTC under the FLA.
In 1999, DIGITEL launched its Internet and Frame Relay services. To provide such services,
DIGITEL installed a network built on three high-capacity Asynchronous Transfer Mode (ATM) switches
and multiple Frame Relay switches. Multiplexers have been deployed in strategic points throughout
Luzon to provide extensive points of presence. A Graphic User Interface Network Management System
provides up-to-the minute reports on the status of the network elements. This system allows DIGITEL to
maintain high-service standards for its customers. DIGITEL built the Makati Fiber Loop Access Network
to provide data and voice services to selected buildings in Makati and installed Asymmetric Digital
Subscriber Line (ADSL) equipment in its areas of operation offering internet access speeds ranging from
64 KPBS to 1024 KPBS.
DIGITEL’s network was expanded in 1999 to include additional ready-for-connection lines
outside Metro Manila and in Quezon City. The new lines for Quezon City are now serving the needs of
Bagumbayan business establishments, including multinational companies occupying the Eastwood City
Cyber Park. Currently, DIGITEL is studying the most efficient and reliable network configuration for
providing voice and data services in the entire Eastwood City Cyber Park.
As of December 31, 2006, DIGITEL had a total of 656,656 lines system-wide. Its fully digital
telecommunications facilities include a Luzon-wide “backbone” (long distance) transmission system
consisting of radio stations and fiber optic cables and a transit exchange with interconnections with other
operators in Metro Manila. DIGITEL also has an International Gateway Facility (IGF), made up of two
IGF switches, one in Binalonan, Pangasinan and another in Quezon City, which provides instant
connectivity to more than 200 international destinations. With DIGITEL’s participation in the National
Digital Transmission Network (NDTN) undertaken by the Telecoms Infrastructure Corp. of the
Philippines (Telicphil), the Luzon-wide “backbone” transmission facility now extends to the Visayas and
Mindanao. In addition, the Company owns submarine cable capacities in the Trans-Pacific Cable-5
(TPC-5), the Asia-Pacific Cable Network (APCN), and the Southeast Asia-Middle East-Western Europe
(SEA-ME-WE) cable systems. It also purchased capacities from the China-United States cable systems
and the Guam-Philippines cable systems.
The CDMA (Code Division Multiple Access) WLL service enables DIGITEL to expand its
landline service through state-of-the-art wireless technology with relative ease and at a lower cost than
traditional copperwire systems. The CDMA 20001X is a legitimate 3G technology giving DIGITEL the
distinction of actually being the first among the major Telco players to make CDMA commercially
available. By year-end 2006, a capacity addition of 14,000 lines from 20,000 in 2005 was implemented
bringing the total CDMA network capacity to 34,000 lines in different parts of Luzon including Quezon
City.
In November 2006, DIGITEL signed a Memorandum of Agreement with Huawei Technologies
Philippines Inc., to build another 24,000-line CDMA2000 WLL system to serve selected parts of Metro
Manila and Luzon.
The initial roll-out shall cover specific areas in Bicol region where typhoons Milenyo and
Reming wrought heavy damage to DIGITEL’s existing landline network infrastructure rendering
rehabilitation impractical. Also known as “Bicol Express Project”, the initiative is aimed at providing
immediate landline service replacement to the affected subscribers who also stand to enjoy other
14
advanced services that come with the CDMA2000 technology such as limited mobility, SMS and highspeed Internet access.
The Bicol Express Project is scheduled for completion by February 2007. On the other hand, the
entire Huawei CDMA2000 network is scheduled to be ready for service on the 3rd quarter of 2007.
In 2005, DIGITEL expanded its fiber optic backbone coverage to include strategic areas in
Cavite, Rizal, Laguna, Batangas and Quezon provinces. The new infrastructure, made up of New
Generation SDH Multiplexers, Core and Edge Routers (all MPLS) is envisioned to address new services
such as IP-VPN and IP-based mission critical services requiring QoS. It is also intended to support the
high bandwidth requirements of IP DSLAM and to complement the NGN switch and Video Conference
Platform in providing VoIP and video conferencing services. IP-VPN services were introduced in 2005
with the completion of the IP-MPLS core network covering Binalonan, Balagtas and GCC. This is the
first step on the road to building a truly convergent IP-based network supporting VoIP, Broadband
Internet and Video services.
DIGITEL replaced legacy TDM (time division multiplexing) access nodes (Luzon-wide) with
next generation multi-service access equipment. This greatly increased the bandwidth provided at the
customer premises by using ADSL and ADSL2+ access technology.
DIGITEL deployed Dial VPN Access Gateways Luzon wide with initial capacity of about 4,000
ports. This introduced Dial VPN (Virtual Private Network) services for corporate branches and Internet
Access port wholesaling for Internet Service Providers.
As of the end of 2006, DIGITEL had deployed 33,200 ADSL (Assymetric Digital Subscriber
Lines) ports. These ports were deployed via DSLAMS (Digital Subscriber Line Access Mux) installed in
the various telephone switch central offices to provide connectivity to subscribers via copper wires within
5 km radius. Included in this deployment were high temperature tolerant DSLAMS installed inside
remote switch cabinets to serve clients remotely situated from main central office exchanges. The ADSL
layers also serves as the transport in providing hosted content applications services, such as Netmedic,
NetAcademy, NetInventory and NetPayroll and others.
After having successfully established the country’s first NGN switching system in 2004,
DIGITEL once again launched a new NGN system in 2006, this time to handle international VoIP traffic.
This facility, which operates today as the 3rd IGF of DIGITEL is equipped with a processing
power of 400,000 BHCA and an initial trunk capacity of 128 E1s for connection to the PSTN. In
addition, it is also readily capable of providing class 5 functionalities should DIGITEL require activation
of such services on the NGN platform in the future.
DIGITEL Crossing has established and is operating an optical fiber transmission system from its
Cable Landing Station in Naic, Cavite to Makati to form part of Asia NetCom’s (ANC) submarine cable
system expansion in the East Asia region known as EAC2. Along with its brand new fiber web, it offers
seamless end-to-end connectivity between more than 170 leading business cities worldwide via ANC.
The fiber web facility is designed and being built ready for the latest Dense Wave Division Multiplexing
(DWDM) technology.
DIGITEL’s wireless network expansion continues to be carried out by global partners, Huawei,
Alcatel and Ericsson. Digital GSM network operates on the 1800MHz frequency band and has access to
a total of 17.5 MHz of frequency for its wireless service. Presently, the wireless network expansion can
accommodate 6.0 million subscribers when completed. In addition, the wireless network can easily
15
handle millions of text messages per day, and is fully enabled for general packet radio service (GPRS)
applications. The principal components of DIGITEL’s digital wireless network are:
cell sites, which contain transmitters, receivers and other equipment that communicate by
radio signals with the wireless handsets within the range of the cell site;
digital switching centers to route the calls to the proper destinations; and
transmission facilities to link the switching centers to the cell sites.
The Company is gradually building up its customer base alongside the expansion of its network
to be able to provide clients with better quality service. Its leading technical partners and telecom
network suppliers are responsible for the full-turnkey network infrastructure build-out and capacity
expansion of existing SUN Cellular sites nationwide. The Company is targeting to complete 2,300 cell
sites by the end of year 2007 to support the projected surge of subscribers. DIGITEL has allocated
approximately US$200 million for the expansion of SUN Cellular’s coverage and capacity. This
expansion will enable the Company to serve up to 6 million mobile wireless subscribers.
The Company’s properties are all in good operating condition.
Item 3. Legal Proceedings
In 1993, the Parent Company entered into a Facilities Management Agreement (FMA) with the
DOTC covering certain telecommunications facilities owned by the DOTC. The FMA also provides for
its conversion into a lease contract under certain terms and conditions as the parties may agree upon. In
accordance with the provisions of the FMA, the Parent Company and the DOTC agreed to amend and
convert the FMA into Financial Lease Agreements (FLA) in 1995 and 1996 pursuant to which 29,046
lines were converted. Under the FLA, the Parent Company was granted the exclusive right to lease,
manage, maintain, operate, develop and eventually own the said DOTC facilities. The lease is for a
period of 30 years with the annual lease payment based on the formula set forth in the FLA.
In May 2003, pursuant to the provision of the FLA, the Parent Company proceeded to negotiate
with the DOTC for the buy-out of the telecommunication facilities covered by all FLAs. In August 2004,
the Parent Company made a final offer to buy-out the facilities, against a previous counter-offer made by
DOTC in June 2004.
In April 2006, arbitration was filed with the International Court of Arbitration of the International
Chamber of Commerce. Negotiations were concluded between the parties and are awaiting the decision
of the said court. In view of the ongoing proceedings of the arbitration body and due to the uncertainty
involved, no disclosure is made of any estimate of the financial effects of this matter.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders through the solicitation of proxies
during the fourth quarter of 2006.
16
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
DIVIDENDS
The Company historically has not paid cash dividends on the Shares. Any payment of cash
dividends on the Shares in the future will depend upon the Company’s earnings, cash flow, financial
condition, capital investment requirements and other factors, including certain restrictions on dividends
imposed by the terms of the Company’s credit and loan agreements.
STOCK PRICES
The Company was officially listed in the Philippine Stock Exchange in September 1996.
The number of shareholders of record as of December 31, 2006 was 6,374 with common shares
outstanding of 6,356,976,300.
Quarter end stock price ranges for 2006 and 2005 were as follows:
Quarter-End Dates
High
Low
Close
December 31, 2006
September 30, 2006
June 30, 2006
March 31, 2006
2.02
1.40
1.40
1.06
1.26
1.16
0.94
0.86
1.96
1.28
1.24
0.99
December 31, 2005
September 30, 2005
June 30, 2005
March 31, 2005
1.02
1.12
1.28
2.02
0.89
0.93
0.98
1.08
0.93
0.95
1.02
1.18
The closing price as of March 31, 2007 was P1.76.
17
Top 20 stockholders as of December 31, 2006:
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Name
No. of Shares
JG Summit Holdings, Inc.
PCD Nominee Corporation (Filipino)
Telia Sonera AB of Sweden
PCD Nominee Corporation (Non-Filipino)
Express Holdings Inc.
Solid Finance (Holdings), Limited
Johnson Robert L. Go and/or Lance Y. Gokongwei
M akati Supermarket Corporation
ABV Inc.
Thorton Holdings, Inc.
Universal Robina Corporation
Elizabeth Yu
Angeles Electric Corporation
United Phils. Realty Corp.
Aurora Villanueva and/or Edwin Villanueva
EBC Investments, Inc.
TGN Realty Corporation
Gregorio B. Trinidad and/or Cynthia M . Trinidad Del R
Gregorio B. Trinidad and/or Enrico M . Trinidad
Gregorio B. Trinidad and/or M onique Trinidad
Gregorio B. Trinidad and/or Salome S. Adajar
W ilfrido C. Tecson &/or Florence G. Teczon
Chak Ching Chan
3,016,079,550
1,670,812,360
600,000,000
310,312,120
135,231,332
110,000,000
75,640,000
56,245,330
33,358,590
26,680,810
24,347,000
22,820,000
20,656,120
17,566,550
13,488,550
11,625,000
10,777,830
7,000,000
7,000,000
7,000,000
7,000,000
6,500,000
6,362,000
Total
6,196,503,142
% to Total
47.45%
26.28%
9.44%
4.88%
2.13%
1.73%
1.19%
0.88%
0.52%
0.42%
0.38%
0.36%
0.32%
0.28%
0.21%
0.18%
0.17%
0.11%
0.11%
0.11%
0.11%
0.10%
0.10%
18
Item 6. Management’s Discussion and Analysis or Plan of Operation
Results of Operations
Segment Report
2006
Revenue
Net income (loss)
Segment assets
Segment Liabilities
Depreciation and amortization
Capital expenditures
Non-cash expenses other than depreciation
2005
Revenue
Net income (loss)
Segment assets
Segment Liabilities
Depreciation and amortization
Capital expenditures
Non-cash expenses other than depreciation
2004
Revenue
Net income (loss)
Segment assets
Segment Liabilities
Depreciation and amortization
Capital expenditures
Non-cash expenses other than depreciation
Wireless
Communication
Services
4,041,797
(1,172,770)
24,381,681
16,231,109
643,703
4,062,882
165,294
Wireless
Communication
Services
3,176,606
(1,369,359)
19,443,285
13,246,263
572,923
8,450,042
157,374
Wireless
Communication
Services
1,620,107
(1,700,856)
10,710,850
7,055,930
277,905
6,776,113
166,442
Wireline Voice
Wireline Data
Communication
Communication
Services
Services
(In Thousand Pesos)
6,999,562
404,469
(2,199,581)
117,493
53,688,677
2,231,823
53,110,597
1,814,472
2,146,064
117,887
419,010
90,370
2,336,053
38,708
Wireline Voice
Wireline Data
Communication
Communication
Services
Services
(In Thousand Pesos)
7,105,795
390,232
(3,157,414)
179,054
53,971,671
2,400,834
52,382,773
2,087,096
2,271,572
75,240
337,242
54,072
3,030,362
2,271
Wireline Voice
Wireline Data
Communication
Communication
Services
Services
(In Thousand Pesos)
5,390,555
364,542
(2,267,315)
141,518
56,889,753
2,364,060
51,854,466
2,216,388
2,228,988
68,728
903,301
97,239
2,306,831
5,002
Eliminations
Total
(151,720)
2,291,950
(24,393,812)
(19,517,379)
11,294,108
(962,908)
55,908,369
51,638,799
2,907,654
4,572,262
248,105
(2,291,950)
Eliminations
(165,103)
2,758,154
(22,341,657)
(18,076,806)
(2,758,154)
Eliminations
(166,924)
1,774,649
(20,757,541)
(17,403,304)
(1,896,449)
Total
10,507,530
(1,589,565)
53,474,133
49,639,326
2,919,735
8,841,356
431,853
Total
7,208,280
(2,052,004)
49,207,122
43,723,480
2,575,621
7,776,653
581,826
* Segment assets of the Group do not include deferred income tax assets while segment liabilities do not include income tax payable
and deferred tax liabilities.
19
2006 Compared to 2005
DIGITEL generated consolidated revenues of P11,294.1 million for the year ended December 31,
2006 or a 7.5% increase from the P10,507.5 million consolidated revenues generated for the year ended
December 31, 2005, largely due to foreign exchange and market valuation gains reported during the year
amounting to P3,424.4 million, against last year’s P1,998.6 million.
Combined service revenues of P7,602.2 million realized during the year was lower by 7.3% or a
P603.0 million drop from last year’s P8,205.2 million, due to lower service revenues generated by both
the wireline and wireless businesses.
Wireline communication services recorded P4,459.5 million in service revenues in 2006, a
decline of 11.0% as against P5,013.3 million in 2005. The decrease in wireline revenues resulted mainly
from the appreciation of peso prompting downward adjustments in the monthly recurring charges and in
the revenues from international calls. Also, the declining minutes brought about by the preference of the
public for mobile phones contributed to the lower revenues generated in 2006. This revenue decline is
expected to be eventually offset by the growing broadband business with ADSL which continues to show
an uptrend, registering 74.0% increase over last year's revenue; and the favorable uptake of the wireless
telephone with broadband data service, otherwise known as MANGO.
Wireline data communication services for the year ended December 31, 2006 amounted to P302.6
million. Despite stiff competition, this segment registered an increase of 11.2% over last year’s revenue
of P272.0. The growth is driven by the increased demand in international data circuits from emerging
businesses of call centers and medical transcriptions.
The wireless business also reported a decline in service revenues by 2.7% from P2,919.8 million
in 2005 to P2,840.2 million in 2006. During the year, the business saw the continued subscriber interest
in unlimited services resulting in growth in unlimited fees by 27.0% or P325.5 million, although growth
was not enough to immediately cover the expected drop in SMS revenues and in unused monthly
recurring postpaid fees, indicative of more efficient subscriber usage.
Consolidated costs and expenses were reported at P10,845.0 million for the year ended December
31, 2006, 4.7% better than previous year’s figure of P11,382.8 million for the year ended December 31,
2005. The decline was largely due to lower cost of sales by 38.0% incurred in the wireless business
owing to the 46.0% drop in Subscriber Identification Module (SIM) cost as a result of better price deals
on SIM purchases; and lower provision for impairment losses by 40.3%.
Network-related expenses increased by 24.6% or P443.7 million which was largely attributable to
the aggressive roll out activities undertaken in the wireless business during the year. General and
administrative expenses likewise increased by 15.2% or P348.6 million due to increased marketing and
staff-related expenses.
DIGITEL registered a consolidated EBITDA of P1,847.9 million 2006, lower by 34.0% against
P2,801.6 million in 2005.
As a result of the foregoing, DIGITEL realized a consolidated income before income tax of
P449.1 million in 2006, a 151.3% turnaround from last year’s consolidated loss before income tax of
P875.2 million.
20
Moving forward, DIGITEL expects continued improvement in results of operations as the
Company pursues aggressive expansion of its wireless network facilities; and through the introduction of
new and innovative products and continued implementation of cost-containment measures to further
reduce its costs and expenses.
2005 Compared to 2004
DIGITEL generated a consolidated revenue of P10,507.5 million for the year ended December
31, 2005 or a 45.8% increase from the P7,208.3 million consolidated revenue generated for the year
ended December 31, 2004.
The increase in consolidated revenue was brought about by strong top line growth in the wireless
communication services which was driven by the attractive 24/7 unlimited product variants. As a result,
revenue from this segment increased by P1,556.5 million or 96.1% from P1,620.1 million in 2004 to
P3,176.6 million in 2005. On the other hand, the 2005 service revenues of the wireline voice
communication services declined by P364.6 million due to a drop in both international and domestic tolls
and the impact of a stronger Philippine peso against the U.S. dollar on international toll revenues and
billed foreign currency adjustments. The decline in service revenue of wireline voice communication
services was mitigated by a gain in foreign exchange of P1,953.2 million.
Consolidated costs and expenses registered at P11,382.8 million for the year ended December 31,
2005 or a 25.6% increase from P9,064.2 million for the year ended December 31, 2004. This was largely
due to increased financing costs by P1,456.0 million or 108.1% from P1,347.5 million in 2004 to
P2,803.4 million in 2005 wherein a full year’s interest was charged in 2005 while only a quarter year’s
interest was charged in 2004 on a US$190 million bond issued by a foreign subsidiary.
Network-related expenses, likewise, posted a P501.1 million or 38.4% increase from 2004’s
P1,303.8 million to P1,804.9 million in 2005. The increase was largely attributable to the higher network
cost of the wireless communication services which increased by 94.7% from P616.8 million in 2004 to
P1,200.9 million in 2005. Other increases in cost and expenses emanated from increases in marketing,
selling and cost of sales, depreciation, and staff related expenses. Provision for impairment losses in 2005
was lower by P156.6 million or 27.4% from P572.0 million in 2004 to P415.4 million in 2005.
DIGITEL registered a consolidated EBITDA of P2,801.6 million in 2005 against P2,297.9
million in 2004 on account of improved performance of the wireless communication services and the
successive healthy performance of the wireline voice communication services and wireline data
communication services.
As a result of the foregoing, DIGITEL incurred a lower consolidated loss before income tax of
P875.2 million in 2005 compared to P1,855.9 million in 2004, an improvement of 52.8%.
21
Financial Position
Financial Highlights and Key Performance Indicators
(In Thousand Pesos)
December 31
Increase(Decrease)
2006
2005
(Audited)
(Audited)
Amount
%
(in thousands,except for operational data, exchange
rates and earnings per common share)
Consolidated Balance Sheets
Total assets
56,784,998
54,573,070
2,211,928
4
Property and equipment - net
49,817,166
48,195,190
1,621,976
3
332,212
Cash and cash equivalents and short-term
investments
Total Equity
Interest-bearing financial liabilities
Notes Payable and long-term debt
1,896,947
477,842
2,859,855
17,870,081
19,188,442
16,748,309
17,695,731
Net debt to equity ratio(1)
9x
(30)
(962,908)
(34)
(947,422)
7x
For the Year Ended Dec. 31,
2006
(145,630)
(5)
-
-
Increase(Decrease)
2005
Amount
%
(Unaudited)
Consolidated Statements of Income
Revenues and other income
11,294,108
10,507,530
786,578
7
Expenses
10,844,961
11,382,768
(537,807)
(5)
Income (Loss) before income tax
449,147
Net loss
962,908
9%
Net loss margin
(875,238)
1,589,565
1,324,385
151
(626,657)
15%
39
-
-
0.1515
0.2501
(0.0986)
Net cash provided by operating activities
1,444,174
3,688,908
(2,244,734)
(61)
Net cash used in investing activities
6,352,747
6,417,810
(65,063)
(1)
5,675,806
5,835,828
(160,022)
4,569,013
2,200,627
2,368,386
Earnings per common share - basic
39
Consolidated Statements of Cashflows
Capital Expenditures
Net cash provided by financing activities
Exchange Rates
(3)
108
Php per US$
December 31, 2006
49.03
December 31, 2005
53.062
(1) Net debt is derived by deducting cash and cash equivalents and short-term investments from long-term debt.
22
2006 Compared to 2005
Consolidated total assets rose to P56,785.0 million at the end of 2006, from P54,573.1 million at
the end of 2005.
Cash and cash equivalents decreased by 30.5% from P477.8 million in 2005 to P332.2 million in
2006 as DIGITEL funds its working capital and capital expenditure requirements for expansion in its
telecommunications infrastructure.
Net receivables decreased by P352.7 million or 19.4% largely due to additional allowance for
impairment losses recognized on subscriber receivables amounting to P241.0 million.
Inventories decreased by P28.7 million or 10.9% due to increased sales and lower acquisition cost
of Subscriber Identification Module (SIM) cards and call cards and more efficient management of handset
inventory.
Derivative assets comprising mainly of derivatives embedded in foreign currency denominated
purchase orders significantly from network-related projects, amounted to P939.8 million as of December
31, 2006, an increase of P914.4 million from previous year’s figure of P25.4 million.
Due from related parties amounted to P90.2 million or 41.3% lower than last year’s figure of
P153.7 million due mainly to increased intercompany liabilities offset against related party receivables.
Prepayments and other current assets decreased by P27.5 million or 13.8% arising from reduction
in prepaid subscriber installation cost by 45.8% in the wireline business.
Property and equipment, net of accumulated depreciation, increased to P49,817.2 million as of
December 31, 2006, increasing by 3.4% from P48,195.2 million as of December 31, 2005. Additions to
property and equipment amounted to P4,572.3 million and P8,841.4 million in 2006 and 2005,
respectively, as a result of DIGITEL’s continuing investments in telecommunications facilities,
particularly in the wireless business segment. These investments were funded through bank financing and
advances from affiliates.
Deferred income tax assets decreased by P222.3 million or 20.2% due mainly to application of
NOLCO on income tax liability of the parent company.
Input value-added tax increased by P247.1 million or 15.7% due mainly to accumulated input
taxes in the wireless business as a result of significant capital expenditures on network-related projects.
Other noncurrent assets increased by P268.9 million or 35.1% largely due to increased deferred
handset subsidies.
Accounts payable and accrued expenses increased by P3,326.8 million or 43.4% due mainly to
reclassification of the Company’s finance lease obligation from long-term debt and additional accrued
interest on zero coupon convertible bonds and long-term debt.
Income tax payable decreased by P4.3 million or 60.9% on account of higher taxes withheld by
customers for the year which were offset against income tax liability for 2006.
23
The increase in deferred income tax liabilities by P1,172.6 million or 56.5% arose from deferred
taxes on unrealized foreign exchange gain, capitalized interest, unamortized debt issuance costs and mark
to market gain.
Bonds payable as of December 31, 2006 was recorded at P12,718.3 million, 5.6% higher than the
balance as of December 31, 2005, due to revaluation of the bonds as a result of the modification of the
conversion option in the bond agreement in January 2006.
Long–term debts (current and non–current) aggregating to P5,151.8 million consisted of loans
from foreign banks, and minimum capacity purchase agreement which amounted to P4,931.1 million, and
P220.7 million, respectively, as of December 31, 2006. As against outstanding balance as of December
31, 2005, amount decreased by 27.9% as a result of the reclassification of the Company’s finance lease
obligation from long-term debt to accounts payable.
