1. technology and computing
2. consumer electronics
3. telephones
4. mobile phones

COVER SHEET
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(Business Address: No. Street City / Town / Province)
DELFIN C. GONZALEZ, JR.
730-2734
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Fiscal Year
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Total No. Of Stockholders
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Foreign
SEC Number:
File Number:
GLOBE TELECOM, INC.
(formerly GMCR, Inc.)
____________________________________
(Company’s Full Name)
5th Floor Globe Telecom Plaza
Pioneer corner Madison Streets
Mandaluyong City 1552
______________________________________
(Company’s Address)
(632) 730-2000
______________________________________
(Telephone Number)
DECEMBER 31, 2006
______________________________________
(Fiscal Year Ending)
(Month & Day)
SEC Form 17-A
______________________________________
(Form Type)
______________________________________
Amendment Designation (if applicable)
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1177
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SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17 OF THE REVISED SECURITIES ACT
AND SECTION 141 OF CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended: December 31, 2006
2. SEC Identification Number: 1177
3. BIR Tax Identification No. 000-768-480
4. Exact name of registrant as specified in its charter: Globe Telecom, Inc. (formerly GMCR,Inc.)
5. Province, Country or other jurisdiction of incorporation or organization: Philippines
6. Industry Classification Code: ________(SEC Use Only)
7. Address of principal office: 5th Floor, Globe Telecom Plaza, Pioneer corner Madison Streets,
Mandaluyong City
Postal Code: 1552
8. Registrant's telephone number: (632) 730-2000
9. Former name, former address, and former fiscal year: Not Applicable
10. Securities registered pursuant to Sections 4 and 8 of the RSA
Title of Each Class
Common Stock (P50.00 par value)
Preferred Stock ( P5.00 par value)
Number of Shares Outstanding
132,079,785
158,515,021
11. Are any or all of these securities listed on the Philippine Stock Exchange?
Yes [ x ]
No [ ]
12. Check whether the registrant:
(a) has filed all reports required to be filed by Section 11 of the Revised Securities Act
(RSA) and RSA Rule 11(a)-1 thereunder and Sections 26 and 141 of The Corporation
Code of the Philippines during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports):
Yes [ x ]
No [ ]
(b) has been subject to such filing requirements for the past 90 days: Yes [ x ]
No [ ]
13. Aggregate market value of the voting stock held by non-affiliates of the registrant: P34,479,295,630
2
TABLE OF CONTENTS
PART 1 – BUSINESS AND GENERAL INFORMATION
Item 1. Description of Business………………………………………………….……4
Item 2. Description of Properties……………………………………………….…….36
Item 3. Legal Proceedings……………………………………………………………38
Item 4. Submission of Matters to a Vote of Security Holders……………….……….39
PART II – SECURITIES OF THE REGISTRANT
Item 5. Market Price, Dividends & Related Stockholder Matters………….…………40
Item 6. Description of Registrants Securities…………………………………………43
PART III – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Operations………………………49
PART IV – MANAGEMENT AND CERTAIN SECURITY HOLDERS
Item 8. Directors and Key Officers of the Registrant…………………………….…..115
Item 9. Executive Compensation………………………………………………….….121
Item 10. Security Ownership of Certain Beneficial Owners and Management……...123
Item 11. Certain Relationships and Related Transactions…………………………....124
PART V – CORPORATE GOVERNANCE……………………………………....125
PART VI – EXHIBITS AND SCHEDULES……………………………………...131
SIGNATURES…………………………………………………………………....…132
INDEX TO EXHIBITS……………………………………………………………..133
3
PART I – BUSINESS AND GENERAL INFORMATION
This report contains references to Globe Telecom, Inc. and its wholly-owned subsidiaries - Innove
Communications, Inc. (“Innove”) and G-Xchange, Inc. (“GXI”), collectively referred to as ‘Globe
Telecom’ or ‘Globe Group’). Any references in this report to “we”, “us”, “our”, “Company” mean
the Globe Group and references to “Globe” mean Globe Telecom, Inc., the parent company, not
including its wholly owned subsidiaries.
Item 1. Description of Business
Globe Telecom is one of the largest telecommunications companies in the Philippines. It is a
full service telecommunications provider offering digital wireless communication, wireline
voice, data transmission, domestic and international long distance communication, and
mobile-commerce services. Its major shareholders are Ayala Corporation (“Ayala”),
Singapore Telecom International (“STI”), and Asiacom Philippines, Inc. (“Asiacom”).
A. BUSINESS DEVELOPMENT
1. Corporate History
In 1928, Congress passed Act No. 3495 granting the Robert Dollar Company, a corporation
organized and existing under the laws of the State of California, a franchise to operate
wireless long distance message services in the Philippines. The Robert Dollar Company was
subsequently incorporated in the Philippines as Globe Wireless Limited.
In 1934, Congress passed Act No. 4150 transferring the franchise and privileges of the
Robert Dollar Company to Globe Wireless Limited which was incorporated on 15 January
1935.
Globe Wireless Limited was subsequently renamed Globe-Mackay Cable and Radio
Corporation (“Globe-Mackay”). Its franchise was further expanded by Congress, through
Republic Act (“RA”) 4630 enacted in 1965, to allow it to operate international
communications systems. Shortly before the expiration of this franchise, the Batasan
Pambansa enacted Batas Pambansa 95 granting Globe-Mackay a new franchise in 1980.
In 1974, Globe-Mackay sold 60% of its stock to Ayala, local investors and its employees. It
offered its shares to the public on 11 August 1975.
In 1992, the Philippine Congress passed RA 7229 approving the merger of Globe-Mackay
and Clavecilla Radio Corporation, a domestic telecommunications pioneer to form GMCR,
Inc. (“GMCR”). The merger gave GMCR the capability to provide all forms of
telecommunications to address the international and domestic requirements of its customers.
Subsequently, GMCR was renamed Globe Telecom, Inc. (“Globe Telecom”)
In 1993, Globe Telecom welcomed a new foreign partner, STI, a wholly-owned subsidiary of
Singapore Telecommunications Limited (“SingTel”) after Ayala and STI signed a
Memorandum of Understanding.
4
In 2001, Globe Telecom acquired Isla Communication Company, Inc. (“Islacom”) and made
Islacom a wholly-owned subsidiary. Consequently, the financial results of Islacom were
consolidated with Globe Telecom on 27 June 2001.
In 2003, the National Telecommunications Commission (“NTC”) granted Globe Telecom’s
application to transfer its wireline business assets and subscribers to Islacom which is
pursuant to Globe Telecom’s strategy to integrate all of its wirelines services under Islacom.
The Philippine SEC also approved the change in name of Islacom to Innove
Communications, Inc. (“Innove”) on 21 August 2003.
In 2004, Globe Telecom invested in G-Xchange, Inc. (“GXI”), a wholly-owned subsidiary,
which handles the mobile payment and remittance service using Globe Telecom’s network as
transport channel under the GCash brand. GXI started commercial operations on 16 October
2004.
In November 2004, Globe Telecom and six other leading Asia Pacific mobile operators (‘JV
partners’) signed an agreement (‘JV agreement’) to form Bridge Mobile Alliance (“BMA”).
This regional mobile alliance operates through a Singapore-incorporated company, Bridge
Mobile Pte. Ltd. The joint venture company, where Globe Telecom has a 12.5% interest,
will be responsible for driving the development and enablement of cross-border services
across a shared regional infrastructure and common service platform, and spearheading the
creation of new mobile services and concepts that can be deployed and delivered regionally.
In 2005, Innove was awarded by the NTC with a nationwide franchise for its wireline
business, allowing it to operate a Local Exchange Carrier service nationwide and expand its
network coverage. In December 2005, the NTC approved Globe Telecom’s application for
third generation (3G) radio frequency spectra to support the upgrade of its cellular mobile
telephone system (“CMTS”) network to be able to provide 3G services and was assigned the
10-Megahertz (MHz) of the 3G radio frequency spectrum.
2. Bankruptcy, Receivership or Similar Proceedings
There were no bankruptcy, receivership or similar proceedings for the Globe Group.
3. Material Reclassification, Merger, Consolidation, or Purchase or Sale of a Significant
Amount of Assets (not in the ordinary course of business)
Repurchase of common shares and cancellation of treasury shares
On February 1, 2005, the Board of Directors (BOD) approved an offer to purchase one share
for every fifteen shares (1:15) of the outstanding common stock of Globe Telecom from all
stockholders of record as of February 10, 2005 at =
P950.00 per share. The approval allowed
the Company to purchase up to 9,326,924 shares representing 6.67% of its outstanding
common shares. Each shareholder is entitled to tender a proportionate number of shares at
the 1:15 ratio for purchase by Globe Telecom upon and subject to the terms and conditions of
the tender offer. The Company also filed with the SEC the tender offer report with a copy of
the letter to the shareholders, the terms and conditions of the tender offer and the tender
form. The tender offer commenced on February 3, 2005 and ended on March 3, 2005.
5
On March 15, 2005, Globe Telecom acquired 8,064,094 shares at a total cost of
=7,675.66 million, including incidental costs.
P
On April 4, 2005, Globe Telecom’s stockholders approved the cancellation of the 20.06
million treasury shares consisting of the 12 million shares acquired from Deutsche Telekom
(DT) in 2003 and the 8.06 million shares acquired during the share buyback, and the
amendments of the articles of incorporation of Globe Telecom to reduce accordingly the
authorized capital stock of the corporation from =
P11,250.00 million to =
P10,246.72 million.
On April 29, 2005, Globe Telecom applied for the retirement and cancellation of the existing
treasury shares with the SEC, which the latter approved on October 28, 2005. Accordingly,
Globe Telecom cancelled the existing treasury shares at cost. The difference between the par
value and cost of treasury shares was charged to “Additional paid in capital” and “Retained
earnings” accounts amounting to P
=5,179.35 million and =
P9,685.80 million, respectively.
6
B. BUSINESS OF ISSUER
1. Overview of the Business
The Globe Group is comprised of the following three focused companies:
•
•
•
Globe provides the wireless telecommunications services;
Innove, a wholly-owned subsidiary, provides the fixed line telecommunications services,
as well as the information and communications infrastructure and services for internal
applications, internet protocol-based solutions and multimedia content delivery. Innove
also currently offers cellular services under the TM prepaid brand. The TM brand is
supported in the integrated cellular networks of Globe and Innove; and
As part of its wireless business, Globe also provides mobile commerce services through
its wholly-owned subsidiary GXI.
2. Business Segments
(a) Wireless Business
Globe Telecom offers its wireless services including local, national long distance,
international long distance, international roaming and other value-added services through
three brands: Globe Postpaid, Globe Prepaid and TM. As of 31 December 2006, Globe
registered 15.7 million wireless subscribers, a 26% increase from last year’s 12.4 million due
to improved churn rates across all brands.
Globe Postpaid is the postpaid brand of Globe. This includes all postpaid plans such as GPlans, consumable G-Flex Plans, Platinum (for the high-end market), and other plans
offered to the corporate and business segments by the GlobeSolutions group. As of year end,
postpaid subscribers comprised 4% of total wireless subscribers.
Globe Prepaid and TM are the prepaid brands of the Globe Group. Each brand is positioned
at different market segments to better address various subscribers’ needs. As of year end,
prepaid subscribers comprised 96% of total wireless subscribers, with Globe Prepaid mainly
accounting for 67% of total prepaid subscribers.
(i) Products and Services
Wireless Voice
Basic Voice Service
Our basic wireless voice services include local, national and international long distance
access throughout the Philippines, and international roaming services through various
arrangements with foreign operators.
In 2004, we implemented flat rates, for intra-network and inter-network calls for our
postpaid and prepaid subscribers to mobile or fixed line networks and without domestic
long distance charges.
7
In 2005, Globe introduced a number of value propositions to address the unique needs of
key consumer segments, as well as to improve overall price competitiveness in the
market. For heavy voice users within its network, Globe launched promos such as P10
for 3 minute calls and P0.10 per second charging for intra-network calls. We also
relaunched our Touch Mobile brand as TM in 2005 focused as a brand for the valueconscious, Filipino worker. We subsequently launched various “Power Piso” promos
such as “TM Todo Tawag 15/15” to drive growth for the TM brand.
In 2006, Globe and TM offered various voice services designed to promote acquisition,
stimulate usage, and encourage loyalty among new and existing subscribers. Globe
extended offerings such as the P10 for a 3-minute call and its unrivaled per-second
charging offer of 10 centavos per second for intra-network local calls under its Super
Sulit banner campaign. TM also sustained its Power Piso campaign through its Todo
Tawag and Todo Text promos, offering its subscribers more affordable call and text rates.
International Long Distance and Roaming Services
Globe offers international long distance (ILD) services which cover international calls
between the Philippines and over 200 destinations. This service generates revenues from
both inbound and outbound international call traffic with pricing based on agreed
international termination rates for inbound traffic revenues and NTC-approved ILD rates
for outbound traffic revenues.
As part of our commitment to serve our overseas Filipino communities better and to
address the needs of our heavy IDD users, Globe launched IDD CelebRATE!, offering a
series of IDD promos starting in the second half of 2005. Taking off from these promos,
Globe sustained its IDD promos in 2006 under the Globe Super Sulit Offers umbrella.
We continued our discounted IDD rate of P7.50 per minute, equivalent to that of a local
rate, for calls to selected countries such as US and Canada (off-peak hours only) and
other Bridge Mobile Alliance partners such as Taiwan Mobile, Hong Kong CSL, Singtel,
and Maxis Malaysia. Globe also introduced very competitive IDD rates of US$0.20 and
US$0.30 per minute to countries with large OFW groups such as Japan and Saudi
Arabia, Oman, and Qatar, respectively. During the fourth quarter of 2006, Globe
introduced its P24-for-3 minute calls to the United States and Canada available any time
of the day.
Last July 2006, Globe also started its G-Webcall service that uses Voice Over Internet
Protocol (VoIP) technology, allowing frequent travelers and Internet users to call any
Globe Handyphone or TM subscriber for only P7.50 per minute. Additionally, calls
using the G-Webcall service to another G-Webcall user are free.
Globe’s per second charging remains a unique offering to this date. We continue to offer
the IDD rate of US$.003 per second to selected countries such as US, Canada, China,
Malaysia, Hong Kong, Singapore, Thailand, South Korea, Taiwan, Australia, United
Kingdom, Kuwait and Equatorial Guinea, as well as the per-second rate of US$.0067 for
other selected countries.
8
Through our alliance with the Bridge Mobile partners, we launched co-branded SIMs
with Singtel, Hong Kong CSL, and Taiwan Mobile to provide our OFWs the opportunity
to take advantage of discounted call and SMS rates when connecting their families and
friends in the Philippines.
Our subscribers can also use their mobile phones while traveling abroad using the
networks of foreign operators with whom we have roaming agreements. Similarly,
subscribers of these foreign networks are able to use the Globe network while they are in
the Philippines. Globe was the first network in the Philippines to provide roaming
services to prepaid subscribers and currently has the widest roaming coverage with over
200 roaming destinations.
Wireless Data
Basic Data Service
We offer wireless data services on our Short Message Service (‘SMS’) platform such as
basic SMS messaging, enhanced SMS, M-advertising, and M-Commerce services. Data
services accounted for approximately 43% of total wireless net service revenues in 2006
compared to 42% in 2005, largely driven by person-to-person and international SMS.
We pioneered the basic SMS messaging service in the Philippines in 1994. The usage of
SMS messaging in the Philippines is significantly higher than in most other countries as
it is the most convenient and cost-efficient alternative to voice and e-mail based
communications. In 2006, subscribers’ SMS usage averaged approximately 17 SMS
messages per day, with our network processing over 237 million SMS messages per day.
To further encourage brand loyalty and stimulate usage of our data services, Globe
launched its series of CelebRATE! text promos last June 2005 which offered our
subscribers discounted text rates for Globe to Globe and TM to TM text messages.
In 2006, we continued to offer value text promotions to our wireless subscribers. For
Globe subscribers, we offered heavy SMS users unlimited intra-network text messaging
service for a registration fee of P15/1 day, P25/2 days and P50/5 days under the
UNLIMITXT offering, and discounted inter-network SMS rate under the P0.75 Sulit Text
to all networks promo (promo period was from 9 August to 7 October 2006).
Accelerated take-up of the UNLIMITXT offer (ended in the fourth quarter of 2006)
prompted Globe to introduce the UNLIMITXTPLUS promo that offered unlimited intranetwork text messaging plus a P0.75 inter-network text messaging rate for P20/1 day and
P40/2 days (promo period was from 12 November to 11 December 2006).
To further cater to the different needs and lifestyles of our subscribers, Globe launched
the following unlimited texting services last 1 February 2007: UNLITXT or regular ALL
DAY unlimited texting (P20/1 day, P40/ 2 days and P80/4 days); UNLITXTD or
DAYSHIFT unlimited texting from 8 AM to 4:59 PM (P15/1 day and P30/2 days);
UNLITXTN or NIGHTSHIFT unlimited texting from 10 PM to 7:59 AM (P10/1 day and
P20/2 days); and TXTPLUS for unlimited intra-network texting plus an inter-network
texting rate of P0.75 per text (P25/1 day and P50/2 days)
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Globe expanded its wide-ranging IDD promotions to include SMS by offering P5.00
international SMS rates to Saudi Arabia (promotion expired 9 December 2006) while
continuing with its Globe-Singtel Kababayan Text Promo rate of P1.00 for an
international SMS to any SingTel mobile subscriber.
TM continued to penetrate the mass market with its TM Todo Text promos. In the last
quarter of 2006, TM launched two new variations of its Todo Text campaigns: Daytime
Unlimited Texting and the Todo Tipid Text to all networks. The Daytime Unlimited
Texting allows subscribers to send unlimited intra-network SMS from 8 AM to 4:59 PM
for only P10 per day. On the other hand, the Todo Tipid Text to all networks provides
TM subscribers with unlimited intra-network text messaging and inter-network text
messaging at P0.75 per SMS for only P20 for 1 day and P40 for 2 days. TM’s new Todo
Text variants are still available to TM subscribers.
Enhanced SMS Services
We offer a full range of value-added services covering the areas of information and
entertainment (‘infotainment’), messaging and mobile banking. These value-added
services allow subscribers to download icons and ring tones, perform mobile banking, do
Wireless Application Protocol (‘WAP’) browsing, send and receive Multimedia
Messaging Service (‘MMS’) pictures and video, as well as participate in interactive TV,
mobile chat and play games, among others.
Our premium SMS service offerings are organized under the brand myGlobe, wherein we
classify information and service offerings in user-friendly, easy-to-understand content
categories, largely according to areas of interest. With the introduction of General Packet
Radio Service (GPRS) in 2001, value-added services took on a whole new wave of
innovations that expanded access, content and applications. In 2002, the myGlobe service
portal was expanded into a WAP site that allowed easy access to a whole range of
content via WAP.
Subscribers with basic SMS handsets are able to download icons and ring tones, receive
regular news and infotainment updates and perform mobile banking by sending the
appropriate keywords to a quick-access number or short code. On the other hand,
subscribers with MMS/GPRS enabled handsets can access more services and data
content by WAP/WEB browsing, and send and receive MMS pictures and video.
In 2004, Globe launched the first live TV streaming in the market with myGlobe G-TV.
This enabled subscribers with streaming-capable phones to watch local shows as they
were broadcast on national television through tie-ups with ABS-CBN and GMA.
Likewise, to enable lower-end GPRS handsets to avail of streaming, Globe introduced
G-Video, a downloadable player that allows basic GPRS handsets to stream canned
content.
In 2005, Globe Telecom offered its Visibility service to its corporate subscribers to
provide data access via GPRS, EDGE, Wi-Fi and dial-up transport channels on a payper-use arrangement or under universal access plans. Our GPRS Discounted Off-Peak
Rate promotion also allowed subscribers to avail of a 33% discount (P0.10 per kilobyte)
on Globe’s GPRS rates when used from 12 midnight to 8 am.
10
On 30 April 2006, we commercially launched our 3G services under Globe 3G Mobile
Broadband with HSDPA. Subscribers can now use Globe’s 3G services using HSDPA
(High Speed Downlink Packet Access, commonly referred to as “3.5G”) technology to
make and receive video calls and do multimedia streaming. Additionally, HSDPA allows
for high-speed Internet browsing of up to 1.8 Mbps (megabits/second) compared to
previous speeds of 384 kbps (kilobits/second) available on 3G. Compared to dial-up
speeds, HSDPA is up to 25X faster using an HSDPA laptop data card. Globe is the 1st
mobile network operator in the Asia Pacific region to deploy a commercial HSDPA
service. Recently, more video IDD destinations totaling 63 partner operators in 35
countries were announced while inbound 3G roaming was made available for SingTel
subscribers on Globe’s network.
On 28 June 2006, we launched our G-LIVE service – an information broadcast service
that enables handsets to receive content flashed on the screen of a mobile phone. With GLIVE, subscribers can receive the latest news, specific content (ringbacks, ringtones,
wallpapers, logos) and exclusive deals from Globe.
On 10 September 2006, Globe made the Visibility service available to all of its
subscribers as an unlimited mobile internet access plan, providing the option to connect
to the internet via various access points including 3G with HSDPA, EDGE and GPRS.
Additionally, subscribers can also access the internet at over 520 WiZ WiFi hot spots or
avail of unlimited dial-up access. Effective 5 November 2006, the Visibility Plan
included voice, SMS, MMS and international roaming services on a pay-per-use basis
and internet access in over 60,000 iPass WiFi hot spots worldwide. Initial sign-up period
ended on 19 November 2006.
On 23 September 2006, Globe launched its Bida Card, an electronic card that provides
Globe and TM subscribers with discounts and promotional items and services at close to
200 establishments nationwide. Registration for the electronic card is free.
On 16 October 2006, Globe introduced its Live Chat service that allows subscribers to
chat via SMS and instantly connect to other mobile phones. Initially for Globe Prepaid
subscribers, the call initiator is charged once the other party picks up the call and a
connection is established. Live Chat is the first voice community chat in the Philippines.
On 6 December 2006, Globe introduced its GLOBE IMEVRYWHR instant messaging
service that offers unlimited chatting, voice messaging and unlimited photo sending for
only P20 for 1 day, P120 for 7 days and P500 for 30 days. This service is available to all
Globe postpaid and prepaid subscribers and includes the following service features –
integrated registration with MyGlobe, preference list and address book, MyGlobe instant
messaging service, text messaging, prepaid balance inquiry and integrated functions with
VAS services such as GCash, Share-A-Load and AskG.
M-Commerce service
During the fourth quarter of 2004, Globe launched GCash, the first cashless and cardless
integrated payments service in the world. GCash, Globe’s flagship mobile commerce
service, was born from a simple goal of transforming a mobile phone into a wallet
enabling Globe and TM subscribers access to a cashless and cardless method of making
money-transfers by simply sending a text message.
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GCash continues to establish its presence in the mobile commerce industry. Now on its
third year, GCash’s initial thrust towards money-transfers, purchase of goods and
services from retail outlets, and sending and receiving domestic and international
remittances has spurred alliances in the field of mobile commerce. Today, GCash allows
Globe and TM subscribers to pay or transact for the following using their mobile phone:
•
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utility bills
interest and amortization of loans
insurance premiums
donations to various institutions and organizations
sales commissions
school tuition fees
micro tax payments (for annual business registration)
electronic loads and pins
online purchases
train tickets using the GPass chip
In addition to the above transactions, GCash is also used as a wholesale payment facility.
As of 31 December 2006, GCash handled an average monthly value transaction size of
around P5.67 billion with net registered user base of 500,813.
On 28 July 2006, Globe, by virtue of an agreement with Hypercash Payment Systems,
Inc., launched G-PASS, another GCash innovation which allows MRT riders to breeze in
and out of the MRT station by simply tapping a G-PASS chip on the reader located on
the designated turnstile. Value reloads can be made anytime and anywhere through
GCash, or through direct cash payments at designated G-Pass reloading booths located
in MRT stations. G-Pass chips, which can be registered with Globe or TM SIMs, also
come preloaded with P50 value. G-Pass users can also avail of Mobile Balance Inquiry
services which provide free SMS alerts for each G-Pass transaction, low-balance and
reloading reminders on their Globe or TM SIMs.
GCash continues to receive recognition and awards from local and international
institutions. GCash has received an award from the GSM Association Awards in France
(February 2005), the Asian Mobile News Awards in Singapore (June 2005), the Global
Messaging Award in London (June 2005), the Philippines’ very own Mobile
Communications Effectiveness Award (August 2005), and the Agora Awards for World
Class Excellence in Philippine Marketing (November 2005). Recently, GPass, made it to
the shortlist of international finalists in the 2007 Global Mobile Awards of the GSM
Association. GPass was nominated under the “Most Innovative Technology” category.
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(ii) Distribution - Sales and Distribution
To ensure that all our subscribers’ needs are properly addressed and met, we have
established various sales and distribution channels.
Independent Dealers
We utilize a number of independent dealers who have their own networks throughout the
Philippines to sell our prepaid wireless services to customers. These dealers include
major distributors of wireless phone handsets who usually have their own retail
networks, direct sales force and sub-dealers in the Philippines. We compensate our
dealers based on the type, volume and value of reload denominations for a period. This
takes the form of fixed discounts for prepaid airtime cards and SIM packs, and
discounted selling price for phonekits.
Additionally, we also have dealers who offer prepaid reloading services to Globe and
TM subscribers nationwide. In 2003, we launched our Globe AutoloadMax service and
established a distribution network of dealers and institutions to offer prepaid reloading
services. As of 31 December 2006 we have over 400 thousand registered sub-distributors
and retailers.
Business Centers
In addition to our independent dealers, we have 91 wireless business centers and Hub
shops in major cities across the country. We have also increased the service offerings at
our business centers, allowing customers to subscribe for wireless services, reload
prepaid credits, make GCash transactions, purchase handsets, accessories, request
handset repairs, try out the communications devices, ask questions about our services
and pay bills.
In our Hub shops, we sell state-of-the-art communications devices and high-technology
communications-related products. As of 31 December 2006, we have 5 Hub shops
located in strategic areas in Makati City, San Juan and Mandaluyong City.
Others
We also distribute prepaid products (phonekits, SIM kits and prepaid air time cards and
credits) through consumer distribution channels such as convenience stores, gas stations,
drugstores, bookstores, photoshops and fastfood outlets.
We also have a dedicated direct sales force to manage our corporate accounts and highend customers - GlobeSolutions for Corporate Managed Accounts, SME for Corporate
Non-Managed Accounts, Direct Sales, VIP Sales and OFW Sales teams.
Our retail business centers and internal corporate sales staff act as our direct sales
channels.
13
(b) Wireline Business
Innove, a wholly-owned subsidiary, provides our wireline voice communications, private
data networks and Internet services to individuals and enterprises in the Philippines under the
Globelines and GlobeQuest brands.
Globe and Innove have adopted a customer-centric market approach to allow for the
development of products based on specific consumer or business requirements and to better
serve the varied needs of its customers. Dedicated business units have been created and
organized within the Company to focus on the wireless and wireline needs of specific market
segments and customers – be they residential subscribers, wholesalers and other large
corporate clients, or smaller scale industries. The Enterprise Business Group (EBG) is one
such business unit, created in response to our corporate clients’ preferences for integrated
mobile and wireline communications solutions. Complete with its own dedicated technical
and customer relationship teams, the EBG consists of GlobeSolutions, which is the corporate
wireless business group of Globe, and GlobeQUEST, the corporate wireline group of Innove.
As of 31 December 2006, Innove increased its total wireline voice subscribers by 6% to
383,876 from 362,143 in 2005. This subscriber base is comprised of 63% postpaid and 37%
prepaid, with the business to residential mix ratio of 22:78 and 23:77 for the years 2006 and
2005, respectively. Innove offers its wireline voice communications service through its
Globelines service. In 2006, Globelines launched and continued to offer its Lowest IDD rates
promotion where its Globelines subscribers, Globe1 card users and Globelines Broadband
subscribers are charged a reduced rate of US$0.20 per minute for IDD calls to selected
countries. Globe1 card users could also make IDD calls for P2.50 per minute and P4.50 per
minute to selected destinations from Globelines postpaid and prepaid lines including
payphones nationwide.
Our broadband business continues to show robust growth, registering a year-on-year increase
in subscribers of 129%, bringing our cumulative base to 51,426 by the end of 2006. This
growth is attributable to the increasing affordability of our consumer broadband offerings
which are now bundled with free landline service with waived monthly fees in selected
franchise areas. Innove also introduced a speed upgrade for its broadband consumers,
increasing speeds from 384 kbps to 512 kbps, at no extra charge to customers.
(i) Products and Services
Voice and Data services
Under our Globelines brand, we provide state-of-the-art digital communications
technologies to homes and small and medium-sized enterprises through the following
products and services:
Globelines is a wireline voice communications service offering that includes local,
national long distance, international long distance and other value-added services,
through its postpaid, prepaid and payphone lines. With the availability of postpaid or
prepaid options, subscription to Globelines comes with standard features and valueadded services such as IDD, NDD, Phone Lock, Caller ID, Call Waiting, Multi-Calling,
Call Forwarding, Voice Mail, Duplex Number, Hotline and Special Numbers.
14
Globelines Business Connections is a bundled telephone package to help our clients
manage their operations and enjoy big business efficiency on a small business overhead.
There are various Globelines Connections packages suitable for clients requiring single
and/or multiple lines.
Globelines subscribers with personal computers can also surf the Internet and have their
own Web-based email by using our Globelines Dial-up Internet service. Users of this
service pay only for the actual minutes used at a low flat rate of P0.33 per minute.
Globelines Broadband is a high speed internet connection that keeps our subscribers
online all the time, getting instant access to communication, knowledge and
entertainment. Application-based packages such as Express Unlimited and Explore are
designed to cater to various Internet needs. Globelines Broadband subscribers may also
activate their VoIP account and use Globelines Broadband VoIP softphone service to
call overseas for a special rate of US$0.05/minute.
Globelines Worldpass Prepaid is the first prepaid internet card in the market that allows
the user to access the internet with total mobility, flexibility and convenience. The user
may choose his access point - via dial-up using any landline, mobile access via WiFi
from any WiZ hotspots, or broadband connection via Globelines Broadband kiosks. It is
a pay per use internet access which comes in denominations of P20, P50, and P100
which expires 15 days after first use. Worldpass Prepaid vouchers can be purchased at
any Globelines Payments and Services (GPS) Centers, Globe business centers, and other
retail outlets.
Globelines Worldpass Postpaid is also available for subscribers who wish to access the
internet anytime and anywhere through Wi-Fi, broadband or dial-up using just one
account. Subscribers can use a laptop, PC, PDA or mobile phone and surf wirelessly at
any WiZ Hotspot, dial-up to the internet using any landline in the country or connect via
broadband using a Globelines Broadband account. Subscribers can even access their
accounts when they travel to international destinations through connectivity with iPass.
All these are possible with just one username and password. Postpaid plans are available
with a consumable monthly service fee of P250 (VAT included).
Globe1 is our one-card for all communications needs. This PIN-based prepaid card
service allows our customers to make local, domestic and international calls using our
Globelines landline (postpaid and prepaid), Globelines Payphone, Globe and TM. This
versatile and convenient product is offered in denominations of P100 and P300 and is
available in our GPS Centers, Globe business centers and prepaid card dealers.
Under our GlobeQUEST brand, we offer end-to-end solutions for corporate clients based
on value-priced, high-speed data services over a nationwide broadband network. This
includes domestic and international data services, wholesale and corporate internet
access data center services and segment-specific solutions customized to the needs of
vertical industries. Some of the products and services we offer are as follows:
GlobeQUEST Broadband Internet offers our clients a complete range of internet services
that operate at broadband speeds using our Internet backbone which, at more than 2 Gbps
and growing, is one of the largest in the Philippines. Some of the services currently being
offered are:
15
•
Digital Subscriber Line (DSL) – This service lets you access the Web at ultrahigh speed connection for both downloads and uploads using our DSL access
network and growing internet backbone. Various access packages are available
to ensure the service is cost-efficient and fits different corporate needs and
budgets.
•
Internet Direct – This offers guaranteed service levels delivered over leased line
facilities and is especially offered to those corporate clients running missioncritical applications.
•
Broadband Internet Zone (BIZ) – This is GlobeQuest’s broadband-to-the-room
Internet service which provides secure, reliable and convenient high-speed
broadband Internet access to transient business travelers and/or tenants of highdensity buildings such as hotels, condominiums and other multi-tenant
establishments. This service also utilizes wireless Internet access in convenient
public locations and hotspots to provide mobile workers with Internet
connectivity outside their offices.
•
GIX Burstable – This bandwidth on-demand service offers wholesale internet
access with a payment scheme that is based on average use only. Customers are
allowed to start with a minimum subscription of 5 Mbps burstable to 45 Mbps
depending on the actual growth of their internet traffic. Primarily used by
wholesale customers and large enterprises, this service provides the pricing
flexibility that supports the ever-changing business requirements of these
companies.
•
Freeway IP – This service is GlobeQuest’s managed international private leased
circuit to the USA. To ensure cost-efficiency for businesses, our package allows
customers to pay a fixed monthly charge regardless of actual usage and increase
bandwidth when needed.
•
Universal Access services – These are subscription plans available for corporate
users, which enables WiFi and dial up access through a single user account.
GlobeQuest WIZ (Wireless Internet Zone) is Innove’s brand for its WiFi (Wireless
Fidelity)-enabled network providing broadband access on 802.11b/g-enabled strategic
locations called “hotspots” such as airports, hotels, coffee shops and business lounges. It
covers more than 520 locations to date, including “hotzones” such as Ayala Center
Greenbelt and Glorietta malls, Ayala Center Cebu, Alabang Town Center, NCCC Mall in
Davao, Supercat Terminals in the Visayas, Mactan and Davao International Airports.
WIZ can also be accessed by customers and subscribers of Innove’s WorldPass, Globe
through Wiz On (text to 2333) service, GlobeQUEST-owned Universal Access and DSL
corporate customers, as well as subscribers on international roaming service through our
partners, GoRemote, iPass, T-Systems among others. This service is available both on
prepaid and postpaid plans to cater to our customers’ various needs and budget.
16
GlobeQUEST Private Networks offers a variety of dedicated communications services
that allow customers to run various data applications, access LANs or corporate intranets
and extranets with integrated voice services on high speed, efficient and reliable
connections. These include domestic and international leased lines, frame relay, IPVPN,
and remote access services. International data services are offered in partnership with
global network service providers.
GlobeQUEST DataCentres optimizes the security of mission-critical information and
applications through secure data centers operated and supported by a team of IT experts.
GlobeQUEST has six commercially available data centers, namely: MK1 (Valero Data
Center), MK2 (Pasong Tamo), MD1 (Sheridan), MD2 (Pioneer), Cebu and Laguna
DataCentres. These offer complementary services to GlobeQUEST network services,
ensuring that corporate customers are given end-to-end capabilities and solutions.
GlobeQUEST Corporate Voice provides a full suite of telephony services, from basic
direct lines to ISDN services, 1-800 numbers, IDD and NDD access as well as managed
voice solutions which enables companies to access advanced telecommunications
technology, such as managed IP communications. With the advent of VOIP technology,
GlobeQUEST is introducing new functionalities on their Corporate Voice portfolio
which will drive the voice business.
GlobeQUEST BroadBand Access is a network access solution that provides our
customers ultra-high speed fiber optic network connectivity, over a fully redundant and
diverse DWDM-based fiber backbone. This service is designed for wholesale and
corporate customers with huge bandwidth requirements, mission-critical applications and
rapidly growing needs, and who demand uninterrupted access for their business
operations. This service offering ranges from high speed leased lines to Ethernet
services and even Escon or fibre channel connections for disaster-recovery service
connectivity. Today, these services are heavily used by service providers, call centers
and BPO (Business Process Outsourcing) companies as well as banking and
manufacturing institutions.
GlobeQUEST offers our customers with superior dial-up services such as:
•
•
•
Dedicated Dial-up (DDU) – This service enables multiple users to connect to the
internet using only one phone line, as well as maintain a static IP address for
better accessibility.
E-Business in a box – This provides start up companies with a complete set of
solutions to establish and maintain web presence for their businesses.
Wholesale and Corporate Remote Access Servers (RAS) – This provides
companies the ability to give its mobile/remote workers, as well as customers,
access to the Local Area Network (LAN) and internet through a private and
secure dial-up access without investing in and maintaining costly network
infrastructure.
The following new products and services were completed and launched in 2006 up to
February 2007:
•
On 3 March 2006, Innove launched its GlobeQuest WebPhone, the first webphone
service in the Philippines that can use traditional telephone prepaid cards.
17
•
On 13 March 2006 we introduced MVS (Managed Voice Services) a suite of
managed voice solutions specifically tailored for the burgeoning call center sector.
•
On 25 March 2006, Globelines offered its Globelines Postpaid Plus, a new telephone
service package which includes unlimited dialup internet access and toll-free NDD
calls to any Globelines telephone anywhere in the country, for a fixed monthly
service fee of P795, i.e. not subject to fluctuations caused by FCA (Foreign Currency
Adjustments) charges.
•
On 9 June 2006, Innove announced its enhanced network, ICON or IP-Converged
Optical Network. ICON which uses multi-protocol label switching (MPLS) and IP
as its core technologies to provide scaleable, secure and reliable connectivity with
effective support at lower total cost of ownership. With its enhanced network,
GlobeQuest can offer differentiated levels of service quality for VOIP and missioncritical traffic customized for its customers.
•
On 14 June 2006, Globe and Innove introduced Globe Broadband Webeye, a
remote web-based video solution that allows entrepreneurs to monitor their
businesses anywhere in the country through their personal computers with internet
access. It provides high quality digital images of offices, shops or other business
locations in real time. It is available at a cost effective price and easy to set up as it
only requires a Globelines Postpaid landline, an IP (internet Protocol) camera and a
router.
•
On 1 October 2006, Innove launched its Globelines Broadband Mailbox that
includes an upgraded mailbox capacity, email and spam filtering, shared folders,
antivirus protection, upgraded calendar functions and instant messaging capabilities.
Other services
Carrier Services
We also offer all our subscribers carrier services including national and international
long distance services. Our carrier services business is a support group to our wireless
and wireline businesses. International long distance and national long distance service
revenues attributable to the wireless and wireline businesses are reported under the
income statements of the respective businesses.
National Long Distance
Through the Globe/Innove Domestic Toll Service, Globe , TM and Globelines
subscribers may make national long distance calls to any subscriber of a Philippine
communications provider located anywhere in the country. We were granted interexchange carrier status by the NTC. As an interexchange carrier, we are allowed to haul
traffic from an originating carrier passing through our transmission network and
terminating to the network of another carrier, thus entitling us to IXC or hauling fee. We
receive settlement payments from other local communications providers who send
national long distance traffic to our network, and we pay settlement charges to local
providers when we send national long distance traffic to their networks. These payments
are based upon individual domestic interconnect contracts that we negotiate with the
18
local communications providers. Our national long distance facilities consist of five
domestic toll switches.
International long distance
Globelines continues to offer its Lowest IDD rates promotion where its Globelines
subscribers, Globe1 card users and Globelines Broadband subscribers are charged a
reduced rate of US$0.20 per minute for IDD calls to selected countries. Globe1 card
users can also make IDD calls starting at P2.50 per minute to selected destinations from
any Globelines postpaid and prepaid lines including payphones nationwide.
(ii) Distribution
Globelines Payments and Services (‘GPS’) Centers
To better serve our wireline subscribers from various service areas such as Metro
Manila, the Visayas area and the fast growing provinces of Cavite, Batangas and Central
Mindanao, we have set up GPS centers in strategic locations in our service areas
nationwide.
Our GPS centers allow subscribers to sign up for wireline services, make G-Cash
transactions, ask questions about our services, and pay bills. As of 31 December 2006,
we had a total of 45 GPS centers set up to cater to the various needs of our wireline
subscribers.
Others
We also sell our wireline data services through our internal corporate sales team
composed of account managers based in key cities nationwide. Sales teams have been
segmented to cater to various markets and their needs. Sales to large businesses are
managed by specialized account managers who are each dedicated to managing large
business customers based on identified target segments. They are the appointed single
point of contact (‘SPOC’) for any service or concern the corporate customer may have,
backed up by a strong team of pre-sales engineers, segment marketing managers, and
project managers. Sales to small and medium sized enterprises are handled by Globe
Bizworks while two business groups under the Enterprise Business Group serve markets
for integrated wireless and wireline communications solutions. The Customer Support
Group and Fault Management Control Center handles after-sales support for nontechnical and technical concerns, respectively.
Additionally, GlobeQUEST has its Channels program to manage its network of resellers.
A Premium Business Partner program was also developed to oversee a network of
system integrators (SI) to support our sales team and our overall value proposition.
19
3. Operating Revenues
Net Operating Revenues by Line of Business:
(In Millions of Pesos)
Net Service Revenues:
Wireless ……………………………………
Voice 1…………………………………..
Data 2…………………………………..
Wireline……………………………………
Voice 3………………………………….
Data 4…………………………………..
Net Service Revenues………………………
Year Ended 31 December
2006
%
2005
%
50,672
28,982
21,690
6,362
4,312
2,050
57,034
84.5%
57.2%
42.8%
10.6%
67.8%
32.2%
95.1%
48,481
28,111
20,370
6,416
4,396
2,020
54,897
82.5%
58.0%
42.0%
10.9%
68.5%
31.5%
93.4%
Non Service Revenues 5……………………
2,915
4.9%
3,851
6.6%
Net Operating Revenues…………………….
59,949
100%
58,748
100%
____________________________________________________
1
Wireless voice net service revenues include the following:
a)
Monthly service fees on postpaid plans;
b)
Charges for intra-network and outbound calls in excess of the consumable minutes for various Globe
Postpaid plans, including currency exchange rate adjustments, or CERA net of loyalty discounts credited to
subscriber billings;
c)
Airtime fees from prepaid reload denominations (for Globe Prepaid and TM) for intra network and outbound
calls recognized upon the earlier of actual usage of the airtime value or expiration of the unused value of the
prepaid reload denomination which occurs between 1 and 60 days after activation depending on the prepaid
value reloaded by the subscriber net of (i) bonus credits* and ii) prepaid reload discounts; and revenues
generated from inbound international and national long distance calls and international roaming calls;
Revenues from (b) to (c) are net of any interconnection or settlement payouts to international and local carriers and
content providers.
2
Wireless data net service revenues consist of revenues from value-added services such as inbound and outbound
SMS and MMS, content downloading, subscription fees on prepaid services and infotext net of any interconnection
or settlement payouts to international and local carriers and content providers.
3
Wireline voice net service revenues consist of the following:
a) Monthly service fees including CERA;
b) Revenues from local, international and national long distance calls made by postpaid, prepaid wireline
subscribers and payphone customers, net of (i) prepaid and payphone call card discounts (ii) bonus credits
and (iii) loyalty discounts credited to subscriber billings;
c) Revenues from inbound local, international and national long distance calls from other carriers terminating
on our network; and
d) Installation charges and other one-time fees associated with the establishment of the service.
Revenues from (b) and (c) are net of any interconnection or settlement payments to domestic and international
carriers.
4
Wireline data net service revenues consist of revenues from:
a) Monthly service fees from International and domestic leased lines;
b) Monthly service fees on Corporate Internet services and charges in excess of free allocation;
c) One-time connection charges associated with the establishment of service.
d) Other wholesale transport services and
e) Revenues from value-added services.
Revenues from (b) are net of any interconnection or settlement payments to other carriers.
Wireless & wireline non-service revenues consist principally of sales of handsets, phonekits & SIMs (for wireless)
and equipment and accessories.
20
4. Competition
Industry, competitors and methods of competition
(a) Wireless Market
The Philippine wireless market has experienced rapid growth in recent years. Accordingly,
the number of wireless subscribers increased from 1.7 million as of 31 December 1998 to
approximately 41.9 million as of 31 December 2006. Wireless penetration rates have surged
from 1% in 1996 to 48.2% as total wireless subscribers reached 41.9 million by the end of
2006 (see table below for details).
Wireless
Operators
Globe
Innove*
Smart**
Piltel**
Bayantel
Extelcom
Digitel
Year of
Commercial
Launch
1994
1993
1994
1991
Not applicable
1991
2003
Wireless System
Subscribers
10,762,798 1
4,896,944
17,201,005 2
6,974,379 2
Not applicable
No data available
2,100,000 3
Digital
Digital
Digital
Analog/Digital
Digital
Analog
Digital
Wireless
Technology
GSM
GSM
ETACS/GSM
AMPS/CDMA
GSM
AMPS
GSM
GSM
Operating
Spectrum
20MHz
10MHz
15MHz
11MHz
10MHz
10MHz
10MHz
* Wholly-owned subsidiary of Globe Telecom, Inc.
** Affiliate of PLDT.
____________________________________
Sources:
(1) Globe disclosures for the year ended 31 December 2006.
(2) Disclosures of PLDT as of 31 December, 2006. SMART decommissioned its analog network last Dec. 31, 2002.
(3) Based on publicly available information and Company estimates.
Over the past years, the great majority of cellular growth has taken place specifically within
the digital GSM segment.
Seven wireless operators in the Philippines, including Globe Telecom, have been granted
licenses to provide nationwide wireless service. Wireless operators are free to choose the
network technology that they wish to deploy. The table below sets forth the technology
deployed, the date of commercial launch and the reported number of subscribers as of the
most recent date available for each wireless operator:
Since 2000, the wireless communications industry has experienced consolidation. PLDT
completed its acquisition and consolidation of Smart and Piltel and Globe acquired Islacom
(now named Innove Communications, Inc.). Currently, Smart and Globe are the two leading
wireless operators in the Philippines in terms of subscribers and revenues. Digitel began its
network in 2000 and formally launched its wireless service under the brand name Sun
Cellular in February 2003.
Wireless subscriber growth in the Philippines has been driven by the unique topography and
demographics of the Philippines. It is comprised of more than 7,100 islands and over 50% of
its population is below the age of 25. This young and technologically-adept population
coupled with the wide geographic expanse of the country has favored wireless, rather than
wireline communication systems.
21
With mass market appeal, the increasing affordability of wireless handsets and services, and
the wide coverage of wireless networks have substantially driven the growth of wireless
subscribers in the Philippines. The popularity of wireless voice and data services have also
been driven in part by the continued growth of the prepaid service which permits customers
who do not meet the credit standards for postpaid service or who have different needs from
that of postpaid subscribers, to avail of wireless service.
SMS, pioneered by Globe in 1994, continues to be the most popular form of wireless data
service for the mass market. In 2006, wireless data accounted for 43% of total wireless
service revenues of P50.7 billion.
Globe continues to develop pioneering and innovative services and platforms that enable
sustainability of our services in the markets and communities that we serve.
In 2002, Globe pioneered international prepaid roaming and was the first to launch
multimedia messaging services (MMS) in the Philippines, even ahead of many markets in
Asia. Additionally, subscribers could send e-mail messages from their mobile phones to a
personal computer or another mobile phone when Globe launched its GPRS (General Packet
Radio Services) offerings in 2002.
In 2003, Globe launched its over-the-air reloading service, Globe AutoLoadMax, which
provided greater reloading pervasiveness and accessibility to its prepaid subscribers by
deepening distribution levels down to the sari-sari stores. In addition to its over the air
reloading service, Globe increased reloading options for its prepaid subscribers with options
that ranged from call cards, electronic point of sale (ePOS) terminals, credit cards and
through online channels. This was coupled with the launch of lower denomination prepaid
credits to improve affordability, especially to lower-income markets.
In 2004, we developed services that strengthened the Filipino value of staying connected
with family and friends – anytime, anywhere – with our pioneering “value-transfer” services
such as our Call and Text Collect, Txt Bak Mo Libre Ko messaging and Share A Load
services. We also revolutionized the way people transacted money with our GCash mobile
commerce service that allowed subscribers to send and receive money, make payments and
remittances through Globe’s network of business alliances. During the same year, Globe
sought to increase its regional presence through its membership in Bridge Mobile Alliance
together with six other leading Asian Pacific mobile operators.
Innovation and pinpoint marketing efforts were the broad themes behind our major
competitive efforts in 2005. Throughout the year, Globe targeted key segments and specific
consumer needs by repositioning its Touch Mobile brand to appeal to the mass market.
Globe also introduced innovative price promotions across all the Company’s brands to
improve competitiveness and enhance customer value. Globe introduced its CelebRATE!,
TM Todo Tawag/Todo Text and per-second charging offerings in response to unlimited price
and competitive promos in the market.
In 2006, we promoted greater usage of our services through customized voice and data
offerings whether for heavy voice or SMS users. We likewise continued with our per-second
charging offering and extended it to international voice calls and our TM prepaid subscriber
base. We also zoomed in on serving the needs of our growing overseas Filipino communities
though our Globe Kababayan program. During the same year, we became the first operator
in the Asia Pacific region to introduce Mobile Broadband 3G with HSDPA (High Speed
22
Downlink Packet Access) capabilities to the general public allowing convenience and richer
connections that only 3G and wireless broadband can offer.
(b) Wireline Voice Market
There are eight major local exchange carriers (LEC) in the Philippines with licenses to
provide local and domestic long distance services. The table below sets forth the installed
and subscribed lines for each of the major operators in 2005.
Operator
Bayantel*
Bell Telecom *
Digitel
ETPI/TTPI
Innove 2
Philcom
Piltel/PLDT
PT&T
Other LECs
TOTAL
Installed Lines
443,910
12,710
634,345
91,446
1,507,197
213,236
3,163,076
129,000
343,467
6,538,387
Subscribed
Lines
227,057
1,942
410,661
15,915
362,143
52,752
1,842,507
24,468
214,531
3,151,976
Installed
% To Total
6.8%
0.2%
9.7%
1.4%
23.1%
3.3%
48.4%
2.0%
5.3%
100%
Subscribed
% To Total
7.2%
0.1%
13.0%
0.5%
11.5%
1.7%
58.5%
0.8%
6.8%
100%
* No reports submitted for December 2005
_____________________________________
Source:
1) National Telecommunications Commission (Statistical Data 2005) Report
2) Globe disclosures for the year ended December 31, 2005.
3) 2005 figures based on disclosures of PLDT as of December 31, 2006.
The Philippine wireline voice market has experienced modest growth in recent years with the
number of lines in service increasing from 2.9 million in 1999 to approximately 3.2 million
by the end of 2005. Traditional fixed line market growth has been flat over the past years
with wireless substitution.
Each operator (other than PLDT and Innove, who is authorized to provide nationwide
wireline services) are assigned service areas in which they must install the required number
of wirelines and provide service. The NTC has created 15 such service areas in the
Philippines and in order to promote network construction, it has been the government policy
to allow only one or two major operators (in addition to PLDT) in each service area. Rates
for local exchange and domestic long distance services have been deregulated and operators
are allowed to have metered as well as flat monthly fee tariff plans for the services provided.
On 5 March 2004, Innove filed an application with the NTC for the expansion of its fixed
line business and was awarded by the NTC with a nationwide franchise for its wireline
business on 17 June 2005.
(c) Wireline Data Market
The wireline data service business is a growing segment of the wireline industry. As the
Philippine economy grows, businesses are increasingly utilizing new networking
technologies and the internet for critical business needs such as sales and marketing, intercompany communications, database management and data storage. The potential of
corporate data is becoming more visible as it serves the promising IT Enabled Service (ITES)
industry which includes call centers and Business Process Outsourcing (BPO) companies.
23
Dedicated business units have been created and organized within the Company to focus on
the wireless and wireline needs of specific market segments and customers – be they
residential subscribers, wholesalers and other large corporate clients or smaller scale
industries. This reorganization has also been driven by our corporate clients’ preferences for
integrated mobile and fixed line communications solutions. Our dedicated business units
include complete and dedicated technical and customer relationship teams to serve its various
markets.
(d) International Long Distance Market
International long distance (ILD) traffic in the Philippines has significantly increased over
the years due to the growing overseas Filipino communities. International long distance
providers in the Philippines generate revenues from both inbound and outbound international
call traffic whereby the pricing of calls is based on agreed international settlement rates.
To date, there are eleven licensed international long distance operators, nine of which
directly compete with us for customers. Both Globe and Innove offer ILD services which
cover international calls between the Philippines and over 200 countries. Positive results
from successful launches of various ILD tariff promotions have brought about increased ILD
revenues which accounted for 24% and 25% of our total net service revenues for 2006 and
2005, respectively.
Settlement rates for international long distance traffic are based on bilateral negotiations.
Commercial negotiations for these settlement rates are settled using a termination rate system
where the termination rate is determined by the terminating carrier (e.g. Philippines) in
negotiation with the originating foreign correspondent.
Principal Competitive Strengths of the Company
(a) Market Leadership Position
As a leading provider of digital wireless communications services in the Philippines, Globe
is well positioned to participate in the continued development of the wireless
communications industry. Its distinct competitive strengths include its technologically
advanced nationwide wireless network, a substantial subscriber base, excellent customer
service, a well-established brand identity and more than a decade of wireless experience and
success.
(b) Strong Brand Identity
Globe has one of the best-recognized brands in the Philippines. The Company believes that
the Globe brand is synonymous with quality, innovation and excellent customer service.
This strong brand recognition is a critical advantage in maintaining market share as Globe
expands its subscriber base and significantly enhances its ability to cross-sell and support
other product and service offerings.
24
(c) Financial Strength and Prudent Leverage Policies
Globe has achieved sustained revenue and earnings growth and a strong balance sheet. In
2006, Globe reported a full year after tax net income of P11.8 billion, a growth of 14% from
the same period last year. As of December 31, 2006, Globe had total interest bearing debt of
P39.2 billion, representing 41% of total book capitalization. Globe intends to maintain its
strong financial performance and prudent fiscal practices primarily by closely monitoring
and managing capital expenditures, debt position, investments and currency exposures.
Globe believes that it has sufficient financial flexibility and strength to pursue its strategies.
(d) Proven Management Team
Globe’s ability to properly manage and sustain growth has been key to its success. Globe
has a strong management team with the proven ability to execute on its business plan and
achieve results. As Globe expanded, it has been able to attract and retain senior managers
from the telecommunications, consumer products and finance industries with experience in
managing large scale operations.
(e) Strong Shareholder Support
Globe’s principal shareholders, Ayala and SingTel, provide Globe with a combination of
strong financial support, local and international perspectives and technical and operational
expertise. Since 1993, they have invested approximately P23.0 billion in the Company.
5. Suppliers
Globe Telecom works with both local and foreign suppliers and contractors. Equipment and
technology required to render telecommunications services are mainly sourced from foreign
countries. Our principal suppliers are as follows:
For wireless - Nokia Oy (Finland); Ericsson Radio Systems AB (Sweden), Ericsson
(Sweden), Siemens Corporation (Germany), Alcatel (France), Microwave Networks
Inc(US) ., Fujitsu Ltd. (Japan), ECI Telecoms (Israel), Enavis (Israel), NERA (Norway),
NEC Corp. (Japan), ASCOM, Benning (Germany), SEC Cellyte (US), Hawker Batteries,
JNB Batteries, Rohas-Euco (Malaysia), Transmast, Andrews Corporation, Allen Telecom
Group (Micom), Kathrein, Cellwave, Huber & Suhner, CMG (Netherlands), Comverse
Technologies; Harris Radio Corporation (US/Canada), Cisco Systems (Philippines.);
Communications Solutions, Inc., Investors Quality Services, Inc. (USA), Lucent
Technologies (USA), Mitsubishi Corporation (Japan and Philippines), Sumitomo
Corporation (Japan), Tomen Corporation (Japan and Philippines), and Tyco Electronics
(Philippines).
SIM cards and call cards are sourced from Axalto International Ltd. (France), Gemplus
Technologies Asia Pte Ltd (France), Banner Plastic Cards (Philippines), and Orga Card
Systems Pte Ltd (Germany).
25
For wireline - Tomen (Japan), Fujitsu Ltd. (Japan), Tomen Telecom Phils., Sumitomo
Corporation (Japan), Mitsubishi (Japan), Lucent Technologies (USA), NEC (Japan), NESIC
(Phils.), Alcatel (Italy), Mitsubishi Corp. (Japan & Phils.), Melcom Corp. (Philippines.),
Comsys Phils, Inc., Cisco Systems (Philippines.), Datacraft Comm (Phils.), Worldlink
Comm. (Philippines.), IECI (Philippines.), Filipinas Wincomm Corp.(Philippines), RAD Far
East Ltd. (Hongkong), Cisco (USA), RAD (Israel), SR (Canada), DMC (USA), Motorola
(US), MCI WorldComm (US), Teleglobe (Canada), Cable and Wireless (UK), AT&T Global
(US), British Telecom (UK), and Singapore Telecom (Singapore), Comverse Technologies
(USA), Lityan (Philippines) and Banner Plastic Cards (Philippines), Tellabs
(USA/Singapore).
The Company’s capital expenditures program includes various phases, with each phase
supplied and serviced by local and international companies who provide equipment and
services including planning, design, construction and commissioning of various equipment
and systems for Globe.
In 2006, we incurred capital expenditures of P14,832 million compared to P14,758 million in
2005.
For 2007, the Company has allocated US$350 million or 21% more compared to the
approximately US$290 million incurred for 2006. Of this amount, about US$160 million are
expenditures to sustain our core wireless business while US$190 million will be directed
towards infrastructure investments in new growth areas, specifically in broadband
technologies such as DSL and 3G.
6. Customers
Globe Telecom has a wide subscriber base. On the wireless front, our wireless subscribers
stood at 15.7 million as of end 2006. There were 643,901 postpaid and approximately 1.5
million prepaid subscribers. Our wireline business ended the year with 383,876 subscribers,
comprised of 63% postpaid and 37% prepaid. Our broadband business continues to show
robust growth, ending the year with 51,426 subscribers.
No single customer and contract accounted for more than 20% of the Company’s total sales
in 2006.
7. Transactions with Related Parties
As part of the normal course of its business, Globe Telecom and its subsidiaries enter into
transactions with its principal shareholders, AC and STI, and certain related parties. These
transactions are accounted for at market prices normally charged to unaffiliated customers
for similar goods and services.
(a) Globe Telecom has interconnection agreements with SingTel. The related net traffic
settlements receivable (included in “Receivables” account in the consolidated
balance sheets) and the interconnection toll income (included in “Service revenues”
account in the consolidated statements of income) earned are as follows:
26
Traffic settlements receivable - net
Interconnection toll income
2006
(In Thousand Pesos)
P
=61,061
1,028,552
2005
2004
=
P335,766
1,422,249
=
P31,212
1,083,859
(b) Globe Telecom and STI have a technical assistance agreement whereby STI will
provide consultancy and advisory services, including those with respect to the
construction and operation of Globe Telecom’s networks and communication
services, equipment procurement and personnel services. In addition, Globe Telecom
has software development, supply, license and support arrangements, lease of cable
facilities, maintenance and restoration costs and other transactions with STI.
The details of fees (included in repairs and maintenance under the “General, selling
and administrative expenses” account in the consolidated statements of income)
incurred under these agreements are as follows:
2006
Maintenance and restoration costs and
other transactions
Software development, supply, license
and support
Technical assistance fee
2005
2004
(In Thousand Pesos)
P
=240,542
=
P266,793
=
P137,111
29,467
78,872
143,450
35,652
44,360
40,409
The net outstanding balances due to STI (included in the “Accounts payable and
accrued expenses” account in the consolidated balance sheets) arising from these
transactions are as follows:
2006
Maintenance and restoration costs and
other transactions
Software development, supply, license
and support
Technical assistance fee
2005
(In Thousand Pesos)
2004
P
=24,203
=
P13,738
=
P62,675
31,004
25,606
11,940
81,019
21,322
8,899
(c) Globe Telecom reimburses AC for certain operating expenses. The net outstanding
liabilities to AC related to these transactions as of December 31, 2006 were not
material.
(d) Globe Telecom has preferred roaming service contract with BMPL. Under this
contract, Globe Telecom will pay BMPL for services rendered by the latter which
include, among others, coordination and facilitation of preferred roaming
arrangements among JV partners, and procurement and maintenance of
telecommunications equipment necessary for delivery of seamless roaming
experience to customers. Globe Telecom also earns or incurs commission from
BMPL for regional top-up service provided by the JV partners. As of December 31,
2006, balances related to these transactions were not material.
27
The summary of consolidated outstanding balances resulting from transactions with
related parties follows:
2005
(In Thousand Pesos)
2006
Traffic settlements
receivable - net (included in
“Receivables” account)
Other current assets
Accounts payable and
accrued expenses
Other long-term liabilities
2004
P
=61,061
1,651
=
P335,766
927
=
P31,212
946
100,413
–
129,420
1,373,735
122,959
2,426,492
(e) Globe Group’s compensation of key management personnel by benefit type are as
follows:
2005
2006
2004
(In Thousand Pesos)
Short-term employee
benefits
Share-based payments
Post-employment benefits
=
P296,191
161,731
32,938
=
P490,860
P
=308,039
161,628
21,682
P
=491,349
=
P261,174
134,769
35,667
=
P431,610
There are no agreements between the Globe Group and any of its directors and key
officers providing for benefits upon termination of employment, except for such
benefits to which they may be entitled under the Globe Group’s retirement plans.
8. Licenses, Patents, and Trademarks
(viii)
Globe Telecom currently holds the following major licenses:
Service
Globe
Wireless
Type of License
Date Issued or Last
Extended
CPCN (1)
July 22, 2002
CPCN (1)
July 22, 2002
CPCN (1)
July 22, 2002
Expiration Date
December 24,
2030
December 24,
2030
December 24,
2030
December 24,
2030
February 6, 2021
Action Being
Taken
No action
required
No action
required
No action
required
No action
required
No action
required
Local
Exchange
Carrier
International Long
Distance
Interexchange
Carrier
VSAT
CPCN (1)
February 14, 2003
CPCN (1)
February 6, 1996
Innove
Type of License
Wireless
Local Wireline
International Long
Distance
Interexchange
Carrier
CPCN (1)
CPCN (1)
CPCN (1)
Date Issued or
Last Extended
July 22, 2002
July 22, 2002
July 22, 2002
April 10, 2017
April 10, 2017
April 10, 2017
No action required
No action required
No action required
CPCN (1)
April 30, 2004
April 10, 2017
No action required
Expiration Date
Action Being Taken
(1) Certificate of Public Convenience and Necessity. The term of a CPCN is co-terminus with the franchise term.
28
In July 2002, the NTC issued CPCNs to Globe and Innove which allow us to operate our
respective services for a term that will be predicated upon and co-terminus with our
congressional franchise under RA 7229 (Globe) and RA 7372 (Innove). We were granted
our permanent licenses after having demonstrated our legal, financial and technical
capabilities in operating and maintaining wireless telecommunications systems, local
exchange carrier services and international gateway facilities. Additionally, Globe and
Innove exceeded the 80% minimum roll-out compliance requirement for coverage of all
provincial capitals, including all chartered cities within a period of seven years.
We have also registered the following brand names with the Intellectual Property Office,
the independent regulatory agency responsible for registration of patents, trademarks and
technology transfers in the Philippines: Globe Telecom, Touch Mobile, Globelines, Globe
Handyphone, Innove Communications, Globe Link, GlobeQuest, Globe Xchange,
Globelines Broadband, Globe G-Cash, Globe AutoLoad, GlobeQuestDSL Broadband
Internet, Broadband Mobility and “Hub and Circular Device” among others for the
wireless and wireline services we offer. We have also secured certificates of registration
for Globe Telecom, Globe Handyphone, Globe AutoLoad, GlobeQuest DSL Broadband
Internet, Broadband Mobility, “Hub and Other Circular Device” and Innove
Communications.
9. Government approvals/regulations
The Globe Group is regulated by the NTC under the provisions of the Public Service Act
(CA 146), Executive Order (EO) 59, EO 109, and RA 7925. Under these laws, Globe is
required to do the following:
(a)
To secure a CPCN/PA from the NTC for those services it offers which are deemed
regulated services, as well as for those rates which are still deemed regulated, under
RA 7925.
(b)
To observe the regulations
telecommunications networks.
(c)
To observe (and has complied with) the provisions of EO 109 and RA 7925 which
impose an obligation to rollout 700,000 fixed lines as a condition to the grant of its
provisional authorities for the cellular and international gateway services.
(d)
Globe remains under the supervision of the NTC for other matters stated in CA 146
and RA 7925 and pays annual supervision fees and permit fees to the NTC.
of
the
NTC
on
interconnection
of
public
In 2000, the NTC issued NTC Memorandum Circular No. 13-6-2000 proposing new
requirements for wireless operators, including the following:
•
•
•
•
provide subscribers with their bills within a specified period;
extend the expiry date of prepaid cards from two months to two years;
provide prepaid subscriber balance updates every time they make phone calls;
bill on a per pulse basis using units of six seconds instead of the previous per minute
basis; and
• not to bill calls directed to recorded voice messages.
29
We, together with other cellular operators, sought and obtained a preliminary injunction
against the implementation of NTC Memorandum Circular No. 13-6-2000 from the RTC of
Quezon City. The NTC appealed the issuance of the injunction to the Court of Appeals.
On 25 October 2001, we received a copy of the decision of the Court of Appeals ordering the
dismissal of the case before the RTC for lack of jurisdiction, but without prejudice to the
wireless companies seeking relief before the NTC, which the Court of Appeals (‘CA’) claims
had jurisdiction over the matter.
On 22 February 2002, we filed a Petition for Review with the Supreme Court (‘SC’) to annul
and reverse the decision of the CA. On 2 September 2003, the SC overturned the CA’s
earlier dismissal of the petitions filed by SMART and Globe. In its 13-page decision, the SC
said that the Quezon City trial court could hear and decide the case contrary to NTC’s
argument. The SC has also since denied the NTC’s motion for reconsideration. We are
currently awaiting resumption of the proceedings before the RTC of Quezon City. In the
event that Globe does not sustain its position and NTC Memorandum Circular No. 13-6-2000
is implemented in its current form, the Company would probably incur additional costs for
carrying and maintaining prepaid subscribers in its network.
10. Research and Development
Globe did not incur any research and development costs from 2004 to 2006.
11. Compliance with Environmental Laws
The Globe Group complies with the Environmental Impact Statement (‘EIS’) system of
the Department of Environment and Natural Resources (‘DENR’) and pays nominal
filing fees required for the submission of applications for Environmental Clearance
Certificates (‘ECC’) or Certificates of Non-Coverage (‘CNC’) for its cellsites and certain
other facilities, as well as miscellaneous expenses incurred in the preparation of
applications and the related environmental impact studies. The Globe Group does not
consider these amounts material.
12. Employees
The Globe Group has 5,161 active regular employees as of December 31, 2006, of which
about 14% are covered by a Collective Bargaining Agreement (CBA) through the Globe
Telecom Workers Union (GTWU).
Between 2005 and 2006, there was no major dispute which warranted GTWU to file a
notice of strike against the Company.