DIGITEL obtained financing from foreign and local affiliates to fund the wireless communication
services network. As of December 31, 2006 and 2005, outstanding balances were P20,812.9 million and
P19,598.4 million, respectively.
Other noncurrent liabilities decreased by 38.0% or P1,200.7 million due mainly to lower accrual
of network-related project costs recorded in the wireless business as of December 31, 2006, by P1.308.7
million.
Capital stock stood at P8,975.7 million as of December 31, 2006 and 2005. DIGITEL sustained a
deficit of P7,078.8 million and P6,115.9 million as of December 31, 2006 and December 31, 2005,
respectively.
DIGITEL’s financing requirements were covered by both internally generated funds and external
borrowings.
Consolidated net cash flow provided by operating activities in 2006 amounted to P1,444.2
million as compared to P3,688.9 million in 2005. Net cash financing from external sources amounted to
P2,011.6 million in 2006 and P2,634.3 million in 2005.
2005 Compared to 2004
Consolidated total assets reached P54,573.1 million at the end of 2005, a 9.2% increase from
P49,984.7 million at the end of 2004.
Cash and cash equivalents decreased significantly by 56.8% from P1,107.1 million in 2004 to
P477.8 million in 2005 as DIGITEL utilized funds to meet its working capital and capital expenditure
requirements relative to expansion in its telecommunications infrastructure.
Net receivables decreased by P412.5 million or 18.5% due to the initial adoption of PAS 39,
resulting to the recognition of additional allowance for impairment losses on trade receivables and its
cumulative effect was charged to retained earnings as of January 1, 2005.
Inventories decreased by P74.1 million or 22.0% from P337.0 million as of December 31, 2004 to
P263.0 million as of December 31, 2005 due to increased sales of Subscriber Identification Module (SIM)
cards and call cards and more efficient management of handset inventory.
24
The due from affiliates amounting to P153.7 million, posted a decrease of P30.0 million or
16.3%. The decrease was largely due to the offset of intercompany liabilities against accounts due from
affiliates.
Prepayments and other current assets increased by P166.6 million or 8.8% arising from increase
in prepayments of rentals, taxes and other expenses.
Property and equipment, net of accumulated depreciation, increased to P48,195.2 million as of
December 31, 2005, a 12.4% increase from P42,868.8 million as of December 31, 2004. Additions to
property and equipment amounted to P8,841.4 million and P7,776.7 million in 2005 and 2004
respectively, as a result of DIGITEL’s continuing investments in telecommunications facilities,
particularly in the wireless business segment. These investments were funded through bank financing and
advances from affiliates.
The increase of P321.4 million or 41.3% in deferred income tax assets was caused by the deferred
taxes on the additional allowance for probable losses, provision for impairment losses on a joint venture,
Net Operating Loss Carry Over (NOLCO), accrued retirement costs and MCIT recognized during the
year.
DIGITEL invested a total of P292.9 million in a joint venture with Digitel Crossing which was
fully provided for impairment losses as of December 31, 2005.
Accounts payable and accrued expenses increased by P2,047.9 million or 36.4% due to the
recognition of additional liabilities to regular suppliers contracted for the wireless network expansion
projects and to the interest accrued on zero coupon convertible bonds and long-term debt, including
higher unearned revenue from sales of prepaid cards.
The increase in deferred income tax liabilities by P899.4 million or 76.6% arose from unrealized
foreign exchange gain, capitalized interest, capitalized foreign exchange loss, unamortized debt issuance
costs and mark to market gain.
Long–term debts (current and non–current) aggregating to P7,144.1 million consisted of
suppliers’ credits and bank financing, minimum capacity purchase agreement and financial lease
obligations, which amounted to P4,323.6 million, P344.9 million and P2,475.5 million, respectively, as of
December 31, 2005.
DIGITEL obtained financing from foreign and local affiliates to fund the wireless communication
services network. As of December 31, 2005 and 2004, outstanding balances were P19,598.4 million and
P19,072.9 million, respectively.
The increase in other noncurrent liabilities, net of current portion, substantially consisted of
accrued project costs due major contractors of P2,946.7 million incurred in the wireless business.
Capital stock stood at P8,975.7 million as of December 31, 2005 and 2004. DIGITEL sustained a
deficit of P6,115.9 million and P3,897.9 million as of December 31, 2005 and December 31, 2004,
respectively. The increase in deficit partially originated from the effects of adopting new Philippine
Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS).
DIGITEL’s financing requirements in 2005 were covered by both internally generated funds and
external borrowings. Consolidated net cash flow provided by operating activities in 2005 amounted to
P3,688.9 million as compared to P307.8 million in 2004. Net cash financing from external sources
amounted to P2,634.3 million in 2005 and P13,270.5 million in 2004.
25
Prospects for the Future
The fixed wire line business is continuously reinventing itself due to changing consumer habits
and preference for alternative telecommunications services solutions. Not only in the Philippines is this
threat being felt by fixed line service providers, rather it has become prevalent all over the world. Fixed
Wire or Landline companies are losing customers to mobile cellular phone service providers and Internet
Service Providers (ISPs) providing integrated multi-media services access. With its choice of product
market, technology and geography, the company will be able to develop the right product for the right
market and the right place.
DIGITEL is ready to meet the challenges by refocusing its priorities to serve these changing
needs, basically moving into new technologies that will readily cater to them. And beyond these new
technologies, thrusts on customer satisfaction is one of the strategic priorities, given the critical role
customer retention plays in sustaining the business. Retaining customers will not only secure the
foundation by which the company built its business on, but will provide a stronghold to its position
regardless of emerging competitive businesses founded on advanced technologies.
Opportunities abound whenever DIGITEL brings new products and services into the market
place. The company will continue to offer consumers value for money in all its telecommunications
services solutions, satisfying the growing demand for high-speed Internet access provided through
ADSL service, basic voice and data connectivity through wired (DIGITEL), fixed wireless
(MANGO), and wireless solutions (SUN Cellular). And as the consumer community looks forward
to more customer-centric service providers, this company moves forward deliberately in response to
that growing need.
Key Performance Indicators
Management assessed the Company’s performance based on the following key performance indicators:
Revenues (P’000)
EBITDA margin a
EBIT margin b
2006
11,294,108
24.21%
-13.88%
2005
10,507,530
33.77%
-1.42%
YoY change (%)
7.49
(9.56)
(12.46)
Cash flow provided by operating activities (P’000)
Debt to equity ratio c
1,444,174
9.42
3,688,908
6.71
(60.85)
2.71
a
b
c
EBITDA is defined as Earnings Before Interest, Taxes, Depreciation, Amortization and Other
Income/Charges. EBITDA is computed by deducting cost and expenses (excluding Depreciation
and Amortization) from net service revenues. EBITDA margin is calculated by dividing
EBITDA over net service revenues.
EBIT is defined as Earnings Before Interest, Taxes, and Other Income/Charges. EBIT is
computed by deducting cost and expenses from net service revenues. EBIT margin is calculated
by dividing EBIT over net service revenues.
Debt to equity ratio is computed by dividing total debt (excluding accounts payable and accrued
expenses, income tax payable, deferred tax liabilities, derivative liabilities, due to affiliates and
other noncurrent liabilities) to total equity.
26
Other Matters
a. Any known trends, demands, commitments, events or uncertainties that will have a material
impact on the issuer’s liquidity.
- We are not aware of any known trends, demands, commitments, events or uncertainties
that will have a material impact on the issuer’s liquidity.
- The Company has not defaulted in paying its currently maturing obligations. In addition,
obligations of The Company are guaranteed up to a certain extent by The Company’s
majority stockholders.
b.
Any events that will trigger direct or contingent financial obligation that is material to the
company, including any default or acceleration of an obligation.
- We are not aware of any events that will trigger direct or contingent financial obligation
that is material to the company, including any default or acceleration of an obligation.
c. All material off-balance sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the company with unconsolidated entities or other
persons created during the reporting period.
- We are not aware of any material off-balance sheet transactions, arrangements,
obligations (including contingent obligations), and other relationships of the company
with unconsolidated entities or other persons created during the reporting period.
d. Description of any material commitments for capital expenditures, general purpose of such
commitments, expected sources of funds for such expenditures
- The Company has a commitment to construct, install, operate and maintain a nationwide
CMTS using GSM technology. Prior to the assignment of the PA to DMPI, the Company
entered into a supply agreement with foreign suppliers including their local affiliates for a
total contract price of P19.2 billion for Phases 1 to 4 of the said project. As of December
31, 2006, the Company and DMPI have incurred costs totaling P19.7 billion for the said
project. This was funded through bank financing and advances from affiliates.
e. Any known trends, events or uncertainties that have had or that are reasonably expected to
have a material favorable or unfavorable impact on net sales/revenues/income from
continuing operations.
- We are not aware of any known trends, events or uncertainties that have had or that are
reasonably expected to have a material favorable or unfavorable impact on net
sales/revenues/income from continuing operations.
f.
Any significant elements of income or loss that arise from issuer’s continuing operations.
- We are not aware of any significant elements of income or loss that arises from the
issuer’s continuing operations.
g. Seasonal aspects that have material effect on the FS.
- We are not aware of any seasonal aspects that have material effect on the FS.
27
Item 7. Financial Statements
The financial statements and schedules listed in the accompanying Index to Financial Statements
and Supplementary Schedules are filed as part of this Form 17-A.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
The Company has not changed its independent accountant during the two most recent calendar
years and there was no disagreement encountered during the years under audit by the independent
accountant.
Audit and Audit-Related Fees
The expenses incurred by the Company for SGV’s examination and audit of financial statements
amounted to P2.5 for 2006 and P2.3 million for 2005.
28
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Registrant
The following are the directors and executive officers of the Company for the period ending
December 31, 2006:
Nam e
Age
C i ti z e n s h i p
Ricardo J. Rom ulo
Jam es L. Go
John L. Gokongwei, Jr.
Lance Y. Gokongwei
73
67
80
40
Filipino
Filipino
Filipino
Filipino
Anders Ekm an
Oct avio Vict or R. Espirit u*
Ant onio L. Go*
P olicarpio B. P au, Jr.
Charles A. Lim
Jaim e I. Cabangis
W illiam S. P am int uan
51
63
66
59
45
54
44
Swedish
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Edgar V. Benedict o
50
Ma. T eresit a C. Cast illo
Edwin A. Dom ingo
Pos i ti on i n th e C om pan y
Pe ri od du ri n g wh i ch th e
pe rs on h as s e rve d as s u ch
Chairm an & Direct or
Vice Chairm an & Direct or
Direct or
P resident , Chief Execut ive Officer &
Direct or
Direct or
Direct or
Direct or
Business Unit Head-LEC
Business Unit Head-CMT S
Chief Financial Officer
SVP -Legal Services/Group Head-HRD/
Dat a Services-Digit elOne/Corporat e
Secret ary
August 1987 t o present
April 1993 t o present
May 1993 t o present
April 1993 t o present
Filipino
SVP -Ret ail Managem ent , Corporat e
Sales and Solut ions, Dealer Sales-CMT S
August 16, 2006 t o present
49
48
Filipino
Filipino
SVP -Group Com pt roller
SVP -Business-LEC
Felicidad Ma. Corazon G.
Gam boa
Rodrigo P . Mont inola
45
Filipino
45
Filipino
Joaquin L. San Agust in
John Joey T . T errenal
41
39
Filipino
Filipino
Henry Rhoel R. Aguda
38
Filipino
Rebecca V. Magt ut o
43
Filipino
Cat herine L. Advincula
38
Filipino
Adolfo C. Areola
Noel F. Del Mundo
Ma. Liza M. Delos Reyes
43
50
47
Filipino
Filipino
Filipino
May 2004 t o present
May 2006 t o present
May 2006 t o present
February 1, 2002 t o present
February 1, 2002 t o present
July 1, 2001 t o present
April 1, 1991 t o present
April 1, 2003 t o present
Sept em ber 1, 2005 t o May
15, 2006 (resigned)
SVP -Market ing, Adm in and Logist ics May 1, 2006 t o present
and Cust om er Relat ions Managem ent , SVP -CDMA
February 6, 2006 t o August
18, 2006 (resigned)
SVP -Business-LEC
April 3, 2006 t o present
SVP -Net work
P lanning
and March 16, 2005 t o present
Developm ent -CMT S
FVP -Group Inform at ion T echnology
June 15, 2004 t o present
Arlene St a. Rosa-Denzon
38
Filipino
FVP -Credit Managem ent and Cust om er January 30, 2004 t o August
Services-LEC
17, 2006 (resigned)
VP -Consum er Market ing-CMT S
April 25, 2005 t o Novem ber
30, 2006 (resigned)
VP -CDMA
Oct ober 13, 2006 t o present
VP -Hum an Resources-CMT S
August 1, 2004 t o present
VP -Group T reasury
Sept em ber 13, 1995 t o
present
VP - Group Risk Managem ent
June 2004 t o present
Hect or G. Dim alant a
Diosdado M. Dom ingo
50
51
Filipino
Filipino
VP -Net work-LEC
VP -Sout h Com m ercial Operat ions-LEC
Oct ober 1, 1993 t o present
March 16, 1994 t o present
29
Nam e
Age
C i ti z e n s h i p
Pos i ti on i n th e C om pan y
Pe ri od du ri n g wh i ch th e
pe rs on h as s e rve d as s u ch
Art em io P . Erm it a, Jr.
54
Filipino
VP -Net work Operat ions Support -LEC
Enrique O. Feliciano
46
Filipino
VP -Met ro Com m ercial Operat ions-LEC June 3, 2005 t o present
Jose Robert P . Galang
40
Filipino
VP -Dealer Sales-CMT S
Naser S. Huab
P erla S. Ignacio
46
38
Filipino
Filipino
VP -Group Int ernal Audit
VP -Carrier Services-LEC
Vict or C. Janolino
42
Filipino
Susana O. Ligeralde
Ronildo E. Manahan
47
59
Filipino
Filipino
Carm elo C. Ocam po
49
Filipino
Luciano V. Ongkingko, Jr.
48
Filipino
Reuben S.J. P angan
41
Filipino
Baby Jane T . Quiam bao
38
Filipino
Annabelle F. Quisum bing
Rom eo D. Ranay
54
54
Filipino
Filipino
Ma. T heresa J. Ruiz
60
Filipino
Allan S. Sant os
41
Filipino
Orlando C. Sibug
Ricardo C. Silva
52
38
Filipino
Filipino
Manolo P . Soller
51
Filipino
Virgilio S. T rinidad
Gregorio L. Vega, Jr.
Ma. P urisim a Y. Velasco
45
59
54
Filipino
Filipino
Filipino
Filomena D. Veto
47
Filip ino
Virgilio O. Yp arraguirre,
Jr.
50
Filip ino
*
January 24, 2000 t o present
January 14, 2005 t o February
16, 2006 (resigned)
June 1, 1995 t o present
May 1, 2002 t o March 1,
2006 (resigned)
VP - W ireless Dat a & Int ernat ional June 1, 2004 t o April 14,
Services-CMT S
2006 (resigned)
VP -Com pt rollership-CMT S
April 7, 2006 t o present
VP -Com pt rollership-LEC
February 16, 1998 t o present
VP -Adm inist rat ion,
Logist ics
and April 15, 2004 t o present
P rocurem ent -CMT S
VP -Nort h Com m ercial Operat ions-LEC Sept em ber 11, 2006 t o
present
VP -Cust om er Relat ionship Managem ent - January 2, 2006 t o present
CMT S
VP -Syst em s Support & IT P roject s- May 1, 2006 t o present
CMT S
VP -Hum an Resources-LEC
March 16, 2003 t o present
VP - Cust om er Account Solut ions of August 1, 2006 t o present
Digit elOne-LEC
VP -Int er-Carrier Set t lem ent s-LEC
March 16, 1997 t o July 17,
2006 (ret ired)
VP - Sales and Market ing of Digit elOne, - May 1, 2002 t o present
LEC
VP -Mast er P lanning-CMT S
Oct ober 1, 2006 t o present
VP -Net work P lanning Developm ent August 4, 2005 t o present
Division-CMT S
VP -Cent ral Com m ercial Operat ions- June 3, 2005 t o present
LEC
VP -Group Billing Division
Oct ober 8, 2004 t o present
VP -Adm inist rat ion-LEC
March 10, 1997 t o present
VP -Cont ract s Managem ent of Sit e Oct ober 15, 2004 t o present
Acquisit ions-CMT S
VP-Project M onitoring and Control
Division-CM T S
VP-Data Facilities M anagement-LEC
Sep tember 15, 2004 to
p resent
January 15, 2003 to p resent
Independent Directors
The following includes their business experiences for the last five years:
Ricardo J. Romulo is the Chairman of the Board of Directors of Digital Telecommunications Phils., Inc.
(DIGITEL). He also serves as the Chairman of the Board of Cebu Air Inc., Federal Phoenix Assurance
Company, Inc., Sime Darby Pilipinas, Inc., and Agrotex Commodities, Inc. He is a Senior Partner in
Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles Law Office and Director of SM Development
Corporation, JG Summit Holdings, Inc. (JGSHI), Philippine American Life Insurance Co., Inc., Honda
Philippines, Inc., Planters Development Bank, IBM Philippines, Inc., and Zuellig Pharma Corporation.
James L. Go is the Vice Chairman of the Board of Directors of DIGITEL. He is also the Chairman and
Chief Executive Officer of JGSHI and as such, heads its Executive Committee. He is currently the
Chairman and Chief Executive Officer of Robinsons Land Corporation, JG Summit Petrochemical
30
Corporation, Manila Midtown Hotels and Land Corporation, Litton Mills, Inc., CFC Corporation,
Universal Robina Sugar Milling Corporation, Southern Negros Development Corporation, Robinsons,
Inc., and Oriental Petroleum and Minerals Corporation (OPMC). He is also the President and a Trustee of
Gokongwei Brothers Foundation, Inc. and a director of First Private Power Corporation, Bauang Private
Power Corporation, OPMC, Cebu Air, Inc., Panay Electric Co., United Industrial Corp., Ltd., Singapore
Land, Ltd., Marina Center Holdings, Inc. and JG Summit Capital Markets Corporation. He received his
Bachelor of Science and Master of Science degrees in Chemical Engineering from the Massachusetts
Institute of Technology, USA.
John L. Gokongwei, Jr. is a Director of DIGITEL. He is the Founder and Chairman Emeritus of JGSHI
since January 1, 2002. He also continues to be a member of JGSHI’s Executive Committee. He is
currently the Chairman of the Gokongwei Brothers Foundation, Inc., Deputy Chairman and Director of
United Industrial Corporation, Ltd. and Singapore Land, Ltd., and a Director of JG Summit Capital
Markets Corporation, OPMC, First Private Power Corporation and Bauang Private Power Corporation.
He is also a non-executive Director of A. Soriano Corporation and Philex Mining Corporation. He holds
a Masters Degree in Business Administration from De La Salle University and attended the Advanced
Management Program at Harvard Business School, USA.
Lance Y. Gokongwei is the President, Chief Executive Officer and a Director of DIGITEL. He is also the
President and Chief Operating Officer of JGSHI and JG Summit Petrochemical Corporation and the Vice
Chairman and Deputy Chief Executive Officer of Robinsons Land Corporation and Litton Mills, Inc. He
is also the President and Chief Executive Officer of Cebu Air, Inc., Chairman of Robinsons Savings
Bank; Vice Chairman of JG Summit Capital Markets Corporation, and a director of OPMC, United
Industrial Corporation, Ltd., and Singapore Land, Ltd. He is also a trustee, secretary and treasurer of
Gokongwei Brothers Foundation, Inc. He received a Bachelor of Science degree in Economics and a
Bachelor of Science degree in Applied Science from the University of Pennsylvania.
Anders Ekman is a Director of DIGITEL. He is currently the President of Overseas Telecom, a
telecommunications investment company partly owned by Telia Sonera. He is also a member of the
Board of Directors in several telecommunications companies including Suntel of Sri Lanka and MTN
Uganda. Earlier directorships include Peoples Telephone of Hong Kong, MTC Namibia and Si.Mobile of
Slovenia. Mr. Ekman obtained his Master of Science degree in 1979 and has more than 20 years
experience in the telecommunications industry.
Mr. Octavio Victor R. Espiritu is a Director of DIGITEL. He also sits as Director of the Bank of the
Philippine Island, Pilipinas Savings Bank, Inc., International Container Terminal Services, Inc., Manila
Electric Company, SM Development Corporation, Netvoice, Inc. and Pueblo de Oro Golf and Country
Club. A three-term former President of the Bankers Association of the Philippines (BAP) and former
President and Chief Executive Officer of Far East Bank and Trust Company. He was Chairman of the
Board of Trustees of the Ateneo de Manila University for fourteen years. He is currently Chairman of
Delphi Group, Inc., a corporate financial advisory firm, and is also Chairman and President of MAROV
Holding Company, Inc. Mr. Espiritu received his primary, secondary and college education from the
Ateneo de Manila University where he obtained his AB Economics degree. He also holds a Master’s
degree in Economics from Georgetown University in Washington DC, USA.
Mr. Antonio L. Go is a Director of DIGITEL. He also currently serves as Director and President of
Equitable Computer Services, Inc. and as Director of Equicom Systems Management, Inc., Medilink
Network, Inc., Singapore Land Limited, Equicom Manila Holdings, Klara Holdings, Inc, Motan Corp,
and Go Kim Pah Foundation. He is also a Trustee of Equitable Foundation, Inc. and a Member of the
Makati Business Club, Philippine-Singapore Business Council and Philippine Chamber of Commerce,
Inc. He graduated from Youngstown University, U.S.A. with a degree in BS Business Administration. He
attended the International Advanced Management programme at the International Management Institute,
31
Geneva, Switzerland as well as the Financial Planning/Control from the ABA National School of Bankard
Management, Northwestern University, USA.
Policarpio B. Pau, Jr. is the Business Unit Head for the Local Exchange Carrier (LEC), Fixed Wireline
and Fixed Wireless and Data Services of the Company.
Charles A. Lim is the Business Unit Head for the Cellular Mobile Telephone Services (CMTS) business
of the Company through its wholly-owned subsidiary Digitel Mobile Phils., Inc. (DMPI). Prior to joining
the Company, he was the Strategic Business Unit Head for Mobile Communications of Globe Telecom,
Inc. He was also the Director for Brand Marketing-Greater China of Coca-Cola China, Limited,
Hongkong and the Business Unit Head-Van den Bergh Foods of Unilever Philippines, Inc.
Jaime I. Cabangis is the Chief Financial Officer of the Company and its wholly-owned subsidiary,
DMPI. Prior to joining the JG Summit Group, Mr. Cabangis was the President, CEO and Board Member
of Asia Amalgamated Holdings Corporation and its subsidiaries, and Chief Financial Officer and Board
Member of Uniwide Holdings Corporation. He was also a partner of SGV & Co., where he worked for
21 years. Mr. Cabangis is a Certified Public Accountant and obtained his Masters in Business
Management degree from the Asian Institute of Management in 1979.
William S. Pamintuan is the Corporate Secretary of the Company and its wholly-owned subsidiary,
DMPI. He is also the Senior Vice President for Legal Services, the Group Head for Human Resources
Division and Head of Data Services under DigitelOne. He is also the Asst. Corporate Secretary of Cebu
Air, Inc. He is a Partner of the Jalandoni, Cope, Reyes and Pamintuan Law Office and a member of the
Telecommunications and Broadcast Attorneys’ Association of the Philippines. He obtained his Bachelor
of Laws degree from the University of Philippines.
Edgar V. Benedicto is the Senior Vice President of the Retail Management Division; Corporate Sales and
Solutions Division; and Dealer Sales-CMTS Business Unit. Prior to joining DMPI, he was connected
with Universal Mobile Unlimited Exchange Corporation, Matrix Mobile, Inc. and Cellstar Phils., Inc. He
graduated from the Ateneo de Manila University with a degree of Bachelor of Science in Economics and
obtained his Masters degree in Business Administration from the same university.
Ma. Teresita C. Castillo is the Senior Vice President-Group Comptroller of the Company responsible for
Comptrollership, Management Services and Taxation. Prior to joining the Company, she handled various
key finance and administrative functions with multinational companies, DHL-Danzas and Wyeth Phils.
and engaged in the audit practice while in SGV & Co.
Felicidad Ma. Corazon G. Gamboa is the Senior Vice President for Marketing, Admin and Logistics and
Customer Relations Management,-CMTS Business Unit. Prior to joining DMPI, she was connected with
Unilever Philippines, Inc. as the Business Revolutions Group Head, Mondragon Phils. as the Vice
President for Retail Sales and Marketing and Colgate-Palmolive Phils. as Head for the Baby Care Equity.
Joaquin L. San Agustin is currently the Senior Vice President of the Business and Carrier Relations
Divisions of the LEC Business Unit. He is a graduate of the Ateneo de Manila University. Prior to his
joining Digitel, he was connected with the PLDT group for almost 7 years handling various assignments
in Marketing and Sales across Piltel, PLDT Fixed and Smart Communications Inc.
John Joey T. Terrenal is the Senior Vice President for Engineering, Network Planning and Development
Division–CMTS Business Unit. He is a lifetime member of the Institute of Electronics and
Communications Engineers of the Philippines.
32
Henry Rhoel R. Aguda presently holds the position of First Vice President-Group Information
Technology Division. He worked with Weserv Inc./Fujitsu Philippines, Inc., Nextel International, Inc.,
Nextel Communications Philippines, Inc., Bayantel Communications Holdings, Inc. and Corporate
Information Solutions (subsidiary of Meralco, Inc.). He earned his Masters degree in Applied Business
Economics from the University of Asia and the Pacific. He graduated from the University of the
Philippines with a degree of Bachelor of Science in Mathematics.
Adolfo C. Areola is presently holding the position of Vice President and Project Director for the Code
Division Multiple Access (CDMA) services under the LEC Business Unit. Prior to his present position,
he was the Vice President and General Manager for the Central Commercial Operations and North
Commercial Operations of the LEC Business Unit for 5 and 7 years, respectively. Prior to joining
DIGITEL, he was the Assistant Regional Director of the Telecommunications Office (TELOF) of the
Department of Transportation and Communication (DOTC) at Region V and also held managerial
positions at the DOTC’s Municipal Telephone Projects Office and Project Planning and Development
Division.
Noel F. Del Mundo is the Vice President for Human Resources-CMTS Business Unit. Before joining
DMPI, he was the Vice President for Human Resources of JG Summit Petrochemical Corporation for
more than 8 years or since start-up in 1996. He also worked for The Phinma Group from 1984 to 1996
holding various HR Management posts, the last of which were concurrently as Assistant Vice President
for Training and Organization Development, and Executive Director of The Phinma Training Foundation
(that now manages the Phinma Training Center in Tagaytay).
Ma. Liza M. Delos Reyes holds the position of Vice President for Group Treasury. Before joining
DIGITEL, she was employed with Urban Bank.
Arlene Sta. Rosa-Denzon is presently the Vice President-Group Risk Management. She joined the
Company in June 2004. Prior to joining DMPI, she was the VP-Group Treasurer (Acting Chief Financial
Officer) of URC International in charge of Accounting, Audit, Risk Management and Treasury.
Hector G. Dimalanta has been the Vice President-Network Division, LEC Business Unit since 1993. He
was previously employed by the PLDT as Section Head-Network Engineering.
Diosdado M. Domingo is the Company’s Vice President and General Manager for South Commercial
Operations-LEC Business Unit. Prior to joining DIGITEL, he worked as Vice President for
Controllership and Subsidiary Holdings at the AFP Retirement and Separation Benefits System (RSBS).
He is a licensed Professional Electrical Engineer and Electronics Communications Engineer. He earned
his Masters degree in Business Management from the Asian Institute of Management (AIM) in 1988. He
earned his BS Electrical Engineering degree from the University of the Philippines in 1982 and graduated
from the Philippine Military Academy (PMA) in 1977. Mr. Domingo was formerly a member of the
Board of Directors of Northern Mindanao Development Bank (now Mindanao Development Bank) and
AIG Finance Company (Phils.) Inc. (now Philam Savings Bank).
Artemio P. Ermita, Jr. is the Vice President for Network Operations Support–LEC Business Unit.
Before joining DIGITEL, he served as Vice President for Telecommunications Services at PT & T. He
was also Vice President for Network Planning/Implementation, O & M (Mobile) at Isla Communications
Company, Inc. He also had stints at Easy Call Communications Phils., Inc., Nixdorf Computer Phils.,
Inc., System Resources, Inc. and at Smith Bell & Co., Inc.
33
Enrique O. Feliciano presently holds the position of Vice President and General Manager for Metro
Commercial Operations-LEC Business Unit. He is a graduate of De La Salle University, Major in
History Political Science. He has over 20 years experience in the telecommunications industry, having
been previously connected with Eastern Telecoms, Express Telecommunications, and Isla
Communications.
Naser S. Huab is the Vice President of the Group Internal Audit. Prior to joining DIGITEL, he was
employed by PCIBank as Manager of its EDP Audit Division and prior to that was a Manager in SGV &
Co.’s Computer Audit Group. He is a Certified Public Accountant and Certified Information Systems
Auditor.
Susana O. Ligeralde is presently the Vice President for Comptrollership-CMTS Business Unit. She has
more than 20 years of work experience in the areas of finance and comptrolling in various industries.
Prior to joining the company, she had worked with companies like Symmetry Philippines, Inc., Uniwide
Holdings, Inc., Asia Amalgamated Holdings Corp. and Sycip, Gorres, Velayo & Co. She is a Certified
Public Accountant and obtained her degree in Bachelor of Science in Commerce, Major in Accounting
from De La Salle University.
Ronildo E. Manahan is presently the Vice President for Comptrollership-LEC Business Unit. Prior to
joining DIGITEL, he was the Finance Director of PT Global Hotel Development (Indonesia). He was
previously employed as Financial Controller for Manila Peninsula, Finance Director for Poblador, Azada
& Associates, Financial Controller for Westin Philippine Plaza and as Audit Manager of SGV and Co.
Carmelo C. Ocampo is the Vice President for Logistics, Procurement and Administration - CMTS
Business Unit. He joined DMPI on April 15, 2004. A Fellow in Supply Management (FSM), Mr.
Ocampo is also the current President of the Philippine Institute for Supply Management where he
represents DMPI.
Luciano V. Ongkingco, Jr is the Vice President and General Manager for North Commercial Operations
– LEC Business Unit. He joined the Company on September 11, 2006. Prior to joining DIGITEL, he was
the Vice President and the Head of the LEC Business Unit of PT&T. He has more than 25 years of
experience in other telecommunications companies, handling various functions such as commercial
operations, carrier relations, project management and pricing. He is a licensed Electrical Engineer from
Pamantasan ng Lungsod ng Maynila. He also finished Bachelor of Laws from Lyceum of the Philippines.
Reuben SJ Pangan is the Vice President for Customer Relationship Management (CRM)-CMTS
Business Unit. Prior to joining the company in 2006, he was concurrently Vice President for Sales,
Marketing and Customer Service of Airfreight 2100, Inc.(Air21) and Business Unit head for Dynamic
Outsource Solutions Inc. (DOS-I). which is an outsource business company which aims to create jobs and
provide contact centers and marketing services for the Lina Group of Companies. He was also the
Director for Customer Relations of Globe Telecoms before his stint with the Lina Group.
Jane T. Quiambao is the Vice President for Systems Support and IT Projects Division (SSITP) of CMTS
Business Unit. She joined DMPI in February 2003 and came on-board with more than fifteen (15) years
of work experience in the area of Information Technology and Telecommunications. Prior to DMPI, she
worked for several reputable companies such as IBM Philippines, House of Sara Lee, Ayala Systems
Technology Inc, and Yutivo Corporation. She graduated from Dela Salle University with a Bachelor of
Science degree in Computer Science major in Computer Technology.
34
Annabelle F. Quisumbing holds the position of Vice President for Human Resources-LEC Business
Unit. Prior to joining DIGITEL, she has had extensive experience in Human Resources at San Miguel
Corporation (Beer and Packaging Division) with plant, business and international exposure. She has a
systems and a total quality management orientation. She also worked as HR Director of Entertainment
Network and Corporate, HR Head of Atlanta Industries, Inc. and Atlanta Land Corporation. She has an
AB major in Psychology degree from St. Theresa’s College and a master’s degree in Management major
in Business Management from the University of the Philippines.
Romeo D. Ranay is presently holding the position of Vice President and Assistant General Manager and
Head for Customer Account Solutions of the Data Services under DigitelOne of the LEC Business Unit.
He is a licensed and practicing Professional Electrical Engineer and Electronics Communications
Engineer. His experience in the telecommunications industry spans 25 years that includes 13 years with
the Armed Forces of the Philippines holding various positions in military communications-electronics
operations, training, management information systems, combat operations and general management.
Other than receiving extensive military and specialized technical trainings here and abroad, he pursued
his higher studies in Miriam College where he completed his MS Degree in Environmental Science in
1997. He took up BS Electrical Engineering in 1980 at the University of the Philippines (Diliman) and a
class 1974 graduate of the Philippine Military Academy.
Allan S. Santos is presently holding the position of Vice President for Corporate Sales-LEC Business
Unit. He has more than ten years of experience in the telecommunications industry. He used to handle
the area commercial operations of DIGITEL in Bulacan and Nueva Ecija. He is a graduate of De La Salle
University with a degree of Bachelor of Science in Electronics and Communications Engineering.
Orlando C. Sibug is presently the Vice President for Master Planning-CMTS Business Unit. He joined
the Company in August 2002 as Assistant Vice President for Network System Administration. Prior to
joining the Company, he was employed by Globe Telecom as Director for Systems Operations, Lucent
Technologies, Int’l, Saudi Arabia as Manager of Network Integration (B-Level). He graduated in 1975
with a Bachelor of Science Degree Major in Electronics and Communications Engineering and Minor in
Electrical Engineering from University of Santo Tomas.
Ricardo C. Silva is the Vice President for the Network Planning Development Division-CMTS Business
Unit since 04 August 2005. He is an ECE graduate of Don Bosco Technical College and has been in the
telecommunications industry for the past 14 years. He has a vast experience on GSM technology and has
been involved in all of its major aspects e.g. Operations and Planning.
Manolo P. Soller is presently the Vice President and General Manager for Central Commercial
Operations-LEC Business Unit. Since joining the Company in 1994, he has held several positions such as
Manager for External Planning Department, Assistant General Manager of RBU Central Operations,
Assistant Vice President for Network Planning Department, Vice President of Technical Operations
Division, Vice President and General Manager for Metro Commercial Operations until his appointment to
his present position in June 6, 2005. Prior to joining the Company, he worked with PLDT as a Quality
Control Inspector (QCI) and Network Planner and with SaudiTelecoms as an Outside Plant Planning
Engineer.
Virgilio S. Trinidad is presently the Vice President for Group Billing Division. He is also concurrently
the Deputy Chief Information Officer and SAP Competence Center Head. Prior to DIGITEL, he had
worked with companies like Allied Information Services of the Philippines (Alltel), Manila Midtown
Hotels and Land Corporation, Robinson’s Incorporated, Datatape Incorporated (California, USA), Dairy
Fresh Products Co. (California, USA), and Teledyne Incorporated (New Jersey, USA). He earned his
degree in Bachelor of Science in Business Administration Major in Business Information Systems from
the California State University, Los Angeles, USA.
35
Gregorio L. Vega, Jr. is presently the Company’s Vice President for Administration-LEC Business Unit.
Previously, he was the Vice President for Legal, Human Resource and Administration Divisions and
Assistant Corporate Secretary of Philsteel Group of Companies and Vicwood Group of Companies. He
was also the previous Senior Vice President for Legal and Administration of Vitarich
Corporation/Sarmiento Group of Companies and Corporate Secretary. Prior thereto, he was connected
with Malacañang Legal Office as Legal Officer and Technical Assistant in the Supreme Court. He
obtained his AB Political Science and Bachelor of Laws degrees from the University of the Philippines.
Ma. Purisima Y. Velasco is presently the Vice President for Contracts Management of Site AcquisitionsCMTS Business Unit. She joined the Company in March 1998 as Vice President /Treasurer. Prior to
joining the Company, she was employed by Robinsons Land Corporation as an Executive Assistant to the
President.
Filomena D. Veto is presently the Vice President for Project Monitoring and Control Division–CMTS
Business Unit. She joined DMPI in September 2004. She is designated as contract administrator for all
network related projects of the Company. She also works with the Chief Financial Officer in finalizing
project financing for network projects. Prior to joining DMPI, she worked as a Senior Finance Executive
with various multinational corporations including Express Telecommunications Co., Inc., The Halcrow
Group Ltd., Sony Music Philippines, Inc., James Martin & Co., Philippines, Inc., Menzi & Co., Inc. and
SGV & Co. She is a Certified Public Accountant and a Lawyer having earned her law degree from the
University of the Philippines.
Virgilio O. Yparraguirre, Jr. is presently holding the position of Vice President for Data Facilities
Management, a newly created division under DigitelOne of the LEC Business Unit. He is in-charge of
the planning and operations of DIGITEL's data network. He is a licensed Electronics and
Communications engineer and has 25 years experience in the telecommunications industry.
Significant Employees
The Company has no employee who is not an executive officer but is expected to make a
significant contribution to the business.
Family Relationships
John Gokongwei, Jr. and James L. Go are brothers.
Gokongwei, Jr.
Lance Gokongwei is the son of John
Involvement in Certain Legal Proceedings of Directors and Executive Officers
None of the Directors or Executive Officers was involved in any material pending legal
proceedings or of which any of their properties is the subject during the last five years and up to the date
of this report.
36
Item 10. Executive Compensation
Information as to the aggregate compensation paid or accrued including 13th month pay and
bonuses during the last two fiscal years and the projected aggregate compensation to be paid for the
current fiscal year to the Company’s most highly compensated executive officers follows:
2007
P r in c ip a l P o sit io n
1
( A n n ua liz e d)
2006
R e gular
1 3 th M o n t h
C o m p e n sa t io n
& B o n uses
2005
R e gula r
1 3 th M o n t h
C o m p e n sa t io n
& B o n use s
M o st h igh ly c o m p e n sa t e d
e x e c ut iv e o f f ic e r s:
a . Jo h n L . Go k o n gwe i, Jr .
D ir ec t o r
b. P o lic a r p io B . P a u, Jr .
B usin e ss U n it
H e a d- L E C
B usin e ss U n it
H e a d- C M T S
C h ie f F in an c ial
O f f ic e r
SVP - B usin e ss
c . C h a r le s A . L im
d. Ja im e I . C a ba n gis
e . Jo a quin L . Sa n A gust in
E dwin A . D o m in go 3
2
/
T o t al
A ll
o t h er
dir e c t o r s
an d
o f f ic e r s a s a gr o up un n a m e d 4
1
2
3
4
4 7 ,7 4 9 ,7 6 9
4 2 ,5 8 2 ,3 4 2
3 ,6 2 6 ,5 5 1
3 5 ,4 5 2 ,2 7 2
3 ,0 1 7 ,8 7 5
8 7 ,2 3 4 ,5 6 1
8 7 ,4 1 9 ,9 0 4
7 ,0 2 6 ,2 1 9
6 9 ,4 1 3 ,3 9 0
5 ,9 9 6 ,8 0 5
In c lu d e s re g u la r c o m p e n s a t io n , 13 t h m o n t h p a y a n d b o n u s e s
H ire d la s t A p ril 2 0 0 6
H ire d la s t S e p t e m b e r 2 0 0 5 t h e n re s ig n e d in M a y 2 0 0 6
E xc lu d e s c o m p e n s a t io n o f t h e m o s t h ig h ly c o m p e n s a t e d e xe c u t iv e o ffic e rs
Compensation of Directors
Standard Arrangements. Directors are paid a per diem of PhP5,000.00 for attendance in a
Regular and Special Board Meetings. Board meetings are scheduled to be held every quarter of the year.
A director who attends all regular quarterly meetings earns a total of PhP20,000.00 annually.
Compensation of Officers
Standard Arrangements. There are no special arrangements for officers of the registrant. Officers
are given the same compensation package as rank-and-file employees such as monthly salary and 13th
month bonus but officers do enjoy the privilege of availing the Executive Stock Option Plan.
Employment Contract & Termination of Employment & Change-in-Control Arrangement
There are no special employment contracts with executive officers. Hiring of corporate officers
are conducted based on general policies on recruitment.
There is no compensatory act other than the legally mandated retirement plan under the Social
Security Act.
37
Item 11. Security Ownership of Certain Record and Beneficial Owners and Security Ownership of
Management
A. Security Ownership of Certain Record and Beneficial Owners
Owners of more than 5% of the company's securities, as of 31 December 2006, are as follows:
N a m e o f B e n e fi ci a l
O wn er and
R e l a ti o n s h i p w i th
R e co rd O w n e r
Ti t l e o f
C lass
N a m e , A ddre s s o f R e co rd
O w n e r a n d R e l a ti o n s h i p w i th
Is s u e r
Co m m on
JG Sum m it H o ldin gs, I n c . ( JGSH I )
JG Sum m it H o ldin gs, I n c . /
Jo h n L . Go k o n gwe i, Jr .
4 3 /F R o bin so n s E quit a ble T o we r ,
A D B A v e . , c o r . P e dr o P o v e da R d.
Jo h n L . Go k o n gwe i, Jr . is
t h e a ut h o r iz e d p r o x y . H e
is t h e F o un de r a n d
C h a ir m a n E m e r it us o f
JGSH I .
( Se e n o t e 1 )
JGSH I is t h e p a r e n t c o m p a n y o f
D I GI T E L
Co m m on
P C D N o m in e e C o r p o r a t io n
N o p a r t ic ula r in div idua l o r
c o r p o r a t e in v e st o r h o lds
m o re t h an 5 % o f t h e
v o t in g se c ur it ie s.
G/F M a k a t i St o c k E x c h a n ge B ldg.
6 7 6 7 A y a la A v e n ue , M a k a t i C it y
( Se e n o t e 2 )
C i ti z e n s h i p
N o . o f S h a re s
H e ld
P e rce n ta g e o f
O wn e rsh ip
F ilip in o
3 ,0 1 6 ,0 7 9 ,5 5 0
4 7 .4 5 %
F ilip in o
1 ,6 7 0 , 8 1 2 ,3 6 0
2 6 .2 8 %
P C D h a s n o r e la t io n sh ip wit h t h e
C o m p a n y e x c e p t a s st o c k h o lde r .
Co m m on
T e lia So n e r a A B
A n de r s E k m a n
St ur e ga t a n 1 SE - 1 0 6 6 3
St o c k h o lm , Swe de n
A n de r s E k m a n is t h e
a ut h o r iz e d p r o x y o f T e lia
So n e r a A B . H e is t h e
P r e side n t o f O v e r se a s
T e le c o m , a
t e le c o m m un ic a t io n s
in v e st m e n t c o m p a n y
p a r t ly o wn e d by T e lia
So n e r a A B .
Swe dish
6 0 0 ,0 0 0 , 0 0 0
9 .4 4 %
T e lia So n e r A B h a s n o r e la t io n sh ip ( Se e n o t e 3 )
wit h t h e C o m p a n y e x c e p t a s
st o c k h o lde r .
Notes:
1.
JG Summit Holdings, Inc. (JGSHI) is controlled by the Gokongwei Family and was incorporated as the holding
company for a group of companies with substantial business interests in branded consumer foods, agroindustrial and commodity food products, real property development, hotel and service apartment management,
textiles, banking, airline and others.
2. PCD Nominee Corporation, a wholly owned subsidiary of Philippine Central Depository, Inc. (“PCD”), is the
registered owner of the shares in the books of the Company’s transfer agent in the Philippines. PCD is a
private company organized by the major institutions actively participating in the Philippine capital markets to
implement an automated book-entry system of handling securities transactions in the Philippines. PCD, other
than a stockholder of DIGITEL, has no relationship with the Company. The beneficial owners of such shares
are PCD participants, who hold the shares on their behalf, and their clients. From these PCD participants,
“PCCI Securities Brokers Corp.-Clients’ Account” holds for various trust accounts 663,335,000 shares
representing 10.43% of DIGITEL’s outstanding capital stock as of December 31, 2006.
38
3.
Telia Sonera AB is the leading telecommunications company in the Nordic and Baltic region and it also holds
strong position in mobile communication in Eurasia, Turkey and Russia. It offers reliable, innovative and easyto-use services for the transmission and packaging of sound, images, data, information, transactions and
entertainment. Other than being a stockholder of DIGITEL, it has no relationship with the Company.
B. Security Ownership of Management
As of December 31, 2006, the security ownership of Directors and Executive officers of the
Company follows:
Title of
Class
Name of Beneficial Owner Citizenship
Nature of
Beneficial
Ownership
Romulo Law Office, 30th Floor
Direct
Citibank Tower, 8741 Paseo de Roxas,
Makati City
Address on records
Common Atty. Ricardo J. Romulo
Filipino
Common James L. Go
Filipino
29/F Galleria Corporate Center EDSA
cor. Ortigas Ave. QC
Common John L. Gokongwei, Jr.
Common Johnson Robert L. Go &/or
Lance Gokongwei
Common Lance Y. Gokongwei
Common Octavio Victor R, Espiritu
Filipino
Filipino
No. of
% of Ownership
shares held
122,850
0.0019%
Direct
30,010
0.0005%
-do-do-
Direct
Direct
10
75,640,000
0.0000%
1.1899%
Filipino
Filipino
-do203 Dinggalan St., Ayala Alabang
Muntinlupa City 1780
41 Cuneta Ave., Pasay City 1300
Direct
Direct
10
10
0.0000%
0.0000%
Direct
10
0.0000%
Common Anders Ekman
Swedish
Direct
10
0.0000%
Common William S. Pamintuan
Filipino
Sturegatan 1 SE-106 63 Stockholm,
Sweden
DIGITEL, 110 E. Rodriguez Jr. Ave.
Bagumbayan
Direct
125,000
0.0020%
-do-do-
Direct
Direct
416,750
76,500
0.0066%
0.0012%
76,411,160
1.2020%
Common Antonio L. Go
Common Manolo P. Soller
Filipino
Common All Other Executive Officers Filipino
as a group
Common Aggregate Ownership
Item 12. Certain Relationship and Related Transactions
The Parent Company, in its ordinary course of business, has transactions with its subsidiaries,
associates and affiliated companies consisting mainly of lease of telecommunications facilities and
interest bearing advances at prevailing market rates.
The year-end balances in respect of related parties included in the financial statements are as
follows:
2006
2005
(In Thousand Pesos)
Due from affiliates
Other Payables to foreign and local affiliates
P
=90,150
P
=153,683
20,812,950
19,598,408
39
PART IV- CORPORATE GOVERNANCE
Item 13. Corporate Governance
The level of compliance of the Company to the provisions of the Corporate Governance Manual
for the period beginning January 1 to December 31, 2006 was reported and explained in the Corporate
Governance Self-Rating Form submitted to the Securities and Exchange Commission (SEC) on January
9, 2007.
Among the measures undertaken by the Company in order to fully comply with the provisions of
the Corporate Governance Manual are periodic monitoring and evaluation of the internal control system
for corporate governance. Deviations from these provisions were also set out in the said form submitted
to the SEC. Lastly, in order to improve the corporate governance of the Company, the Corporate
Governance Manual was amended on June 3, 2004 to include new provisions required by the SEC and the
PSE.
There had been no material deviation from the Company’s Manual of Corporate Governance.
The Company, through its Compliance Officer, continues to periodically benchmark its corporate
governance with its peers in the industry.
PART V- EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C
(a) Exhibits - See accompanying Index to Exhibits.
The other exhibits, as indicated in the index to Exhibits are either not applicable to the
Company or require no answer.
(b) Reports on SEC Form 17-C
There was no report filed on SEC Form 17-C during the last six months prior to December
31, 2006.