On November 2005, the GTWU began its negotiations for another five-year agreement
with Globe Telecom. An agreement was promptly reached over the economic and noneconomic provisions of the CBA last December 2005. The CBA is valid until December
31, 2010 with a renegotiation on the economic aspects in 2008, a process that is expected
to arrive at a peaceful and swift conclusion as in the previous CBAs. The Company has
a long-standing, cordial, and constructive relationship with the GTWU characterized by
30
industrial peace. It is a partnership that mutually agrees to focus on shared goals – one
that has in fact allowed the attainment of higher levels of productivity and consistent
quality of service to customers across different segments.
Breakdown of employees by main category of activity for 2006 and 2005 are as follows:
Employee Type
2006*
2005*
Rank & File, CBU
3,055
2,977
Supervisory
1,329
1,318
Managerial
548
497
Executives
229
195
5,161
4,987
Total
*Includes Globe, Innove, & GXI (excluding Secondees)
Globe Telecom continues to develop strategic initiatives to explore new ways to realize
operating efficiencies which will enable it to fully focus on its strategic business units.
This is to ensure that 2006 gains on employee productivity and controlled manpower
growth is sustained. It also believes that these initiatives will enhance stakeholder value
and improve corporate agility which would increase its overall competitiveness and
regain its position as the service leader in the telecom industry.
13. Risk Factors
(a) Foreign Exchange Risk
While the majority of the Company’s revenues are in Pesos, certain costs and expenses
(including debt service expenses) are denominated in US Dollars. Globe’s foreign
exchange exposure in the past has been mitigated by several factors.
First, the Company has foreign currency-linked revenues which include those (a) billed
in foreign currency and settled in foreign currency; (b) billed in pesos at rates linked to a
foreign currency tariff and settled in pesos, or (c) wireline monthly service fees and the
corresponding application of the Currency Exchange Rate Adjustment (CERA)
mechanism under which Globe has the ability to pass the effects of local currency
depreciation to its subscribers.
Second, the Company enters into short-term currency forwards and long-term foreign
currency swap contracts. Short-term forward contracts are used to manage foreign
exchange exposure related to foreign currency denominated monetary assets and
liabilities. For certain long term foreign currency denominated loans, the Company has
entered into long term foreign currency and interest rate swap contracts to manage
foreign exchange and interest rate exposures.
During the last decade, the Philippines has, from time to time, experienced declines in
the value of the Peso and limited foreign exchange. From 1996 to 2004, the Peso
depreciated at a rate of 10% per annum from P26.288 per U.S. Dollar at end-1996 to
P56.341 at end-2004. Owing to the implementation of the new value-added tax (VAT)
law as well as strong inflows of OFW remittances, the Peso strengthened to P53.062 per
U.S. Dollar at end-2005. The Peso further rose to P51.725 per U.S. Dollar by the end of
31
February 2006 and reached P50.249 by the end of September 2006. The Peso finally
settled at P49.045 by December 31, 2006.
There can be no assurance that the value of the Peso will not decline in the future or that
the availability of foreign exchange will not be limited. Any recurrence of these
conditions may adversely affect Globe’s financial condition and results of operations.
(b) Industry and Operational Risks
Competitive Industry
The Philippine telecommunications industry, particularly wireless communications, has
been notably competitive, as competitors have sought to increase market share by
attracting new subscribers. The principal players in Philippine telecommunications are
Globe, Philippine Long Distance Telephone Company (“PLDT”) and its wireless
subsidiary Smart Communications, Inc. (“Smart”), and Digital Telecommunications
Philippines, Inc. (“Digitel”) which launched its wireless “Sun Cellular” mobile service in
2003. Other players include Bayan Telecommunications, Inc. (“Bayantel”) and Express
Telecommunications Co., Inc. (“Extelcom”), which are both licensed to provide wireless
mobile services, and Infocom Communications Network, Inc. a licensed wireless trunked
radio service operator.
While wireless subscriber growth is expected to continue, it may not continue to grow at
the same rate as in the past. Further reductions in tariffs, wider penetration into lowerusage subscriber segments, and the increasing incidence of multi-SIM usage may also
result in declining average revenues per subscriber.
Other industry considerations include the capital-intensive nature of the business, the
rapid pace of changes in telecommunications technology, and the regulated nature of the
industry.
Highly Regulated Environment
Globe is regulated by the NTC for its telecommunications business and by the SEC and
the BSP for other aspects of its business. The introduction of, changes in, or the
inconsistent or unpredictable application of, applicable laws or regulations from time to
time may materially affect the operations of Globe, and ultimately the earnings of the
Company which could impair the ability to service debt. There is no assurance that the
regulatory environment will support any increase in business and financial activity for
Globe.
The government’s communications policies have been evolving since 1993 when former
President Fidel V. Ramos initiated a more liberalized Philippine Communications
Industry. Changes in regulations or government policies or differing interpretations of
such regulations or policies have affected, and will continue to affect Globe’s business,
financial condition and result of operation.
The exercise of regulatory power by regulators, including monetary regulators, may be
subject to review by the courts on the complaint of affected parties.
32
No assurance can be given that the regulatory environment in the Philippines will remain
consistent or open and that the current or future policies may affect the business and
operations of Globe.
(c) Philippine Political and Economic Factors
The growth and profitability of Globe will be influenced by the overall political and
economic situation of the Philippines. Any political or economic instability in the future
may have a negative impact on the Company’s financial results.
Economic Considerations
The Philippines has in the past, experienced periods of slow or negative growth, high
inflation and significant depreciation of the Peso. The Asian financial crisis in 1997
affected the Philippine economy and the ability of a number of Philippine companies to
meet their debt service obligations. Although the Philippine economy has since then
registered economic growth, the economy continues to face significant challenges such
as a low investment rate, volatile exchange rates and a relatively weak banking sector.
The Government has been effective thus far in reducing its budget deficit. With tighter
spending and improved revenue collection, the budget deficit in 2005 was P146.5 billion,
lower than the expected P180.0 billion deficit for the year. The new VAT law, which
took effect last November 2005, brought about additional revenues of around P75.0
billion for 2006. By the end of 2006, the government reported a budget deficit of
approximately P62.2 billion or 57.6% lower than the previous year.
Fitch Ratings (“Fitch”) has assigned a long-term foreign currency debt rating to the
Philippines of “BB” (two notches below investment grade). Standard & Poor’s (“S&P”)
has assigned a “BB-“(three notches below investment grade) rating while Moody’s
Investors Service (“Moody’s”) has assigned “B1” (four notches below investment grade)
rating to the Philippines. In February 2006, Fitch and S&P upgraded their ratings
outlook on the Philippines from “negative” to “stable” due to the Government’s
implementation of tax reforms and drive to reduce its budget deficit, while Moody’s
upgraded its ratings outlook on the Philippines from “negative” to “stable” in November
2006.
Political Considerations
The Philippines has from time to time experienced political instability. No assurance can
be given that the political environment in the Philippines will be stable and that current
or future governments will adopt economic policies conducive to sustained economic
growth.
In 2001, following an impeachment trial, mass demonstrations and the military
declaration of its withdrawal of support, former President Joseph Estrada was removed
from office. Then Vice President Gloria Macapagal Arroyo was installed as President of
the Philippines on January 20, 2001.
33
National and local elections were held on May 10, 2004. Notwithstanding the protest
rallies and several disqualification cases filed against President Arroyo (none of which
prospered), she and Senator Noli De Castro were proclaimed by Congress as President
and Vice President, respectively on June 24, 2004. In 2005, President Arroyo was
alleged to have committed fraud in the 2004 national elections based on taped
conversations she supposedly had with an official of the Commission on Elections
(“Comelec”). After President Arroyo admitted to speaking with a Comelec official,
several cabinet members resigned from their posts and, along with opposition groups,
called for her resignation. Impeachment complaints were then filed against President
Arroyo, but the House of Representatives eventually voted to reject the impeachment
complaints. Impeachment complaints were re-filed in 2006 and have also been rejected.
In February 2006, the Government allegedly thwarted a coup plot supposedly involving
certain military rebels and communists. President Arroyo put the country under a state
of emergency, citing an alleged tactical alliance between right- and left-wing enemies of
the state and a conspiracy over broad front to topple the Government. The state of
emergency was lifted after a week.
The Arroyo administration has been pushing for changes to the Philippine Constitution
including, among others, a change in the form of government from presidential to
parliamentary. However, the Philippine Supreme Court has ruled to deny petitions to
allow a People’s Initiative that would have made constitutional changes possible through
an abbreviated process and a plebiscite.
Elections for various local and national positions have been scheduled in May 2007 and
no assurance can be given that the political environment will be stable and that the
current or future government will adopt economic policies conducive to sustained
economic growth.
14. Management of Risks
Enterprise Risk Management
Recognizing the dynamism of the business and industry, Globe aims to continuously
improve its corporate governance and risk management capabilities to maximize profit
and minimize loss. As early as 2000, the company completed a risk self-assessment to
identify risks and their likely impact to operations. Since that time, the Company has
adopted an enterprise-wide risk management framework to enhance the risk management
process and institutionalize a more structured approach to managing the company’s
business risks.
A Chief Risk Officer now champions and oversees the entire risk management function.
A risk management unit has also been formally set up to make the function a regular one,
rather than an ad hoc activity. Risk owners have been designated, trained, and made
responsible and accountable for managing risks, consistent with management’s belief
that risks are best understood and managed by the employees who are responsible for the
particular process or activity from which the risk arises.
34
The Board provides an oversight role for the company’s risk management activities and
approves Globe’s risk management policies and any revisions thereto. The CEO, as the
over-all risk executive, oversees the risk management activities of the company and
ensures that the responsibilities for managing risk is clear, the level of risk accepted by
the company is appropriate, and that an effective control environment exists for the
company as a whole.
15. Debt Issues
As of 31 December 2006, gross debt was at =
P39,207 million, 62% of which are
denominated in US$. Of the 62%, 33% has been swapped to pesos. As a result, the
amount of US$ debt swapped into pesos and peso-denominated debt accounts for
approximately 59% of consolidated loans as of 31 December 2006.
The Company has, in a transaction exempt under the Philippine Securities Regulation
Code, issued a 13% US$220 million Senior Notes due 2009(which was fully redeemed
by August 2004) and a 9.75% US$300 million Senior Notes due 2012. On October 29,
2004, the US$300 million Senior Notes were listed and quoted on the Singapore Stock
Exchange. Additionally, on February 2004, the Company issued P3 billion worth of
Philippine SEC registered bonds.
On January 12, 2007, the Company announced that it was considering redeeming its
US$300 million 9.75% Senior Notes originally due on 2012. Globe has the option to call
the Senior Notes on or after April 15, 2007 at 104.875% of the principal. On February
23, 2007, Globe Telecom announced that the BSP had approved its application to redeem
the Company’s US$300 million Senior Notes and had sent notice to its trustee, Bank of
New York, to exercise its call option and prepay the Notes on April 15, 2007, five years
ahead of its original due date.
35
Item 2. Description of Properties
A. Buildings and Leasehold Improvements
Globe owns several floors of Pioneer Highlands Towers 1 and 2, located at Pioneer Street in
Mandaluyong City, to serve as its corporate headquarters. This building was later renamed
as Globe Telecom Plaza. In addition, the Company also owns the Makati Host Exchange
along Valero Street in Makati City.
On the lease front, Globe leases additional office space along Buendia, Edsa and Ermita for
our technical, administrative offices and host exchange, respectively. It also leases the space
for most of its 91 wireless business centers, 45 GPS centers and 5,884 cell sites throughout
the Philippines. Our existing business centers and cell sites located in strategic locations all
over the country are generally in good condition and are covered by specific lease
agreements with various lease payments, expiration periods and renewal options. As we
continue to expand our network in the next 12 months, we intend to lease more spaces for
additional cell sites and centers whose lease payments, expiration periods and renewal
options are undeterminable at this time.
B. Telecommunications Equipment
As of 31 December 2006, the Company had the following major telecommunications
equipment:
•
•
•
•
•
•
•
22 Mobile Switching Centers (‘MSC’);
5 2G Mobile Switching System (‘MSS’);
1 3G Mobile Switching System (‘MSS’);
15 Home Location Registers (‘HLR’);
5 Short Messaging Service Centers (‘SMSC’);
1 Multimedia Messaging Service Center (‘MMSC’); and
1 Wireless Application Protocol (‘WAP’) Gateway
.
The infrastructure for Globelines fixed telephone service now includes over 23 telephone
switching exchanges in locations including Makati, Mandaluyong, Batangas, Cavite,
Marikina, Cebu, Bohol, Negros Oriental, Negros Occidental, Panay, Samar, Leyte and Iligan
in addition to 52 remote switching units (RSU/RDLU). Globe and Innove have also installed
more than 1.5 million fixed lines.
For our international and domestic long distance telephony business, we have 13 toll
switching systems in our Ermita, Mandaluyong, Cavite, Batangas, Cebu, Mandaue,
Tagbilaran, Tacloban, Dumaguete, Bacolod, Roxas, Iloilo and Iligan host exchanges. We
operate three international gateway facilities. Two international gateway switches are located
in Metro Manila while the third is in Cebu.
We also have a national transmission network that includes a microwave Synchronous
Digital Hierarchy (‘SDH’) backbone that stretches from the northern part of Luzon to the
southern part of Mindanao, supplemented by leased fiber optic networks in urban areas.
36
Globe also established, operates and maintains a Fiber Optic Backbone Network (‘FOBN’)
linking the Luzon, Visayas and Mindanao island groups to complement its microwave
facilities and which offers flexibility for future telecommunications technology including
broadband, GPRS, 3G and broadband data transmission.
C. Investments in Cable Systems
We have also invested in several submarine cable systems, in which we either own or lease a
share of the systems’ total capacity. Investments in cable systems include the cost of the
Globe Group’s ownership share in the capacity of certain cable systems under a joint venture
or a consortium or private cable set-up and indefeasible rights of use (IRUs) of circuits in
various cable systems. It also includes the cost of cable landing station and transmission
facilities where the Globe Group is the landing party.
We have a cable landing station, located in Nasugbu, Batangas to land the C2C cable
network, a 17,000 kilometer long submarine cable network linking the Philippines to Hong
Kong, Taiwan, China, Korea, Japan and Singapore. Globe, through its subsidiary Innove,
has separately purchased capacity in the C2C cable network. Innove have a 4.25% ownership
in C2C Holdings, Pte. Ltd. (C2C Holdings) consisting of 20 million Class A common shares
at an acquisition cost of =
P894.55 million. C2C Holdings is the holding company for the
equity investments of all the cable landing parties in C2C Pte. Ltd. (C2C). C2C, a related
party of STI, is a private cable company with a network reaching 17,000 kilometers that links
China, Hong Kong, Japan, Singapore, South Korea, Taiwan, Philippines and the US. A full
provision was recorded on this investment in 2003 based on the increased potential risk to
the restructuring of C2C’s debt.
The creditors of C2C appointed receivers in October 2005 and in January 2006, manifested
their intention to take over the management of C2C. The creditors of C2C subsequently
served notice to C2C Holdings that it was taking ownership of the shares of C2C Holdings in
C2C due to the failure to achieve agreement on the restructuring of C2C’s debt. On August
7, 2006, the C2C shares were formally transferred to C2C Group Limited, the company
formed by the creditors to take ownership of the C2C shares.
For more information on the Company’s properties and equipment, refer to Note 7 of the
attached notes to the consolidated financial statements.
37
Item 3. Legal Proceedings
Globe is an intervenor in and Innove is a party to Civil Case No. Q-00-42221 entitled "Isla
Communications Co., Inc. et. al., versus National Telecommunications Commission (‘NTC’)
et al.," before the Regional Trial Court (‘RTC’) of Quezon City by virtue of which Globe and
Innove, together with other cellular operators, sought and obtained a preliminary injunction
against the implementation of NTC Memorandum Circular (‘MC’) No. 13-6-2000 from the
RTC of Quezon City. NTC MC 13-6-2000 prescribed new billing requirements for cellular
service providers. The NTC appealed the issuance of the injunction to the Court of Appeals.
On 25 October 2001, we received a copy of the decision of the Court of Appeals ordering the
dismissal of the case before the RTC for lack of jurisdiction, but without prejudice to the
wireless companies’ seeking relief before the NTC, which the Court of Appeals claims had
jurisdiction over the matter. On 22 February 2002, we filed a Petition for Review with the
Supreme Court (‘SC’) to annul and reverse the decision of the Court of Appeals. The
Supreme Court (‘SC’), on 2 December 2003, overturned the CA’s earlier dismissal of the
petitions filed by SMART and Globe. In its 13-page decision, the SC said that the Quezon
City trial court could hear and decide the case, contrary to NTC’s argument. The SC has also
since denied the NTC’s motion for reconsideration. We are still awaiting resumption of the
proceedings before the RTC of Quezon City.
On May 22, 2006, Innove received a copy of the Complaint of Subic Telecom Company
(“Subictel”), Inc., a subsidiary of PLDT, seeking an injunction to stop the Subic Bay
Metropolitan Authority and Innove from taking any actions to implement the Certificate of
Public Convenience and Necessity granted by SBMA to Innove. Subictel claimed that the
grant of a CPCN allowing Innove to offer certain telecommunications services within the
Subic Bay Freeport Zone would violate the Joint Venture Agreement (“JVA”) between
PLDT and SBMA. Innove has since filed its Opposition to the Prayer for Injunction with
Motion to Dismiss, citing that SBMA is not entitled to an injunction on the basis of the
grounds it has cited in the complaint, that an injunction in this case would be contrary to
public policy, and that the complaint is forum-shopping since Subictel had already
previously objected to the grant of the CPCN in the proceedings before the regulatory body.
SBMA also filed its Opposition pointing out, among others, that Subictel is not a proper
party in this case since Subictel is not a party to the JVA. The court granted Innove’s Motion
to Dismiss and Subictel has filed a Motion for Reconsideration. The Motion for
Reconsideration was subsequently denied and Subictel has appealed to the Court of Appeals.
The appeal is pending.
On July 4, 2006, Smart Communications, Inc. (“Smart”) filed a letter-complaint with the
National Telecommunications Commission (“NTC”) against the 500 free text promotion
offered by Innove on its Speak and Surf product. The promotion allows Speak and Surf
subscribers to send 500 free text messages to Globe and Touch Mobile subscribers. Smart
complained that this promotion was predatory and discriminatory. On July 17 the NTC
issued a Show-Cause order requiring Globe to explain its position on this matter. On July 25,
2006, Globe filed its answer. In its answer, Globe explained that Innove actually pays Globe
the regular termination rate of P0.35 per text message, and that the cost of the “free” texts are
sufficiently covered by the monthly service charge of P995 paid by Speak n’ Surf
subscribers. In this light, the offer is neither discriminatory nor predatory. In its answer,
Globe also extended an invitation to Smart and other networks to join the promotional offer.
The company is currently awaiting the disposition of the NTC on this matter.
38
Item 4. Submission of Matters to a Vote of Security Holders
Except for matters taken up during the annual meeting of stockholders, there was no other
matter submitted to a vote of security holders during the period covered by this report.
39
PART II – SECURITIES OF THE REGISTRANT
Item 5. Market Price, Dividends & Related Stockholder Matters
A. Market Information
The Company’s common equity is traded at the Philippine Stock Exchange (PSE).
The following table shows the high and low prices of Globe Telecom’s shares in the PSE for
the year 2005 and 2006.
COMMON SHARES
Price Per Share (PHP)
Calendar Period
2005:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2006:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
965.00
900.00
870.00
795.00
870.00
800.00
695.00
700.00
900.00
1,080.00
1,080.00
1,340.00
725.00
830.00
900.00
1,055.00
The price information as of latest practicable trading date: P1,235 per common share as of
April 3, 2007.
40
B. Holders
There are approximately 4,449 holders of common equity and 4 holders of preferred equity
securities, respectively, as of 31 January 2007. The following are the top 20 holders of the
common and preferred equity securities of the Company:
1. Common Equity Security
Stockholder Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
9.
10.
11.
11.
12.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
14.
15.
16.
17.
18.
19.
20.
No. of Common Shares
Singapore Telecom Int’l. Pte. Ltd.
Ayala Corporation
PCD Nominee Corp. (Non-Filipino)
PCD Nominee Corp. (Filipino)
Globe ESOWN-Trust Account
Globe ESOP-Trust Account
Benjamin C. Liao
The First National Co., Inc.
Oscar L. Contreras, Jr.
Paulino Lim
GTESOP2000-002
GTESOP98091
GTESOP98092
Eddie L. Hao
GTESOP98053
GTESOP98054
GTESOP98055
GTESOP98056
GTESOP98057
GTESOP98058
GTESOP98059
GTESOP98060
GTESOP98061
GTESOP98062
GTESOP98063
GTESOP98064
GTESOP98089
GTESOP98090
Agaton L.Tiu &/or Remington Tiu
Florentino P. Feliciano
Great Pacific Life Assurance Corporation
Cesar L. Sison
R. Nubla Securities Inc.
Jose Tan Yan Doo
GTESOP98011
Domingo Lim
58,833,614
45,332,252
24,417,411
2,266,217
110,717
96,990
30,130
21,001
17,000
17,000
16,250
12,500
12,500
10,250
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
9,487
8,620
8,500
8,405
8,071
7,500
6,500
Percentage
(of Common Shares)
44.54%
34.32%
18.49%
1.72%
0.08%
0.07%
0.02%
0.02%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.00%
2. Preferred Equity Security
Stockholder Name
No. of Common Shares
1. Asiacom Philippines, Inc.
2. Romeo L. Bernardo
3. Guillermo D. Luchangco
4. Jesus P. Tambunting
* Nominee shares
158,515,018
1*
1*
1*
41
Percentage
(of Preferred Shares)
100.00%
0.00%
0.00%
0.00%
C. Dividends
1. Stock Dividends
No stock dividends were declared from 2004 to 2006.
2. Cash Dividends
Information on the Globe Group’s BOD declaration of cash dividends follows:
Per Share
Preferred stock dividends
declared on:
December 15, 2004
December 13, 2005
December 11, 2006
Common stock dividends
declared on:
January 29, 2004
August 2, 2004
February 1, 2005
August 2, 2005
February 7, 2006
July 31, 2006
=
P0.47
0.43
0.41
18.00
18.00
20.00
20.00
20.00
30.00
Amount
Record
Date
Payment
=
P75,128 December 31, 2004 March 15, 2005
68,334 December 31, 2005 March 15, 2006
64,669 December 31, 2006 March 15, 2007
2,518,270
2,518,269
2,798,077
2,637,940
2,638,072
3,961,745
February 18, 2004
August 20, 2004
February 18, 2005
August 19, 2005
February 21, 2006
August 17, 2006
March 14, 2004
September 15, 2004
March 15, 2005
September 14, 2005
March 15, 2006
September 12, 2006
Dividends declared by the Company on its shares of stocks are payable in cash or in
additional shares of stock. Cash dividends are subject to approval by the Company's
Board of Directors (‘BOD’) but no stockholder approval is required. Property dividends
which may come in the form of additional shares of stock are subject to approval by both
the BOD and the Company's stockholders.
On January 29, 2004, the BOD of Globe Telecom approved a dividend policy to declare
cash dividends to its common stockholders on a regular basis as may be determined by
the BOD from time to time. The BOD had set out a dividend payout rate of
approximately 50% of prior year’s net income payable semi-annually in March and
September of each year. The Company’s dividend policy is reviewed annually, taking
into account Globe Telecom’s operating results, cash flows, debt covenants, capital
expenditure levels and liquidity.
On July 31, 2006, the BOD of Globe Telecom amended the dividend policy increasing
the dividend payout rate at approximately 75% of prior year’s net income to be
implemented starting 2006’s second semi-annual cash dividend declaration.
On February 5, 2007, the BOD approved the declaration of the first semi-annual cash
dividend in 2007 of =
P4,358.63 million (P
=33.00 per common share) to common
stockholders of record as of February 19, 2007 payable on March 15, 2007.
3. Restrictions on Retained Earnings
The retained earnings include the undistributed net earnings of consolidated subsidiaries
and the accumulated equity in net earnings of an associate and JV accounted for under
the equity method totaling =
P6,431.54 million as of December 31, 2006. This amount is
42
not available for dividend declaration until received in the form of dividends from
subsidiaries, the associate and the JV. The Globe Group is also subject to loan covenants
that restrict its ability to pay dividends.
D. Recent Sales of Unregistered or Exempt Securities, including recent issuance of
securities constituting an exempt transaction
For the past three years, the Company sold Corporate Notes as follows:
Amount Sold
(in Mn Php)
3,000.00
Date of Sale
February 2004
In February 2004, Globe issued P3Bn worth of Philippine SEC registered bonds. The
bond was offered to the public at face value through the Joint Lead Underwriters namely
Citicorp Capital Philippines, Inc. and First Metro Investment Corporation.
Item 6. Description of Registrants Securities
A. Capital Stock
Globe Telecom’s authorized capital stock consists of the following:
Shares
Preferred stock Series “A” -P
=5 per
share
Common stock - =
P50
per share
2005
2004
2006
Shares
Amount
Shares
Amount
Amount
(In Thousand Pesos and Number of Shares)
250,000
P
=1,250,000
250,000
=
P1,250,000
250,000
=
P1,250,000
179,934
8,996,719
179,934
8,996,719
200,000
10,000,000
Globe Telecom’s issued and subscribed capital stock consists of:
2005
2004
2006
Shares
Amount
Shares
Amount
Amount
(In Thousand Pesos and Number of Shares)
158,515
=
P792,575
158,515
=
P792,575
158,515
P
=792,575
131,900
6,595,022
151,905
7,595,272
132,080
6,603,989
Shares
Preferred stock
Common stock
Subscriptions
receivable
(53,856)
=
P7,333,741
(46,910)
P
=7,349,654
43
(64,824)
=
P8,323,023
1. Preferred Stock
Preferred stock - Series “A” has the following features:
(a) Convertible to one common share after 10 years from issue date at not less than the
prevailing market price of the common stock less the par value of the preferred
shares;
(b) Cumulative and nonparticipating;
(c) Floating rate dividend;
(d) Issued at =
P5 par;
(e) With voting rights;
(f) Globe Telecom has the right to redeem the preferred shares at par plus accrued
dividends at any time after 5 years from date of issuance; and
(g) Preferences as to dividend in the event of liquidation.
The dividends for preferred shares are declared upon the sole discretion of the Globe
Telecom’s BOD. As of December 31, 2006, the Globe Group has no dividends in
arrears to its preferred stockholders
2. Common Stock
The rollforward of outstanding common shares are as follows:
Shares
At January 1
131,900
Acquisition of treasury shares
–
Exercise of stock options
180
At December 31
132,080
2006
Amount
P
=6,595,022
–
8,967
P
=6,603,989
2005
2004
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares)
139,904 =
P6,995,200
139,904* =
P6,995,200
(8,064)
(403,211)
–
–
60
3,033
–
–
131,900 =
P6,595,022
139,904 =
P6,995,200
* Net of 12.00 million treasury shares acquired in 2003.
3. Treasury Stock
On February 1, 2005, the BOD approved an offer to purchase one share for every fifteen
shares (1:15) of the outstanding common stock of Globe Telecom from all stockholders
of record as of February 10, 2005 at P
=950.00 per share. On March 15, 2005, Globe
Telecom acquired 8.06 million shares at a total cost of =
P7,675.66 million, including
incidental costs.
On April 4, 2005, Globe Telecom’s stockholders approved the cancellation of the 20.06
million treasury shares consisting of the 12.00 million shares acquired from Deutsche
Telekom in 2003 and the 8.06 million shares acquired during the March 2005 share
buyback, and the amendments of the articles of incorporation of Globe Telecom to
reduce accordingly the authorized capital stock of the corporation from =
P11,250.00
million to =
P10,246.72 million. The Philippine SEC approved Globe Telecom’s
application for the retirement and cancellation of the existing treasury shares on October
28, 2005. Accordingly, Globe Telecom cancelled the existing treasury shares at cost. The
difference between the par value and cost of treasury stock was charged to the
“Additional paid-in capital” and “Retained earnings” accounts amounting to =
P5,179.35
million and =
P9,685.80 million, respectively.
44
B. Employee Benefits
1. Stock Option Plans
The Globe Group has various stock-based compensation plans. The number of shares
allocated under the plans shall not exceed the aggregate equivalent of 6% of the
authorized capital stock.
The Employees Stock Ownership Plan (ESOWN) for all regular employees (granted in
1998 and 1999) and the Executive Stock Option Plan 1 (ESOP1) for key senior
executives (granted in 1998 and 2000) provide for an initial subscription price for shares
covered by each grant equivalent to 85% of the initial offer price. Any subsequent
subscription for the ESOP1 shall be for a price equivalent to 85% of the average closing
price for the month prior to the month of eligibility. These options are settled in equity
once exercised. The qualified officers and employees shall pay for the shares subscribed
under the ESOWN and ESOP1 through installments over maximum periods of 5 years
and 10 years, respectively. The shares of stock have a holding period of five years and
the employees must remain with Globe Telecom or its affiliates over such period. The
plans also provide restrictions on sale or assignment of shares for five years from date of
subscription. The number of exercised shares under ESOP1 totaled 1.71 million shares
with a weighted average exercise price of P
=196.75 per share. The remaining unexercised
stock options under ESOWN and ESOP1 expired in 2004.
Following are the additional stock option grants to key executives and senior
management personnel of the Globe Group under Executive Stock Option Plan 2
(ESOP2) from 2003 to 2006:
Date of
Grant
April 4,
2003
Number
of
Options
Granted
680,200
Fair Value
Exercise
of each
Price
Option
Exercise Dates
=
P547.00 per share50% of options
=
P283.11
exercisable from April 4, 2005 to
April 14, 2013; the remaining
50% exercisable from April 4,
2006 to April 4, 2013
Fair Value
Measurement
Black-Scholes
option pricing
model
July 1,
2004
803,800
840.75 per share50% of options
=
P357.94
exercisable from July 1, 2006 to
June 30, 2014; the remaining 50%
from July 1, 2007 to June 30,
2014
Black-Scholes
option pricing
model
June 30,
2006
749,500
854.74 per share50% of the options become
=
P292.12
exercisable from March 24, 2008
to March 23, 2016; the remaining
50% become exercisable from
March 24, 2009 to March 23,
2016
Trinomial
option
pricing model
The exercise price is based on the average quoted market price for the last 20 trading
days preceding the approval date to offer the stock options.
45
ESOP2 required the grantees to pay a nonrefundable option purchase price of P
=1,000.00.
In order to avail of the privilege, the grantees must remain with Globe Telecom or its
affiliates from grant date up to the beginning of the exercise period of the corresponding
shares.
A summary of the Globe Group’s stock option activity and related information follows:
Outstanding, at January 1
ESOP2 granted on:
April 4, 2003
July 1, 2004
June 30, 2006
Exercised
Expired/forfeited/cancelled
Outstanding, at December 31
Exercisable, at December 31
2006
Weighted
Average
Number of Exercise
Shares
Price
1,281,350 P
=730.01
–
–
749,500
(435,810)
(4,100)
1,590,940
447,540
–
–
854.75
647.80
604.32
P
=811.62
P
=712.80
2005
Weighted
Average
Number of Exercise
Shares
Price
1,450,600 =
P709.77
2004
Weighted
Number Average
of Exercise
Shares
Price
643,782 =
P546.51
–
–
41,000
547.00
8,000
547.00
795,800
829.17
–
–
–
–
(149,000) 547.00
(2,700)
547.00
(28,250) 604.19
(27,282)
535.32
1,281,350 =
P730.01 1,450,600 =
P709.77
172,350 =
P547.00
–
=
P–
The average share price at date of exercise of stock options in 2006, 2005 and 2004
amounted to =
P989.03, =
P807.08 and =
P909.17, respectively.
As of December 31, 2006, 2005 and 2004, the weighted average remaining contractual
life of options outstanding is 8.17 years, 8.03 years and 8.94 years, respectively.
The following assumptions were used to determine the fair value of the stock options at
effective grant dates:
Share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate
June 30, 2006
=
P930.00
=
P854.75
29.51%
10 years
5.38%
10.30%
July 1, 2004
=
P835.00
=
P840.75
39.50%
10 years
4.31%
12.91%
April 4, 2003
=
P580.00
=
P547.00
34.64%
10 years
2.70%
11.46%
The expected volatility measured at the standard deviation of expected share price
returns was based on analysis of share prices for the past 365 days.
Cost of share-based payments in 2006, 2005 and 2004 amounted to =
P161.63 million,
=161.73 million and =
P
P134.77 million, respectively.
2. Pension Plans
The Globe Group has a funded, noncontributory, defined benefit pension plan covering
substantially all of its regular employees. The benefits are based on years of service and
compensation on the last year of employment. The information below includes the
additional disclosures required under the amendments to PAS 19.
46
The components of pension expense (included in staff costs under “General, selling and
administrative expenses”) in the consolidated statements of income are as follows:
2006
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial losses (gains)
Total pension expense
Actual return on plan assets
P
=92,191
67,443
(108,839)
(2,605)
P
=48,190
P
=191,848
2005
(In Thousand Pesos)
=
P93,305
81,207
(112,833)
(2,454)
=
P59,225
=
P80,456
2004
=
P98,332
68,752
(91,790)
133
=
P75,427
=
P97,940
The funded status included under “Other noncurrent assets” account for the pension plan
of Globe Telecom and Innove are as follows:
2006
Benefit obligation
Plan assets
P
=1,267,209
(1,254,906)
12,303
Unrecognized net actuarial gains (losses)
(259,740)
Asset recognized in the consolidated balance sheets (P
=247,437)
2005
2004
(In Thousand Pesos)
=
P648,825
=
P603,622
(1,066,441)
(1,018,309)
(417,616)
(414,687)
153,592
105,461
(P
=264,024)
(P
=309,226)
The following tables present the changes in the present value of defined benefit
obligation and fair value of plan assets:
Defined benefit obligation
2006
Balance at January 1
Interest cost
Current service cost
Benefits paid
Actuarial (gains) losses
Balance at December 31
P
=648,825
67,443
92,191
(62,354)
521,104
P
=1,267,209
2005
(In Thousand Pesos)
=
P603,622
81,207
93,305
(69,980)
(59,329)
=
P648,825
2004
=
P622,508
68,752
98,332
(36,721)
(149,249)
=
P603,622
Fair value of plan assets
2006
Balance at January 1
Expected return
Contributions
Benefits paid
Actuarial gains (losses)
Balance at December 31
P
=1,066,441
108,839
31,603
(62,354)
110,377
P
=1,254,906
2005
2004
(In Thousand Pesos)
=
P1,018,309
=
P920,989
112,833
91,790
14,023
28,015
(69,980)
(36,721)
(8,744)
14,236
=
P1,066,441
=
P1,018,309
The Globe Group does not expect to make any contributions to its defined benefit
pension plan in 2007.
47
The allocation of the fair value of the plan assets of Globe Telecom as of December 31
follows:
2005
84.00%
15.00%
1.00%
2006
72.00%
25.00%
3.00%
Investments in debt securities
Investments in equity securities
Others
2004
84.00%
13.00%
3.00%
The allocation of the fair value of the plan assets of Innove as of December 31 follows:
2005
89.00%
7.00%
4.00%
2006
74.00%
17.00%
9.00%
Investments in debt securities
Investments in equity securities
Others
2004
87.00%
9.00%
4.00%
As of December 31, 2006, the pension plan assets of Globe Telecom and Innove include
shares of stock of Globe Telecom with total fair value of =
P32.76 million, and shares of
stock of other related parties with total fair value of P
=84.79 million.
The assumptions used to determine pension benefits of Globe Telecom and Innove are as
follows:
Discount rate
Expected rate of return on plan assets
Salary rate increase
2006
6.25% - 7.00%
10.30%
6.50%
2005
13.75%
10.50%
8.50%
2004
13.75%
10.50%
8.00% - 8.50%
The overall expected rate of return on plan assets is determined based on the market
prices prevailing on that date, applicable to the period over which the obligation is to be
settled.
Amounts for the current and previous three years are as follows:
2006
Defined benefit obligation
Plan assets
Deficit (surplus)
P
=1,267,209
1,254,906
12,303
2005
2004
(In Thousand Pesos)
=
P648,825
=
P603,622
1,066,441
1,018,309
(417,616)
(414,687)
2003
=
P622,508
920,989
(298,481)
As of December 31, 2006, experience adjustments on plan liabilities amounted to =
P72.59
million loss, while experience adjustments on plan assets amounted to =
P102.01 million
gain.
48
PART III – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Operations
A. Financial years ended 2006 and 2005
Group Results of Operations
The following table details the consolidated results of operations for the Globe Group for the
third and fourth quarters of 2006 and for the full years ended 31 December 2006 and 2005.
Globe Group
For the Quarter Ended
For the full year ended
Results of Operations (in millions of pesos)
Profit & Loss Data
Net Operating Revenues …………………
Service Revenues ……………………………
Non-Service Revenues1………………………
Costs and Expenses ………………………
Cost of Sales……………………………
Operating Expenses ……………………
EBITDA ……………………………………
EBITDA Margin………………………….
Depreciation and Amortization…………
EBIT ………………………………………
Financing……………………………….
Interest Income…………………………
Others - net………………………………
Provision for Income Tax…………………
Net Income After Tax (NIAT)……………
NIAT before Forex/MTM gain (loss)……
Q4
2006
Q3
2006
15,230
14,517
713
6,202
1,144
5,058
9,028
62%
5,043
3,985
(468)
161
32
(1,264)
2,446
2,036
QoQ
31 Dec
Change
2006
(%)
3%
14,735
3%
14,070
7%
665
13%
5,487
-1%
1,157
17%
4,330
-2%
9,248
66%
23%
4,094
5,154 -23%
168 -379%
35%
119
(64) -150%
(1,827) -31%
3,550 -31%
2,653 -23%
59,949
57,034
2,915
22,729
4,619
18,110
37,220
65%
17,138
20,082
(3,272)
715
(66)
(5,704)
11,755
10,833
31 Dec
2005
58,748
54,897
3,851
25,314
6,025
19,289
33,434
61%
15,734
17,700
(3,141)
520
(897)
(3,867)
10,315
8,715
YoY
Change
(%)
2%
4%
-24%
-10%
-23%
-6%
11%
9%
13%
4%
38%
-93%
48%
14%
24%
_________________________________
1
Non-service revenues are reported net of discounts on phonekits and SIM (Subscriber Identification Module) packs. The cost
related to the sale of handsets and SIM packs are shown under cost of sales. The difference between non-service revenues
and cost of sales is referred to as subsidy.
49
GROUP OPERATING REVENUES
For the full year 2006, Globe Group’s total net operating revenues grew by 2% to P59,949
million from last year’s P58,748 million.
Operating Revenues By Segments
(in millions of pesos)
Globe Group
For the Quarter Ended
For the full year ended
Q4
Q3
QoQ 31 Dec
31 Dec
YoY
2006
2006
Change 2006
2005
Change
(%)
(%)
Wireless
Service Revenues………………………………
Non-Service Revenues………………………
13,629
12,934
695
13,172
12,510
662
3%
3%
5%
53,561
50,672
2,889
52,229
48,481
3,748
3%
5%
-23%
Wireline
Service Revenues………………………………
Non-Service Revenues………………………
Total Net Operating Revenues………………..
1,601
1,583
18
15,230
1,563
1,560
3
14,735
2%
1%
500%
3%
6,388
6,362
26
59,949
6,519
6,416
103
58,748
-2%
-1%
-75%
2%
Consolidated net service revenues grew by 4% to reach P57,034 million at year end
compared to P54,897 million in 2005. This growth is in spite of revenue losses resulting
from the effects of Typhoons Milenyo, Reming and Seniang and the earthquake in Taiwan
on 26 December that damaged international submarine cables linking the Philippines to the
rest of the world.
Consolidated non-service revenues dropped by 24% to P2,915 million for the year from last
year’s P3,851 million. This is mainly due to lower handset, SIM pack and SIM card sales
related to subscriber acquisitions following the Company’s overall thrust towards more costeffective acquisition and loyalty programs.
Wireless Business
Wireless Revenues (in millions of pesos)
Globe
For the Quarter Ended
For the full year ended
Q4
Q3
QoQ 31 Dec
31 Dec
YoY
2006
2006
Change 2006
2005
Change
(%)
(%)
Service
Voice1 ….……………………………………
Data 2..…………………………………………
Wireless Net Service Revenues…………………..
6,900
6,034
12,934
7,179
5,331
12,510
-4%
13%
3%
28,982
21,690
50,672
28,111
20,370
48,481
3%
6%
5%
_________________________________________________________________________
1
Wireless voice net service revenues include the following:
a) Monthly service fees on postpaid plans;
b) Charges for intra-network and outbound calls in excess of the consumable minutes for various Globe Postpaid plans,
including currency exchange rate adjustments, or CERA net of loyalty discounts credited to subscriber billings;
c) Airtime fees from prepaid reload denominations (for Globe Prepaid and TM) for intra network and outbound calls
recognized upon the earlier of actual usage of the airtime value or expiration of the unused value of the prepaid reload
denomination which occurs between 1 and 60 days after activation depending on the prepaid value reloaded by the
subscriber net of (i) bonus credits* and ii) prepaid reload discounts; and revenues generated from inbound international
and national long distance calls and international roaming calls;
Revenues from (b) to (c) are net of any interconnection or settlement payouts to international and local carriers and
content providers.
2
Wireless data net service revenues consist of revenues from value-added services such as inbound and outbound SMS and
MMS, content downloading, subscription fees on prepaid services and infotext net of any interconnection or settlement
payouts to international and local carriers and content providers.
50
Overall, the wireless business recorded a 3% year-on-year operating revenue growth, with
P53,561 million in net operating revenues for the full year ended December 2006 from last
year’s P52,229 million. This increase was mainly driven by a 5% improvement in total
wireless service revenues from P48,481 million to P50,672 million, accounting for 89% of
consolidated net service revenues for the year.
In the fourth quarter of 2006, additional prompt payment discounts (PPDs) of P266 million
were booked resulting mainly from the change in timing of the booking of such discounts.
PPDs are discounts given to international operators in relation to revenues derived from
inbound IDD calls. Prior to the fourth quarter, PPDs were booked upon availment. However,
starting with the fourth quarter, discounts are booked based on historical patterns of
availment. Excluding these charges, wireless service revenues would have grown a higher
5.5% quarter-on-quarter.
For 2006, wireless voice revenues contributed 57% to total wireless service revenues.
Wireless voice segment grew by 3% year-on-year to P28,982 million on the back of higher
usage of local and international voice services.
Globe continued to offer various voice services designed to promote acquisition, stimulate
usage, and encourage loyalty among new and existing subscribers. For heavy voice users
within our network, we extended our various promotions offered under our banner campaign,
“Globe Super Sulit Offers”. These promotions include the P10 for a 3-minute call and our
unrivaled per-second charging offer of 10 centavos per second local call rate for Globe to
Globe and TM to TM calls. For IDD voice users, we likewise continued our Super Sulit
Tipid IDD rates of P7.50 per minute for IDD calls to our Bridge Mobile Alliance partners
such as Taiwan Mobile, HK CSL, Singtel and Maxis Malaysia, as well as for off-peak calls
to the US and Canada. We also continued our discounted call rate of $0.30/minute to Japan.
Our breakthrough offer of per-second charging has also been extended to IDD calls under the
Globe Tipid IDD kada-Segundo promo.
Starting from the fourth quarter to date, Globe introduced US$0.20 per minute calls to Saudi
Arabia, Oman and Qatar and P24-for-3 minute calls to the United States and Canada
available any time of the day. Globe also expanded its wide-ranging IDD promotions to
include SMS by offering P5.00 international SMS rates to Saudi Arabia (promotion expired 9
December 2006) while continuing with its Globe-Singtel Kababayan Text Promo rate of
P1.00 for an international SMS to a SingTel mobile subscriber.
Wireless data revenues accounted for the remaining 43% of total wireless service revenues.
Wireless data continued to register positive growth, increasing 6% year-on-year to close the
year at P21,690 million. The main revenue drivers have been the higher subscriptions
acquired from our unlimited SMS offers coupled with the higher usage of value-added
services from an expanded prepaid subscriber base.
To further expand our wireless data business, Globe continued to offer value promotions to
different customer segments including Globe’s UNLIMITXT, TM Todo Text and TM-TM
discounted SMS campaigns. Globe’s UNLIMITXT, a permanent offering to our postpaid and
prepaid subscribers, provides heavy SMS users the option to send unlimited intra-network
text messages. The UNLIMITXT service requires a registration fee that ranges from: P15 for
1 day, P25 for 2 days and P50 for 5 days. Globe also offered an inter-network SMS offer
under the P0.75 Sulit Text to all networks promotion that ran from 9 August until 7 October
51
2006. Accelerated take-up in UNLIMITXT registrations early in the fourth quarter prompted
Globe to introduce the UNLIMITXTPLUS promo that offered unlimited intra-network text
messaging plus a P0.75 inter-network text messaging rate for only P20 for 1 day and P40 for
2 days. The promotion ran from 12 November 2006 to 11 December 2006.
During the fourth quarter, TM also launched two new variations of its Todo Text campaigns:
Daytime Unlimited Texting and the Todo Tipid Text to all networks.The Daytime Unlimited
Texting allows subscribers to send unlimited intra-network SMS from 8 AM to 4:59 PM for
just P10 per day. On the other hand, the Todo Tipid Text to all networks provides TM
subscribers with unlimited intra-network text messaging and inter-network text messaging at
P0.75 per SMS for only P20 for 1 day and P40 for 2 days. TM’s new Todo Text variants are
still available to TM subscribers. On 1 February 2007, the UNLIMITXT service was
relaunched as Globe’s Unlimited Text service and comes in four variants to accommodate
different texting needs of the market.
On the VAS or Value Added Services front, Globe introduced GLOBE IMEVRYWHR, an
instant messaging innovation. This instant messaging service offers unlimited chatting, voice
messaging and unlimited photo sending at promotional rates of only P20 for 1 day, P120 for
7 days and P500 for 30 days. To add to its versatility, this service is also fully-integrated
with other Globe VAS services such as the GCash, Share-A-Load and AskG. GLOBE
IMEVRYWHR was launched last 6 December and is available to all Globe postpaid and
prepaid subscribers.
For further details on products and services introduced beginning the fourth quarter of 2006,
refer to Wireless Promotions section on the succeeding pages.
52
The wireless business results were further driven by the following key drivers set out in the
table below:
Globe
For the Quarter Ended
Key Drivers
Cumulative Subscribers (or SIMs*) –
Net
Postpaid………………………………..
Q4
2006
QoQ
Change
(%)
Q3
2006
For the full year ended
YoY
31 Dec
31 Dec
Change
2006
2005
(%)
15,659,742
643,901
14,467,985
636,381
8%
1%
15,659,742
643,901
12,403,575
594,142
26%
8%
Prepaid .……………………………… 15,015,841
Globe Prepaid ……………………….. 10,118,897
TM ……………………………………
4,896,944
13,831,604
9,572,651
4,258,953
9%
6%
15%
15,015,841
10,118,897
4,896,944
11,809,433
8,699,687
3,109,746
27%
16%
57%
Average Revenue Per Subscriber
(ARPU)
Gross ARPU
Postpaid . ………………………………
2,276
2,238
2%
2,290
2,246
2%
Prepaid1
Globe Prepaid ………………………
TM ……………………………………
362
229
364
225
-1%
2%
372
246
378
333
-2%
-26%
Net ARPU
Postpaid . ………………………………
1,686
1,649
2%
1,673
1,635
2%
Prepaid
Globe Prepaid ……………………...
TM ……………………………………
251
168
259
169
-3%
-1%
262
181
268
214
-2%
-15%
Subscriber Acquisition Cost (SAC)
Postpaid . ………………………………
5,208
6,788
-23%
6,787
7,026
-3%
91
102
63
103
44%
-1%
83
91
248
90
-67%
1%
Average Monthly Churn Rate (%)
Postpaid . ………………………………
2.74%
1.75%
1.83%
3.10%
Prepaid
Globe Prepaid ……………………...
TM ……………………………………
4.51%
6.58%
4.55%
7.07%
4.73%
5.94%
7.77%
9.45%
Prepaid
Globe Prepaid ……………………...
TM ……….……………………………
____________________________________________
*The word “subscriber” may be used interchangeably with the term “SIM.”
1
Revenue from a prepaid subscriber is realized upon actual usage of the airtime value (pre-loaded airtime value of SIM cards
and subsequent top-ups) for voice, SMS, MMS, content downloading, infotext services and prepaid unlimitext subscriptions net
of free SMS allocation, bonus credits (included airtime on SIM cards provided under Globe’s SIM swap program which was
concluded last May 2005) or the expiration of the unused value, whichever comes earlier. Proceeds from the sale of prepaid
cards, airtime value through electronic load services such as ATM and airtime value through over-the-air (OTA) reloading are
treated as deferred or unearned revenues are shown under the liabilities section of the balance sheet since the service has not yet
been rendered, reduced by actual amount of usage for the period.
Our subscriber base continued on an upward trajectory posting a significant year-on-year
growth of 26%, ending the year with 15.7 million subscribers. Total gross subscriber
additions for the year amounted to 11.6 million which is at par with 2005 level. However,
gross subscriber additions in 2005 still included acquisitions of prepaid subscribers from the
53
SIM swap program which created a number of non-revenue generating subscribers that were
subsequently churned out after their second expiry.
With improved churn rates across all brands, Globe’s net additions for the full year reached
3.3 million, a reversal from the net reduction of 110 thousand in 2005.
The succeeding sections cover the key segments and brands of the wireless business – Globe
Postpaid, Globe Prepaid and TM.
Globe Postpaid
For the full year of 2006, our postpaid segment comprised approximately 4% of our total
subscriber base. Our cumulative postpaid subscribers grew by 1% from the previous quarter
and 8% from last year to reach 643,901 at the end of 2006. Total postpaid gross additions
registered 185,801 for the year while net additions reached 49,759 as a result of lower churn
at 1.83%, which is significantly below last year’s churn rate of 3.10%. The improvements in
churn during the year can be attributed to continuing subscriber loyalty programs and
innovations introduced. Additionally, these are fortified with various tariff offers that are
available across both postpaid and prepaid brands.
The postpaid segment posted a gross ARPU of P2,290 during 2006, a 2% improvement from
last year’s average of P2,246 due to higher intra-network voice traffic. On the other hand, net
ARPU increased by 2% to P1,673 from P1,635 in 2005, driven mainly by IDD voice and
supported by higher contributions from VAS services.
SAC decreased by 3% year-on-year due mainly to lower handset subsidies. However, on a
quarter-on-quarter basis, the 23% decrease is attributable to lower-value handset releases to
new postpaid subscribers. Handset subsidies accounted for about 97% of total acquisition
costs for the year compared to 86% in 2005.
Prepaid
For the year, our prepaid segment, composed of our Globe Prepaid and TM brands, made up
96% of our total subscriber base.
Overall, our consolidated prepaid subscribers significantly increased by 27% from 11.8
million in 2005 to 15 million at year end. Total prepaid gross additions of 11.4 million in
2006 were at par with 2005 levels despite SIM swap acquisitions which continued until the
program’s termination in May 2005. With lower year-on-year churn levels across both
prepaid brands, consolidated prepaid net additions improved to 3.2 million in 2006 compared
to 74 thousand net reductions in 2005.
A prepaid subscriber was recognized upon the activation and use of a new SIM card. The
subscriber was provided with 60 days (first expiry) to utilize the preloaded airtime value
(except for SIM-swappers who were required to reload credits within only 30 days from the
first expiry). If the subscriber did not reload prepaid credits within the first expiry period, the
subscriber retained the use of the wireless number, but was only entitled to receive incoming
voice calls and text messages for another 120 days (second expiry). However, if the
subscriber did not reload prepaid credits within the second expiry period, the account would
be permanently disconnected and considered part of churn. The first expiry periods of
reloads vary depending on the denominations, ranging from 1 day for P10 to 60 days for
54
P300 to P500 reloads. The second expiry is 120 days from the date of the first expiry. The
first expiry is reset based on the longest expiry period among current and previous reloads.
Under this policy, subscribers are included in the subscriber count until churned. SIMswappers are counted as subscribers after their first reload. However, from the second half
of 2004 until the end of the SIM-swap program in May 2005, Globe revised its subscriber
count policy to reflect a subscriber’s intent to use the service by monitoring its reload history.
Hence, based on the revised policy, Globe culled out the non-revenue generating subscribers
related to its SIM-swap program following end of the program.
The succeeding sections discuss Globe Prepaid and TM in more detail.
Globe Prepaid
Globe Prepaid registered strong growth rates this year, posting a 16% year-on-year and 6%
quarter-on-quarter growth in its SIM base to close the year with 10.1 million subscribers.
Gross additions were 8% lower year-on-year at 6.8 million compared to 7.3 million in 2005
owing to the inflated acquisitions during the SIM-swap period the prior year. However, the
significant improvement in its churn rate from 7.77% down to 4.73% has led to healthy net
additions of 1.4 million compared to the 1.5 million net reductions the previous year.
Competitive and unique value offers and effective retention and loyalty programs are the
drivers behind the brand’s strong performance this year.
Gross ARPU for Globe Prepaid decreased by 2% while net ARPU remained flat compared
to last year. This is attributed to the lower regular billable SMS due to a shift to the
unlimited SMS offer, offset by higher UNLIMITXT SMS registrations, improved voice usage
of IDD services and local calls attributable to discounted and per-second IDD tariff offers
and per-second local intra-network calls.
SAC dropped by 67% year-on-year from P248 to P83 in 2006 due to targeted acquisitions
and more focused spending on marketing costs and subsidies. Subsidies comprised 58% of
total SAC, advertising and promotions contributed 38%, while commissions made up the
balance of 4%. For 2005, SAC composition was 40% subsidies while 60% went to
advertising and promotions and commissions.
TM
TM had another banner year in 2006. Following its relaunch in January 2005, the brand
continues to expand its reach and establish its presence in the market with its strong value
propositions evident in all of its service offerings. As a result, TM closed the year with 4.9
million cumulative subscribers, a remarkable 57% year-on-year and 15% quarter-on-quarter
growth in its subscriber base. It currently accounts for 33% of total prepaid subscribers.
The significant improvement in its subscriber base is attributable to strong gross additions
and effective management of its churn rate. The brand posted 4.6 million in gross additions
compared to last year’s 4.1 million. Through steady introductions of compelling value
promotions customized to its target market’s needs, TM successfully acquired new
subscribers and drove down its churn rate. From a high of 12.70% recorded for full year
2004 and 9.45% for 2005, TM’s churn rate stood at a stronger 5.94% for full year 2006. On
a quarter-on-quarter basis, TM’s churn has also decreased to 6.58% compared to the 7.07%
level in third quarter in 2006. If we exclude terminations due to ISR (International Simple
55
Resale) activities which are illegal in the Philippines, the average monthly churn rate for TM
for the year would be only at 5.15%.
The Company continues to put processes in place to enable the early detection of illegal ISR
usage and the immediate disconnections of SIMs used for this purpose. (See related
discussion in ILD section)
With strong gross additions and healthier churn rate, TM’s net additions for the year stood at
1.8 million, up 27% from last year’s 1.4 million.
TM’s net ARPU for the year declined by 15% from P214 in 2005 to P181. The decrease in
ARPU was brought about by a combination of lower tariffs and increased subscriber levels
despite higher volumes brought about by its Power-Piso promotions.
SAC showed a slight increase of 1% from P90 to P91 for the year, 15% of which was
composed of subsidies, 83% from advertising and promotions with commissions making up
the balance of 2% for 2006.
Wireless Promotions
Globe introduced the following products and services to its subscribers since the start of the
fourth quarter of 2006:
•
On 10 November 2006, Globe offered its P5.00 per international SMS to Saudi
Arabia. This promotion was offered to all Globe postpaid, prepaid and TM
subscribers with no registration fees or dialing procedures required. This promotion
ended last 9 December 2006.
•
On 12 November 2006, Globe launched its GLOBE UNLIMITXTPLUS promo that
offered unlimited intra-network SMS and discounted inter-network SMS rate of
P0.75 for P20 for 1 day and P40 for 2 days. This promo ended on 11 December
2006.
•
On 3 December 2006, Globe prepaid launched its Kabalikat Christmas program
which covered all the touch points of the OFWs and their families during the
Christmas season: 1) OFW Family days in 16 provinces nationwide - where Globe,
in partnership with OWWA and POEA, held Christmas celebrations for returning
OFWs and their families; 2) Duty Free Christmas Rush promo provided balikbayans
a chance to win various prizes when they purchase Globe products at Duty Free
shops; 3.) NAIA Presidential and Celebrity Salubong (organized together with
OWWA) - returning OFWs were welcomed by the President of the Republic and
selected Globe-hired celebrities last Dec. 21-Dec.30.
•
On 6 December 2006, Globe introduced its GLOBE IMEVRYWHR instant messaging
service that offers unlimited chatting, voice messaging and unlimited photo sending
for only P20 for 1 day, P120 for 7 days and P500 for 30 days. This service is
available to all Globe postpaid and prepaid subscribers and includes the following
service features – integrated registration with MyGlobe, preference list and address
book, MyGlobe instant messaging service, text messaging, prepaid balance inquiry
and integrated functions with VAS services such as GCash, Share-A-Load and
AskG.
56
•
On 1 January 2007, Globe launched a new US$0.20 per minute call rate to Saudi
Arabia, Oman and Qatar. This service was made available to all Globe postpaid,
prepaid and TM subscribers. Subscribers just need to dial 12-800 and the complete
destination number details to avail of the service. This promotion ended on 31
January 2007.
•
On 15 January 2007, Globe introduced its P24-for-3 minute calls to the United States
and Canada. Globe postpaid, prepaid and TM subscribers just need to dial 12-803
and the complete destination number details to avail of the service.
•
On 1 February 2007, Globe launched the following unlimited texting services
customized to fit different needs and lifestyles of its subscribers:
(a)
(b)
(c)
(d)
UNLITXT or regular ALL DAY unlimited texting;
UNLITXTD or DAYSHIFT unlimited texting (8 AM to 4:59 PM)
UNLITXTN or NIGHTSHIFT unlimited texting (10 PM to 7:59 AM)
TXTPLUS for unlimited intra-network texting plus an inter-network texting
rate of P0.75 per text
UNLITXT is available in P20, P40 and P80 denominations for 1, 2 and 4 days,
respectively, of unlimited texting. UNLITXTD comes in P15 and P30 variations
for 1 and 2 days, respectively of unlimited texting while UNLITXTN is offered
in P10 and P20 denominations for 1 and 2 days, respectively. TXTPLUS now
comes in P25 and P50 variants for 1 and 2 days of unlimited texting plus a text
rate of P0.75 to other networks. Starting 1 February 2007, these unlimited
texting services will be available to Globe prepaid subscribers while Globe
postpaid subscribers will initially be offered the UNLITXT service.
GCash
GCash continues to establish its presence in the mobile commerce industry. Now on its
second year, GCash’s initial thrust towards money-transfers, purchase of goods and services
from retail outlets, and sending and receiving domestic and international remittances has
spurred alliances in the field of mobile commerce. Today, GCash allows Globe and TM
subscribers to pay or transact for the following using their mobile phone:
•
•
•
•
•
•
•
•
•
•
utility bills
interest and amortization of loans
insurance premiums
donations to various institutions and organizations
sales commissions
school tuition fees
micro tax payments (for annual business registration)
electronic loads and pins
online purchases
train tickets using the G-PASS chip
In addition to the above transactions, GCash is also used as a wholesale payment facility.
As of 31 December 2006, GCash handled an average monthly value transaction size of
around P5.67 billion. Net registered GCash user base as of end of December 2006
totaled 500,813.
57
Wireline Business
Globe and Innove have adopted a customer-centric market approach to allow for the
development of products based on specific consumer or business requirements and to better
serve the varied needs of its customers. Dedicated business units have been created and
organized within the Company to focus on the wireless and wireline needs of specific market
segments and customers – be they residential subscribers, wholesalers and other large
corporate clients, or smaller scale industries. The Enterprise Business Group (EBG) is one
such business unit, created in response to our corporate clients’ preferences for integrated
mobile and wireline communications solutions. Complete with its own dedicated technical
and customer relationship teams, the EBG consists of GlobeSolutions, which is the corporate
wireless business group of Globe, and GlobeQUEST, the corporate wireline group of Innove.
Wireline Revenues (in millions of pesos)
Service
Voice1 ….……………………………………
Data 2..…………………………………………
Wireline Net Service Revenues………………….
Innove
For the Quarter Ended
For the Full Year Ended
QoQ
YoY
Q4
Q3
Change 31 Dec
31 Dec Change
2006
2006
(%)
2006
2005
(%)
1,082
501
1,583
1,059
501
1,560
2%
1%
4,312
2,050
6,362
4,396
2,020
6,416
-2%
1%
-1%
_______________________________________
1
Wireline voice net service revenues consist of the following:
a) Monthly service fees including CERA;
b) Revenues from local, international and national long distance calls made by postpaid, prepaid wireline subscribers and
payphone customers, net of (i) prepaid and payphone call card discounts (ii) bonus credits and (iii) loyalty discounts
credited to subscriber billings;
c) Revenues from inbound local, international and national long distance calls from other carriers terminating on our
network; and
d) Installation charges and other one-time fees associated with the establishment of the service.
Revenues from (b) and (c) are net of any interconnection or settlement payments to domestic and international carriers.
2
Wireline data net service revenues consist of revenues from:
a) Monthly service fees from International and domestic leased lines;
b) Monthly service fees on Corporate Internet services and charges in excess of free allocation;
c) One-time connection charges associated with the establishment of service.
d) Other wholesale transport services and
e) Revenues from value-added services.
Revenues from (b) are net of any interconnection or settlement payments to other carriers.
Overall, the wireline business recorded a decline of 2% from last year, reporting P6,362
million in net service revenues for the full year ended December 2006. Lower wireline
revenues resulted mainly from the appreciation of the peso which impacted the business’
US$-linked revenues, as well as the effects of the 26 December earthquake in Taiwan. In
2006, wireline foreign-currency linked revenues comprised 60% of its net revenues.
58
Wireline Voice
Innove
For the Quarter Ended
Key Drivers
Cumulative Voice Subscribers Net (End of period)……………..............
Average Revenue Per Subscriber
(ARPU)
Gross ARPU…………………………
Net ARPU……………………………
Average Monthly Churn Rate ..………
Broadband Subscribers-Net (End of
period)…
Q4
2006
QoQ
Change
(%)
Q3
2006
For the full year ended
YoY
31 Dec
31 Dec
Change
2006
2005
(%)
383,876
373,106
3%
383,876
362,143
6%
1,086
957
1.4%
1,103
971
2.2%
-2%
-1%
1,110
978
1.9%
1,233
1,088
1.7%
-10%
-10%
51,426
43,651
18%
51,426
22,479
129%
As of 31 December 2006, Innove increased its total wireline voice subscribers by 6% to
383,876 from 362,143 in 2005. This subscriber base is comprised of 63% postpaid and 37%
prepaid, with the business to residential mix ratio of 22:78 and 23:77 for the years 2006 and
2005, respectively.
Our broadband business continues to show robust growth, registering a year-on-year increase
in subscribers of 129%, bringing our cumulative base to 51,426 by the end of 2006. This
growth is attributable to the increasing affordability of our consumer broadband offerings
which are now bundled with free landline service with waived monthly fees in selected
franchise areas. Innove also introduced a speed upgrade for its broadband consumers,
increasing speeds from 384 kbps to 512 kbps, at no extra charge to customers.
While cumulative subscribers grew, churn rates for the year increased year-on-year from
1.7% to 1.9% owing to the higher disconnections experienced in the postpaid service
resulting from company-initiated clean up of delinquent accounts.
As of year end, our wireline voice service revenues slightly dropped by 2% from last year’s
P4,396 million to P4,312 million this year. Gross and net ARPUs have been affected by
lower voice maintenance revenues and the drop in collection rates. In addition, decreased
IDD revenues owing to the stronger peso have further contributed to the decrease in total
voice service revenues. (See related discussion in the Foreign Exchange and Interest Rate
Exposure section)
Wireline Data
Innove
For the Quarter Ended
For the full year ended
Service Revenues (in millions of pesos)
Wireline Data
International …..………………………
Domestic …… …………………………
Others 1 ………………………………
Total Wireline Data Service Revenues…………
Q4
2006
Q3
2006
139
213
149
501
138
211
152
501
________________________________________________________________________
1
Includes revenues from value-added services and corporate internet services.
59
QoQ 31 Dec
Change 2006
(%)
1%
1%
-2%
-
604
834
612
2,050
31 Dec
2005
679
797
544
2,020
YoY
Change
(%)
-11%
5%
13%
1%
On the wireline data front, wireline data business registered service revenues of P2 billion,
broadly in line with the previous year. Despite the higher circuit base, total revenues were
flat largely due to the appreciation of the peso.
To further promote our products and services, we have introduced a stream of service
innovations and customized solutions for our SME and corporate markets. Our GlobeQuest
Store Express is customized for the retail industry, allowing for a timely and reliable
exchange of sales and inventory information between headquarters and its branches, and the
hosting of other voice, video and POS applications. For our large enterprise clients, we also
continue to offer various innovative solutions to address their evolving needs, thus the
enhancement of the GlobeQUEST network to ICON (IP-Converged Optical Network), which
is the first IP core network in the country that incorporates MPLS and IP as its core
technologies, allowing traffic prioritization for IP traffic. It is a fully-meshed network that
allows for cost-effective inter-working of various access technologies, whether frame relay,
Ethernet, DSL or other wireless protocols.
Wireline Promotions
Innove introduced the following products and services to its subscribers during the fourth
quarter of 2006:
•
Globelines launched its “Globelines Broadband” (GBB) residential promotions that
included the following packages:
a. Waived 12 months of Globelines’ voice Monthly Service Fees (MSF) for
selected GBB packages; This promotion started on 1 October 2006 and
lasted for one month.
b. Two months of waived voice MSF for subscribers who upgrade to the
Globelines Postpaid Plus service
c. assorted promotional items for certain GBB packages;
The promotions discussed in items (b) and (c) above started on the 15th and 27th
of November, respectively. Both promotions ended last 31 January 2007.
•
On 27 November 2006 Globelines offered its “Switch to Globe Broadband until
December 31 and get 2 months free” promotion. The promotion ended on 31
January 2007.