40
DIGITAL TELECOMMUNICATIONS PHILS., INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
FORM 17-A, Item 7
Consolidated Financial Statements
Statement of Management’s Responsibility for Financial Statements
Report of Independent Public Accountants
Balance Sheets as of December 31, 2006 and 2005
Statements of Income for the years ended
December 31, 2006, 2005 and 2004
Statement of Changes in Stockholder’s Equity for the years ended
December 31, 2005, 2006 and 2005
Statements of Cash Flows for the years ended
December 31, 2006, 2005 and 2004
Notes to Financial Statements
Supplementary Schedules
A. Report of Independent Public Accountants on Supplementary Schedules
B. Marketable Securities (Current Marketable Equity Securities and Other Short-term Cash
Investments)
C. Amounts Receivable from Directors, Officers, Employees, and Principal Stockholders (Other
than affiliates)
D. Long-term Investments in Securities (Non-current Marketable Equity Securities, Other Long-term
Investments in Stock, Investments in Bonds and Other Debt Securities) *
E. Advances to Unconsolidated Subsidiaries and Affiliates
F. Property, Plant and Equipment
G. Accumulated Depreciation
H. Long-term Debt
I. Indebtedness to Affiliates (Long-term Loans from Affiliated Companies)
*
J. Guarantees of Securities of Other Issuers
*
K. Capital Stock
* These schedules, which are required by Part IV(e) of RSA Rule 48, have been omitted because they are
either not required, not applicable or the information required to be presented is included in the
Company’s consolidated financial statements or to notes to financial statements.
42
SGV & CO
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone: (632) 891-0307
Fax:
(632) 819-0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001
SEC Accreditation No. 0012-FR-1
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
Digital Telecommunications Phils., Inc.
URC Compound, 110 E. Rodriguez, Jr. Avenue
Bagumbayan, Quezon City
We have audited the accompanying financial statements of Digital Telecommunications Phils., Inc.
and Subsidiaries, which comprise the consolidated balance sheets as of 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 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 audits. We
conducted our audits 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 auditor’s 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.
SGV & Co is a member practice of Ernst & Young Global
*SGVMC109286*
-2Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Digital Telecommunications Phils., Inc. and Subsidiaries as of December 31,
2006 and 2005, and their financial performance and their cash flows for each of the three years in the
period ended December 31, 2006 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Renato J. Galve
Partner
CPA Certificate No. 37759
SEC Accreditation No. 0081-AR-1
Tax Identification No. 102-087-055
PTR No. 0267356, January 2, 2007, Makati City
April 12, 2007
*SGVMC109286*
DIGITAL TELECOMMUNICATIONS PHILS., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
2005
2006
(As Restated)
(In Thousand Pesos)
ASSETS
Current Assets
Cash and cash equivalents (Notes 4 and 27)
Receivables - net (Notes 3, 5 and 27)
Inventories (Note 6)
Input value-added tax - net
Derivative assets (Note 27)
Due from related parties (Notes 15 and 27)
Prepayments and other current assets (Note 7)
Total Current Assets
Noncurrent Assets
Property and equipment - net (Notes 3, 8, 12, 13, 24 and 25)
Deferred income tax assets (Notes 3 and 23)
Input value-added tax
Other noncurrent assets - net (Note 9)
Total Noncurrent Assets
P
=332,212
1,467,640
234,229
962,467
939,783
90,150
171,503
4,197,984
=477,842
P
1,820,307
262,954
838,829
25,397
153,683
199,027
3,778,039
49,817,166
876,629
857,674
1,035,545
52,587,014
P
=56,784,998
48,195,190
1,098,937
734,230
766,674
50,795,031
=54,573,070
P
P
=10,999,530
2,744
1,121,771
12,124,045
=7,672,708
P
7,024
1,492,711
9,172,443
3,246,508
12,718,295
4,030,015
–
20,812,950
1,956,238
42,764,006
54,888,051
2,073,889
12,044,360
5,651,371
15,777
19,598,408
3,156,967
42,540,772
51,713,215
8,975,749
(7,078,802)
1,896,947
P
=56,784,998
8,975,749
(6,115,894)
2,859,855
=54,573,070
P
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses (Notes 10 and 27)
Income tax payable
Current portion of long-term debt (Notes 8, 12 and 27)
Total Current Liabilities
Noncurrent Liabilities
Deferred income tax liabilities (Note 23)
Bonds payable (Notes 11 and 27)
Long-term debt - net of current portion (Notes 8, 12 and 27)
Derivative liabilities (Note 27)
Due to related parties (Notes 15 and 27)
Other noncurrent liabilities (Notes 13 and 16)
Total Noncurrent Liabilities
Total Liabilities
Equity
Paid-up capital (Note 14)
Deficit (Note 14)
Total Equity
See accompanying Notes to Consolidated Financial Statements.
*SGVMC109286*
DIGITAL TELECOMMUNICATIONS PHILS., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
2005
2006 (As Restated)
(In Thousand Pesos, Except
Loss Per Share Figures)
REVENUE
Service revenue (Notes 3 and 25)
Foreign exchange gain (loss) - net
Market valuation gain on derivative instruments
(Note 27)
Nonservice revenue
Interest income (Notes 4, 15 and 17)
Others (Note 18)
COSTS AND EXPENSES
Depreciation and amortization (Notes 3 and 8)
General and administrative expenses
(Notes 16, 20, and 25)
Network-related expenses (Notes 19 and 25)
Financing costs and other charges
(Notes 11, 12, 13 and 21)
Cost of sales
Impairment losses and others (Note 22)
Equity in net loss of a joint venture
(Note 9)
INCOME (LOSS) BEFORE INCOME TAX
PROVISION FOR INCOME TAX
(Notes 23 and 24)
Current
Deferred
NET LOSS
Loss Per Share (Note 26)
2004
P
=7,602,207
2,685,979
=8,205,162
P
1,953,240
=7,173,004
P
(159,221)
738,461
31,357
20,720
215,384
11,294,108
45,388
90,663
39,169
173,908
10,507,530
–
155,692
30,388
8,417
7,208,280
2,907,654
2,919,735
2,575,621
2,636,098
2,248,587
2,287,470
1,804,866
2,159,390
1,303,785
2,151,650
652,867
248,105
2,803,429
1,135,415
415,398
1,347,454
1,096,126
571,952
–
10,844,961
16,455
11,382,768
9,874
9,064,202
449,147
(875,238)
(1,855,922)
17,128
1,394,927
1,412,055
17,379
696,948
714,327
18,748
177,334
196,082
P
=962,908
=1,589,565
P
=2,052,004
P
P
=0.1515
=0.2501
P
=0.3228
P
See accompanying Notes to Consolidated Financial Statements.
*SGVMC109286*
DIGITAL TELECOMMUNICATIONS PHILS., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Year Ended December 31, 2006
Paid-up Capital
Capital
Additional
Stock
Paid-in
(Note 14)
Capital
Total
Deficit
(In Thousand Pesos)
Balances as of December 31, 2005, as
previously reported
Prior period adjustment (Note 14)
Balances as of December 31, 2005, as restated
Net loss during the year
Balances as of December 31, 2006
=6,356,976
P
=2,618,773
P
=8,975,749
P
6,356,976
–
P
=6,356,976
2,618,773
–
P
=2,618,773
8,975,749
–
P
=8,975,749
(P
=6,421,184)
305,290
(6,115,894)
(962,908)
(P
=7,078,802)
For the Year Ended December 31, 2005
Paid-up Capital
Capital
Additional
Stock
Paid-in
(Note 14)
Capital
Total
Deficit
(In Thousand Pesos)
Balances as of December 31, 2004, as
previously reported
Cumulative effect of change in accounting
policy for financial instruments as of
January 1, 2005
Balance as of January 1, 2005, as adjusted
Prior period adjustments (Note 14)
Balances as of January 1, 2005, as restated
Net loss during the year, as restated (Note 14)
Balances as of December 31, 2005, as restated
Balances as of December 31, 2003
Net loss during the year
Balances as of December 31, 2004
Total
Equity
=2,554,565
P
305,290
2,859,855
(962,908)
P
=1,896,947
Total
Equity
=6,356,976
P
=2,618,773
P
=8,975,749
P
(P
=3,897,870)
=5,077,879
P
–
6,356,976
–
6,356,976
–
=6,356,976
P
–
2,618,773
–
2,618,773
–
=2,618,773
P
–
8,975,749
–
8,975,749
–
=8,975,749
P
(759,367)
(4,657,237)
130,908
(4,526,329)
(1,589,565)
(P
=6,115,894)
(759,367)
4,318,512
130,908
4,449,420
(1,589,565)
=2,859,855
P
For the Year Ended December 31, 2004
Paid-up Capital
Capital
Additional
Stock
Paid-in
(Note 14)
Capital
Total
Deficit
(In Thousand Pesos)
=6,356,976
P
=2,618,773
P
=8,975,749 (P
P
=1,845,866)
–
–
–
(2,052,004)
=6,356,976
P
=2,618,773
P
=8,975,749 (P
P
=3,897,870)
Total
Equity
P7,129,883
=
(2,052,004)
=5,077,879
P
See accompanying Notes to Consolidated Financial Statements.
*SGVMC109286*
DIGITAL TELECOMMUNICATIONS PHILS., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2005
2006 (As Restated)
(In Thousand Pesos)
CASH FLOWS FROM OPERATING
ACTIVITIES
Income (loss) before income tax
Adjustments for:
Depreciation and amortization on property
and equipment (Note 8)
Foreign exchange gain - net
Interest expense (Note 21)
Market valuation gain on derivative
instruments - net (Note 27)
Amortization of deferred subsidies (Note 9)
Realization of unearned revenue (Note 10)
Impairment losses on trade and other receivables
(Notes 5 and 22)
Accretion of asset retirement obligation
(Notes 13 and 21)
Interest income (Note 17)
Loss from debt modification - net (Note 18)
Provisions for:
Inventory obsolescence and market decline
(Note 22)
Impairment losses on a joint venture
(Notes 9 and 22)
Equity in net loss of a joint venture (Note 9)
Operating income before changes in operating assets
and liabilities
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivable
Inventories
Prepayments and other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Other noncurrent liabilities
Net cash generated from operations
Interest received
Income taxes paid
Interest paid
Net cash provided by operating activities
2004
P
=449,147
(P
=875,238)
(P
=1,855,922)
2,907,654
(2,685,979)
2,115,388
2,919,735
(1,953,240)
2,773,450
2,575,621
159,221
1,329,725
(738,461)
431,448
(332,782)
(45,388)
551,274
(206,362)
–
509,789
(262,338)
241,002
225,232
470,026
25,851
(20,720)
16,519
15,500
(39,169)
–
10,734
(30,388)
–
7,103
41,211
1,426
–
–
148,955
16,455
100,500
9,874
2,416,170
3,572,415
3,018,268
86,121
43,416
(219,559)
(578,167)
42,148
(166,615)
(238,873)
6,009
(512,167)
755,103
30,536
3,111,787
16,832
(21,408)
(1,663,037)
1,444,174
1,134,775
(11,278)
3,993,278
40,554
(19,155)
(325,769)
3,688,908
(602,384)
(23,373)
1,647,480
27,580
(17,352)
(1,349,873)
307,835
(Forward)
*SGVMC109286*
-2Years Ended December 31
2006
2005
(In Thousand Pesos)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property and equipment
Decrease (increase) in:
Other noncurrent assets
Due from related parties
Net cash used in investing activities
2004
(P
=5,675,806)
(P
=5,835,828)
(P
=6,797,705)
(700,319)
23,378
(6,352,747)
(617,131)
35,149
(6,417,810)
(611,821)
42,443
(7,367,083)
3,267,211
2,004,188
8,992,374
2,011,636
–
(709,834)
4,569,013
2,634,268
–
(2,437,829)
2,200,627
2,565,718
10,704,790
(14,749,016)
7,513,866
193,930
(100,949)
15,086
(145,630)
(629,224)
469,704
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
477,842
1,107,066
637,362
CASH AND CASH EQUIVALENTS AT
END OF YEAR
P
=332,212
=477,842
P
=1,107,066
P
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase in due to related parties
Proceeds from:
Long-term debt
Bonds payable
Payments of long-term debt
Net cash provided by financing activities
NET FOREIGN EXCHANGE DIFFERENCE
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
See accompanying Notes to Consolidated Financial Statements.
*SGVMC109286*
DIGITAL TELECOMMUNICATIONS PHILS., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Digital Telecommunications Phils., Inc. (the Parent Company) is incorporated in the Philippines
and enfranchised to provide domestic and international telecommunications services nationwide.
The Parent Company’s registered office address is URC Compound, 110 E. Rodriguez, Jr.
Avenue, Bagumbayan, Quezon City.
The ultimate parent of Digital Telecommunications Phils., Inc. and Subsidiaries (the Group) is
JG Summit Holdings, Inc. (JGSHI).
The Parent Company owns 100% of the following companies:
·
Digitel Mobile Philippines, Inc. (DMPI) which is incorporated in the Philippines and
enfranchised under Republic Act (RA) No. 9180 to construct, install, establish, operate and
maintain wire and/or wireless telecommunications systems throughout the Philippines;
·
Digitel Capital Philippines Ltd. (DCPL) which is incorporated in the British Virgin Islands to
engage in any activity allowed under any law of the British Virgin Islands; and
·
Digitel Information Technology Services (DITSI), Inc. which is incorporated in the
Philippines to provide internet access and high-speed data transmission to corporate and
individual customers. DITSI, however, became dormant following the decision of the Board
of Directors (BOD) to integrate the operations of DITSI into the Parent Company.
The Parent Company is a grantee of various authorizations from the National
Telecommunications Commission (NTC) as follows: (1) Certificate of Public Convenience and
Necessity (CPCN) for an international gateway facility (IGF) in Binalonan, Pangasinan and
Quezon City; (2) provisional authority (PA) to install, operate, maintain and develop
telecommunications facilities in Regions I to V, including the facilities leased from the
Department of Transportation and Communication (DOTC) (see Note 25), and to provide at least
925,000 additional lines within 10 years; (3) PA to construct, install, operate and maintain a
nationwide Cellular Mobile Telephone System (CMTS) using Global System for Mobile (GSM)
and/or Code Division Multiple Access (CDMA) technology; and (4) CPCN for local exchange
carrier services in Valenzuela, Malabon and Quezon City.
The Parent Company was awarded a 30-year exclusive contract by DOTC to manage, operate,
develop and rehabilitate certain telecommunications facilities owned by DOTC (see Note 25).
The Parent Company is registered with the Board of Investments (BOI) and is entitled to
(a) incentives on a pioneer and nonpioneer status as a new operator of telecommunications
systems on nationwide CMTS-GSM communication and as an expanding operator of public
*SGVMC109286*
-2telecommunications services and IGF-2, respectively, and (b) incentives on a pioneer status as a
new operator of infrastructure and telecommunications facilities [i.e. third generation (3G)
telecommunications system] (see Note 24).
On August 28, 2003, the NTC approved the assignment to DMPI of the PA to construct, install,
operate and maintain a nationwide CMTS using GSM and/or CDMA technology.
On December 28, 2005, the NTC awarded a 3G frequency assignment to DMPI after finding it
legally, financially and technically qualified to undertake 3G services. On January 3, 2006, DMPI
confirmed its choice of 3G bandwidth with the NTC.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements of the Group have been prepared on a
historical cost basis, except for certain derivative financial instruments that have been measured at
fair value.
The consolidated financial statements of the Group are presented in Philippine peso, the Group’s
functional currency, and all values are rounded to the nearest thousands, except when otherwise
indicated.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in accordance with
Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of the Parent Company,
DMPI, DCPL and DITSI.
The consolidated financial statements are prepared using uniform accounting policies for like
transactions and other events in similar circumstances. All significant intercompany transactions
and balances, including intercompany profits and unrealized profits and losses, are eliminated in
the consolidation.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group, and
continue to be consolidated until the date that such control ceases.
*SGVMC109286*
-3Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial years, except
as follows:
Amendments to PFRS and Philippine Interpretations effective in 2006
The Group has adopted the following amendments to PFRS and Philippine Interpretations during
the year. Adoption of these amendments to PFRS and Philippine Interpretations did not have any
effect on the Group. They did, however, give rise to additional disclosures in the financial
statements.
·
Amendments to Philippine Accounting Standards (PAS) 19, Employee Benefits - Actuarial
Gains and Losses, Group Plans and Disclosures
As of January 1, 2006, the Group adopted the amendments to PAS 19 which introduce an
additional option for recognition of actuarial gains and losses in post-employment defined
benefit plans. The amendments permit an entity to recognize actuarial gains and losses in the
period in which they occur outside profit or loss. The amendments also require additional
disclosures on the consolidated 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. This change has no recognition nor measurement
impact, as the Group chose not to apply the new option offered to recognize actuarial gains
and losses outside of the Group’s consolidated statement of income. Additional disclosures
required by the amendments were included in the Group’s consolidated financial statements,
where applicable (see Note 16).
·
Amendments to PAS 21, The Effects of Changes in Foreign Exchange Rates
As of January 1, 2006, the Group adopted the amendments to PAS 21 which state that all
exchange differences arising from a nonmonetary item that form part of the Group’s net
investment in foreign operations must be recognized in a separate component of equity in the
consolidated financial statements, regardless of the currency in which the monetary item is
denominated. This amendment did not have any effect on the Group’s consolidated financial
statements.
·
Amendments to PAS 39, Financial Instruments: Recognition and Measurement
As of January 1, 2006, the Group adopted the following amendments to PAS 39:
(a) Amendment for financial guarantee contracts. This amended the scope of PAS 39 to
require financial guarantee contracts that are not considered to be 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. This amendment did not
have any effect on the Group’s consolidated financial statements.
*SGVMC109286*
-4(b) Amendment for cash flow hedge accounting of forecast intragroup transactions. This
amended the scope of PAS 39 to permit the foreign currency risk of a highly probable
intragroup forecast transaction to qualify as the 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 that transaction, and that the foreign currency risk will
affect the consolidated statement of income. This amendment did not have any effect on
the Group’s consolidated financial statements.
(c) Amendment for the fair value option. This amended the scope of PAS 39 to restrict the
use of the option to designate any financial asset or any financial liability to be measured
at fair value through profit or loss. As of December 31, 2006 and 2005, the Group has no
existing financial asset or financial liability at fair value through profit or loss. This
amendment did not have any effect on the Group’s consolidated financial statements.
·
Philippine Interpretation International Financial Reporting Interpretation Committee
(IFRIC) 4, Determining Whether an Arrangement Contains a Lease
This Philippine Interpretation provides guidance in determining whether arrangements
contain a lease to which lease accounting must be applied. This Philippine Interpretation did
not have any effect on the Group’s consolidated financial statements.
·
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
This Philippine Interpretation becomes effective for financial years beginning on or after
June 1, 2006. It 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. This Philippine
Interpretation did not have any effect on the Group’s consolidated financial statements.
Significant Accounting Policies
Revenue Recognition
The Group provides wireless services and wireline voice and data communication services.
Revenue is recognized at the time of delivery of the products or services, and the collectibility is
reasonably assured.
Service revenue includes the value of all telecommunications services provided, net of free usage
allocations and discounts. Revenue is recognized when earned, and are net of the share of other
foreign and local carriers and content providers, if any, under existing correspondence and
interconnection and settlement agreements.
Revenue is stated at amounts billed or invoiced and accrued to subscribers or other carriers and
content providers, taking into consideration the bill cycle cut-off (for postpaid subscribers), and
charged against preloaded airtime value (for prepaid subscribers), and excludes value-added tax
(VAT) and overseas communication tax.
*SGVMC109286*
-5Service revenue
The Group’s service revenue includes the following:
·
Subscribers
Revenue principally consists of: (1) per minute airtime and toll fees for local, domestic and
international long distance calls in excess of free call allocation, less prepaid reload discounts
and interconnection fees; (2) revenue from value added services such as short messaging
services (SMS) in excess of free SMS and multimedia messaging services (MMS), content
downloading and infotext services, net of payout to other foreign and local carriers and
content providers; (3) inbound revenue from other carriers which terminate their calls to the
Group’s network; (4) revenue from international roaming services; (5) fixed monthly service
fees (for postpaid wireless subscribers) and prepaid subscription fees for discounted
promotional calls and SMS; and (6) proceeds from sale of phone kits, subscribers’
identification module (SIM) packs and other phone accessories.
Postpaid service arrangements include fixed monthly charges which are recognized over the
subscription period on a pro-rata basis. Telecommunications services provided to postpaid
subscribers are billed throughout the month according to the billing cycles of subscribers. As
a result of billing cycle cut-off, service revenue earned but not yet billed at end of month are
estimated and accrued based on actual usage.
Proceeds from sale of prepaid cards are initially recognized as unearned revenue shown under
Accounts Payable and Accrued Expenses account in the consolidated balance sheet. Revenue
is realized upon actual usage of the airtime value of the card, net of free service allocation.
The unused value of prepaid cards is likewise recognized as revenue upon expiration.
Interconnection fees and charges arising from the actual usage of prepaid cards are recorded
as incurred.
·
Traffic
Inbound revenue and outbound charges are based on agreed transit and termination rates with
other foreign and local carriers and content providers. Inbound revenue represents
settlements received for traffic originating from telecommunications providers that are sent
through the Group’s network, while outbound charges represent settlements to
telecommunications providers for traffic originating from the Group’s network and
settlements to providers for contents downloaded by subscribers. Both the inbound revenue
and outbound charges are accrued based on actual volume of traffic monitored by the Group
from the switch. Adjustments are made to the accrued amount for discrepancies between the
traffic volume per the Group’s records and per records of other carriers. The adjustments are
recognized as these are determined and are mutually agreed-upon by the parties. Uncollected
inbound revenue are recorded as receivables from connecting carriers under Receivables - net
account in the consolidated balance sheet, while unpaid outbound charges are recorded as
payables to connecting carriers under Accounts Payable and Accrued Expenses account in the
consolidated balance sheet.
*SGVMC109286*
-6Nonservice revenue
Proceeds from sale of phone kits and SIM cards/packs received from certain mobile subscribers
are recognized upon receipt and are included under Nonservice Revenue account in the
consolidated statement of income.
Other revenue
Interest is recognized as it accrues (using the effective interest method that is the rate that exactly
discounts estimated future cash receipts through the expected life of the financial instrument to
the net carrying amount of the financial asset).
Deferred Subsidies
Subscriber acquisition costs pertaining to postpaid subscription, which primarily include handset
and phone kit subsidies, are deferred and amortized over the base contract period, which ranges
from 18 to 24 months from the date in which they are incurred. Deferred subsidies are shown
under Other Noncurrent Assets account in the consolidated balance sheet. The related
amortizations of subscriber acquisition costs are charged against current operations. As of
December 31, 2006 and 2005, deferred subsidies amounted to P
=530.3 million and P
=398.6 million,
respectively (see Note 9).
The Group performs an overall realizability test, in order to support the deferral of the subscriber
acquisition costs. An overall realizability test is done by determining the minimum contractual
revenue after deduction of direct costs associated with the service contract over the base contract
period. Costs are deferred and amortized, if there is a nonrefundable contract or a reliable basis
for estimating net cash inflows under a revenue-producing contract which exists to provide a basis
for recovery of incremental direct costs.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of
three months or less from dates of placement and that are subject to an insignificant risk of
changes in value.
Financial Instruments
Date of recognition
Financial instruments are recognized in the consolidated balance sheet when the 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.
Initial recognition of financial instruments
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 valued at fair
value through profit and loss (FVPL), the initial measurement of financial assets includes
transaction costs. The Group classifies its financial assets into the following categories: financial
*SGVMC109286*
-7assets at FVPL, held-to-maturity (HTM) investments, available-for-sale (AFS) investments and
loans and receivables. The 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.
Determination of fair value
The fair value for financial instruments traded in active markets at consolidated 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, options
pricing models, and other relevant valuation models.
Day 1 profit or loss
Where the transaction price in a non-active market is different to the fair value from other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from observable market, the Group recognizes the difference
between the transaction price and fair value (a Day 1 profit or loss) in the consolidated statement
of income. In cases where use is made of data which is not observable, the difference between the
transaction price and model value is only recognized in the consolidated statement of income,
when the inputs become observable or when the instrument is derecognized. For each transaction,
the Group determines the appropriate method of recognizing the Day 1 profit or loss amount.