60
OTHER GLOBE GROUP REVENUES
International Long Distance (ILD) Services
Globe Group
For the Quarter Ended
For the full year ended
ILD Revenues and Minutes
Q4
2006
Q3
2006
31 Dec
QoQ 31 Dec
YoY
Change 2006
2005
Change
(%)
(%)
-15% 13,967 13,526
3%
3,561
Total ILD Revenues (in millions of pesos) ……
3,013
Total ILD Revenues as a percentage of net service
revenues
21%
25%
Total ILD Minutes (in million minutes) 1………
533
479
Inbound………………………………………
Outbound.……………………………………
ILD Inbound / Outbound Ratio (x) …………
463
70
6.61
415
64
6.48
24%
25%
11%
1,948
1,469
33%
12%
9%
1,689
259
6.52
1,251
218
5.74
35%
19%
_______________________________________________________________________________________
1
ILD minutes originating from and terminating to Globe and Innove networks.
On a consolidated basis, ILD revenues from the Wireless and Wireline services increased by
3% to P
=13,967 million during the year compared to =
P13,526 million for the same period in
2005. We continue to see positive results from the successful launches of various IDD tariff
promotions starting the second half of 2005. This has resulted in higher inbound and
outbound ILD minutes and increased revenue for our wireless business.
Both Globe and Innove offer ILD services which cover international calls between the
Philippines and over 200 countries. This service generates revenues from both inbound and
outbound international call traffic with pricing based on agreed international termination
rates for inbound traffic revenues and NTC-approved ILD rates for outbound traffic
revenues.
As part of our commitment to serve our overseas Filipino communities better and to address
the needs of specific segments such as the heavy IDD users among our wireless postpaid
subscribers, Globe has launched various IDD promos since the second half of 2005.
Following its IDD CelebRATE! series of offerings in 2005, Globe re-launched various
promos in 2006 under the umbrella Globe Super Sulit Offers. We continue to provide a
discounted IDD rate of P7.50 per minute, or equivalent to that of a local rate, for calls to
selected countries such as US and Canada (off-peak hours only), and other Bridge Mobile
Alliance partners such as Taiwan Mobile, HK CSL, Singtel, and Maxis Malaysia. Globe also
introduced very competitive IDD rates of US$0.20 and US$0.30 per minute to countries with
large OFW groups such as Japan and Saudi Arabia, Oman, and Qatar, respectively.
Globe’s per second charging remains a unique offering to this date. We continue to offer the
IDD rate of US$.003 per second to selected countries such as US, Canada, China, Malaysia,
Hong Kong, Singapore, Thailand, South Korea, Taiwan, Australia, United Kingdom, Kuwait
and Equatorial Guinea, as well as the per-second rate of US$.0067 for other countries.
61
Through our alliance with the Bridge Mobile partners, Globe was also able to launch cobranded SIMs with Singtel, Hong Kong CSL, and Taiwan Mobile to provide our OFWs the
opportunity to take advantage of discounted call and SMS rates when calling their family in
the Philippines.
On the wireline front, Globelines launched and continued to offer its Lowest IDD rates
promotion where its Globelines subscribers, Globe1 card users and Globelines Broadband
subscribers are charged a reduced rate of US$0.20 per minute for IDD calls to selected
countries. Globe1 card users could also make IDD calls for P2.50 per minute and P4.50 per
minute to selected destinations from Globelines postpaid and prepaid lines including
payphones nationwide.
To ensure that the Company fully benefits from the increased ILD volume, we continue to
actively monitor International Simple Resale (ISR) operations passing through our networks.
An ISR operation, a bypass and block service considered illegal in the Philippines, is a
method of terminating inbound international calls without passing through the International
Gateway Facility (IGF). If ISR operations are unchecked, Globe will not be able to realize
the full inbound international revenue and instead earn only normal domestic termination
charges for local or NDD calls or access charges from other carriers, which are lower than
international termination rates.
To reduce ISR activities, Globe initiated increased detection and blocking procedures
including closer coordination of detected ISR lines with other industry players. The
Company also implemented arrangements with international carriers to reduce arbitrage
opportunities for ISR operators. The Company further tightened its fraud and risk evaluation
process for corporate and individual accounts and is implementing legal, commercial and
technical solutions to the ISR concern, such as the immediate termination of SIMs detected
as being used for ISR operations and the suspension of AutoLoad Max retailers identified as
having significant loading transactions to ISR SIMs. The Company also regularly
coordinates with the NTC and other government agencies in addressing this concern.
Because of these ongoing efforts, ISR losses have significantly decreased compared to last
year.
Interconnection
Domestically, the Globe Group pays interconnection charges to other carriers for calls
originating from its network terminating to other carriers’ networks, and hauling charges for
calls that pass through Globe’s network terminating in another network.
Internationally, the Globe Group also incurs payouts for outbound international calls. These
charges are based on a negotiated price per minute.
The interconnection expenses paid as a percentage of gross service revenues for the year
registered at 15% from 19% for the same period in 2005.
The Globe Group also collects termination fees from local and foreign carriers whose calls
terminate in Globe Group’s network. Domestic calls terminating to wireless networks are
charged a termination rate of P4.00 per minute while calls terminating to wireline voice
networks are charged a termination rate of P3.00 per minute.
62
GROUP OPERATING EXPENSES
For the full year of 2006, the Globe Group’s total subsidy, operating expenses and
depreciation and amortization expenses decreased by 1% to P
=36,952 million from =
P37,197
million for the same period in 2005.
Globe Group
For the Quarter Ended
For the full year ended
Q4
Costs and Expenses (in millions of pesos)
QoQ 31 Dec
Change 2006
(%)
Q3
2006
31 Dec
2005
YoY
Change
(%)
Cost of sales………………………………………
Less: Non-service revenues………………………
Subsidy
1,144
713
431
2006
1,157
665
492
-1%
7%
-12%
4,619
2,915
1,704
6,025
3,851
2,174
-23%
-24%
-22%
Selling, Advertising and Promotions…………
Staff Costs …………………………………
Utilities, Supplies & Other Administrative
Expenses
Rent……………………………………………
Repairs and Maintenance……………………
Provisions …………………………………
Services and Others…………………………
Insurance and security……………………
Professional and Other contracted services
Taxes and Licenses………………………
Others………………………………………
Operating Expenses………………………………
1,156
986
611
783
897
511
48%
10%
20%
3,525
3,564
2,121
4,697
3,519
1,982
-25%
1%
7%
518
471
21
510
558
173
2%
-16%
-88%
2,081
2,122
446
1,840
1,877
683
13%
13%
-35%
373
562
231
129
5,058
298
341
72
187
4,330
25%
65%
221%
-31%
17%
1,441
1,394
756
660
18,110
1,478
1,495
832
886
19,289
-3%
-7%
-9%
-26%
-6%
5,043
10,532
4,094
8,916
23%
18%
17,138
36,952
15,734
37,197
9%
-1%
Depreciation and Amortization ……………….
Total………………………………………………
Subsidy
Total subsidies dropped by 22% to P1,704 million from P2,174 million last year due to lower
issuance of handset and phonekits to newly-acquired subscribers. This is in line with the
Company’s overall thrust to calibrate subsidy and marketing spending by shifting to more
cost-effective, customized and segmented subscriber acquisition and retention programs.
Selling, Advertising and Promotions
Through our targeted acquisition and retention campaigns, the Company was able to drive
down its marketing expenses by P1.2 billion or 25% compared to last year’s spending.
However, higher spending on loyalty programs and corporate events during the holiday
season increased total marketing expenses quarter-on-quarter by 48%. As a percentage of
total service revenues, total marketing expenses and subsidy declined year-on-year from 13%
in 2005 to 9% by the end of 2006.
63
Staff Costs
Staff costs accounted for 20% of total operating expenses. The slight increase of 1% yearon-year was due to additional personnel hired during the year as total headcount increased by
3.5% to 5,161 from 4,987 in 2005.
Utilities, Supplies and Other Administrative Expenses
Utilities, Supplies and Other Administrative expenses accounted for 12% of total operating
expenses and registered a 7% year-on-year increase to P2,121 million from last year’s
P1,982 million mainly due to higher power and utilities charges to support Globe’s expanded
2G network facilities, as well as the ongoing 3G network build out this year. Power and
utilities accounts for 71% of total utilities, supplies and other administrative expenses.
Rent Expenses
Rent expenses accounted for 11% of total operating expenses and increased by 13% year-onyear to P2,081 million from last year’s P1,840 million due to increased rentals for cell sites,
leases on interconnection facilities and warehouses in support of the Globe Group’s
expanded network facilities and logistical support requirements.
Repairs and Maintenance Expenses
Repairs and Maintenance expenses likewise increased by 13% year-on-year and accounted
for 12% of total operating expenses for the year. The increase is mainly due to additional
technical support and maintenance costs of the Globe Group’s expanded network facilities
and information systems infrastructure. This year’s expenses also included costs relating to
the restoration work resulting from Typhoon Milenyo and the 26 December Taiwan
earthquake.
Provisions
The provisions account includes provisions related to trade, non-trade and traffic receivables
and inventory. Total provisions decreased by 35% to P446 million due to improvements in
asset quality in terms of recoverability of subscriber and traffic receivables and inventory
balances.
Provisions for subscriber receivables decreased by 30% to P395 million compared to P563
million in 2005 due to improved credit quality and recovery from delinquent subscriber
accounts. Provisions for traffic receivables likewise decreased by 18% to P44 million from
lower provisions related to certain carrier accounts.
Provisions for inventory losses also posted a net reversal of P61 million, decreasing by 177%
from last year’s net provision of P80 million. The net reversal was a result of recent
reassessments of recoverable values for stock inventory levels.
Services and Others
Services and Others accounted for 23% of total operating expenses and decreased by 9% to
P4,251 million compared to P4,691 million for the same period in 2005. This was mainly
attributable to various cost-effective initiatives which resulted in reduced spending on
64
professional, contracted services and other miscellaneous expenses. Insurance and security
services likewise declined by 3% year-on-year despite an expanded network facilities and
cell site base. Professional and other contracted services, including janitorial, clerical,
courier and delivery expenses, were 7% lower at P1,394 million during the year due to less
professional and legal consultations and engagements entered into this year compared to
2005. Quarter-on-quarter, taxes and licenses increased by 221% due to reversals in accruals
made during the prior period while professional and other contracted services grew by 65%
due to higher consultancy fees for the period. However, on a year-on-year basis, taxes and
licenses and professional and other contracted services were 9% and 7% lower respectively.
Depreciation and Amortization
Depreciation and amortization increased by 9% to =
P17,138 million for the year compared to
=15,734 million in 2005. This increase reflected the additional depreciation charges related
P
to various telecommunications equipment placed in service during the period. Depreciation
is computed using the straight-line method over the estimated useful life (EUL) of the assets,
where the weighted EUL of all depreciable assets is 8.6 years.
In the fourth quarter of 2006, the Globe Group recognized additional depreciation on
telecommunications equipment amounting to P790 million due to shortened remaining useful
lives of certain assets resulting from continuing upgrades made to the network, as well as
changes in estimated remaining useful lives of certain components of network assets as a
result of the application of a more comprehensive approach to component accounting. Out of
this P790 million increase, P377 million are charges pertaining to the first three quarters of
the year. These changes have been accounted for as change in accounting estimates.
65
Other Income Statement Items
Other income statement items include financing costs – net interest income and others – net
as shown below:
Globe Group
For the Quarter Ended
For the full year ended
Q4
2006
Financing Costs – net
Interest Expense………………………………
Gain (Loss) on derivative instruments – net….
Swap costs and other financing costs…………
Foreign Exchange (loss)gain – net……………
Interest Income ……………………………………
Property and Equipment related charges - net ……
Total Other Income (Expenses)…………………
Q3
2006
QoQ 31 Dec
Change 2006
(%)
31 Dec
2005
YoY
Change
(%)
(992)
(1,025)
-3%
(4,214)
(4,658)
-10%
133
(87)
478
(468)
58
(124)
1,259
168
129%
-30%
-62%
-379%
(338)
(426)
1,706
(3,272)
(104)
(682)
2,303
(3,141)
225%
-38%
-26%
4%
161
32
(275)
119
(64)
223
35%
-150%
-223%
715
(66)
(2,623)
520
(897)
(3,518)
38%
-93%
-25%
For 2006, the Globe Group registered a =
P131 million or 4% year-on-year increase in
financing costs due mainly to lower foreign exchange gains recognized during the period.
The Philippine peso continued to appreciate against the US$, ending the year at =
P49.045 at
the end of December 2006. The peso appreciated by 8% from last year’s level of P53.062. In
2005, the currency rose by 6% from P56.341 to P53.062. The Company registered a P
=1,706
million foreign exchange gain for the year, compared to last year’s =
P2,303 million. (See
related discussion on derivative instruments and swap costs in the Foreign Exchange and
Interest Rate Exposure section)
Interest expense was at P4,214 million in 2006, a decrease of 10% or P444 million from
P4,658 million in 2005 due to repayment of loans to foreign and local banks during the year,
coupled with decrease in peso interest rates. Swap costs incurred to manage Globe Group’s
interest rate and foreign exchange risk exposures in loans registered a drop of 38% or P256
million. The lower costs incurred is due to a reduction in the amount of outstanding swaps.
On the other hand, interest income increased by 38% from P520 million in 2005 to P715
million in 2006 due to higher levels of short-term placements.
The Globe Group also recognized impairment provisions on telecommunications assets
amounting to P89 million for the year compared to the P926 million net provisions in 2005.
The consolidated provision for current and deferred income tax for the Globe Group
increased by 48% or P1,837 million to P5,704 million for the year from P3,867 million in
2005, as a result of the expiry of the income tax holiday incentive of Globe on 31 March
2005, higher taxable income base due to improved earnings, and the increase in corporate
income tax rates by 3% to 35% starting November 2005 as mandated by Republic Act 9337.
Consolidated effective income tax rate was at 33% for the year compared to 27% for the
same period in 2005.
66
As a result of the above, the Globe Group’s consolidated net income increased by 14% yearon-year to =
P11,755 million for the full year ended December 2006 from =
P10,315 million for
the same period in 2005. Excluding foreign exchange and mark-to-market gains and losses,
core earnings would have been =
P10,833 million, a 24% improvement from last year’s P
=8,715
million.
Accordingly, consolidated basic earnings per common share were P88.56 and P76.74 and
consolidated diluted earnings per common share were P88.32 and P76.60 for the year 2006
and 2005, respectively.
Liquidity and Capital Resources
Globe Group
As of and for the full year ended
31 Dec
2006
Balance Sheet Data (in millions of pesos)
Total Assets ………………………………………………………
Total Debt …………………………………………………………
Total Stockholders’ Equity ………………………………………
Financial Ratios (x)
Total Debt to EBITDA ……………………………………………
Debt Service Coverage……………………………………………
Interest Cover (Gross) ……………………………………………
Debt to Equity (Gross) …………………………………………..
Debt to Equity (Net) 1………………………………………………
Total Debt to Total Capitalization (Book) …………………………
Total Debt to Total Capitalization (Market) ...……………………
1
31 Dec
2005
YoY change
(%)
124,580
39,207
56,948
125,102
49,693
51,619
1.05
2.99
8.74
0.69
0.43
0.41
0.19
1.49
1.85
7.01
0.96
0.73
0.49
0.34
-21%
10%
Net debt is calculated by subtracting cash, cash equivalents and short term investments from total debt.
Globe Group’s consolidated assets as of 31 December 2006 amounted to =
P124,580 million
compared to =
P125,102 million for the same period in 2005.
Consolidated cash, cash equivalents and short term investments (including investments in
assets available for sale and held to maturity) was at P
=14,812 million at the end of the year,
22% higher than the P12,165 million registered in 2005. Gross debt to equity ratio as of 31
December 2006 was 0.69:1 on a consolidated basis and remains well within the 2:1 debt to
equity limit dictated by certain debt covenants. Net debt to equity ratio was at 0.43:1 as of 31
December 2006.
The financial tests under Globe’s loan agreements include compliance with the following
ratios:
• Total debt to equity not exceeding 2:1;
• Total debt to EBITDA not exceeding 3:1;
• Debt service coverage1 exceeding 1.3 times;
• Secured debt ratio2 not exceeding 0.2 times.
1
Debt service coverage ratio is defined as the ratio of EBITDA to required debt service, where debt service includes
subordinated debt but excludes
shareholder loans. Globe has obtained the consent of its creditors to exclude the early
prepayment of its Senior Notes due 2012 from the computation of the debt service coverage ratio.
2
Secured debt ratio is defined as the ratio of the total amount for the period of all present consolidated obligations for payment,
whether actual or contingent which are secured by Permitted Security Interest as defined in the loan agreement to the total
amount of consolidated debt.
67
Consolidated Net Cash Flows
Globe Group
For the full year ended (in millions of pesos)
Net Cash from Operating Activities ………………………………
31 Dec
31 Dec
YoY change
2006
2005
(%)
32,565
28,952
12%
Consolidated net cash flow from operations amounted to =
P32,565 million for the full year
ended 31 December 2006, a 12% increase from =
P28,952 million from last year.
Globe Group
For the full year ended (in millions of pesos)
31 Dec
31 Dec
YoY change
2006
2005
(%)
Capital Expenditures (Cash) ……………………………………………
12,586
15,922
-21%
Increase (Decrease) in Liabilities related to Acquisition of PPE ………
2,246
(1,164)
293%
Total Capital Expenditures1 …………………………………………
14,832
14,758
Total Capital Expenditures / Service Revenues (%)………………
1
26%
27%
Consolidated capital expenditures include property and equipment and intangibles, acquired as of report date regardless of
whether payment has been made or not, but excludes capitalized borrowing costs during the period.
Consolidated net cash used in investing activities amounted to P
=18,908 million for the year, a
19% increase from the =
P15,943 million in 2005. Consolidated capital expenditures, of
=14,832 million remained at par with previous year’s level. For 2007, Globe is allocating
P
approximately US$350 million for capital expenditures to deepen coverage for its 2G
wireless network, accelerate broadband network roll-out, and upgrade necessary facilities for
3G. The 2007 capital expenditure program will be funded through internally-generated cash
and debt financing.
Consolidated net cash used in financing activities for the year amounted to =
P17,062 million,
a 9% increase compared to P
=15,680 million in 2005. Consolidated total debt as of year end
amounted to =
P39,207 million, a 21% decrease from the =
P49,693 million from last year. Loan
repayments of Globe for 2006 amounted to =
P10,429 million compared to the =
P12,527 million
paid for in 2005.
As of 31 December 2006, gross debt dropped to =
P39,207 million, 62% of which are
denominated in US$. Of the 62%, 33% has been swapped to pesos. As a result, the amount
of US$ debt swapped into pesos and peso-denominated debt accounts for approximately 59%
of consolidated loans as of 31 December 2006.
Below is the schedule of debt maturities for Globe for the years stated below based on total
outstanding debt as of 31 December 2006:
Year Due
Principal
(US$ millions)
2007 ………………………………………………………………………………………
2008………………………………………………………………………………………
2009………………………………………………………………………………………
2010 through 2012 ………………………………………………………………………
Total
68
133
100
153
414
800
Last 12 January 2007, the Company has announced that it is considering redeeming its
US$300 million 9.75% Senior Notes due 2012 in April 2007 after receiving Bangko Sentral
ng Pilipinas (BSP) approval. Globe has the option to call the Senior Notes on or after April
15, 2007 at 104.875% of the principal. Globe will issue a formal call to the trustee after
securing refinancing. Redemption will bring on a largely non-cash impact of approximately
P1.17 billion to the company’s 2007 profit & loss statement, primarily from the reversal of
mark-to-market values. Estimated after-tax interest expense savings of P2.3 billion is
expected to be realized over the remaining life of the bond.
Stockholders’ equity was P56,948 million as of 31 December 2006 resulting in a 10%
increase from the P51,619 million from last year.
Treasury Shares
On February 1, 2005, the BOD approved an offer to purchase one share for every
fifteen shares of the outstanding common stock of Globe Telecom from all
stockholders of record as of February 10, 2005 at P950.00 per share. The approval
allowed Globe Telecom to purchase up to 9,326,924 shares representing 6.67% of
Globe Telecom’s outstanding common shares. Each shareholder is entitled to tender
a proportionate number of shares at the 1:15 ratio for purchase by Globe Telecom
upon and subject to the terms and conditions of the tender offer. Globe Telecom also
filed with the SEC the tender offer report with a copy of the letter to the
shareholders, the terms and conditions of the tender offer and the tender form. Globe
Telecom commenced the tender offer on February 3, 2005 and ended on March 3,
2005.
On March 15, 2005, Globe Telecom acquired 8,064,094 shares at a total cost of
P7,675.66 million, including incidental costs.
On April 4, 2005, Globe Telecom’s stockholders approved the cancellation of the
20.06 million treasury shares consisting of the 12.00 million shares acquired from
Deutsche Telekom (DT) in 2003 and the 8.06 million shares acquired during the
share buyback, and the amendments of the articles of incorporation of Globe
Telecom to reduce accordingly the authorized capital stock of the corporation from
11,250.00 million to 10,246.72 million. On April 29, 2005, Globe Telecom applied
for the retirement and cancellation of the existing treasury shares with the SEC,
which the latter approved on October 28, 2005. Accordingly, Globe Telecom has
cancelled the existing treasury shares at cost.
As of 31 December 2006, Globe’s capital stock consists of:
(Please refer to page 34 for the shareholder structure)
Preferred Shares
Preferred stock Series “A” at a par value of P5 per share of which 158 million shares
are outstanding out of a total authorized of 250 million shares.
Preferred stock “Series A” has the following features:
a. Convertible to one common share after 10 years from issue date at a price which
shall not be less than the prevailing market price of the common stock less the
par value of the preferred shares;
b. Cumulative and non-participating;
69
c.
d.
e.
f.
Floating rate dividend (set at MART 1 plus 2% average for a 12-month period);
Issued at par;
Voting rights;
Globe has the right to redeem the preferred shares at par plus accrued dividends
at any time after 5 years from date of issuance in 2001; and
g. Preferences as to dividend in the event of liquidation.
On December 11, 2006, the BOD approved the declaration of cash dividends to
preferred shareholders “Series A” as of record date December 31, 2006 amounting to
P64.67 million.
Common Shares
Common shares at par value of P50 per share of which 132 million are issued and
outstanding out of a total authorized of 180 million shares.
Cash Dividends
On 7 February 2006, the BOD approved the declaration of first semi-annual cash
dividends in 2006 of P20 per share to common stockholders of record as of 21
February 2006 and paid last 15 March 2006.
On 31 July 2006, the BOD approved an amendment of its dividend policy and
increased its payout from 50% to 75% of prior year’s net income. The approved
dividends were paid on 12 September 2006 to all stockholders of record on 17
August 2006.
On 5 February 2007, the BOD declared the first semi-annual cash dividend in 2007
of P33 per common share with a record date of 19 February 2007 and payment date
of 15 March 2007. This is consistent with our cash dividend policy of distributing
75% of prior year’s net income and represents an increase of 11% over the previous
semi-annual rate of P30.
On 24 March 2006, the Company offered additional stock options to key executives,
directors and senior management personnel. It required the grantees to pay a
nonrefundable option purchase price of P1,000.00. The additional stock options
provide for an exercise price of P854.75, which is the average quoted market price of
the last 20 trading days preceding 24 March 2006. Fifty percent of the options
become exercisable from 24 March 2008 to 23 March 2016, while the remaining
fifty percent become exercisable from 24 March 2009 to 23 March 2016. In order to
avail of the privilege, the grantees must remain with Globe Telecom or its related
parties from grant date up to the beginning of the exercise period of the
corresponding shares. As of December 31, 2006, outstanding stock options granted
to key executives, directors, and senior management personnel totaled to 235,800.
Consolidated Return on Average Equity (ROE) for the full year ended 31 December 2006
increased to 22% from 19% for the same period last year.
70
Foreign Exchange and Interest Rate Exposure
The Philippine Peso stood at =
P49.045 as of 31 December 2006, an 8% appreciation versus
=53.062 at the end of 2005.
P
The foreign exchange differentials arising from revaluation of foreign currency-denominated
accounts are charged against/credited to current operations. Globe Group’s net foreign
exchange gains credited to current operations amounted to a P1,706 million gain and a
P2,303 million gain, in 2006 and 2005, respectively.
To mitigate foreign exchange risk, the Globe Group enters into short-term foreign currency
forwards and long-term foreign currency swap contracts. Short-term forward contracts are
used to manage our foreign exchange exposure related to foreign currency-denominated
monetary assets and liabilities. For certain long term foreign currency denominated loans, we
enter into long term foreign currency and interest rate swap contracts to manage our foreign
exchange and interest rate exposures.
As of 31 December 2006, our Company had US$130 million in outstanding foreign currency
swap agreements and US$74 million in short-term forward contracts, some of which have
option features. We also had sold covered currency options with total notional amount of
US$3 million maturing in March 2007.
Interest rate swaps are used to manage our interest rate risk in a cost-efficient manner. As of
31 December 2006, our Company had US$24 million in notional amount of US$ swaps
under which it effectively swapped some of its floating US$ denominated loans into fixed
rate, with semi-annual payment intervals up to August 2007. We also have US$5 million in
notional amount of US$ swaps under which the Company effectively swapped the 9.75%
fixed coupon of its 2012 Senior Notes to a floating rate based on LIBOR, subject to a cap.
The performance of the swap is linked to the 10-year and 30-year US$ Constant Maturity
Swap Rates. Our Company also has a fixed to floating interest rate swap contract with a
notional amount of P1 billion, in which it effectively swapped a fixed rate Philippine peso
denominated bond into floating rate with quarterly payment intervals up to February 2009
and float to fixed interest rate swap contracts with a notional amount of P1 billion which
converts the floating rate back to fixed rate.
The Group also has embedded forwards and options in certain financial and non-financial
contracts with total notional amount of US$6 million. In addition, Globe’s 2012 Senior Notes
also have an embedded call option which has a notional amount of US$294 million that give
us the right to prepay the Notes at a certain call price per year.
Gains (losses) on derivative instruments represent the net mark-to-market (MTM) gains
(losses) on derivative instruments. Beginning 2005, MTM values have to be booked as
required by PAS 39. The MTM value of outstanding derivatives of the Globe Group as of 31
December 2006 amounted to P541 million. Of this amount, P1,425 million represents the
MTM value of the embedded call option on Globe's Senior Notes due 2012. The MTM
value of the embedded option will be reversed to the P&L through the life of the Notes, or
upon exercise of the call. The remaining P885 million in MTM loss represents the MTM
value of other embedded derivatives as well as foreign exchange and interest rate hedges.
Losses on derivative instruments arising from changes in MTM reflected in the consolidated
71
income statements for the year ended 31 December 2006 amounted to P338 million. (See
related discussion under Results of Operations)
Consolidated foreign currency-linked revenues were 29% and 27% of total net revenues for
the periods ended 31 December 2006 and 2005, respectively. Wireless foreign-currency
linked revenues were 25% of net revenues for the full year ended 31 December 2006 and
22% for the same period in 2005. Wireline foreign-currency linked revenues were 60% of
net revenues for the full years ended 31 December 2006 and 2005. Foreign currency linked
revenues include those that are: (1) billed in foreign currency and settled in foreign currency,
or (2) billed in Pesos at rates linked to a foreign currency tariff and settled in Pesos, or (3)
wireline monthly service fees and the corresponding application of the Currency Exchange
Rate Adjustment or CERA mechanism, under which our Group has the ability to pass the
effects of local currency depreciation to its subscribers. These revenues serve as a natural
hedge to our foreign exchange exposure. The Globe Group also incurred foreign-currency
linked expenses which registered 12% and 15% (as a percentage of total operating expenses)
for the years 2006 and 2005, respectively.
72
Annex to MD&A for the financial years ended 2006 and 2005
1. All material off-balance sheet transactions, arrangements, obligations
(including contingent obligations), and other relationships of the Company with
unconsolidated entities or other persons created during the reporting period;
Events that will trigger direct or contingent financial obligations that are
material to the Company including any default or acceleration of an obligation.
Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial
years except as follows:
The Globe Group has adopted the following new and amended PFRS and Philippine
Interpretations from International Financial Reporting Interpretation Committee
(IFRIC) during the year. Adoption of these revised standards and interpretations did
not have any effect on the Globe Group except for additional disclosures included in
the consolidated financial statements.
•
Amendments to Philippine Accounting Standards (PAS) 19, Employee Benefits Actuarial Gains and Losses, Group Plans and Disclosures, introduce an
additional option for recognition of actuarial gains and losses in postemployment defined benefit plans. The amendment permits an entity to
recognize actuarial gains and losses in the period in which they occur outside
profit or loss. The amendment also requires additional disclosures on the
financial statements to provide information about trends in the assets and
liabilities in the defined benefit plans and the assumptions underlying the
components of the defined benefit cost. The adoption of amendments to PAS 19
does not have an effect on the Globe Group’s result of operations and financial
position. The Globe Group elected to continue to recognize a portion of
actuarial gains and losses in profit and loss if the cumulative unrecognized
actuarial gains and losses at the end of the previous reporting period exceeded
the greater of 10% of the present value of defined obligation or 10% of the fair
value of plan assets. Additional disclosures required by the amendments were
included in the consolidated financial statements, where applicable.
•
Amendments to PAS 21, The Effects of Changes in Foreign Exchange Rates,
state that all exchange differences arising from a nonmonetary item that forms
part of the company’s net investment in foreign operations are recognized in a
separate component of equity in the financial statements regardless of the
currency in which the monetary item is denominated. The Globe Group does not
have a net investment in foreign operations. These amendments have no impact
on the consolidated financial statements.
•
Amendments to PAS 39, Financial Instruments: Recognition and Measurement,
(a) Amendment for financial guarantee contracts (issued August 2005), amended
the scope of PAS 39 to require financial guarantee contracts that are not
considered as insurance contracts to be recognized initially at fair value and to be
remeasured at the higher of the amount determined in accordance with PAS 37,
Provisions, Contingent Liabilities and Contingent Assets and the amount initially
recognized less, when appropriate, cumulative amortization recognized in
accordance with PAS 18, Revenue; (b) Amendment for hedges of forecast
73
intragroup transactions (issued April 2005), allow the foreign currency risk of a
highly probable forecast intragroup transaction to qualify as a hedged item in a
cash flow hedge provided that the transaction is denominated in a currency other
than the functional currency of the entity entering into transaction and that the
foreign currency risk will affect the statements of income; and (c) Amendment
for the fair value option (issued June 2005), prescribes the conditions under
which the fair value option on classification of financial instruments at fair value
through profit or loss (FVPL) maybe used. Adoption of these amendments did
not have a significant impact on the consolidated financial statements.
•
Philippine Interpretation IFRIC 4, Determining Whether an Arrangement
Contains a Lease, provides for guidance in determining whether arrangements
contain a lease to which lease accounting must be applied. Adoption of this
Interpretation did not have a significant impact on the consolidated financial
statements.
Future Changes in Accounting Policies
PFRS 7, Financial Instruments: Disclosures
PFRS 7 introduces new disclosures to improve the information about financial
instruments. It requires the disclosure of qualitative and quantitative information
about exposure to risks arising from financial instruments, including specified
minimum disclosures about credit risk, liquidity risk and market risk, as well as
sensitivity analysis to market risk. It replaces PAS 30, Disclosures in the Financial
Statements of Banks and Similar Financial Institutions, and the disclosure
requirements in PAS 32, Financial Instruments: Disclosure and Presentation. It is
applicable to all entities that report under PFRS. The Globe Group will adopt PFRS
7 beginning January 1, 2007.
Amendments to PAS 1, Presentation of Financial Statements
The amendments to PAS 1 introduce disclosures about the level of an entity’s capital
and how it manages capital. The Globe Group will apply the amendments to PAS 1
starting January 1, 2007.
The Globe Group is currently assessing the impact of PFRS 7 and the amendments to
PAS 1 and expects that the main additional disclosures will be the sensitivity
analysis to market risk and the capital disclosures required by PFRS 7 and the
amendments to PAS 1.
Philippine Interpretation IFRIC 8, Scope of PFRS 2
This Interpretation becomes effective for financial years beginning on or after May
1, 2006.This Interpretation requires PFRS 2 to be applied to any arrangements where
equity instruments are issued for consideration which appears to be less than fair
value. The Globe Group will adopt Philippine Interpretation IFRIC 8 starting
January 1, 2007. As equity instruments are only issued to employees in accordance
with the employee share scheme, the Globe Group does not expect the Interpretation
to have significant impact on its consolidated financial statements.
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
This Interpretation was issued in March 2006 and becomes effective for financial
years beginning on or after June 1, 2006. This Interpretation establishes that the date
to assess the existence of an embedded derivative is the date an entity first becomes a
74
party to the contract, with reassessment only if there is a change to the contract that
significantly modifies the cash flows. The Globe Group will adopt Philippine
Interpretation IFRIC 9 starting January 1, 2007. The Globe Group expects that the
adoption of this Interpretation will have no impact on the consolidated financial
statements.
Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment
This Interpretation, which becomes effective for financial years beginning on or after
November 1, 2006, provides that the frequency of financial reporting does affect the
amount of impairment charge to be recognized in the annual financial reporting with
respect to goodwill and AFS investments. It prohibits the reversal of impairment
losses on goodwill and AFS equity investments recognized in the interim financial
reports even if impairment is no longer present at the annual balance sheet date. The
Globe Group will adopt Philippine Interpretation IFRIC 10 starting January 1, 2007.
This Interpretation is not expected to have a significant impact on the consolidated
financial statements of the Globe Group.
Philippine Interpretation IFRIC 11, IFRS 2 - Group and Treasury Share
Transactions
This Interpretation will be effective January 1, 2008 for the Globe Group. This
Interpretation requires arrangements whereby an employee is granted rights to an
entity’s equity instruments to be accounted for as an equity-settled scheme by the
entity even if (a) the entity chooses or is required to buy those equity instruments
(e.g. treasury shares) from another party, or (b) the shareholder(s) of the entity
provide the equity instruments needed. It also provides guidance on how
subsidiaries, in their separate financial statements, account for such schemes when
their employees receive rights to the equity instruments of the parent. The Globe
Group does not expect this Interpretation to have a significant impact on its
consolidated financial statements.
Philippine Interpretation IFRIC 12, Service Concession Arrangement
This Interpretation will become effective January 1, 2008. This Interpretation covers
contractual arrangements arising from public-to-private service concession
arrangements if control of the assets remain in public hands but the private sector
operator is responsible for construction activities as well as for operating and
maintaining the public sector infrastructure. This Interpretation will have no impact
on the consolidated financial statements of the Globe Group as this is not relevant to
the Globe Group’s current operations.
PFRS 8, Operating Segments
The Globe Group will adopt PFRS 8, Operating Segments, effective January 1, 2009.
PFRS 8 will replace PAS 14, Segment Reporting, and adopts a management
approach to reporting segment information. The information reported would be that
which management uses internally for evaluating the performance of operating
segments and allocating resources to those segments. Such information may be
different from that reported in the balance sheet and statement of income and
companies will need to provide explanations and reconciliations of the differences.
The Globe Group will assess the impact of this standard to its current manner of
reporting segment information.
75
2. Causes of any material change in financial statements from period to period
Balance Sheet Accounts Variance Analysis (December 31, 2006 vs. December
31, 2005)
Assets
Current
a) Cash and Cash Equivalents– Decreased by P3.41 billion due to the additional
capital expenditures, settlement of loans and payments of dividends during the
year, net of cash provided by operating activities due to better operating
performance.
b) Available-for-sale investments, Held-to-maturity investments and Short-term
investments – Increased by P6.05 billion mainly due to Globe group’s higher
amount of money market placements of beyond 90 days.
c) Receivables - net – Down by 18% or P1.24 billion as compared to same period
last year due to higher traffic receivable collections from various carriers.
d) Inventories and Supplies – Declined by 28% or P378.96 million due to the net
issuance of handsets and phonekits as a result of Globe’s various promotional
offers cushioned by higher units purchased over sales of CDMA telephone sets
and modem for Innove’s wireless broadband and telephone services.
e) Derivative Assets – Increased by P149.41 million due to gain on MTM value
changes mainly coming from the valuation of bond options on the Senior Notes.
f) Prepayments and other current assets – Up by 12% or P139.21 million
attributable to the advance payment made to BIR for VAT and other taxes.
Noncurrent
a) Property and Equipment - net – Decreased by 3% or P2.48 billion due to
depreciation, net of the purchases and project accruals for the additional network
assets placed into service and the 3G sites rollout.
b) Investment Property - net – Increased by 21% or P54.97 million due to the
additional area in Innove IT Plaza leased to third parties, net of the related
depreciation.
c) Intangible Assets - net – Up by 3% or P28.90 million due to the additional
acquisitions of various computer software and telecom equipment licenses and
other value added software applications in support of the expanded network and
subscriber base, net of the related depreciation.
d) Investments in an Associate and a Joint Venture – Down by 14% or P5.93
million mainly attributable to Globe Group’s equity in net loss on Bridge Mobile
Alliance.
e) Deferred Income Tax - net – Pertains to adjustment on Innove’s reversal of
certain deferred income tax items which have been realized.
f) Derivative Assets –Have zeroed out in 2006 as cross-currency swap instruments
that used to be in this category were reclassified to derivative liability due to
significant decrease in MTM gain (resulting to MTM loss) coupled with interest
rate swap instruments reclassed to current portion since maturities are scheduled
in 2007.
g) Other Noncurrent Assets – Up by 98% or P993.53 million due to Innove’s
deposit in Escrow in compliance with the conditions set by SBMA in February
2006 and the net increase in deferred VAT and advances to suppliers and
76
contractors for the additional equipment bought for network expansion and 3G
rollout.
Liabilities
Current
a) Accounts payable and Accrued Expenses – Up by 18% or P2.51 billion due to
the accrual of high-value 3G equipment shipments cushioned by net payments to
local and foreign suppliers in support of the network expansion and 3G rollout
and to assist current operations.
b) Provisions – Increased by 7% or P16.86 million attributable to the additional
accrual made on probable regulatory claims and assessments.
c) Income Taxes Payable – Increased by 185% or P540.03 million mainly
attributable to higher taxable revenues during the fourth quarter this 2006
compared to the same period in 2005.
d) Unearned Revenues – Declined by 2% or P31.61 million caused by the faster
consumption of prepaid airtime and landline credits as a result of the on-going
promos being offered during the period (text unlimited, lower call rates, etc.).
Noncurrent
a) Deferred Tax Liabilities – Pertains to adjustment on Globe’s provision for
deferred income tax mainly coming from higher depreciation claims under sumof-the-years digit method used for tax reporting versus straight-line depreciation
used for financial reporting.
b) Long-term Debt – Decrease of P10.49 billion is mainly attributable to the partial
redemption of 2012 Senior Notes coupled with the scheduled loan installment
repayments to foreign and local creditors during the year (including current
portion).
c) Derivative Liabilities – Increased by P354.38 million due to the additional loss
recognized on MTM value changes on swaps and free-standing forward
contracts (including current portion).
d) Other Long-term Liabilities – Up by P134.80 million due to the additional
accrual and accretion of asset retirement obligation cushioned by amortized
settlement of long-term liability (including current portion).
Equity
a) Paid-up Capital – Increased by 1% or P168.95 million mainly attributable to the
issuance of Globe shares due to exercised stock options triggered by favorable
increases in Globe’s share price during the year.
b) Cost of Share-Based Payments – Increase represents additional compensation
expense net of the value of the stock options exercised during the year.
c) Cumulative Translation Adjustment – Lower translation loss by 18% or P42.10
million is caused by the favorable fair value changes on derivatives designated
as cash flow hedge coupled with valuation gain on available for sale investments
(Investment in Peso T-bills).
d) Retained Earnings – Increased by 28% or P5.09 billion attributable to 2006’s net
income of P11.76 billion reduced by the P6.67 billion dividends declared to
common and preferred shareholders.
77
3. Description of material commitments and general purpose of such
commitments. Material off-balance sheet transactions, arrangements,
obligations and other relationships with unconsolidated entities or other
persons created during the period:
Lease Commitments:
a) Operating lease commitments - Globe Group as lessee
Globe Telecom and Innove lease certain premises for some of its
telecommunications facilities and equipment and for most of its business centers and
cell sites. The operating lease agreements are for periods ranging from 1 to 10 years
from the date of the contracts and are renewable under certain terms and conditions.
The agreements generally require certain amounts of deposit and advance rentals,
which are shown as part of the “Other noncurrent assets” account in the consolidated
balance sheets. The Globe Group’s rentals incurred on these leases (included in
“General, selling and administrative expenses” account in the consolidated
statements of income) amounted to =
P2,080.75 million, =
P1,840.00 million and P
=
1,420.07 million in 2006, 2005 and 2004, respectively.
As of December 31, 2006, the future minimum lease payments under this operating
lease are as follows (in thousand pesos):
Not later than one year
After one year but not more than five years
After five years
=
P1,724,173
5,799,897
2,166,055
=
P9,690,125
b) Operating lease commitments - Globe Group as lessor
Globe Telecom and Innove have certain lease agreements on equipment and office
spaces. The operating lease agreements are for periods ranging from 1 to 14 years
from the date of contracts. These include Globe Telecom’s lease agreement with
C2C (see related discussion on Agreements with C2C).
Total lease income amounted to =
P182.02 million, =
P194.01 million and =
P200.08
million in 2006, 2005 and 2004, respectively.
The future minimum lease receivables under these operating leases are as follows (in
thousand pesos):
Within one year
After one year but not more than five years
After five years
=
P175,051
700,204
743,966
=
P1,619,221
Innove entered into a lease agreement covering the lease of office space at the
Innove IT Plaza to a third party. The lease has a remaining term of less than one
year, renewable under certain terms and conditions. As of December 31, 2006, the
future minimum lease receivables under this operating lease amounted to P
=30.34
million.
78
(c)
Finance lease commitments - Globe Group as lessee
Globe Telecom and Innove have entered into finance lease agreements for various
items of property and equipment. The said leased assets are capitalized and are
depreciated over its estimated useful life of three years, which is also equivalent to
the lease term.
As of December 31, 2006, the consolidated present value of the net minimum lease
payments due within a year amounted to
=1.15 million. The present value of the minimum lease payments under finance
P
leases is included under the “Other long-term liabilities” account in the consolidated
balance sheets.
(d)
Finance lease commitments - Globe Group as lessor
Innove has existing finance lease arrangements with a lessee for Innove’s office
equipment. As of December 31, 2006, the gross investment and the present value of
the net minimum lease payments receivable included under “Prepayments and other
current assets” account in the consolidated balance sheets are P
=2.05 million and =
P
2.02 million, respectively. No collections were received from the lessee as of
December 31, 2006.
Agreements and Commitments with Other Carriers
Globe Telecom and Innove have existing correspondence agreements with various
foreign
administrations
and
interconnection
agreements
with
local
telecommunications companies for their various services. Globe and Innove also
have international roaming agreements with other operators in foreign countries,
which allow its subscribers access to foreign networks. The agreements provide for
sharing of toll revenues derived from the mutual use of interconnection facilities.
Arrangements and Commitments with Suppliers
Globe Telecom and Innove have entered into agreements with various suppliers for
the delivery, installation, or construction of their property and equipment. Under the
terms of these agreements, delivery, installation or construction commences only
when purchase orders are served. Billings are based on the progress of the project
installation or construction. While the construction is in progress, project costs are
accrued based on the billings received. When the installation or construction is
completed and the property is ready for service, the balance of the related purchase
orders is accrued. The consolidated accrued project costs as of December 31, 2006,
2005 and 2004 included in the “Accounts payable and accrued expenses” account in
the consolidated balance sheets amounted to P
=4,548.84 million, =
P2,444.11 million
and =
P3,454.29 million, respectively. As of December 31, 2006, the consolidated
expected future payments amounted to =
P2,359.75 million. The settlement of these
liabilities is dependent on the payment terms agreed with the suppliers and
contractors.
Agreements with C2C
In 2001, Globe Telecom signed a cable equipment supply agreement with C2C, a
related party of STI. In March 2002, Globe Telecom entered into an equipment lease
agreement for the same equipment obtained from C2C with GB21 Hong Kong
Limited (GB21). Subsequently, GB21, in consideration of C2C’s agreement to
79
assume all payment obligations pursuant to the lease agreement, assigned all its
rights, obligations and interest in the equipment lease agreement to C2C. As a result
of the said assignment of receivables and payables by GB21 and C2C under the two
agreements, Globe Telecom’s liability arising from the cable equipment supply
agreement with C2C was effectively converted into a noninterest bearing long-term
obligation accounted for at net present value under PAS 39 starting 2005.
Globe Telecom entered into agreements with C2C for the purchase of IRUs in its
network. The aggregate cost of capacity purchased from C2C amounted to P
=1,133.79
million.
In January 2003, Globe Telecom received advance lease payments from C2C for its
use of a portion of Globe Telecom’s cable landing station facilities amounting to
US$4.11 million. Accordingly, based on agreed amortization schedule, Globe
Telecom recognized lease income amounting to =
P13.97 million, =
P15.06 million and
=16.32 million in 2006, 2005 and 2004, respectively.
P
As of December 31, 2005 and 2004, C2C was still a related party of Globe Group
until the transfer of Innove’s shares in C2C to C2C Group Limited on August 7,
2006. As of December 31, 2006, C2C has ceased to be a related party.
The current and noncurrent portions of the said advances shown as part of the “Other
long-term liabilities” account in the consolidated balance sheets are as follows:
2005
2006
Current
Noncurrent
=
P14,759
123,166
=
P137,925
P
=13,389
100,705
P
=114,094
2004
(In Thousand Pesos)
=
P17,760
146,449
=
P164,209
4. Trend Information:
Operating in a highly competitive telecommunications industry, Globe is mainly
subject to competitive and technological innovation risks.
The increased
competitiveness of existing players and potential new entrants poses risks on Globe’s
market share, profitability and image. As our business and profitability largely
depend on the reliability and performance of our network infrastructure, rapid
changes in technology may adversely affect the economics of our existing business,
value of our assets and create new competition.
Globe may also be significantly affected by the development/changes in regulations
and actions by international, national or local regulators which can threaten Globe’s
competitive position and its capacity to efficiently conduct business.
The occurrence of natural catastrophes may materially disrupt our operations while
future economic downturns and political instability may affect our financial results.
80
Other risks that Globe may be exposed to are as follows:
• Changes in Philippine and international interest rates with respect to Globe’s
borrowings;
• Changes in the value of the Peso against the U.S dollar;
• Changing customer needs and wants in terms of desired products, pricing and/or
quality of service
• Limits on foreign ownership of our capital stock which may restrict our access to
sources of equity capital.
5. Seasonal Aspects that have a material effect on the FS – None
81
B. Financial years ended 2005 and 2004
Group Results of Operations
The following table details the consolidated results of operations for the Globe Group for the
fourth and third quarter of 2005, and the full year ended 31 December 2005 and 2004.
KEY DRIVERS
(In millions of pesos)
Q4
2005
Q3
2005
QoQ
Change
(%)
Profit & Loss Data
Net Operating Revenues ………………
Service Revenues ……………………….
Non-Service Revenues……………………
Costs and Expenses ……………………
Cost of Sales………………………..
Operating Expenses …………………
Depreciation and Amortization…….
Financing…………………………………
Interest Income………………………
Others - net…………………………
Equity-Net Losses of Associate & JV
EBITDA ………………………………
EBITDA Margin………………………
EBIT …………………………………
Provision for Income Tax……………
Net Income ……………………………..
15,381
14,629
752
9,898
991
5,574
4,148
(370)
(155)
(291)
1
8,816
60%
4,668
(1,609)
3,874
14,805
13,540
1,265
11,523
1,717
5,013
4,020
1,002
(137)
(92)
0
8,075
60%
4,054
(1,055)
2,227
4%
8%
-41%
-14%
-42%
11%
3%
-136%
13%
216%
100%
9%
15%
53%
74%
31 Dec
2005
31 Dec
2004
(Audited)
(As
(restated) 1
58,748
55,609
52,741
54,897
2,868
3,851
44,566
42,886
6,025
6,675
20,751
16,039
15,734
14,706
3,141
6,327
(520)
(454)
(578)
(407)
13
0
31,972
32,895
58%
62%
16,238
18,189
(3,867
(1,327)
10,315
11,396
YoY
Change
(%)
6%
4%
34%
4%
-10%
29%
7%
-50%
15%
42%
100%
-3%
-11%
191%
-9%
_________________________________
1
Prior period figures have been restated due to the adoption of various Philippine Accounting Standards (PAS) and Philippine
Financial Reporting Standards (PFRS) on 1 January 2005. (See related discussion in the attached financial statements)
GROUP OPERATING REVENUES
Service Revenues
For the full year 2005, the Globe Group’s total net operating revenues improved by 6% to
P58,748 million from P55,609 million in 2004 while total net service revenues increased by
4% to P54,897 million in 2005 from P52,741 million in 2004.
Wireless service revenues, which accounted for 88% of net service revenues in 2005, grew
by 3% year-on-year to P48,481 million. Meanwhile, wireline service revenues, which
accounted for the remaining 12% of net service revenues in 2005, grew by 13% year-on-year
to P6,416 million.
Non-Service Revenues
We also registered non-service revenues of P3,851 million for the full year 2005, a 34%
increase from last year’s P2,868 million due mostly to higher year-on-year handset sales
contributed by subscriber acquisitions. Non-service revenues are reported net of discounts on
phonekits and SIM (Subscriber Identification Module) packs. The cost related to the sale of
handsets and SIM packs are shown under cost of sales. The difference between non-service
revenues and cost of sales is referred to as subsidy.
82
For the full year 2005, subsidies dropped by 43% to P2,174 million from P3,807 million in
2004. This is in line with the decline in gross subscriber additions following the end of the
SIM swap activities last May 2005, and as part of an overall thrust to reduce subsidies in
favor of more cost-effective subscriber acquisition and loyalty programs.
GROUP OPERATING REVENUES BY SEGMENTS
For the full year ended (in millions of pesos)
31 December
2005
Globe Group
31 December
2004
YoY change
(%)
Wireless
Service Revenues……………………………………
Non-Service Revenues………………………………
52,229
48,481
3,748
49,903
47,054
2,849
5%
3%
32%
Wireline
Service Revenues……………………………………
Non-Service Revenues………………………………
Net Operating Revenues………………………………
6,519
6,416
103
58,748
5,706
5,687
19
55,609
14%
13%
442%
6%
A. Wireless Business
Service
Voice 1 ….………………………………………………
Data 2..…………………………………………………
31 December
2005
48,481
28,945
19,536
Globe
31 December
2004
47,054
27,630
19,424
YoY change
(%)
3%
5%
1%
Non-Service 3….…………………………………………
Wireless Net Operating Revenues…………………..……
3,748
52,229
2,849
49,903
32%
5%
For the full year ended (in millions of pesos)
1
Wireless voice net service revenues include the following:
a) Monthly service fees on postpaid plans & subscription fees on prepaid services;
b) Charges for Globe to Globe and TM to TM and outbound calls in excess of the free minutes for various Globe
Handyphone postpaid plans, including currency exchange rate adjustments, or CERA net of marketing promotions
credited to subscriber billings;
c) Airtime fees from prepaid reload denominations (for Globe Handyphone Prepaid and TM) for Globe to Globe and
TM to TM and outbound calls recognized upon the earlier of actual usage of the airtime value or expiration of the
unused value of the prepaid reload denomination which occurs between 1 and 60 days after activation depending on
the prepaid value reloaded by the subscriber net of (i) bonus credits* ii) prepaid reload discounts; and
d) Revenues generated from inbound international and national long distance calls and international roaming calls; and
Revenues from (a) to (d) are net of any interconnection or settlement payouts to international and local carriers.
* Included airtime on SIM cards provided under Globe’s SIM swap program which was concluded last May 2005.
2
Wireless data net service revenues consist of revenues from value-added services such as inbound and outbound SMS and
MMS, content downloading and infotext net of any interconnection or settlement payouts to international and local carriers
and content providers.
3
Wireless non-service revenues consist principally of sales of handsets, phonekits, accessories and SIM packs.
Overall, the wireless business recorded a 5% year-on-year increase on its net operating
revenues to reach P52,229 million for the full year ended 31 December 2005. This is mainly
attributable to growth experienced in both our voice and data sectors, as well, as in our nonservice revenues.
83
These results are further driven by the following key drivers set out in the table below:
KEY DRIVERS
Cumulative Subscribers (or
SIMs*) – Net (End of period)
Postpaid . ……………………
Q4
2005
Q3
2005
QoQ
Change
(%)
31 Dec
2005
31 Dec
2004
YoY
Change
(%)
12,403,575
594,142
12,409,238
613,929
-3%
12,403,575
594,142
12,513,973
630,495
-1%
-6%
11,809,433
8,699,687
3,109,746
11,795,309
9,227,769
2,567,540
-6%
21%
11,809,433
8,699,687
3,109,746
11,883,478
10,185,154
1,698,324
-1%
-15%
83%
Average Revenue Per
Subscriber (ARPU)
Gross ARPU
Postpaid . ………………………
2,349
2,199
7%
2,246
2,138
5%
Prepaid1
Globe Handyphone Prepaid
TM ……………………………
399
350
351
281
14%
25%
378
333
422
288
-10%
16%
Net ARPU
Postpaid . ………………………
1,722
1,588
8%
1,635
1,605
2%
Prepaid
Globe Handyphone Prepaid
TM ……………………………
288
250
255
182
13%
37%
268
214
305
183
-12%
17%
Subscriber Acquisition Cost
(SAC)
Postpaid . ………………………
4,303
5,462
-21%
7,026
9,886
-29%
Prepaid
Globe Handyphone Prepaid .
TM ……………………………
205
59
301
144
-32%
-59%
248
90
267
151
-7%
-40%
Average Monthly Churn Rate
(%)
Postpaid . ………………………
2.6%
4.4%
3.1%
2.6%
Prepaid
Globe Handyphone Prepaid .
TM …………………………....
8.2%
6.7%
8.3%
10.2%
7.8%
9.5%
5.5%
12.7%
4,918
4,661
Prepaid .………………………
Globe Handyphone Prepaid
TM ……………………………
Wireless Data Net Service
Revenues (in millions of pesos)
Wireless Data as a % of
Wireless Net Service Revenues…
Wireless Data Net Service
Revenues Includes………………..
Regular SMS……………………
International SMS………………
Value-Added Services…………
6%
19,536
19,424
38%
41%
40%
41%
82%
8%
10%
83%
8%
9%
83%
8%
9%
81%
9%
9%
1%
*The word “subscriber” may be used interchangeably with the term “SIM.”
1
Revenue from a prepaid subscriber is realized upon actual usage of the airtime value (pre-loaded airtime value of SIM cards
and subsequent top-ups) for voice, SMS, MMS, content downloading and infotext services net of free SMS allocation, bonus
credits (included airtime on SIM cards provided under Globe’s SIM swap program which was concluded last May 2005) or the
expiration of the unused value, whichever comes earlier. Proceeds from the sale of prepaid cards, airtime value through
electronic load services such as ATM and airtime value through over-the-air (OTA) reloading are treated as deferred or
unearned revenues are shown under the liabilities section of the balance sheet since the service has not yet been rendered.
84
Wireless net service revenues registered a 3% year-on-year growth from P47,054 million to
P48,481 million for the full year 2004 and 2005, respectively. This 3% growth was driven
by a 5% increase in voice service revenues, particularly in international voice and roaming
services, despite a 1% drop in wireless subscribers. Total gross subscriber additions for the
full year 2005 decreased by 2% year-on-year to 11.6 million compared to 11.9 million in
2004. On the other hand, net additions contracted by 103% to a net reduction of 110,000
subscribers for the full year 2005 against 3.7 million net additions in 2004, hence, a higher
churn rate of 7.9% at the consolidated level from 6.4% in 2004. The higher year-on-year
consolidated churn was driven by higher terminations of non-revenue generating subscribers
in the Globe Handyphone Prepaid segment. Non-revenue generating subscribers for Globe
Handyphone Prepaid relates to subscribers acquired during the SIM-swapping activities that
were subsequently churned out after their second expiry. In addition, there were also nonrevenue generating subscribers related to “trade scooping,” where large volumes of SIMs are
purchased in order to take advantage of SIM-swap activities in the market. The free SIMswap program, which was launched in February 2004 allowed subscribers of another mobile
network to switch to Globe by exchanging their active SIM cards for Globe Handyphone
Prepaid or TM SIMs. This elevated level of churn involving non-revenue generating
subscribers is not expected to recur as the SIM-swap program was discontinued in May
2005.
Wireless data net service revenues increased by 1% to P19,536 million in 2005 from P19,424
million in 2004. To encourage brand loyalty and stimulate usage of wireless data services,
Globe launched its CelebRATE! promotion last June 2005 that offered discounted call and
text rates for Globe to Globe and TM to TM calls and text messages. This promotion
included the Globe Text NonStop offer that allows heavy SMS users the option to send
unlimited Globe to Globe and TM to TM text messages for P15 for 1 day, P25 for 2 days and
P50 for 5 days. This offer was later supplemented with a P100 option for 10 days of
unlimited text messaging. TM also launched its own Todo Text promotion which had P10 for
1 day, P25 for 3 days and P50 for 7 days denominations which has been extended to
February 2006. To encourage subscribers to try the promotion, TM came up with its TM
Todo Text Sampler that allows subscribers free unlimited text for 5 days for a minimum P25
load. TM subscribers were also offered a low text messaging rate of P0.75 per message sent
and this promotion has been extended to 14 February 2006.
Other promos launched to drive usage of wireless data services include Visibility service,
which provides data access via GPRS, EDGE, WiFi and dial-up transport channels on a payper-use arrangement or four universal access plans, and GPRS Discounted Off-Peak Rate
promotion which allows subscribers to avail of a 33% discount (P0.10 per kilobyte) on
Globe’s GPRS (General Packet Radio Service) rates when used from 12 midnight to 8 am
(launched in the fourth quarter of 2005).
Postpaid
For the full year ended 2005, our postpaid sector comprised approximately 5% of our total
subscriber base. The postpaid subscriber base reached 594,142 in 2005 which is 6% lower
than the previous year. This is mainly due to the increased incidence of Globe-initiated
credit-related terminations resulting in a slight increase in average monthly churn of 3.1% in
2005 from 2.6% in 2004. Based on the Company’s policy on postpaid subscribers,
permanent disconnections are made after a series of collection steps following non-payment.
Such permanent disconnections generally occur within a predetermined number of days from
statement date.
85
However, despite the slightly higher monthly churn rate in 2005, we posted a 30% increase
in gross additions registering 191,732 subscribers from 148,015 generated in 2004 due to our
aggressive subscriber acquisition campaigns and promotions. The net reductions in our
postpaid sector were also 33% lesser at 36,353 compared to 54,531 subscribers in 2004.
Our postpaid segment contributed an average net ARPU of P1,635, an increase of 2% from
last year’s average of P1,605 while gross ARPU increased by 5% to P2,246 from P2,138.
The slight increase in both gross and net ARPU was due to a richer subscriber mix, as well,
as higher voice usage resulting from usage and tariff promotions launched in the second half
of 2005. Given the intense price competition, Globe started a number of value promotions
during the second and third quarters of 2005 which addressed key segments and specific
consumer needs. For heavy voice users within our network, we offered Globe CelebRATE!
Call (P10 for a 3-minute call). For IDD users, we introduced Budget IDD rates at US$0.20,
starting on the first minute, for IDD calls to selected destinations. (See related discussion in
“Other Globe Group Revenues – International Long Distance Services” section)
Additionally, on 17 December 2005, Globe led the market with its launch of the 10
centavos/second call promo, which allowed Globe to Globe and TM to TM calls on a persecond charging basis aimed at increasing voice usage among its subscribers. Due to the
positive response from our subscribers, this promo has been extended through 14 February
2006.
As a result of our deliberate shift to a more focused approach in targeting consumer
segments, acquisition subsidies were reduced, resulting in a 29% drop in SAC to P7,026 in
2005 from P9,886 in 2004. Handset subsidies merely comprised 86% of total SAC
compared to 95% in 2004.
Prepaid
For the full year 2005, our prepaid segment made up 95% of our total subscriber base.
Prior to the third quarter of 2004, a prepaid subscriber was recognized upon the activation
and use of a new SIM card. The subscriber was provided with 60 days (first expiry) to
utilize the preloaded airtime value. If the subscriber did not reload prepaid credits within the
first expiry period, the subscriber retained the use of the wireless number, but was entitled
only to receive incoming voice calls and text messages for another 120 days (second expiry),
except for the first reload of SIM-swappers that was required within only 30 days from the
first expiry. However, if the subscriber did not reload prepaid credits within the second
expiry period, the account would be permanently disconnected and considered part of churn.
The first expiry periods of reloads vary depending on the denominations, ranging from 1 day
for P10 to 60 days for P300 to P1,000 reloads. The second expiry is 120 days from the date
of the first expiry. The first expiry is reset based on the longest expiry period among current
and previous reloads. Under this policy, subscribers are included in the subscriber count until
churned.
Acknowledging the changing dynamics of the industry and the introduction of the SIM-swap
program, Globe updated its policy in recognizing a subscriber in its total count based on the
subscriber intent to use the service. Starting the third quarter of 2004, a SIM-swapper was
only considered a subscriber upon making the first reload. Non-SIM swap subscribers or
regular subscribers are recognized upon activation and use of a new SIM. Accordingly,
subscribers not considered in the subscriber count were not considered as part of churn.
86
However, the nationwide SIM-swap program has since been discontinued beginning May
2005.
Overall, our consolidated prepaid subscribers decreased by 1% to 11.8 million in 2005 from
11.9 million in 2004, as Globe culled out the non-revenue generating subscribers related to
its SIM swap program starting May 2005. Net incremental prepaid subscriber base fell by
74,075 in 2005 compared to the 3,708,621 incremental prepaid subscribers generated in
2004. However, gross prepaid additions remained strong driven mostly by 57% year-on-year
growth in gross additions from the TM brand from 2.6 million in 2004 to 4.1 million in 2005.
Globe Handyphone Prepaid likewise added 7.3 million subscribers in 2005 but registered a
19% decrease compared to the 9.1 million new subscribers in 2004. The current subscriber
counts and churn rates for our prepaid segment have been heavily influenced by the SIMswap program. The succeeding sections discuss Globe Handyphone Prepaid and TM in more
detail.
Globe Handyphone Prepaid
The Globe Handyphone Prepaid subscriber base totaled 8.7 million by the end of 2005
which is 15% lower than the 10.2 million subscribers in 2004. Due to stiff competition and
the termination of the free SIM-swap program, gross additions for 2005 decreased by 19% to
7.3 million subscribers from 9.1 million in 2004
The average monthly churn rate also reached 7.8% in 2005 compared to 5.5% for the
previous year mainly due to the termination of non-revenue generating subscribers, which
were mainly SIM-swappers and “trade scoopers” who were subsequently churned out after
their second expiry.
Of the total full year disconnections of 8.8 million, approximately 58% or 5.1 million of the
terminated subscribers were related to SIM swap activities or non-revenue generating
subscribers. During the fourth quarter, 51% of Globe Handyphone Prepaid churn was
contributed by the expiry of these non-revenue generating SIMs. Of the 51%, 31% came
from disconnections related to previous SIM-swap offers while the remaining 69% came
from trade scooping activities. Another 4% was related to the immediate disconnection of
ISR SIMs captured in our fraud monitoring system. As such, only 45% of the total churn for
the quarter related to “normal churn.” Normal monthly churn rate for Globe Handyphone
Prepaid was at 3.7%. Based on the Company’s churn policy, the last of the non-revenue
SIMs were churned during the fourth quarter of 2005, after the lapse of their second expiry
period.
Gross and net ARPUs for Globe Handyphone Prepaid decreased by 10% and 12%
respectively, despite higher voice and data usage during the last quarter of 2005, due to flat
revenues in the earlier quarters as a result of competition and price-discounting promotions
launched during the year. The increased traffic volume during the fourth quarter can be
attributed to the Text NonStop offer, P10 for a 3 minute call, Budget IDD Rates and the 10
centavos/second call promotions, as well as traditional heavy usage with the year-end
holidays.
SAC dropped by 7% to P248 in 2005 from P267 the previous year due to lower gross
subscriber acquisitions and SIM pack subsidies. In 2005, handset subsidies comprised 40%
of total SAC while advertising and promotions contributed 57% and commissions made up
the balance of 3% compared to 63%, 35% and 2%, respectively, in 2004.
87
TM
2005 was a banner year for TM as it posted gains on all key operating metrics – gross and net
acquisitions, churn rates, ARPUs, and SACs.
Cumulative TM subscribers reached 3.1 million by the end of 2005 after a 57% increase in
gross additions and an outstanding 618% improvement in net additions compared to 2004.
The relaunch of TM in January 2005, supported by competitive value promotions resulted in
significant acquisitions for the brand.
The average monthly churn rate for TM registered at an improved rate of 9.5% for the full
year 2005 against the 12.7% in 2004. TM’s churn in 2005 was affected by Globe-initiated
terminations of TM SIMs found engaging in International Simple Resale (ISR) activities
which are illegal in the Philippines. For the full year 2005, terminations due to ISR activities
accounted for 29% of total year-to-date churn. Excluding terminations due to ISR activities,
the average monthly churn rate for the full year 2005 would only be at 6.7%. Because of
early detection of this illegal usage and the immediate SIM disconnection, the impact to the
Company’s financial performance has been minimized. (See related discussion in ILD
section)
Gross and net TM ARPU in 2005 improved by 16% and 17% year-on-year compared to
2004. The increased ARPU was driven by higher voice and data usage by TM subscribers on
account of the Todo Tawag 15/15 (P15 for a 15 minute call), 10 centavos/second call and
Todo Text promotions.
SAC dropped by 40% to P90 in 2005 from P151 the previous year due to higher gross
subscriber acquisitions despite increased SIM pack subsidies. In 2005, handset subsidies
comprised 38% of total SAC while advertising and promotions contributed 60% and
commissions made up the balance of 2% compared to 77%, 20% and 3%, respectively, in
2004.
88
G-Cash
With G-Cash celebrating its first year anniversary, it continues to grow and establish
presence in the mobile commerce industry. From G-Cash’s initial thrust towards moneytransfers, purchase of goods and services from retail outlets, and sending and receiving
domestic and international remittances, the service, over a span of one year, created a whole
new series of creative possibilities in the field of mobile commerce. Today, G-Cash allows
Globe and TM subscribers to pay for the following using their mobile phone’s text
messaging service:
•
•
•
•
•
•
•
utility bills
interest and amortization of loans
insurance premiums
donations to various institutions and organizations
sales commissions
school tuition fees
micro tax payments (for annual business registration)
As of 31 December 2005, there were over 1.2 million registered users of G-Cash generating
an average of almost P3 million in total daily transactions from over 500 partner
establishments with over 4,500 outlets nationwide including more than 200 international
partner outlets in 14 countries.
89
B. Wireline Business
In order to meet focused customer demands and grow specific market segment opportunities,
Innove organized its businesses into two main groups – Residential & Business and
Corporate. The Residential & Business group(now renamed as the Consumer Broadband
Group), which operates under the Globelines brand, handles the consumer and the small and
medium business (SME) segments. On the other hand, the Corporate group, which operates
under the GlobeQUEST brand, is in charge of enterprises, wholesalers, resellers and our
channel partners.
As Innove is adopting “customer-centric” market approach, which allows it to develop
products based on specific business requirements and to better serve the varied needs of its
customers, it reorganized itself into four (4) focused groups to cover the fixed line and
wireless business segments – Consumer Broadband, SME Business group and two (2) new
segments under the Enterprise Business Group or EBG. The EBG was developed in response
to the corporate customers’ changing needs and preferences for integrated mobile and fixed
line communications solutions. The EBG will consist of EBG Globe Solutions, which is the
corporate wireless business group of Globe, and EBG GlobeQUEST, the corporate wireline
group of Innove.
For the full year 2005, our wireline business recorded a double-digit growth of 14% in total
wireline net operating revenues. As shown in the table below, the overall 14% growth is
attributable to growth experienced in both our voice and data segments, as well, as in our
non-service revenues. Our voice segment grew by 11% year-on-year to register P4.4 billion
in net service revenues in 2005 while our data segment posted a 16% year-on-year growth in
net service revenues to reach P2.0 billion at the end of the year.
For the full year ended (in millions of pesos)
Service
Voice 1 ……………………………………………
Data 2……………………………………………
31 December
2005
6,416
4,396
2,020
Innove
31 December
2004
5,687
3,945
1,742
YoY change
(%)
13%
11%
16%
Non-Service Revenues3………………………………
Wireline Net Operating Revenues...…………………
103
6,519
19
5,706
442%
14%
1
2
3
Wireline voice net service revenues consist of the following:
a) Monthly service fees including CERA;
b) Revenues from local, international and national long distance calls made by postpaid, prepaid wireline subscribers
and payphone customers, net of (i) prepaid and payphone call card discounts (ii) bonus credits and (iii) marketing
promotions credited to subscriber billings;
c) Revenues from inbound local, international and national long distance calls from other carriers terminating on our
network; and
d) Installation charges and other one-time fees associated with the establishment of the service.
Revenues from (a) and (b) are net of any interconnection or settlement payments to domestic and international carriers.
Wireline data net service revenues consist of revenues from:
a)
Monthly service fees from International Private Lease (IPL) and domestic lease lines;
b)
Monthly service fees on Internet services and charges in excess of free allocations;
c)
One-time connection charges associated with the establishment of service; and
d) Revenues from value-added services.
Wireline non-service revenues consist principally of sales of handsets and accessories.
90
Wireline Voice
Innove
31 December 31 December
2005
2004
For the full year ended (in millions of pesos)
Voice
Net Service Revenues ………………………………………
Net Non Service Revenues …………………………………
Total Voice Operating Revenues………………………………
4,396
12
4,408
YoY change
(%)
3,945
19
3,964
11%
-37%
11%
The 11% year-on-year growth in our wireline voice segment is mainly attributable to the
11% growth in net service revenues. The key drivers behind this double-digit growth in our
voice segment are as follows:
KEY DRIVERS
Q4
Q3
2005
2005
Cumulative Voice Subscribers Net (End of period)……………...................
Consumer Broadband Subscribers –
Net (End of period) 1 …………………..
QoQ 31 Dec
Change 2005
(%)
-
31 Dec
2004
YoY
Change
(%)
323,094
12%
362,143
361,998
22,479
18,255
23% 22,479
7,780
189%
Average Revenue Per Subscriber (ARPU)
Gross ARPU…………………………….
Net ARPU……………………………….
1,182
1,048
1,193
1,056
-1%
-1%
1,233
1,087
1,272
1,112
-3%
-2%
Average Monthly Churn Rate ..………….
2.2%
1.6%
1.7%
1.5%
362,143
_________________________________
1
Broadband subscriptions by existing fixed line subscribers.
As of 31 December 2005, Innove increased its total wireline voice subscribers by 12% to
362,143 from 323,094 in 2004. For 2005 and 2004, 62% of total subscribers were postpaid
while 38% were prepaid while business/residential mix was 18:82 for both years.
With our growing broadband business, consumer broadband subscribers registered a
remarkable year-on-year increase of 189% to 22,479 by the end of 2005. This is attributable
to the various marketing promotions and services launched during the third and fourth
quarters of 2005 such as the GLBB PC Bundle Promo and the Broadband Sales Blitzes.
Traffic volume also increased by 36% year-on-year to 777 million minutes in 2005 from 571
million minutes in 2004 generated from both the postpaid and prepaid segments, due to the
increased subscriber base, as well, as the success of promotions launched to increase both
domestic and international usage.
The increase in subscribers, as well, as the higher traffic volume have contributed to the 11%
increase in total net service revenues in 2005. However, due to a drop in collection rates, net
and gross ARPUs have registered marginal decreases as shown in the table.
91
Churn rates for 2005 have also slightly increased year-on-year to 1.7% from 1.5%, driven
mostly by higher disconnections in the postpaid service due to company-initiated clean up of
delinquent accounts.
Wireline Data
Innove
31
December
2005
For the full year ended (in millions of pesos)
31 December
2004
YoY change
(%)
Data
International …..………………………………………
Domestic …… ………………………………………
Others 1 ………………………………………………
Net Non Service Revenues……………………………
Total Data Operating Revenues………………………………
679
770
571
92
2,112
670
644
428
0
1,742
1%
20%
33%
100%
21%
____________________________________________________________________________________________
2
Includes revenues from value-added services and corporate internet services.
On the wireline data front, total operating revenues grew by a remarkable 21% to P2,112
million at year end from P1,742 million in 2004. This strong revenue growth was driven
mostly by DL (Domestic Lease Lines), IPL (International Private Lease Lines) and corporate
internet services in terms of better bandwidth and circuit indicators.
OTHER GLOBE GROUP REVENUES
International Long Distance (ILD) Services
31 December
2005
13,526
For the full year ended
Total ILD Revenues (in millions of pesos) ………………
Total ILD Revenues as a percentage of net service
revenues………………………………………………..
31 December
2004
12,622
YoY change
(%)
7%
25%
24%
Total ILD Minutes (in million minutes) 1………………..
1,469
1,271
16%
Inbound……………………………………………………
Outbound.…………………………………………………
1,251
218
1,082
189
16%
15%
5.7
5.7
ILD Inbound / Outbound Ratio (x) …………………
________________________________________________________________________________________________
1
ILD minutes originating from and terminating to Globe and Innove networks.
On a consolidated basis, ILD revenues from the Wireless and Wireline services increased by
7% to P
=13,526 million in 2005 compared to =
P12,622 million in 2004. The increase was
mostly driven by higher traffic during the second half of 2005 due to the strong holiday
demand and encouraged by various IDD promotions from the wireless (Globe Budget IDD)
and wireline (Globelines Lowest IDD Rates) groups.
Both Globe and Innove offer ILD services which covers international calls between the
Philippines and over 200 countries. This service generates revenues from both inbound and
outbound international call traffic with pricing based on agreed international termination
rates for inbound traffic revenues and NTC-approved ILD rates for outbound traffic
revenues.
92
On 1 June 2005, Globe started its IDD CelebRATE! promo aimed at heavy IDD users among
its wireless postpaid subscribers. For selected destinations, the promo offered an IDD rate of
US$0.20 per minute after the first 4 minutes, with the first 4 minutes to be charged the
prevailing rate of US$0.40 per minute. This promotion subsequently included Globe
Handyphone prepaid subscribers and ended on 27 September 2005. On 28 September 2005,
the Globe Budget IDD promotion was launched to all wireless subscribers, with a flat rate
offering of US$0.20 per minute, starting on the first minute, for IDD calls to 10 destinations
namely, US, Canada, China, Malaysia, Hong Kong, Singapore, Thailand, South Korea,
Taiwan and Australia. Due to the positive response to this promo, this was subsequently
extended to the fourth quarter of 2005 up to February 2006 and now include two additional
IDD destinations, United Kingdom and Kuwait.
On 14 September 2005, Globelines launched its Lowest IDD rates promotion for its
Globelines subscribers, Globe1 card users and Globelines Broadband subscribers. Globelines
postpaid subscribers were charged US$0.20 per minute for IDD calls to selected countries
while, starting November 2005, Globe1 card users could make IDD calls for P4.50 per
minute to 10 destinations from Globelines postpaid and prepaid lines including payphones
nationwide.
To ensure that the company fully benefits from the increased ILD volume, we continue to
actively monitor ISR operations passing through our networks. An ISR operation is a
method of terminating inbound international calls without passing through the normal
International Gateway Facility (IGF). ISR operations involve routing inbound international
calls through private leased lines or IP data lines, and then terminated to the called party
through a local cellular or fixed line number. As the ISR operators terminate an inbound IDD
call as a local call, they are able to offer lower rates to foreign carriers than current
termination rates. If ISR operations are unchecked, Globe will not be able to realize the full
inbound international revenue and instead earn only from local or national calls or access
charges from other carriers and normal domestic termination charges for local or NDD calls,
which are lower than international termination rates.
To reduce ISR activities, Globe initiated increased detection and blocking procedures
including closer coordination of detected ISR lines with other industry players. The
Company also implemented arrangements with international carriers to reduce arbitrage
opportunities for ISR operators. The Company further tightened its fraud and risk evaluation
process for corporate and individual accounts and is implementing legal, commercial and
technical solutions to the ISR concern, such as the immediate termination of SIMs detected
as being used for ISR operations and the suspension of AutoloadMax retailers identified as
having significant loading transactions to ISR SIMs. The Company has also coordinated with
the NTC and other government agencies in addressing this concern. Because of these
ongoing efforts, ISR losses have significantly decreased compared to last year.
Interconnection
Domestically, the Globe Group pays interconnection charges to other carriers for calls
originating from its network terminating to other carriers’ networks, and hauling charges for
calls that pass through Globe’s network terminating in another network.
Internationally, the Globe Group also incurs payouts for outbound international calls. These
charges are based on a negotiated price per minute.
93
The interconnection expenses paid as a percentage of gross service revenues for the full year
2005 registered at 19% from 20% for the same period in 2004.
The Globe Group also collects termination fees from local and foreign carriers whose calls
terminate in Globe Group’s network. Domestic calls terminating to wireless networks are
charged a termination rate of P4.00 per minute (from P4.50 per minute in 2003) while calls
terminating to wireline voice networks are charged a termination rate of P3.00 per minute
(from P2.50 per minute in 2003).
GROUP OPERATING EXPENSES
For the full year 2005, the Globe Group’s operating expenses increased by 29% to P
=20,751
million from P
=16,039 million in 2004 as Globe continued its marketing promotions and
shouldered increased network operating costs related to its aggressive expansion in the past
year. Of the total operating expenses of P20,751 million in 2005, network support or
network-related expenses accounted for 43%, marketing contributed 23%, business support
added 29% and corporate-related expenses made up the remaining balance of 5%.
Cost of sales……………………………………………………..
Selling, Advertising and Promotions ……………………………
Staff Costs ………………………………………………………
Utilities, Supplies & Other Administrative Expenses……………
Rent…………………………………………………………………
Repairs and Maintenance……………………………………………
Provisions (Reversal of Allowance) for:
Doubtful Accounts …………………………………………
Inventory Losses, Obsolescence and Market Decline ………..
Losses on Property and Equipment and Other Probable losses
Losses on retirement of property and equipment…………………
Services and Others………………………………………………
Professional Fees & Other Contracted Services……………
Insurance and Security Services………………………………
Taxes and Licenses…………………………………………
Others ………………………………………………………
Operating Expenses………………………………………………
Depreciation and Amortization ……………….…………………
Financing…………………………………………………………
Equity in Net Losses of An Associate & Joint Venture………
Interest Income……………………………………………………
Others – net………………………………………………………
Costs and Expenses………………………………………………
1
31 December
YoY change
2004
(%)
(As restated) 1
6,025
6,675
-10%
31 December
2005
For the full year ended (in millions of pesos)
4,697
3,519
1,982
1,840
1,877
3,753
2,874
1,715
1,420
1,325
25%
22%
16%
30%
42%
616
80
179
734
1,052
72
(489)
-
-41%
11%
-137%
100%
1,496
1,478
832
1,421
20,751
15,734
3,141
13
(520)
(578)
44,566
1,295
1,035
616
1,371
16,039
14,706
6,327
(454)
(407)
42,886
16%
43%
35%
4%
29%
7%
-50%
100%
15%
42%
4%
Prior years’ figures were restated as a result of various PAS adoptions.
Selling, Advertising and Promotions
Selling, Advertising and Promotions expenses increased by 25% to P4,697 million in 2005.
This is mostly due to increased marketing and promotional activities related to the
acquisition and implementation of usage and loyalty campaigns for subscribers, including
promotion activities related to the re-launch of the TM brand.
94
Staff Costs
31 December
2005
For the full year ended
No. of Regular Employees …………………………………
4,987
Globe Group
31
December
YoY change
2004
(%)
4,956
1%
Staff costs grew by 22% to P3,519 million on account of increases in overtime costs and
merit adjustments and the full-year impact of employees hired in 2004 (a total of 770
employees were hired in 2004).
Utilities, Supplies and Other Administrative Expenses
Utilities, Supplies and Other Administrative expenses registered a 16% year-on-year increase
to P1,982 million mainly due to higher power and utilities charges to support the Globe
Group’s expanded network facilities in 2005.
Rent Expenses
Rent expenses increased by 30% to =
P1,840 million in 2005 due to increases in charges for
cell sites, warehouse and interconnection facilities in support of the Globe Group’s continued
network expansion.
Repairs and Maintenance Expenses
Repairs and Maintenance expenses likewise increased by 42% to P1,877 million in 2005 due
to additional technical service agreements necessary for the repair and maintenance of the
Globe Group’s expanded network facilities and equipment.
Losses on Retirement of Property and Equipment
Losses on retirement of property and equipment on certain fixed assets of P734 million was
recognized as a result of impairment reviews and reconciliation exercise undertaken based on
recent count activity. (Please refer to the notes in the attached unaudited consolidated
financial statements).
Provisions
Provisions for doubtful accounts for trade receivables decreased by 44% to P563 million for
the full year 2005 compared to P1,011 million in 2004 due to credit handling and system
improvements made to address subscriber delinquency issues. Provisions for doubtful
accounts for traffic receivables registered at P53 million in 2005 compared to P41 million in
2004. As a result, total provisions for doubtful accounts, including provisions for non-trade
accounts, amounted to =
P616 million for the full year 2005 against =
P1,052 million in 2004.
For the full year ended
Net Receivable Days …………………………………………
95
31
December
2005
60
Globe Group
31
December
YoY change
2004
(%)
52
15%
Net subscriber receivable days was 60 for 2005 compared to 52 for 2004. The 15% year-onyear increase was due to higher receivables from the wireline business.
On inventories and supplies, Globe recognized provisions for inventory losses, obsolescence
and market decline of =
P80 million in 2005 compared to =
P72 million in 2004.
The Globe Group also recognized net provisions for losses on property and equipment and
other probable losses amounting to P179 million for the full year 2005 compared to P489
million net reversal in 2004. Net reversal of provision in 2004 resulted mainly from
favorable developments that led to the non-realization of charges previously provided for.
Services and Others
Services and Others increased by 21% to P5,227 million as a result of increased marketing
and network-related expenses in 2005. The Professional fees and Other Contracted Services
expenses also increased by 16% to P1,496 million due to the higher charges on contracted
services incurred by the marketing and distribution groups for various subscriber acquisition
activities (including related freight, courier and clerical services and consultancy fees). Taxes
and licenses increased by 35% to P832 million due to higher NTC spectrum and supervision
fees and real property taxes related to the increased number of microwave radio facilities and
cellsites. Meanwhile, Insurance and Security Services expenses increased by 43% to P1,478
million brought about by higher insurance premiums and security costs due to the larger
number of cellsites and network facilities.
Therefore, with the minimal 6% growth in operating revenues and the 29% year-on-year
increase in total operating expenses, consolidated EBITDA for the full year 2005 decreased
by 3% to =
P31,972 million compared to =
P32,895 million in 2004, translating to an EBITDA
margin of 58% compared to 62% from last year.
Depreciation and Amortization
Depreciation and amortization on a consolidated basis increased by 7% to =
P15,734 million in
2005 compared to =
P14,706 million in 2004. This increase reflected the additional
depreciation charges related to various telecommunications equipment placed in service
during the period as total cellsites increased by 1,423 base stations to 5,159 in 2005.
Depreciation is computed using the straight-line method over the estimated useful life (EUL)
of the assets, where the weighted EUL of all depreciable assets is set at 9.76 years.
Therefore, as a result of the overall increase in depreciation and amortization charges,
consolidated EBIT or earnings before interest, other expenses (income) and taxes decreased
by 11% year-on-year to P
=16,238 million in 2005 compared to =
P18,189 million in 2004.
96
Other Income Statement Items
Details of Consolidated Other (Income)/Expenses for the full year 2005 and 2004 are:
For the full year ended (in millions of pesos)
31 December
2005
Financing Costs – net
Interest Expense ……………………………
Globe Group
31 December
2004
1
(as Restated)
YoY change
(%)
4,658
4,369
7%
Loss on derivative instruments – net……………
Swap costs and other financing costs……………
Foreign Exchange loss(gain) – net………………
104
682
(2,303)
3,141
1,744
214
6,327
100%
-61%
1,176%
-50%
Interest Income ……………………………………
Equity in Net Loss of an associate and joint venture
Others – net…………………………………………
Total Other (Income) /Expenses…………………
(520)
13
(578)
2,056
(454)
0
(407)
5,466
15%
100%
42%
-62%
______________________________________________________________________
1
Prior years’ figures were restated as a result of various PAS adoptions.
Globe registered a 61% decrease in swap costs and other financing charges to P682 million
in 2005 from P1,744 million in 2004. Total swap costs accruing on long term currency and
interest rate swap contracts amounted to P678 million in 2005, a 56% decrease from the
P1,056 million in 2004. Swap costs and other financing costs for 2004 also included bond
redemption costs of 2009 Senior Notes amounting to P693 million. (See related discussion in
Foreign Exchange and Interest Rate Exposure section).
For the full year 2005, the Globe Group registered net foreign exchange gains of P2,303
million compared to a net foreign exchange loss of P214 million last year due to the Globe
Group being in a net dollar liabilities position and the appreciation of the peso against the
US$ from P56.341 to P53.062 at the end of 2005. Also in 2005, the Globe Group adopted
PAS 21 which prohibits capitalization of forex gains and losses. (See related discussion
under Foreign Exchange and Interest Rate Exposure section) Loss on derivatives instrument
arose from the mark-to-market valuation of Globe Group’s various financial instruments.
(See related discussion in Foreign Exchange and Interest Rate Exposure section)
The consolidated provision for current and deferred income tax for the Globe Group
increased by 191% to P3,867 million in 2005 from P1,327 million in 2004, mainly as a result
of the expiry of the income tax holiday incentive of Globe on 31 March 2005 and Innove’s
shift to a taxable income position subject to the regular corporate tax rates in 2005. As a
result, our consolidated effective income tax rate was 27% for 2005 compared to 10% in
2004.
Our deferred tax assets and liabilities as of 31 December 2005 were computed using the tax
rate of 30% to 35% as per Republic Act (RA) 9337 which became effective on 01 November
2005.
Therefore, resulting from the movements in our total operating revenues vis-à-vis our total
operating expenses including depreciation and amortization and other income statement
items, the Globe Group’s consolidated net income decreased by 9% year-on-year to =
P10,315
million in 2005 from =
P11,396 million in 2004. Excluding foreign exchange and mark-to-
97
market gains and losses, net income after tax would have been =
P8,552 million, down 26%
from comparable 2004 level of =
P11,573 million.
Accordingly, consolidated basic earnings per common share were P76.74 and P80.92 (as
restated) and consolidated diluted earnings per common share were P76.60 and P80.78 (as
restated) for the full year 2005 and 2004, respectively.
Liquidity and Capital Resources
Globe Group
31 December
31 December
2004
2005
(as
Restated)1
As of and For the full year ended (in millions of pesos)
Balance Sheet Data
Total Assets …………………………………………………
Total Debt ……………………………………………………
Total Stockholders’ Equity …………………………………
125,102
49,693
51,619
129,704
52,218
54,507
Financial Ratios (x)
Current Ratio…………………………………………………
Total Debt to EBITDA ……………………………………
0.90
1.55
0.87
1.59
6.79
0.96
7.40
0.96
0.73
0.70
0.49
0.49
0.34
0.28
Interest Cover (Gross) …………………………………………
Debt to Equity (Gross) …………………………………………
Debt to Equity (Net) 2…………………………………………
Total Debt to Total Capitalization (Book) ……………………
Total Debt to Total Capitalization (Market) ...…………………
1
Prior figures were restated as a result of various PAS adoptions.
2
Net debt is calculated by subtracting cash, cash equivalents and short term investments from total debt.
YoY change
(%)
-4%
-5%
-5%
Globe Group’s consolidated assets as of 31 December 2005 amounted to =
P125,102 million
compared to =
P129,704 million as of 31 December 2004.
As of 31 December 2005 and 2004, current ratio on a consolidated basis was 0.90:1 and
0.87:1, respectively. Consolidated cash, cash equivalents and short term investments was at P
=
12,165 million at the end of 2005, 15% lower than the P14,303 million in 2004 due to
dividend payments and the buyback of shares in March 2005. Gross debt to equity ratio as of
31 December 2005 was 0.96:1 on a consolidated basis and remains well within the 2:1 debt
to equity limit dictated by certain debt covenants. Net debt to equity ratio was at 0.73:1 as of
31 December 2005.
The financial tests under Globe’s loan agreements include compliance with the following
ratios:
•
•
•
•
Total debt to equity not exceeding 2:1;
Total debt to EBITDA not exceeding 3:1;
Debt service coverage1 exceeding 1.3 times (except for refinancing of the 2009
bond which the lenders consented to exclude from the computation);
Secured debt ratio2 not exceeding 0.2 times.
98
1
Debt service coverage ratio is defined as the ratio of EBITDA to required debt service, where debt service includes
subordinated debt but exclude shareholder loans.
2
Secured debt ratio is defined as the ratio of the total amount for the period of all present consolidated obligations for payment,
whether actual or contingent and as defined in the loan agreement to the total amount of consolidated debt.
(i)
Consolidated Net Cash Flows
Globe Group
31 December
31 December
2004
YoY change
2005
(as restated)
(%)
28,841
26,927
7%
For the full year ended (in millions of pesos)
Net Cash from Operating Activities …………………
Consolidated net cash flow from operations (excluding capex) amounted to =
P28,841 million
for the period ended 31 December 2005, a 7% increase from =
P26,927 million in 2004.
31
For the full year ended (in millions of pesos)
December
2005
Capital Expenditures (Cash) ………………………………. …….
15,950
Increase (Decrease) in Liabilities related to Acquisition of PPE … (1,164)
Total Capital Expenditures1 ……………………………………
14,786
Total Capital Expenditures / Service Revenues (%)…………
2
27%
Globe Group
31 December
2004
20,283
936
21,219
YoY
change
(%)
-21%
-224%
-30%
40%
Consolidated capital expenditures include property and equipment, acquired as of report date regardless of whether
payment has been made or not, but excludes capitalized costs during the period. (See related discussion in Liquidity and
Capital Resources Section)
Consolidated net cash used in investing activities amounted to =
P15,832 million for the full
year 2005, a 10% decrease from the =
P17,679 million in 2004. Consolidated capital
expenditures amounted to =
P14,786 million in 2005, a decrease of 30% from the previous
year. For 2006, Globe has earmarked approximately US$250 million for capital expenditures
to expand its wireless network, and upgrade the necessary facilities for 3G and increase
capacity for areas where traffic is expected to surge. The 2006 capital expenditure program
will be funded through internally-generated cash and debt financing.
Consolidated net cash used in financing activities for the full year 2005 amounted to P
=15,680
million, an 80% increase compared to =
P8,707 million in 2004 due to Globe’s reacquisition of
its common shares via a tender offer and higher dividend payments in 2005. Consolidated
total debt as of 31 December 2005 amounted to =
P49,693 million, a 5% decrease from the =
P
52,218 million in 2004 as Globe prepaid US$41 million of its long term loans in addition to
US$161 million of maturing loans in 2005. Loan repayments of Globe for the full year 2005
amounted to =
P12,527 million (US$236 million) compared to the =
P18,874 million (US$335
million) paid in 2004.
As of 31 December 2005, gross debt dropped to =
P50 billion, 65% of which are denominated
in US$. Of the 65%, 29% has been swapped to pesos. As a result, the amount of US$ debt
swapped into pesos and peso-denominated debt accounts for approximately 53% of
consolidated loans as of 31 December 2005.
99
Below is the schedule of debt maturities for Globe for the years stated below based on total
outstanding debt as of 31 December 2005:
Year Due
Principal
(US$
millions)
2006 ………………………………………………………………………………………………
2007 ………………………………………………………………………………………………
2008……………………………………………………………………………………………….
2009……………………………………………………………………………………………….
2010 through 2012 ……………………………………………………………………………….
Total
148
130
95
148
415
936
Stockholders’ equity was =
P51,619 million as of 31 December 2005 resulting in a 5% decline
from the P
=54,507 million in 2004. As a result of the adoption of new accounting standards,
the Globe Group took a one-time charge to its beginning retained earnings amounting to
P2,672 million representing the net of tax effect of various changes in accounting standards
discussed in the attached notes to the financial statements. A substantial portion of this onetime charge is due to the adoption of PAS 21 which no longer allows the capitalization of
foreign exchange differentials related to the acquisition of property and equipment.
On 1 February 2005, the Board of Directors (BOD) of Globe Telecom approved an offer to
purchase one share for every fifteen shares of the outstanding common stock of Globe from
all shareholders of record as of 10 February 2005, at a price of P950 per share. The approval
allowed Globe to purchase up to 9 million shares representing 6.7% of its outstanding
common shares. Each shareholder was entitled to tender a proportionate number of shares
owned at the 1:15 ratio, referred to as the Tender Ratio, for purchase by Globe upon and
subject to the terms and conditions of the tender offer. On 3 February 2005, Globe
commenced the tender offer which expired on 3 March 2005 after a one-day extension. Also,
on 1 February 2005, the BOD approved the retirement of the purchased shares and the
existing 12 million treasury shares acquired in 2003 from DeTeAsia.
On 8 March 2005, Globe announced that it had accepted 8 million common shares that were
tendered by the stockholders. The accepted shares represented 86% of shares eligible for
tender. The value of the tendered shares totaled P7.66 billion which were eventually crossed
at the exchange on 15 March 2005 and payment made on 16 March 2005. (Please refer to the
shareholder structure as of 31 December 2005)
As of 31 December 2005, Globe’s capital stock consists of:
1. Preferred stock Series “A” at a par value of P5 per share of which 159 million shares
are outstanding out of a total authorized of 250 million shares.
Preferred stock “Series A” has the following features:
(a) Convertible to one common share after 10 years from issue date at not less than
the prevailing market price of the common stock less the par value of the
preferred shares;
(b) Cumulative and non-participating;
(c) Floating rate dividend (set at MART 1 plus 2% average for a 12-month period);
(d) Issued at =
P5 par;
(e) With voting rights;
(f) Globe Telecom has the right to redeem the preferred shares at par plus accrued
100
dividends at any time after 5 years from date of issuance in 2001; and
(g) Preferences as to dividend in the event of liquidation.
On December 13, 2005, the BOD approved the declaration of cash dividends to
preferred shareholders “series A” as of record date December 31, 2005 amounting to
=68.33 million.
P
On December 15, 2004, the BOD approved the declaration of cash dividends to
preferred shareholders “series A” as of record date December 31, 2004 amounting to
=75.13 million, which were paid on March 15, 2005.
P
In 2003, the BOD approved the declaration of cash dividends to preferred
shareholders “series A” as of record date December 31, 2003 amounting to =
P67.96
million, which were paid on September 28, 2004.
2. Common shares at par value of P
=50 per share of which 152 million shares have been
issued and 132 million are outstanding out of a total authorized of 200 million
shares. In the last annual stockholders meeting on 4 April 2005, Globe’s
stockholders authorized the cancellation of its treasury shares and the reduction in
the authorized capital stock of the Company. On October 28, 2005, the Securities
and Exchange Commission approved the reduction in capital stock. After the
reduction, total authorized common shares are now 179,934,373, of which
131,900,430 are outstanding.
On 1 February 2005, the BOD declared the first semi-annual cash dividend in 2005
of P20 per common share with a record date of 18 February 2005 with payment
made on 15 March 2005. On 2 August 2005, the Board of Directors declared the
second semi-annual cash dividend for 2005 amounting to P20 per common share
outstanding as of record date 19 August 2005, and payment was made on 14
September 2005. This is consistent with our cash dividend policy of distributing 50%
of prior year’s net income and represents an increase of 11% over the previous year.
On 7 February 2006, the BOD approved the declaration of first semi-annual cash
dividends in 2006 of P20 per share to common stockholders of record as of 21
February 2006 payable on 15 March 2006.
Consolidated Return on Average Equity (ROE) for the year ended 31 December 2005 stood
at 19% compared to 22% for the same period last year.
On 1 July 2004, Globe Telecom granted additional stock options to key executives and
senior management personnel of the Globe Group under the Executive Stock Option Plan 2.
It required the grantees to pay a nonrefundable option purchase price of P1,000. The
agreement provides for an exercise price of P840.75 per share. 50% of the options become
exercisable from 1 July 2006 to 30 June 2014, while the remaining 50% become exercisable
from 1 July 2007 to 30 June 2014. As of 31 December 2005, outstanding stock options
granted to key executives and senior management personnel totaled 1,281,350. In order to
avail of the privilege, the grantees must remain with Globe Telecom or its affiliates from
grant date up to the beginning of the exercise period of the corresponding shares.
101
Foreign Exchange and Interest Rate Exposure
Starting 1 January 2005, the Globe Group adopted PAS 21, The Effects of Changes in
Foreign Exchange Rates, which eliminates the capitalization of foreign exchange
differentials related to the acquisition of property and equipment. Previously, the foreign
currency-denominated liabilities used to finance the acquisition and installation of Globe and
Innove’s property and equipment were capitalized. These foreign exchange differentials were
added to or deducted from the cost of the appropriate property and equipment accounts.
The adoption of PAS 21 decreased our beginning retained earnings by P2,444 million.
(Please see related discussion in the attached consolidated financial statements)
The Philippine Peso closed at P
=53.062 as of 31 December 2005 from =
P56.341 as of the same
date last year.
The foreign exchange differentials arising from revaluation of foreign currency-denominated
accounts are charged/credited to against current operations. Globe Group’s net foreign
exchange gains/(loss) credited/(charged) to against current operations amounted to P2,303
million gain and P214 million loss for the full year 2005 and 2004, respectively.
To mitigate foreign exchange risk, the Globe Group enters into short-term foreign currency
forwards and long-term foreign currency swap contracts. Short-term forward contracts are
used to manage our foreign exchange exposure related to foreign currency-denominated
monetary assets and liabilities. For certain long term foreign currency denominated loans, we
enter into long term foreign currency and interest rate swap contracts to manage its foreign
exchange and interest rate exposures.
As of 31 December 2005, our Company had US$175 million in outstanding foreign currency
swap agreements, some of which have option features. We also sold covered currency
options with total notional amount of US$28 million with maturities ranging from March
2006 to March 2007.
Interest rate swaps are used to manage our interest rate risk in a cost-efficient manner. As of
31 December 2005, our Company had US$56 million in notional amount of US$ swaps
under which it effectively swapped some of its floating rate US$ denominated loans into
fixed rate, with semi-annual payment intervals up to August 2007. We also have US$5
million in notional amount of US$ swaps under which it effectively swapped 9.75% fixed
coupon of its 2012 Senior Notes to a floating rate based on LIBOR, subject to a cap. The
performance of the swap is linked to the 10-year and 30-year US$ Constant Maturity Swap
Rates. Our Company also has a fixed to floating interest rate swap contract with a notional
amount of P1 billion, in which it effectively swaps a fixed rate Philippine peso denominated
bond into floating rate with quarterly payment intervals up to February 2009.
The Group also has embedded forwards and options in certain financial and non-financial
contracts with total notional amount of US$13 million. Globe’s 2012 Senior Notes also
contain embedded call options which give us the right to prepay the Notes at a certain call
price per year.
Gains on derivative instruments represent the net mark-to-market (MTM) gains(losses) on
derivative instruments. Beginning 2005, MTM values have to be booked as required by PAS
39. The estimated unrealized mark-to-market gain on the outstanding derivatives(including
102
embedded derivatives) of the Globe Group amounted to P817 million based on valuation as
of 31 December 2005 while losses on derivative instruments reflected in the consolidated
income statements amounted to P104 million for the year ended 31 December 2005. (See
related discussion under Results of Operations)
Consolidated foreign currency-linked revenues were 27% and 26% of total net revenues for
the periods ended 31 December 2005 and 2004, respectively. Foreign currency linked
revenues include those that are: (1) billed in foreign currency and settled in foreign currency,
or (2) billed in Pesos at rates linked to a foreign currency tariff and settled in Pesos, or (3)
wireline monthly service fees and the corresponding application of the Currency Exchange
Rate Adjustment or CERA mechanism, under which our Group has the ability to pass the
effects of local currency depreciation to its subscribers. These revenues serve as a natural
hedge to our foreign exchange exposure.
Annex to Management’s Discussion and Analysis (MD&A) for the financial years
ended 2005 and 2004
1. All material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the Company with
unconsolidated entities or other persons created during the reporting period;
Events that will trigger direct or contingent financial obligations that are material
to the Company including any default or acceleration of an obligation.
Adoption of New Accounting Standards
The Globe Group adopted the following Statements of Financial Accounting Standards
(SFAS), which became effective for financial statements covering the period beginning
January 1, 2004. These standards adopted their corresponding International Accounting
Standards (IAS).
• SFAS 12/IAS 12, Income Taxes, prescribes the accounting treatment for current and
deferred income taxes. The standard requires the use of a balance sheet liability
method in accounting for deferred income taxes. The adoption of the new standard has
no significant impact on the Globe Group’s results of operations. For presentation
purposes, the deferred income tax assets and deferred income tax liabilities previously
classified as current assets and current liabilities, respectively, in the consolidated
balance sheets are now reclassified as noncurrent assets and noncurrent liabilities upon
adoption of the new standard. The net deferred income tax assets and deferred income
tax liabilities are presented on a net basis by entity. Also, deferred tax assets on
temporary deductible differences previously covered with valuation allowance are no
longer recognized as deferred tax assets. Additional disclosures required by the new
standard were included in the consolidated financial statements, including the
deductible temporary differences with no deferred income tax assets recognized in the
consolidated financial statements.
• SFAS 17/IAS 17, Leases, prescribes the accounting policies and disclosures to apply to
finance and operating leases. Finance leases are those that transfer to the lessee
substantially all the risks and benefits incidental to ownership of the leased item.
Leases where the lessor retains substantially all the risks and benefits of ownership of
the asset are classified as operating leases. The adoption of the standard resulted in the
recognition of lease payments under operating leases as an expense or income on a
103
straight line basis over the lease term. Previously, lease payments under operating
leases are recognized as an expense based on terms of the lease arrangements. The
adoption of the new standard resulted in a net decrease in consolidated net income by
about P117.37 million or a reduction in basic earnings per share of P0.84 for the year
ended December 31, 2004. The effect was accounted for prospectively because the
impact of adoption on the prior year financial statements is not material. Additional
disclosures required by the new standard were included in the condensed consolidated
financial statements.
New and Revised Accounting Standards to be Effective in 2005
The Accounting Standards Council (ASC) approved the issuance of new and revised
accounting standards which are based on revised IAS and new International Financial
Reporting Standards (IFRS) issued by the International Accounting Standards Board
(IASB). The new standards are effective for annual periods beginning on or after 1
January 2005. The ASC has re-named the standards that it issues to correspond better to
the issuances of IASB. Philippine Accounting Standards (PAS) correspond to adopted
IAS while Philippine Financial Reporting Standards (PFRS) correspond to the adopted
IFRS. Previously, standards issued by the ASC were designated as SFAS.
The Globe Group will adopt beginning 1 January 2005 the following new and revised
accounting standards that are relevant to the Globe Group:
New Accounting Standards
• PAS 19, Employee Benefits, prescribes the accounting and disclosures by employers for
employee benefits (including short-term employee benefits, post-employment benefits,
other long-term employee benefits and termination benefits). For post-employment
benefits classified as defined benefit plans, the standard requires (a) the use of the
projected unit credit method to measure a company’s obligations and costs; (b) a
company to determine the present value of defined benefit obligations and the fair
value if any plan assets with sufficient regularity; (c) the recognition of a specific
portion of net cumulative actuarial gains and losses when the net cumulative amount
exceeds 10% of the greater of the present value of the defined benefit obligation or the
fair value of the plan assets, but also permits the immediate recognition of these
actuarial gains and losses.
The Globe Group is in the process of having its actuarial valuation updated to
determine the impact of adopting PAS 19. The difference between the transitional
liability and the recorded liability will be adjusted against 2005 beginning retained
earnings.
• PAS 21, The Effects of Changes in Foreign Exchange Rates, eliminates the
capitalization of foreign exchange differentials related to the acquisition of property
and equipment. Effective 1 January 2005, any undepreciated balance of the capitalized
foreign exchange differentials, net of deferred income tax, will be adjusted
retroactively to beginning retained earnings, and prior years’ consolidated financial
statements presented will be restated.
As of 31 December 2004, the net cumulative foreign exchange losses included in
property and equipment amounted to P4,538.30 million, net of accumulated
104
depreciation of P3,376.17 million. The adoption of PAS 21 is estimated to decrease the
2005 beginning retained earnings by P2,416.59 million, net of deferred income tax.
• PAS 32, Financial Instruments: Disclosure and Presentation, covers the disclosure and
presentation of all financial instruments. The standard requires more comprehensive
disclosures about a company’s financial instruments, whether recognized or
unrecognized in the financial statements. New disclosure requirements include terms
and conditions of financial instruments used by the company, types of risks associated
with both recognized and unrecognized financial instruments (foreign exchange risk,
price risk, credit risk, liquidity risk, and cash flow risk), fair value information of both
recognized and unrecognized financial assets and financial liabilities, and the
company’s financial risk management policies and objectives. The standard also
requires financial instruments to be classified as debt or equity in accordance with their
substance and not their legal form.
• PAS 39, Financial Instruments: Recognition and Measurement, establishes the
accounting and reporting standards for recognizing and measuring a company’s
financial assets and financial liabilities. The standard requires a financial asset or
financial liability to be recognized initially at fair value. Subsequent to initial
recognition, the company should continue to measure financial assets at their fair
values, except for loans and receivables and held-to-maturity investments, which are to
be measured at cost or amortized cost using the effective interest rate method.
Financial liabilities are subsequently measured at cost or amortized cost, except for
liabilities classified as “at fair value through profit and loss” and derivatives, which are
subsequently to be measured at fair value.
PAS 39 also covers the accounting for derivative instruments. This standard has
expanded the definition of a derivative instrument to include derivatives (and
derivative-like provisions) embedded in non-derivative contracts. Under the standard,
every derivative instrument is recorded in the balance sheet as either an asset or
liability measured at its fair value. Derivatives that do not qualify as hedges are
adjusted to fair value through income. If a derivative is designated and qualify as a
hedge, depending on the nature of the hedging relationship, changes in the fair value of
the derivative are either offset against the changes in fair value of the hedged assets,
liabilities, and firm commitments through earnings, or recognized in stockholders’
equity until the hedged item is recognized in earnings. A company must formally
document, designate and assess the hedge effectiveness of derivative transactions that
receive hedge accounting treatment.
The Globe Group has formed an implementation team that is currently assessing the
operational and financial statement impact of PAS 32 and PAS 39. Among the
implementation activities include the following:
a. review of all financial and non-financial contracts to identify and bifurcate (where
required) embedded derivatives;
b. classification and measurement of financial assets and financial liabilities;
c. evaluation of financial instruments as to whether these should be classified as debt
or equity, depending on their features;
d. review of existing hedge accounting treatment for qualifying hedges and
compliance with hedge accounting criteria, particularly on documentation and
effectiveness testing; and,
105
e. enhancement of existing processes and systems relating to validation of mark-tomarket computations, monitoring of changes in the fair value of financial
instruments, monitoring of effectiveness results as these flow through the
financial statements, and monitoring of the impact of bifurcated embedded
derivatives.
Under PAS 39, all derivative instruments (both freestanding and embedded) as well as
most financial instruments classified under the categories “Financial Instruments at
Fair Value thought Profit or Loss” and “Available for Sale” categories will be
measured at fair value which may add volatility in the consolidated balance sheets and
consolidated statements of income. However, the quantitative impact of adopting PAS
39 will be determined only upon substantial completion of the foregoing
implementation activities. The effect of adopting PAS 32 and PAS 39 in 2005 will be
computed retroactively and adjusted against 2005 beginning retained earnings.
Disclosure requirements, where applicable, will be included in the 2005 financial
statements. Prior years’ financial statements will not be restated as allowed under SEC
rules.
• PAS 40, Investment Property, establishes the accounting and reporting standards for
investment property. Investment property is property (land or a building or both) held
(by the owner or by the lessee under a finance lease) to earn rentals or for capital
appreciation or both, rather than for: (a) use in the production or supply of goods or
supply of goods or services or for administrative purposes; or (b) sale in the ordinary
course of business. Under this standard, Globe Group is permitted to choose either the
fair value model or cost model in the subsequent measurement of a qualifying
investment property. Fair value model requires an investment property to be measured
at fair value with fair value changes recognized directly in the statements of income.
Cost model requires an investment property to be measured at cost less any
accumulated depreciation and impairment losses.
The adoption of PAS 40 is not expected to have a material effect on the consolidated
financial statements. Any identified investment property will be reclassified from
property and equipment and will be carried using the cost model.
• PFRS 2, Share-Based Payments, sets out the measurement principles and accounting
requirements for share-based payment transactions, including transactions with
employees or other parties to be settled in cash, other assets, or equity instruments of
the entity. Under this standard, the Globe Group is required to recognize the cost of
share options granted after 7 November 2002 in the statements of income. The Globe
Group currently does not recognize an expense from share options granted but
discloses required information for such options.
Upon adoption of PFRS 2 in 2005, the estimated cost as of 31 December 2004 of share
options issued to Globe Group employees amounting to P99.04 million, net of deferred
income tax, will be adjusted against 2005 beginning retained earnings with a credit to
additional paid in capital and prior years’ consolidated financial statements presented
will be restated.
• PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, specifies the
accounting for assets held for sale and the presentation and disclosure requirements for
discontinued operations. Under this standard, qualifying non-current assets or disposal
106
groups held for sale shall be carried at fair value less cost to sell if this amount is lower
than its carrying amount less accumulated impairment losses. The company shall not
depreciate (or amortize) non-current assets (or disposal groups) while classified as held
for sale. Any gain or loss on the remeasurement of a non-current asset (or disposal
group) classified as held for sale shall be included in the profit or loss from continuing
operations.
As of 31 December 2004, Globe Group has no qualifying non-current assets held for
sale.
Revised Accounting Standards
• PAS 16, Property, Plant and Equipment, (a) provides additional guidance and
clarification on recognition and measurement of items of property, plant and
equipment; (b) requires the capitalization of the costs of asset dismantling, removal or
restoration as a result of either acquiring or having used the asset for purposes other
than to produce inventories during the period; and (c) requires measurement of an item
of property, plant and equipment acquired in exchange for a non-monetary asset(s), or
a combination of monetary and non-monetary assets, at fair value unless the exchange
transaction lacks commercial substance. Under the previous version of this standard,
an entity measured such an acquired asset at fair value unless the exchanged assets
were similar.
Upon adoption of the revised PAS 16, the estimated accumulated depreciation and
accretion on the additional asset dismantling costs that will be capitalized amounting to
P258.99 million, net of deferred income tax, will be adjusted against 2005 beginning
retained earnings and prior years’ financial statements presented will be restated.
The adoption of the following revised accounting standards is not expected to have a
material effect on the consolidated financial statements. Additional disclosures
required by the revised accounting standards will be included in the consolidated
financial statements.
•
PAS 1, Presentation of Financial Statements, provides a framework within which an
entity assesses how to present fairly the effects of transactions and other events;
provides the base criteria for classifying liabilities as current or noncurrent; prohibits
the presentation of income from operating activities and extraordinary items as
separate line items in the statements of income; and specifies the disclosures about key
sources of estimation, uncertainty and judgments management has made in the process
of applying a company’s accounting policies. It also requires changes in the
presentation of minority interest in the consolidated balance sheets and statements of
income.
•
PAS 2, Inventories, reduces the alternatives for measurement of inventories by
disallowing the use of the last in, first out (LIFO) formula. Moreover, the revised
standard does not permit foreign exchange differences arising directly on the recent
acquisition of inventories invoiced in a foreign currency to be included in the cost of
purchase of inventories.
•
PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, (a) removes
the concept of fundamental error and the allowed alternative to retrospective
107
•
application of voluntary changes in accounting policies and retrospective restatement
to correct prior period errors; (b) updates the previous hierarchy of guidance to which
management refers and whose applicability it considers when selecting accounting
policies in the absence of standards and interpretations that specifically apply; (c)
defines material omission or misstatements; and (d) describes how to apply the concept
of materiality when applying accounting policies and correcting errors.
•
PAS 10, Events After the Balance Sheet Date, provides a limited clarification of the
accounting for dividends declared after the balance sheet date.
•
PAS 17, Leases, provides a limited revision to clarify the classification of a lease of
land and buildings and prohibits expensing of initial direct costs in the financial
statements of the lessors.
•
PAS 24, Related Party Disclosures, provides additional guidance and clarity in the
scope of the standard, the definitions and disclosures for related parties. It also
requires disclosure of the compensation of key management personnel by benefit type.
•
PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in
accounting for investments in subsidiaries in the separate financial statements of a
parent, venturer or investor. Investments in subsidiaries will be accounted for either at
cost or in accordance with PAS 39 in the separate financial statements. Equity method
of accounting will no longer be allowed in the separate financial statements.
•
•
PAS 28, Investments in Associates, reduces alternatives in accounting for associates in
consolidated financial statements and in accounting for investments in the separate
financial statements of an investor. Investments in associates will be accounted for
either at cost or in accordance with PAS 39 in the separate financial statements.
Equity method of accounting will no longer be allowed in the separate financial
statements.
•
PAS 27 and 28 require strict compliance with adoption of uniform accounting policies
and require the parent company/investor to make appropriate adjustments to the
subsidiary’s/associate’s financial statements to conform them to the parent
company’s/investor’s accounting policies for reporting like transactions and other
events in similar circumstances.
•
PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for interests
in joint ventures in consolidated financial statements and in accounting for investments
in the separate financial statements of a venturer. Interests in joint ventures will be
accounted for either at cost or in accordance with PAS 39 in the separate financial
statements. Equity method of accounting will no longer be allowed in the separate
financial statements. However, the equity method is still an allowed alternative in the
consolidated financial statements.
•
PAS 33, Earnings Per Share, prescribes principles for the determination and
presentation of earnings per share for entities with publicly traded shares, entities in
the process of issuing ordinary shares to the public, and any entities that calculate and
disclose earnings per share. The standard also provides additional guidance in
108
computing earnings per share including the effects of mandatorily convertible
instruments and contingently issuable shares, among others.
•
PAS 36, Impairment of Assets, establishes frequency of impairment testing for certain
intangibles and provides additional guidance on the measurement of an asset’s value in
use.
•
PAS 38, Intangible Assets, provides additional clarification on the definition and
recognition of certain intangibles. Moreover, this revised standard requires that an
intangible asset with an indefinite useful life should not be amortized but will be tested
for impairment by comparing its recoverable amount with its carrying amount annually
and whenever there is an indication that the intangible asset may be impaired.
2. Causes of any material change from period to period of FS:
Balance Sheet Accounts Variance Analysis (31 Dec 2005 vs. 31 Dec 2004)
Assets
Current
a) Cash and Cash Equivalents – Decreased by 20% or =
P2.7 billion mainly due to
repurchase of common shares in March 2005.
b) Available-for-sale investments, Held-to-maturity investments and Short-term
investments – Increased by =
P533 million due to purchase of government bonds in
2005
c) Receivables – net – Variance of 24% as compared to last year of the same period
due to higher receivable from various carriers resulting from the reduced ISR
activities (please see related discussion on International Long Distance Services
in the Management’s Analysis and Discussion section) and higher wireline
postpaid (voice and data) subscribers.
d) Inventories and Supplies – Net – Higher acquisition of handsets and phonekits
over units sold to subscribers.
e) Derivative Assets - Increased by =
P1,477 million as a result of PAS 32/39
adoption
f) Prepayment and other current assets – Increased by =
P32 million mainly due to net
set-up of employee receivable accounts
Noncurrent
g) Intangible Assets – Increased by 16% or =
P156 million due to acquisition of
various capitalizable software licenses supporting the expanded network and
subscriber base.
h) Deferred tax assets – Decreased due to realization of deferred tax asset related to
prepaid capacity provisioning and MCIT and impact of various PAS adoptions.
i) Derivative Assets - Increased by 72 million as a result of PAS 32/39 adoption
j) Investments in Associates, Joint Venture and Others – Declined by P
=49 million
mainly due to equity loss take up from Bridge Mobile Alliance (a joint venture).
109
Liabilities
Current
k) Unearned Revenues – Decreased by 25% or =
P431 million due to higher usage of
prepaid airtime load as a result of various promotional programs of Globe and TM
(such as unlimited text and lower call rate).
Noncurrent
l)
Long-term debt – Decreased by 5% due to lower borrowing as compared to last
year (including current portion).
m) Deferred tax liabilities – Increased by 28% primarily due to higher deferred tax
liabilities related unrealized foreign exchange gain and impact of various PAS
adoptions.
n) Derivative Liabilities - Increased by 731 million as a result of PAS 32/39 adoption
(including current portion)
Equity
o) Stock Options – Increase represents additional compensation expense during the
year net of the amount transferred to additional paid-in capital for the exercised
portion of stock options.
p) Cumulative Translation Adjustment – represents fair value changes on derivatives
that qualify as cash flow hedges and available-for-sale investments due to
adoption of PAS 39 (see Note 2 of the Audited Financial Statements - Adoption of
New and Revised Accounting Standards of the attached condensed financial
statements).
q) Paid-up capital – Significant decrease of =
P6 billion pertains to retirement of 20
million treasury shares during the year.
r) Retained Earnings – Decrease of =
P4.8 billion due to retirement of treasury shares
and declaration of dividends to common shareholders.
3. Description of material commitments and general purpose of such commitments.
Material off-balance sheet transactions, arrangements, obligations and other
relationships with unconsolidated entities or other persons created during the
period:
1)
Our lease commitments are as follows:
(a) Operating lease commitments - Globe Group as lessee
Globe Telecom and Innove leases certain premises for some of
telecommunications facilities and equipment and for most of its business centers
and cell sites. The operating lease agreements are for periods ranging from 1 to 10
years from the date of the contracts and are renewable under certain terms and
conditions. The agreements generally require certain amounts of deposit and
advance rentals, which are shown as part of “Other noncurrent assets” account in
the consolidated balance sheets. The Globe Group’s rentals incurred on these
leases (included in “Operating costs and expenses’ account in the consolidated
statements of income) amounted to =
P1,840.00 million, =
P1,420.07 million and =
P
1,604.42 million in 2005, 2004 and 2003, respectively.
110
As of December 31, 2005, the future minimum lease payments under these
operating leases are as follows (in thousand pesos):
Not later than one year
After one year but not more than five years
After five years
a)
b)
c)
d)
=
P765,915
2,267,823
1,029,121
=
P4,062,859
(b) Operating lease commitments - Globe Group as lessor
Globe Telecom and Innove have certain lease agreements on equipment and office
spaces. The operating lease agreements are for periods ranging from 1 to 10 years
from the date of contracts.
Globe Telecom has an equipment lease agreement with C2C for a period of 14
years. Lease income (included under “Others - net” account in the consolidated
statements of income) amounted to =
P194.01 million, =
P200.08 million and =
P196.33
million in 2005, 2004 and 2003, respectively.
The future minimum lease payments receivable under this operating lease are as
follows (in thousand pesos):
Within one year
After one year but not more than five years
After five years
=
P189,388
757,554
994,289
1,941,231
Innove entered into a lease agreement covering the lease of office space at the
Innove IT Plaza to a third party. The lease has a remaining lease term of less than a
year renewable under certain terms and conditions. Total lease income amounted
to about =
P29.01 million, =
P20.84 million and =
P13.19 million in 2005, 2004 and
2003, respectively. As of December 31, 2005, the future minimum lease
receivables under this operating lease amounted to =
P50.15 million which is due
within two years.
(c) Finance lease commitments - Globe Group as lessee
Globe Telecom and Innove have entered into finance lease agreements for various
items of property and equipment. The said leased assets are capitalized and are
depreciated over their estimated useful life of three years, which is also equivalent
to the lease term.
As of December 31, 2005, the consolidated future minimum lease payments under
finance leases and the present value of the net minimum lease payments are as
follows (in thousand pesos):
Within one year
After one year but not more than five years
Total minimum lease payments
Less interest
111
=
P13,058
138
13,196
533
Present value of minimum lease payments
=
P12,663
Current
Noncurrent
12,537
126
=
P12,663
The present value of the minimum lease payments under finance leases is included
under “Other long term liabilities” account in the consolidated balance sheets.
(d) Finance lease commitments - Globe Group as lessor
Innove has existing finance lease arrangements with a lessee for the Innove’s
office equipment. As of December 31, 2005, the gross investment and the present
value of the net minimum lease payments receivable included under “Prepayments
and other current assets” account in the consolidated balance sheets are P
=12.00
million and =
P11.48 million, respectively. No collections were received from the
lessee as of December 31, 2005.
Agreements and Commitments with Other Carriers
Globe Telecom and Innove have existing correspondence agreements with various
foreign administrations and interconnection agreements with local
telecommunications companies for their various services. They also have
international roaming agreements with other CMTS-GSM operators in foreign
countries, which allow its CMTS-GSM subscribers access to foreign GSM
networks. The agreements provide for sharing of toll revenues derived from the
mutual use of interconnection facilities.
Arrangements and Commitments with Suppliers
Globe Telecom and Innove have entered into agreements with various suppliers
for the delivery, installation, or construction of its property and equipment. Under
the terms of these agreements, delivery, installation or construction commences
only when purchase orders are served. Billings are based on the progress of the
project installation or construction. While the construction is in progress, project
costs are accrued based on the billings received. When the installation or
construction is completed and the property is ready for service, the balance of the
related purchase orders is accrued. The consolidated accrued project costs as of
December 31, 2005, 2004 and 2003 included in “Accounts payable and accrued
expenses” account in the consolidated balance sheets amounted to =
P2,444.11
million, =
P3,454.29 million and =
P3,003.05 million, respectively. As of December
31, 2005, the consolidated expected future payments amounted to =
P1,889.18
million. The settlement of these liabilities is dependent on the payment terms
agreed with the suppliers and contractors.
As of December 31, 2005, the Globe Group has available short-term credit
facilities of US$43.00 million and =
P5,050.00 million.
Investments in Subsidiaries, Associate and Joint Venture
Investment in BMPL
On November 3, 2004, Globe Telecom and other leading Asia Pacific mobile operators
(JV partners) signed an Agreement (JV Agreement) to form a regional mobile alliance,
which will operate through a Singapore-incorporated company, BMPL. The joint venture
112
company is a commercial vehicle for the JV partners to build and establish a regional
mobile infrastructure and common service platform and deliver different regional mobile
services to their subscribers.
The other joint venture partners with equal stake in the alliance include Bharti TeleVentures Limited (India), Maxis Communications Berhad (Malaysia), Optus Mobile Pty.
Limited (Australia), Singapore Telecom Mobile Pte. Ltd. (Singapore), Taiwan Cellular
Corporation (Taiwan), PT Telekomunikasi Selular (Indonesia) and Hongkong CSL Ltd.
(Hongkong).
Under the JV Agreement, each partner shall contribute US$4.00 million based on an
agreed schedule of contribution. Globe Telecom may be called upon to contribute on
dates to be determined by the JV. As of December 31, 2006, Globe Telecom has paid
US$1.00 million (P
=56.33 million) as initial subscription. BMPL started commercial
operations in April 2005.
Investment in GTHI
GTHI is a special purpose vehicle incorporated in the Philippines, owned 32.67% each
by Globe Telecom and Ayala Corporation (AC), 33% by Singapore Telecom
International Pte. Ltd. (STI) [a wholly owned subsidiary of Singapore Telecom
(SingTel)], and 1.66% by its directors and officers. On December 26, 2002, GTHI,
having completed and concluded its only business activity related to issuance of
Philippine Deposit Receipts (PDR), filed with the Philippine Securities and Exchange
Commission (SEC) a request for the revocation of its permit to sell PDRs. On December
8, 2003, the Philippine SEC approved the revocation of the Order of Registration and
Certificate of Permit to Sell Securities to the Public issued to GTHI. On December 15,
2004, the BOD of GTHI approved the dissolution of GTHI, which was subsequently
approved by the Philippine SEC on December 13, 2005. The remaining assets of GTHI
have been fully liquidated as of August 14, 2006.
4. Trend Information
Risk Factors
The following summary of our risk factors may contribute to increasing or decreasing
our liquidity:
a. We derive most of our revenues from our wireless business and hence, are dependent
on the growth of our wireless business.
b. We have a substantial amount of existing debt which could restrict our financing and
operating flexibility and have other adverse consequences.
c. We may be unable to obtain sufficient financing for our capital expenditures.
d. The Philippine telecommunications industry is highly competitive. Competition may
lead to a reduction in our revenues and an increase in our capital expenditures.
e. Rapid changes in telecommunications technology may adversely affect the
economics of our existing businesses and the value of our assets and create new
competition.
113
f.
g.
h.
i.
j.
k.
l.
m.
n.
Our business and profitability depend on the reliability and performance of our
network infrastructure.
We are controlled by two major shareholders and these shareholders have had and
are expected to continue to have a significant influence on our success, but are not
required to provide equity or financial support in the future. They may also engage in
businesses similar to ours.
Limits on foreign ownership of our capital stock may restrict our access to sources of
equity capital.
The occurrence of natural catastrophes may materially disrupt our operations.
If new billing requirements issued by the NTC are implemented in their current
form, we could suffer significant adverse financial effects (Please see Item 3: Legal
Proceedings).
Political instability may affect our financial results.
Future economic downturns could affect future growth of our business.
The decline in the value of the Peso against the U.S. dollar increases many of our
costs while improvement of the Peso against the U.S. dollar may also reduce our
inbound IDD revenues.
Our business is significantly affected by the development of regulation and the
discretion of regulators.
5. Seasonal Aspects that have a material effect on the FS – None.
114
PART IV-MANAGEMENT AND CERTAIN SECURITY HOLDERS
Item 8. Directors and Key Officers of the Registrant
A. Board of Directors
As of 31 December 2006, the members of the Board of Directors of Globe Telecom were as
follows:
Name
Jaime Augusto Zobel de Ayala II
Delfin L. Lazaro
Lim Chuan Poh
Gerardo C. Ablaza, Jr.
Romeo L. Bernardo
Roberto F. de Ocampo
Koh Kah Sek
Xavier P. Loinaz
Guillermo D. Luchangco*
Jesus P. Tambunting*
Fernando Zobel de Ayala
Position
Chairman
Co-Vice Chairman & Chairman of ExCom
Co- Vice Chairman
Director & President
Director
Director
Director
Director
Director
Director
Director
* Independent Directors
Jaime Augusto Zobel de Ayala II. Mr. Ayala, 47, Filipino, has served as Chairman of the
Board since 1997 (and has been a Director since 1989). He also serves as the Chairman of
the Board of Directors and Chief Executive Officer of Ayala Corporation. He is also
Chairman of the Board of Directors of Bank of the Philippine Islands and Integrated Microelectronics, Inc.; Vice Chairman of Ayala Land, Inc. and Co-Vice Chairman of Ayala
Foundation, Inc. He is also a member of various international and local business and sociocivic organizations including the JP Morgan International Council, Mitsubishi Corporation
International Advisory Committee, Toshiba International Advisory Group, Harvard
University Asia Center Advisory Committee, Board of Trustees of the Asian Institute of
Management and a national council member of the World Wildlife Fund (US). He was also
an awardee of the TOYM (Ten Outstanding Young Men) Philippines in 1999. He was also
named Management Man of the Year for 2006 by the Management Association of the
Philippines for his important role in the transformation of Ayala Corp into a highly
diversified forward-looking conglomerate.
Delfin L. Lazaro. Mr. Lazaro, 60, Filipino, has served as Director since January 1997. He is
currently Chairman of the Executive Committee of Globe. He was also the Chief Finance
Officer and is a member of the Management Committee of the Ayala Corporation. His other
significant positions include: President of Azalea Technology Investments; Member of the
Board of Directors of Ayala Land, Inc., Manila Water Co., Inc., Integrated Micro-electronics,
Inc. and Ayala Automotive Holdings Corporation. Also, Mr. Lazaro was formerly the
President of Globe Telecom, Inc. and the President and CEO of Benguet Corporation and
Secretary of the Department of Energy of the Philippine government. He was named
Management Man of the Year 1999 by the Management Association of the Philippines for
his contribution to the conceptualization and implementation of the Philippine Energy
Development Plan and to the passage of the law creating the Department of Energy. He was
115
also cited for stabilizing the power situation that helped the country achieve successively
high growth levels up to the Asian crisis in 1997.
Lim Chuan Poh. Mr. Lim, 51, Singaporean, has served as Director since 2001. He is the
Executive Vice President (Strategic Investments) of Singapore Telecom. He is also the
Chairman of Bridge Mobile Alliance, which is Asia Pacific's largest mobile alliance group.
Prior to joining SingTel in 1998, he was Deputy Secretary of the Ministry of
Communications. He also served in different senior appointments in the Singapore Civil
Services.
Gerardo C. Ablaza, Jr. Mr. Ablaza, 53, Filipino, has served as Director since 1998. He is
currently the President and Chief Executive Officer of Globe Telecom. He is also a Senior
Managing Director of Ayala Corporation. He was previously Vice President and Country
Business Manager for the Philippines and Guam of Citibank, N.A. for its Global Consumer
Banking business. Prior to this position he was Vice President of Citibank, N.A. Singapore
for Consumer Banking. Attendant to his last position in Citibank, N.A., Mr. Ablaza was the
bank’s representative to the Board of Directors of CityTrust Banking Corporation and its
various subsidiaries.
Romeo L. Bernardo. Mr. Bernardo, 52, Filipino, has served as a director since 2001. He is
President of Lazaro Bernardo Tiu & Associates, Inc., a boutique financial advisory firm he
organized together with former Energy Secretary Delfin Lazaro and Atty. Helen Tiu. Mr.
Bernardo currently sits on the Board of Directors of Bank of the Philippine Islands, RFM
Corporation, PHINMA, Ayala Life Assurance, Philippine Institute for Development Studies
(PIDS) Inc., and is Chairman of Ayala Life Fixed Income Fund. Mr. Bernardo was an
alternate director of the Asian Development Bank and Finance Undersecretary for
International Finance, Privatization & Treasury Operations of the Department of Finance of
the Republic of the Philippines from 1990 to 1996. He was formerly President of the
Philippine Economic Society and Chairman of the Federation of ASEAN Economic
Societies.
Roberto F. de Ocampo. Dr. de Ocampo, 60, Filipino, has served as director since 2003. He is
the immediate past President of the Asian Institute of Management (AIM), one of Asia’s
leading international business and management graduate schools based in the Philippines. He
is currently a member of the AIM Board of Trustees and is Chairman of the Board of
Advisors of the RFO Center for Public Finance and Regional Economic Cooperation
(recently designated as an ADB Regional Knowledge Hub). He served as Secretary of
Finance of the Republic of the Philippines from 1994 to 1998 during the presidency of Fidel
V. Ramos, and was previously Chairman and Chief Executive Officer of the Development
Bank of the Philippines during the presidency of Cory Aquino. Dr. de Ocampo graduated
from De La Salle College and Ateneo de Manila University in Manila, received an MBA
from the University of Michigan, holds a post-graduate diploma from the London School of
Economics, and has four doctorate degrees (Honoris Causa). He is the recipient of many
international awards including Finance Minister of the Year, Philippine Legion of Honor,
ADFIAP Man of the Year, Chevalier of the Legion of Honor of France, Ten Outstanding
Young Men Award (TOYM), several Who’s Who Awards and the 2006 Asian HRD Award
for Outstanding Contribution to Society. He is also an Advisory Board member of a number
of important global institutions including The Conference Board, the Trilateral Commission,
the BOAO Forum for Asia and the Emerging Markets Forum.
116
Koh Kah Sek. Ms. Koh, 35, Singaporean, joined SingTel in March 2005 as Group Financial
Controller. Prior to joining SingTel, she was with Far East Organisation – Yeo Hiap Seng
Limited as Vice President (Finance) responsible for the financial functions of the Singapore
and US operations. Prior to joining Far East Organisation, she had spent a number of years
in PricewaterhouseCoopers and Goldman Sachs.
Xavier P. Loinaz. Mr. Loinaz, 63, Filipino, has served as Director since 2001. He is
formerly the President of the Bank of the Philippine Islands (BPI). Other positions held are:
Director of BPI, BPI Capital Corporation, BPI Direct Savings Bank, Inc., BPI/MS Insurance
Corporation, BPI Family Savings Bank, Inc. and Chairman of the Board of Directors of
Ayala Life Assurance, Inc. and Member of the Board of Trustees of BPI Foundation, Inc.
Guillermo D. Luchangco. Mr. Luchangco, 67, Filipino, has served as Director since 2001.
He is also Chairman and Chief Executive Officer of Investment & Capital Corporation of the
Philippines, Cebu Light Industrial Park, Hermosa Ecozone Development Corp., ICCP Land
Management, Inc., Pueblo de Oro Development Corp., Regatta Beacon Land Corporation,
Regatta Properties, Inc, Tech Venture Partners, Ltd., and RFM-Science Park of the
Philippines, Inc.; Chairman and President of Beacon Property Ventures, Inc.; President and
CEO of ICCP Venture Partners, Inc.-U.S.A.; Chairman of Bottecelli Holdings, Inc., ICCP
Group Foundation, Inc., ICCP Venture Partners, Inc. and Manila Exposition Complex, Inc.
and Director of Bacnotan Consolidated Industries, Inc., Bacnotan Industrial Park Corp.,
Iomni Precision, Inc., Planters Development Bank, Ionics, Inc., Ionic Circuits, Inc., Ionics
EMS, Inc., Ionics EMS, Ltd., Ionics Properties, Inc., Science Park of the Philippines, Inc.
and Synertronix, Inc.