Financial assets and financial liabilities at FVPL
Financial assets and financial liabilities classified in this category are 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 them
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.
*SGVMC109286*
-8Financial assets and financial liabilities at FVPL are recorded in the consolidated balance sheet at
fair value. Changes in fair value are reflected in the consolidated statement of income. Interest
earned or incurred is recorded in interest income or expense, respectively, while dividend income
is recorded in other operating income according to the terms of the contract, or when the right of
the payment has been established.
The Group’s embedded derivatives are also classified as held for trading with the fair value
changes being reported directly to consolidated statement of income.
As of December 31, 2006 and 2005, the Group has not designated any financial asset or financial
liability at FVPL.
HTM investments
HTM investments are quoted nonderivative financial assets with fixed or determinable payments
and fixed maturities which the Group’s management has the positive intention and ability to hold
to maturity. Where the Group sells other than an insignificant amount of HTM investments, the
entire category would be tainted and reclassified as AFS investments. After initial measurement,
these investments are subsequently measured at amortized cost using the effective interest rate
method, less any impairment in value. 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.
Gains and losses are recognized in the consolidated statement of income when the HTM
investments are derecognized and impaired, as well as through the amortization process. The
effects of restatement of foreign currency-denominated HTM investments are recognized in the
consolidated statement of income.
As of December 31, 2006 and 2005, the Group had no HTM investments.
Loans and receivables
Loans and receivables are nonderivative financial assets with fixed or determinable payments and
fixed maturities 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 other financial assets held for
trading, designated as AFS investments or financial assets designated at FVPL.
This accounting policy applies primarily to the Group’s trade and other receivables.
Trade 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 revenue upon collection. The losses arising
from impairment of trade and other receivables are recognized under the Impairment Losses and
Others account in the consolidated statement 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 Impairment of Financial Assets).
*SGVMC109286*
-9AFS investments
AFS investments are those nonderivative investments which are designated as such or do not
qualify to be classified as designated as financial assets or financial liabilities at 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.
After initial measurement, AFS investments are subsequently measured at fair value. The
effective yield component of AFS debt securities, as well as the impact of restatement on foreign
currency-denominated AFS debt securities, is reported in earnings. The unrealized gains and
losses arising from the fair valuation of AFS investments are excluded, net of tax, from reported
earnings and are reported as separate line item in the Equity section of the consolidated balance
sheet.
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
statement of income, when the right of payment has been established.
As of December 31, 2006 and 2005, the Group had no AFS investments.
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
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 statement of income.
This accounting policy applies primarily to the 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 and pension liabilities).
Embedded derivatives
Embedded derivatives are bifurcated from their host contracts, when the following conditions are
met: (a) the entire hybrid contracts (composed of both the host contract and the embedded
derivative) are not accounted for as financial assets at FVPL; (b) when their economic risks and
characteristics are not closely related to those of their respective host contracts; and (c) a separate
instrument with the same terms as the embedded derivative would meet the definition of a
derivative.
*SGVMC109286*
- 10 The Group has certain derivatives that are embedded in host financial (such as debt instruments),
and nonfinancial (such as purchase orders and service agreements) contracts. These embedded
derivatives include conversion and call options embedded in its foreign currency-denominated
zero coupon convertible bonds, and foreign currency derivatives in purchase orders, and certain
network and service agreements. The fair value changes are reported directly to consolidated
statement of income.
Derecognition of Financial Instruments
Financial assets
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 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 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 and retained control of the
asset, or (b) has neither transferred nor retained the risk and rewards of the asset but has
transferred the control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset or has entered into
a pass-through arrangement, 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
Group’s continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of original carrying amount of the
asset and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or expires. 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 statement of income.
*SGVMC109286*
- 11 Impairment of Financial Assets
The Group assesses at each consolidated balance sheet date whether there is objective evidence
that a financial asset or group of financial assets is impaired.
·
Assets carried at amortized cost
If there is objective evidence that an impairment loss on financial assets carried at amortized
cost (i.e. 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 statement of income.
The 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 statement of income to the extent that the carrying value
of the asset does not exceed its amortized cost at the reversal date.
The 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 Group.
(a) Subscribers
Full allowance is provided for trade 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.
Effective January 1, 2005, 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 120 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
*SGVMC109286*
- 12 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 consolidated balance
sheet date and the net flow rates determined for the current and each delinquency bracket.
For active residential and business wireline voice subscribers, full allowance is generally
provided for outstanding receivables that are past due by 90 and 120 days, respectively.
Full allowance is likewise provided for receivables from wireline data corporate accounts
that are past due by 120 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 Group and the subscriber.
Prior to January 1, 2005, the Group made use of percentages as set up by management to
be applied on the trade receivables. A review of the aging and status of trade receivables,
designed to identify accounts to be provided with allowance, is performed regularly.
(b) Traffic
Provisions for impairment losses are made for accounts specifically identified to be
doubtful of collection regardless of the age of the account.
·
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 the use of an allowance account.
·
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 statement of income, is transferred from equity to the consolidated statement of
income. Reversals of impairment losses in respect of equity instruments classified as AFS are
not recognized in the consolidated statement of income. Reversals of impairment losses on
debt instruments are reversed through the consolidated statement 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 statement of income.
*SGVMC109286*
- 13 Classification of Financial Instruments Between Debt and Equity
A financial instrument is classified as debt if it provides for a contractual obligation to:
·
deliver cash or another financial asset to another entity; or
·
exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the Group; or
·
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.
If the Group does not have an unconditional right to avoid delivering cash or another financial
asset to settle its contractual obligation, the obligation meets the definition of a financial liability.
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.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated balance sheet 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 sheet.
Inventories
Inventories are valued at the lower of cost and net realizable value (NRV). NRV is the estimated
selling price in the ordinary course of business less the estimated costs necessary to make the sale.
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 cost. In determining the NRV, the Group deducts
from cost 100% of the carrying value of slow-moving items and nonmoving items for more than
one year. Cost is determined using the moving average method.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation, amortization and
impairment losses, if any.
The initial cost of an item of property and equipment comprises of its purchase price and any cost
attributable in bringing the asset to its intended location and working condition. Cost also
includes: (a) interest and other financing charges on borrowed funds used to finance the
acquisition of property and equipment to the extent incurred during the period of installation and
construction; and (b) asset retirement obligations (ARO) pecifically for property and equipment
installed/constructed on leased properties.
*SGVMC109286*
- 14 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 Group and the cost of the item
can be measured reliably. All other repairs and maintenance are charged against current
operations as incurred.
Projects under construction are transferred to the related Property and Equipment account when
the construction or installation and related activities necessary to prepare the property and
equipment for their intended use are completed, and the property and equipment are ready for
service.
Depreciation and amortization of property and equipment commence, once the property and
equipment are available for use and are computed using the straight-line method over the
estimated useful lives (EUL) of the assets regardless of utilization.
The EUL of property and equipment of the Group follows:
Telecommunications equipment:
Tower
Switch
Outside plant facilities
Distribution dropwires
Cellular facilities and others
Buildings
Leasehold improvements
Investment in cable systems
Facilities under finance lease
Vehicle and work equipment
15 years
10 to 15 years
10 to 20 years
5 years
3 to 10 years
25 years
5 years or lease term whichever is shorter
15 years
15 years
5 to 15 years
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 an item or property and equipment is retired or otherwise disposed of, the cost and the
related accumulated depreciation, amortization and impairment losses, if any, are removed from
the accounts and any resulting gain or loss is credited to or charged against current operations.
Asset Retirement Obligation
The Group is legally required under various lease 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 Group estimates the costs of the obligations and capitalizes the present value of such
costs as part of the balance of the related Property and Equipment accounts which are depreciated
on a straight-line basis over the EUL of the related property and equipment or the contract period,
whichever is shorter.
*SGVMC109286*
- 15 Debt Issuance Costs
Debt issuance costs were amortized using the effective interest method and unamortized debt
issuance costs are offset against the related carrying value of the loan in the consolidated balance
sheet. When a loan is paid, the related unamortized debt issuance costs at the date of repayment
are charged against current operations (see accounting policy on Financial Instruments).
Prior to January 1, 2005, upfront fees and other related expenses incurred in connection with loan
drawings are capitalized by the Group, as part of the cost of the related projects and are amortized
using the straight-line method over the term of the loan following the settlement of said projects.
Investment in a Joint Venture
A joint venture (JV) is a contractual arrangement whereby two or more parties undertake an
economic activity that is subject to joint control, and a jointly controlled entity is a joint venture
that involves the establishment of a separate entity in which each venturer has an interest. The
Group’s investment in a JV is accounted for under the equity method. Under the equity method,
the investment in a JV is carried in the consolidated balance sheet at cost plus post-acquisition
changes in the Group’s share of net assets of the JV, less any allowance for impairment in value.
The consolidated statement of income reflect the Group’s share in the results of operations of the
JV.
Impairment of Nonfinancial Assets
At each reporting date, the Group assesses whether there is any indication that its nonfinancial
assets may be impaired. When an indicator of impairment exists or when an annual impairment
testing for an asset is required, the Group makes a formal estimate of recoverable amount.
Recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value less costs to
sell and its value in use and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of assets,
in which case the recoverable amount is assessed as part of the cash generating unit to which it
belongs. Where the carrying amount of an asset (or cash generating unit) exceeds its recoverable
amount, the asset (or cash generating unit) is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset (or cash generating unit).
An assessment is made at each reporting date as to whether there is any indication that previously
recognized impairment losses may no longer exist or may have decreased. If such indication
exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed
only if there has been a change in the estimates used to determine the asset’s recoverable amount
since the last impairment loss was recognized. If that is the case, the carrying amount of the asset
is increased to its recoverable amount. That increased amount cannot exceed the carrying amount
that would have been determined, net of depreciation, had no impairment loss been recognized for
the asset in prior years. Such reversal is recognized in the consolidated statement of income.
After such a reversal, the depreciation expense is adjusted in future years to allocate the asset’s
revised carrying amount, less any residual value, on a systematic basis over its remaining life.
*SGVMC109286*
- 16 Income Taxes
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 taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantially enacted as of the consolidated
balance sheet date.
Deferred income tax
Deferred income tax is provided using the balance sheet liability method on all temporary
differences, with certain exceptions, at the consolidated 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 unused 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 carryforward benefits of unused tax credits from
excess MCIT and unused NOLCO can be utilized.
Deferred income tax assets are 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 income nor taxable income or loss. Deferred income tax liabilities
are not provided on nontaxable temporary differences associated with investments in domestic
subsidiaries and interests in joint ventures. With respect to investments in foreign subsidiaries,
deferred income tax liabilities are recognized except where the timing of the reversal of the
temporary differences can be controlled and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amounts of deferred income tax assets are reviewed at each consolidated 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.
Unrecognized deferred income tax assets are reassessed at each consolidated balance sheet date,
and are recognized to the extent that it has become probable that future taxable income will allow
the deferred income tax asset to be recognized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply
to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted as of consolidated balance sheet date.
Provisions
Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a
result of a past event; (b) it is probable (i.e. more likely than not) that an outflow of resources
embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate
can be made of the amount of the obligation. Provisions are reviewed at each consolidated
balance sheet date and adjusted to reflect the current best estimate. If the effect of the time value
of money is material, provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessment of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognized as an interest expense in the consolidated
*SGVMC109286*
- 17 statement of income. Where the Group expects a provision to be reimbursed, the reimbursement
is recognized as a separate asset but only when the reimbursement is virtually certain.
Share-Based Payment Transactions
The Parent Company has a stock option plan for the granting of nontransferable options to
management and employees of the Parent Company, whereby they are granted the option to
purchase a fixed number of shares of stock at a stated price during a specified period. Options
will be recorded at fair value at grant date.
No options have been awarded pending approval of the Philippine Securities and Exchange
Commission (SEC). Once approved, options granted will be accounted for under PFRS 2,
Share-based Payment, and related Philippine Interpretations.
Pension Costs
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 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 consolidated balance sheet date; 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.
Borrowing Costs
Borrowing costs are recognized as expense when incurred.
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
*SGVMC109286*
- 18 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 sheet and are
amortized using the effective interest rate method.
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of
the arrangement at inception date, 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:
(a) there is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) a renewal option is exercised or an extension granted, unless that term of the renewal or
extension was initially included in the lease term;
(c) there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
(d) there is a substantial change to the asset.
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.
Group as lessee
Finance leases, which transfer to the 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
under Property and Equipment account in the consolidated balance sheet, with the corresponding
liability to the lessor included under Long-term Debt account in the consolidated balance sheet.
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 statement of income on a straight-line basis over the lease term.
Selling, Advertising and Promotions Expenses
Selling, advertising and promotions expenses are charged against current operations as incurred.
*SGVMC109286*
- 19 Foreign Currency Transactions
The functional and presentation currency of the 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 exchange rate prevailing at the consolidated 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.
Loss Per Share
Loss per share is computed by dividing net loss applicable to common stock by the weighted
average number of common shares issued and outstanding during the year.
Segment Reporting
The Group’s major operating business units are the basis upon which the Group reports its
primary segment information. The Group’s business segments consist of: (1) wireless
communication services, (2) wireline voice communication services, and (3) wireline data
communication services. The Group generally accounts for inter-segment revenue and expenses
at agreed transfer prices.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized in the consolidated financial statements but
disclosed when an inflow of economic benefits is probable.
Subsequent Events
Any post-year-end event up to the date of approval of the BOD of the consolidated financial
statements that provides additional information about the Group’s position at consolidated
balance sheet date (adjusting event) is reflected in the consolidated financial statements. Any
post-year-end event that is not an adjusting event is disclosed in the notes to the consolidated
financial statements, when material.
Future Changes in Accounting Policies
The Group has not applied the following PFRS and Philippine Interpretations which are not yet
effective for the year ended December 31, 2006:
·
PFRS 7, Financial Instruments: Disclosures, and the complementary amendment to PAS 1,
Presentation of Financial Statements: Capital Disclosures (effective for annual periods
beginning on or after January 1, 2007)
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
*SGVMC109286*
- 20 Presentation. It is applicable to all entities that report under PFRS. The amendment to PAS 1
introduces disclosures about the level of an entity’s capital and how it manages capital. The
Group is currently assessing the impact of PFRS 7 and the amendment 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 amendment to PAS 1. The Group will apply
PFRS 7 and the amendment to PAS 1 in 2007.
·
PFRS 8, Operating Segments (effective for annual periods beginning on or after January 1,
2009)
PFRS 8 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 consolidated balance sheet and consolidated statement of
income and companies will need to provide explanations and reconciliations of the
differences. PFRS 8 will replace PAS 14, Segment Reporting. The Group will assess the
impact of the standard on its current manner of reporting segment information.
·
Philippine Interpretation IFRIC 7, Applying the Restatement Approach under PAS 29,
Financial Reporting in Hyperinflationary Economies (effective for annual periods beginning
on or after March 1, 2006)
This Philippine Interpretation provides guidance on how to apply PAS 29 when an economy
first becomes hyperinflationary, in particular the accounting for deferred income tax. This
Philippine Interpretation will not have any effect on the Group’s financial statements.
·
Philippine Interpretation IFRIC 8, Scope of PFRS 2 (effective for annual periods beginning on
or after May 1, 2006)
This Philippine 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. This
Philippine Interpretation will not have any effect on the Group’s consolidated financial
statements.
·
Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment (effective
for annual periods beginning on or after November 1, 2006)
This Philippine Interpretation 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 consolidated balance sheet date. This Philippine Interpretation
will not have any effect on the Group’s consolidated financial statements.
*SGVMC109286*
- 21 ·
Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions
(effective for annual periods beginning on or after March 1, 2007)
This Philippine 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 Company. The Parent Company has a stock option plan for the
granting of nontransferable options to management and employees of the Parent Company.
No options, however, have been awarded pending approval of the SEC. As such, the Group
does not expect this Philippine Interpretation to have a significant impact on its consolidated
financial statements.
·
Philippine Interpretation IFRIC 12, Service Concession Arrangements, (effective for annual
periods beginning on or after January 1, 2008).
This Philippine Interpretation covers contractual arrangements arising from private entities
providing public services and is not relevant to the Group’s current operations.
3. Significant Accounting Estimates and Judgments
The preparation of the accompanying consolidated financial statements in accordance with PFRS
requires the Group to make certain estimates that affect the reported amounts of assets, liabilities,
income and expenses and disclosure of contingent assets and contingent liabilities. Future events
may occur which will cause the assumptions used in arriving at the estimates to change. The
effects of any change in estimates are reflected in the consolidated financial statements as they
become reasonably determinable.
Significant accounting 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.
Revenue Recognition
The Group’s revenue recognition policies require management to make use of estimates and
assumptions that may affect the reported amounts of the revenue and receivables.
The Group’s postpaid service arrangements include fixed monthly charges which are recognized
over the subscription period on a pro-rata basis. The Group bills the postpaid subscribers
throughout the month according to the bill cycles of subscribers. As a result of the billing cycle
cut-off, service revenue earned but not yet billed at end of the month are estimated and accrued
based on actual usage.
As of December 31, 2006 and 2005, accrued but unbilled services to subscribers amounted to
=70.1 million and P
P
=68.1 million, respectively.
*SGVMC109286*
- 22 The 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 revenue is based
on observed traffic in the network, since normal historical experience adjustments are not material
to the consolidated financial statements. The 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.
Total unsettled net inbound traffic revenue from local and foreign traffic carriers as of
December 31, 2006 and 2005 (included under Receivables account in the consolidated balance
sheets) amounted to P
=392.7 million and P
=486.5 million, respectively (see Note 5). Total unsettled
net outbound traffic to local and foreign carriers as of December 31, 2006 and 2005 (included
under Accounts Payable and Accrued Expenses account in the consolidated balance sheets)
amounted to P
=182.4 million and P
=254.1 million, respectively (see Note 10).
Impairment Losses on Trade Receivables
The Group maintains allowances for impairment losses at a level considered adequate to provide
for potential uncollectible receivables. The level of this allowance is evaluated by management
on the basis of factors that affect the collectibility of the accounts. These factors include, but are
not limited to, the length of the Group’s relationship with the customer, the customer’s payment
behavior and known market factors. The Group reviews the age and status of receivables, and
identifies accounts that are to be provided with allowances on a continuous basis. The Group
provides full allowance for receivables from permanently disconnected subscribers.
The amount and timing of recorded expenses for any period would differ if the Group made
different judgments or utilized different estimates. An increase in the Group’s allowance for
impairment losses on trade receivables would increase the recorded operating expenses and
decrease current assets.
Provision for impairment losses on trade and other receivables amounted to P
=241.0 million,
=225.2 million and P
P
=470.0 million in 2006, 2005 and 2004, respectively. Trade and other
receivables, net of allowance for impairment losses, amounted to P
=1.5 billion and P
=1.8 billion as
of December 31, 2006 and 2005, respectively (see Notes 5 and 22).
Inventory Obsolescence and Market Decline
The 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 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 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.
*SGVMC109286*
- 23 Inventory obsolescence and market decline amounted to P
=7.1 million, P
=41.2 million and
=1.4 million in 2006, 2005 and 2004, respectively (see Note 22). The carrying values of
P
inventories amounted to P
=234.2 million and P
=262.9 million as of December 31, 2006 and 2005,
respectively (see Note 6).
ARO
The Group is legally required under various lease 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 on
amount of asset retirement costs, third party margins and interest rates. The Group capitalizes the
present value of these costs as part of the balance of the related Property and Equipment accounts
which are being depreciated on a straight-line basis over the useful life of the related asset. The
present value of dismantling costs is computed based on an average credit adjusted risk free rate
of 10% and 12% 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 and 2005, the Group’s ARO has a carrying value of P
=228.2 million and
=148.2 million, respectively (see Note 13).
P
EUL of Property and Equipment
The Group estimated the useful lives of its property and equipment based on the period over
which the assets are expected to be available for use. The Group reviews annually the EUL of
property and equipment based on factors that include asset utilization, internal technical
evaluation, technological changes, environmental and anticipated use of the assets tempered by
related industry benchmark information. 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 would increase recorded
depreciation and amortization expense and decrease noncurrent assets.
As of December 31, 2006 and 2005, the net book value of property and equipment amounted to
=49.8 billion and P
P
=48.2 billion, respectively (see Note 8).
Impairment of Nonfinancial Assets
The Group assesses the impairment of assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The factors that the Group
considers important which could trigger an impairment review include the following:
·
significant underperformance relative to expected historical or projected future operating
results;
·
significant changes in the manner of use of the acquired assets or the strategy for overall
business; and
·
significant negative industry or economic trends.
*SGVMC109286*
- 24 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.
The Group determines whether its long-lived nonfinancial assets are impaired, at least on an
annual basis. This requires an estimation of the value in use of the cash-generating units to which
the assets belong. Estimating the value in use requires the Group to make an estimate of the
expected future cash flows from the cash-generating unit and also to choose a suitable discount
rate in order to calculate the present value of those cash flows.
In determining the present value of estimated future cashflows expected to be generated from the
continued use of the assets, the Group is required to make estimates and assumptions that can
materially affect the consolidated financial statements.
The carrying value of property and equipment amounted to P
=49.8 billion and P
=48.2 billion as of
December 31, 2006 and 2005, respectively (see Note 8). The Group has no impairment losses on
its property and equipment as of December 31, 2006 and 2005.
Recognition of Deferred Income Tax Assets
The Group reviews the carrying amounts of deferred income tax assets at each consolidated
balance sheet date and reduces deferred income tax assets 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. However, there is no assurance that the Group will generate
sufficient taxable income to allow all or part of its deferred income tax assets to be utilized.
As of December 31, 2006 and 2005, the Group has deferred income tax assets amounting to
=0.9 billion and P
P
=1.1 billion, respectively, and deferred income tax liabilities amounting to
=3.2 billion and P
P
=2.1 billion, respectively (see Note 23). As of December 31, 2006 and 2005,
DMPI has not recognized any deferred income tax assets on NOLCO, allowance for impairment
losses on trade and other receivables, unearned revenue, accrued rent, accretion and depreciation
of ARO and unfunded pension benefits (see Note 23).
Financial Assets and Liabilities
The 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),
the amount of changes in fair value would differ if the Group utilized different valuation
methodologies (see Note 27 for further discussion). Any changes in fair value of these financial
assets and liabilities would affect profit and loss and equity.
*SGVMC109286*
- 25 Financial assets carried at fair values as of December 31, 2006 and 2005 amounted to P
=2.9 billion
and P
=2.5 billion, respectively. Financial liabilities carried at fair values as of December 31, 2006
and 2005 amounted to P
=47.2 billion and P
=45.8 billion, respectively (see Note 27).
Present Value of Pension Obligation
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 and salary increase rates (see Note 16). Actual results that
differ from the Group’s assumptions are accumulated and amortized over future periods and
therefore, generally affect the recognized expense and recorded obligation in such future periods.
While the 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.
The Group’s unrecognized actuarial losses amounted to P
=131.3 million, P
=24.2 million and
=4.7 million in 2006, 2005 and 2004, respectively (see Note 16).
P
The Group also estimates other employee benefits obligation and expense, including the cost of
paid leaves based on historical leave availments of employees, subject to the Group’s policy.
These estimates may vary depending on the future changes in salaries and actual experiences
during the year.
As of December 31, 2006 and 2005, the accrued balance of other employee benefits (included
under Accounts Payable and Accrued Expenses account in the consolidated balance sheets)
amounted to P
=11.0 million and P
=9.6 million, respectively.
Contingencies
The Group is currently involved in certain legal proceedings. The estimate of the probable costs
for the resolution of these claims has been developed in consultation with outside counsel
handling the defense in these matters and is based upon an analysis of potential results. The
Group currently does not believe these proceedings will have a material adverse affect on the
Group’s consolidated financial position and results of operations. 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. Cash and Cash Equivalents
This account consists of:
Cash on hand and in banks
Money market placements
2005
2006
(In Thousand Pesos)
=337,161
P
P
=233,247
140,681
98,965
=477,842
P
P
=332,212
*SGVMC109286*
- 26 Cash in banks earns interest at the respective bank deposit rates. Money market placements are
made for varying periods depending on the immediate cash requirements of the Group, and earn
an average interest of 5.15% and 5.75% in 2006 and 2005, respectively.