Jesus P. Tambunting, Mr. Tambunting, 69, Filipino, has served as Director since 2003. He
is also currently the Chairman and Chief Executive Officer of Planters Development Bank,
Chairman of Planters DB Properties Inc., PDB Insurance Agency, SME.com.ph., PDB-FMO
Development Center, and the Association of Development Financing Institutions in Asia and
the Pacific (ADFIAP), a regional organization of 73 development banks in 35 countries, and
Director of Philam Asset Management, Inc. From 1993 to 1998, Mr. Tambunting served as
Ambassador Extraordinary and Plenipotentiary to the United Kingdom of Great Britain and
Northern Ireland. He was conferred Management Man of the Year 2003 by the Management
Association of the Philippines, "Knight of the Equestrian Order of the Holy Sepulchre of
Jerusalem" by the Vatican in 2004 and the Lifetime Achievement Award in 2005 by the
Asian Bankers Association.
Fernando Zobel de Ayala. Mr. Ayala, 46, Filipino, has served as Director since 1995. He is
currently the President and Chief Operating Officer of Ayala Corporation. His other
significant positions include: Chairman of Ayala Land, Inc., Manila Water Co., Inc., AC
International Finance Ltd., Ayala International Pte. Ltd., Ayala Automotive Holdings
Corporation, Roxas Land Corporation and Alabang Commercial Corp.; Director of
Integrated Micro-electronics Inc. and Bank of the Philippine Islands.; Co-Vice Chairman and
Trustee of Ayala Foundation, Inc.; Member of the Board of Directors of Habitat for
Humanity International; Member of the East Asia Council of INSEAD; and Member of the
Board of Trustees of the International Council of Shopping Centers.
117
B. Key Officers
The key officers and consultants of our Company are appointed by the Board of Directors
and their appointment as officers may be terminated at will by the Board of Directors.
The table below shows the name and position of our key officers as of December 31, 2006.
Globe
Name
Gerardo C. Ablaza, Jr. *
Ferdinand M. de la Cruz
Rebecca V. Eclipse
Rodell A. Garcia
Delfin C. Gonzalez, Jr.
Susan Rivera-Manalo
Rodolfo A. Salalima
Position
President and Chief Executive Officer
Head – Consumer Business Group
Head – Office of Strategy Management
Chief Information Officer
Chief Financial Officer
Head – Human Resources
Head - Corporate Affairs and Regulatory Matters
* Member of the Board of Directors
Corporate Secretary
Renato O. Marzan
Corporate Secretary
Consultants
Name
Andrew Buay *
Robert L. Wiggins
Position
Chief Operating Adviser
Chief Technical Adviser
*Replaced by Lee Han Kheng effective 1 April 2007.
Innove
Gil B. Genio
Chief Executive Officer - Innove
Key Officers - Globe
Ferdinand M. de la Cruz. Mr. de la Cruz, 40, Filipino, joined Globe as Head of the Wireless
Business Group and is currently the Head of Consumer Business Group. He is a licensed
Mechanical Engineer. He brings with him solid work experience in the sales and marketing
departments of multinational companies like Kraft Foods and Unilever Philippines. He was
the President and General Manager of Kraft Foods Philippines before joining Globe, and
before that, was the Senior Vice-President for the Marketing and Sales Division of Ayala
Land Inc. He also served as National Sales Manager for San Miguel Brewing.
Rebecca V. Eclipse. Ms. Eclipse, 44, Filipino, is the Head of the Office of Strategy
Management. She has more than 15 years experience in technology and telecom risk
management, financial management and auditing, drawn from SGV & Co, as well as Eastern
Telecoms and Oceanic Wireless Network.
Rodell A. Garcia. Mr. Garcia, 50, Filipino, is the Chief Information Officer. Prior to joining
Globe in 2000, he was Executive Vice President for the Information Technology Group of
DBS Bank Philippines, Inc. He also held several management positions in Citytrust Banking
Corporation.
Delfin C. Gonzalez, Jr. Mr. Gonzalez, 57, Filipino, is Chief Financial Officer and joined
Globe on November 16, 2000 as Head of the Finance Group. He worked previously with San
Miguel Corporation, first with the Strategic Planning and Finance Group and then as
Executive Vice President, CFO and Treasurer before he retired in 1999.
118
Susan Grace Rivera-Manalo. Ms. Manalo, 48, Filipino, is the Head for the Human
Resources Group since March 2006. A seasoned HR practitioner, Susan brings with her 20
years of solid HR experience spanning numerous industries which includes Hewitt
Associates, PT&T, CAVEL Group of Companies, the Pioneer Group of Insurance
Companies and PLDT. She also led mission-critical functions such as logistics and materials
management and was executive sponsor for strategic processes for HR and customer
relations management.
Rodolfo A. Salalima. Mr. Salalima, 59, Filipino, is Head of Corporate Affairs and
Regulatory Matters and the Assistant Corporate Secretary. He has been employed with Globe
since 1993. He is also a Managing Director of Ayala Corporation. From 1992 to 1996, he
served as the first President and Founding Director of the Telecommunications and
Broadcast Attorneys of the Philippines, Inc. and is currently a Director and the President of
the Philippine Chamber of Telecom Operators, Inc. (PCTO).
Corporate Secretary
Renato O. Marzan. Atty. Marzan, 58, Filipino, has served as Corporate Secretary since 1993
and is a former Director of Globe. He also serves as Managing Director of Ayala
Corporation; Director and Corporate Secretary of Honda Cars Makati, Inc., Isuzu
Automotive Dealership, Inc. and Michigan Holdings, Inc.; Corporate Secretary of Avida
Land, Corp. (formerly Laguna Properties Holdings, Inc.), Ayala Systems Technology, Inc.,
Azalea Technology Investment, Inc., Ayala Hotels, Inc., Laguna Technopark, Inc., Integrated
Micro-electronics, Inc., Community Innovations, Inc., and Roxas Land Corporation; and
Assistant Corporate Secretary of Ayala Corporation, Ayala Land, Inc. and Ayala Foundation,
Inc.
Consultants
Andrew Buay. Mr. Buay, 41, Singaporean, joined Globe as Chief Operating Adviser in 2003.
He is currently the Managing Director of Singapore Telecommunications International
(Philippines) and has held various executive and senior management positions within
Singapore Telecom, Inc.
Robert L. Wiggins. Mr. Wiggins, 54, Australian, joined Globe as Chief Technical Adviser in
2002. He has over 30 years of work experience in the telecommunications industry in various
management capacities.
Key Officer-Innove
Gil B. Genio. Mr. Genio, 47, Filipino, is Chief Executive Officer of Innove and was
appointed Head of the Fixed Network Group and Chief Operating Officer of Innove on
November 16, 2000. Before his appointment to Innove, Mr. Genio was Globe’s Senior Vice
President and Chief Financial Officer. He is also currently a Managing Director of Ayala
Corporation. Prior to joining Globe, he served as Vice-President for Citibank, N.A.,
managing audit operations in Japan, Hong Kong and the People’s Republic of China.
119
C. Family Relationships
The Chairman of our Board of Directors, Jaime Augusto Zobel de Ayala II, and a Director,
Fernando Zobel de Ayala, are brothers.
D. Significant Employee
All the employees are considered important assets of the Company who collectively make
significant contributions to the Company. Globe Telecom has stock-based compensation
plans to encourage employees to remain with the Company. (Please refer to Item 10Executive Compensation section for details).
E. Involvement in Certain Legal Proceedings
None of the directors, officers or members of the Company’s senior management have,
during the last five years, been subject to any of the following:
(a) any bankruptcy, petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or within two (2)
years prior to the time;
(b) any conviction by final judgment of any offense in any pending criminal proceeding,
domestic or foreign, excluding traffic violations and other minor offenses;
(c) any order, judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, domestic or foreign, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type of
business, securities, commodities, or banking activities; and
(d) found by a domestic or foreign court of competent jurisdiction (in a civil action), the
Commission or comparable foreign body, or a domestic or foreign exchange or
electronic marketplace or self regulatory organization, to have violated a securities or
commodities law, and the judgment has not been reversed, suspended or vacated.
120
Item 9. Executive Compensation
A. Standard Arrangements
Directors
Article II Section 6 of the Company’s By-Laws provides:
“SECTION 6. COMPENSATION OF DIRECTORS - Directors as such shall not receive
any stated salary for their services, but, by resolution of the stockholders, a specific sum
fixed by the stockholders may be allowed for attendance at each regular or special meeting
of the Board; provided that nothing herein contained shall preclude any director from
serving in any other capacity and receiving compensation thereof.”
For additional information on Board remuneration please see appropriate section in Part V Corporate Governance of this report.
Officers
The total annual compensation of the President and other top Officers of the Company for
2006 amounted to P84.48 million and P90.64 million in 2005. The projected total annual
compensation for the current year is P98.45 million.
The total annual compensation paid to all senior personnel from Manager and up amounted
to P1,179.01 in 2006 and P861.44 million in 2005. The projected total annual compensation
for the current year is P1,473.01 million.
The total annual compensation includes the basic salary, guaranteed bonuses, fixed
allowances and variable pay (performance-based annual incentive) is shown below.
Name and Principal Position
Gerardo C. Ablaza, Jr.
President & Chief Executive Officer
Ferdinand M. dela Cruz
Head – Consumer Business Group
Delfin C. Gonzalez, Jr.
Chief Financial Officer
Rodolfo A. Salalima
Head – Corporate Affairs &
Regulatory Matters
Rodell A. Garcia
Chief Information Officer
Rebecca V. Eclipse
Head
–
Office
of
Strategy
Management
Cesar M. Maureal*
Head – Human Resources
Susan Rivera-Manalo**
Head – Human Resources
CEO & Most Highly Compensated
Executive Officers
All other officers*** as a group
unnamed
Year
Salary
Other Variable Pay
Actual 2005
Actual 2006
Projected 2007
P73.33 M
P61.86 M
P68.38 M
P17.31 M
P22.62 M
P30.07 M
Actual 2005
Actual 2006
Projected 2007
P648.54 M
P848.23 M
P1,012.88 M
P212.90 M
P330.78 M
P460.13 M
* Resigned effective June 2005
** Hired in March 2006
*** Managers and up. 2005 compensation relates to Globe only while 2006 and 2007 relates to the Globe Group.
121
The Company has no other arrangement with regard to the remuneration of its existing
directors and officers aside from the compensation received as herein stated.
The above named executive officers are covered by a Letters of Appointment with the
Company stating therein their respective job functionalities, among others.
B. Other Arrangements
The Company offered the Executive Stock Option Plan (ESOP) to the Company’s directors
and officers since April 2003. Of the above named directors and officers, there were 83,250
common shares exercised for the year 2006:
Name
No. of Shares
Date of Grant
Exercise Price
Market Price at
Date of
Grant
83,250
Various
P637.38 *
P637.38 *
Gerardo C. Ablaza, Jr.
Romeo L. Bernardo
Guillermo D. Luchangco
Jesus P. Tambunting
Ferdinand M. dela Cruz
Delfin C. Gonzalez, Jr.
Rodolfo A. Salalima
Rodell A. Garcia
Rebecca V. Eclipse
All above-named
Officers as a group
* Average prices on the dates of grant.
The Company has not adjusted nor amended the exercise price of the options previously
awarded to the above named officers.
The Globe Group’s compensation of key management personnel by benefit type are as
follows:
2006
Short-term employee benefits
Share-based payments
Post-employment benefits
P
=308,039
161,628
21,682
P
=491,349
2005
(In Thousand Pesos)
=
P296,191
161,731
32,938
=
P490,860
2004
=
P261,174
134,769
35,667
=
P431,610
There are no agreements between Globe Group and any of its directors and key officers
providing for benefits upon/after termination of employment, except for such benefits to
which they may be entitled under Globe Group’s retirement plans.
122
Item 10. Security Ownership of Certain Beneficial Owners and Management
The security ownership of certain record and beneficial owners (of more than 5%) as of
31 January 2007 are as follows:
Title of
Class
Preferred
Common
Common
Common
Name, address of Record
Owner and Relationship with
Issuer
Asiacom Philippines, Inc. 1
34/F Tower One Bldg.
Ayala Ave., Makati City
Singapore Telecom Int’l. Pte.
Ltd. (STI)
31 Exeter Road, Comcentre,
Singapore 0923
Ayala Corporation 3
34/F Tower One Bldg. Ayala
Ave., Makati City
PCD Nominee Corporation
(Non-Filipino) 5
G/F Makati Stock Exchange
Bldg., Ayala Ave.
Makati City
Name of Beneficial
Owner and Relationship
with Record Owner
Asiacom Philippines, Inc. 2
(Asiacom)
Citizenship
Filipino
No. of Shares
Held
Percent
158,515,021
54.55%
Singapore Telecom Int’l.
Pte. Ltd. (STI)
Singaporean
58,833,614
20.25%
Ayala Corporation 4 (AC)
Filipino
45,332,252
15.60%
Hongkong and Shanghai
Banking Corporation
(HSBC) and Standard
Chartered Bank (SCB) 6
Various
24,417,411
8.40%
The security ownership of directors and management (Corporate Officers) as of 31 January
2007 are as follows:
Title of
Class
Name of Beneficial Owner
Amount and
Nature of
Beneficial
Ownership
Citizenship
Percent of
Class
Directors
24,103 (direct &
indirect)
Common Delfin L. Lazaro
1 (direct)
Common Lim Chuan Poh
2 (direct)
Common Gerardo C. Ablaza, Jr.
20,001 (direct &
indirect)
Preferred
1 (direct)
Romeo L. Bernardo
Common
1,834 (indirect)
Common Roberto F. de Ocampo
1 (direct)
Common Koh Kah Sek
2 (direct)
Common Xavier P. Loinaz
1 (direct)
Preferred
1 (direct)
Guillermo D. Luchangco
Common
5,000 (direct)
Preferred
1 (direct)
Jesus P. Tambunting
Common
2,500 (direct)
Common Fernando Zobel de Ayala
20,101 (direct &
indirect)
CEO and Most Highly Compensated Executive Officers
Common Gerardo C. Ablaza, Jr.
20,001 (direct &
indirect)
Common
Jaime Augusto Zobel de Ayala II
1
Filipino
0.0082943%
Filipino
Singaporean
Filipino
0.0000003%
0.0000007%
0.0068827%
Filipino
0.0000003%
0.0006311%
0.0000003%
0.0000007%
0.0000003%
0.0000003%
0.0017206%
0.0000003%
0.0008603%
0.0069171%
Filipino
0.0068827%
Filipino
Filipino
Singaporean
Filipino
Filipino
Filipino
The Chairman of the Board of Asiacom, Mr. Jaime Augusto Zobel de Ayala II, is also the Chairman of the Board of the
Company.
2
The Board of Directors of Asiacom has the power to decide how the Asiacom shares in Globe are to be voted.
3
The Chairman and Chief Executive Officer of Ayala Corporation, Mr. Jaime Augusto Zobel de Ayala II, is the Chairman of
the Board of the Company.
4
The Board of Directors of AC has the power to decide how the AC shares in Globe are to be voted.
5
The PCD is not related to the Company.
6
HSBC and SCB are participants of PCD. The 13,857,721 and 8,558,128 shares beneficially owned by HSBC and SCB,
respectively, form part of the 24,417,411 shares registered in the name of the PCD. The clients of HSBC and SCB have the
power to decide how their shares are to be voted.
123
Common Ferdinand M. dela Cruz
Common Delfin C. Gonzalez, Jr.
Common Rodolfo A. Salalima
Common Rodell A. Garcia
Common Rebecca V. Eclipse
Common Susan Rivera-Manalo
All Directors and Officers as a group
6,151 (direct)
6,000 (direct)
4,983 (direct)
6,187 (direct)
2,024 (indirect)
0
98,894
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
0.0021167%
0.0020647%
0.0017147%
0.0021291%
0.0006965%
n/a
0.0340312%
None of the members of the Company’s directors and management own 2.0% or more of
the outstanding common and preferred stock of the Company.
There are no voting trust holders of 5% or more and there has been no change of control
in the Company to date.
Item 11. Certain Relationships and Related Transactions
For more information on refer to Note 16 of the attached notes to the consolidated financial
statements.
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PART V – CORPORATE GOVERNANCE
Globe Telecom recognizes the importance of good governance in realizing its vision,
carrying out its mission and living out its values to create and sustain increased value and
returns for its customers and stakeholders.
As strong advocates of accountability, transparency and integrity in all aspects of the
business, the Board of Directors (“Board”), management, officers, and employees of Globe
Telecom commit themselves to the principles and best practices of governance in the
attainment of its corporate goals.
The machinery for corporate governance is principally contained in the company’s Articles
of Incorporation and By-Laws which lay down the basic structure of governance, minimum
qualifications of directors, Board membership of at least two independent directors, as well
as the principal duties of the Board and officers of the Company.
To further strengthen its governance framework and in compliance with the Securities and
Exchange Commission’s Memorandum Circular No. 2 Series of 2002, the Company adheres
to a Manual of Corporate Governance which clearly sets out the principles of appropriate
supervision and good management, and which defines the specific responsibilities of the
Board, the Board Committees, and management within the over-all governance framework.
The Company has likewise adopted a Code of Conduct for employees as a guide to matters
involving work performance, dealings with employees and customers, handling of assets,
records and information, and the avoidance of conflict of interest situations and corrupt
practices.
Initiatives are regularly being pursued to develop and adopt corporate governance best
practices, and to build the right corporate culture across the organization.
The following section summarizes the key corporate governance processes and practices
adopted by Globe Telecom.
A. Board of Directors
Key Roles
The Board of Directors is the supreme authority in matters of governance. The Board
establishes the vision, mission, and strategic direction of the Company, monitors over-all
corporate performance, and protects the long-term interests of the various stakeholders by
ensuring transparency, accountability, and fairness. The Board also ensures the adequacy of
internal control mechanisms to safeguard company assets, reliability of financial reporting,
and compliance with applicable laws and regulations.
In addition, certain matters are reserved specifically for the Board’s disposition, including the
approval of corporate operating and capital budgets, major acquisitions and disposals of
assets, major investments, and changes in authority and approval limits.
125
Board Composition
The Board is composed of eleven (11) members, elected by stockholders entitled to vote
during the Annual Stockholders Meeting (ASM). The Board members hold office for one
year and until their successors are elected and qualified in accordance with the By-laws of
the company.
The roles of the Chairman of the Board and the Chief Executive Officer (CEO) are clearly
delineated and are held by two separate individuals to ensure balance of power and authority
and to promote independent decision-making. The Chairman is a non-executive director
who is not involved in the day-to-day management of the business.
The Board includes two independent directors of the caliber necessary to effectively weigh in
on Board discussions and decisions. Globe defines an independent director as a person who
is independent from management and free from any business or other relationship which
could materially interfere with his exercise of independent judgment in carrying out his
responsibilities as a director.
All board members have the expertise, professional experience, and background that allow
for a thorough examination and deliberation of the various issues and matters affecting the
company. In accordance with SEC Memorandum No. 16 Series of 2002, the qualifications
of all nominees are reviewed by the Nominations Committee, which is chaired by an
independent director. The names and profiles of each individual director are found in the
“Board of Directors” section of this annual report.
As of 31 December 2006, the Board comprised the following members:
Name
Jaime Augusto Zobel de Ayala II
Delfin L. Lazaro
Lim Chuan Poh
Gerardo C. Ablaza, Jr.
Romeo L. Bernardo
Roberto F. de Ocampo
Koh Kah Sek
Xavier P. Loinaz
Guillermo D. Luchangco
Jesus P. Tambunting
Fernando Zobel de Ayala
Position
Chairman
Co-Vice Chairman
Co- Vice Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Nature of Appointment
Non-executive
Non-executive
Non-executive
Executive
Non-executive
Non-executive
Non-executive
Non-executive
Non-executive/Independent
Non-executive/Independent
Non-executive
Jaime Augusto Zobel de Ayala and Fernando Zobel de Ayala are brothers.
Board Remuneration
In accordance with the company’s By-Laws, the Board members receive stock options and
remuneration in the form of a specific sum for attendance at each regular or special meeting
of the Board. A per diem of P 100,000 per Board or committee meeting was agreed and
approved by the shareholders during the ASM held last April 1, 2003. The remuneration is
intended to provide a reasonable compensation to the directors in recognition of their
responsibilities and the potential liability they assume as a consequence of the high standard
of best practices required of the Board as a body, and of the directors individually, under the
SEC-promulgated Code of Corporate Governance. Also, the level of per diem is in line with
standards currently practiced among publicly listed companies similar to Globe Telecom.
126
Board Performance
The Board met eleven (11) times during 2006, including the ASM and an organizational
meeting. For 2006, all directors have complied with the Securities and Exchange
Commission’s (SEC) minimum attendance requirement of 50%.
Prior to the Board meetings, all of the Directors are provided with Board papers which
include reports on the Company’s strategic, operational, and financial performance and other
regulatory matters. The Board also has access to the Corporate Secretary and the Assistant
Corporate Secretary who, among other functions, oversee the flow of information to the
Board prior to the meetings and who serve as advisers to the directors on their
responsibilities and obligations. The members of the Board also have access to management
should they need to clarify matters concerning items submitted for their consideration.
Board Committees
To further support the Board in its performance of its functions and to aid in good
governance, the Board has established five committees. The Board Committees regularly
met in 2006 to perform their respective functions.
1. Executive Committee
The Executive Committee (ExCom) is comprised of four members, at least three of
whom are members of the Board. The ExCom acts by majority vote and in
accordance with the authority granted by the Board or in the absence of the Board.
All actions of the ExCom are reported to the Board at the meeting following such
action and are subject to ratification or revision and alteration by the Board.
2. Audit Committee
The Audit Committee supports the corporate governance process through its
oversight responsibility relating to the financial statements and the financial
reporting process, system of internal and financial reporting controls, internal audit,
external audit, risk management, and compliance with legal and regulatory matters.
The committee relies on the expertise of management, internal and external auditors,
and ensures that adequate checks and balances exist. It conducts executive sessions
with external auditors to review their independence, and with the internal auditors to
ensure their free and unrestricted access to records, properties, and personnel.
The committee is composed of three members, at least one of whom is an
independent director. An independent director chairs the Audit Committee.
3. Compensation Committee
The Compensation Committee is tasked to review the compensation philosophy and
structure of the Company and the reasonableness of its compensation and incentive
plans. It is also responsible for setting the remuneration packages of certain
corporate officers. The committee is composed of three members, one of whom is
an independent director.
127
4. Nominations Committee
The Nominations Committee reviews the qualifications of members of the Board to
ensure that they have all the qualifications and none of the disqualifications stated in
the By-Laws and the Manual of Corporate Governance of the company. They also
preview and evaluate the qualifications of candidates nominated to positions which
require appointment by the Board. The committee is composed of three members,
including one independent director. An independent director chairs the committee.
5. Finance Committee
The Finance Committee is responsible for reviewing and evaluating the financial
affairs of the Company, including conducting an annual review of all financial
activities during the immediately preceding year prior to each ASM. The committee
is composed of three members.
B. Management
The CEO, with the assistance of the rest of the Senior Executive Group (SEG), is responsible
for the development and execution of strategies in line with the Company’s vision, mission,
and values statements, the day-to-day management of the business, and the implementation
of the Board’s policies and decisions. The SEG meets at least twice a month.
Accountable to the Board, management is obligated to provide the Board with complete and
accurate information on the operations and affairs of the Company in a timely manner.
Management is also required to prepare financial statements for each preceding financial
year in accordance with generally accepted accounting standards in the Philippines.
Management’s statement of responsibility with regards to the Company’s financial
statements is included in this annual report.
The annual compensation of the CEO and the seven (7) other top officers of the company are
disclosed in the Definitive Information Statement distributed to the shareholders. The total
annual compensation includes the basic salary, guaranteed bonuses, fixed allowances, and
variable pay (performance-based annual incentive).
C. Audit and Internal Controls
To effectively carry out its objectives, the Audit Committee maintains independence from
management and the controlling shareholders. It has commissioned the services of the
Internal Audit group to provide independent advisory services to the Company to help
improve effectiveness and efficiency of operations. The group is also tasked to ensure that
the Company’s key organizational and procedural controls are effective, appropriate and
complied with. The Internal Audit group reports functionally to the Board, through the Audit
Committee, and administratively to the President and CEO.
The Board, through the Audit Committee, also recommends an independent auditor to
perform an independent audit of the Company’s operations, as well as provide an objective
assurance on the reasonableness of the financial statements and relevant disclosures.
128
The representatives of the independent auditor are expected to be present at the ASM and
have the opportunity to make a statement on the Company’s operations if they desire to do
so. The auditors are also expected to be available to respond to appropriate questions during
the meeting.
The elected principal accountants and external auditors for Globe Telecom for 2006 is
SyCip, Gorres, Velayo & Company (SGV & Co.). In accordance with regulations issued by
the SEC, the audit partner handling the Company’s account is rotated every five (5) years or
sooner.
D. Financial Reporting
The consolidated financial statements of Globe Telecom and its subsidiaries have been
prepared in accordance with Philippine Financial Reporting Standards, which are aligned
with International Financial Reporting Standards. The financial statements are reviewed by
the Audit Committee (with the support of the Internal Audit group) and the external auditors
to ensure that they fairly present, in all material respects, the financial position of the
Company. The Board also reviews and approves the consolidated financial statements prior
to public release.
The financial statements include a breakdown of the Company’s assets, liabilities, equity,
cash flows, and results of operations. Information showing the performance of the wireless
and wireline segments is also disclosed to show their respective contributions to total
corporate performance. Finally, the financial statements include a detailed discussion of the
Company’s accounting policies and any estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
E. Employee Relations
Globe Telecom is committed to enhancing not just human capital but also human potential.
The Company’s people strategy is centered on empowering, engaging, and constantly
energizing its talents so that no business challenge proves impossible.
As an organization needing to reinvent itself constantly, continuous improvement, managing
change and developing competencies are disciplines that are being ingrained in various
teams. Whether in training programs, in project post-mortems, through employee
engagement and organization diagnosis surveys, in quarterly business reviews or in lunchtime brownbag informal learning sessions, the Company’s employees learn, discover, and
work together in striving for excellence. Balanced performance metrics are also put in place
to support leadership with integrity to ensure that performance targets made are delivered,
and eventually reinforced, recognized, and rewarded.
The Company believes that leadership and talent management is a competitive advantage for
winning the future. As such, succession planning and talent development processes are
institutionalized.
These are reinforced by feedback, coaching, and career planning programs. Opportunities are
also provided for key talents to learn from other best practice companies here and in the
129
region. Various talent pipelines have been put in place to make sure that Globe Telecom is
able to grow and develop the next generation of leaders who will drive the business of the
future.
F. Plans to Further Improve Corporate Governance
Globe Telecom, through its Board of Directors, is continually reviewing its policies and
processes to improve corporate governance within the Company. It is currently evaluating
the inclusion of a Whistleblower Policy in its Code of Conduct for employees. The policy
will cover the handling, receiving, investigating, and reporting of complaints from
whistleblowers, including reports on fraudulent reporting practices. The Company is
likewise reviewing and updating its risk management structure and policies to continuously
strengthen the Company’s risk management capabilities and ensure its on-going relevance
and viability.
130
PART VI – EXHIBITS AND SCHEDULES
A. Exhibits – Please see accompanying Index to Exhibits in the following pages
B. Reports on SEC Form 17-C - The Company regularly files various reports on SEC
Form 17-C relative to various company events. Of these, the more significant ones are as
follows:
Date
Item Reported
01.03.06 Globe Telecom gets preferred 3G spectrum from NTC
01.12.06 Globe Telecom – GTWU-FFW sign 2006-2010 CBA
01.25.06 Globelines IDD the lowest in the country
02.06.06 Globe Telecom's 4Q05 Investors' Briefing Invitation
02.07.06 Globe Telecom's 4Q05 Results
02.07.06 Amended Globe Telecom's 4Q05 Results
02.08.06 Globe Telecom gears up for 3G launch
02.09.06 Globe Telecom's 4Q05 Presentation Materials
02.08.06 Globe Telecom-Bridge Mobile Alliance: Partnership for Seamless Regional Connectivity
03.01.06 Globe Files Criminal Charges Against Unauthorized Voice Resale Operators
04.01.06 Globe Registers P10.3B Net Income in 2005, Expands Network Coverage to 97% of RP
Population
04.28.06 Globe Telecom's 1Q06 Investors' Briefing Invitation
05.03.06 Globe first in Asia-pacific to introduce 3G with HSDPA technology
05.04.06 Globe Telecom's 1Q06 Subscriber Results
05.08.06 Globe Telecom's 1Q06 Results
05.09.06 Globe Telecom's 1Q06 Presentation Materials
06.09.06 Press Release - Fitch revises Globe Telecom's Local Currency IDR Outlook to Positive
06.20.06 Press Release - Fitch assigns Globe Telecom 'AAA (phl)' National Long-term Rating
Press Release - Moody's upgrades Globe Telecom's Local Currency Rating to Baa2, Outlook
07.19.06 Stable
07.19.06 Globe Telecom's 2Q06 Investors' Briefing Invitation
07.31.06 Press Release – (Cash Dividend increased to P30 per share)
07.31.06 Globe Telecom's 2Q06 Results
08.02.06 Globe Telecom's 2Q06 Presentation Materials
10.26.06 Globe Telecom's 3Q06 Investors' Briefing Invitation
07.03.06 Innove offers the lowest IDD rate of P2.50 per minute for five popular destinations
07.05.06 Globe bags Philippine Mobile Operator of the Year at Asian Mobile News Awards
07.05.06 Innove allocates over P270 million for network expansion in Cebu
10.26.06 Gemalto Partners with Celltick to Provide Globe Customers Instant News Access
10.27.06 Globe, Taiwan Mobile Collaborate on First Pinoy SIM Offering Special Rates for OFWs in
Taiwan
11.07.06 Globe Telecom's 3Q06 Results
11.07.06 GT 17-Q - ending September 30, 2006
11.07.06 Press Release - Moody's revises Globe Telecom's senior unsecured FX rating outlook to stable
11.08.06 Globe Telecom's 3Q06 Presentation Materials
11.08.06 Globe first to launch Super 3G handset in Southeast Asia
11.16.06 Globe Introduces G-Pass, a Quick Alternative Payment for MRT Trips
12.27.06 Press Release - Business World Article "Globe investment in 3G reaches P4 billion in 2006"
131
INDEX TO EXHIBITS
Description of Exhibit
Remarks/Attachment
Additional Disclosure on Independent Auditors
√
Statement of Management’s Responsibility
√
Report of Auditors and Consolidated Financial Statements and
√
Notes to Consolidated Financial Statements
Independent Auditors’ Report on the Supplementary Schedules
√
Short Term Investments
√
Amounts Receivable from Directors, Officers, Employees, Related
√
Parties and Principal Stockholders Other Than Affiliates
Long-Term Investments in Securities (Non-current Marketable
√
Securities, Other Long Term Investments in Stocks and Other
Investments)
Deferred Charges and Others
√
Long Term Debt
√
Indebtedness to Related Parties (Other Long term Liabilities)
√
Capital Stock
√
Sample stock certificate
√
Plan of Acquisition, Reorganization, Arrangements, Liquidation or
*
Succession
Instruments Defining the Rights of Security Holders, Including
*
Indentures
Voting Trust Agreement
*
Material Contracts
*
Annual Report to Security Holders or Form 17Q or Quarterly
√
Report to Security Holders
Letter re: Director Resignation
*
Report Furnished to Security Holders
*
Subsidiaries to Registrant
*
Published Report Regarding Matters Submitted to a Vote of
*
Security Holders
Consent of Experts and Independent Counsel
*
Power of Attorney
*
Additional Exhibits
*
Note: * The exhibits are either Not Applicable to the Company or require No Answer.
Additional Information
on
Independent Public Accountants
a.
The principal accountants and external auditors of the Company is the accounting firm of SyCip,
Gorres, Velayo & Company (SGV & Co.). The same accounting firm is being recommended for reelection at the scheduled annual meeting for almost the same remuneration as in the previous year.
b.
Representatives of SGV & Co. for the current year and for the most recently completed fiscal year
are expected to be present at the Annual Stockholders’ Meeting. They will have the opportunity to
make a statement if they desire to do so and are expected to be available to respond to appropriate
questions.
Pursuant to the General Requirements of SRC Rule 68, Par. 3 (Qualifications and Reports of
Independent Auditors), the Company has engaged SGV & Co. as external auditor of the Company,
and Mr. Luis Y. Benitez has been the Partner In-charge for less than five years since 2004.
c.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
We have no disagreements with our independent auditors on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
d.
Audit and Audit-Related Fees
In its meeting last 22 March 2004, the shareholders appointed SyCip, Gorres, Velayo and Co. (SGV
& Co.) as the Independent Auditor of Globe Telecom, Inc. and Subsidiaries (Globe Group), covering
the calendar years of 2004 to 2006. Billings for services rendered in connection with the
engagement for 2006 amounted to P13.9 million as compared to P16.6 million for 2005.
In addition to performing the audit of Globe Group’s financial statements, SGV & Co. was also
selected, in accordance with established procurement policies, to provide other services in 2006.
The aggregate fees billed by SGV & Co. are shown below (with comparative figures for 2005):
(Amounts in millions of pesos)
2006
Audit Fees
Billed during the current year
Billed in succeeding year
P
Total Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
9.1
4.8
2005
P
13.9
0.4
3.2
P
17.5
10.5
6.1
16.6
0.8
0.4
0.8
P
18.6
Audit Fees. This includes audit of Globe Group’s annual financial statements and review of
quarterly financial statements in connection with the statutory and regulatory filings or engagements
for the years ended 2006 and 2005.
Audit-Related Fees. This includes assurance services related to the review of Globe Group’s
financial statements.
Tax fees. This includes tax consultancy and advisory services outside the scope of financial audits
and reviews.
All Other Fees. This includes one-time, non-recurring special projects/consulting services and
seminars.
The fees presented above include out-of-pocket expenses incidental to the independent auditor’s
services.
The Audit Committee has reviewed the nature of non-audit services rendered by SGV & Co. and the
corresponding fees and concluded that these are not significant to impair the independence of the
auditors.
The Audit Committee has an existing policy to review and to pre-approve the audit and non-audit
services rendered by the Company’s independent auditors. It does not allow the Globe Group to
engage the independent auditors for certain non-audit services expressly prohibited by SEC
regulations to be performed by an independent auditor for its audit clients. This is to ensure that the
independent auditors maintain the highest level of independence from the Company, both in fact and
appearance.
Report of Independent Auditors
The Stockholders and the Board of Directors
Globe Telecom, Inc.
5th Floor, Globe Telecom Plaza, Pioneer Highlands
Pioneer corner Madison Streets
Mandaluyong City
We have audited the accompanying consolidated financial statements of Globe Telecom, Inc. and Subsidiaries, which comprise the
consolidated balance sheets as at December 31, 2006, 2005 and 2004, and the consolidated statements of income, consolidated
statements of changes in equity and consolidated statements of cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine
Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to
the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance
with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Globe Telecom,
Inc. and Subsidiaries as of December 31, 2006, 2005 and 2004, and their financial performance and their cash flows for the years
then ended in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Luis Y. Benitez
Partner
CPA Certificate No. 19698
SEC Accreditation No. 0067-AR-1
Tax Identification No. 105-339-766
PTR No. 0266529, January 2, 2007, Makati City
February 5, 2007
38
CONSOLIDATED BALANCE SHEETS
2006
ASSETS
Current Assets
Cash and cash equivalents (Notes 27 and 29)
Short-term investments (Note 27)
Available-for-sale investments (Note 27)
Held-to-maturity investments (Note 27)
Receivables - net (Notes 4 and 27)
Inventories and supplies (Note 5)
Derivative assets (Note 27)
Prepayments and other current assets (Note 6)
Total Current Assets
Noncurrent Assets
Property and equipment - net (Note 7)
Investment property - net (Note 8)
Intangible assets - net (Note 9)
Investments in an associate and a joint venture (Note 10)
Deferred income tax - net (Note 23)
Derivative assets (Note 27)
Other noncurrent assets - net (Note 11)
Total Noncurrent Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses (Notes 12 and 27)
Provisions (Note 13)
Derivative liabilities (Note 27)
Income taxes payable (Note 23)
Unearned revenues
Current portion of:
Long-term debt (Notes 14 and 27)
Other long-term liabilities (Notes 15 and 27)
Total Current Liabilities
Noncurrent Liabilities
Deferred income tax - net (Note 23)
Long-term debt - net of current portion (Notes 14 and 27)
Derivative liabilities (Note 27)
Other long-term liabilities - net of current portion (Notes 15 and 27)
Total Noncurrent Liabilities
Total Liabilities
Equity
Paid-up capital (Note 17)
Cost of share-based payments (Notes 16 and 18)
Cumulative translation adjustment (Note 27)
Retained earnings
Treasury stock - common (Note 17)
Total Equity
See accompanying Notes to Consolidated Financial Statements.
December 31
2005
(In Thousand Pesos)
2004
P
= 7,505,715
6,155,349
293,614
857,563
5,527,905
993,495
1,626,667
1,254,682
24,214,990
P
= 10,910,961
–
1,220,318
33,441
6,764,130
1,372,459
1,477,257
1,115,469
22,894,035
P
= 13,581,842
720,831
–
–
5,457,913
1,136,885
–
1,083,408
21,980,879
96,073,413
314,503
1,129,624
37,332
801,863
–
2,008,108
100,364,843
P
= 124,579,833
98,554,670
259,538
1,100,727
43,263
1,163,943
71,634
1,014,580
102,208,355
P
= 125,102,390
101,643,592
261,516
944,265
91,925
2,413,253
–
2,368,498
107,723,049
P
= 129,703,928
P
= 16,485,265
P
= 13,972,222
P
= 13,772,028
248,310
558,087
831,381
1,270,075
231,455
308,688
291,348
1,301,684
282,309
–
47,655
1,732,747
6,271,601
93,422
25,758,141
7,858,150
269,737
24,233,284
9,018,650
292,589
25,145,978
5,539,999
32,935,256
528,036
2,870,250
41,873,541
67,631,682
4,432,867
41,835,238
423,058
2,559,133
49,250,296
73,483,580
3,474,732
43,199,301
–
3,377,015
50,051,048
75,197,026
33,484,361
340,743
(193,790)
23,316,837
–
56,948,151
P
= 124,579,833
33,315,408
312,644
(235,892)
18,226,650
–
51,618,810
P
= 125,102,390
39,435,577
193,096
–
23,070,999
(8,192,770)
54,506,902
P
= 129,703,928
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
2006
2005
2004
(In Thousand Pesos, Except Per Share Figures)
REVENUE
Service revenues (Note 16)
Nonservice revenues
Interest income (Note 19)
Others - net (Notes 8,16 and 24)
P
= 57,033,619
2,915,389
715,337
445,183
61,109,528
P
= 54,896,813
3,850,788
519,648
577,476
59,844,725
P
= 52,741,358
2,867,622
454,038
407,290
56,470,308
18,080,931
17,137,553
4,618,735
3,272,362
534,948
19,142,262
15,733,959
6,024,711
3,140,593
1,608,856
15,403,963
14,705,825
6,675,198
6,326,879
635,447
5,834
43,650,363
13,334
45,663,715
62
43,747,374
17,459,165
14,181,010
12,722,934
4,251,899
1,452,593
5,704,492
1,747,249
2,119,253
3,866,502
379,928
946,764
1,326,692
P
= 11,754,673
P
= 10,314,508
P
= 11,396,242
Earnings Per Share (Note 26)
Basic
P
= 88.56
P
= 76.74
P
= 80.92
Diluted
P
= 88.32
P
= 76.60
P
= 80.78
Cash dividends declared per common stock (Note 17)
P
= 50.00
P
= 40.00
P
= 36.00
COSTS AND EXPENSES
General, selling and administrative expenses (Note 20)
Depreciation and amortization (Notes 7, 8 and 9)
Cost of sales
Financing costs - net (Note 21)
Impairment losses and others (Note 22)
Equity in net losses of an associate and a joint venture
(Note 10)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 23)
Current
Deferred
NET INCOME
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Capital
Stock
At January 1, 2006
P
= 7,333,741
Changes in fair value of cash
flow hedges (Note 27)
–
Transferred to income and
expense for the year for
cash flow hedges
–
Tax effect of items taken
directly to or transferred
from equity
–
Changes in fair value of
available-for-sale
investments
–
Net income recognized directly
in equity
–
Net income for the year
–
Total income for the year
–
Dividends on (Note 17):
Common stock
–
Preferred stock
–
Cost of share-based payments
(Notes 16 and 18)
–
Collection of subscriptions
receivable - net of refunds
6,946
Exercise of stock options
(Note 17)
8,967
At December 31, 2006
P
= 7,349,654
(Forward)
Cost of
Treasury Cumulative
ShareAdditional
Retained
Stock- Translation
Based
Paid-in
Earnings
Common Adjustment
Capital Payments
For the Year Ended December 31, 2006 (In Thousand Pesos)
P
= 25,981,667
P
= 312,644
P
=–
(P
= 235,892) P
= 18,226,650
Total
P
= 51,618,810
–
–
–
(254,589)
–
(254,589)
–
–
–
277,736
–
277,736
–
–
–
7,716
–
7,716
–
–
–
11,239
–
11,239
–
–
–
–
–
–
–
–
–
42,102
–
42,102
–
11,754,673
11,754,673
42,102
11,754,673
11,796,775
–
–
–
–
–
–
–
–
–
161,628
–
–
–
161,628
–
–
–
–
–
6,946
–
–
(P
= 193,790) P
= 23,316,837
28,478
P
= 56,948,151
153,040
P
= 26,134,707
(133,529)
P
= 340,743
–
P
=–
(6,599,817)
(64,669)
(6,599,817)
(64,669)
Capital
Stock
Cost of
Cumulative
Treasury
ShareAdditional
Retained
Stock- Translation
Based
Paid-in
Earnings
Common Adjustment
Capital Payments
For the Years Ended December 31, 2005 and 2004 (In Thousand Pesos)
At December 31, 2004
P
= 8,323,023 P
= 31,112,554
Cumulative effect of change in
accounting policy for
financial instruments as of
January 1, 2005
–
–
At January 1, 2005
8,323,023
31,112,554
Changes in fair value of cash
flow hedges (Note 27)
–
–
Transferred to income and
expense for the year for
cash flow hedges
–
–
Tax effect of items taken
directly to or transferred
from equity
–
–
Changes in fair value of
available-for-sale
investments
–
–
Net loss recognized directly in
equity
–
–
Net income for the year
–
–
Total income (expense) for the
year
–
–
Acquisition of treasury stock
for the year (Note 17)
–
–
Retirement of treasury shares
(Note 17)
(1,003,283)
(5,179,349)
Dividends on (Note 17):
Common stock
–
–
Preferred stock
–
–
Cost of share-based payments
(Notes 16 and 18)
–
–
Collection of subscriptions
receivable - net of refunds
10,968
–
Exercise of stock options
(Note 17)
3,033
48,462
At December 31, 2005
P
= 7,333,741 P
= 25,981,667
At January 1, 2004
P
= 8,307,828
Net income for the year
–
Dividends on (Note 17):
Common stock
–
Preferred stock
–
Cost of share-based payments
(Notes 16 and 18)
–
Collections of subscriptions
receivable - net of refunds
15,195
Exercise of stock options
(Note 17)
–
At December 31, 2004
P
= 8,323,023
P
= 193,096
(P
= 8,192,770)
–
193,096
–
(8,192,770)
P
=–
P
= 23,070,999
Total
P
= 54,506,902
(151,008)
(151,008)
31,290
23,102,289
(119,718)
54,387,184
–
–
(429,336)
–
(429,336)
–
–
237,619
–
237,619
–
–
114,167
–
114,167
–
–
(7,334)
–
(7,334)
–
–
–
–
(84,884)
–
–
10,314,508
(84,884)
10,314,508
–
–
(84,884)
10,314,508
10,229,624
–
(7,675,658)
–
–
15,868,428
–
(9,685,796)
–
–
–
–
–
–
(5,436,017)
(68,334)
161,731
–
–
–
161,731
–
–
–
–
10,968
–
–
(P
= 235,892) P
= 18,226,650
9,312
P
= 51,618,810
(42,183)
P
= 312,644
–
P
=–
(5,436,017)
(68,334)
–
–
–
–
–
–
–
–
–
134,769
–
–
–
134,769
–
–
–
–
–
15,195
–
P
=–
–
P
= 23,070,999
1,596
P
= 54,506,902
See accompanying Notes to Consolidated Financial Statements.
P
= 16,786,424
11,396,242
–
P
= 59,091
–
(764)
–
P
= 193,096 (P
= 8,192,770)
P
=–
–
(7,675,658)
P
= 31,110,194
–
2,360
P
= 31,112,554
(P
= 8,192,770)
–
–
(5,036,539)
(75,128)
P
= 48,070,767
11,396,242
(5,036,539)
(75,128)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2006
2005
(In Thousand Pesos)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 7, 8 and 9)
Interest expense - net of amortization of bond premium
(Note 21)
Loss on derivative instruments - net (Note 21)
Cost of share-based payments (Notes 16 and 18)
Impairment losses on property and equipment (Note 22)
Provisions for (reversals of) other probable losses (Note 22)
Equity in net losses of an associate and a joint venture
(Note 10)
Loss (gain) on disposal of property and equipment
Interest income (Note 19)
Dividend income
Operating income before working capital changes
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables
Inventories and supplies
Prepayments and other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Unearned revenues
Other long-term liabilities
Cash generated from operations
Interest paid
Income taxes paid
Net cash flows provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to:
Property and equipment (Note 7)
Intangible assets (Note 9)
Capitalized borrowing costs (Note 7)
Proceeds from sale of property and equipment
Decrease (increase) in:
Short-term investments
Available-for-sale investments
Held-to-maturity investments
Other noncurrent assets
Interest received
Dividends received
Net cash flows used in investing activities
(Forward)
2004
P
= 17,459,165
P
= 14,181,010
P
= 12,722,934
17,137,553
15,733,959
14,705,825
4,213,976
324,082
161,628
88,673
84,833
4,657,748
264,435
161,731
925,772
(12,694)
4,368,716
–
134,769
11,726
(500,889)
5,834
(22,597)
(715,337)
–
38,737,810
13,334
(28,398)
(519,648)
(105)
35,377,144
62
17,777
(454,038)
(350)
31,006,532
2,165,694
378,964
(299,287)
(1,792,779)
(233,421)
128,480
6,628,685
(555,305)
153,935
(342,264)
(31,609)
(192,634)
40,416,674
(4,140,041)
(3,711,866)
32,564,767
2,078,805
(431,063)
(25,373)
35,101,793
(4,646,042)
(1,503,556)
28,952,195
(4,609,553)
(644,159)
56,675
32,036,810
(4,727,341)
(304,514)
27,004,955
(12,265,742)
(320,206)
(48,080)
68,520
(15,325,931)
(595,621)
(139,663)
183,434
(19,529,468)
(620,600)
(211,135)
27,370
(6,155,349)
937,942
(824,122)
(993,432)
692,636
–
(18,907,833)
–
(512,113)
(33,441)
(12,524)
492,828
105
(15,942,926)
1,941,537
–
–
173,924
461,051
350
(17,756,971)
2006
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of borrowings:
Long-term (Note 14)
Short-term
Proceeds from borrowings:
Long-term (Note 14)
Short-term
Payments of dividends to stockholders (Note 17):
Common
Preferred
Collection of subscriptions receivable and exercise of
stock options - net of related expenses (Note 17)
Purchase of treasury stock - common (Note 17)
Net cash flows used in financing activities
(P
= 10,429,453)
–
(P
= 12,505,808)
(21,000)
2004
(P
= 18,814,228)
(60,000)
9,992,181
21,000
15,194,743
60,000
(6,599,817)
(68,334)
(5,436,017)
(75,128)
(5,036,539)
(67,957)
35,424
–
(17,062,180)
20,280
(7,675,658)
(15,680,150)
16,791
–
(8,707,190)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(3,405,246)
(2,670,881)
540,794
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
(Notes 27 and 29)
10,910,961
13,581,842
13,041,048
CASH AND CASH EQUIVALENTS AT END OF YEAR
(Notes 27 and 29)
P
= 7,505,715
P
= 10,910,961
P
= 13,581,842
See accompanying Notes to Consolidated Financial Statements.
–
–
Years Ended December 31
2005
(In Thousand Pesos)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Corporate Information
Globe Telecom, Inc. (hereafter referred to as “Globe Telecom”) is a stock corporation organized under the laws of the Philippines,
and enfranchised under Republic Act (RA) No. 7229 and its related laws to render any and all types of domestic and international
telecommunications services. Globe Telecom is one of the leading providers of digital wireless communications services in the
Philippines under the Globe brand using a fully digital network. It also offers domestic and international long distance communication
services or carrier services. Globe Telecom’s principal executive offices are located at 5th Floor, Globe Telecom Plaza, Pioneer
Highlands, Pioneer corner Madison Streets, Mandaluyong City, Metropolitan Manila, Philippines. Globe Telecom is listed in the
Philippine Stock Exchange (PSE) and has been included in the PSE composite index since September 17, 2001.
Globe Telecom owns 100% of Innove Communications, Inc. (“Innove”). Innove is a stock corporation organized under the laws of the
Philippines and enfranchised under RA No. 7372 and its related laws to render any and all types of domestic and international
telecommunications services. Innove is one of the providers of digital wireless communication services in the Philippines. Innove
currently offers cellular service under the Touch Mobile (TM) prepaid cellular brand. The TM brand is supported in the integrated
cellular networks of Globe Telecom and Innove. Innove also offers a broad range of wireline voice communication services, as well
as domestic and international long distance communication services or carrier services. On June 17, 2005, Innove was granted a
Provisional Authority (PA) from the National Telecommunications Commission (NTC) for a nationwide local exchange carrier (LEC)
service, allowing Innove to expand the reach of its network. A motion for a Certificate of Public Convenience Necessity (CPCN)
and/or extension of the PA was filed in November 2006. Innove’s principal executive office is located at 18th Floor, Innove IT Plaza,
Samar Loop corner Panay Road, Cebu Business Park, Cebu City, Philippines.
Globe Telecom owns 100% of G-Xchange, Inc. (GXI), a corporation formed with the primary purpose of developing, designing,
administering, managing and operating software applications and systems, including systems designed for the operations of bills,
payment and money remittance, payment and delivery facilities through various telecommunications systems operated by
telecommunications carriers in the Philippines and throughout the world and to supply software and hardware facilities for such
purposes. GXI is registered with the Bangko Sentral ng Pilipinas (BSP) as a remittance agent. GXI handles the mobile payment and
remittance service using Globe Telecom’s network as transport channel under the GCash brand. The service, which is integrated
into the cellular services of Globe Telecom and Innove, enables easy and convenient person-to-person fund transfers via short
messaging services (SMS) and allows Globe Telecom and Innove subscribers to easily and conveniently put cash into and get cash
out of the GCash system. GXI started commercial operations on October 16, 2004. GXI’s principal executive office is located at
6th Floor, Globe Telecom Plaza, Pioneer Highlands, Pioneer corner Madison Streets, Mandaluyong City, Metropolitan Manila,
Philippines.
On February 5, 2007, the Board of Directors (BOD) approved and authorized the release of the audited consolidated financial
statements of Globe Telecom, Inc. and Subsidiaries as of and for the years ended December 31, 2006, 2005 and 2004.
2.
Accounting Policies
2.1 Basis of Financial Statement Preparation
The accompanying consolidated financial statements of Globe Telecom and its wholly-owned subsidiaries, Innove and GXI,
collectively referred to as the “Globe Group”, have been prepared under the historical cost convention method, except for
derivative financial instruments and available-for-sale (AFS) financial assets that are measured at fair value. The carrying
values of recognized assets and liabilities that are hedged are adjusted to record changes in the fair values attributable to the
risks that are being hedged.
The consolidated financial statements of the Globe Group are presented in Philippine Peso (PHP), the Globe Group’s functional
currency, and rounded to the nearest thousands except when otherwise indicated.
2.2 Statement of Compliance
The consolidated financial statements of the Globe Group have been prepared in compliance with Philippine Financial
Reporting Standards (PFRS).
2.3 Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Globe Telecom and its subsidiaries as of and for
the years ended December 31, 2006, 2005 and 2004. The subsidiaries, which are both incorporated in the Philippines, are as
follows:
Name of Subsidiary
Principal Activity
Innove
Wireless and wireline voice and data communication services
Percentage of Ownership
100%
GXI
Software development for telecommunications applications
100%
Subsidiaries are consolidated from the date on which control is transferred to the Globe Group and cease to be consolidated
from the date on which control is transferred out of the Globe Group. The financial statements of the subsidiaries are prepared
for the same reporting year as Globe Telecom using uniform accounting policies for like transactions and other events in similar
circumstances. All significant intercompany balances and transactions, including intercompany profits and losses, were
eliminated during consolidation in accordance with the accounting policy on consolidation.
2.4 Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial years except as follows:
The Globe Group has adopted the following new and amended PFRS and Philippine Interpretations from International Financial
Reporting Interpretation Committee (IFRIC) during the year. Adoption of these revised standards and interpretations did not
have any effect on the Globe Group except for additional disclosures included in the consolidated financial statements.
•
Amendments to Philippine Accounting Standards (PAS) 19, Employee Benefits - Actuarial Gains and Losses, Group Plans
and Disclosures, introduce an additional option for recognition of actuarial gains and losses in post-employment defined
benefit plans. The amendment permits an entity to recognize actuarial gains and losses in the period in which they occur
outside profit or loss. The amendment also requires additional disclosures on the financial statements to provide
information about trends in the assets and liabilities in the defined benefit plans and the assumptions underlying the
components of the defined benefit cost. The adoption of amendments to PAS 19 does not have an effect on the Globe
Group’s result of operations and financial position. The Globe Group elected to continue to recognize a portion of actuarial
gains and losses in profit and loss if the cumulative unrecognized actuarial gains and losses at the end of the previous
reporting period exceeded the greater of 10% of the present value of defined obligation or 10% of the fair value of plan
assets. Additional disclosures required by the amendments were included in the consolidated financial statements, where
applicable (see Note 18).
•
Amendments to PAS 21, The Effects of Changes in Foreign Exchange Rates, state that all exchange differences arising
from a nonmonetary item that forms part of the company’s net investment in foreign operations are recognized in a
separate component of equity in the financial statements regardless of the currency in which the monetary item is
denominated. The Globe Group does not have a net investment in foreign operations. These amendments have no impact
on the consolidated financial statements.
•
Amendments to PAS 39, Financial Instruments: Recognition and Measurement, (a) Amendment for financial guarantee
contracts (issued August 2005), amended the scope of PAS 39 to require financial guarantee contracts that are not
considered as insurance contracts to be recognized initially at fair value and to be remeasured at the higher of the amount
determined in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets and the amount initially
recognized less, when appropriate, cumulative amortization recognized in accordance with PAS 18, Revenue;
(b) Amendment for hedges of forecast intragroup transactions (issued April 2005), allow the foreign currency risk of a
highly probable forecast intragroup transaction to qualify as a hedged item in a cash flow hedge provided that the
transaction is denominated in a currency other than the functional currency of the entity entering into transaction and that
the foreign currency risk will affect the statements of income; and (c) Amendment for the fair value option (issued June
2005), prescribes the conditions under which the fair value option on classification of financial instruments at fair value
through profit or loss (FVPL) maybe used. Adoption of these amendments did not have a significant impact on the
consolidated financial statements.
•
Philippine Interpretation IFRIC 4, Determining Whether an Arrangement Contains a Lease, provides for guidance in
determining whether arrangements contain a lease to which lease accounting must be applied. Adoption of this
Interpretation did not have a significant impact on the consolidated financial statements.
2.5 Future Changes in Accounting Policies
PFRS 7, Financial Instruments: Disclosures
PFRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of
qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum
disclosures about credit risk, liquidity risk and market risk, as well as sensitivity analysis to market risk. It replaces PAS 30,
Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and the disclosure requirements in PAS 32,
Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under PFRS. The Globe Group will
adopt PFRS 7 beginning January 1, 2007.
Amendments to PAS 1, Presentation of Financial Statements
The amendments to PAS 1 introduce disclosures about the level of an entity’s capital and how it manages capital. The Globe
Group will apply the amendments to PAS 1 starting January 1, 2007.
The Globe Group is currently assessing the impact of PFRS 7 and the amendments to PAS 1 and expects that the main
additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by PFRS 7 and the
amendments to PAS 1.
Philippine Interpretation IFRIC 8, Scope of PFRS 2
This Interpretation becomes effective for financial years beginning on or after May 1, 2006. This Interpretation requires
PFRS 2 to be applied to any arrangements where equity instruments are issued for consideration which appears to be less than
fair value. The Globe Group will adopt Philippine Interpretation IFRIC 8 starting January 1, 2007. As equity instruments are
only issued to employees in accordance with the employee share scheme, the Globe Group does not expect the Interpretation
to have significant impact on its consolidated financial statements.
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
This Interpretation was issued in March 2006 and becomes effective for financial years beginning on or after June 1, 2006. This
Interpretation establishes that the date to assess the existence of an embedded derivative is the date an entity first becomes a
party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows. The
Globe Group will adopt Philippine Interpretation IFRIC 9 starting January 1, 2007. The Globe Group expects that the adoption
of this Interpretation will have no impact on the consolidated financial statements.
Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment
This Interpretation, which becomes effective for financial years beginning on or after November 1, 2006, provides that the
frequency of financial reporting does affect the amount of impairment charge to be recognized in the annual financial reporting
with respect to goodwill and AFS investments. It prohibits the reversal of impairment losses on goodwill and AFS equity
investments recognized in the interim financial reports even if impairment is no longer present at the annual balance sheet date.
The Globe Group will adopt Philippine Interpretation IFRIC 10 starting January 1, 2007. This Interpretation is not expected to
have a significant impact on the consolidated financial statements of the Globe Group.
Philippine Interpretation IFRIC 11, IFRS 2 - Group and Treasury Share Transactions
This Interpretation will be effective January 1, 2008 for the Globe Group. This Interpretation requires arrangements whereby an
employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme by the entity even if
(a) the entity chooses or is required to buy those equity instruments (e.g. treasury shares) from another party, or
(b) the shareholder(s) of the entity provide the equity instruments needed. It also provides guidance on how subsidiaries, in
their separate financial statements, account for such schemes when their employees receive rights to the equity instruments of
the parent. The Globe Group does not expect this Interpretation to have a significant impact on its consolidated financial
statements.
Philippine Interpretation IFRIC 12, Service Concession Arrangement
This Interpretation will become effective January 1, 2008. This Interpretation covers contractual arrangements arising from
public-to-private service concession arrangements if control of the assets remain in public hands but the private sector operator
is responsible for construction activities as well as for operating and maintaining the public sector infrastructure. This
Interpretation will have no impact on the consolidated financial statements of the Globe Group as this is not relevant to the
Globe Group’s current operations.
PFRS 8, Operating Segments
The Globe Group will adopt PFRS 8, Operating Segments, effective January 1, 2009. PFRS 8 will replace PAS 14, Segment
Reporting, and adopts a management approach to reporting segment information. The information reported would be that
which management uses internally for evaluating the performance of operating segments and allocating resources to those
segments. Such information may be different from that reported in the balance sheet and statement of income and companies
will need to provide explanations and reconciliations of the differences. The Globe Group will assess the impact of this
standard to its current manner of reporting segment information.
2.6 Significant Accounting Policies
2.6.1
Revenue Recognition
The Globe Group provides wireless services and wireline voice and data communication services which are both
provided under postpaid and prepaid arrangements.
Revenue is recognized when the delivery of the products or services has occurred and collectibility is reasonably
assured.
Revenue is stated at amounts invoiced and accrued to customers, taking into consideration the bill cycle cut-off (for
postpaid subscribers), the amount charged against preloaded airtime value (for prepaid subscribers), switchmonitored traffic (for carriers and content providers) and excludes value added tax (VAT) and overseas
communication tax. Inbound traffic revenues, net of estimated prompt payment discount, and outbound traffic
charges, are accrued based on actual volume of traffic monitored by Globe Group’s network and in the traffic
settlement system.
2.6.1.1
Service Revenue
2.6.1.1.1
Subscribers
Revenues from subscribers principally consist of: (1) fixed monthly service fees (for postpaid
wireless and wireline voice and data subscribers and wireless prepaid subscription fees for
discounted promotional short messaging services (SMS); (2) usage of airtime and toll fees
for local, domestic and international long distance calls in excess of consumable fixed
monthly service fees, less (a) bonus airtime credits, airtime on free Subscribers’
Identification module (SIM) for SIM swap transactions and loyalty discounts, (b) prepaid
reload discounts, and (c) interconnection fees; (3) revenues from value added services
(VAS) such as SMS in excess of consumable fixed monthly service fees (for postpaid) and
free SMS allocations (for prepaid) and multimedia messaging services (MMS), content
downloading and infotext services, net of interconnection fees and payout to content
providers; (4) inbound revenues from other carriers which terminate their calls to the Globe
Group’s network less estimated prompt payment discount; (5) revenues from international
roaming services; (6) usage of broadband and internet services in excess of fixed monthly
service fees; and (7) one-time registration fees (for postpaid wireless subscribers) and onetime service connection fees (for wireline voice and data subscribers).
Postpaid service arrangements include fixed monthly service fees, which are recognized
over the subscription period on a pro-rata basis. Telecommunications services provided to
postpaid subscribers are billed throughout the month according to the bill cycles of
subscribers. As a result of bill cycle cut-off, monthly service revenues earned but not yet
billed at end of the month are estimated and accrued. These estimates are based on actual
usage less estimated consumable usage using historical ratio of consumable usage over
billable usage.
Proceeds from over-the-air reloading services and the sale of prepaid cards are deferred
and shown as “Unearned revenues” in the consolidated balance sheets. Revenue is
recognized upon actual usage of airtime value net of discounts on promotional calls and
SMS and bonus reload. Unused airtime value is recognized as revenue upon expiration.
2.6.1.1.2
Traffic
Inbound revenues refer to traffic originating from other telecommunications providers
terminating to the Globe Group’s network, while outbound charges represent traffic sent out
or mobile content delivered using agreed termination rates and/or revenue sharing with
other foreign and local carriers and content providers. Adjustments are made to the accrued
amount for discrepancies between the traffic volume per Globe Group’s records and per
records of the other carriers and content providers as these are determined and/or mutually
agreed upon by the parties. Uncollected inbound revenues are shown as traffic settlements
receivable under the “Receivables” account, while unpaid outbound charges are shown as
accounts payable and traffic settlements payable under the “Accounts payable and accrued
expenses” account in the consolidated balance sheets unless a legal right of offset exists.
Prompt payment discount is recognized based on the Globe Group’s estimate of the
probability and amount of availment. Based on the established historical pattern of discount
availments of the carriers, the Globe Group recorded inbound revenues net of the estimated
prompt payment discount as of December 31, 2006.
2.6.1.2
Nonservice revenue
Proceeds from sale of handsets, phonekits, wireline telephone sets, SIM packs, and other phone
accessories are recognized upon delivery of the item to customers. The related costs of handsets,
phonekits, wireline telephone sets, SIM packs and accessories sold to customers are presented as “Cost of
sales” in the consolidated statements of income.
2.6.1.3
Others
Interest income is recognized as it accrues using the effective interest rate method.
Lease income from operating lease is recognized on a straight-line basis over the lease term.
Dividend income is recognized when the Globe Group’s right to receive payment is established.
2.6.2
Subscriber Acquisition and Retention Costs
The related costs incurred in connection with the acquisition of subscribers are charged against current operations.
Subscriber acquisition costs primarily include commissions, handset and phonekit subsidies and selling expenses.
Handset and phonekit subsidies represent the difference between the book value of handsets, accessories and SIM
cards (included in the “Cost of sales” account), and the price offered to the subscribers (included in the “Nonservice
revenues” account). Retention costs for existing postpaid subscribers are in the form of free handsets and bill credits.
Free handsets are charged against current operations and included under the “General, selling and administrative
expenses” account in the consolidated statements of income. Bill credits are deducted from service revenues upon
application against qualifying subscriber bills.
2.6.3
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash with original maturities of three months or less from date of placement and that
are subject to an insignificant risk of changes in value.
2.6.4
Financial Instruments
2.6.4.1
Accounting Policies Effective January 1, 2005
2.6.4.1.1
General
Financial instruments are recognized in the Globe Group’s consolidated balance sheets
when the Globe Group becomes a party to the contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or convention in the marketplace are recognized on the settlement
date.
Financial instruments are recognized initially at fair value of the consideration given (in the
case of an asset) or received (in the case of a liability). Except for financial instruments at
FVPL, the initial measurement of financial assets includes transaction costs. The Globe
Group classifies its financial assets into the following categories: financial assets at FVPL,
held-to-maturity (HTM) investments, AFS investments, and loans and receivables. The
Globe Group classifies its financial liabilities into financial liabilities at FVPL and other
financial liabilities. The classification depends on the purpose for which the investments
were acquired and whether they are quoted in an active market. Management determines
the classification of its investments at initial recognition and, where allowed and appropriate,
re-evaluates such designation at every reporting date.
The fair value for financial instruments traded in active markets at the balance sheet date is
based on their quoted market price or dealer price quotations (bid price for long positions
and ask price for short positions), without any deduction for transaction costs. When current
bid and asking prices are not available, the price of the most recent transaction provides
evidence of the current fair value as long as there has not been a significant change in
economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined
by using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist,
option pricing models, and other relevant valuation models. Any difference noted between
the fair value and the transaction price is treated as expense or income, unless it qualifies
for recognition as some type of asset or liability.
Where the transaction price in a non-active market is different from the fair value of other
observable current market transactions in the same instrument or based on a valuation
technique whose variables include only data from observable market, the Globe Group
recognizes the difference between the transaction price and fair value (a “Day 1” profit) in
the consolidated statements of income. In cases where not observable data is used, the
difference between the transaction price and model value is only recognized in the
consolidated statements of income when the inputs become observable or when the
instrument is derecognized. For each transaction, the Globe Group determines the
appropriate method of recognizing the “Day 1” profit amount.
2.6.4.1.2
Financial Assets or Financial Liabilities at FVPL
This category consists of financial assets or financial liabilities that are held for trading or
designated by management as at FVPL on initial recognition. Derivative instruments,
except those covered by hedge accounting relationships, are classified under this category.
Financial assets or financial liabilities at FVPL are recorded in the consolidated balance
sheets at fair value, with changes in fair value being recorded in the consolidated
statements of income. Interest earned or incurred is recorded in interest income or
expense, respectively, while dividend income is recorded when the right of payment has
been established.