5. Receivables
This account consists of:
2005
2006
(In Thousand Pesos)
Trade receivables:
Subscribers
Connecting carriers (Note 25)
Agents and others
Other receivables
Less allowance for impairment losses:
Trade receivables:
Subscribers
Connecting carriers
Other receivables
P
=3,277,371
392,675
194,905
146,426
4,011,377
=3,180,444
P
486,497
182,649
273,452
4,123,042
2,473,699
56,887
13,151
2,543,737
P
=1,467,640
2,246,047
47,728
8,960
2,302,735
=1,820,307
P
Changes in allowance for impairment losses on trade and other receivables follow:
Balance at beginning of year
Provision for impairment losses (Note 22)
Write-off
Balance at end of year
2006
2005
(In Thousand Pesos)
P
=2,302,735
=2,383,983
P
241,002
225,232
–
(306,480)
P
=2,543,737
=2,302,735
P
Other receivables consist mainly of advances to officers, employees and suppliers, receivables
from agents and distributors, and receivables from credit card companies which have collection
arrangements with the Group. As of December 31, 2006 and 2005, receivables from officers and
employees, and suppliers and contractors amounted to P
=40.1 million and P
=34.3 million, and
=31.7 million and P
P
=140.6 million, respectively.
*SGVMC109286*
- 27 -
6. Inventories
This account consists of:
2005
2006
(In Thousand Pesos)
At NRV:
Handsets, phone kits and accessories
Spare parts and supplies
At cost
SIM cards and call cards
P
=56,566
143,484
200,050
P66,011
=
154,524
220,535
34,179
P
=234,229
42,419
=262,954
P
7. Prepayments and Other Current Assets
This account consists of prepayments for subscribers’ installation costs, rent and insurance.
Prepaid subscribers’ installation costs amounted to P
=51.5 million and P
=95.1 million as of
December 31, 2006 and 2005, respectively.
*SGVMC109286*
- 28 -
8. Property and Equipment
Property and equipment are classified as follows:
Cost
Balance at beginning of year
Additions (settlements)
Others
Balance at end of year
Accumulated Depreciation
and Amortization
Balance at beginning of year
Depreciation and amortization
Others
Balance at end of year
Net Book Value
Cost
Balance at beginning of year
Additions (settlements)
Others
Balance at end of year
Accumulated Depreciation
and Amortization
Balance at beginning of year
Depreciation and amortization
Balance at end of year
Net Book Value
Telecommunication
Equipment
Land
=32,143,128
P
184,345
–
32,327,473
=475,670
P
135
–
475,805
11,757,916
2,060,646
21,017
13,839,579
P
= 18,487,894
–
–
–
–
P
=475,805
Telecommunication
Equipment
Land
=28,064,394
P
53,204
4,025,530
32,143,128
=475,408
P
262
–
475,670
9,747,034
2,010,882
11,757,916
=20,385,212
P
–
–
–
=475,670
P
For the Year Ended December 31, 2006
Investment
Facilities
Vehicle
Buildings and
in Cable
Under
and Work
Improvements
Systems Finance Lease
Equipment
(In Thousand Pesos)
=3,567,271
P
=758,847
P
=4,419,920
P
=4,612,238
P
61,142
–
–
141,280
–
–
–
125
3,628,413
758,847
4,419,920
4,753,643
1,002,173
160,683
–
1,162,856
P
=2,465,557
44,033
–
25,738
69,771
P
=689,076
3,079,758
315,504
–
3,395,262
P
=1,024,658
For the Year Ended December 31, 2005
Investment
Facilities
Buildings and
in Cable
Under
Improvements
Systems Finance Lease
(In Thousand Pesos)
=3,547,331
P
=792,770
P
=4,419,920
P
19,940
(33,923)
–
–
–
–
3,567,271
758,847
4,419,920
852,202
149,971
1,002,173
=2,565,098
P
27,254
16,779
44,033
=714,814
P
2,764,254
315,504
3,079,758
=1,340,162
P
Projects
Under
Construction
Total
=21,173,529
P
4,185,360
3,998
25,362,887
=67,150,603
P
4,572,262
4,123
71,726,988
3,071,533
370,821
–
3,442,354
P
=1,311,289
–
–
–
–
P
=25,362,887
18,955,413
2,907,654
46,755
21,909,822
P
=49,817,166
Vehicle
and Work
Equipment
Projects
Under
Construction
Total
=4,255,176
P
357,062
–
4,612,238
=17,265,528
P
8,444,811
(4,536,810)
21,173,529
=58,820,527
P
8,841,356
(511,280)
67,150,603
2,644,934
426,599
3,071,533
=1,540,705
P
–
–
–
=21,173,529
P
16,035,678
2,919,735
18,955,413
=48,195,190
P
*SGVMC109286*
- 29 Facilities under Finance Lease
The Parent Company previously leased certain telecommunications facilities covering local
exchange facilities under Financial Lease Agreements (FLA) with DOTC for a period of 30 years,
at the end of which the ownership of the facilities automatically transfer to the Parent Company.
In 2003, the Parent Company availed of its option under the FLA to purchase the leased facilities.
As discussed in Note 25 to the consolidated financial statements, the Parent Company and DOTC
are awaiting the decision of an arbitration body in respect of the amount of the purchase price that
the Parent Company should pay to DOTC.
Investment in Cable Systems
Investment in cable systems represents the Group’s indefeasible rights of use (IRU) of circuits in
certain cable systems (see Note 12).
9. Other Noncurrent Assets
This account consists of:
Deferred subsidies
Security deposits (Note 27)
Others
2005
2006
(In Thousand Pesos)
=398,594
P
P
=530,287
76,018
99,650
292,062
405,608
=766,674
P
P
=1,035,545
Changes in deferred subsidies follow:
Balance at beginning of year
Deferral of subsidies
Amortization
Balance at end of year
2005
2006
(In Thousand Pesos)
=529,129
P
P
=398,594
420,739
563,141
(551,274)
(431,448)
=398,594
P
P
=530,287
Security deposits relate to the Group’s leased buildings, cellsite lots and commercial spaces.
These will be collected in full at the end of the lease terms subject to adjustments by the lessor to
cover damages incurred on the properties.
Other noncurrent assets include the Group’s JV investment in Digitel Crossing (DC). Under the
terms of the JV agreement on DC, the Group shall invest a total of US$12.0 million, representing
a 40% interest in the JV.
*SGVMC109286*
- 30 As of December 31, 2006 and 2005, the carrying values of the Group’s investment in DC follow:
Cost
Accumulated equity in net losses of JV:
Balance at beginning of year
Equity in net losses
Balance at end of year
Less allowance for impairment losses
2005
2006
(In Thousand Pesos)
=292,870
P
P
=292,870
43,415
–
43,415
249,455
249,455
P
=–
26,960
16,455
43,415
249,455
249,455
=–
P
Changes in allowance for impairment losses on investment in a JV follow:
Balance at beginning of year
Provision for impairment losses (Note 22)
Balance at end of year
2005
2006
(In Thousand Pesos)
=100,500
P
P
=249,455
148,955
–
=249,455
P
P
=249,455
10. Accounts Payable and Accrued Expenses
This account consists of:
Accrued expenses
Trade payables
Obligations under finance lease (Notes 8 and 25)
Unearned revenue
Payables to connecting carriers (Note 25)
Others
2005
2006
(In Thousand Pesos)
=4,263,697
P
P
=4,915,605
2,330,202
2,652,213
–
2,475,540
332,782
332,519
254,057
182,354
491,970
441,299
=7,672,708
P
P
=10,999,530
Accrued expenses and other payables include accruals for interest and various expenses.
Unearned revenue represents proceeds from sale of prepaid cards and airtime values through the
over-the-air reloading services which were initially recognized as unearned revenue by the Group.
Revenue is recognized upon the actual usage of the airtime value of the card, net of free service
allocation. The unused value of prepaid card is likewise recognized as revenue upon expiration.
Payables to connecting carriers represent interconnection fees due to other carriers for the charges
on voice and data transmissions which enable the Group’s subscribers to reach subscribers of
other networks.
*SGVMC109286*
- 31 -
11. Bonds Payable
Parent Company Zero Coupon Convertible Bonds
On December 8, 2003, the Parent Company issued Zero Coupon Convertible Bonds Due 2013
(DIGITEL Bonds) with face value of US$31.1 million and issue price of US$10.0 million. As of
December 31, 2006 and 2005, the outstanding balance of the DIGITEL Bonds amounted to
=976.8 million (US$19.9 million), and P
P
=657.8 million (US$12.4 million), respectively.
The DIGITEL Bonds are redeemable at the option of the Parent Company, in whole or in part, at
the end of each year starting one year after the issue date and every year thereafter at the
following redemption dates and values:
Redemption Date
End of 1st year from issue date
End of 2nd year from issue date
End of 3rd year from issue date
End of 4th year from issue date
End of 5th year from issue date
End of 6th year from issue date
End of 7th year from issue date
End of 8th year from issue date
End of 9th year from issue date
End of 10th year from issue date
(a)
Per US$100 of face value
Redemption Value (a)
US$35.29
38.75
42.63
46.97
51.83
57.28
63.38
70.21
77.87
86.44
Alternately, the bondholders will have the right to convert the DIGITEL Bonds into common
shares of the Parent Company at redemption date. The number of conversion shares to be
received by the bondholders upon exercise of the conversion right is equivalent to the total
redemption value which the bondholders would have received if the DIGITEL Bonds were
redeemed multiplied by the Philippine Peso-US Dollar exchange rate for the relevant date divided
by the P
=1 par value. Unless previously converted, purchased and cancelled or redeemed, the
DIGITEL Bonds shall be converted into the common shares of the Parent Company at the end of
the tenth year after the issue date. In January 2006, the conversion options expired due to an
amendment made on the bond agreement (see Note 27).
The DIGITEL Bonds constitute direct, unconditional, unsubordinated and unsecured obligations
of the Parent Company and shall at all times rank pari passu and without preference among
themselves and at least equally with all other present and future unsubordinated, unsecured
obligations of the Parent Company, except as may be preferred by virtue of mandatory provision
of law.
The bondholders have the option, through a resolution approved by 75% of the face value of the
DIGITEL Bonds then outstanding, to require a lien on unencumbered assets of the Parent
Company not subject to a dispute, valued at approximately US$200.0 million, subject to the
limitations, conditions and restrictions of a Mortgage Trust Indenture (MTI). The MTI will be
administered by a Security Trustee appointed in accordance with the MTI.
*SGVMC109286*
- 32 Proceeds from the sale of the DIGITEL Bonds were used to partially fund the purchase of
equipment for GSM Project Phases 1 and 2 valued at approximately US$200.0 million with
completion of approximately 681 cellular sites covering key urban cities nationwide pursuant to a
PA issued by the NTC.
DCPL Zero Coupon Convertible Bonds
In November 2004, DCPL issued Zero Coupon Convertible Bonds Due 2013 (DCPL Bonds) with
face value of US$590.1 million and issue price of US$190.0 million. JG Summit Philippines,
Ltd., a related party, fully subscribed to the DCPL Bonds. As of December 31, 2006 and 2005,
the outstanding balance of the DCPL Bonds amounted to P
=11.7 billion (US$225.4 million) and
=11.4 billion (US$214.6 million), respectively.
P
The DCPL Bonds bear a yield-to-maturity of 12%. The DCPL Bonds are exchangeable into
shares of the Parent Company, and are redeemable at the option of DCPL, in whole or in part,
starting one year after the issue date and every year thereafter at the following redemption dates
and values:
Redemption Date
End of 1st year from issue date
End of 2nd year from issue date
End of 3rd year from issue date
End of 4th year from issue date
End of 5th year from issue date
End of 6th year from issue date
End of 7th year from issue date
End of 8th year from issue date
End of 9th year from issue date
End of 10th year from issue date
(a)
Per US$100 of face value
Redemption Value (a)
US$36.06
40.39
45.26
50.66
56.74
63.55
71.18
79.72
89.29
100.00
Alternately, the bondholder will have the right to convert the DCPL Bonds into common shares of
the Parent Company at redemption date. The number of conversion shares to be received by the
bondholders upon exercise of the conversion right is equivalent to the total redemption value
which the bondholders would have received if the DCPL Bonds were redeemed multiplied by the
Philippine Peso-USD exchange rate for the relevant date divided by the P
=1 par value.
In order to exercise the conversion or exchange, the holder must submit to DCPL, with a copy to
the Parent Company, a duly completed and executed Exchange Notice. DCPL and the Parent
Company shall respectively transmit in writing to the subscriber/holder their consent or objection,
within three days from their respective receipt of the Exchange Notice.
The DCPL Bonds constitute direct, unconditional, unsubordinated and unsecured obligations of
DCPL and shall at all times rank pari passu and without preference among themselves.
The bondholder has the option to require a lien on certain assets of the Parent Company in which
case, the Parent Company and bondholder shall, within a reasonable time, execute an MTI.
*SGVMC109286*
- 33 -
12. Long-term Debt
This account consists of:
Loans from foreign banks
Suppliers’ credits
Liability under minimum capacity purchase
agreement (Notes 2 and 8)
Finance lease obligation (Notes 8 and 25)
Less current portion
2005
2006
Philippine Peso
Philippine Peso
Equivalent
USD
Equivalent
USD
(In Thousands)
US$80,508
=4,263,336
P
US$100,299
P
=4,895,103
1,136
60,303
734
35,980
4,500
–
105,533
22,999
US$82,534
220,703
–
5,151,786
1,121,771
P
=4,030,015
6,500
–
88,144
15,210
US$72,934
344,903
2,475,540
7,144,082
1,492,711
=5,651,371
P
As of December 31, 2006 and 2005, long-term debt to foreign banks is shown net of unamortized
debt issue costs totaling P
=246.8 million (US$4.6 million) and P
=276.1 million (US$5.0 million),
respectively. As of December 31, 2006 and 2005, total unamortized debt issuance costs follow:
2006
Societe Generale (SG) and Calyon loan
Nordea Bank (Nordea) loan
Calyon and SG loan
Nordea Bank Sweden AB (Nordea) loan
ING Bank N.V. (ING) loan
Nordic Investment Bank (Nordic) loan
Bayerische HypoVereinsbank
(HypoVereinsbank) loan
US$1,215
1,156
1,000
548
495
107
40
US$4,561
2005
(In Thousands)
US$1,497
P
=66,832
2,038
64,568
1,295
53,077
–
29,500
–
24,744
142
5,845
2,211
P
=246,777
70
US$5,042
P81,793
=
113,959
68,756
–
–
7,809
3,830
=276,147
P
Except for the liability under the minimum capacity purchase agreement, the repayment of the
foregoing long-term debt follows:
2006
2005
(In Thousand Pesos)
Due in:
2006
2007
2008
2009
Thereafter
P
=–
950,114
860,312
830,762
2,289,896
P
=4,931,084
=1,466,180
P
855,594
858,735
818,369
2,800,301
=6,799,179
P
The liability under the minimum capacity purchase agreement is payable based on the actual
material capacity purchased (see discussion within the note under Minimum Capacity Purchase
Agreement section).
*SGVMC109286*
- 34 The interest rates and maturities of the above loans follow:
Foreign banks
Maturities
2013
Interest Rates
US Dollar (USD) London Interbank
Offering Rates (LIBOR) +
0.30% to 2.70% in 2006
USD LIBOR + 0.40% to 2.70% in 2005
USD LIBOR + 0.75% to 2.00% in 2004
The foregoing liabilities, except for the financial lease obligation and the liability under the
minimum purchase agreement are guaranteed up to a certain extent by the Parent Company’s
majority stockholders and chattel mortgages on specific assets financed. In addition, the covering
loan agreements of such liabilities contain covenants which, among others, restrict the incurrence
of loans or debts not in the ordinary course of business, merger or disposition of any substantial
portion of the Parent Company’s assets, distribution of capital or profits, redemption of any of its
issued shares, reduction of the Parent Company’s registered and paid-up capital and maintenance
of certain debt to equity ratios.
The exchange rates used to restate the foreign currency borrowings were P
=49.03 to US$1.00,
=53.06 to US$1.00 and P
P
=56.34 to US$1.00 as of December 31, 2006, 2005 and 2004,
respectively.
The loan agreements with suppliers, banks and other financial institutions provide for certain
restrictions and requirements with respect to, among others, maintenance of financial ratios and
percentage of ownership of specific shareholders, incurrence of additional long-term indebtedness
or guarantees and creation of property encumbrances.
Following is a summary of the significant provisions of the loan contracts with creditors which
comprise the Group’s long-term debt:
US$23.6 Million SG and Calyon Loan
On April 11, 2005, DMPI entered into an equipment supply contract with Huawei Technologies
Co., Ltd., for the supply of equipment, software and off-shore services for the GSM 1800
National Capital Region (the Equipment Supply Contract). Under the terms and conditions of the
loan, SG and Calyon agreed to make available a credit of up to US$23.6 million. The amount
shall be used to finance the Equipment Supply Contract, to the extent covered by the insurance of
SINOSURE, a credit insurance agency.
The aggregate amount of all disbursements under the loan shall be payable in 14 consecutive
equal semi-annual installments, the first one of which will become due 6 months after the starting
date for repayment and thereafter, each of them falling due on the following interest payment
date. DMPI shall pay interest equivalent to USD LIBOR plus 0.60% per annum.
As of December 31, 2006 and 2005, the outstanding balance of the SG and Calyon loan amounted
to P
=628.2 million (US$13.0 million) and P
=439.8 (US$8.3 million), respectively.
*SGVMC109286*
- 35 US$43.5 Million Nordea Loan
On January 12, 2004, the Parent Company entered into an export credit facility with Nordea in the
aggregate principal amount of up to US$43.5 million. Under the export credit facility, Nordea
shall make available the amount of the loan for the sole purpose of financing up to (i) 85% of the
off-shore contract value amounting to US$40.6 million, and (ii) 85% of the Swedish Export
Credits Guarantee Board (EKN) premium. The interest payable on the loan shall be the USD
LIBOR plus 0.75% per annum. The loan is payable in 14 consecutive equal semi-annual
installments, the first of which shall fall due on March 15, 2005, subject to EKN’s rules and
regulations.
As of December 31, 2006 and 2005, the outstanding balance of the loan amounted to P
=1.5 billion
(US$30.1 million) and =
P1.8 billion (US$35.7 million), respectively.
US$19.0 Million Calyon and SG Loan
On May 5, 2005, DMPI entered into a supply and service contract with Alcatel CIT and Alcatel
Philippines Inc. for the supply of various telecommunications materials, software and services for
the GSM Cellular Mobile Short-term Core Extension Project (the Supply and Service Contract).
Under the terms and conditions of the loan, Calyon and SG agreed to make available a credit of
up to US$19.0 million. The amount shall be used to finance the Supply and Service Contract, to
the extent covered by the insurance of Compagnie Francaise d’Assurance pour le Commerce
Exterieur S.A., a credit insurance agency.
The aggregate amount of all disbursements under the Loan shall be payable in 14 consecutive
equal semi-annual installments, the first one of which will become due 6 months after the starting
date for repayment and thereafter, each of them falling due on the following interest payment
date. DMPI shall pay interest equivalent to USD LIBOR plus 0.40% per annum.
As of December 31, 2006 and 2005, the outstanding balance of the aforementioned loan
pertaining to the Supply and Service Contract amounted to P
=775.4 million (US$15.9 million) and
=435.9 million (US$8.2 million), respectively.
P
US$18.7 Million Nordea Loan
On April 4, 2006, DMPI entered into a loan facility with Nordea. Under the terms of the facility,
Nordea shall make available the amounts of (i) US$17.1 million and (ii) 100% of the premium
payable to the Swedish Export Credits Guarantee Board (the EKN), the aggregate amounts not to
exceed the commitment of US$18.7 million. The Nordea loan is guaranteed by the Parent
Company and JGSHI. The loan bears interest equivalent to the sum of USD LIBOR plus 0.35%
per annum. The loan is payable in 18 consecutive equal semi-annual installments, the first of
which shall fall due on October 30, 2006, subject to EKN’s rules and regulations.
As of December 31, 2006, the outstanding balance of the Nordea loan amounted to P
=342.7 million
(US$7.0 million).
ING Loans
In 2006, DMPI entered into various purchase agreements with certain suppliers and service
contractors. The purchase agreements relate to the supply of equipment, software, and services
for the Mobile Messaging Core Network (the Phase 5 project) and the Visayas-Mindanao
Expansion Project (the Phase 6 project).
*SGVMC109286*
- 36 Pursuant to the aforementioned purchase agreements, DMPI entered into a loan agreement with
ING where ING agreed to make available amounts up to US$61.2 million to finance the purchase
agreements.
The amounts owed from ING shall be payable in 14 consecutive equal semi-annual installments
(the start payment dates for which the various drawdowns of which are stipulated in the contract).
The loans bear interest equivalent to the sum of USD LIBOR plus margins ranging from 0.30% to
0.60% per annum. The portion of the ING loans, which pertains to the Phase 6 project, is
guaranteed by the Parent Company and the ultimate parent.
As of December 31, 2006, the outstanding balance of the ING loans amounted to P
=538.8 million
(US$11.0 million).
US$20.0 Million Nordic Loan
On October 12, 2004, DMPI entered into a credit-term loan facility with Nordic in the amount of
up to US$20.0 million, guaranteed by its Parent Company and JGSHI. The loan shall bear
interest equivalent to the sum of USD LIBOR plus 2.70% per annum. The loan is payable in 12
consecutive equal semi-annual installments on the payment dates starting on March 15, 2006 and
September 15, 2011.
As of December 31, 2006 and 2005, the outstanding balance of the loan amounted to
=811.3 million (US$16.6 million) and P
P
=1.1 billion (US$19.8 million), respectively.
US$14.02 Million HypoVereinsbank Loan
In January 2001, the Parent Company and HypoVereinsbank signed a buyer’s credit agreement to
finance the export contract of the Parent Company with a certain foreign supplier. The loan made
available in two tranches of US$11.8 million and US$2.2 million or a total of US$14.0 million,
was 85% of the export contract value totaling US$16.5 million. The loan is payable in 14 equal,
consecutive, semi-annual installments starting six months after the final acceptance of all units
purchased but not later than June 30, 2002. The Parent Company pays interest equivalent to USD
LIBOR plus 0.75%.
As of December 31, 2006 and 2005, the total outstanding balance of the loan to HypoVereinsbank
under the two tranches amounted to P
=321.1 million (US$6.6 million) and P
=445.9 million
(US$8.4 million), respectively.
Minimum Capacity Purchase Agreement
The Parent Company and Asia Netcom Asia Pacific Limited entered into a Network Agreement,
where the Parent Company has agreed to purchase and Asia Global Crossing has agreed to grant
rights with regard to, not less than, US$40 million of capacity of an indefeasible right of use basis
(IRU) of circuits in various cables systems. Pursuant to the restructuring of US$18.0 million
capacity purchase agreement with its joint venture partner, the Parent Company was granted an
adjustment in the purchase price of the use of the submarine fiber optic cable system amounting to
US$3.0 million in 2004. The outstanding liability under the capacity purchase agreement
amounted to P
=220.7 million (US$4.5 million) and P
=344.9 million (US$6.5 million) as of
December 31, 2006 and 2005, respectively (see Note 8).
*SGVMC109286*
- 37 13. Other Noncurrent Liabilities
This account consists of:
Accrued project costs
ARO
Pension liabilities (Note 16)
2005
2006
(In Thousand Pesos)
=2,946,711
P
P
=1,637,957
148,154
228,176
62,102
90,105
=3,156,967
P
P
=1,956,238
Accrued project costs represent costs of unbilled materials, equipment and labor which are
already eligible for capitalization as of December 31, 2006 and 2005. Determination of costs to
be capitalized is based on the contract price multiplied by the percentage of shipped materials
and/or delivered services.