Financial assets or financial liabilities are classified in this category as designated by
management on initial recognition when any of the following criteria are met:
•
the designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses
on a different basis; or
•
the assets and liabilities are part of a group of financial assets, financial liabilities or
both which are managed and their performance are evaluated on a fair value basis, in
accordance with a documented risk management or investment strategy; or
•
the financial instrument contains an embedded derivative, unless the embedded
derivative does not significantly modify the cash flows or it is clear, with little or no
analysis, that it would not be separately recorded.
As of December 31, 2006, the Globe Group has not designated any financial asset or
financial liability at FVPL.
2.6.4.1.3
HTM investments
HTM investments are non-derivative financial assets with fixed or determinable payments
and fixed maturities for which the Globe Group’s management has the positive intention and
ability to hold to maturity. Where the Globe Group sells other than an insignificant amount
of HTM investments, the entire category would be tainted and reclassified as AFS
investments. After initial measurement, HTM investments are subsequently measured at
amortized cost using the effective interest rate method, less any impairment losses.
Amortized cost is calculated by taking into account any discount or premium on acquisition
and fees that are an integral part of the effective interest rate. The amortization is included
in “Interest income” in the consolidated statements of income. Gains and losses are
recognized in income when the HTM investments are derecognized and impaired, as well
as through the amortization process. The effects of restatement of foreign currencydenominated HTM investments are recognized in the consolidated statements of income.
2.6.4.1.4
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not
quoted in an active market. They are not entered into with the intention of immediate or
short-term resale and are not classified as financial assets held for trading, designated as
AFS investments or designated at FVPL. This accounting policy relates both to the balance
sheet caption “Receivables”, which arise primarily from subscriber and traffic revenues and
other types of receivables, and “Short-term investments”, which arise primarily from
unquoted debt securities.
Receivables are recognized initially at fair value, which normally pertains to the billable
amount. After initial measurement, receivables are subsequently measured at amortized
cost using the effective interest rate method, less any allowance for impairment losses.
Amortized cost is calculated by taking into account any discount or premium on the issue
and fees that are an integral part of the effective interest rate. Penalties, termination fees
and surcharges on past due accounts of postpaid subscribers are recognized as revenues
upon collection. The losses arising from impairment of receivables are recognized in the
“Impairment losses and others” account in the consolidated statements of income. The
level of allowance for impairment losses is evaluated by management on the basis of
factors that affect the collectibility of accounts (see accounting policy on 2.6.4.2 Impairment
of Financial Assets).
Short-term investments are recognized initially at fair value, which normally pertains to the
consideration paid. Similar to receivables, subsequent to initial recognition, short-term
investments are measured at amortized cost using the effective interest rate method, less
any allowance for impairment losses. In 2006, certain short-term investments were
presented as AFS and HTM investments in the consolidated balance sheets. Accordingly,
the 2005 comparative figures have been re-presented to conform to the current year’s
presentation.
2.6.4.1.5
AFS investments
AFS investments are those investments which are designated as such or do not qualify to
be classified as designated as FVPL, HTM investments or loans and receivables. They are
purchased and held indefinitely, and may be sold in response to liquidity requirements or
changes in market conditions. They include equity investments, money market papers and
other debt instruments.
After initial measurement, AFS investments are subsequently measured at fair value.
Interest earned on holding AFS investments are reported as interest income using the
effective interest rate. The unrealized gains and losses arising from the fair valuation of
AFS investments are excluded from reported earnings and are reported as “Cumulative
translation adjustment” (net of tax where applicable) in the equity section of the consolidated
balance sheets. When the investment is disposed of, the cumulative gains or losses
previously recognized in equity is recognized in the consolidated statements of income.
When the fair value of AFS investments cannot be measured reliably because of lack of
reliable estimates of future cash flows and discount rates necessary to calculate the fair
value of unquoted equity instruments, these investments are carried at cost, less any
allowance for impairment losses. Dividends earned on holding AFS investments are
recognized in the consolidated statements of income when the right of payment has been
established.
The losses arising from impairment of such investments are recognized as “Impairment
losses and others” in the consolidated statements of income.
2.6.4.1.6
Other financial liabilities
Issued financial instruments or their components, which are not designated at FVPL are
classified as other financial liabilities where the substance of the contractual arrangement
results in the Globe Group having an obligation either to deliver cash or another financial
asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount
of cash or another financial asset for a fixed number of own equity shares. The components
of issued financial instruments that contain both liability and equity elements are accounted
for separately, with the equity component being assigned the residual amount after
deducting from the instrument as a whole the amount separately determined as the fair
value of the liability component on the date of issue. After initial measurement, other
financial liabilities are subsequently measured at amortized cost using the effective interest
rate method. Amortized cost is calculated by taking into account any discount or premium
on the issue and fees that are an integral part of the effective interest rate. Any effects of
restatement of foreign currency-denominated liabilities are recognized in the consolidated
statements of income.
This accounting policy applies primarily to the Globe Group’s debt, accounts payable and
other obligations that meet the above definition (other than liabilities covered by other
accounting standards, such as income tax payable).
2.6.4.1.7
Derivative Instruments
2.6.4.1.7.1
General
The Globe Group enters into short-term deliverable and nondeliverable currency
forward contracts to manage its exchange exposure related to short-term foreign
currency-denominated monetary assets and liabilities. The Globe Group also enters
into structured currency forward contracts where call options are sold in combination
with such currency forward contracts.
The Globe Group enters into deliverable prepaid forward contracts that entitle the
Globe Group to a discount on the contracted forward rate. Such contracts contain
embedded currency derivatives that are bifurcated and marked-to-market through the
consolidated statements of income, with the host debt instrument being accreted to its
face value.
The Globe Group enters into short-term interest rate swap contracts to manage its
interest rate exposures on certain short-term floating rate peso investments. The Globe
Group also enters into long-term currency and interest rate swap contracts to manage
its foreign currency and interest rate exposures arising from its long-term loan. Such
swap contracts are sometimes entered into in combination with options. The Globe
Group also sells covered currency options as cost subsidy for outstanding currency
swap contracts.
2.6.4.1.7.2
Recognition and measurement
Derivative financial instruments are recognized and measured in the consolidated
balance sheets at fair values. The method of recognizing the resulting gain or loss
depends on whether the derivative is designated as a hedge of an identified risk and
qualifies for hedge accounting treatment. The objective of hedge accounting is to
match the impact of the hedged item and the hedging instrument in the consolidated
statements of income. To qualify for hedge accounting, the hedging relationship must
comply with strict requirements such as the designation of the derivative of an
identified risk exposure, hedge documentation, probability of occurrence of the
forecasted transaction in a cash flow hedge, assessment and measurement of hedge
effectiveness, and reliability of the measurement bases of the derivative instruments.
Upon inception of the hedge, the Globe Group documents the relationship between the
hedging instrument and the hedged item, its risk management objective and strategy
for undertaking various hedge transactions, and the details of the hedging instrument
and the hedged item. The Globe Group also documents its hedge effectiveness
assessment methodology, both at the hedge inception and on an ongoing basis, as to
whether the derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows of hedged items.
Hedge effectiveness is likewise measured, with any ineffectiveness being reported
immediately in the consolidated statements of income.
2.6.4.1.7.3
Types of Hedges
The Globe Group designates derivatives which qualify as accounting hedges as either:
(a) a hedge of the fair value of a recognized fixed rate asset, liability or unrecognized firm
commitment (fair value hedge); or (b) a hedge of the cash flow variability of recognized
floating rate asset and liability or forecasted transaction (cash flow hedge).
Fair Value Hedges
Fair value hedges are hedges of the exposure to variability in the fair value of
recognized assets, liabilities or unrecognized firm commitments. The gain or loss on a
derivative instrument designated and qualifying as a fair value hedge, as well as the
offsetting loss or gain on the hedged item attributable to the hedged risk are
recognized in the consolidated statements of income in the same accounting period.
Hedge effectiveness is determined based on the hedge ratio of the fair value changes
of the hedging instrument and the underlying hedged item. When the hedge ceases to
be highly effective, hedge accounting is discontinued.
As of December 31, 2006 and 2005, there were no derivatives designated and
accounted for as fair value hedges.
Cash Flow Hedges
The Globe Group designates as cash flow hedges the following derivatives: (a) certain
floating-to-fixed cross currency swaps as cash flow hedges of both the currency and
interest rate risks of the floating rate foreign currency-denominated obligations; (b)
certain principal only swaps and fixed-to-fixed cross currency swaps as cash flow
hedges of the currency risk of certain fixed rate foreign currency-denominated
obligations; and (c) interest rate swaps as cash flow hedge of the interest rate risk of a
floating rate foreign currency-denominated obligation.
A cash flow hedge is a hedge of the exposure to variability in future cash flows related
to a recognized asset, liability or a forecasted transaction. Changes in the fair value of
a hedging instrument that qualifies as a highly effective cash flow hedge are
recognized in “Cumulative translation adjustment,” which is a component of equity. Any
hedge ineffectiveness is immediately recognized in the consolidated statements of
income.
If the hedged cash flow results in the recognition of a nonfinancial asset or liability,
gains and losses previously recognized directly in equity are transferred from equity
and included in the initial measurement of the cost or carrying value of the asset or
liability. Otherwise, for all other cash flow hedges, gains and losses initially recognized
in equity are transferred from equity to consolidated statements of income in the same
period or periods during which the hedged forecasted transaction or recognized asset
or liability affect earnings.
Hedge accounting is discontinued prospectively when the hedge ceases to be highly
effective. When hedge accounting is discontinued, the cumulative gains or losses on
the hedging instrument that has been reported in “Cumulative translation adjustment”
is retained in the consolidated statements of changes in equity until the hedged
transaction impacts the consolidated statements of income. When the forecasted
transaction is no longer expected to occur, any net cumulative gains or losses
previously reported in “Cumulative translation adjustment” is recognized immediately in
the consolidated statements of income.
2.6.4.1.7.4
Other Derivative Instruments Not Accounted for as Hedges
Certain freestanding derivative instruments that provide economic hedges under the
Globe Group’s policies either do not qualify for hedge accounting or are not designated
as accounting hedges. Changes in the fair values of derivative instruments not
designated as hedges are recognized immediately in the consolidated statements of
income. For bifurcated embedded derivatives in financial and nonfinancial contracts
that are not designated or do not qualify as hedges, changes in the fair values of such
transactions are recognized in the consolidated statements of income.
2.6.4.1.8
Offsetting
Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated balance sheets if, and only if, there is a currently enforceable legal right to
offset the recognized amounts and there is an intention to settle on a net basis, or to realize
the asset and settle the liability simultaneously. This is not generally the case with master
netting agreements; thus, the related assets and liabilities are presented gross in the
consolidated balance sheets.
2.6.4.2
Impairment of Financial Assets
The Globe Group assesses at each balance sheet date whether a financial asset or group of financial
assets is impaired.
2.6.4.2.1
Assets carried at amortized cost
If there is objective evidence that an impairment loss on financial assets carried at amortized
cost (e.g., receivables) has been incurred, the amount of the loss is measured as the
difference between the asset’s carrying amount and the present value of estimated future
cash flows discounted at the asset’s original effective interest rate. Time value is generally not
considered when the effect of discounting is not material. The carrying amount of the asset is
reduced through the use of an allowance account. The amount of the loss shall be recognized
in the consolidated statements of income.
The Globe Group first assesses whether objective evidence of impairment exists individually
for financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the
asset is included in a group of financial assets with similar credit risk characteristics and that
group of financial assets is collectively assessed for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is or continues to be recognized
are not included in a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease
can be related objectively to an event occurring after the impairment was recognized, the
previously recognized impairment loss is reversed. Any subsequent reversal of an
impairment loss is recognized in the consolidated statements of income to the extent that
the carrying value of the asset does not exceed its amortized cost at the reversal date.
With respect to receivables, the Globe Group performs a regular review of the age and
status of these accounts, designed to identify accounts with objective evidence of
impairment and provide the appropriate allowance for impairment losses. The review is
accomplished using a combination of specific and collective assessment approaches, with
the impairment losses being determined for each risk grouping identified by the Globe
Group.
2.6.4.2.1.1
Subscribers
Full allowance for impairment losses is provided for receivables from permanently
disconnected wireless and wireline subscribers. Permanent disconnections are made
after a series of collection steps following nonpayment by postpaid subscribers. Such
permanent disconnections generally occur within a predetermined period from
statement date.
For receivables from active subscriber accounts, prior to the third quarter of 2006, full
allowance for impairment losses is generally provided for those that are past due by 90
days for individual wireless accounts and 120 days for corporate wireless accounts.
Starting September 2006, the allowance for impairment losses is determined based on
the results of the net flow to write-off methodology. Net flow tables are derived from
account-level monitoring of subscriber accounts between different age brackets, from
current to 1 day past due to 210 days past due. The net flow to write-off methodology
relies on the historical data of net flow tables to establish a percentage (“net flow rate”)
of subscriber receivables that are current or in any state of delinquency as of reporting
date that will eventually result in write-off. The allowance for impairment losses is then
computed based on the outstanding balances of the receivables as of balance sheet
date and the net flow rates determined for the current and each delinquency bracket.
The impact of these enhancements on the Globe Group’s recorded impairment losses
on receivables is not material.
For active residential and business wireline voice subscribers, full allowance is
generally provided for outstanding receivables that are past due by 90 and 150 days,
respectively. Full allowance is likewise provided for receivables from wireline data
corporate accounts that are past due by 150 days.
Regardless of the age of the account, additional impairment losses are also made for
wireless and wireline accounts specifically identified to be doubtful of collection when
there is information on financial incapacity after considering the other contractual
obligations between the Globe Group and the subscriber.
2.6.4.2.1.2
Traffic
Full allowance is generally provided after review of the status of settlement with the
carriers for net receivables not settled within 10 months and 6 months for international
roaming partners.
Additional impairment losses are made for accounts specifically identified to be
doubtful of collection regardless of the age of the account.
2.6.4.2.2
AFS financial assets carried at cost
If there is objective evidence that an impairment loss has been incurred on an unquoted
equity instrument that is not carried at fair value because its fair value cannot be reliably
measured, or on a derivative asset that is linked to and must be settled by delivery of such
unquoted equity instrument, the amount of the loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows discounted
at the current market rate of return for a similar financial asset. The carrying amount of the
asset is reduced through use of an allowance account.
2.6.4.2.3
AFS financial assets carried at fair value
If an AFS asset carried at fair value is impaired, an amount comprising the difference
between its cost and its current fair value, less any impairment loss previously recognized in
the consolidated statements of income, is transferred from equity to the consolidated
statements of income. Reversals of impairment losses in respect of equity instruments
classified as AFS are not recognized in the consolidated statements of income. Reversals
of impairment losses on debt instruments are reversed through the consolidated statements
of income if the increase in fair value of the instrument can be objectively related to an event
occurring after the impairment loss was recognized in the consolidated statements of
income.
2.6.4.3
Derecognition of Financial Instruments
2.6.4.3.1
Financial Asset
A financial asset (or, where applicable a part of a financial asset or part of a group of
financial assets) is derecognized where:
•
the rights to receive cash flows from the asset have expired;
•
the Globe Group retains the right to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to a third party under a
“pass-through” arrangement; or
•
the Globe Group has transferred its rights to receive cash flows from the asset and
either (a) has transferred substantially all the risks and rewards of ownership or (b) has
neither transferred nor retained the risk and rewards of the asset but has transferred
the control of the asset.
Where the Globe Group has transferred its rights to receive cash flows from an asset and
has neither transferred nor retained substantially all the risks and rewards of the asset nor
transferred control of the asset, the asset is recognized to the extent of the Globe Group’s
continuing involvement in the asset.
2.6.4.3.2
Financial Liability
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or expired. Where an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, and the difference in the respective
carrying amounts is recognized in the consolidated statements of income.
2.6.4.4
Accounting Policies Prior to January 1, 2005
Investments in government securities are carried at amortized cost. The amortization of premium or
accretion of discount is computed using the straight-line method.
Translation gains or losses on currency forward and swap contracts are computed by multiplying the
notional amounts by the difference between the exchange spot rates prevailing at the balance sheet date
and the exchange spot rates at the contract inception date (or the last reporting date). The resulting
translation gains or losses on the currency forward and swap contracts are offset against the translation
losses or gains on the underlying foreign currency-denominated monetary assets and liabilities. The related
revaluation amounts on the translation of currency forward and currency swap contracts are included in the
“Other noncurrent assets” account in the consolidated balance sheets, including the carrying amounts of
forward premiums or discounts which are amortized over the term of the related contracts.
The mark-to-market gains or losses on these contracts, as well as the other types of derivative contracts,
are not considered in the determination of consolidated net income but are disclosed in the related notes to
the consolidated financial statements.
2.6.5
Inventories and Supplies
Inventories and supplies are stated at the lower of cost or net realizable value (NRV). NRV for handsets and
accessories and wireline telephone sets is the selling price in the ordinary course of business less direct costs to sell,
while NRV for SIM packs, call cards, spare parts and supplies consists of the related replacement costs. In
determining the NRV, the Globe Group considers any adjustment necessary for obsolescence, which is generally
provided 100% for nonmoving items for more than one year. Cost is determined using the moving average method.
Supplies of SIM packs are consumed upon activation of the services.
2.6.6
Property and Equipment
Property and equipment, except land, are carried at cost less accumulated depreciation, amortization and impairment
losses. Land is stated at cost less any impairment losses.
The initial cost of an item of property and equipment includes its purchase price and any cost attributable in bringing
the property and equipment to its intended location and working condition. Cost also includes: (a) interest and other
financing charges on borrowed funds used to finance the acquisition of property and equipment to the extent incurred
during the period of installation and construction; and (b) asset retirement obligations (ARO) specifically on property
and equipment installed/constructed on leased properties.
Subsequent costs are capitalized as part of property and equipment only when it is probable that future economic
benefits associated with the item will flow to the Globe Group and the cost of the item can be measured reliably. All
other repairs and maintenance are charged against current operations as incurred.
Assets under construction are carried at cost and transferred to the related property and equipment account when the
construction or installation and related activities necessary to prepare the property and equipment for their intended
use are complete, and the property and equipment are ready for service.
Depreciation and amortization of property and equipment commences once the property and equipment are available
for use and computed using the straight-line method over the estimated useful lives (EUL) of the assets regardless of
utilization.
Leasehold improvements are amortized over the shorter of their EUL or the corresponding lease terms.
The EUL of property and equipment are reviewed annually based on expected asset utilization as anchored on
business plans and strategies that also consider expected future technological developments and market behavior to
ensure that the period of depreciation and amortization is consistent with the expected pattern of economic benefits
from items of property and equipment.
When property and equipment is retired or otherwise disposed of, the cost and the related accumulated depreciation,
amortization and impairment losses, are removed from the accounts and any resulting gain or loss is credited to or
charged against current operations.
2.6.7
ARO
The Globe Group is legally required under various contracts to restore leased property to its original condition and to
bear the cost of dismantling and deinstallation at the end of the contract period. The Globe Group recognizes the
present value of these obligations and capitalizes these costs as part of the balances of the related property and
equipment accounts, which are depreciated on a straight-line basis over the useful life of the related property and
equipment or the contract period, whichever is shorter.
2.6.8
Investment Property
Investment property is initially measured at cost, including transaction costs. Subsequent to initial recognition,
investment property is carried at cost less accumulated depreciation and any impairment losses.
Expenditures incurred after the investment property has been put in operation, such as repairs and maintenance
costs, are normally charged against income in the period in which the costs are incurred.
Depreciation of investment property is computed using the straight-line method over its useful life, regardless of
utilization. The EUL and the depreciation method are reviewed periodically to ensure that the period and method of
depreciation are consistent with the expected pattern of economic benefits from items of investment properties.
Transfers are made to investment property, when, and only when, there is a change in use, evidenced by the end of
the owner occupation, commencement of an operating lease to another party or completion of construction or
development. Transfers are made from investment property when, and only when, there is a change in use,
evidenced by the commencement of owner occupation or commencement of development with the intention to sell.
Investment property is derecognized when it has either been disposed of or permanently withdrawn from use and no
future benefit is expected from its disposal. Any gain or loss on the derecognition of an investment property is
recognized in the consolidated statements of income in the period of derecognition.
2.6.9
Intangible Assets
Intangible assets acquired separately are capitalized at cost. Subsequently, intangible assets are measured at cost
less accumulated amortization and any impairment losses. The EUL of intangible assets with finite lives are assessed
at the individual asset level. Intangible assets with finite life are amortized over their useful lives. The periods and
method of amortization for intangible assets with finite useful lives are reviewed annually or more frequently when an
indicator of impairment exists.
Costs incurred to acquire software (not an integral part of its related hardware or equipment ) and
telecommunications equipment licenses and bring it to its intended use are capitalized as intangible assets. Costs
directly associated with the development of identifiable software that generate expected future benefits to the Globe
Group are recognized as intangible assets. All other costs of developing and maintaining software programs are
recognized as expense when incurred.
A gain or loss arising from derecognition of an intangible asset is measured as the difference between the net
disposal proceeds and the carrying amount of the asset and is recognized in the consolidated statements of income
when the asset is derecognized.
2.6.10
Debt Issuance Costs
Prior to January 1, 2005, issuance, underwriting and other related expenses incurred in connection with the issuance
of debt instruments are deferred and amortized over the terms of the instruments using the straight-line method and
unamortized debt issuance costs are shown under the “Other noncurrent assets” account in the consolidated balance
sheets. Effective January 1, 2005, these were amortized using the effective interest method and unamortized debt
issuance costs are netted against the related carrying value of the debt instrument in the consolidated balance sheets
(see accounting policy on 2.6.4 Financial Instruments).
2.6.11
Investments in an Associate and a Joint Venture
Investments in an associate and a joint venture (JV) are accounted for under the equity method, less any impairment
losses. An associate is an entity in which the Globe Group has a significant influence and which is neither a
subsidiary nor a JV. A JV is an entity, not being a subsidiary nor an associate, in which the Globe Group exercises
joint control together with one or more venturers.
Under the equity method, the investments in an associate and a JV are carried in the consolidated balance sheets at
cost plus post-acquisition changes in the Globe Group’s share of net assets of the associate and JV, less any
allowance for impairment losses. The consolidated statements of income reflect the share of the results of operations
of the associate and JV. Where there has been a change recognized directly in the associate’s and JV’s equity, the
Globe Group recognizes its share of any changes and discloses this, when applicable, in the consolidated statements
of changes in equity.
2.6.12
Impairment of Nonfinancial Assets
An assessment is made at the balance sheet date to determine whether there is any indication that an asset may be
impaired, or whether there is any indication that an impairment loss previously recognized for an asset in prior periods
may no longer exist or may have decreased. If any such indication exists and when the carrying value of an asset
exceeds its estimated recoverable amount, the asset or cash generating unit to which the asset belongs is written
down to its recoverable amount. The recoverable amount of an asset is the greater of its net selling price and value in
use. Recoverable amounts are estimated for individual assets or investments or, if it is not possible, for the cashgenerating unit to which the asset belongs. For impairment loss on specific assets or investments, the recoverable
amount represents the net selling price.
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An
impairment loss is charged against operations in the year in which it arises. A previously recognized impairment loss
is reversed only if there has been a change in estimate used to determine the recoverable amount of an asset,
however, not to an amount higher than the carrying amount that would have been determined (net of any
accumulated depreciation and amortization for property and equipment) had no impairment loss been recognized for
the asset in prior years. A reversal of an impairment loss is credited to current operations.
2.6.13
Income Taxes
2.6.13.1
Current Tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the tax authority. The tax rates and tax laws used to compute
the amount are those that are enacted or substantively enacted as at the balance sheet date.
2.6.13.2
Deferred Tax
Deferred income tax is provided using the balance sheet liability method on all temporary differences,
with certain exceptions, at balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred income tax assets are recognized for all deductible temporary differences with
certain exceptions and carryforward benefits of unused tax credits from excess minimum corporate
income tax (MCIT) over regular corporate income tax and net operating loss carryover (NOLCO) to the
extent that it is probable that taxable income will be available against which the deductible temporary
differences and the carryforward benefits of unused MCIT and NOLCO can be used.
Deferred income tax is not recognized when it arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the time of transaction, affects neither the
accounting profit nor taxable profit or loss. Deferred income tax liabilities are not provided on
nontaxable temporary differences associated with investment in a domestic associate and a JV.
The carrying amounts of deferred income tax assets are reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient taxable income will be available to
allow all or part of the deferred income tax assets to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in
the year when the assets are realized or the liabilities are settled based on tax rates (and tax laws)
that have been enacted or substantially enacted as at the balance sheet date.
2.6.14
Provisions
Provisions are recognized when: (a) the Globe Group has present obligation (legal or constructive) as a result of a
past event; (b) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will
be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If the effect of
the time value of money is material, provisions are determined by discounting the expected future cash flows at a pretax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific
to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as
interest expense under “Financing costs” in the consolidated statements of income.
2.6.15
Share-based Payment Transactions
Certain employees (including directors) of the Globe Group receive remuneration in the form of share-based payment
transactions, whereby employees render services in exchange for shares or rights over shares (“equity-settled
transactions“) (see Note 18).
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which
they are granted. In valuing equity-settled transactions, vesting conditions, including performance conditions, other
than market conditions (conditions linked to share prices), shall not be taken into account when estimating the fair
value of the shares or share options at the measurement date. Instead, vesting conditions are taken into account in
estimating the number of equity instruments that will vest.
The cost of equity-settled transactions is recognized in the consolidated statements of income, together with a
corresponding increase in equity, over the period in which the service conditions are fulfilled, ending on the date on
which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognized
for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting
period has expired and the number of awards that, in the opinion of the management of the Globe Group at that date,
based on the best available estimate of the number of equity instruments, will ultimately vest.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon
a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum, an expense is recognized as if the terms
had not been modified. In addition, an expense is recognized for any increase in the value of the transaction as a
result of the modification, measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any
expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the
cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new
awards are treated as if they were a modification of the original award, as described in the previous paragraph. The
dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share
(see Note 26).
2.6.16
Treasury Stock
Treasury stock is recorded at cost and is presented as a deduction from equity. When the shares are retired, the
capital stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to
additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were
issued and to retained earnings for the remaining balance.
2.6.17
Pension Cost
Pension cost is actuarially determined using the projected unit credit method. This method reflects services rendered
by employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries.
Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes to
underlying assumptions occur. Pension cost includes current service cost, interest cost, expected return on any plan
assets, actuarial gains and losses and the effect of any curtailment or settlement.
The net pension asset recognized by the Globe Group in respect of the defined benefit pension plan is the lower of:
(a) the fair value of the plan assets less the present value of the defined benefit obligation at the balance sheet date,
together with adjustments for unrecognized actuarial gains or losses that shall be recognized in later periods; or
(b) the total of any cumulative unrecognized net actuarial losses and past service cost and the present value of any
economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The
defined benefit obligation is calculated annually by an independent actuary using the projected unit credit method.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows
using risk-free interest rates of government bonds that have terms to maturity approximating the terms of the related
pension liabilities.
A portion of actuarial gains and losses is recognized as income or expense if the cumulative unrecognized actuarial
gains and losses at the end of the previous reporting period exceeded the greater of 10% of the present value of
defined benefit obligation or 10% of the fair value of plan assets. These gains and losses are recognized over the
expected average remaining working lives of the employees participating in the plan.
2.6.18
Borrowing Costs
Borrowing costs are capitalized if these are directly attributable to the acquisition, construction or production of a
qualifying asset. Capitalization of borrowing costs commences when the activities for the asset’s intended use are in
progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets
are ready for their intended use. These costs are amortized using the straight-line method over the EUL of the related
property and equipment. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment
loss is recognized. Borrowing costs include interest charges and other related financing charges incurred in
connection with the borrowing of funds. Premiums on long-term debt are included under the “Long-term debt”
account in the consolidated balance sheets and are amortized using the effective interest rate method.
Other borrowing costs are recognized as expense in the period in which these are incurred.
2.6.19
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement
and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset
or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease
only if one of the following applies:
•
there is a change in contractual terms, other than a renewal or extension of the arrangement;
•
a renewal option is exercised or an extension granted, unless that term of the renewal or extension was initially
•
there is a change in the determination of whether fulfillment is dependent on a specified asset; or
•
there is a substantial change to the asset.
included in the lease term;
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in
circumstances gave rise to the reassessment for any of the scenarios above, and at the date of renewal or extension
period for the second scenario.
For arrangements entered into prior to January 1, 2005, the date of inception is deemed to be January 1, 2005 in
accordance with the transitional requirements of IFRIC 4.
2.6.19.1
Group as Lessee
Finance leases, which transfer to the Globe Group substantially all the risks and benefits incidental to
ownership of the leased item, are capitalized at the inception of the lease at the fair value of the
leased property or, if lower, at the present value of the minimum lease payments and included in the
“Property and equipment” account with the corresponding liability to the lessor included in the “Other
long-term liabilities” account. Lease payments are apportioned between the finance charges and
reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of
the liability. Finance charges are charged directly as interest expense.
Capitalized leased assets are depreciated over the shorter of the EUL of the assets and the respective
lease terms.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as an expense in the
consolidated statements of income on a straight-line basis over the lease term.
2.6.19.2
Group as Lessor
Finance leases, where the Globe Group transfers substantially all the risk and benefits incidental to
ownership of the leased item to the lessee, are included in the consolidated balance sheets under
“Prepayments and other current assets” account. A lease receivable is recognized equivalent to the
net investment (asset cost) in the lease. All income resulting from the receivable is included in the
“Interest income” account in the consolidated statements of income.
Leases where the Globe Group does not transfer substantially all the risk and benefits of ownership of
the assets are classified as operating leases. Initial direct costs incurred in negotiating operating
leases are added to the carrying amount of the leased asset and recognized over the lease term on
the same basis as the rental income. Contingent rents are recognized as revenue in the period in
which they are earned.
2.6.20
Selling, Advertising and Promotions Expenses
Selling, advertising and promotions expenses are charged against current operations as incurred.
2.6.21
Foreign Currency Transactions
The functional and presentation currency of the Globe Group is the Philippine Peso. Transactions denominated in
foreign currencies are recorded in Philippine Peso based on the exchange rates prevailing at the transaction dates.
Foreign currency-denominated monetary assets and liabilities are translated to Philippine Peso at the exchange rate
prevailing at the balance sheet date. Foreign exchange differentials between rate at transaction date, and rate at
settlement date or balance sheet date of foreign currency-denominated monetary assets or liabilities are credited to
or charged against current operations.
2.6.22
Earnings Per Share (EPS)
Basic EPS is computed by dividing earnings applicable to common stock by the weighted average number of
common shares outstanding, after giving retroactive effect for any stock dividends, stock splits or reverse stock splits
during the period.
Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding
during the period, after giving retroactive effect for any stock dividends, stock splits or reverse stock splits during the
period, and adjusted for the effect of dilutive options and dilutive convertible preferred shares. Outstanding stock
options will have a dilutive effect under the treasury stock method only when the average market price of the
underlying common share during the period exceeds the exercise price of the option. If the required dividends to be
declared on convertible preferred shares divided by the number of equivalent common shares, assuming such shares
are converted, would decrease the basic EPS, then such convertible preferred shares would be deemed dilutive.
Where the effect of the assumed conversion of the preferred shares and the exercise of all outstanding options have
anti-dilutive effect, basic and diluted EPS are stated at the same amount.
2.6.23
Segment Reporting
The Globe Group’s major operating business units are the basis upon which the Globe Group reports its primary
segment information. In 2005, the Globe Group started monitoring its wireline voice and data businesses as one
major converged service with similar risks and returns. The Globe Group’s business segments consist of: (1) wireless
communication services and (2) wireline communication services. The Globe Group generally accounts for
intersegment revenues and expenses at agreed transfer prices.
2.6.24
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized
in the consolidated financial statements but are disclosed when an inflow of economic benefits is probable.
2.6.25
Subsequent Events
Any post period-end event up to the date of approval of the BOD of the consolidated financial statements that
provides additional information about the Globe Group’s position at balance sheet date (adjusting event) is reflected
in the consolidated financial statements. Any post period-end event that is not an adjusting event is disclosed in the
notes to the consolidated financial statements when material.
3.
Management’s Significant Accounting Judgments and Use of Estimates
3.1 Judgments and Estimates
The preparation of the accompanying consolidated financial statements in conformity with PFRS requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s
evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ
from such estimates.
Judgments and estimates are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
3.1.1
Judgments
3.1.1.1
Leases
The Globe Group has entered into various lease agreements as lessee and lessor. The Globe Group has
determined that it retains all the significant risks and rewards on equipment and office spaces leased out on
operating lease and various items of property and equipment acquired through finance lease.
3.1.1.2
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the consolidated balance
sheets cannot be derived from active markets, they are determined using a variety of valuation techniques
that include the use of mathematical models. The input to these models is taken from observable markets
where possible, but where this is not feasible, a degree of judgment is required in establishing fair values.
The judgments include considerations of liquidity and model inputs such as correlation and volatility for
longer dated derivatives.
3.1.1.3
HTM investments
The classification as HTM investments requires significant judgment. In making this judgment, the Globe
Group evaluates its intention and ability to hold such investments to maturity. If the Globe Group fails to
keep these investments to maturity other than in certain specific circumstances - for example, selling an
insignificant amount close to maturity - it will be required to reclassify the entire portfolio as AFS
investments. The investments would therefore be measured at fair value and not at amortized cost.
3.1.1.4
Financial assets not quoted in an active market
The Globe Group classifies financial assets by evaluating, among others, whether the asset is quoted or
not in an active market. Included in the evaluation on whether a financial asset is quoted in an active
market is the determination on whether quoted prices are readily and regularly available, and whether
those prices represent actual and regularly occurring market transactions on an arm’s length basis.
3.1.2
Estimates
3.1.2.1
Revenue recognition
The Globe Group’s revenue recognition policies require management to make use of estimates and
assumptions that may affect the reported amounts of the revenues and receivables.
The Globe Group’s agreements with local and foreign carriers for inbound and outbound traffic subject to
settlements require traffic reconciliations before actual settlement is done, which may not be the actual
volume of traffic as measured by management. Initial recognition of revenues is based on observed traffic
in the network since normal historical experience adjustments are not material to the consolidated financial
statements. Differences between the amounts initially recognized and actual settlements are taken up in
the accounts upon reconciliation. However, there is no assurance that such use of estimates will not result
in material adjustments in future periods.
Starting fourth quarter of 2006, based on the established historical pattern of discount availments of the
carriers, the Globe Group recorded inbound revenues net of the estimated prompt payment discount
amounting to P
= 170.01 million as of December 31, 2006.
Total unsettled net inbound traffic revenues from local and foreign traffic carriers as of December 31, 2006,
2005 and 2004 (included under “Receivables”) amounted to P
= 1,959.17 million, P
= 3,120.37 million and
P
= 2,315.05 million, respectively (see Note 4). Total unsettled net outbound traffic to local and foreign
carriers as of December 31, 2006, 2005 and 2004 (included under “Accounts payable and accrued
expenses”) amounted to P
= 1,501.93 million, P
= 1,544.66 million and P
= 1,104.86 million, respectively (see Note
12).
3.1.2.2
Allowance for impairment losses on receivables
The Globe Group maintains an allowance for impairment losses at a level considered adequate to provide
for potential uncollectible receivables. The Globe Group performs a regular review of the age and status of
these accounts, designed to identify accounts with objective evidence of impairment and provide the
appropriate allowance for impairment losses. The review is accomplished using a combination of specific
and collective assessment approaches, with the impairment losses being determined for each risk grouping
identified by the Globe Group. The amount and timing of recorded expenses for any period would differ if
the Globe Group made different judgments or utilized different methodologies. An increase in allowance for
impairment losses would increase the recorded operating expenses and decrease current assets.
Impairment losses on receivables amounted to P
= 422.83 million, P
= 615.73 million and P
= 1,052.22 million in
2006, 2005 and 2004, respectively (see Note 22). Receivables, net of allowance for impairment losses,
amounted to P
= 5,527.91 million, P
= 6,764.13 million and P
= 5,457.91 million as of December 31, 2006, 2005
and 2004, respectively (see Note 4).
3.1.2.3
Obsolescence and market decline
The Globe Group, in determining the NRV, considers any adjustment necessary for obsolescence which is
generally provided 100% for nonmoving items for more than one year. The Globe Group adjusts the cost
of inventory to the recoverable value at a level considered adequate to reflect market decline in the value of
the recorded inventories. The Globe Group reviews the classification of the inventories and generally
provides adjustments for recoverable values of new, actively sold and slow-moving inventories by reference
to prevailing values of the same inventories in the market.
The amount and timing of recorded expenses for any period would differ if different judgments were made
or different estimates were utilized. An increase in allowance for obsolescence and market decline would
increase recorded operating expenses and decrease current assets.
Inventory obsolescence and market decline amounted to P
= 80.05 million and P
= 72.39 million in 2005 and
2004, respectively. Reversal of inventory obsolescence and market decline in 2006 amounted to
P
= 61.39 million (see Note 22).
Inventories and supplies, net of allowances, amounted to P
= 993.50 million, P
= 1,372.46 million and
P
= 1,136.89 million as of December 31, 2006, 2005 and 2004, respectively (see Note 5).
3.1.2.4
ARO
The Globe Group is legally required under various contracts to restore leased property to its original
condition and to bear the costs of dismantling and deinstallation at the end of the contract period. These
costs are accrued based on an in-house estimate, which incorporates estimates of asset retirement costs
and interest rates. The Globe Group recognizes the present value of these obligations and capitalizes the
present value of these costs as part of the balance of the related property and equipment accounts, which
are being depreciated and amortized on a straight-line basis over the useful life of the related asset or the
lease term, whichever is shorter. The market risk premium was excluded from the estimate of the fair value
of the ARO because a reasonable and reliable estimate of the market risk premium is not obtainable. Since
a market risk premium is unavailable, fair value is assumed to be the present value of the obligations. The
present value of dismantling costs is computed based on an average credit adjusted risk free rate of 7.50%
and 14.62% in 2006 and 2005, respectively. Assumptions used to compute ARO are reviewed and
updated annually.
The amount and timing of recorded expenses for any period would differ if different judgments were made
or different estimates were utilized. An increase in ARO would increase recorded operating expenses and
increase noncurrent liabilities.
As of December 31, 2006, 2005 and 2004, ARO amounted to P
= 1,316.61 million, P
= 907.05 million and
P
= 769.80 million, respectively (see Note 15).
3.1.2.5
EUL of property and equipment, investment property and intangible assets
Globe Group reviews annually the EUL of these assets based on expected asset utilization as anchored on
business plans and strategies that also consider expected future technological developments and market
behavior. It is possible that future results of operations could be materially affected by changes in these
estimates brought about by changes in the factors mentioned. A reduction in the EUL of property and
equipment, investment property and intangible assets would increase the recorded depreciation and
amortization expense and decrease noncurrent assets.
The EUL of property and equipment of the Globe Group are as follows:
Years
Telecommunications equipment:
Tower
15
Switch
10 and 15
Outside plant
10-20
Distribution dropwires
5
Cellular facilities and others
3-10
Buildings
Leasehold improvements
20
5 years or lease term, whichever is shorter
Investments in cable systems
15
Furniture, fixtures and equipment
3-5
Transportation and work equipment
2-5
The EUL of investment property is 15 years.
Intangible assets are amortized over the EUL of the related hardware or equipment ranging from 3 to 5
years or life of the telecommunications equipment where it is assigned.
In the fourth quarter of 2006, the Globe Group recognized additional depreciation on telecommunications
equipment amounting to P
= 790.06 million due to shortened remaining useful lives of certain assets resulting
from continuing upgrades made to the network and changes in estimated remaining useful lives of certain
components of network assets as a result of the application of a more comprehensive approach to
component accounting. These changes have been accounted for as change in accounting estimates.
As of December 31, 2006, 2005 and 2004, property and equipment, investment property and intangible
assets amounted to P
= 97,517.54 million, P
= 99,914.94 million and P
= 102,849.37 million, respectively (see
Notes 7, 8 and 9).
3.1.2.6
Asset impairment
The Globe Group assesses impairment of assets (property and equipment, investment property, intangible
assets and investments in an associate and a JV) whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The factors that the Globe Group considers
important which could trigger an impairment review include the following:
•
significant underperformance relative to expected historical or projected future operating results;
•
significant changes in the manner of use of the acquired assets or the strategy for the overall
•
significant negative industry or economic trends.
business; and
An impairment loss is recognized whenever the carrying amount of an asset or investment exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s net selling price and value in use.
The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction while
value in use is the present value of estimated future cash flows expected to arise from the continuing use of
an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual
assets or investments or, if it is not possible, for the cash-generating unit to which the asset belongs. For
impairment loss on specific assets or investments, the recoverable amount represents the net selling price.
In determining the present value of estimated future cash flows expected to be generated from the
continued use of the assets or holding of an investment, the Globe Group is required to make estimates
and assumptions that can materially affect the consolidated financial statements.
For the Globe Group, the cash-generating unit is the combined wireless and wireline asset groups of Globe
Telecom and Innove. This asset grouping is predicated upon the requirement contained in Executive Order
(EO) No. 109 and RA No. 7925 requiring licensees of Cellular Mobile Telephone System (CMTS) and
International Digital Gateway Facility (IGF) services to provide 400,000 and 300,000 LEC lines,
respectively, as a condition for the grant of such licenses.
In 2005, the Globe Group recognized impairment losses on certain network assets amounting to
P
= 925.77 million as a result of impairment reviews and reconciliation exercise based on count activity (see
Note 22).
Property and equipment, investment property, intangible assets and investment in an associate and a joint
venture amounted to P
= 97,554.87 million,P
= 99,958.20 million and P
= 102,941.30 million as of December 31,
2006, 2005 and 2004, respectively (see Notes 7, 8, 9 and 10).
3.1.2.7
Deferred income tax assets
The carrying amounts of deferred income tax assets are reviewed at each balance sheet date and reduced
to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part
of the deferred income tax assets to be utilized.
As of December 31, 2006, 2005 and 2004, Innove and GXI has net deferred income tax assets of
P
= 801.86 million, P
= 1,163.94 million and P
= 2,413.25 million, respectively, while Globe Telecom has net
deferred income tax liabilities of P
= 5,540.00 million, P
= 4,432.87 million and P
= 3,474.73 million, respectively
(see Note 23). Globe Telecom and Innove have no unrecognized deferred income tax assets as of
December 31, 2006, 2005 and 2004. GXI has not recognized deferred income tax assets on its NOLCO
since there is no assurance that GXI will generate sufficient taxable income to allow all or part of its
NOLCO to be utilized.
3.1.2.8
Financial assets and liabilities
Globe Group carries certain financial assets and liabilities at fair value, which requires extensive use of
accounting estimates and judgment. While significant components of fair value measurement were
determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates),
the amount of changes in fair value would differ if the Globe Group utilized different valuation
methodologies. Any changes in fair value of these financial assets and liabilities would affect the
consolidated statements of income and consolidated statements of changes in equity.
Financial assets carried at fair values as of December 31, 2006 and 2005, amounted to P
= 1,920.28 million
and P
= 2,769.21 million, respectively, and financial liabilities carried at fair values as of December 31, 2006
and 2005, amounted to P
= 1,086.12 million and P
= 731.75 million, respectively (see Note 27).
3.1.2.9
Pension and other employee benefits
The determination of the obligation and cost of pension and other employee benefits is dependent on the
selection of certain assumptions used in calculating such amounts. Those assumptions include, among
others, discount rates, expected returns on plan assets and salary increase rates (see Note 18). In
accordance with PAS 19, actual results that differ from the Globe Group’s assumptions, subject to the 10%
corridor test, are accumulated and amortized over future periods and therefore, generally affect the
recognized expense and recorded obligation in such future periods.
As of December 31, 2006, the Globe Group has unrecognized actuarial losses of P
= 259.74 million while
unrecognized actuarial gains of P
= 153.59 million and P
= 105.46 million were reported in 2005 and 2004,
respectively (see Note 18).
The Globe Group also determines the cost of equity-settled transactions using assumptions on the
appropriate pricing model. Significant assumptions include, among others, share price, exercise price,
option life, risk-free interest rate, expected dividend and expected volatility rate for the cost of share-based
payments.
Cost of share-based payments in 2006, 2005 and 2004 amounted to P
= 161.63 million, P
= 161.73 million and
P
= 134.77 million, respectively (see Notes 16 and 18).
The Globe Group also estimates other employee benefit obligations and expenses, including cost of paid
leaves based on historical leave availments of employees, subject to the Globe Group’s policy. These
estimates may vary depending on the future changes in salaries and actual experiences during the year.
The accrued balance of other employee benefits (included under the “Accounts payable and accrued
expenses” account and in the “Other long-term liabilities” account in the consolidated balance sheets) as of
December 31, 2006 and 2005 amounted to P
= 246.98 million and P
= 217.26 million, respectively.
While the Globe Group believes that the assumptions are reasonable and appropriate, significant
differences between actual experiences and assumptions may materially affect the cost of employee
benefits and related obligations.
3.1.2.10 Contingencies
Globe Telecom and Innove are currently involved in various legal proceedings. The estimate of the
probable costs for the resolution of these claims has been developed in consultation with internal and
external counsel handling Globe Telecom and Innove’s defense in these matters and is based upon an
analysis of potential results. Globe Telecom and Innove currently do not believe that these proceedings will
have a material adverse effect on the consolidated financial position. It is possible, however, that future
results of operations could be materially affected by changes in the estimates or in the effectiveness of the
strategies relating to these proceedings (see Note 25).
4.
Receivables
This account consists of receivables from:
2006
2005
2004
(In Thousand Pesos)
Subscribers
Traffic settlements - net (Note 16a)
Others
P
= 5,947,904
P
= 8,022,307
P
= 7,988,865
1,959,169
3,120,374
2,315,050
305,615
305,076
242,789
8,212,688
11,447,757
10,546,704
2,485,188
4,468,009
4,787,070
199,595
215,618
301,721
2,684,783
4,683,627
5,088,791
P
= 5,527,905
P
= 6,764,130
P
= 5,457,913
Less allowance for impairment losses
Subscribers
Traffic settlements and others
Traffic settlements receivable are presented net of traffic settlements payable of P
= 3,675.43 million, P
= 1,979.29 million and
P
= 1,196.82 million as of December 31, 2006, 2005 and 2004, respectively.
5.
Inventories and Supplies
This account consists of:
2006
2005
2004
(In Thousand Pesos)
At cost:
Wireline telephone sets
P
=–
P
=–
21,390
10,601
6,116
21,390
10,601
75,883
Handsets and accessories
520,352
840,244
393,803
SIM packs, spare parts and supplies
385,795
469,335
667,199
65,958
52,279
–
972,105
1,361,858
1,061,002
P
= 993,495
P
= 1,372,459
P
= 1,136,885
2005
2004
Call cards and others
P
= 69,767
At NRV:
Wireline telephone sets
6.
Prepayments and Other Current Assets
This account consists of:
2006
(In Thousand Pesos)
Prepayments
Input VAT - net
Other current assets (Notes 16 and 24d)
P
= 392,840
P
= 297,109
P
= 331,591
43,000
286,784
312,566
818,842
531,576
439,251
P
= 1,254,682
P
= 1,115,469
P
= 1,083,408
Innove and GXI’s net input VAT amounting to P
= 43.00 million, P
= 286.78 million and P
= 312.57 million as of December 31, 2006, 2005
and 2004, respectively, is presented net of output VAT of P
= 85.26 million, P
= 102.74 million and P
= 172.98 million, respectively.
7.
Property and Equipment
The rollforward analysis of this account follows:
2006
Buildings
Furniture,
and
Fixtures Transportation
Telecommunications
Leasehold Investments in
and
and Work
Equipment Improvements Cable Systems Equipment
Equipment
(In Thousand Pesos)
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
Accumulated Depreciation,
Amortization and
Impairment Losses
At January 1
Depreciation and amortization
Impairment/retirements/
disposals
Reclassifications/adjustments
At December 31
Net Book Value at
December 31
P
= 125,123,066
2,295,585
(437,156)
5,000,324
131,981,819
P
= 18,932,872
119,722
(41,548)
1,371,319
20,382,365
P
= 9,062,539 P
= 4,091,131
1,085,012
371,135
–
(67,870)
(129,589)
114,731
10,017,962
4,509,127
Assets
Under
Land Construction
P
= 1,332,701 P
= 897,914
301,702
–
(156,446)
–
134
–
1,478,091 897,914
Total
P
= 2,875,734 P
= 162,315,957
10,387,091
14,560,247
(16,946)
(719,966)
(6,600,376)
(243,457)
6,645,503 175,912,781
52,824,235
13,150,285
5,355,595
1,786,495
2,060,827
622,633
2,625,964
872,593
894,666
205,351
–
–
–
–
63,761,287
16,637,357
(313,795)
11,191
65,671,916
(25,032)
1,769
7,118,827
–
(42,120)
2,641,340
(66,240)
798
3,433,115
(125,814)
(33)
974,170
–
–
–
–
–
–
(530,881)
(28,395)
79,839,368
P
= 503,921 P
= 897,914
P
= 6,645,503
P
= 96,073,413
Assets
Under
Land Construction
Total
P
= 66,309,903
P
= 13,263,538
P
= 7,376,622 P
= 1,076,012
2005
Buildings
and
Telecommunications
Leasehold Investments in
Equipment Improvements Cable Systems
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
Accumulated Depreciation,
Amortization and
Impairment Losses
At January 1
Depreciation and amortization
Impairment/retirements/
disposals
Reclassifications/adjustments
At December 31
Net Book Value at
December 31
P
= 117,423,719 P
= 15,688,934
1,616,476
108,003
(3,549,702)
(19,819)
9,632,573
3,155,754
125,123,066
18,932,872
Furniture,
Fixtures Transportation
and
and Work
Equipment
Equipment
(In Thousand Pesos)
P
= 9,011,832* P
= 3,436,886
33,350
414,988
(2,581)
(446,965)
19,938
686,222
9,062,539
4,091,131
P
= 1,191,320 P
= 928,222 P
= 4,142,164 P
= 151,823,077
222,410
36 12,529,070
14,924,333
(85,182) (30,344)
–
(4,134,593)
4,153
– (13,795,500)
(296,860)
1,332,701
897,914
2,875,734
162,315,957
42,953,548
12,107,710
3,791,378
1,583,301
1,441,963*
618,345
2,182,047
811,762
760,902
193,734
–
–
–
–
51,129,838
15,314,852
(2,232,425)
(4,598)
52,824,235
(7,952)
(11,132)
5,355,595
(961)
1,480
2,060,827
(396,103)
28,258
2,625,964
(64,752)
4,782
894,666
–
–
–
–
–
–
(2,702,193)
18,790
63,761,287
P
= 438,035 P
= 897,914
P
= 2,875,734
P
= 72,298,831
* Includes PAS 39 adjustment (see Note 24).
P
= 13,577,277
P
= 7,001,712 P
= 1,465,167
P
= 98,554,670
2004
Buildings
and
Telecommunications
Leasehold Investments in
Equipment Improvements Cable Systems
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
Accumulated Depreciation,
Amortization and
Impairment Losses
At January 1
Depreciation and amortization
Impairment/retirements/
disposals
Reclassifications/adjustments
At December 31
Net Book Value at
December 31
P
= 104,069,288
951,758
(530,886)
12,933,559
117,423,719
P
= 11,431,609
113,981
(48,686)
4,192,030
15,688,934
32,055,043
11,671,431
2,633,507
1,177,305
(286,775)
(486,151)
42,953,548
(18,992)
(442)
3,791,378
P
= 74,470,171
P
= 11,897,556
Furniture,
Fixtures Transportation
and
and Work
Equipment
Equipment
(In Thousand Pesos)
P
= 10,071,745 P
= 2,307,792
64,748
552,820
–
(93,010)
37,613
669,284
10,174,106
3,436,886
940,287
713,597
–
–
1,653,884
Assets
Under
Land Construction
Total
P
= 976,109 P
= 927,857 P
= 3,109,261 P
= 132,893,661
272,767
365 19,125,299
21,081,738
(56,275)
–
(12,404)
(741,261)
(1,281)
– (18,079,992)
(248,787)
1,191,320 928,222
4,142,164 152,985,351
1,543,056
704,138
652,081
151,605
–
–
–
–
37,823,974
14,418,076
(59,203)
(5,944)
2,182,047
(42,903)
119
760,902
–
–
–
–
–
–
(407,873)
(492,418)
51,341,759
P
= 8,520,222 P
= 1,254,839
P
= 430,418 P
= 928,222 P
= 4,142,164 P
= 101,643,592
The carrying values of property and equipment held under finance leases where Globe Group is the lessee are as follows
(see Note 24c):
2006
2005
2004
(In Thousand Pesos)
Furniture, fixtures and equipment
P
= 144,372
P
= 138,978
4,043
3,850
4,400
148,415
142,828
170,817
Less accumulated depreciation
147,793
136,481
147,902
Net book value at December 31
P
= 622
P
= 6,347
P
= 22,915
2005
2004
Transportation and work equipment
P
= 166,417
The Globe Group’s information about borrowing costs follows:
2006
(In Thousand Pesos)
Capitalized interest
Other capitalized borrowing costs
P
= 45,530
P
= 111,340
2,550
28,323
P
= 77,670
133,465
P
= 48,080
P
= 139,663
P
= 211,135
The Globe Group uses its borrowed funds to finance the acquisition of property and equipment and bring it to its intended location
and in working condition. Borrowing costs incurred relating to these acquisitions were included in the cost of property and equipment
using 9.75% capitalization rate in 2006 and 2005 while capitalization rates ranged from 9.75% to 10.47% in 2004.
Investments in cable systems include the cost of the Globe Group’s ownership share in the capacity of certain cable systems under a
joint venture or a consortium or private cable set-up and indefeasible rights of use (IRUs) of circuits in various cable systems. It also
includes the cost of cable landing station and transmission facilities where the Globe Group is the landing party.
8.
Investment Property
The rollforward analysis of this account follows:
2006
2005
2004
(In Thousand Pesos)
Cost
At January 1
Additions
At December 31
P
= 308,455
P
= 290,834
95,232
17,621
P
= 281,821
9,013
403,687
308,455
290,834
Accumulated Depreciation
At January 1
48,917
29,318
10,833
Depreciation
19,196
19,599
18,485
Reclassifications/adjustments
21,071
–
–
At December 31
Net Book Value at December 31
89,184
48,917
29,318
P
= 314,503
P
= 259,538
P
= 261,516
Investment property represents the portion of a building that is currently being held for lease to third parties (see Note 24b). Additions
to investment property during the year represent new leases of office spaces to third parties.
The details of income and expenses related to the investment property follow:
2006
Lease income
Direct expenses
P
= 33,445
40,788
2005
(In Thousand Pesos)
P
= 29,011
20,091
2004
P
= 20,844
19,005
The fair value of the investment property as of December 31, 2006, as determined by market data approach, amounted to
P
= 285.74 million based on the report issued by an independent appraiser dated December 6, 2006.
9.
Intangible Assets
The rollforward analysis of this account follows:
2006
2005
2004
(In Thousand Pesos)
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
P
= 2,756,829
P
= 2,265,820
320,206
595,621
620,600
(91,012)
(154,682)
(742)
191,470
(13,600)
P
= 1,807,059
(7,157)
3,267,763
2,756,829
2,265,820
At January 1
1,656,102
1,321,555
1,202,108
Amortization
481,000
399,508
269,264
(64,852)
(144,928)
Accumulated Amortization
Retirements/disposals
Reclassifications/adjustments
At December 31
Net Book Value at December 31
(6)
1,043
(109)
(4,889)
2,138,139
1,656,102
1,321,555
P
= 1,129,624
P
= 1,100,727
P
= 944,265
Intangible assets pertain to software license costs and other VAS software applications that are not integral to the hardware or
equipment.
10. Investments in an Associate and a Joint Venture
This account consists of:
2006
Investments carried at equity
Acquisition cost:
Bridge Mobile Pte. Ltd. (BMPL)
Globe Telecom Holdings, Inc. (GTHI)
Accumulated equity in net earnings (losses):
At January 1
BMPL
GTHI
Add equity in net losses:
BMPL
GTHI
At December 31
BMPL
GTHI
Other investments in shares of stock carried at cost
P
= 56,332
–
56,332
(13,166)
–
(13,166)
(5,834)
–
(5,834)
37,332
–
37,332
–
P
= 37,332
2005
(In Thousand Pesos)
2004
P
= 56,332
98
56,430
P
= 56,332
98
56,430
–
167
167
–
229
229
(13,311)
(23)
(13,334)
43,021
242
43,263
–
P
= 43,263
–
(62)
(62)
56,332
265
56,597
35,328
P
= 91,925
Investment in BMPL
On November 3, 2004, Globe Telecom and other leading Asia Pacific mobile operators (JV partners) signed an Agreement (JV
Agreement) to form a regional mobile alliance, which will operate through a Singapore-incorporated company, BMPL. The joint
venture company is a commercial vehicle for the JV partners to build and establish a regional mobile infrastructure and common
service platform and deliver different regional mobile services to their subscribers.
The other joint venture partners with equal stake in the alliance include Bharti Tele-Ventures Limited (India), Maxis Communications
Berhad (Malaysia), Optus Mobile Pty. Limited (Australia), Singapore Telecom Mobile Pte. Ltd. (Singapore), Taiwan Cellular
Corporation (Taiwan), PT Telekomunikasi Selular (Indonesia) and Hongkong CSL Ltd. (Hongkong).
Under the JV Agreement, each partner shall contribute US$4.00 million based on an agreed schedule of contribution. Globe
Telecom may be called upon to contribute on dates to be determined by the JV. As of December 31, 2006, Globe Telecom has paid
US$1.00 million (P
= 56.33 million) as initial subscription. BMPL started commercial operations in April 2005.
Investment in GTHI
GTHI is a special purpose vehicle incorporated in the Philippines, owned 32.67% each by Globe Telecom and Ayala Corporation
(AC), 33% by Singapore Telecom International Pte. Ltd. (STI) [a wholly owned subsidiary of Singapore Telecom (SingTel)], and
1.66% by its directors and officers. On December 26, 2002, GTHI, having completed and concluded its only business activity related
to issuance of Philippine Deposit Receipts (PDR), filed with the Philippine Securities and Exchange Commission (SEC) a request for
the revocation of its permit to sell PDRs. On December 8, 2003, the Philippine SEC approved the revocation of the Order of
Registration and Certificate of Permit to Sell Securities to the Public issued to GTHI. On December 15, 2004, the BOD of GTHI
approved the dissolution of GTHI, which was subsequently approved by the Philippine SEC on December 13, 2005. The remaining
assets of GTHI have been fully liquidated as of August 14, 2006.
11. Other Noncurrent Assets
This account consists of:
2006
2005
2004
(In Thousand Pesos)
Deferred input VAT
Advance payments to suppliers and contractors
P
= 938,513
P
= 92,264
P
=–
355,959
279,206
418,677
Miscellaneous deposits
340,134
342,492
251,547
Prepaid pension (Note 18)
247,437
264,024
309,226
–
–
1,116,414
Revaluation of foreign currency swaps and
unamortized premium
AFS investment in equity securities
at cost - net of allowance for impairment
losses of P
= 894.55 million in 2005
Others - net
–
–
–
126,065
36,594
272,634
P
= 2,008,108
P
= 1,014,580
P
= 2,368,498
AFS Investment in Equity Securities at Cost
Innove had a 4.25% ownership in C2C Holdings, Pte. Ltd. (C2C Holdings) consisting of 20 million Class A common shares at an
acquisition cost of P
= 894.55 million. C2C Holdings is the holding company for the equity investments of all the cable landing parties
in C2C Pte. Ltd. (C2C). C2C, a related party of STI, is a private cable company with a network reaching 17,000 kilometers that links
China, Hong Kong, Japan, Singapore, South Korea, Taiwan, Philippines and the US. A full provision was recorded on this
investment in 2003 based on the increased potential risk to the restructuring of C2C’s debt.
The creditors of C2C appointed receivers in October 2005 and in January 2006, manifested their intention to take over the
management of C2C. C2C’s creditors subsequently served notice to C2C Holdings that it was taking ownership of the shares of
C2C Holdings in C2C due to the failure to achieve agreement on the restructuring of C2C’s debt. On August 7, 2006, the C2C
shares were formally transferred to C2C Group Limited, the company formed by the creditors to take ownership of the C2C shares
(see Note 24).
12. Accounts Payable and Accrued Expenses
This account consists of:
2006
2005
2004
(In Thousand Pesos)
Accounts payable (Note 16)
P
= 5,855,423
P
= 5,744,393
P
= 4,903,175
Accrued project costs (Note 24)
4,548,838
2,444,114
3,454,285
Accrued expenses (Note 16)
4,378,534
4,101,400
4,084,200
Traffic settlements - net
1,501,931
1,544,657
1,104,861
135,870
69,324
150,379
64,669
68,334
75,128
P
= 16,485,265
P
= 13,972,222
P
= 13,772,028
Output VAT
Dividends payable (Note 17)
Traffic settlements payables are presented net of traffic settlements receivables amounting to P
= 5,135.88 million, P
= 7,478.60 million
and P
= 3,761.56 million as of December 31, 2006, 2005 and 2004, respectively.
As of December 31, 2006, 2005 and 2004, Globe Telecom reported a net output VAT amounting to P
= 135.87 million,
P
= 69.32 million and P
= 150.38 million, net of input VAT of P
= 156.16 million, P
= 207.07 million and P
= 224.74 million, respectively.
13. Provisions
Provisions relate to various pending regulatory claims and assessments. The information usually required by PAS 37, Provisions,
Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be expected to prejudice the outcome of
these claims and assessments. The provisions include those related to Globe Group’s wireless and wireline business amounting to
P
= 248.31 million, P
= 231.46 million and P
= 282.31 million as of December 31, 2006, 2005 and 2004, respectively. As of February 5,
2007, the remaining pending regulatory claims and assessments are still being resolved.
The balance of the provisions also includes Innove’s provision relating to NTC permit fees amounting to P
= 117.26 million, which were
assessed by NTC on March 27, 1996 as required under Section 40 (g) of the Public Service Act. Innove, together with other
telecommunications companies, particularly the members of the Telecommunications Operators of the Philippines, had decided not
to pay the assessed permit fees. Innove has retained these provisions pending the resolution of the ongoing Supreme Court (SC)
case on the matter. The expected timing of the settlement of the permit fees cannot be anticipated pending resolution of these
matters.
14. Long-term Debt
This account consists of:
2006
2005
2004
(In Thousand Pesos)
2012 Senior Notes
P
= 14,768,630
P
= 16,386,579
P
= 17,387,378
22,121,664
Banks:
Foreign
9,365,119
15,973,138
Local
8,475,367
10,137,664
5,975,162
Corporate notes
3,607,000
4,109,000
3,070,000
Retail bonds
2,990,741
2,983,743
3,000,000
–
103,264
663,747
39,206,857
49,693,388
52,217,951
6,271,601
7,858,150
9,018,650
P
= 32,935,256
P
= 41,835,238
P
= 43,199,301
Suppliers’ credits
Less current portion
The maturities of long-term debt at nominal values excluding unamortized debt premium and issuance costs as of December 31,
2006 follow (in thousand pesos):
Due in:
2007
P
= 6,475,004
2008
4,823,881
2009
7,409,844
2010
2011 and thereafter
3,586,812
16,548,613
P
= 38,844,154
The interest rates and maturities of the above loans are as follows:
2012 Senior Notes
Banks:
Foreign
Maturities
2012
Interest Rates
9.75%
2007-2011
4.20% to 8.62% in 2006
2.17% to 12.45% in 2005
1.16% to 6.83% in 2004
Local
2007-2010
6.22% to 11.02% in 2006
7.36% to 11.73% in 2005
2.50% to 11.73% in 2004
Corporate notes
2010-2012
6.22% to 16.00% in 2006
7.36% to 16.00% in 2005
8.40% to 16.00% in 2004
Retail bonds
2007-2009
6.57% to 11.83% in 2006
7.26% to 11.70% in 2005
7.79% to 11.70% in 2004
Suppliers’ credits
2006
4.70% to 6.48% in 2006
4.39% to 6.69% in 2005
2.71% to 6.88% in 2004
Unamortized debt premium and issuance costs included in the above long-term debt as of December 31, 2006 are as follows (in
thousand pesos):
Premium on 2012 Senior Notes (net of related debt issuance cost)
Unamortized debt issuance costs on retail bonds
P
= 371,961
(9,258)
P
= 362,703
Senior Notes
Pertinent terms of Globe Telecom’s 2012 Senior Notes are as follows:
Date of issue
April 4, 2002
Maturity
April 12, 2012
Interest rate
9.75% p.a.
Interest payments
Semi-annual in arrears on April 15 and October 15 of each year. Interest accrues from the date of
original issuance or, if interest has already been paid, from the date it was most recently paid. Interest is
computed on the basis of a 360-day period comprised of twelve 30-day months.
Eligible holders
Bondholders of record on April 1 or October 1 immediately preceding each interest payment date.
Redemption Options
The 2012 Senior Notes are redeemable in whole or in part at the option of Globe Telecom at the redemption dates set forth below,
after giving the required notice under the indenture, and, if at the time of such notice the Notes are listed on the Luxembourg Stock
Exchange, by publishing a notice in the Luxembourg Wort. The 2012 Senior Notes may be redeemed at the following prices (for
Senior Notes redeemed during the 12-month period commencing on each of the years below, expressed as percentages of the
principal amount), plus accrued and unpaid interest and additional amounts thereon, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due on the relevant interest payment date):
Redemption date
On or after April 15, 2007
Redemption price
2007
2008
2009
2010 and thereafter
104.875%
103.250%
101.625%
100.000%
On August 22, 2006 and September 1, 2006, Globe Telecom repurchased US$6.46 million in face value of its 2012 Senior Notes.
Bond redemption costs (included in “Financing costs” account) incurred in 2006 amounted to P
= 23.24 million.
On January 12, 2007, the BSP approved Globe Telecom’s application to redeem the 2012 Senior Notes in 2007. Globe Telecom
plans to issue a formal call to the trustee after refinancing has been secured.
Covenants
The 2012 Senior Notes are unsecured obligations, equal in ranking among themselves and with all of the existing and future
unsecured and unsubordinated debt, subject to Article 2244 (14) of the Civil Code of the Philippines, and senior in right of payment
to all future subordinated debt. Secured debt of Globe Telecom will be effectively senior to the Senior Notes to the extent of the value
of the assets securing such debt and also to the extent any such indebtedness is incurred by a restricted subsidiary. In addition,
under the laws of the Philippines, in the event a borrower submits to insolvency or liquidation proceedings in which the borrower’s
assets are liquidated, unsecured debt of the borrower that is evidenced by a public instrument as provided in Article 2244 (14) of the
Civil Code of the Philippines will rank ahead of unsecured debt of the borrower that is not evidenced by a public instrument.