The rollforward analysis of the Group’s ARO follows:
Balance at beginning of year
Capitalized to property and equipment
during the year
Accretion expense during the year (Note 21)
Balance at the end of year
2005
2006
(In Thousand Pesos)
=123,710
P
P
=148,154
54,171
25,851
P
=228,176
8,944
15,500
=148,154
P
2006
9,000,000,000
P
=1.00
6,356,976,300
2005
9,000,000,000
=1.00
P
6,356,976,300
14. Equity
Details of the Parent Company’s common stock follow:
Authorized shares
Par value per share
Issued shares (Note 26)
Deficit
The previously reported balances of deficit as of December 31, 2005 and January 1, 2005 were
restated to effect retroactive net adjustments amounting to P
=305.3 million and P
=130.9 million,
respectively, said retroactive adjustments pertain to the reversal of market valuation losses on
DCPL Bonds (see Notes 11 and 27).
*SGVMC109286*
- 38 -
15. Related Party Transactions
The Group, in the regular conduct of its business, enters into transactions with related parties
principally consisting of reimbursement of expenses and advances at prevailing market rates.
Under the policy of the Group, these transactions are made substantially on the same terms as
with other individuals and business of comparable risks.
Intercompany transactions are eliminated in the accompanying consolidated financial statements.
Related party transactions not eliminated are as follows:
Due from related parties
Due to related parties
2005
2006
(In Thousand Pesos)
=153,683
P
P
=90,150
19,598,408
20,812,950
The compensation of the Group’s key management personnel (under General and Administrative
Expenses account in the statements of income) by benefit type follows:
Short-term employee benefits
Post-employment benefits
2005
2006
(In Thousand Pesos)
=113,880
P
P
=140,655
2,582
3,913
=116,462
P
P
=144,568
2004
=102,570
P
2,993
=105,563
P
There are no agreements between the Group and any of its directors and key officers providing for
benefits upon termination of employment.
16. Employee Benefits
Employee Stock Option (ESOP)
The Parent Company’s BOD and stockholders approved on August 10, 1994 and November 7,
1994, respectively, an ESOP which provides opportunity for all directors, officers and managers
of the Parent Company to purchase an ownership interest in the Parent Company’s common stock.
The ESOP covers the offering of 320.0 million shares out of the authorized but unissued shares,
including issued shares reacquired by the Parent Company, to all eligible participants of the ESOP
at an exercise price of P
=1.50 per share. Under the ESOP guidelines, eligible participants will be
allocated an aggregate amount of shares determined in accordance with their rank, seniority and
performance. The option to purchase shares under the ESOP may be exercised after completion
of at least five years of continuous service to the Parent Company by paying the full amount in
cash.
No options have been awarded pending approval of the SEC. Once approved, options granted
will be accounted for under PFRS 2 and related Philippine Interpretations.
*SGVMC109286*
- 39 Pension Costs
The Group has an unfunded, noncontributory, defined benefit retirement 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 amounts recognized as pension liabilities (under Other Noncurrent Liabilities account in the
consolidated balance sheets) follow:
2005
2006
(In Thousand Pesos)
Present value of defined benefit
obligation
Unrecognized actuarial loss
Benefits paid
Liability at end of year (Note 13)
P
=224,466
(131,282)
(3,079)
P
=90,105
P86,328
=
(24,226)
–
=62,102
P
2004
=46,721
P
(4,707)
–
=42,014
P
The movements in the liability recognized in the consolidated balance sheets follow:
Balance at beginning of year
Total pension expense
Balance at end of year
2005
2006
(In Thousand Pesos)
=42,014
P
P
=62,102
20,088
28,003
=62,102
P
P
=90,105
2004
=18,641
P
23,373
=42,014
P
Components of retirement expense (under General and Administrative expenses account) in the
consolidated statements of income follow:
Current service cost
Interest cost
Amortization of actuarial loss
Total pension expense
2005
2006
(In Thousand Pesos)
=13,217
P
P
=17,238
6,707
9,322
164
1,443
=20,088
P
P
=28,003
2004
=16,718
P
6,655
–
=23,373
P
Changes in the present value of the defined benefit obligation follow:
Balance at beginning of year
Current service cost
Interest cost
Actuarial loss
Benefits paid
Balance at end of year
2005
2006
(In Thousand Pesos)
=46,721
P
P
=86,328
13,217
17,238
6,707
9,322
19,683
108,499
–
3,079
=86,328
P
P
=224,466
2004
=18,641
P
16,718
6,655
4,707
–
=46,721
P
*SGVMC109286*
- 40 The assumptions used to determine retirement benefits follow:
Discount rates at:
January 1
December 31
Future salary rate increase
2006
2005
2004
9.78%-11.92%
6.04%-8.17%
6.0%-7.0%
11.52%-12.33%
13.42%-14.47%
6.5%
12.31%-14.54%
11.52%-12.33%
6.5%
The Group’s experience adjustments on plan liabilities as of December 31, 2006 and 2005
amounted to P
=9.6 million and P
=19.6 million, respectively.
17. Interest Income
Interest income is earned from the following:
Short-term placements
Due from related parties
Cash in banks
2005
2006
(In Thousand Pesos)
=33,083
P
P
=15,824
5,138
3,458
948
1,438
=39,169
P
P
=20,720
2004
=24,070
P
5,426
892
=30,388
P
18. Other Income
Other income, net of loss from debt modification amounting to P
=16.5 million in 2006
(see Note 27), includes the recovery from write-down of inventories and accretion of refundable
deposits.
19. Network-Related Expenses
This account consists of:
Rentals (Note 25)
Repairs and maintenance
Utilities
Staff costs
Taxes and licenses
Outside services
Professional fees
Others
2005
2004
2006
(In Thousand Pesos)
=538,059
P
=430,585
P
P
=629,596
394,410
149,790
507,479
220,364
107,180
310,127
156,934
135,489
190,063
159,522
134,234
180,066
116,682
96,690
132,247
25,959
49,873
96,995
192,936
199,944
202,014
=1,804,866
P
P1,303,785
=
P
=2,248,587
*SGVMC109286*
- 41 -
20. General and Administrative Expenses
This account consists of:
Marketing and selling expenses
Staff costs (Note 16)
Utilities
Outside services
Others
2005
2004
2006
(In Thousand Pesos)
=607,698
P
=582,272
P
P
=760,229
600,963
544,464
741,559
260,084
233,647
313,329
249,699
233,828
297,204
569,026
565,179
523,777
=2,287,470
P
P2,159,390
=
P
=2,636,098
Revenue Regulation (RR) No. 10-2002 defines expenses to be classified as entertainment,
amusement and recreation (EAR) expenses and sets a limit for the amount that is deductible for
tax purposes. EAR expenses are limited to 0.5% of net sales for sellers of goods or properties or
1% of net revenue for sellers of services. For sellers of both goods or properties and services, an
apportionment formula is used in determining the ceiling on such expenses. The Group
recognized EAR expenses (included under Others in General and Administrative Expenses
account in the consolidated statements of income) amounting to P
=76.2 million, P
=85.2 million and
=76.0 million in 2006, 2005 and 2004, respectively.
P
21. Financing Costs and Other Charges
This account consists of:
Interest expense
Accretion of ARO (Note 13)
Others
2005
2004
2006
(In Thousand Pesos)
=2,773,104
P
P1,329,725
=
P
=2,115,388
15,500
10,734
25,851
14,825
6,995
10,411
=2,803,429
P
=1,347,454
P
P
=2,151,650
Interest expense is incurred from the following:
Long-term debt (Notes 11 and 12)
Others
2005
2004
2006
(In Thousand Pesos)
=1,894,112
P
=645,596
P
P
=1,973,817
879,338
684,129
141,857
=
P
2,773,450
P
=
1,329,725
P
=2,115,674
*SGVMC109286*
- 42 -
22. Impairment Losses and Others
This account consists of:
2005
2006
(In Thousand Pesos)
Provisions for impairment losses on:
Trade and other receivables
(Notes 3 and 5)
Investment in a joint venture (Note 9)
Inventory obsolescence and
market decline
2004
P
=241,002
–
=225,232
P
148,955
=470,026
P
100,500
7,103
P
=248,105
41,211
=415,398
P
1,426
=571,952
P
23. Income Taxes
Components of the Group’s net deferred income tax liabilities follow:
2005
2006
(In Thousand Pesos)
Deferred income tax assets on:
Allowance for impairment losses on
trade receivables
Allowance for impairment losses on
investment a joint venture
NOLCO
MCIT
Unfunded pension benefits
Accrued rent
Inventory obsolescence
Unearned revenue
ARO
Deferred income tax liabilities on:
Unrealized foreign exchange gain
Capitalized interest - net
Capitalized foreign exchange
loss - net
Market valuation gain on derivative
instruments - net
Unamortized debt issuance costs
Accretion of refundable deposits
Net deferred income tax liabilities
P
=660,000
=632,261
P
87,309
53,278
37,879
26,401
6,171
3,392
1,819
380
876,629
87,309
314,422
33,522
18,957
5,788
3,392
3,013
273
1,098,937
1,551,634
791,728
685,451
679,488
558,083
604,179
263,691
80,488
884
3,246,508
P
=2,369,879
8,127
96,644
–
2,073,889
=974,952
P
*SGVMC109286*
- 43 As of December 31, 2006, the Parent Company’s carryover NOLCO and MCIT that may be
claimed as deduction from future taxable income or used as deductions against income tax
liabilities with their expiry date follows:
Inception Year
2006
2005
2004
Expiry Year
2009
2008
2007
NOLCO
MCIT
(In Thousand Pesos)
=–
P
=13,678
P
152,221
10,547
–
13,653
152,221
37,878
Movements in NOLCO and MCIT follow:
NOLCO
Balance at beginning of year
Additions
Application against taxable income
Expiry
Balance at end of year
MCIT
Balance at beginning of year
Additions
Expiry
Balance at end of year
2005
2006
(In Thousand Pesos)
=746,128
P
P
=898,349
–
152,221
–
(348,668)
–
(397,460)
=898,349
P
P
=152,221
2006
P
=33,522
13,678
(9,322)
P
=37,878
2004
=749,024
P
–
(2,896)
–
=746,128
P
2005
2004
(In Thousand Pesos)
=22,975
P
=9,322
P
10,547
13,653
–
–
=33,522
P
=22,975
P
DMPI did not recognize any deferred income tax assets on the following temporary differences
because management believes that DMPI may not be able to generate sufficient taxable income
that will be available to allow all or part of the deferred income tax assets to be realized:
2006
NOLCO
Allowance for impairment losses on
trade and other receivables
Unearned revenue
Accrued rent
Accretion of ARO
Allowance for inventory obsolescence
Depreciation of ARO
Unfunded pension benefits
P
=4,409,117
657,070
327,322
115,872
57,772
18,873
18,158
14,672
P
=5,618,856
2005
2004
(In Thousand Pesos)
=3,176,777
P
=2,037,303
P
496,276
324,172
59,738
32,226
18,873
–
7,938
=4,116,000
P
190,846
189,686
12,369
17,008
8,079
–
5,600
=2,460,891
P
*SGVMC109286*
- 44 A reconciliation of the Group’s provision for income tax computed using the statutory income tax
rate to the provision for income tax shown in the consolidated statements of income follows:
Statutory income tax
Additions (reductions) resulting from:
Changes in unrecognized deferred
income tax assets
NOLCO expiration
Loss from debt modification
MCIT expiration
Other nondeductible expenses
Effect of change in income tax rates
Equity in net loss of a joint venture
Interest income subjected to final
tax*
Others
Effective income tax
2005
2006 (As Restated)
(In Thousand Pesos)
(P
=284,452)
P
=157,201
748,653
90,462
11,303
9,322
391,379
–
–
(53)
3,788
P
=1,412,055
2004
(P
=593,895)
523,841
–
570,638
–
–
395,813
77,649
5,348
–
68,512
–
3,160
(6,461)
2,589
=714,327
P
(6)
147,673
=196,082
P
* Net of nondeductible interest expense.
RA No. 9337
RA No. 9337 was enacted into law amending various provisions in the existing 1997 National
Internal Revenue Code. On October 18, 2005, the Supreme Court has rendered its final decision
declaring the validity of the RA No. 9337. Among the reforms introduced by the said RA which
became effective on November 1, 2005 are as follows:
·
·
·
·
·
Increase in the corporate income tax rate from 32% to 35% with a reduction thereof to 30%
beginning January 1, 2009;
Increase in VAT rate from 10% to 12% effective February 1, 2006 as authorized by the
Philippine President pursuant to the recommendation of the Secretary of Finance, subject to
compliance to certain economic conditions;
Revised invoicing and reporting requirements for VAT;
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.
*SGVMC109286*
- 45 -
24. Registration with Board of Investments (BOI)
The Parent Company is registered with the BOI as an expanding operator of public
telecommunications services and IGF-2 on a nonpioneer status with a registered capacity of
786,000 lines covering the areas of Regions I to V and the Cordillera Autonomous Region. Under
the terms of its registration, the Parent Company is entitled to income tax holiday (ITH) for three
to six years on income derived from certain areas, additional deduction of labor expenses for five
years but not simultaneous with the ITH, employment of foreign nationals for five years and
unrestricted use of consigned equipment. However, the Parent Company is subject to certain
requirements such as: (a) maintaining a base equity of at least 25%, (b) filing of specialized
financial reports with the BOI, and (c) the need for prior approval for the (i) issuance of stock
convertible into voting stock, (ii) repurchase of its own stock, (iii) investment in, extension of
loans or purchase of bonds in substantial amount from any enterprise other than those bonds
issued by the Philippine government, (iv) expansion of its capacity, with or without incentives,
and (v) transfer of ownership or control of the Parent Company.
The Parent Company is registered with the BOI as a new operator of telecommunications systems
on nationwide CMTS-GSM communication network on a pioneer status with a registered capacity
of 553,451 lines. Consequently, the Parent Company became entitled to the following incentives:
(1) ITH for six years which is reckoned from January 2003 or from the actual start of commercial
operations, whichever comes first, but in no case earlier than the date of registration; provided
however, that the Parent Company has complied with the infusion of the minimum investment
cost of P
=1.0 billion not later than four years from the date of its registration. In case of failure to
comply with the said investment requirement, BOI shall be constrained to automatically amend
the project’s status of the registration from a pioneer status (entitled to six years ITH) to a
nonpioneer status (entitled to four years ITH). Prior to availment of ITH incentive, the Parent
Company shall submit proof of compliance with the Tree Planting Program of BOI, (2) allowable
additional deduction from taxable income of fifty percent of the wages for the first five years from
the date of registration, corresponding to the increment in the number of direct labor for skilled
and unskilled workers in the year of availment as against the previous year if the project meets the
prescribed ratio of capital equipment to number of workers set by BOI of not more than
US$10,000 to one worker, and provided that this incentive shall not be availed of simultaneously
with the ITH, (3) unrestricted use of consigned equipment, and (4) employment of foreign
nationals in technical, supervisory or advisory positions for five years from the date of
registration.
On October 10, 2003, the BOI registration was transferred to DMPI subject to the following
conditions: (1) submission of a resolution duly approved by the BOD accepting all the terms and
conditions imposed by the BOI on the registration, (2) start of the period of availment of
incentives of the DMPI from the date of the registration, and (3) compliance with other
requirements/conditions as may be imposed by the BOI. In relation to the incentives from BOI,
DMPI is required to maintain a 75:25 debt to equity ratio within a specific period as prescribed by
the BOI.
*SGVMC109286*
- 46 On December 14, 2006, the Group was registered with the BOI as a new operator of infrastructure
and telecommunications facilities (i.e. 3G telecommunications system) on a pioneer status with a
registered capacity of 950 base transceiver stations (BTS) and 378 BTS for DMPI and the Parent
Company, respectively. The acceptance of the terms and conditions of the approval of
registration states that the Group reserves the right through due process, to appeal entitlement to
ITH after the issuance of the Certificate of Registration. As of December 31, 2006, the Group has
not filed an appeal for ITH entitlement under the new registration.
Under the terms of the registration, the Group is entitled to the following fiscal and non-fiscal
incentives:
a. For the first 5 years from the date of registration, the Group shall be allowed an additional
deduction from taxable income of 50% of the wages corresponding to the increment in the
b. number of direct labor for skilled and unskilled workers in the year of availment as against the
previous year, if the project meets the prescribed ratio of capital equipment to the number of
workers set by BOI of US$10,000 to 1 worker.
c. The Group shall be allowed the employment of foreign nationals in supervisory, technical or
advisory positions for a period of 5 years from date of registration. The president, general
manager and treasurer of foreign-owned registered firms or their equivalent shall not be
subject to the limitations set in the registration.
d. The Group shall be given tax credit equivalent to the national internal revenue taxes and
duties paid on raw materials and supplies and semi-manufactured products used in producing
its export product and forming part thereof for 10 years from start of commercial operations.
The request for amendment of the date of start of commercial operations for purposes of
determining the reckoning date of the 10-year period shall be filed within 1 year from date of
committed start of commercial operations.
e. The Group shall be entitled to simplification of Bureau of Customs’ (Customs) procedures for
the importation of equipment, spare parts, raw materials and supplies.
f.
The Group shall be entitled access to Customs Bonded Manufacturing Warehouse (CBMW),
subject to Customs’ rules and regulations and provided that the Group exports at least 70% of
the production output.
g. The Group shall be exempted from wharfage dues, any export tax, duty, imposts and fees for
a 10 year period from date of registration.
h. The Group shall be allowed importation of consigned equipment for a period of 10 years from
date of registration, subject to the posting of re-export bond.
i.
The Group shall be exempted from taxes and duties on imported spare parts and consumable
supplies for export producers with CBMW exporting at least 70% of production.
*SGVMC109286*
- 47 j.
The Group may also qualify to import capital equipment, spare parts and accessories with
exemption on the related duties from date of registration up to June 16, 2011, pursuant to
Executive Order No. 528 and its implementing rules and regulations.
Under the specific terms and condition of the BOI registration as a new operator of infrastructure
and telecommunications facilities, the Group must increase its subscribed and paid-up capital
stock by at least P
=1,576,631,445, and must submit proof of compliance prior to availment of
incentives.
The Group must submit to the BOI a quarterly report on actual investments, employment and
sales pertaining to the project. Said report will be due within 15 days from end of each quarter,
starting
on the date of registration. The Group must also submit to the BOI an annual report of its actual
investments, taxes paid and employment within 1 month following the end of each fiscal year.
Furthermore, the Group must submit a proof of compliance with the Tree Planting Program of the
BOI.
25. Commitments and Contingencies
Buy-out Option Under Finance Lease Agreement
In 1993, the Parent Company entered into a Facilities Management Agreement (FMA) with the
DOTC covering certain telecommunications facilities owned by the DOTC. The FMA also
provides for its conversion into a lease contract under certain terms and conditions as the parties
may agree upon. In accordance with the provisions of the FMA, the Parent Company and the
DOTC agreed to amend and convert the FMA into Financial Lease Agreements (FLA) in 1995
and 1996 pursuant to which 29,046 lines were converted. Under the FLA, the Parent Company
was granted the exclusive right to lease, manage, maintain, operate, develop and eventually own
the said DOTC facilities. The lease is for a period of 30 years with the annual lease payment
based on the formula set forth in the FLA (see Notes 8 and 12).
In May 2003, pursuant to the provision of the FLA, the Parent Company proceeded to negotiate
with the DOTC for the buy-out of the telecommunication facilities covered by all FLAs. In
August 2004, the Parent Company made a final offer to buy-out the facilities, against a previous
counter-offer made by DOTC in June 2004.
Negotiations were concluded between the parties and are awaiting the decision of the
International Court of Arbitration of the International Chamber of Commerce. In view of the
ongoing proceedings of the arbitration body and due to the uncertainty involved, no disclosure is
made of any estimate of the financial effects of this matter.
Operating Lease Commitments - Group as a Lessee
The Group leases 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 30 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 Prepayments and Other Current Assets and Other Noncurrent Assets
*SGVMC109286*
- 48 accounts in the consolidated balance sheets. The Group’s rentals incurred on these leases,
included under General and Administrative and Network-related Expenses accounts in the
consolidated statements of income, amounted to P
=421.2 million, P
=396.3 million and
=320.6 million in 2006, 2005 and 2004, respectively.
P
Future minimum lease payments under these operating leases follow:
Not later than one year
After one year but not more than
five years
After five years
2005
2006
(In Thousand Pesos)
=344,796
P
P
=495,005
2,677,060
4,268,676
P
=7,440,741
1,481,548
447,768
=2,274,112
P
2004
=322,916
P
1,373,644
598,835
=2,295,395
P
Agreements and Commitments with Suppliers and Carriers
The Group has existing agreements with various telecommunications carriers and operators, local
exchange carriers, international exchange carriers, CMTS operators, paging and trunk radio
operators, provincial operators and with the Philippine Government to cover the following
services:
a. International telecommunications operation services between servicing points in another
country where the other party is domiciled and the Group’s terminals servicing points in the
Philippines.
b. National and international private leased circuit services on a reciprocal basis between the
other party and the Group in the timely support of services to their respective customers.
c. Internet transport and access services and other telecommunications services that may be
introduced from time to time.
d. Interconnection of the Group’s CMTS network with the CMTS, local exchange, interexchange and international gateway facilities with the telecommunications network of other
domestic telecommunications carriers.
The Group has a commitment to construct, install, operate and maintain a nationwide CMTS
using GSM technology. Prior to the assignment of the PA to DMPI, the Parent Company entered
into a supply agreement with foreign suppliers including their local affiliates for a total contract
price of
=19.2 billion for Phases 1 to 4 of the said project. The Parent Company and DMPI have incurred
P
costs for said project totaling to P
=19.7 million and P
=18.4 billion in 2006 and 2005, respectively
(see Note 8).
Others
The Group has various contingent liabilities arising in the ordinary conduct of business which are
either pending decision by the courts, under arbitration or being contested, the outcome of which
are not presently determinable. In the opinion of management and its legal counsel, the eventual
liability under these lawsuits or claims, if any, will not have a material or adverse effect on the
*SGVMC109286*
- 49 Group’s financial position and results of operations. The information normally required by
PAS 37 is not disclosed in accordance with the provisions of this standard, on the grounds that it
may prejudice the outcome of these lawsuits, claims, arbitration and assessments.
26. Loss Per Share
The following reflects the loss and share data used in the loss per share computations:
Net loss
Weighted average number of common
shares (Note 14)
Loss per share
2005
2004
(As Restated)
2006
(In Thousand Pesos, Except Weighted
Average Number of Common Shares
and Loss Per Share Figures)
=962,908
P
=1,589,565
P
=2,052,004
P
6,356,976,300
=0.1515
P
6,356,976,300
=0.2501
P
6,356,976,300
=0.3228
P
27. Financial Instruments
Financial Risk Management Objectives and Policies
The Group’s principal financial instruments, other than derivatives, comprise cash and cash
equivalents and interest-bearing loans and borrowings. The main purpose of these financial
instruments is to fund its operations and capital expenditures. The Group has other financial
assets and financial liabilities, such as trade receivables and payables which arise directly from its
operations.
The main risks arising from the use of financial instruments are liquidity risk, interest rate risk,
foreign currency risk and credit risk. The Group’s BOD reviews and approves on policies for
managing each of these risks and they are summarized below.
Liquidity risk
The Group seeks to manage its liquidity profile to be able to service its maturing debts and to
finance capital requirements. The Group maintains a level of cash and cash equivalents deemed
sufficient to finance operations. As part of its liquidity risk management, the 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. Fund raising activities may
include bank loans, export credit agency facilities, and suppliers’ credits.
Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates primarily to its interestbearing loans and borrowings. As of December 31, 2006 and 2005, all of the Group’s borrowings
are at a floating rate of interest.
*SGVMC109286*
- 50 The following tables show information (in thousands) about the Group’s financial instruments as of December 31, 2006 and 2005 that are exposed to interest rate risk, presented by maturity
profile.