The 2012 Senior Notes provide certain restrictions, which includes among others, incurrence of additional debt, certain dividend
payments, liens, repayments of certain debts, merger/consolidation and sale of assets in general.
Bank Loans and Corporate Notes
Globe Telecom’s unsecured corporate notes, which consist of fixed and floating rate notes and peso-denominated bank loans, bear
interest at stipulated and prevailing market rates. The US dollar-denominated unsecured loans extended by commercial banks bear
interest based on US Dollar London Interbank Offered Rate (USD LIBOR) or Commercial Interest Reference Rate (CIRR) plus
margins.
The loan agreements with banks and other financial institutions provide for certain restrictions and requirements with respect to,
among others, maintenance of financial ratios and percentage of ownership of specific shareholders, incurrence of additional longterm indebtedness or guarantees and creation of property encumbrances.
Retail Bonds
In February 2004, Globe Telecom issued P
= 3,000.00 million unsecured retail bonds locally with fixed and floating interest rates based
on MART 1 plus margins. The retail bonds have maturities ranging from 3 to 5 years. The retail bonds may be redeemed in whole,
but not in part, at any time, by giving not less than 30 nor more than 60 days prior notice, at a price equal to 100% of the principal
amount of the bonds, together with accrued and unpaid interest to the date fixed for redemption, if Globe Telecom will pay additional
amounts due to change in tax and/or other regulations. The agreements covering the retail bonds provide restrictions with respect to,
among others, maintenance of certain financial ratios, sale, transfer, assignment or disposal of assets and creation of property
encumbrances.
Suppliers’ Credits
Unsecured suppliers’ credits accrue interests that are either fixed or based on USD LIBOR plus margins.
15. Other Long-term Liabilities
This account consists of:
2006
2005
2004
(In Thousand Pesos)
ARO
Noninterest bearing liabilities (Note 24)
P
= 1,316,612
P
= 907,053
P
= 769,795
1,062,635
1,235,810
2,262,283
Advance lease and service revenues (Note 24)
114,094
137,925
164,209
Accrued lease obligations and others (Note 24)
470,331
548,082
473,317
P
= 2,963,672
2,828,870
3,669,604
93,422
269,737
292,589
P
= 2,870,250
P
= 2,559,133
P
= 3,377,015
Less current portion
The maturities of other long-term liabilities at nominal amounts as of December 31, 2006 follow (in thousand pesos):
Due in:
2007
2008
2009
2010
2011 and thereafter
P
= 93,177
99,400
107,185
115,674
2,548,236
P
= 2,963,672
The rollforward analysis of the Globe Group’s ARO follows:
2006
2005
2004
(In Thousand Pesos)
At January 1
P
= 907,053
P
= 769,795
P
= 519,309
281,557
44,433
182,363
128,002
92,825
68,123
P
= 1,316,612
P
= 907,053
P
= 769,795
Capitalized to property and equipment during the
year - net of reversal (Note 29)
Accretion expense during the year
At December 31
16. Related Party Transactions
Globe Telecom and Innove, in their regular conduct of business, enter into transactions with their principal shareholders, AC and STI,
and certain related parties. These transactions, which are accounted for at market prices normally charged to unaffiliated customers
for similar goods and services, include the following:
Globe Telecom
(a)
Globe Telecom has interconnection agreements with SingTel. The related net traffic settlements receivable (included in
“Receivables” account in the consolidated balance sheets) and the interconnection toll income (included in “Service revenues”
account in the consolidated statements of income) earned are as follows:
2006
2005
2004
(In Thousand Pesos)
Traffic settlements receivable - net
Interconnection toll income
(b)
P
= 61,061
P
= 335,766
P
= 31,212
1,028,552
1,422,249
1,083,859
Globe Telecom and STI have a technical assistance agreement whereby STI will provide consultancy and advisory services,
including those with respect to the construction and operation of Globe Telecom’s networks and communication services,
equipment procurement and personnel services. In addition, Globe Telecom has software development, supply, license and
support arrangements, lease of cable facilities, maintenance and restoration costs and other transactions with STI.
The details of fees (included in repairs and maintenance under the “General, selling and administrative expenses” account in
the consolidated statements of income) incurred under these agreements are as follows:
2006
Maintenance and restoration costs and other transactions
Software development, supply, license and support
Technical assistance fee
P
= 240,542
29,467
78,872
2005
(In Thousand Pesos)
P
= 266,793
143,450
35,652
2004
P
= 137,111
44,360
40,409
The net outstanding balances due to STI (included in the “Accounts payable and accrued expenses” account in the
consolidated balance sheets) arising from these transactions are as follows:
2006
Maintenance and restoration costs and other transactions
Software development, supply, license and support
Technical assistance fee
(c)
P
= 24,203
31,004
25,606
2005
(In Thousand Pesos)
P
= 13,738
11,940
81,019
2004
P
= 62,675
21,322
8,899
Globe Telecom reimburses AC for certain operating expenses. The net outstanding liabilities to AC related to these transactions
as of December 31, 2006 were not material.
(d)
Globe Telecom has preferred roaming service contract with BMPL. Under this contract, Globe Telecom will pay BMPL for
services rendered by the latter which include, among others, coordination and facilitation of preferred roaming arrangement
among JV partners, and procurement and maintenance of telecommunications equipment necessary for delivery of seamless
roaming experience to customers. Globe Telecom also earns or incurs commission from BMPL for regional top-up service
provided by the JV partners. As of December 31, 2006, balances related to these transactions were not material.
The summary of consolidated outstanding balances resulting from transactions with related parties follows:
2006
2005
2004
(In Thousand Pesos)
Traffic settlements receivable - net (included in
“Receivables” account) (Note 4)
P
= 61,061
Other current assets (Note 6)
Accounts payable and accrued expenses (Note 12)
Other long-term liabilities (Notes 15 and 24)
31,212
P
= 335,766
1,651
927
946
100,413
129,420
122,959
–
1,373,735
2,426,492
Globe Group’s compensation of key management personnel by benefit type are as follows:
2006
Short-term employee benefits
Share-based payments (Note 18)
Post-employment benefits
P
= 308,039
161,628
21,682
P
= 491,349
2005
(In Thousand Pesos)
P
= 296,191
161,731
32,938
P
= 490,860
2004
P
= 261,174
134,769
35,667
P
= 431,610
There are no agreements between the Globe Group and any of its directors and key officers providing for benefits upon termination
of employment, except for such benefits to which they may be entitled under the Globe Group’s retirement plans.
17. Equity
Globe Telecom’s authorized capital stock consists of:
Preferred stock - Series “A” P
= 5 per share
Common stock - P
= 50 per share
Shares
2006
2005
Amount
Shares
Amount
Shares
(In Thousand Pesos and Number of Shares)
2004
Amount
250,000
179,934
P
= 1,250,000
8,996,719
250,000
200,000
P
= 1,250,000
10,000,000
2006
2005
Amount
Shares
Amount
Shares
(In Thousand Pesos and Number of Shares)
158,515
P
= 792,575
158,515
P
= 792,575
158,515
132,080
6,603,989
131,900
6,595,022
151,905
(46,910)
(53,856)
P
= 7,349,654
P
= 7,333,741
2004
Amount
250,000 P
= 1,250,000
179,934
8,996,719
Globe Telecom’s issued and subscribed capital stock consists of:
Shares
Preferred stock
Common stock
Subscriptions receivable
P
= 792,575
7,595,272
(64,824)
P
= 8,323,023
Preferred Stock
Preferred stock - Series “A” has the following features:
(a)
Convertible to one common share after 10 years from issue date at not less than the prevailing market price of the common
stock less the par value of the preferred shares;
(b)
Cumulative and nonparticipating;
(c)
Floating rate dividend;
(d)
Issued at P
= 5 par;
(e)
With voting rights;
(f)
Globe Telecom has the right to redeem the preferred shares at par plus accrued dividends at any time after 5 years from date of
issuance; and
(g)
Preferences as to dividend in the event of liquidation.
The dividends for preferred shares are declared upon the sole discretion of the Globe Telecom’s BOD. As of December 31, 2006,
the Globe Group has no dividends in arrears to its preferred stockholders.
Common Stock
The rollforward of outstanding common shares are as follows:
2006
At January 1
Acquisition of treasury shares
Exercise of stock options
At December 31
Shares
Amount
131,900
–
180
132,080
P
= 6,595,022
–
8,967
P
= 6,603,989
2005
Shares
Amount
Shares
(In Thousand Pesos and Number of Shares)
139,904
(8,064)
60
131,900
P
= 6,995,200
(403,211)
3,033
P
= 6,595,022
139,904*
–
–
139,904
2004
Amount
P
= 6,995,200
–
–
P
= 6,995,200
* Net of 12.00 million treasury shares acquired in 2003.
Treasury Stock
On February 1, 2005, the BOD approved an offer to purchase one share for every fifteen shares (1:15) of the outstanding common
stock of Globe Telecom from all stockholders of record as of February 10, 2005 at P
= 950.00 per share. On March 15, 2005, Globe
Telecom acquired 8.06 million shares at a total cost of P
= 7,675.66 million, including incidental costs.
On April 4, 2005, Globe Telecom’s stockholders approved the cancellation of the 20.06 million treasury shares consisting of the
12.00 million shares acquired from Deutsche Telekom in 2003 and the 8.06 million shares acquired during the March 2005 share
buyback, and the amendments of the articles of incorporation of Globe Telecom to reduce accordingly the authorized capital stock of
the corporation from P
= 11,250.00 million to P
= 10,246.72 million. The Philippine SEC approved Globe Telecom’s application for the
retirement and cancellation of the existing treasury shares on October 28, 2005. Accordingly, Globe Telecom cancelled the existing
treasury shares at cost. The difference between the par value and cost of treasury stock was charged to the “Additional paid-in
capital” and “Retained earnings” accounts amounting to P
= 5,179.35 million and P
= 9,685.80 million, respectively.
Cash Dividends
Information on the Globe Group’s BOD declaration of cash dividends follows:
Date
Per share
Amount
Record
Payable
(In Thousand Pesos, Except Per Share Figures)
Preferred stock dividends declared on:
December 15, 2004
December 13, 2005
December 11, 2006
Common stock dividends declared on:
January 29, 2004
August 2, 2004
February 1, 2005
August 2, 2005
February 7, 2006
July 31, 2006
P
= 0.47
0.43
0.41
P
= 75,128
68,334
64,669
18.00
18.00
20.00
20.00
20.00
30.00
2,518,270
2,518,269
2,798,077
2,637,940
2,638,072
3,961,745
December 31, 2004
December 31, 2005
December 31, 2006
March 15, 2005
March 15, 2006
March 15, 2007
February 18, 2004
August 20, 2004
February 18, 2005
August 19, 2005
February 21, 2006
August 17, 2006
March 14, 2004
September 15, 2004
March 15, 2005
September 14, 2005
March 15, 2006
September 12, 2006
On January 29, 2004, the BOD of Globe Telecom approved a dividend policy to declare cash dividends to its common stockholders
on a regular basis as may be determined by the BOD from time to time. The BOD had set out a dividend payout rate of
approximately 50% of prior year’s net income payable semi-annually in March and September of each year. This will be reviewed
annually, taking into account Globe Telecom’s operating results, cash flows, debt covenants, capital expenditure levels and liquidity.
On July 31, 2006, the BOD of Globe Telecom amended the dividend policy increasing the dividend payout rate at approximately 75%
of prior year’s net income to be implemented starting 2006’s second semi-annual cash dividend declaration.
Cash Dividends Declared After Balance Sheet Date
On February 5, 2007, the BOD approved the declaration of the first semi-annual cash dividend in 2007 of P
= 4,358.63 million (P
= 33.00
per common share) to common stockholders of record as of February 19, 2007 payable on March 15, 2007.
Restrictions on Retained Earnings
The retained earnings include the undistributed net earnings of consolidated subsidiaries and the accumulated equity in net earnings
of an associate and JV accounted for under the equity method totaling P
= 6,431.54 million as of December 31, 2006. This amount is
not available for dividend declaration until received in the form of dividends from subsidiaries, the associate and the JV. The Globe
Group is also subject to loan covenants that restrict its ability to pay dividends (see Note 14).
18. Employee Benefits
Stock Option Plans
The Globe Group has various stock-based compensation plans. The number of shares allocated under the plans shall not exceed
the aggregate equivalent of 6% of the authorized capital stock.
The Employees Stock Ownership Plan (ESOWN) for all regular employees (granted in 1998 and 1999) and the Executive Stock
Option Plan 1 (ESOP1) for key senior executives (granted in 1998 and 2000) provide for an initial subscription price for shares
covered by each grant equivalent to 85% of the initial offer price. Any subsequent subscription for the ESOP1 shall be for a price
equivalent to 85% of the average closing price for the month prior to the month of eligibility. These options are settled in equity once
exercised. The qualified officers and employees shall pay for the shares subscribed under the ESOWN and ESOP1 through
installments over maximum periods of 5 years and 10 years, respectively. The shares of stock have a holding period of five years
and the employees must remain with Globe Telecom or its affiliates over such period. The plans also provide restrictions on sale or
assignment of shares for five years from date of subscription. The number of exercised shares under ESOP1 totaled 1.71 million
shares with a weighted average exercise price of P
= 196.75 per share. The remaining unexercised stock options under ESOWN and
ESOP1 expired in 2004.
Following are the additional stock option grants to key executives and senior management personnel of the Globe Group under
Executive Stock Option Plan 2 (ESOP2) from 2003 to 2006:
Fair Value
of each
Option
P
= 283.11
Date of
Grant
April 4, 2003
Number of
Options
Granted
680,200
Exercise
Price
P
= 547.00 per share
July 1, 2004
803,800
840.75 per share
50% of options
exercisable from July 1, 2006 to
June 30, 2014; the remaining 50%
from July 1, 2007 to June 30, 2014
P
= 357.94
Black-Scholes
option pricing
model
June 30, 2006
749,500
854.74 per share
50% of the options become
exercisable from March 24, 2008 to
March 23, 2016; the remaining 50%
become exercisable from
March 24, 2009 to March 23, 2016
P
= 292.12
Trinomial option
pricing model
Exercise Dates
50% of options
exercisable from April 4, 2005 to
April 14, 2013; the remaining 50%
exercisable from April 4, 2006 to
April 4, 2013
Fair Value
Measurement
Black-Scholes
option pricing
model
The exercise price is based on the average quoted market price for the last 20 trading days preceding the approval date to offer the
stock options.
ESOP2 required the grantees to pay a nonrefundable option purchase price of P
= 1,000.00. In order to avail of the privilege, the
grantees must remain with Globe Telecom or its affiliates from grant date up to the beginning of the exercise period of the
corresponding shares.
A summary of the Globe Group’s stock option activity and related information follows:
2006
Outstanding, at January 1
ESOP2 granted on:
April 4, 2003
July 1, 2004
June 30, 2006
Exercised
Expired/forfeited/cancelled
Outstanding, at December 31
Exercisable, at December 31
2005
2004
Weighted
Average
Exercise
Price
P
= 709.77
Number of
Shares
643,782
Weighted
Average
Exercise
Price
P
= 546.51
41,000
795,800
–
(2,700)
(27,282)
1,450,600
547.00
829.17
–
547.00
535.32
P
= 709.77
Number of
Shares
1,281,350
Weighted
Average
Exercise
Price
P
= 730.01
–
–
749,500
(435,810)
(4,100)
1,590,940
–
–
854.75
647.80
604.32
P
= 811.62
–
8,000
–
(149,000)
(28,250)
1,281,350
–
547.00
–
547.00
604.19
P
= 730.01
447,540
P
= 712.80
172,350
P
= 547.00
Number of
Shares
1,450,600
–
P
=–
The average share price at date of exercise of stock options in 2006, 2005 and 2004 amounted to P
= 989.03, P
= 807.08 and P
= 909.17,
respectively.
As of December 31, 2006, 2005 and 2004, the weighted average remaining contractual life of options outstanding is 8.17 years,
8.03 years and 8.94 years, respectively.
The following assumptions were used to determine the fair value of the stock options at effective grant dates:
June 30, 2006
July 1, 2004
April 4, 2003
Share price
P
= 930.00
P
= 835.00
P
= 580.00
Exercise price
P
= 854.75
P
= 840.75
P
= 547.00
29.51%
39.50%
34.64%
10 years
10 years
10 years
Expected volatility
Option life
Expected dividends
Risk-free interest rate
5.38%
4.31%
2.70%
10.30%
12.91%
11.46%
The expected volatility measured at the standard deviation of expected share price returns was based on analysis of share prices for
the past 365 days.
Cost of share-based payments in 2006, 2005 and 2004 amounted to P
= 161.63 million, P
= 161.73 million and P
= 134.77 million,
respectively.
Pension Plans
The Globe Group has a funded, noncontributory, defined benefit pension plan covering substantially all of its regular employees. The
benefits are based on years of service and compensation on the last year of employment. The information below includes the
additional disclosures required under the amendments to PAS 19.
The components of pension expense (included in staff costs under “General, selling and administrative expenses”) in the
consolidated statements of income are as follows:
2006
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial losses (gains)
Total pension expense
Actual return on plan assets
P
= 92,191
67,443
(108,839)
(2,605)
P
= 48,190
P
= 191,848
2005
(In Thousand Pesos)
P
= 93,305
81,207
(112,833)
(2,454)
P
= 59,225
P
= 80,456
2004
P
= 98,332
68,752
(91,790)
133
P
= 75,427
P
= 97,940
The funded status included under “Other noncurrent assets” account for the pension plan of Globe Telecom and Innove are as
follows:
2006
Benefit obligation
Plan assets
Unrecognized net actuarial gains (losses)
Asset recognized in the consolidated balance sheets
P
= 1,267,209
(1,254,906)
12,303
(259,740)
(P
= 247,437)
2005
(In Thousand Pesos)
P
= 648,825
(1,066,441)
(417,616)
153,592
(P
= 264,024)
2004
P
= 603,622
(1,018,309)
(414,687)
105,461
(P
= 309,226)
The following tables present the changes in the present value of defined benefit obligation and fair value of plan assets:
Defined benefit obligation
2006
Balance at January 1
Interest cost
Current service cost
Benefits paid
Actuarial (gains) losses
Balance at December 31
P
= 648,825
67,443
92,191
(62,354)
521,104
P
= 1,267,209
2005
(In Thousand Pesos)
P
= 603,622
81,207
93,305
(69,980)
(59,329)
P
= 648,825
2004
P
= 622,508
68,752
98,332
(36,721)
(149,249)
P
= 603,622
Fair value of plan assets
2006
Balance at January 1
Expected return
Contributions
Benefits paid
Actuarial gains (losses)
Balance at December 31
P
= 1,066,441
108,839
31,603
(62,354)
110,377
P
= 1,254,906
2005
(In Thousand Pesos)
P
= 1,018,309
112,833
14,023
(69,980)
(8,744)
P
= 1,066,441
The Globe Group does not expect to make any contributions to its defined benefit pension plan in 2007.
2004
P
= 920,989
91,790
28,015
(36,721)
14,236
P
= 1,018,309
The allocation of the fair value of the plan assets of Globe Telecom as of December 31 follows:
2006
2005
2004
Investments in debt securities
72.00%
84.00%
84.00%
Investments in equity securities
25.00%
15.00%
13.00%
3.00%
1.00%
3.00%
2005
89.00%
87.00%
Others
The allocation of the fair value of the plan assets of Innove as of December 31 follows:
2006
2004
Investments in debt securities
74.00%
Investments in equity securities
17.00%
7.00%
9.00%
9.00%
4.00%
4.00%
Others
As of December 31, 2006, the pension plan assets of Globe Telecom and Innove include shares of stock of Globe Telecom with total
fair value of P
= 32.76 million, and shares of stock of other related parties with total fair value of P
= 84.79 million.
The assumptions used to determine pension benefits of Globe Telecom and Innove are as follows:
Discount rate
2006
2005
2004
6.25% - 7.00%
13.75%
13.75%
10.30%
10.50%
10.50%
6.50%
8.50%
8.00% - 8.50%
Expected rate of return on plan assets
Salary rate increase
The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date, applicable to the
period over which the obligation is to be settled.
Amounts for the current and previous three years are as follows:
2006
Defined benefit obligation
Plan assets
Deficit (surplus)
P
= 1,267,209
1,254,906
12,303
2005
2004
2003
(In Thousand Pesos)
P
= 648,825
P
= 603,622
1,066,441
1,018,309
(417,616)
(414,687)
P
= 622,508
920,989
(298,481)
As of December 31, 2006, experience adjustments on plan liabilities amounted to P
= 72.59 million loss, while experience adjustments
on plan assets amounted to P
= 102.01 million gain.
19. Interest Income
Interest income is earned from the following sources:
2006
Short-term placements
Cash in banks
Others
P
= 582,497
131,274
1,566
P
= 715,337
2005
(In Thousand Pesos)
P
= 460,986
48,074
10,588
P
= 519,648
2004
P
= 303,868
100,385
49,785
P
= 454,038
20. General, Selling and Administrative Expenses
This account consists of:
2006
Staff costs (Note 18)
Selling, advertising and promotions
Repairs and maintenance (Note 16b)
Utilities, supplies and other administrative expenses
Rent (Note 24)
Insurance and security services
Professional and other contracted services
Taxes and licenses
Others
2005
(In Thousand Pesos)
P
= 3,518,910
4,697,406
1,877,425
1,982,396
1,839,999
1,477,739
1,495,634
831,629
1,421,124
P
= 19,142,262
P
= 3,564,239
3,524,546
2,122,192
2,121,369
2,080,746
1,441,091
1,394,191
756,313
1,076,244
P
= 18,080,931
2004
P
= 2,874,338
3,753,134
1,325,098
1,714,677
1,420,069
1,034,835
1,295,369
616,257
1,370,186
P
= 15,403,963
21. Financing Costs
This account consists of:
2006
2005
2004
(In Thousand Pesos)
Interest expense - net of amortization of bond premium (Note 14)
Foreign exchange loss (gain) - net (Note 27)
P
= 4,213,976
(1,706,387)
P
= 4,657,748
(2,303,327)
P
= 4,368,716
213,995
Loss on derivative instruments - net (Note 27)
338,061
104,301
–
Swap and other financing costs (Notes 14 and 27)
426,712
681,871
1,744,168
P
= 3,272,362
P
= 3,140,593
P
= 6,326,879
2006
2005
2004
(In Thousand Pesos)
P
= 3,982,743
4,389,733
228,768
216,437
1,993
47,512
472
4,066
4,210,778
75,777
75,910
6,251
Interest expense is incurred on the following:
Long-term debt (Note 14)
Accretion expense (Note 15)
Suppliers’ credit
Others
P
= 4,213,976
P
= 4,657,748
P
= 4,368,716
22. Impairment Losses and Others
This account consists of:
2006
2005
2004
(In Thousand Pesos)
Impairment losses on:
Receivables (Note 4)
Property and equipment (Note 7)
Inventory obsolescence and market decline (Note 5)
Provisions for (reversals of) other probable losses (Note 13)
P
= 422,834
P
= 615,729
88,673
925,772
11,726
(61,392)
80,049
72,388
84,833
P
= 534,948
(12,694)
P
= 1,608,856
P
= 1,052,222
(500,889)
P
= 635,447
23. Income Taxes
The significant components of the deferred income tax assets and liabilities of the Globe Group represent the deferred income tax
effects of the following:
Deferred income tax assets on:
Allowance for impairment losses on receivables
Unearned revenues and advances already
subjected to income tax
ARO
Cost of share-based payments
Accumulated impairment losses on property and
equipment
Provision for other probable losses
Accrued rent expense
Accrued vacation leave
Inventory obsolescence and market decline
Deferred charges
Net unrealized foreign exchange losses
MCIT
NOLCO
Deferred income tax liabilities on:
Excess of accumulated depreciation and
(a)
amortization of equipment for tax purposes
(b)
over financial reporting purposes
Capitalized borrowing costs already claimed
as deduction for tax purposes
Net unrealized foreign exchange gain
Unamortized discount on noninterest bearing
liability
Gains on derivative transactions
Prepaid pension
Gain on sale of land
Net deferred income tax liabilities
(a)
(b)
Sum-of-the-years digit method
Straight-line method
2006
2005
(In Thousand Pesos)
2004
P
= 954,927
P
= 1,664,166
P
= 1,646,573
484,780
212,967
155,520
518,293
154,956
31,370
1,022,142
121,647
99,554
144,164
94,973
91,212
57,591
47,374
14,525
–
–
–
2,258,033
223,562
42,984
70,328
47,583
101,345
51,868
400,440
–
–
3,306,895
143,744
66,991
36,705
9,182
74,034
96,010
1,329,102
255,215
32
4,900,931
5,077,030
4,815,995
4,542,588
1,369,788
241,894
1,352,303
–
1,319,288
–
164,094
74,072
69,291
–
6,996,169
P
= 4,738,136
194,060
136,650
70,554
6,257
6,575,819
P
= 3,268,924
–
–
100,534
–
5,962,410
P
= 1,061,479
Net deferred tax assets and liabilities presented in the consolidated balance sheets on a net basis by entity are as follows:
2006
2005
(In Thousand Pesos)
2004
Net deferred tax assets (Innove and GXI)
P
= 801,863
P
= 1,163,943
P
= 2,413,253
Net deferred tax liabilities (Globe Telecom)
5,539,999
4,432,867
3,474,732
The details of Innove and GXI’s NOLCO are as follows (in thousands):
Inception Year
2003
2004
2005
2006
Amount
P
= 331,315
101
18,176
36,889
P
= 386,481
Application
(P
= 331,315)
–
–
–
(P
= 331,315)
Balance
P
=–
101
18,176
36,889
P
= 55,166
Expiry Year
2006
2007
2008
2009
The remaining balance of unexpired NOLCO relates to GXI. GXI has not recognized deferred income tax assets on its NOLCO.
The reconciliation of the provision for income tax at statutory tax rate and the actual provision for income tax follows:
2006
Provision at statutory income tax rate
Add (deduct) tax effects of:
Tax rate difference arising from the change in
expected timing of deferred tax assets’/liabilities’
reversal
Income subjected to lower tax rates
Equity in net losses of an associate and joint venture
Changes in unrecognized deferred tax assets
Additional deferred tax liability on wireline assets
transferred due to different tax rates
Income under income tax holiday (ITH)
Unearned revenues under ITH
Others
Actual provision for income tax
P
= 6,110,708
(263,414)
(186,738)
2,042
–
–
–
–
41,894
P
= 5,704,492
2005
2004
(In Thousand Pesos)
P
= 4,608,828
P
= 4,071,339
(222,142)
(103,462)
4,334
–
–
(124,864)
20
(2,058,254)
–
(254,486)
(365,344)
198,774
P
= 3,866,502
167,373
(1,074,326)
(98,418)
443,822
P
= 1,326,692
Globe Telecom is enfranchised under RA No. 7229 and its related laws to render any and all types of domestic and international
telecommunications services. Globe Telecom is entitled to certain tax and nontax incentives and has availed of incentives for tax
and duty-free importation of capital equipment for its services under its franchise.
RA No. 9337
RA No. 9337 was enacted into law amending various provisions in the existing 1997 National Internal Revenue Code. Following are
some of the reforms introduced by the said RA which became effective on November 1, 2005:
•
Increase in the corporate income tax rate from 32% to 35% with a reduction thereof to 30% beginning January 1, 2009;
•
Increase in VAT rate from 10% to 12% effective February 1, 2006 as authorized by the Philippine President pursuant to the
•
Revised invoicing and reporting requirements for VAT;
recommendation of the Secretary of Finance;
•
Expanded scope of transactions subject to VAT; and
•
Increase in unallowable interest rate from 38% to 42% with a reduction thereof to 33% beginning January 1, 2009.
24. Agreements and Commitments
Lease Commitments
(a)
Operating lease commitments - Globe Group as lessee
Globe Telecom and Innove lease certain premises for some of its telecommunications facilities and equipment and for most of
its business centers and cell sites. The operating lease agreements are for periods ranging from 1 to 10 years from the date of
the contracts and are renewable under certain terms and conditions. The agreements generally require certain amounts of
deposit and advance rentals, which are shown as part of the “Other noncurrent assets” account in the consolidated balance
sheets. The Globe Group’s rentals incurred on these leases (included in “General, selling and administrative expenses” account
in the consolidated statements of income) amounted to P
= 2,080.75 million, P
= 1,840.00 million and P
= 1,420.07 million in 2006,
2005 and 2004, respectively.
As of December 31, 2006, the future minimum lease payments under this operating lease are as follows (in thousand pesos):
Not later than one year
P
= 1,724,173
After one year but not more than five years
5,799,897
After five years
2,166,055
P
= 9,690,125
(b)
Operating lease commitments - Globe Group as lessor
Globe Telecom and Innove have certain lease agreements on equipment and office spaces. The operating lease agreements
are for periods ranging from 1 to 14 years from the date of contracts. These include Globe Telecom’s lease agreement with
C2C (see related discussion on Agreements with C2C).
Total lease income amounted to P
= 182.02 million, P
= 194.01 million and P
= 200.08 million in 2006, 2005 and 2004, respectively.
The future minimum lease receivables under these operating leases are as follows (in thousand pesos):
Within one year
P
= 175,051
After one year but not more than five years
700,204
After five years
743,966
P
= 1,619,221
Innove entered into a lease agreement covering the lease of office space at the Innove IT Plaza to a third party. The lease has a
remaining term of less than one year, renewable under certain terms and conditions. As of December 31, 2006, the future
minimum lease receivables under this operating lease amounted to P
= 30.34 million.
(c)
Finance lease commitments - Globe Group as lessee
Globe Telecom and Innove have entered into finance lease agreements for various items of property and equipment. The said
leased assets are capitalized and are depreciated over its estimated useful life of three years, which is also equivalent to the
lease term.
As of December 31, 2006, the consolidated present value of the net minimum lease payments due within a year amounted to
P
= 1.15 million. The present value of the minimum lease payments under finance leases is included under the “Other long-term
liabilities” account in the consolidated balance sheets.
(d)
Finance lease commitments - Globe Group as lessor
Innove has existing finance lease arrangements with a lessee for Innove’s office equipment. As of December 31, 2006, the
gross investment and the present value of the net minimum lease payments receivable included under “Prepayments and other
current assets” account in the consolidated balance sheets are P
= 2.05 million and P
= 2.02 million, respectively. No collections
were received from the lessee as of December 31, 2006.
Agreements and Commitments with Other Carriers
Globe Telecom and Innove have existing correspondence agreements with various foreign administrations and interconnection
agreements with local telecommunications companies for their various services. Globe and Innove also have international roaming
agreements with other operators in foreign countries, which allow its subscribers access to foreign networks. The agreements
provide for sharing of toll revenues derived from the mutual use of interconnection facilities.
Arrangements and Commitments with Suppliers
Globe Telecom and Innove have entered into agreements with various suppliers for the delivery, installation, or construction of their
property and equipment. Under the terms of these agreements, delivery, installation or construction commences only when purchase
orders are served. Billings are based on the progress of the project installation or construction. While the construction is in progress,
project costs are accrued based on the billings received. When the installation or construction is completed and the property is ready
for service, the balance of the related purchase orders is accrued. The consolidated accrued project costs as of December 31, 2006,
2005 and 2004 included in the “Accounts payable and accrued expenses” account in the consolidated balance sheets amounted to
P
= 4,548.84 million, P
= 2,444.11 million and P
= 3,454.29 million, respectively (see Note 12). As of December 31, 2006, the consolidated
expected future payments amounted to P
= 2,359.75 million. The settlement of these liabilities is dependent on the payment terms
agreed with the suppliers and contractors.
Agreements with C2C
In 2001, Globe Telecom signed a cable equipment supply agreement with C2C, a related party of STI. In March 2002, Globe
Telecom entered into an equipment lease agreement for the same equipment obtained from C2C with GB21 Hong Kong Limited
(GB21). Subsequently, GB21, in consideration of C2C’s agreement to assume all payment obligations pursuant to the lease
agreement, assigned all its rights, obligations and interest in the equipment lease agreement to C2C. As a result of the said
assignment of receivables and payables by GB21 and C2C under the two agreements, Globe Telecom’s liability arising from the
cable equipment supply agreement with C2C was effectively converted into a noninterest bearing long-term obligation accounted for
at net present value under PAS 39 starting 2005.
Globe Telecom entered into agreements with C2C for the purchase of IRUs in its network. The aggregate cost of capacity purchased
from C2C amounted to P
= 1,133.79 million.
In January 2003, Globe Telecom received advance lease payments from C2C for its use of a portion of Globe Telecom’s cable
landing station facilities amounting to US$4.11 million. Accordingly, based on agreed amortization schedule, Globe Telecom
recognized lease income amounting to P
= 13.97 million, P
= 15.06 million and P
= 16.32 million in 2006, 2005 and 2004, respectively.
As of December 31, 2005 and 2004, C2C was still a related party of Globe Group until the transfer of Innove’s shares in C2C to C2C
Group Limited on August 7, 2006 (see Note 11). As of December 31, 2006, C2C has ceased to be a related party.
The current and noncurrent portions of the said advances shown as part of the “Other long-term liabilities” account in the
consolidated balance sheets are as follows (see Note 15):
2006
Current
Noncurrent
P
= 13,389
100,705
P
= 114,094
2005
(In Thousand Pesos)
P
= 14,759
123,166
P
= 137,925
2004
P
= 17,760
146,449
P
= 164,209
25. Contingencies
Globe Telecom and Innove are contingently liable for various claims arising in the ordinary conduct of business and certain tax
assessments which are either pending decision by the courts or are being contested, the outcome of which are not presently
determinable. In the opinion of management and legal counsel, the eventual liability under these claims, if any, will not have a
material or adverse effect on the Globe Group’s financial position and results of operations. There are no new material legal claims
and no developments on previously disclosed legal cases for the year.
NTC Memorandum Circular No. 13-6-2000
Globe Telecom is an intervenor in and Innove (formerly Isla Communications Co., Inc.) is a party to Civil Case No. Q-00-42221
entitled “Isla Communications Co., Inc. et. al. versus NTC, et. al.” before the Regional Trial Court (RTC) of Quezon City by virtue of
which Globe Telecom and Innove, together with other cellular operators, sought and obtained a preliminary injunction against the
implementation of NTC Memorandum Circular No. 13-6-2000. NTC Memorandum Circular No. 13-6-2000 sought, among others, to
extend the expiration of prepaid call cards to two years. The NTC appealed the grant of the injunction to the Court of Appeals (CA)
which subsequently dismissed the case before the RTC for lack of jurisdiction. The SC subsequently reversed the decision of the CA
and declared the RTC as having jurisdiction over the case. The SC remanded the case to the RTC for further hearing. As of February
5, 2007, Globe Telecom is still awaiting the resumption of proceedings before the RTC.
In the event, however, that Globe Telecom and Innove are not eventually sustained in their position and NTC Memorandum Circular
No. 13-6-2000 is implemented in its current form, the Globe Group would probably incur additional costs for carrying and maintaining
prepaid subscribers in their networks.
26. Earnings Per Share
Globe Group’s earnings per share amounts were computed as follows:
2006
Net income attributable to common shareholders for
basic earnings per share
Add dividends on preferred shares
Net income attributable to common shareholders for
diluted earnings per share
Weighted average number of shares for basic earnings
per share
Dilutive shares arising from:
Convertible preferred shares
Stock options
Adjusted weighted average number of common stock
for diluted earnings per share
Basic earnings per share
Diluted earnings per share
2005
2004
(In Thousand Pesos and Number of Shares,
Except Per Share Figures)
P
= 11,690,004
64,669
P
= 10,246,174
68,334
P
= 11,321,114
75,128
11,754,673
10,314,508
11,396,242
131,998
133,520
139,904
800
301
982
146
872
297
133,099
P
= 88.56
134,648
P
= 76.74
141,073
P
= 80.92
P
= 88.32
P
= 76.60
P
= 80.78
27. Financial Instruments
Financial Risk Management Objectives and Policies
The main purpose of the Globe Group’s financial instruments is to fund its operations and capital expenditures. The main risks
arising from the use of financial instruments are liquidity risk, foreign currency risk, interest rate risk, and credit risk. Globe Telecom
also enters into derivative transactions, the purpose of which is to manage the currency and interest rate risk arising from its financial
instruments.
Globe Telecom’s BOD reviews and approves the policies for managing each of these risks. The Globe Group monitors market price
risk arising from all financial instruments and regularly reports financial management activities and the results of these activities to
the BOD.
The Globe Group’s risk management policies are summarized below:
Interest Rate Risk
The Globe Group’s exposure to market risk for changes in interest rates relates primarily to the companies’ long-term debt
obligations.
Globe Telecom’s policy is to manage its interest cost using a mix of fixed and variable rate debt.
Globe Telecom’s policy has been revised, to target a ratio of between 31-62% fixed rate United States Dollar (USD) debt to total
USD debt, and between 44-88% fixed rate PHP debt to total PHP debt. To manage this mix in a cost-efficient manner, Globe
Telecom enters into interest rate swaps, in which Globe Telecom agrees to exchange, at specified intervals, the difference between
fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount.
As of December 31, 2006, after taking into account the effect of currency and interest rate swaps, 74% of the Globe Group’s peso
borrowings are at a fixed rate of interest, while 66% of the Globe Group’s USD borrowings are at a fixed rate of interest.
Foreign Exchange Risk
The Globe Group’s foreign exchange risk results primarily from movements of the PHP against the USD with respect to USDdenominated financial assets (such as cash and cash equivalents and short-term investments) and USD-denominated financial
liabilities. Majority of revenues are generated in PHP, while substantially all of capital expenditures are in USD. In addition, 62% of
debt as of December 31, 2006 was denominated in USD.
The Globe Group recently revised its foreign exchange risk management policy to hedge its foreign currency denominated debt such
that it maintains a fully hedged balance sheet position, after taking into account expected USD cash, USD swaps and expected USD
revenues. Globe Telecom enters into short-term foreign currency forwards and long-term foreign currency swap contracts in order to
achieve this target. As of December 31, 2006, USD debt that has been swapped to PHP and PHP-denominated loans amounted to
approximately 59% of the total debt.
Credit Risk
Applications for postpaid service are subjected to standard credit evaluation and verification procedures. The Credit Management
unit of the Globe Group continuously reviews credit policies and processes and implements various credit actions, depending on
assessed risks, to minimize credit exposure. Receivable balances of postpaid subscribers are being monitored on a regular basis
and appropriate credit treatments are applied at various stages of delinquency. Likewise, net receivable balances from carriers of
traffic are also being monitored and subjected to appropriate actions to manage credit risk.
With respect to credit risk arising from the other financial assets of the Globe Group, which comprise cash and cash equivalents,
AFS financial assets and certain derivative instruments, the Globe Group’s exposure to credit risk arises from default of the
counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Globe Group has a counterparty
credit risk management policy which allocates investment limits based on counterparty credit ratings and credit risk profile.
Liquidity Risk
The Globe Group seeks to manage its liquidity profile to be able to finance capital expenditures and service maturing debts. To cover
its financing requirements, the Globe Group intends to use internally generated funds and available long-term and short-term credit
facilities. As of December 31, 2006, Globe Group has available uncommitted short-term credit facilities of US$35.00 million and
P
= 5,200.00 million. The Globe Group also has P
= 5,800.00 million in committed long-term facilities which remain undrawn.
As part of its liquidity risk management, the Globe Group regularly evaluates its projected and actual cash flows. It also continuously
assesses conditions in the financial markets for opportunities to pursue fund raising activities, in case any requirements arise. Fund
raising activities may include bank loans, export credit agency facilities and capital market issues.
Hedging Objectives and Policies
The Globe Group uses a combination of natural hedges and derivative hedging to manage its foreign exchange exposure. It uses
interest rate derivatives to reduce earnings volatility related to interest rate movements.
It is the Globe Group’s policy to ensure that capabilities exist for active but conservative management of its foreign exchange and
interest rate risks. The Globe Group does not engage in any speculative derivative transaction. Authorized derivative instruments
include currency forward contracts (freestanding and embedded), currency swap contracts, interest rate swap contracts and currency
option contracts (freestanding and embedded). Certain currency swaps are entered with option combination or structured provisions.
Financial Assets and Liabilities
Fair Value of Financial Instruments
The following discussions are methods and assumptions used to estimate the fair value of each class of financial instrument for
which it is practicable to estimate such value.
Non-derivative Financial Instruments
The fair values of cash and cash equivalents, short-term investments, AFS investments, subscriber receivables, traffic settlements
receivable, accounts payable and accrued expenses are approximately equal to their carrying amounts considering the short-term
maturities of these financial instruments.
The fair value of AFS investments are based on quoted prices. Unquoted AFS equity securities are carried at cost, subject to
impairment.
The fair value of HTM investments is calculated by reference to current forward exchange rates for contracts with similar maturity
profiles.
The fair value of Globe Telecom’s outstanding Senior Notes due 2012 is based on the quoted market price of the Notes. The price of
the Notes (after bifurcating the value of the embedded prepayment option) is 115.90%, with an effective interest rate of 6.18%. The
fair value of other fixed rate interest bearing loans is based on the discounted value of future cash flows using the applicable rates for
similar types of loans. The discount rates used range from 5.16% to 6.21% (for PHP loans) and 5.64% (for USD loans).
For variable rate loans that reprice every three months, the carrying value approximates the fair value because of recent and regular
repricing based on current market rates. For variable rate loans that reprice every six months, the fair value is determined by
discounting the principal amount plus the next interest payment using the prevailing market rate for the period up to the next repricing
date. The discount rates used range from 4.83% to 5.36% (for USD loans). The variable rate PHP loans reprice every three months.
For noninterest bearing obligations, the fair value is estimated as the present value of all future cash flows discounted using the
prevailing market rate of interest for a similar instrument.
Derivative Instruments
The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar
maturity profiles.
The fair value of embedded foreign exchange derivatives in notes that have been purchased by the Globe Group is calculated by
reference to the current price of the note and the change in the foreign exchange rate that is linked to the note.
The fair values of interest rate swaps, currency and cross currency swap transactions are determined using valuation techniques with
assumptions that are based on market conditions existing at the balance sheet date. The fair value of interest rate swap transactions
is the net present value of the estimated future cash flows. The fair values of currency and cross currency swap transactions are
determined based on changes in the term structure of interest rates of each currency and the spot rate. The fair values of structured
swaps transactions are determined based on quotes obtained from counterparty banks.
Embedded currency options and forwards in nonfinancial contracts are valued using the simple option pricing model of Bloomberg.
The embedded call option on the 2012 Senior Notes is also valued using Bloomberg models.
The table below presents a comparison by category of carrying amounts and estimated fair values of the Globe Group’s financial
instruments:
2006
Carrying Value
2005
Fair Value
Carrying Value
Fair Value
(In Thousand Pesos)
Financial assets:
Cash and cash equivalents
Short-term investments
AFS investments
P
= 7,505,715
P
= 7,505,715
P
= 10,910,961
6,155,349
6,155,349
–
P
= 10,910,961
–
293,614
293,614
1,220,318
1,220,318
HTM investments
857,563
857,825
33,441
33,404
Receivables - net
5,527,905
5,527,905
6,764,130
6,764,130
Derivative assets
1,626,667
1,626,667
1,548,891
1,548,891
16,485,265
16,485,265
13,972,222
13,972,222
1,086,123
1,086,123
731,746
731,746
39,206,857
40,758,312
49,693,388
53,550,632
1,532,966
1,561,973
1,783,892
2,219,844
Financial liabilities:
Accounts payable and
accrued expenses
Derivative liabilities
(including current portion)
Long-term debt (including
current portion)
Other long-term liabilities
(including current portion)
Traffic settlements receivable included as part of the “Receivables” account and traffic settlements payable, included as part of the
“Accounts payable and accrued expenses” account in the above tables, are presented net of any related payable or receivable
balances with the same telecommunications carrier only when there is a legal right of offset under the traffic settlement agreements
and that the accounts are settled on a net basis.
Derivative Financial Instruments
The Globe Group’s freestanding and embedded derivative financial instruments are accounted for as hedges or transactions not
designated as hedges. The table below sets out information about the Globe Group’s derivative financial instruments and the related
fair value as of December 31:
2006
Notional
Amount
Derivative instruments designated as
hedges:
Cash flow hedges:
Currency and cross currency
swaps
Interest rate swaps
Derivative instruments not
designated as hedges:
Freestanding:
Currency swaps and crosscurrency swaps
Nondeliverable forwards
Interest rate swaps
Sold currency call options
(including premiums receivable)
Embedded:
Call option on 2012 Senior Notes*
Embedded forwards
Embedded options
Net
Notional
Derivative
Amount
Assets
(In Thousands)
Derivative
Liabilities
$55,807
12,098
P
=–
–
P
=–
8,644
P
= 574,654
–
73,742
74,000
17,000
–
–
2,000,000
–
23,526
139,178
402,365
66,633
17,705
3,000
–
–
–
293,540
6,416
898
–
–
–
1,425,270
30,029
20
P
= 1,626,667
–
24,766
–
P
= 1,086,123
* Globe Telecom plans to exercise its option to redeem the 2012 Senior Notes in April 2007 (see Note 14).
2005
Notional
Amount
Derivative instruments designated as
hedges:
Cash flow hedges:
Currency and cross currency
swaps
Interest rate swaps
Derivative instruments not
designated as hedges:
Freestanding:
Currency swaps and crosscurrency swaps
Interest rate swaps
Sold currency call options
(including premiums receivable)
Embedded:
Call option on 2012 Senior Notes
Embedded forwards
Embedded options
Net
Notional
Derivative
Amount
Assets
(In Thousands)
Derivative
Liabilities
$91,944
56,162
P
=–
–
P
= 16,657
57,491
P
= 431,320
–
83,061
5,000
–
1,000,000
19,863
69,112
249,007
18,763
27,700
–
15,013
2,330
300,000
11,720
1,080
–
–
–
1,268,712
101,808
235
P
= 1,548,891
–
30,326
–
P
= 731,746
Foreign exchange and interest rate risks
Information on the Globe Group’s foreign currency-denominated monetary assets and liabilities and their PHP equivalents as of
December 31 are as follows:
2006
Assets
Cash and cash equivalents
Short-term investments
Receivables
Prepayments and other current assets
Liabilities
Accounts payable and accrued expenses
Long-term debt
Other long-term liabilities
Net foreign currency-denominated liabilities
2005
US
Dollar
Peso
Equivalent
$140,430
88
53,849
750
195,117
P
= 6,887,362
4,326
2,641,048
36,774
9,569,510
$78,901
–
50,162
5,238
134,301
88,118
492,199
23,679
603,996
4,321,763
24,139,882
1,161,337
29,622,982
53,534
611,487
25,889
690,910
$408,879 P
= 20,053,472
US
Peso
Dollar
Equivalent
(In Thousands)
2004
US
Dollar
Peso
Equivalent
P
= 4,186,627
–
2,661,691
277,948
7,126,266
$173,563
9,574
38,516
2,490
224,143
P
= 9,778,713
539,409
2,170,045
140,289
12,628,456
2,840,690
32,446,723
1,373,734
36,661,147
70,964
713,258
48,197
832,419
3,998,197
40,185,669
2,715,467
46,899,333
$556,609 P
= 29,534,881
$608,276 P
= 34,270,877
The following table shows information about the Globe Group’s financial instruments that are exposed to interest rate risk and presented by maturity profile. The table also sets out information about the
Globe Group’s derivative instruments that were entered into to manage interest and foreign exchange risks as of December 31 (in thousands).
2006
<1 year
Liabilities:
Long-term debt
Fixed rate
USD notes
Interest rate
Philippine peso
Interest rate
Floating rate
USD notes
Interest rate
Philippine peso
Interest rate
(Forward)
$18,383
6.55%
P
= 1,306,400
10.18%-10.47%
>1-<2 years
$11,116
6.44%
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
Total
(in USD)
Total
(in PHP)
$6,140
6.44%
$–
–
$–
–
$293,540
10.83%
P
= 2,249,800
P
= 4,700,000
10.18%-10.47% 10.47%-11.70%
P
=–
0.00%
P
= 520,000
16%
P
= 1,087,000
13.79%
–
$11,111
Libor +.85%
$–
155,311
$69,902
Libor+.45%
Libor+1%
Libor+1.20%
Libor+1.375%
Libor+2%
Libor+2.05%
Libor+3.2%
Libor only; Libor +
.85%
$28,254
Libor + 3.20%
Libor+1.75%
Libor+1.20%
Libor +.85%
$23,822
Libor+1.20%
Libor + .85%
$22,222
Libor + .85%
P
= 797,447
Mart 1 + 1.3%
margin;
Mart 1 + 1%
margin
P
= 684,423
Mart 1 + 1.3%
margin;
Mart 1 + 1%
margin
P
= 1,240,373
Mart 1 + 1.3%
margin;
Mart 1 + 1%
margin
P
= 2,496,923
Mart 1 + 1%
3 mo Mart +
1.30%
$329,179 P
= 16,144,584
Premium and
Issuance
Carrying Value
Costs
(in PHP)
Fair Value
(in PHP)
P
= 371,961
P
= 16,516,545
P
= 18,829,694
9,863,200
(9,258)
9,853,942
11,488,488
7,617,204
–
7,617,204
5,220,964
5,219,166
–
5,219,166
5,219,166
P
= 38,844,154
P
= 362,703
P
= 39,206,857
P
= 40,758,312
3 mo Mart1 +
1.75%
Mart 1 + 1%
margin
<1 year
Derivatives:
Currency Swaps:
Notional amount
Weighted swap rate
Pay fixed rate
Cross-Currency Swaps:
Floating-Fixed
Notional amount
Pay-fixed rate
Receive-floating rate
Weighted swap rate
Floating-Floating
Notional amount
Pay-floating rate
Receive-floating rate
Weighted swap rate
Interest Rate Swaps
Fixed-Floating
Notional Peso
Notional USD
Pay-floating rate
Receive-fixed rate
Floating- Fixed
Notional Peso
Notional USD
Pay-fixed rate
Receive-floating Rate
Total
(in USD)
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
$13,879
$10,000
$10,000
$5,000
$15,000
$65,000
$118,879
P
= 53.524
4.62%-10.25%
$6,094
$417
–
–
–
–
$6,511
11% - 15.23%
USD Libor
P
= 51.520
$3,742
$417
–
–
–
–
$4,159
Mart + 1.25% 1.90%
USD Libor
P
= 51.028
–
–
–
–
P
= 1,000,000
–
–
–
–
–
–
$5,000
$20,389
$5,000
Libor+ 4.23%Mart+1.375%
9.75%-11.7%
–
$24,098
–
–
P
= 1,000,000
–
–
–
–
–
–
–
$20,389
$24,098
USD 2.3% 7.1%
USD Libor
Mart+1.375%
2005
<1 year
Liabilities:
Long-term debt
Fixed rate
USD notes
Interest rate
Philippine peso
Interest rate
Floating rate
USD notes
Interest rate
Philippine peso
Interest rate
(Forward)
$20,329
4.81% -6.55%
>1-<2 years
$18,383
4.81% -6.55%
P
= 876,400
P
= 1,347,650
10.37% - 10.72% 10.37% - 10.72%
$91,695
$69,902
Libor only; Libor + Libor only; Libor +
.45% - Libor +
.45% - Libor +
3.20%
3.20%
P
= 985,898
Mart 1 + 1.3%
margin;
Mart 1 + 1.5%
margin;
Mart 1 + 1%
margin
3 mo Mart + 1%
margin
3 mo Mart +
1.38% margin
>2-<3 years
$11,116
6.44%
>3-<4 years
$6,140
6.44%
P
= 2,208,550
P
= 5,002,000
10.37% - 10.72% 10.47% - 13.79%
>4-<5 years
>5 years
$–
–
$300,000 $355,968
10.83%
P
=–
P
= 1,607,000
– 13.49% - 16%
$28,254
Libor + .6755% Libor +1.63%
$23,822
Libor +1.20% Libor + 1.63%
$22,222
Libor +1.63%
P
= 797,447
P
= 684,423
Mart 1 + 1.3%
Mart 1 + 1.3%
margin;
margin;
Mart 1 + 1.5%
Mart 1 + 1.5%
margin;
margin;
Mart 1 + 1% Mart 1 + 1% margin
margin
3 mo Mart + 1%
margin
3 mo Mart +
1.38% margin
P
= 1,240,373
Mart 1 + 1%
3 mo Mart +
1.375%
3 mo Mart + 1%
P
= 2,496,923
3 mo Mart1 +
1.75%
Mart 1 + 1%
margin
Total
(in USD)
Total
(in PHP)
P
= 18,888,369
Premium and Carrying Value
Issuance Costs
(in PHP)
P
= 467,979
Fair Value
(in PHP)
P
= 19,356,348 P
= 21,870,614
–
11,041,600
(16,256)
11,025,344
12,201,003
$11,111 $247,006
Libor +1.63%
13,106,632
−
13,106,632
13,273,951
6,205,064
−
6,205,064
6,205,064
P
= 49,241,665
P
= 451,723
P
= 49,693,388 P
= 53,550,632
<1 year
Derivatives:
Currency Swaps:
Notional amount
Weighted swap rate
Pay fixed rate
Cross-Currency Swaps:
Floating-Fixed
Notional amount
Pay-fixed rate
Receive-floating rate
Weighted swap rate
Floating-Floating
Notional amount
Pay-floating rate
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
$21,548
$13,880
$10,000
$10,000
$5,000
$80,000
$140,428
P
= 53.16
4.62% - 10.25%
$13,755
$6,094
$417
–
–
–
$20,266
11% - 15.23%
USD Libor
P
= 51.64
$10,152
$3,742
$417
–
–
–
$14,311
Mart + 1.25% 2.85%
USD Libor
P
= 51.34
–
–
–
–
–
–
P
= 1,000,000
–
–
–
–
$5,000
$18,846
$5,000
Libor+ 4.23%Mart+1.375%
9.75% - 11.7%
$32,065
$24,098
–
–
–
–
$56,163
USD 2.3% 4.2%
USD Libor
Receive-floating rate
Weighted swap rate
Interest Rate Swaps
Fixed-Floating
Notional Peso
Notional USD
Pay-floating rate
Receive-fixed rate
Floating- Fixed
Notional USD
Pay-fixed rate
Receive-floating rate
Total
The Globe Group’s other financial instruments that are exposed to interest rate risk are cash and cash equivalents, AFS investments
and HTM investments. These mature in less than a year and are subject to market interest rate fluctuations.
The Globe Group’s other financial instruments which are non-interest bearing and therefore not subject to interest rate risk are
receivables, accounts payable and accrued expenses and other long-term liabilities.
The subsequent sections will discuss the Globe Group’s derivative financial instruments according to the type of financial risk being
managed and the details of derivative financial instruments that are categorized into those accounted for as hedges and those that
are not designated as hedges.
Derivative Instruments Accounted for as Hedges
The following sections discuss in detail the derivative instruments accounted for as cash flow hedges.
•
Currency and Cross-Currency Swaps
As of December 31, 2006, Globe Telecom has outstanding US$6.51 million foreign currency swap agreements with certain
banks, under which it effectively swaps the principal of certain USD-denominated loan exposures into fixed PHP-denominated
loan exposures with semi-annual payment intervals up to 2008.
Globe Telecom also has outstanding foreign currency swap agreements with certain banks, under which it effectively swaps the
principal of US$49.30 million loans into PHP up to April 2012. Under these contracts, swap costs are payable in semi-annual
intervals in PHP or USD.
As of December 31, 2006, the fair value of the outstanding swap amounted to P
= 574.65 million loss of which P
= 185.62 million
(net of tax) is reported as “Cumulative translation adjustment” in the equity section of the consolidated balance sheets.
Notional amount
Notional amount
Maturities
Swap rates
(In Thousands)
•
Floating-fixed cross-currency swaps
$6,511
P
= 335,438
2007 – 2008
51.520
Principal-only swaps
49,296
2,709,494
2007 – 2012
54.963
Interest Rate Swaps
As of December 31, 2006, Globe Telecom has US$12.10 million in notional amount of interest rate swap that has been
designated as cash flow hedge. The interest rate swap effectively fixed the benchmark rate of the hedged loan at 2.305% to
4.205% over the duration of the agreement, which involves semi-annual payment intervals up to August 2007.
As of December 31, 2006, the fair value of the outstanding swap amounted to P
= 8.64 million gain, of which P
= 12.07 million (net of
tax) is reported as “Cumulative translation adjustment” in the equity section of the consolidated balance sheets. Accumulated
swap income for the year ended December 31, 2006 amounted to P
= 18.31 million.
Other Derivative Instruments not Designated as Hedges
Globe Telecom enters into certain derivatives as economic hedges of certain underlying exposures. Such derivatives, which include
embedded and freestanding currency forwards, embedded call options, and certain currency swaps with option combination or
structured provisions, are not designated as accounting hedges. The gains or losses on these instruments are accounted for directly
in the consolidated statements of income. This section consists of freestanding derivatives and embedded derivatives found in both
financial and nonfinancial contracts.
Freestanding Derivatives
Freestanding derivatives that are not designated as hedges consist of currency forwards, options, swaps and interest rate swaps
entered into by Globe Telecom. Fair value changes on these instruments are accounted for directly in the consolidated statements of
income.
•
Currency Swaps and Cross-Currency Swaps
Globe Telecom also has outstanding foreign currency swap agreements with certain banks, under which it swaps the principal
of US$69.58 million USD-denominated loans into PHP up to April 2012. Under these contracts, swap costs are payable in semiannual intervals in PHP or USD. Of the US$69.58 million, US$2.08 million is in combination with sold out-of-the-money USD
call options with a strike price of P
= 62.50, while another US$20.00 million provides Globe Telecom the option to reset lower to a
certain minimum the foreign exchange rate used to determine PHP equivalent amounts to be net settled by Globe Telecom
upon maturity or termination. The reset option has been exercised.
Globe Telecom also entered into cross-currency swap agreements with certain banks, under which it swaps the principal and
interest of certain USD-denominated loans into PHP with quarterly or semi-annual payment intervals up to June 2008. As of
December 31, 2006, the total outstanding notional amounts of the cross-currency swaps amounted to US$4.16 million.
The fair values of the outstanding currency and cross-currency swaps as of December 31, 2006 amounted to a loss of
P
= 402.37 million.
•
Nondeliverable Forwards
Globe Telecom entered into short-term nondeliverable currency forward contracts to fix the peso cash flows from coupon and
redemption of certain Dollar-Linked Peso Note (DLPN) issued by the Republic of the Philippines (ROP). These currency forward
contracts with a notional amount of US$74.00 million will mature in April 2007. The unrealized loss amounted to
P
= 43.11 million.
•
Interest Rate Swaps
Globe Telecom has an outstanding interest rate swap contract which swaps certain floating rate USD-denominated loans into
fixed rate with semi-annual payments, intervals up to August 2007. The swap has an outstanding notional amount of
US$12.00 million as of December 31, 2006. The Company also has an outstanding interest rate swap with a notional amount of
US$5.00 million under which it effectively swapped the 9.75% coupon on its outstanding 2012 Senior Notes into a floating rate
of interest based on LIBOR. The swap has a constant maturity swap (CMS) component that is intended to reduce swap costs.
The interest rate on one leg of the CMS is being reset periodically subject to a cap, while the interest rate on the fixed leg of the
swap is subject to a daily range accrual that is linked to the difference between the 30-period and 10-period USD swap rates.
Globe Telecom also has an outstanding interest rate swap contract with a notional amount of P
= 1,000.00 million, which
effectively swaps a fixed rate PHP-denominated bond into floating rate, with quarterly payment intervals up to February 2009.
Globe Telecom also has outstanding interest rate swap contracts which were entered into to subsidize the cost of the
outstanding currency swap contracts. The total notional amounts of these interest rate swaps amounted to P
= 1,000.00 million,
with quarterly payment intervals up to February 2009.
The fair value of the interest rate swaps as of December 31, 2006 amounted to a net gain of P
= 139.18 million and loss of
P
= 17.71 million.
•
Sold Currency Options
As of December 31, 2006, Globe Telecom has a sold currency option with an outstanding notional amount of US$3.00 million at
an average strike price of P
= 61.25/USD maturing up to March 2007. This was entered into to subsidize the cost of outstanding
currency swap contracts. The currency option has a zero fair value as of December 31, 2006.
Embedded Derivatives and Other Financial Instruments
Globe Group’s embedded derivatives include embedded currency derivatives noted in both financial and nonfinancial contracts and
embedded call options in debt instruments.
•
Embedded Call Option
Globe Telecom’s 2012 Senior Notes contain embedded call options which give Globe Telecom the right to prepay the notes at a
certain call price per year. As of December 31, 2006, the embedded call options have a notional amount of
US$293.54 million and fair value of P
= 1,425.27 million.
•
Embedded Currency Forwards
As of December 31, 2006, the total outstanding notional amount of currency forwards embedded in nonfinancial contracts
amounted to US$6.42 million. The nonfinancial contracts consist mainly of foreign currency-denominated purchase orders with
various expected delivery dates. The fair value of the embedded currency forwards as of December 31, 2006 on the embedded
currency forwards amounted to P
= 5.26 million.
•
Embedded Currency Options
As of December 31, 2006, the total outstanding notional amount of currency options embedded in nonfinancial contracts
amounted to US$0.90 million. The fair value of the embedded currency options as of December 31, 2006 amounted to
P
= 0.02 million.
Fair Value Changes on Derivatives
The net movements in fair value changes of all derivative instruments are as follows:
2006
2005
(In Thousand Pesos)
At January 1
P
= 817,145
P
= 1,266,411
Net changes in fair value of derivatives:
Designated as accounting hedges
Not designated as accounting hedges
Less fair value of settled instruments
At December 31
(254,589)
(429,336)
45,462
27,006
608,018
864,081
67,474
46,936
P
= 540,544
P
= 817,145
Hedge Effectiveness Results
As of December 31, 2006, the effective fair value changes on Globe Telecom’s cash flow hedges that were deferred in equity
amounted to P
= 197.69 million, net of tax. Total ineffectiveness recognized immediately in the consolidated statements of income for
the year then ended amounted to P
= 1.72 million.
The distinction of the results of hedge accounting into “Effective” or “Ineffective” represents designations based on PAS 39 and are
not necessarily reflective of the economic effectiveness of the instruments.
28. Segment Reporting
The Globe Group’s reportable segments consist of:
Wireless Communications Services - represents cellular telecommunications services that allow subscribers to make and receive
local, domestic long distance and international long distance and roaming calls to and from any place within the coverage area.
Revenues principally consist of one-time registration fees, fixed monthly service fees for postpaid, subscription fees for prepaid
discounted promotions, revenues from VAS such as text messaging and content downloads, proceeds from sale of handsets and
other phone accessories, one-time allocation of upfront fees for the excess of selling price of SIM packs over the preloaded airtime
and per minute airtime and toll fees for basic services which vary based primarily on the monthly volume of calls and the network on
which the call terminates.
Wireline Communications Services - represents fixed line telecommunications services which offer subscribers local, domestic long
distance and international long distance services in addition to a number of VAS in various service areas covered by the PA and
Franchise granted by the NTC. Revenues consist principally of fixed monthly basic fee for service and equipment, one-time fixed line
service connection fee, VAS, and toll fees for domestic and international long distance traffic usage for voice and data services and
internet subscription fees of wireline subscribers. This also includes a variety of telecommunications services tailored to meet the
specific needs of corporate communications such as leased lines, Very Small Aperture Terminal (VSAT), international packetswitching services, broadband, and internet services.
The Globe Group’s segment information are as follows (in thousands):
2006
Wireless
Communications
Services
Wireline
Communications
Services
Eliminations
Consolidated
P
= 50,671,825
P
= 6,361,794
P
=–
P
= 57,033,619
2,888,850
26,539
–
2,915,389
Intersegment revenues
385,475
117,467
Interest income
611,271
104,066
Service revenues
Nonservice revenues
Other income - net
Total revenue
(502,942)
–
–
715,337
1,173,530
3,492
(731,839)
445,183
55,730,951
6,613,358
(1,234,781)
61,109,528
1,242,843
(18,080,931)
General, selling and administrative
(15,653,285)
(3,670,489)
Depreciation and amortization
(14,211,642)
(2,574,042)
Cost of sales
(4,535,197)
(84,479)
941
(4,618,735)
Financing costs
(3,180,896)
(91,466)
–
(3,272,362)
(243,778)
(291,170)
–
(534,948)
Impairment losses and others
(351,869)
(17,137,553)
Equity in net earnings of an associate and
a joint venture
Income (loss) before income tax
Benefit from (provision for) income tax
Net income (loss)
(5,834)
17,900,319
(5,737,483)
P
= 12,162,836
–
(98,288)
32,991
(P
= 65,297)
–
(342,866)
–
(P
= 342,866)
(5,834)
17,459,165
(5,704,492)
P
= 11,754,673
Other segment information
Capital expenditure
P
= 12,598,829
P
= 2,281,624
P
=–
P
= 14,880,453
2005
Wireless
Wireline
Communications
Communications
Services
Services
Eliminations
Consolidated
P
= 48,481,323
P
= 6,415,490
P
=–
P
= 54,896,813
3,747,553
103,235
–
3,850,788
Intersegment revenues
645,090
361,265
Interest income
475,453
44,195
Service revenues
Nonservice revenues
Other income - net
(3,611)
–
–
519,648
(2,764,458)
577,476
56,694,964
6,920,574
(3,770,813)
59,844,725
General, selling and administrative
(17,542,682)
(3,578,904)
1,979,324
(19,142,262)
Depreciation and amortization
(12,920,623)
(2,449,546)
Cost of sales
(5,927,286)
Financing costs
Impairment losses and others
Total revenue
3,345,545
(1,006,355)
(363,790)
(15,733,959)
(142,936)
45,511
(6,024,711)
(3,037,812)
(102,781)
–
(3,140,593)
(1,455,431)
(153,425)
–
(1,608,856)
Equity in net earnings of an associate and a
joint venture
Income before income tax
Provision for income tax
Net income
(13,334)
15,797,796
(3,718,528)
–
492,982
(147,974)
P
= 12,079,268
P
= 345,008
P
= 14,252,981
P
= 1,266,973
–
(2,109,768)
–
(P
= 2,109,768)
(13,334)
14,181,010
(3,866,502)
P
= 10,314,508
Other segment information
Capital expenditure
P
=–
P
= 15,519,954
2004
Wireless
Wireline
Communications
Communications
Services
Services
Eliminations
Consolidated
P
= 47,054,481
P
= 5,686,877
P
=–
P
= 52,741,358
2,848,766
18,856
–
2,867,622
Intersegment revenues
563,129
309,780
(872,909)
–
Interest income
383,374
70,707
(43)
454,038
Service revenues
Nonservice revenues
Other income - net
1,501,376
109,280
(1,203,366)
407,290
52,351,126
6,195,500
(2,076,318)
56,470,308
General, selling and administrative
(13,655,870)
(2,887,998)
1,139,905
(15,403,963)
Depreciation and amortization
(11,569,616)
(2,379,011)
Cost of sales
(6,781,260)
(81,224)
Financing costs
(6,345,332)
Total revenue
Impairment losses and others
(369,379)
(757,198)
(14,705,825)
187,286
(6,675,198)
18,410
43
(6,326,879)
(266,068)
–
(635,447)
Equity in net earnings of an associate and a
joint venture
(62)
Income before income tax
13,629,607
Benefit from (provision for) income tax
Net income
(1,409,121)
–
599,609
82,429
P
= 12,220,486
P
= 682,038
P
= 18,467,282
P
= 3,235,056
–
(1,506,282)
–
(P
= 1,506,282)
(62)
12,722,934
(1,326,692)
11,396,242
Other segment information
Capital expenditure
P
=–
P
= 21,702,338
The segment assets and liabilities as of December 31, 2006, 2005 and 2004 are as follows (in thousand pesos):
2006
Segment assets
Investments in an associate and a joint venture
under equity method
[1]
Consolidated total assets
[1]
Consolidated total liabilities
Wireless
Communications
Services
P
= 125,242,295
Wireline
Communications
Services
P
= 17,463,845
Eliminations
(P
= 18,965,502)
Consolidated
P
= 123,740,638
37,332
P
= 125,279,627
–
P
= 17,463,845
–
(P
= 18,965,502)
37,332
P
= 123,777,970
P
= 63,070,580
P
= 1,974,920
(P
= 2,953,817)
P
= 62,091,683
Wireless
Communications
Services
P
= 122,852,929
Wireline
Communications
Services
P
= 18,921,175
Eliminations
(P
= 17,878,920)
Consolidated
P
= 123,895,184
43,263
P
= 122,896,192
–
P
= 18,921,175
–
(P
= 17,878,920)
43,263
P
= 123,938,447
P
= 64,854,937
P
= 6,416,199
(P
= 2,220,423)
P
= 69,050,713
2005
Segment assets
Investments in an associate and a joint venture
under equity method
[1]
Consolidated total assets
[1]
Consolidated total liabilities
2004
Segment assets
Investments in an associate and a joint venture
under equity method
[1]
Consolidated total assets
Wireless
Communications
Services
P
= 131,264,940
Wireline
Communications
Services
P
= 25,076,643
Eliminations
(P
= 29,107,505)
Consolidated
P
= 127,234,078
56,597
P
= 131,321,537
–
P
= 25,076,643
–
(P
= 29,107,505)
56,597
P
= 127,290,675
P
= 74,328,551
P
= 2,738,543
(P
= 5,344,800)
P
= 71,722,294
[1]
Consolidated total liabilities
[1]
Consolidated total assets and liabilities do not include deferred income taxes.