2006
Liabilities:
Long-term debt
Bank loans
Debt
Issuance
Costs
Carrying
Value
(In Philippine
Peso)
Fair Value
<1 year
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
Total
(In USD)
Total
(in Philippine
Peso)
US$20,108
US$18,665
US$17,892
US$16,940
US$16,322
US$14,934
US$104,861
=5,141,880
P
=246,777
P
=4,895,103
P
=5,705,927
P
USD LIBOR + 0.30%
USD LIBOR + 0.35%
USD LIBOR + 0.40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
USD LIBOR + 0.30%
USD LIBOR + 0.35%
USD LIBOR + 0.40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
USD LIBOR + 0.30%
USD LIBOR + 0.35%
USD LIBOR + 0.40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
USD LIBOR + 0.30%
USD LIBOR + 0.35%
USD LIBOR + 0.40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
USD LIBOR + 0.30%
USD LIBOR + 0.35%
USD LIBOR + 0.40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
USD LIBOR + 0.30%
USD LIBOR + 0.35%
USD LIBOR + 0.40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
US$259,398
=12,718,295
P
=–
P
=12,718,295
P
=9,463,244
P
Floating rate
Zero coupon bonds
payable (with an
effective interest
rate of 12%)
US$259,398
*SGVMC109286*
- 51 2005
Liabilities:
Long-term debt
Bank loans
Debt
Issuance
Costs
Carrying
Value
(In Philippine
Peso)
Fair Value
<1 year
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
Total
(In USD)
Total
(in Philippine
Peso)
US$14,203
US$14,269
US$14,269
US$13,496
US$12,543
US$16,770
US$85,550
=4,539,484
P
=276,148
P
=4,263,336
P
=3,768,418
P
USD LIBOR + 40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
USD LIBOR + 40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
USD LIBOR + 40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
USD LIBOR + 40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
USD LIBOR + 40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
USD LIBOR + 40%
USD LIBOR + 0.60%
USD LIBOR + 0.75%
USD LIBOR + 2.70%
–
–
–
–
–
226,987
226,987
12,044,360
–
12,044,360
11,961,853
Floating rate
Zero coupon bonds
payable (with an
effective interest
rate of 12%)
*SGVMC109286*
- 52 Credit risk
All regular applicants for postpaid service are subjected to stringent standard verification
procedures performed by the Credit Management unit of the Group. Orientation and trainings are
conducted to credit officers to ensure effective and consistent application of credit evaluation
procedures and guidelines, thereby minimizing credit exposure. Credit policies are reviewed on a
regular basis to ensure that credit parameters are updated with the changing business conditions
and environment. Receivable balances are monitored regularly and appropriate credit notifications
are executed at various stages by Credit Management which implements differentiated credit
actions applied in various stages of delinquency to manage the risk. The net receivable balances
from carriers of traffic are also being monitored and subjected to appropriate actions to minimize
credit exposure.
With respect to credit risk arising from the other financial assets of the Group, which comprise
cash and cash equivalents and certain derivative instruments (if applicable), the Group’s exposure
to credit risk arises from default of the counterparty, with a maximum exposure equal to the
carrying amount of these instruments. Credit risk management involves dealing only with
institutions for which credit limits have been established.
Foreign exchange risk
The Group’s foreign exchange risk results primarily from movements of the Philippine Peso
against the US Dollar. As of December 31, 2006 and 2005, 65% and 71% of the Group’s total
debt were denominated in US Dollar, respectively. Furthermore, the Group’s capital expenditures
are substantially denominated in US Dollar.
Information on the Group’s foreign currency-denominated monetary assets and liabilities and
their Philippine peso equivalents are as follows:
2005 (As Restated)
2006
Philippine Peso
Philippine Peso
US Dollar
Equivalent
Equivalent
US Dollar
(In Thousands)
Assets:
Cash and cash equivalents
Receivables - net
Due from related parties
Liabilities:
Accounts payable and accrued
expenses
Long-term debt (including
current portion)
Bonds payable
Net Foreign CurrencyDenominated Liabilities
US$1,448
12,166
52,808
66,422
P
=71,001
596,597
2,589,951
3,257,549
US$599
6,736
33,422
40,757
P31,803
=
357,400
1,773,445
2,162,648
46,965
2,303,934
18,179
971,346
105,533
259,398
411,896
5,151,786
12,718,295
20,174,015
88,144
226,987
333,310
4,676,921
12,044,360
17,692,627
US$345,474
P
=16,916,466
US$292,553
=15,529,979
P
*SGVMC109286*
- 53 Financial Assets and Liabilities
The table below presents a comparison by category of carrying amounts and estimated fair values
of all the Group’s financial instruments as of December 31, 2006 and 2005:
2006
Carrying Value
Financial assets:
Cash and cash equivalents
Receivables - net
Due from related parties
Derivative assets
Refundable deposits (included
under Other Noncurrent
Assets account in the
consolidated balance sheets)
Financial liabilities:
Accounts payable and accrued
expenses
Due to related parties
Long-term debt (including
current portion)
Bonds payable
Derivative liabilities
2005 (As Restated)
Carrying Value
Fair Value
Fair Value
(In Thousand Pesos)
P
=332,212
1,467,640
90,150
939,783
P
=332,212
1,467,640
90,150
939,783
=477,842
P
1,820,307
153,683
25,397
=477,842
P
1,820,307
153,683
25,397
74,250
P
=2,904,035
63,340
P
=2,893,125
50,884
=2,528,113
P
37,577
=2,514,806
P
P
=10,999,530
20,812,950
P
=10,999,530
20,812,950
P7,672,708
=
19,598,408
P7,672,708
=
19,598,408
5,151,786
12,718,295
–
P
=49,682,561
5,933,893
9,463,244
–
P
=47,209,617
7,144,082
12,044,360
15,777
=46,475,335
P
6,595,451
11,961,853
15,777
=45,844,197
P
Receivables from and payables to connecting carriers accounts, included as part of the
Receivables - net and Accounts Payable and Accrued Expenses accounts, respectively, in the
above table, are presented net of any related payable or receivable balances with the same
telecommunications carriers only when there is a right of offset under the traffic settlement
agreements and that the accounts are settled on a net basis.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:
Nonderivative financial instruments
Cash and cash equivalents, receivables and accounts payable and accrued expenses approximate
their carrying amounts in view of the relatively short-term maturity of these instruments.
The fair value of noninterest-bearing refundable deposits is determined as the present value of
estimated future cash flows using prevailing market rates in the range of 5.87% to 15.94%.
The fair value of floating rate loan is determined by discounting the future cash flows (interests
and principal) using prevailing market rates. The frequency of repricing per year affects the fair
value. In general, a loan that is repriced every three months will have a carrying value closer to
the fair value than a six month repriceable loan with similar maturity and interest basis. For loans
repricing every six months (in USD), the discount curve was in the range of 4.81% to 5.05%.
*SGVMC109286*
- 54 The fair values of the zero coupon bonds are determined by discounting the future cash flows at
the maturity dates using a prevailing risk-free rate of 4.44% plus 2.0% spread.
Derivative financial instruments
The fair value of forward exchange derivatives embedded in nonfinancial contracts is calculated
by reference to the prevailing interest differential and spot exchange rate as of valuation date,
taking into account the remaining period-to-maturity of the forwards.
The fair value of the options embedded in the Group’s foreign currency-denominated zero coupon
convertible bonds are valued using standard option valuation methodology.
Derivative Financial Instruments
The Group’s derivatives include currency derivatives embedded in nonfinancial contracts and
optionalities embedded in its foreign currency-denominated zero coupon convertible bonds.
These derivatives are accounted for at fair value through profit or loss.
·
Embedded currency forwards
As of December 31, 2006 and 2005, the total outstanding notional amount of currency
forwards embedded in nonfinancial contracts amounted to US$9.4 million and
US$12.3 million, respectively. The positive fair values amounted to P
=691.6 million and
=25.4 million as of December 31, 2006 and 2005, respectively. The nonfinancial contracts
P
consist mainly of foreign currency-denominated purchase orders with various expected
delivery dates.
·
Embedded options
As of December 31, 2005, the Parent Company’s zero coupon convertible bonds contain
conversion options which entitle the holders to exchange the bonds into shares of the Parent
Company. As of December 31, 2005, the outstanding notional amounts of the conversion
option embedded in the Parent Company’s foreign currency-denominated zero coupon
convertible bonds amounted to 639.7 million shares. The fair valuation of these options
resulted in the recognition of derivative liability of P
=15.8 million as of December 31, 2005. In
January 2006, this conversion option expired due to an amendment made on the bond
agreement. The amendment also gave rise to the valuation of the call options on the zero
coupon convertible bonds (see Note 11).
The Parent Company may redeem the bonds at specified prices on various redemption dates
up to December 2013. The outstanding notional amount of the embedded call options is
US$31.1 million. As of December 31, 2006, the positive fair value of these options amounted
to P
=248.2 million.
*SGVMC109286*
- 55 The net movements in fair value changes of derivative assets follow:
2005
(As Restated)
2006
(In Thousand Pesos)
Balance at beginning of year
Derivative assets
Derivative liabilities
Net changes in fair value of derivatives
Less fair value of settled instruments
Balance at end of year
Derivative assets
Derivative liabilities
P
=25,397
(15,777)
9,620
738,461
(748,081)
(9,620)
P1,546
=
(7,503)
(5,957)
45,388
(29,811)
15,577
939,783
–
P
=939,783
25,397
(15,777)
=9,620
P
28. Segment Reporting
The Group’s operating businesses are organized and managed separately according to the nature
of the services provided, with each segment representing a strategic business unit that serves
different markets.
The Group derives its revenue from the following reportable services:
·
Wireless communication services - represents cellular telecommunications services that allow
subscribers to make and receive domestic long distance and international long distance calls
to and from any place within the coverage area. Revenue principally consists of one-time
registration fees, fixed monthly service fees, revenue from value-added services such as text
messaging, proceeds from sale of phonekits, SIM cards and other phone accessories, and per
minute airtime and toll fees for basic services which vary based primarily on the monthly
volume of calls, the network at which the call terminates and the time at which the call is
placed.
·
Wireline voice communication services - represents fixed line telecommunications services,
which offer subscribers local, domestic long distance and international long distance services,
in addition to a number of value-added services in various service areas covered by the PA
granted by the NTC (see Note 1). Revenue principally consists of fixed monthly basic fees
for service and equipment, one-time fixed line service connection fees, value-added service
charges and toll fees for domestic and international long distance calls.
·
Wireline data communication services - represents a variety of telecommunications services
tailored to meet the specific needs of corporate communications. These include leased lines
and internet services.
*SGVMC109286*
- 56 The Group’s segment information as of December 31, 2006, 2005 and 2004 follow:
2006
Wireless
Communication
Services
Revenue
Net income (loss)
Segment assets
Segment liabilities
Depreciation and amortization
Capital expenditures
Non-cash expenses other than
depreciation and amortization
P4,041,797
=
(1,172,770)
24,381,681
16,231,109
643,703
4,062,882
Wireline Voice
Communication
Services
Wireline Data
Communication
Services
(In Thousand Pesos)
=6,999,562
P
=404,469
P
(2,199,581)
117,493
53,688,677
2,231,823
53,110,597
1,814,472
2,146,064
117,887
419,010
90,370
165,294
2,336,053
Wireless
Communication
Services
Wireline Voice
Communication
Services
38,708
Eliminations
(P
=151,720)
2,291,950
(24,393,812)
(19,517,379)
–
–
Total
=11,294,108
P
(962,908)
55,908,369
51,638,799
2,907,654
4,572,262
(2,291,950)
248,105
Eliminations
Total
2005 (As Restated)
Revenue
Net income (loss)
Segment assets
Segment liabilities
Depreciation and amortization
Capital expenditures
Non-cash expenses other than
depreciation and amortization
P3,176,606
=
(1,369,359)
19,443,285
13,246,263
572,923
8,450,042
Wireline Data
Communication
Services
(In Thousand Pesos)
=7,105,795
P
=390,232
P
(3,157,414)
179,054
53,971,671
2,400,834
52,382,773
2,087,096
2,271,572
75,240
337,242
54,072
157,374
3,030,362
Wireless
Communication
Services
Wireline Voice
Communication
Services
2,271
(P
=165,103)
2,758,154
(22,341,657)
(18,076,806)
–
–
=10,507,530
P
(1,589,565)
53,474,133
49,639,326
2,919,735
8,841,356
(2,758,154)
431,853
Eliminations
Total
2004
Revenue
Net income (loss)
Segment assets
Segment liabilities
Depreciation and amortization
Capital expenditures
Non-cash expenses other than
depreciation and amortization
P1,620,107
=
(1,700,856)
10,710,850
7,055,930
277,905
6,776,113
166,442
Wireline Data
Communication
Services
(In Thousand Pesos)
=5,390,555
P
=364,542
P
(2,267,315)
141,518
56,889,753
2,364,060
51,854,466
2,216,388
2,228,988
68,728
903,301
97,239
2,306,831
5,002
(P
=166,924)
1,774,649
(20,757,541)
(17,403,304)
–
–
(1,896,449)
P7,208,280
=
(2,052,004)
49,207,122
43,723,480
2,575,621
7,776,653
581,826
Segment assets of the Group do not include deferred income tax assets while segment liabilities
do not include income tax payable and deferred income tax liabilities.
*SGVMC109286*
- 57 -
29. Supplemental Disclosures of Noncash Investing and Financing Activities
Supplemental disclosures of noncash investing and financing activities follow:
2005
2006
(In Thousand Pesos)
Additions (reductions) due to foreign
exchange differentials:
Long-term liabilities
Cash and cash equivalents
Property and equipment
P
=193,930
(193,930)
–
(P
=100,949)
100,949
–
2004
=784,610
P
(15,086)
769,524
30. Reclassification of Accounts
The following accounts in 2005 balance sheet and 2005 and 2004 statements of income were
reclassified to conform with the 2006 financial statements presentation:
Reclassified from:
Prepayments and Other
Current Assets
Other Noncurrent Assets - Net
Other Income
General and Administrative
Expenses
General and Administrative
Expenses
Other Noncurrent Liabilities
Reclassified to:
Input VAT - Net
Derivative Assets
Foreign Exchange Gain
(Loss) - Net
Market Valuation Gain on
Derivative Instruments
Network-Related Expenses
Derivative Liabilities
2005
=1,573,059
P
2004
=–
P
25,397
1,953,240
–
(159,221)
45,388
–
1,804,866
1,303,785
15,777
–
31. Approval of the Consolidated Financial Statements
On April 12, 2007, the BOD approved and authorized the release of the accompanying
consolidated financial statements of Digital Telecommunications Phils., Inc. and Subsidiaries.
*SGVMC109286*
- 58 -
SGV & CO
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone: (632) 891-0307
Fax:
(632) 819-0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001
SEC Accreditation No. 0012-FR-1
INDEPENDENT AUDITORS’ REPORT
ON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of Directors
Digital Telecommunications Phils., Inc.
URC Compound, 110 E. Rodriguez, Jr. Avenue
Bagumbayan, Quezon City
We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of Digital Telecommunications Phils., Inc. and Subsidiaries (the Group) included in this
Form 17-A and have issued our report thereon dated April 12, 2007. Our audits were made for the
purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The
schedules listed in the Index to Consolidated Financial Statements and Supplementary Schedules are
the responsibility of the Group’s management and are presented for purposes of complying with the
Securities Regulation Code Rule 68.1 and are not part of the basic consolidated financial statements.
These schedules have been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly state in all material respects the financial
data required to be set forth therein in relation to the basic consolidated financial statements taken as a
whole.
SYCIP GORRES VELAYO & CO.
Renato J. Galve
Partner
CPA Certificate No. 37759
SEC Accreditation No. 0081-AR-1
Tax Identification No. 102-087-055
PTR No. 0267356, January 2, 2007, Makati City
April 12, 2007
SGV & Co is a member practice of Ernst & Young Global
*SGVMC109286*
- 113 -
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. AND SUBSIDIARIES
Schedule A. Marketable Securities - ( Current Marketable Equity Securities and Other Short - Term Investments)
December 31, 2006
( Figures in thousands )
Name of Issuing Entity and
Description of Each Issue
Robinson's Savings Bank
Equitable PCI Bank
Number of Shares
or Principal Amount Amount Shown in
of Bonds and Notes the Balance Sheet
Value based on
Market Quotations at
Balance Sheet Date
Income Received and
Accrued
P
92,901
5,787
P
92,901
5,787
P
26.78
0.48
P
98,965
P
98,965
P
27.26
- 114 -
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. AND SUBSIDIARIES
Schedule B. Amounts Receivable from Directors, Officers, Employees and
Principal Stockholders (Other than Affiliates)
December 31, 2006
(Amounts in Thousands)
Employee Name
WILLIAM S. PAMINTUAN
ROLANDO DALLARTE
AGATON R. CIJAS
TIAN J. TOO
PETER G. DUMELOD
JOEL C. VILLANUEVA
RENE M. RICO
RICARDO C. SILVA
MARIA SOLEDAD V. MAGTUTO
EDMUND S. PEDRO
MICHAEL MONTAGUE DELFIN
JOEL A. ALINDOGAN
EDISON C. AVENDAÑO
JONATHAN L. SAYAPAL
DANILO CUNANAN
WILLIAM L. VELASCO
PEDRO V. BELLEZA
EDGARDO S. MACAM
ADOLFO C. AREOLA
ROBEL VILLANUEVA
PETER ESTEBAN T. ROSALES
ROSARIO M. GARCIA
RODNEY PANGANIBAN
MA. CIELO R. MARQUEZ
RICHARD ZAWILA
MYLENE A. DUERME
AXEL AGDEPPA
MERLIN P. NUISA
MARTIN MANESE
ALFREDO A. GATDULA
RAMON S. DE GUZMAN
MARIA CARIDAD QUIZON
CLARET V. VALERA
VIRGINIA E. BARROGA
VON BAREX BAROL PACETES
HENRY RHOEL AGUDA
GARY PANTON
GENARO PANTIG III
THOMAS BERGSTROM
LINO F. PEREZ
MARIE EDGETTE C. GAMBOA
JOHN JAMBO REGENCIA
JOJIT M. UY
DOMINIQUE MULETA
EDMIRALDO A. LAMBOLOTO
JENNIFER M. URSOLINO
DAVID V. DELA FLOR
ERWIN ROMMEL SANTOS
SHERWIN S. MULDONG
SHEILA ANTENOR-CRUZ
ENRIQUE S. GABRIEL
*OTHERS
TOTAL
* Accounts below P100,000
Additions
Current
1,041
1,000
886
760
602
511
449
421
416
322
318
295
286
275
265
254
243
241
235
232
212
198
192
185
174
165
155
153
143
138
134
131
128
125
121
117
113
113
109
108
108
107
106
105
105
104
103
102
101
101
100
27,025
40,133
Ending Balance
1,041
1,000
886
760
602
511
449
421
416
322
318
295
286
275
265
254
243
241
235
232
212
198
192
185
174
165
155
153
143
138
134
131
128
125
121
117
113
113
109
108
108
107
106
105
105
104
103
102
101
101
100
27,025
40,133
1,041
1,000
886
760
602
511
449
421
416
322
318
295
286
275
265
254
243
241
235
232
212
198
192
185
174
165
155
153
143
138
134
131
128
125
121
117
113
113
109
108
108
107
106
105
105
104
103
102
101
101
100
27,025
40,133
- 115 -
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. AND SUBSIDIARIES
Schedule D.
Indebtedness of Unconsolidated Subsidiaries and Affiliates
December 31, 2006
(Amounts in thousands)
Name of Affiliates
JG Summit Holdings, Inc.
Balance at
Beginning of
Year
P
Robina Farms
Robinsons Department Store
Others
P
275,284 P
Balance at
End of
Year
195,360
2,689
2,689
12,201
20,402
(136,491)
(128,302)
153,683 P
90,150
- 116 -
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. AND SUBSIDIARIES
Schedule E.
Property, Plant and Equipment
December 31, 2006
( Amounts in thousands )
Beginning
Balance
Classification
Additions
(Settlements)
Retirements
Other Changes Additions
(Deductions)
Ending
Balance
Telecommunication Equipment
Land
Buildings and Improvements
Investments in Cable Systems
Facilities Under Finance Lease
Vehicle and Work Equipment
Projects Under Construction
P
32,143,128 P
475,670
3,567,270
758,847
4,419,921
4,612,238
21,173,529
184,345 P
135
61,142
141,280
4,185,360
P
- P
125
3,998
32,327,473
475,805
3,628,412
758,847
4,419,921
4,753,643
25,362,887
TOTAL
P
67,150,603 P
4,572,262 P
0P
4,123 P
71,726,988
- 117 -
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. AND SUBSIDIARIES
Schedule F. Accumulated Depreciation
December 31, 2006
(Amounts in thousands)
Beginning
Balance
Classification
Telecommunication Equipment
Land
Buildings and improvements
Investments in Cable Systems
Facilities under finance lease
Vehicle and work equipment
Projects under construction
P
TOTAL
P
Depreciation
And Amortization
for the year
11,757,916 P
1,002,173
44,033
3,079,758
3,071,533
18,955,413 P
2,060,646
Retirements
P
Other Changes Additions
(Deductions)
P
160,683
315,504
370,821
2,907,654 P
- P
Ending
Balance
21,017 P
25,738
-
13,839,579
1,162,856
69,771
3,395,262
3,442,354
-
- P
21,909,822
- 118 -
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. AND SUBSIDIARIES
Schedule H.
Long-term Debt
December 31, 2006
(Amounts in thousands)
Amount
Authorized by
Indenture
Name of Issuer and
Type of Obligation
Amount
Shown as
Current
Amount
Shown as
Long-term
Bank loans:
Nordea
Nordic
Bayerische Hypo-und VereinsBank
Calyon and SG
SG and Calyon
ING Bank N.V.
P
Supplier's credits
Minimum Capacity Purchase Agreement
Debt Issuance Cost
TOTAL
P
1,914,389 P
817,167
323,336
828,429
695,064
563,496
5,141,881
374,802 P
163,433
168,755
127,451
99,295
52,317
986,053
1,539,587
653,734
154,581
700,978
595,769
511,179
4,155,828
35,980
35,980
-
220,702
171,658
49,044
(246,777)
(71,920)
(174,857)
5,151,786 P
1,121,771 P
4,030,015
- 119 -
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. AND SUBSIDIARIES
Schedule K.
Capital Stock
December 31, 2006
(Amounts in thousands)
Title of Issue
Common shares
Number of
Shares
Authorized
9,000,000
Number of
Shares Issued
and
Outstanding
6,356,976
Number of
Shares Reserved
for Options,
Warrants,
Conversions, and
Other Rights
320,000
Number of Shares Held By
Affiliates
3,175,658
Directors,
Officers and
Employees
76,411
Others
3,104,907
DIGITAL TELECOMMUNICATIONS PHILS., INC.
INDEX TO EXHIBITS
Form 17-A
No.
(3)
Page No.
Plan of Acquisition, Reorganization, Arrangement,
Liquidation, or Succession
*
Instruments Defining the Rights of Security Holders,
Including Indentures
*
(8)
Voting Trust Agreement
*
(9)
Material Contracts
*
(10)
Annual Report to Security Holders, Form 11-Q or
Quarterly Report to Security Holders
*
(13)
(16)
(18)
Letter re Change in Certifying Accountant
Report Furnished to Security Holders
Subsidiaries of the Registrant
*
*
*
(19)
Published Report Regarding Matters Submitted
to Vote of Security Holders
*
(20)
Consent of Experts and Independent Counsel
*
(21)
Power of Attorney
*
(29)
Additional Exhibit
Exemption from the Disclosure Rules on
Executive Compensation
121
(5)
_______
* These Exhibits are either not applicable to the Company or require no answer.
120
DIGITAL TELECOMMUNICATIONS PHILS., INC.
AGING OF ACCOUNTS RECEIVABLE
As of DECEMBER 31, 2006
(In Thousand Pesos)
Current
P
61 - 90 days
30,533
91 - 120 days up
Total
152,013
P
Add: Connecting carrier (net) and others
Total Receivables and others (net)
621,126
803,672
663,968
P
1,467,640
-
Note: Aging on Connecting Carrier is not applicable.