29. Notes to Consolidated Statements of Cash Flows
The principal noncash transactions for the years ended December 31, 2006, 2005 and 2004 are as follows:
2006
2005
2004
(In Thousand Pesos)
Increase (decrease) in liabilities related to the
acquisition of property and equipment
Capitalized ARO (Note 15)
Dividends on preferred shares
P
= 2,246,425
(P
= 1,163,860)
P
= 935,909
281,557
44,433
182,363
64,669
68,334
75,128
The cash and cash equivalents account consists of:
2006
Cash on hand and in banks
Short-term placements
P
= 2,861,698
4,644,017
P
= 7,505,715
2005
(In Thousand Pesos)
P
= 736,200
10,174,761
P
= 10,910,961
2004
P
= 1,967,695
11,614,147
P
= 13,581,842
Cash in banks earn interest at respective bank deposit rates. Short-term placements are made for varying periods of up to three
months depending on the immediate cash requirements of the Globe Group and earn interest at the respective short-term placement
rates.
GLOBE TELECOM, INC. AND SUBSIDIARIES
SCHEDULE A - Short-term Cash Investments
As of December 31, 2006
(In Thousand Pesos)
Name of Issuing Entity and Association of Each Issue
Curr
Principal Amount
Balance as of
December 31, 2006
(In PhP) (1)
Interest Received &
Accrued
(in PHP)
1,151,178
103,427
2,033
Investments in Treasury Bills
Securities Issued/Guaranteed by the Philippine Government (T-bills)
PHP
1,152,563
Special Savings Deposit
Banco de Oro
PHP
250,000
250,000
Chinabank
PHP
147,000
147,000
-
Rizal Commercial Banking Corp
PHP
47,919
47,919
2,887
Security Bank
PHP
33,000
33,000
-
Equitable PCIB
PHP
31,199
31,199
1,412
Chinatrust
PHP
20,000
-
529,118
6,332
Deutsche Bank
USD
38,078
1,867,519
40,922
ANZ
USD
37,086
1,818,869
25,634
Banco de Oro
USD
13,488
661,535
7,350
Security Bank
USD
7,415
363,669
5,377
Bank of Tokyo
USD
4,933
241,940
1,765
Equitable PCI Bank
USD
4,683
229,675
1,028
Union Bank
USD
4,627
226,920
1,502
Standard Chartered Bank
USD
TOTAL
(1)
20,000
529,118
Short-term investments are carried at fair value as of December 31, 2006.
USD
PHP
4,406
216,103
5,244
114,716
5,626,230
88,822
114,716
1,681,681
7,306,526
198,581
GLOBE TELECOM, INC. AND SUBSIDIARIES
SCHEDULE B - Amounts Receivable from Directors, Officers, Employees, Related
Parties and Principal Stockholders (Other than Related Parties)
As of December 31, 2006
(In Thousand Pesos)
Name and Designation of Debtor
Balance as of
December 31,
2005
Additions
Collections
Balance as of
December 31,
(1)
2006
Receivable from employees:
Medical, salary and other loans (see B.1 and B.2)
54,623
82,610
(77,804)
59,429
927
715
-
1,642
69
1,034
(1,052)
51
996
1,749
(1,052)
1,693
55,619
84,359
(78,856)
61,122
Receivable from Related Parties and Principal
Stockholders:
Receivable from Singapore Telecom Int'l Pte. Ltd
Receivable from Asiacom
(1)
All the receivables from directors, officers, employees, related parties and principal stockholders as of
December 31, 2006 are classified under current.
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
TIVIDAD
AIDA
AVELINO
RICARDO JR.
COBAR
ROVI
GONZALES
MA. CARIDAD
CALDONA
EDELYN
TRESMANIO
JESUS
ONG
VINCENT CHARLES
RAYOS DEL SOL
MARIANNETTE
CORTEZ
NOEL
LATINA
MELCHOR
BEA
ROMUALDO
BORROMEO
JENNY
MAPANAO
VIC JOSE
GO
GRISELDA
AZCUNA
ANNA MARIA
BELLEZA
EDWIN
EALA
ROSEMARIE
SIASOCO
MA. DEMETRIA
DE LEON
THOMAS JEFFERSON
BERGADO
CARMELA SOCORRO
BAGNES
CELSO
AVERION
AILENE
JAVIER
MA. BERNADETTE
SORIANO
EVELYN
LOPEZ
LEVI
MARTIN
MA. CORAZON
AMORES
ARVIN
ESTRADA
EMMANUEL LAZARO
PERALTA
REYNALDO
CABILUNA
MELISSA PAULA
QUENIAHAN
DWIGHT
VALDES
MARIA VERONICA
MACARULAY
FELIX, JR.
LEONOR
MA. REGINA
DE MESA
REGINALD
ARANETA
RAQUEL
ASPERA
ERWIN RODNEY
CO
MARISALVE
PALANCA
MA. CLARISSA
DELGADO
DARIUS JOSE
POQUIZ
RICHARD
PASCASIO
JOSEPHINE
CASTRO
PRISCILLA
FRAGINAL
JAIME JR.
MENDOZA
EMERICO II
GAMBOA
JOHN ARTHUR
CAPUA
DIVINA
MERCADO
ESPERANZA
VILLAFUERTE
VERNON
RAMOS
ARMAND
ROQUE
ERWIN
LUZANO
SALVACION
DELLOSA
MA. LUZ FATIMA
GUZMAN
ANNELY
ENRIQUEZ
CHITO
SARMIENTO
ANA SHELLA
BITO
JESUS
CHAN
RICHARD
DEL ROSARIO
MARCELA
SIONGCO
NATHANIEL PASCHAL
VILLETA
JONATHAN
DUNGO
LADY LYNN
GIGANTE
ALBERT
TIU
MARIBETH
CUEVAS
CECILIA
Amount
541,989.58
348,703.38
322,587.35
315,000.00
283,760.25
224,684.68
221,200.00
219,267.56
217,654.77
202,617.72
202,117.00
194,781.46
193,561.35
188,751.00
187,207.58
166,962.14
165,478.64
165,000.00
160,631.32
154,234.06
145,833.43
144,410.53
138,993.46
137,146.16
135,645.34
134,878.14
134,519.80
131,507.72
127,500.00
124,492.15
121,002.77
120,617.81
115,500.00
112,435.54
111,107.63
110,850.00
110,576.62
109,539.78
107,193.59
105,943.33
105,852.87
104,847.28
102,083.42
101,250.00
100,750.06
100,025.54
97,950.01
97,451.73
95,921.19
95,661.89
95,583.51
93,359.36
92,381.72
91,893.88
89,650.76
88,478.38
88,446.81
87,599.69
85,969.89
85,858.49
85,425.04
83,517.50
83,138.69
82,500.00
82,454.49
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
BOTOR
CRUZ
GAGUA
SOCIAS
AGUSTIN
ANSELMO
ALMAZAN
TORRES
SIMPINO
TIOSECO
VILLANUEVA
FERNANDEZ
GOHETIA
HERNANDEZ
PERIDO
BOC
GARCIA
DELOS SANTOS
BALMACEDA
ALMINE
VILLAMAYOR
DAVID
NANCA
MAYORES
FINEZ
ILAGAN
RESTUA
EBANA
SANTIAGO
ROMERO
SIASOCO
VALENCIA
QUEBENGCO
REBONG
CUSTODIO
ONG ANTE
ALBARRACIN
NARCELLES
ALDOVINO
SONZA
CAPISTRANO
FRANCISCO
MAGSINO
PANIGBATAN
GONZALES
GASMIDO
BATAC
CATUDIO
ALVARADO
ELARDO
AZANZA
SIAHINGCO
MONGAYA
BAZIL
LUGADOR
LIBERIA
SORIANO
HERNANDEZ
VILLASENOR
MARQUEZ
SEVERINO
VILLASEÑOR
ISLA
TENG
CORONEL
CHRISTIE
GABRIEL RESURECCION
FELICISIMO JR
ROLANDO
ULYSSES
IMELDA
BERNARDO
MA. ELENITA
EVANGELINE
FRANCIS RAMON
MARIA SUZETTE
MARIA DOLORES
JESSIE SR.
MARCELLUS ANTHONY
ALBERT
JONATHAN
ANNA LEE
MARIA ELIZABETH
MARY ANNE
DULCE AMOR
FILOTEO III
NORMAN THEODORE
ANDREW
ANNA LIZA
MA. THERESA
MA. RECHILDA
VIOLETA
REY
PAMELA
GLEN
DIVINA JEAN
MARIA CRISTINA
JOANNE
KENNETH
ISAGANI
GRACE
MARIO
SALVADOR III
ROMEL
MARY ANTONETTE
RICHARD BENEDICT
LEAH
CLARITA
DENNIS
GEMMA
GERRILYNN
PABLITO
VICENTE
MARY ANN
NOEL JONATHAN
LOUISA
MERCY KORINA
BENITO
RUTH
MYLENE
MARGARITA ROMANA FE
AURORA
VIRGINIA
RACHELLE JOANNA
PAUL
ANTONIO LINO
MA. BERNARDITA
JOSEPH
MA. TERESA
RINOFEL
Amount
81,917.54
81,666.71
81,341.68
80,750.73
80,583.50
79,283.36
79,166.76
79,166.70
78,826.25
78,629.12
78,363.49
78,310.00
77,666.41
77,633.15
77,575.73
76,711.00
76,396.17
76,374.85
76,316.03
74,729.91
74,713.40
74,624.26
74,610.83
74,319.03
73,945.30
73,885.68
73,166.03
72,500.00
72,205.30
72,099.00
71,650.00
71,583.42
71,146.96
70,881.90
70,548.38
70,349.99
70,000.00
70,000.00
69,970.61
69,865.00
69,828.27
69,356.62
69,202.50
69,113.71
68,454.40
67,974.46
67,428.79
66,670.25
66,367.74
66,250.02
66,072.00
65,963.13
65,787.50
65,213.47
65,000.00
64,832.00
64,563.59
64,024.00
63,910.13
63,349.59
62,375.00
62,185.81
62,184.18
61,889.37
61,658.95
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
IRIOLA
HARILLA
AGUILAR
ECLAVEA
MORAGA
BAYLOSIS
ROMERO
ASESOR
PRING
LOPEZ
OBNIAL
RED
FAJATIN
DUEÑAS
VIZCAYNO
VERA
MIRO
COMODA
MALAPIRA
SANA
ESGUERRA
GARCIA
SANDICO
TANHUECO
VILLANUEVA
GAYANELO
DE CASTRO
BABAS
PEREZ
HERIDA
BARCENAL
FARGAS
HUFANA
VILLENA
BUNAG
ALDAY
CAPULE
SANTOS
DELOS REYES
RAFLORES
CAIPANG
CABANERO
BANAGA
BORDON
PANLAQUI
FRANCISCO
CAMAISA
LLAMEG
TAMESIS
MALIT
TIONGSON
CAMPOS
FERRER
MESA
AGRON
BUNYE
TANHUECO
BASILIO
MAGAHIS
CENIZA
VALENCIA
GONZALES
RAGANDANG
ALCANTARA
DA COSTA
SALVADOR, JR.
ALVIN
JEROME JENJIE
MELISSA RENEE
MA. JACQUELINE
CHRISTIAN
GREG
GEOFFREY
MARLITA
JESSIE
JOAN CHRIS
FE
FERDINAND
MARIA RITA PAZ
DANIELITO
EDWARD IAN
RICHARD
GERRY
MA. VILMA
CESAR JR
GENER
BENJAMIN JOSE
JOSEPH RICHARD
CHRISTOPHER
ROMEL
EDUARDO ROBERTO
CORAZON
MARIA CONSUELO
MIRHAM
EDUARDO
MARINOR
JAIME
CATHERINE
MA LILIBETH
MELANIE ROSE
EDMAR
LORENA
ROSEMARIE
ANNA
IRNAND
CLINTON
LYDIA ROSA
ANGELITO
LEDILLA
MA.ARSENIA
ARNOLD
JHOANNA
MILAGROS
GENE VICENTE, JR.
JUNE ALLAN
CHRISTOPHER
CLAIRE
KRISTINE
RANDOLPH
DERICK
SALVADOR, JR.
MILDRED
AIREEN
JOCELYN
LYNETTE
JOSE CRIS
HERSHEY
MYRA
RAPHAEL NINO
JOEL ANDREW
Amount
61,432.00
61,085.68
60,980.00
60,650.00
60,484.15
60,474.29
60,258.39
60,249.10
60,072.78
60,000.00
59,633.24
59,396.41
58,860.84
58,647.37
58,566.66
58,169.11
57,750.02
57,354.79
56,375.08
56,300.99
55,546.87
55,224.16
55,183.13
55,063.08
55,000.00
54,906.20
54,722.37
54,464.62
54,446.86
54,166.68
52,825.00
52,215.73
52,212.34
52,091.81
52,086.31
51,643.95
51,573.57
51,494.45
51,350.00
51,190.11
51,178.75
50,815.96
50,772.33
50,416.68
50,364.15
50,105.06
50,000.08
50,000.00
50,000.00
49,998.05
49,960.30
49,836.50
49,730.80
49,546.22
49,500.00
49,421.27
49,108.38
48,542.84
48,487.13
48,164.81
48,072.08
47,916.67
47,770.56
47,585.28
47,522.89
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
DE LA CRUZ
MAGNO
IGTOS
ACTUB
GUTIERREZ
CABAUATAN
NERECINA
MALIXI
ALUNAN
HONRADO
PUNZALAN
BERTIS
MACATANGAY
DATU
DE GUZMAN
APUANG
MADAMBA
EVANGELIO
BATAC
BASILAN
DOMINGO
MONDELO
REYES
KHO
CAYETANO
ALVIZ
MAMARIL
MISA
GUTIERREZ
VILORIA
PACE
DON
CHUA
DELA CRUZ
PALISOC
LACONICO
DONATO
AMAT
SAN JOSE
BELTRAN
LEUNG
REYES
SAMSON
LIM
BANTILAN
BUGAOAN
PRIVADO
RUGAS
NEVARES
DELA ROSA
SENO
TULIO
DELESTE
ANONUEVO
ROSLYN
ARGUELLES
DE MESA
VINOYA
ORENDAIN
TORRES
MILAÑEZ
SINGCA
AGUILAR
RICARTE
FRANCISCO
ROGELIO
VICTOR
ANGELIE JOY
ENGRID
REYNALDO
MARA GISELA
ROMA
HENRIETTA
JESSE JAMES RAYMOND
JOSEFINA
CONCEPCION
KAREN
EVELYN
JEROME JACOBO
JOSEPHINE
ROSEMAE
NATHALYN
LANIE
CECILIA
JOVY GAY
RICARDO, JR.
ANTONIO JR.
CARMEN
JENNY
MICHAEL
MAY
ROGER
JENNIFER ANNE
ANTONETTE
MARIA CECILIA
MILA
ROLITA
SONNY
MICHEL
ROSEMARIE
PANFILO JR.
PAUL ASHLEY
LEO
MARJORETTE
LAMBERTO
MA. ZENAIDA
MADELIENE
NUMERIANO
BRYAN PATRICK
ROSELLE
BERNADETTE
EMELYN
HELEN
JUAN EDWIN
ANNA MARIE
JERONIMO
TERESITA
DORREN JADE
ROY VICTOR
A. KRISTINE
ELSIE
LUISA
ANNA LEE
JESIELYN
RACQUEL
MARY ROSE
ROGELIO, JR
JONALYN
WALTER
SHIELA
Amount
47,486.60
47,463.52
47,416.76
47,358.00
47,315.63
47,150.09
46,972.93
46,896.00
46,833.13
46,723.65
46,666.72
46,370.00
46,219.44
46,165.11
45,950.96
45,890.57
45,833.38
45,614.36
45,601.75
45,308.93
45,143.38
45,041.08
44,780.00
44,482.20
44,473.37
44,207.81
44,033.87
43,890.00
43,806.80
43,750.01
43,708.10
43,392.55
43,146.69
42,969.26
42,671.88
42,655.11
42,579.29
42,401.34
42,219.52
42,209.36
42,126.88
42,118.93
41,998.77
41,818.86
41,745.86
41,733.48
41,666.70
41,581.90
41,552.31
41,520.00
41,482.44
41,412.36
41,208.33
41,203.58
41,044.75
40,950.31
40,941.50
40,773.41
40,500.00
40,416.68
40,333.42
40,000.04
40,000.00
40,000.00
39,916.73
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
REYES
ENDRIGA
SULIT
SINGSON
PERALTA
BAUTISTA
DEL VALLE
ALANANO
MIRANDA
PINEDA
VILLANUEVA
ALBANO
ROSALES
CALDERON
MANZANO
VEGA
REYES
DURAN
ZORRILLA
GABATANGA
BANAYOS
MERCADO
SANTOS
ABELLADA
VILLAFLOR
DIVINO
NUÑEZ
VEGA
TANYANG
GUERRA
ROCELES
TAN
ALAO
LLENO
SALUD
QUIMPO
REYES
TAN
MACARIO
DILIDILI
DAVID
EKONG
ARCEGA
SOTECO
RODELAS
REBANCOS
BENEDICTOS
ESTRADA
MEDINA
AGUSTIN
DELA CRUZ
BENIGNO
VICERA
MACASUSI
CARBONEL
ISLA
CADO
CRUZ
LAMPA
BARNUEVO
PEVIDAL
AVELINO
NARVAEZ
PIOQUINTO
DAVID
JHOHARICK
MARIGOLD
WALTER
MARIA VIRGINIA
MARITES
LEODEL
JAY
KENNETH
JOCELYN
ELMER
JOLAN
DENNIS CHRISTOPHER
LEOVIGILDA
DESIREE
GIOVANI
CARMELITA
JOSE LUIS
GIGI
MAHARLIKA MELODY
FRETI
RUBY LEA
MARVIN
GRACE
JOSE RAUL
SANTOS JR
ALFREDO JR.
RAUL
MAYFLOR GRACE
OSCAR
NAZARIO JR.
ANNA LIZA
MARY ROSE
OFELIA
ADOLFO JR.
DEMETRIO JR.
ANGELINE
RODERICK
ANNA LIZA
ARISTOTLE
CRISALDO
MAY IVY
KHRISTINE
ARLO
ROSITA
NOEL
JOSEPH
MARICAR
RICKY
RESORTE
JOEL
SHEILA MARIE
CLAIRE
DAISY
JOSEPH
DANTE
SHIRLEY
BRIGETH
CARMENCITA
JUDITH
MICHAEL
ELMER
JULIUS
LILA GRACE
SHERWIN
MONINA
Amount
39,737.50
39,734.73
39,714.15
39,701.75
39,614.61
39,570.00
39,375.00
39,062.43
38,913.32
38,900.00
38,887.04
38,854.65
38,574.91
38,571.97
38,378.32
38,248.27
38,027.62
37,984.31
37,916.74
37,848.19
37,833.36
37,768.51
37,460.41
37,215.73
37,072.70
37,055.28
36,772.12
36,750.04
36,708.37
36,698.00
36,666.72
36,666.68
36,630.81
36,532.74
36,447.24
36,403.62
36,315.59
36,250.00
36,224.34
36,083.38
36,059.75
35,985.73
35,960.70
35,456.95
35,450.16
35,416.69
35,333.36
35,295.00
35,230.60
35,150.58
35,000.08
35,000.02
34,999.99
34,980.02
34,978.02
34,666.76
34,512.35
34,334.02
34,179.75
34,062.04
34,013.57
34,000.00
33,975.24
33,889.20
33,875.85
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
TY
CUSTODIO
CONCHA
MORIN
VELASCO
MATADLING
LLAMAS
CHENG
DOMINGO
ACUNA
NEYPES
PAHAGANAS
BELULIA
DOTIG
HECHANOVA
DEGANOS
CHUA
PINEDA
RAMIREZ
SOLLESA
DESAMERO
ESTANISLAO
LLUCH
LACSAMANA
BERNALES
MEDINA
MANALO
CASTANEDA
LEONCIO
CRISOSTOMO
LABRADO
BUIZON
HARMOND
LIBAO
NADORA
TUNGUIA
BRIZUELA
SANTILLAN
ARCEGA
UNTALAN
MANUEL
CULVERA
MATEO
IGNACIO
SALES
PELEGRINA
MILO
BUALA
CORCORO
DELA CRUZ
DILOY
LUNA
SALGADO
JIMENEZ
ESPINA
VILLANUEVA
AUSON
CORONADO
SANTILLAN
STA. CATALINA
DE PAULA
SERRANILLO
LUMAGUI
CUADRADO
SUMILONG
CHRISTOPHER
LEILA
MEILARNI
SYLVIA
MARIBETH
GEMMA RUTH
AURORA
JEFFREY ROY
MA. LUISITA
AZALEA
CARLOS, JR.
MAYLYN
EMILIANO JR.
JULIE
ROMEO
CHARITY
MILES TONN
MIRA
MEDEL
LUCILO JR
NORBERTO
EMMYLOU
MELANIE
LEONARD
FELIZARDO
RIZALINDA
KAREN
TERESA
RYAN
CRISTINO
JASPER JACINTO
SHYDEE
JEROME
GENALYN
JACQUELINE
BETY
JENNIFER
JOSEPHINE
ERIC
EDWIN
MELANIE
FLORITO, JR.
JOSEPHINE
LAURO
CATHERINE
BEVERLY
ROMELIA
LEONARD
DEVY
MARIA JENNIFER
EMELISSA
SHERALIN
RUEL
JELINA
LINA
LUIS
GALLARDO
XERXEZ APRONIANO
JENNYLYN
RONALD
SIRDYNEL
ERICSON
KHRISTINE
CLARISSA
EMMIL
Amount
33,846.68
33,771.47
33,500.00
33,333.38
33,222.78
33,001.90
32,862.04
32,814.88
32,808.34
32,789.64
32,623.50
32,575.02
32,546.07
32,528.92
32,500.08
32,443.21
32,392.10
32,199.24
32,168.48
31,891.24
31,796.44
31,613.66
31,490.25
31,250.03
31,250.00
31,250.00
31,239.56
31,108.42
31,082.54
30,943.07
30,920.00
30,860.48
30,833.45
30,831.66
30,803.35
30,742.51
30,625.00
30,587.37
30,566.36
30,500.04
30,446.02
30,441.06
30,300.05
30,300.00
30,117.56
30,116.51
30,000.04
30,000.00
30,000.00
30,000.00
30,000.00
30,000.00
30,000.00
29,839.12
29,726.45
29,721.42
29,714.33
29,711.76
29,687.10
29,639.51
29,606.51
29,499.98
29,334.00
29,289.97
29,268.00
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
SOSING
MEJIA
LOPEZ
QUIAMBAO
MORALES
MARTINEZ
ACEBES
MALEON
VILLAFLOR
RIVERA
MURGA
MENDEZ
FRANCISCO
ASUNCION
BORBON
SANTOS
ROMAN
MONTANIEL
PIEDAD
VILLANUEVA
ACUESTA
RONQUILLO
PARCON
MAPOY
SOLATRE
REDOLFIN
ARALCA
LIZARONDO
VELOSO
CRUZ
ARQUELADA
BENITO
ESCUADRO
VILLANOS
ALIMON
MENDOZA
DIAZ
MALLARI
GALICIA
SANTOS
BAUTISTA
EDIONG
GARCIA
BERSAMINA
PATRICIO
CORPUZ
SALVADOR
MARTINEZ
BALLARAN
SAN DIEGO
GARCIA
EVANGELISTA
PALADO
BILLONES
FABRERO
ORACION
SADORRA
BENGZON
CEDENO
GUANLAO
SION
DE GUZMAN
PEDRIALVA
MENDOZA
CHAN
CECILE
MICHELLE
ADONIS
VERONICA
PERCIVAL
GILBERT
SHEILA MARIE
LAARNI
ANA PAULA
DAISY
JOSEPH RONALD
JOSEPH
ROLANDO SR.
LAWRENCE
LORENA
MELVIN
ALVIN
JOEL
MARIA BELINDA LOURDES
JENNIFER
SALVADOR
CRESENCIO, JR.
ANNA IRENE
MELANIE
JEFFREY
BRIDGETTE LYN
AGNES
ROY
DAISY
RONNIE
JOANNE FABIANNE
VENERANDO, JR.
KAREN DIANE
BALDWIN
ANTONIO III
GLENN
MAUREEN
JOCELYN
ANN SALVACION
LIDUVINIA
ELIZABETH
CHERRY NINA
MAJA ANNE
ROGELIO
RODOLFO, JR.
MILLETE
JOSEPH
RICARDO
ZACHARY
ELISA
ANNA LIZA
ANTONET
ELMER
JOSEFINA
ROMMEL
ANALYN
MARIA ANNA PATRICIA
ALEXANDER REY
ROCARLEO JUNO
EVANGELINE
OPILANO
RONALD
ROGER ANGELO
CYNTHIA
EDILYN
Amount
29,265.56
29,250.00
29,245.85
29,116.40
29,042.00
29,028.26
28,788.59
28,750.00
28,750.00
28,740.22
28,716.08
28,675.04
28,640.07
28,590.71
28,444.48
28,219.55
28,162.00
28,136.66
28,125.00
28,125.00
28,117.49
28,058.75
28,000.00
27,940.47
27,901.53
27,755.75
27,747.58
27,716.78
27,583.38
27,500.10
27,500.08
27,500.00
27,500.00
27,500.00
27,464.17
27,450.00
27,375.02
27,371.72
27,277.40
27,235.02
27,234.23
27,083.60
27,000.00
26,666.71
26,622.41
26,586.56
26,564.25
26,550.41
26,430.00
26,391.70
26,338.04
26,300.10
26,297.51
26,250.10
26,247.47
26,092.60
26,000.08
25,958.51
25,879.81
25,874.83
25,625.00
25,547.06
25,500.00
25,477.18
25,453.42
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
GENTALLAN
BORROMEO
DADUYA
DOLINA
PAGE
CERBAS
GUTIERREZ
VINALON
OBACH
YAP
MORALES
BROSAS
BANATAO
GILBER
LUNGAY
MOLINA
NAVARRO
FERNANDEZ
OFIAZA
PELINO
CADA
FUNTANAR
RIVERA
CONSTANTINO
MANGAOANG
CANORA
MILAOR
PANGANIBAN
BENERAYAN
FELIPE
CORDERO
DIN
SABERON
MORALES
MARQUEZ
BONIFACIO
DELOS SANTOS
GUIAO
CERVANTES
PERALTA
CONCEPCION
YAN
QUITO
FALLER
SAM
CASAS
AGCAOILI
GUTIERREZ
GALANG
HERNAEZ
TY
BAYOT
CRUZ
LUSICA
CERCADO
RUBIO
TERRY
INFANTE
SIBAL
JAYME
ARGUELLES
REBENQUE
GONZAGA
BONDOC
CRUZ
JULITO
ANNA ARIZZA
CARMELITA
ROBERT SCOTT
PATRICK HERBERT
MARIA VERONICA
ROWENA
ROCHELLE
RONALD NINO
IRWIN EDISON
DEO ANTONIO
ELBERT
GEORGE
VANESSA
ALGER
ROLLIE
ANGELITO
LUIS RODRIGO
NENITA
MA. ELENA
ELIXIR JOSE
GENARD
CHOICY
VIRGILIO
ELLEN
EDWARD
JEANNE
ROSALIE
JUNFOR
PANTALEON, JR.
FARAH DEANNE
JOSEPH
ELFRIEDA
MARK ANTHONY
ARMILENE
FRANCIS
THADDEUS
ERIC
ESTRELLA
JOSEPH NENREY
DONNA BEATRICE
VICTOR
MELENITA
JENNIFER
ALEXANDER
JOSEPH
PAUL JOHN
VENERANDA
ALELI
JOSE ROLANDO
VALERIE KRISHNA
ANNE CLAIRE
CIRIACO
IRIS CLAIRE
MICHAEL
GERALD
RUBY
JOSEPHINE
MICHELLE
ARNEL
BENJY
VERZALEN
HAZEL
MA. EVELYN
EDILON
Amount
25,359.86
25,208.42
25,203.00
25,138.53
25,136.78
25,104.94
25,103.42
25,093.69
25,083.40
25,061.89
25,033.41
25,000.04
25,000.00
25,000.00
25,000.00
25,000.00
25,000.00
24,971.71
24,966.93
24,937.58
24,862.86
24,862.68
24,760.70
24,743.46
24,720.02
24,692.48
24,665.20
24,606.74
24,550.04
24,501.16
24,500.00
24,485.27
24,458.54
24,422.22
24,375.00
24,191.77
24,116.86
24,079.31
24,057.04
24,019.75
24,019.59
24,011.88
24,003.07
24,000.00
23,880.00
23,873.10
23,816.43
23,750.10
23,750.00
23,750.00
23,706.73
23,669.21
23,647.69
23,624.93
23,553.55
23,484.15
23,472.58
23,443.71
23,400.00
23,394.12
23,298.49
23,286.38
23,108.79
23,064.42
23,050.05
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
VILLARUZ
ELORDE
AGUILAR
NOCHE
CALMA
LAWSIN
ROMERO
MONTECILLO
MAGLEO
IGNACIO
SAMONTE
MARCOS
HABOC
SANCHEZ
ONG
JOSUE
BUENAVENTURA
PORTES
SANCHEZ
SAMUDIO
TEJADA
CATIIS
DORADO
IBARRA
PAMAONG
BURGOS
MONTANO
CURIA
MONTILLA
UY
CAGATIN
GALAPON
CASTRO
LIWANAG
COLOQUIO
VENDIOLA
FERNANDEZ
BESA
DRILON
SAY
CACHERO
PALMA
DELOS REYES
CHANCO
RAMOSO
GAMBOA
HANDOG
ILAGAN
GONZALEZ
ARCEO
TAMAYO
ISRAEL
DAVID
MANANGUIT
CASINO
LOTO
GIRON
ABAD
MANGAHAS
DE GUZMAN
DOLDOL
ESPEJO
MENDOZA
FAMADOR
PAPA
JOSEPHINE
TRISTAN
RAYMOND MARTIN
NATHALIE
MA. THERESA
JANTHON
EDMUND DANTES
ROELA
JANICE
JOHANNA
CATHERINE
MARIELY
JAYNE
PAMELLE
JONCRIS
ROSALIE
JENNIFER
MARY JOY
NIETTO
MARIA TERESA
RANDY
TITO AUGUSTINE
IREEN
JOCEL
NELSON
AILEEN
SOTERO JR.
MARIA TERESA
ROSEMARIE
MAE ANN
AGATHA MARINESS
SAMUEL
CRISTY
DONALD
JAHIL
ANNA MA. RITA
NARCISO
MELISSA
ANNABELLE
VANESSA ELAINE
PAMELA
STEPHEN
PATRICIA
JOANE
ESTELA
CEFERINO
CHRISTOPHER
EDGARD
REGINA
ANA FELISA
SERGIO JR.
DAVID
RHODORA
NOEL
MANUEL
MARJORIE
JOSEPHINE ANNA
AILENE JOY
MARIA CYNTHIA
JANET
ENCARNATO
HILDELBERTO CHRISTOPHE
JACINTO
CYRELLE VINCENT
MARIA EVANGELINE
Amount
22,933.21
22,916.76
22,879.68
22,821.17
22,795.81
22,787.52
22,782.38
22,750.00
22,642.68
22,629.15
22,562.50
22,519.75
22,500.00
22,491.11
22,454.62
22,447.99
22,393.24
22,392.50
22,364.00
22,223.42
22,210.09
22,166.71
22,162.65
22,065.05
22,014.82
21,998.92
21,991.39
21,916.71
21,907.68
21,875.03
21,872.89
21,867.00
21,846.00
21,750.10
21,666.76
21,663.20
21,625.98
21,625.36
21,621.42
21,545.02
21,530.23
21,433.30
21,375.88
21,363.20
21,333.44
21,290.82
21,236.42
21,200.22
21,148.37
21,073.30
21,024.83
21,000.00
20,833.38
20,766.94
20,757.10
20,721.12
20,700.00
20,625.00
20,512.60
20,470.00
20,395.92
20,387.25
20,280.00
20,250.00
20,210.76
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
CRUZ
MANABAT
DANTES
ESTRELLA
AMISCARAY
FUENTES
GUTIERREZ
ZUNO
TINIO
DE LOS REYES
PASCUAL
ESPIRITU
DE LOS ANGELES
GARCIA
LLAMAS
CHU
GIRON
POTENCIANO
FRANCISCO
SANTOS
MAGLANGQUE
GOROSPE
SANTIAGO
GALENDEZ
DAVIS
DY
SANTOS
LACANILAO
BELGIRA
MALLARI
CUARESMA
CRUZ
ROBRIGADO
AQUITANIA
ARGUELLES
SUMOBA
ROMERO
MARQUEZ
DEVELLES
PEREZ
GALEON
VALDEZ
SERRANO
FRANCISCO
YOUNG
GARMA
LLEGO
POLINTAN
TAN
QUION
GUILLEN
FERNANDO
CRISOSTOMO
GALO
GERONIMO
GUERRERO
JAVELLANA
PANLILIO
UY
DUTERTE
NICASIO
ADDUCUL
TAN
BERINGUEL
REODIQUE
OLIVER
THERESA
JENNIFER
RAYMOND
MAUREEN
FARRYL
EFRAIM
ANA MARIE
CONRAD
GIL
NORBERTO
JUSTINIANO
SHEILA THERESE
BENJAMIN
JOSE ENRICO
MA. CHRISTINA DOMINGA
KRISTOFFER
RONALDO
JASMINA
JEANNE ISABEL
MA. ALDA
REY
WILMA
MARJORIE
MANUEL
LINDA
MYLEEN
MARIA LEAH
ANNALYN
VICTOR JAMES
GUISEPPE
GOLDA MEIR
CIELO
NOEMI
MARIVIC
FIONA ERIKA
MARIONNE
MA. CARMINA
JIREH
JOSEPH
ALEXANDER
ALDY
JENES JAN
MARICEL
MICHELLE
TIFFANY
ROEL
JOHN CHRISTOPHER
AYAN
RONALD
PIA
DANIEL, JR.
EDEN
LEA MAE MARY
JOEL
IRENE ABIGAIL
MARITA
LIEZL ANN INGRID
MARIA CAROLINA
FILOMENO IV
JOHN ANDREW
ALVIN
MARY JOY
ROCHELLE
DOMINGO
Amount
20,166.71
20,160.50
20,090.50
20,000.08
20,000.00
20,000.00
20,000.00
20,000.00
19,996.78
19,966.72
19,928.16
19,908.25
19,810.07
19,666.72
19,664.57
19,631.70
19,580.00
19,554.33
19,546.00
19,467.52
19,458.42
19,455.82
19,342.65
19,341.34
19,288.84
19,281.21
19,239.87
19,236.47
19,184.68
19,066.72
19,028.56
19,012.50
19,000.00
18,992.51
18,982.77
18,944.14
18,901.97
18,875.06
18,842.70
18,805.70
18,773.43
18,738.42
18,676.62
18,573.08
18,562.50
18,517.10
18,516.30
18,475.05
18,423.81
18,414.70
18,384.75
18,362.84
18,333.47
18,333.42
18,333.42
18,333.42
18,333.42
18,333.42
18,328.83
18,292.56
18,280.00
18,227.44
18,220.71
18,107.96
18,094.30
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
LOPEZ
DIAZ
TABUN
YAP
ABARQUEZ
DIGNOS
YANGA
SALALIMA
CABINGAO
ABAD
OPLE
ARNIDOVAL
ESQUIERDO
REYES
UMBAY
BENITEZ
CARIASO
LLEGO
GONZALES
TELAN
LAZO
UMIPIG
ESTRELLA
GINETE
SAWAL
SALVADOR
SAN GABRIEL
MORALES
HABERLE
PUNZALAN JR.
PARAGAS
GOLEZ
FRANCISCO
ASUNCION
QUINTOS
LOPENA
FRANCISCO
DELOS SANTOS
DELA CRUZ
SANTOS
BALAGTAS
BARTOLOME
VINLUAN
DE GUZMAN
LLAMAS
CASTILLO
LOPEZ
NAN
FLORES
GLORIA
NITO
YNTIG
GERALDES
VERSOZA
LOBINA
EUDELA
AGUSPINA
LLANTO
MANUEL
DUNGAO
LUNA
MINOZA
UMALI
VEGA
LANSANG
LEMUEL
ANGELINA
ALVIN
DERRICK
ROSEMARIE
TOM ROBERT
MARITONI
RODOLFO
JOVEN
EMMANUEL
CHRISTIAN ACE
MARIO
NEIL
BERNADETTE
MARY ANNE
MICHELLE
DENNIS
MARIBELLE MONIQUE
LUDOVICA
ABEL JOSEPH
FEDERICO JR.
RONALD
FRIDAY JAN
MARY ANNE
DENNIS
MA. VICTORIA LOURDES
AGNES
ARMANDO
NEMMA
LUCIANO
FREDIE
RAMIRO RYAN III
ALEX
MARY ANN
NORBEN
JENNIFER
CYRA
ISABELITO JR
DIERDRE
ELEIN
MARIA FE
NAILA MAY
HENRY
ARIEL
ALTER
MARY CORRINE
RODOLFO JR.
ANNIE
ELMIRA
PATRICK STEVEN
MARIA CECILIA
JEROME
ROLAND JOSEPH
DEBBIE
SHIRLEY
KAREN
SILVERIANO
FLORABELLE
SONNY ANTHONY
MYLENE
JANSSEN
JASON
GRACIE ANN
MYLYN
ROSALIE
Amount
18,055.59
18,050.00
18,000.00
18,000.00
17,746.45
17,708.38
17,708.36
17,593.55
17,575.04
17,569.99
17,500.01
17,500.00
17,500.00
17,500.00
17,499.04
17,491.66
17,422.95
17,416.71
17,386.60
17,308.96
17,304.50
17,255.27
17,250.00
17,125.00
17,105.35
17,025.62
16,974.22
16,965.89
16,926.22
16,916.76
16,863.66
16,861.21
16,842.05
16,834.86
16,792.94
16,750.00
16,714.69
16,680.69
16,666.76
16,666.76
16,666.68
16,666.68
16,666.68
16,613.50
16,447.54
16,437.47
16,416.71
16,407.25
16,375.88
16,361.73
16,357.17
16,128.31
16,041.71
15,997.82
15,925.56
15,890.14
15,889.79
15,879.86
15,830.00
15,792.78
15,742.49
15,742.49
15,625.06
15,559.48
15,483.77
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
LACANDAZO
MENDOZA
GAVINO
LOPEZ
BARCELONA
CLEMENTE
CASTANEDA
SANTOS
PEDRO
GO
DIMAANO
CASTILLO
ESCASA
CANTOS
GAYAMO
FELIX
LINGATONG
SONIEGA
TONGOL
VILLA
TINOCO
FAJUTAGANA
DELA CRUZ
PARRENO
HIZON
DE QUIROS
ARMAMENTO
VALDEZ
MEDALLA
SALVADOR
MAGBOO
ROBLES
SAWIT
VITUG
COMLA
SANTOS
TREYES
MANALILI
LIM
GUILLEN
REYES
TAN
CASTELO
AQUINO
DIOMAMPO
LIM
CARAIG
VASQUEZ
MARCO
BELEN
MANLAPAO
BAYONA
OLARTE
BAUTISTA
FALCIS
CAPULONG
GARCIA
RIVERA
DE GUZMAN
MORRISON
PATACSIL
GUERRERO
DUGENIA
BRIONES
GUDY
LILYNER
MIA
DARWIN
MA.IRMINA
MA LOURDES
JANNETTE
ELLA
MICHAEL JAY
KRISTINA
MA. CECILIA
MARIA JEWEL
ALEXANDER
ANN RACHEL
OLIVER
JOELINE
CHRISTIAN ANTHONY
JAMES
OMAR
FRANCES
LILIAN
NAPOLEON
ROBERTO
ANA KARLYN
GAY
HERMELINA
JEMINNIE ROSE
ALLAN ANTHONY
ANNA RICCI
TERELIE
ROCHELLE MARIE
RODEL MATHEW
FREDERICK
SHEILA MARIE
VICTOR IVAN PABLO
RACHELLE
ANA LISA
LEAH
MA. LEONORA
NORITA
JANETTE PATRICIA
MARY ANN
JOEL
MAUREEN JHOANNA
NICHOLAS III
JOSE ANTONIO
LEONILO
VALENTIN
MAYETTE
ARMAND
ALEXANDER
MARIE CATHERINE
RANDOLPH
JOEL
MARIA AMOR
FEDERICO
JASON
RAY PATRICK
MA. PATRICIA
GLORIA
MYRA
JUDITH
NANCY
JONATHAN
JANET
MA. GILDA
Amount
15,469.59
15,416.05
15,334.26
15,333.38
15,276.73
15,250.10
15,166.61
15,165.65
15,125.00
15,113.40
15,086.05
15,035.00
15,024.93
15,000.10
15,000.10
15,000.00
15,000.00
15,000.00
15,000.00
15,000.00
14,992.64
14,959.16
14,895.92
14,871.35
14,813.58
14,716.55
14,611.54
14,583.38
14,574.55
14,569.08
14,546.78
14,501.24
14,488.35
14,453.97
14,453.55
14,381.45
14,318.08
14,293.38
14,250.89
14,250.05
14,236.93
14,182.36
14,166.69
14,069.56
14,065.20
14,000.08
14,000.02
14,000.00
13,978.34
13,952.50
13,929.48
13,888.79
13,875.10
13,800.00
13,750.08
13,750.00
13,750.00
13,750.00
13,634.80
13,559.72
13,529.41
13,508.01
13,434.28
13,375.00
13,333.50
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
AGUJAR
CONCEPCION
MORENO
RUIZ
MARANAN
VALENZUELA
ESCATRON
SILVA
VIRAY
BERBA
ANOTA
LEJOS
CALUB
JACOB
ENDAYA
CRUZ
DUSARAN
SAN GABRIEL
MARTIN
LOYA
ARAMBURO
DIVINO
DE GUZMAN
ABADILLA
MAYORALGO
RODRIGUEZ
TIANO
PINILI
BRECIO
BOBIS
GUTIERREZ
SIOSON
LOPEZ
SEVILLA
DIZON
AQUINO
DICHOSO
NARAGDAO
CAMINGAL
JOSE
SO
VICENTE
ARAGO
RIVERA
ALMORADIE
SANGALANG
MACARANAS
MENDOZA
CABILUNA
BULATAO
GARCIA
LABAYANDOY
GALARION
LUCIANO
YBALLE
SOTTO
DE CASTRO
CAMACHO
TANGAPA
LAUZON
MEDEL
BUENAVENTURA
ALLADO
GERON
CACAO
FELY
OLIVER
JANET
MARIA AILEEN
JOANALYN
MICHELLE
ARNEL
NOELYN
ZENY
EDGARDO JR.
COLEEN
JENNIFER
RAUL
RODOLFO JR.
ERWIN
FERNANDO
ELJIM
MA. ROSARIO
MARLON
ROSANNA
TOM EDISON
MICHAEL
JUDITH
EDGARDO
IMELDA
FERNANDO III
JENNIFER
ETHEL
MANUEL JR.
JEREMIE
EDILBERTO
MA. CRISTINA
MARIA BERNADETTE
EDEN
STELLA CHRISTINE
JOCERYN
SAMERVIN
MA. RAQUEL
MARLYN
CHERRIE ANN
MARIA VERONICA
MICHAEL
ALBERTO JR.
ROMANO
ALAN
GLENDA
GIL PONCIANO
RODERICO
ELEUTERIO SHANE
ROSALITA
MARCELINO
DELMAREE THERESA
CHERRIE ANNE
MARIA THERESA
DOUGLAS
ROBERTO
MARIA VICTORIA
MA. VICTORIA
MA. ANTONETTE
ISMAEL
RAYMUND ANTHONY
RAUL
ROMULO JR.
ROMMEL
HERBERT
Amount
13,266.74
13,135.60
13,125.05
13,125.05
13,083.38
13,070.89
13,010.51
12,994.22
12,945.80
12,892.44
12,880.82
12,833.34
12,812.00
12,809.56
12,747.65
12,694.48
12,666.67
12,615.22
12,613.56
12,589.90
12,500.10
12,500.06
12,500.01
12,500.00
12,500.00
12,500.00
12,500.00
12,458.76
12,409.12
12,372.78
12,361.70
12,314.27
12,302.16
12,294.15
12,243.91
12,113.35
12,100.00
12,016.68
12,000.00
11,992.50
11,976.30
11,889.54
11,850.05
11,763.82
11,763.00
11,733.34
11,666.60
11,646.94
11,625.10
11,624.58
11,590.00
11,588.60
11,586.06
11,537.38
11,535.70
11,508.43
11,504.73
11,500.08
11,500.00
11,457.41
11,423.00
11,400.00
11,385.66
11,375.02
11,370.02
GLOBE TELECOM, INC.
SCHEDULE B.1 - Medical, salary and other loans
As of December 31, 2006
Employee Name
Amount
PINEDA
RAYMUND CARLO
AQUINO
EUNICE
EVANGELISTA
RODERICK
PUNAN
DULCE
SANGALANG
MYLA
RUELO
FELY
RUNES
RIZALYN
REVESTIR
JOSE MARLON
BALINADO
FERDINAND
MANGALIMAN
ANTHONY
BACALING
CHERRIELYN
PANGATUNGAN
ARNOL
SAET
ALICE
BAS
MA. JACKIELYNNE
CALDERON
YASMIN
ABERCA
ARTURO
DE VILLA
JENNIFER
SAMSON
ROGELIO NICANOR
ALBINA
IAN HIPOLITO
BARILLAS
JOMERT
DASMARINAS
ARNELLI
MAGLASANG
EDUARDO JR
HIPOLITO
MARY JANE
BRAGA
JORGE JR.
RIVERA
RODERICK
RAQUEDAN
LUISA
DE GUZMAN
LORNA
VIRREY
MICHELLE JOY
IGNACIO
ARNEL
COGAL
ALMA
BALOALOA
HENARO
JEREZ
ROQUILLO
NATIVIDAD
MANUEL JR.
AMISOLA
MARY ROSE
VELOSO
MA. BETTINA
CAGAMPAN
LANIE
ABALAYAN
JOSEPH
HEBRONA
RICHARD DANJE
IGUIZ
AURORA
SIMBULAN
FREDERICK
NUNEZA
MAILA
GERVACIO
EMANUELLE CHRISTIAN
FORMOSO
MA. TERESA
GUERRERO
MIKAEL ANGELO
GERONIMO
MARISSA
VIDANIA
ERICK ADONIS
VILLANUEVA
MARY CATHERINE
SOLER
GERARDO
OTHERS (below 10k)
11,250.01
11,250.00
11,250.00
11,250.00
11,250.00
11,233.50
11,207.50
11,200.00
11,175.88
11,146.28
11,100.00
11,078.44
11,063.35
11,035.62
11,010.72
11,000.08
11,000.00
10,934.99
10,833.37
10,833.37
10,833.37
10,833.37
10,821.54
10,803.90
10,728.00
10,655.08
10,645.49
10,589.97
10,575.00
10,564.67
10,541.71
10,500.10
10,500.00
10,485.00
10,483.88
10,472.14
10,416.76
10,416.76
10,416.76
10,405.99
10,351.76
10,208.39
10,125.00
10,125.00
10,083.42
10,083.42
10,068.90
10,021.84
11,325,626.18
Total Hospitalization, Medicines & Other Loans
45,537,655.65
INNOVE COMMUNICATIONS, INC.
SCHEDULE B.2 - Medical, salary and other loans
As of December 31, 2006
Employee Name
CRUCILLO MANUEL JR.
PASCUAL RODELIO
SAYSON ARIES
DELA CRUZ EDNA
REYES NIEVELINDA
PASCUAL-TITCO MA. THERESA
GATCHALIAN JOSEPH
AESQUIVEL RAMON NONATO JR.
CASTILLO GRACE
TAN BENJAMIN
CAGURANGAN RACQUEL
GARRIDO JASMINE
CLARAVALL FRANCISCO FERNANDO IV
CACHO VICTOR
MAQUIRAN MICHAEL
DONATO CINDY
ROSARIO SHIELA MAE
SALCEDA-ILETO CATHERINE
GARCES GLENN
AYSON CESAR
SALAMAT NARCISO
BAUTISTA MA. LOURDES
ALANO JOSEFINA
MALABANAN NARCISO
GONZALES GARY
ISAIS MOISES
JANOLO JOSELITO
AMAT MA. CORAZON
CAGURANGAN RACQUEL
RADA ALDRIN NEIL
DETCHING DANILO
FLORES MARIA ROSA ISABEL
DE LA CRUZ MARLON
PINEDA LAURO
ARINES MA. VICTORIA
VALLEJO OLIVER
AVERION ANGELITO
GAMBITO JOHNNY
ALANO JOSEFINA
DOBLAS MIGUEL
ONGKINGCO RUEL
SAYSON ARIES
ROMERO JESUS
MENDOZA CARLO
MATIAS HOSMER
ZAFRA ZEL
OMANG Luciano Jr.
PENALOSA JOHN OHMAR
GREGORIO LIVERN
TITCO MARIA TERESA
CONCEPCION JOLLY
ARINES MARIVIC
Amount
1,519,264
1,010,347
388,131
285,764
254,331
210,000
200,600
162,697
150,554
123,333
111,943
111,141
105,000
103,485
97,816
82,500
80,000
76,931
75,467
73,228
71,471
71,250
70,000
70,000
69,303
68,612
68,387
67,500
67,500
67,010
64,884
63,569
61,844
61,390
60,113
60,099
60,000
60,000
59,859
59,000
58,650
57,952
54,167
52,500
51,458
51,458
51,456
51,292
50,000
50,000
48,750
47,613
INNOVE COMMUNICATIONS, INC.
SCHEDULE B.2 - Medical, salary and other loans
As of December 31, 2006
Employee Name
DAGA MA. GRACIA
ESTRADA FEDERICO JR.
DE LA CRUZ CYNTHIA
CUACHON LINO JR.
BUELVA IHREEN
GUEVARA GERARD
BRAGAS ELMER
FERAREN JOJI VISSIA
MACABASCO NUNILON JR.
AQUINO EVANGELINE
PEREZ ROY
PADRIGA ROGER
BUNAO ERWIN
CANOSO ROMEL
MALATA REGINA
ECARMA EDWIN
PASCUAL RODELIO
BAY KATHRYN ROSE
PONGOS JAMES RAYMOND
DIANGO JOHN JARVIS
TELAN ROWENA
AZORES ARNEL ALEXIS
REALINA TEODORO
Aries Sayson
ARROYO LEILA
DE GUZMAN ELISA
NUNAG RODERICK
YMAS JONELLE
ALEJANDRO LEMUEL
BALANDRA PAMELA
INAJADA LUCIO
TULAY JOSE VIRGILIO
AESQUIVEL RAMON NONATO JR.
TABORADA GEROME
MILAN LLIENETH
BASCARA CARMELO
ORE GOLDA
YSMAEL MICHELLE
ABARRO JOSEPH REX
RONQUILLO JOEL
BORRES ROMEO ROMMEL
GONZALODO JOSE III.
BORCENA NELSON
CONCEPCION RUBEN
MAPA JR JOSE ANTONIO
TIANGCO RIORA
CINCO SHEILA MARIE
SUMARAGO RICKY
ROSARIO SHIELA MAE
BOLTRON ERNEZAR
SUYCANO ROGER
ESPINOLA ARNOLD
Amount
46,500
46,417
45,729
43,333
43,000
41,708
41,667
41,667
41,667
41,451
40,784
40,630
40,000
40,000
40,000
39,583
38,750
36,217
35,970
34,967
34,667
33,333
33,044
32,161
32,052
31,869
31,667
31,667
31,400
31,019
30,980
30,750
30,717
30,668
30,417
30,167
30,074
30,017
30,000
30,000
29,292
29,167
29,141
28,333
27,569
27,481
27,264
27,167
27,018
26,917
26,822
26,250
INNOVE COMMUNICATIONS, INC.
SCHEDULE B.2 - Medical, salary and other loans
As of December 31, 2006
Employee Name
CAMBRONERO NOEL
DAGA MA. GRACIA
DELA CRUZ ROCHE
AGUILAR VILDA GRACE
CANONG CYNTHIA
SY BUENAVENTURA
ASIGNAR MARICEL
GUYAMIN ORLANDO
AUJERO ARIEL ANTHONY
BAUTISTA BENJAMIN
CORONADO EDWIN
GARCIA FERNANDO
MARCELINO LARRY
ENRIQUEZ REICHEL REBECCA
NAVEA RACHEL
CARLOBOS JOSELITO
LATOJA MARISSA
BARRAMEDA MA. BELLA
FABI NORMAN JASON
SOLLANO DANILO
AMAT MA. CORAZON
PINEDA JAY
TANGLAY ADORA
CASIMIRO ANDREW C
MAPANAO ANTHONY GARTH
SARSONAS NORBERTO
CARAG BENIGNO
Reyes Robie
DORAN GRACE CECILIA
LONTOC RONALDO
MEDALLA MARCELS
GUEVARA GERARD
CAIPANG MA. LOURDES
CASACLANG DONATO
Others (below 20K)
Total Hospitalization, Medicines & Other Loans
Amount
26,250
26,177
25,833
25,749
25,542
25,500
25,288
25,000
25,000
25,000
25,000
25,000
25,000
24,764
24,113
23,833
23,750
23,513
22,975
22,954
22,862
22,500
22,500
22,099
22,000
21,875
21,817
21,784
21,724
21,375
21,161
20,833
20,000
20,000
4,038,701
13,891,610
GLOBE TELECOM, INC. AND SUBSIDIARIES
SCHEDULE E - Intangible Assets
As of December 31, 2006
(In Thousand Pesos)
Classification
Cost
Accumulated amortization
Balance as of
December 31, 2005
Additions at cost
Charged to cost
and expenses
2,756,829
320,206
-
(1,656,102)
(481,000)
-
1,100,727
(160,794)
-
Reclassifications /
Adjustments
Disposals
(742)
6
(736)
191,470
(1,043)
190,427
Balance as of
December 31, 2006
3,267,763
(2,138,139)
1,129,624
GLOBE TELECOM, INC. AND SUBSIDIARIES
SCHEDULE F - Long Term Debt
As of December 31, 2006
(In Thousand Pesos)
Title of Issue and Name of Issuing Entity
Senior Notes
The Bank of New York
Retail Bond
Citibank NA
Corporate Notes
Metrobank
Standard Chartered Bank
Hongkong Shanghai Bank
Amount authorized by
indenture
Amount shown under
Amount shown under
caption "Current portion of caption "Long-Term Debt"
Long-Term Debt" in the
in the Consolidated
Consolidated Balance Sheets
Balance Sheet
(1)
9.75%
2012
(2)
6.57% - 11.83%
2007 to 2009
2,000,000
1,087,000
520,000
3,607,000
6.22% - 8.14%
13.79%
16%
2010
2012
2011
14,396,669
53,146
14,715,483
14,396,669
53,146
14,715,483
3,000,000
-
2,990,742
3,000,000
-
2,990,742
-
2,000,000
1,087,000
520,000
3,607,000
Rate During the
Date of Maturity
Year
Banks
Local
Citibank, N.A.
Dev't Bank of the Phils
Citibank
Land Bank of the Phils
Global Business Bank
Security Bank Corporation
Rizal Commercial Banking Corporation
Foreign
Nordeutsche Landesbank
Japan Bank for International Cooperation
Bank of America Int'l Ltd.
Finnvera
Financierings- Maatschappji Ontwikkelingslanden
Societe Generale
Exportkreditnamnden
Bayerische Landesbank
Hypovereinsbank
TOTAL
(1)
(2)
6,229,367
600,000
515,000
500,000
250,000
193,500
187,500
8,475,367
1,362,067
46,154
39,615
38,462
125,000
152,250
125,000
1,888,548
4,867,300
553,846
475,385
461,538
125,000
41,250
62,500
6,586,819
6.4% - 11.02
6.22% - 9.03%
6.22% - 9.03%
6.22% - 9.03%
6.78% - 8.44%
10.72%
6.51% - 8.03%
2007 to 2008
2007-2010
2007-2010
2007-2010
2007 to 2008
2007 to 2008
2007 to 2008
4,904,500
1,391,514
928,950
814,961
416,883
392,184
356,401
146,751
12,975
9,365,119
1,089,889
545,184
928,950
814,961
277,922
156,874
356,401
146,751
12,975
4,329,907
3,814,611
846,330
138,961
235,310
5,035,212
5.6% - 6.41%
6.440%
4.20% - 7.42%
5.44% - 6.84%
6.12% - 8.62%
5.23% - 6.67%
6.55%
6.24% - 7.39%
5.23% - 5.99%
2007 to 2011
2007 to 2009
2007
2007
2007 to 2008
2007 to 2009
2007
2007
2007
38,844,155
6,271,601
32,935,256
Includes unamortized premium and net of related unamortized debt issuance cost in accordance with PAS 39 adoption
Net of unamortized debt issuance cost in accordance with PAS 39 adoption
GLOBE TELECOM, INC. AND SUBSIDIARY
SCHEDULE G - Indebtedness to Related Parties (Other long-term liabilities)
As of December 31, 2006
(In Thousand Pesos)
Balance as of
December 31, 2005
Name of Related Party
Balance as of
December 31, 2006
C2C Pte. Ltd (affiliate of Singapore Telecom Int'l Pte. Ltd)
Non-interest bearing liability
Advance lease and service revenues
1,235,810
1,062,635
NO NEED TO DISCLOSE
137,925
114,094
1,373,735
1,176,729
C2C NOT A RELATED PARTY ANYMORE
4/16/2007
11:31 AM
SECform_17A_consoskeds_2006_final rouding off
Sched G
Globe Telecom, Inc.
SCHEDULE I - Capital Stock
As of December 31, 2006
Class of Stock
No. of shares
Number of Shares
allocated to stock
Authorized
option
Common
179,934,373
Preferred (Series "A")
250,000,000
12,000,000
-
Total Issued and
Outstanding
Number of Shares Held
Directors, Officers
by Majority
and Employees
Stockholders
132,079,785
104,161,327
263,891
158,515,021
158,515,018
3
Minority
Stockholders
27,654,567
-
Globe Telecom Annual Report 2006
OUR VISION
Through Life-Changing Innovations, Globe is indispensable to the Nation.
We provide our customers with a superior experience and are a center of
excellence for innovation worldwide.
We learn, we discover, we work together as a team, and we always strive
for excellence.
To make great things possible.
OUR MISSION
We transform and enrich people’s lives through communications.
OUR VALUES
Commitment to the Customer
Our customers are our greatest passion, and our business reason for
being.
Accountability
Thus, we do whatever it takes and hold ourselves personally responsible
and accountable to satisfy, and even exceed their expectations.
Innovation
We are relentless in the pursuit of innovation, willing to take risks to
enhance the quality of their lives.
ABOUT OUR COVER
As a pioneer, Globe Telecom continues to be a
part of the revolution that’s connecting millions of
people across the Philippines and around the world
Excellence and Personal Worth
We excel and realize our potential by constantly learning and making
ourselves better everyday.
— a testament to our continuing commitment to
nation-building. Beyond technology, we feel that
our business is truly shaped by the bonds that tie
Filipinos together. We believe that communications
Teamwork
As importantly, we value each other’s unique contributions and commit
ourselves to work as a team.
is ultimately about relationships, and this drives
us to innovate and constantly find new ways to
enhance our portfolio of services. Looking ahead,
as multimedia becomes more pervasive, we fully
Integrity
In everything we do, we are ethical, just and honorable. Because
ultimately, these are what count to our Nation and our God.
intend to introduce compelling new products to
further enrich the lives of Filipinos everywhere.
True to our vision, as the needs of our subscribers
evolve, so will Globe Telecom.
Financial Highlights
1
Corporate Social Responsibility
26
Financial Statements
Message to Stockholders
2
Board of Directors
30
Globe Telecom Business Centers 111
Message of the President
5
Senior Executive Group
34
Overview of the Business
10
Audit Committee Report
36
Globelines Payments and
Services Center
Management Discussion &
Analysis
16
Statement of Management’s
Responsibility
37
Corporate Governance
21
Report of Independent Auditors
38
39
115
Financial Highlights
Wireless Subscribers (in 000s)
6,572
2002
12,514
12,404
2004
2005
Net Service Revenues (In P Mn)
52,741
15,660
39,761
8,860
2003
2006
2002
25,293
27,943
33,331
33,434
57,034
47,535
2003
EBITDA* (In P Mn)
54,897
2004
2005
2006
Net Income (In P Mn)
37,220
11,396
9,953
11,755
10,315
6,918
2002
2003
2004
2005
2002
2006
2003
2004
2005
2006
* Earnings before Interest, Taxes, Depreciation and Amortization
Property & Equipment, Intangible Assets
and Investment Property (In P Mn)
Market Capitalization (In P Mn)
163,119
102,849
120,317
99,915
96,270
2002
96,947
97,518
95,946
2003
133,608
67,978
2004
2005
2006
2002
2003
2004
2005
2006
“Looking ahead into 2007, we
intend to retain our competitive
rigor. We will remain focused and
continue to build on our successful
strategies.”
Message to Stockholders
We are pleased to report that Globe Telecom’s consolidated
net income in 2006 reached P11.8 billion, 14% higher
than the previous year and the highest in the history of the
Company. Our return on equity reached 22%, higher than
last year’s level of 19%. The wireless subscriber base grew
by 26%, to almost 15.7 million SIMs, as Globe regained
its position in the market, a complete reversal from the
declines that we saw in 2005. While the wireless business
continued to be the major growth contributor, we are
nevertheless encouraged by the performance of the wireline
segment, particularly our consumer broadband business,
which posted a 129% growth in subscribers and reached
over 51,000 users by year-end.
Driven by our increasing profits, strong cash flow, and
improvements in our market position, the Company’s share
price has likewise appreciated by 68% from the beginning
of the year, outpacing the growth of the local index. With a
focus on improving total return to shareholders, your Board
of Directors increased your Company’s dividend pay-out
from 50% to 75% of prior year’s net income. A total of
P6.6 billion in cash dividends were paid out in 2006, up
21% from last year’s level of P5.4 billion.
2006
2005
Basic Earnings per Share
88.56
76.74
Fully Diluted Earnings per Share
88.32
76.60
Dividends per Share
Share Price*
Dividend Yield
* As of last trading day of the year
3
50.00
40.00
1,235.00
735.00
4%
5%
We will continue to build the appropriate foundations for future
growth and accelerate infrastructure investments in consumer
broadband, which we believe will provide new demand for services
in the Philippine telecommunications industry.
We believe that the Company’s strong performance in
Finally, we will continue to build the appropriate
2006 reflects the soundness of our business models
foundations for this future growth and accelerate
and strategies. We have learnt some valuable lessons
infrastructure investments in consumer broadband, which
from a difficult year in 2005, when our bottom line was
we believe will provide new demand for services in the
weakened by a value destructive SIM swap program which
Philippine telecommunications industry. We will drive
we were drawn into, and we have successfully repositioned
access prices down and work with suppliers and resellers
our organization and strategic focus. We made price
to make PCs more affordable and accessible, as we remain
competitiveness a key imperative in 2006 and enhanced
committed to our mission to enrich people’s lives by
our understanding of the needs of our priority customer
making the internet relevant and available to all.
segments. We introduced a steady stream of unique and
relevant product offers to drive subscriber acquisition and
With these key initiatives in place and with the continued
retention. Coupled with aggressive cost management and
engagement of our shareholders, employees, and various
enhanced network service quality, your Company achieved
stakeholders, we are confident that Globe will continue to
new levels of profitability and competitiveness. Globe
expand its services to customers and maintain its track
Telecom has grown significantly from its position seven
record of value creation for its investors.
years ago, at the beginning of the new millennium, when it
had less than one million wireless subscribers and recorded
We thank the members of our Board of Directors for
profits that were less than one tenth of our current level.
their advice and support of our strategic initiatives; our
management team, employees and business partners for
Looking ahead into 2007, we intend to retain our
their rigor and passion; our fellow shareholders for their
competitive rigor. We will remain focused and continue
trust in us; and finally we thank our subscribers, who we
to build on our successful strategies. Our priority in 2007
hope will continue to entrust us with their business in the
is to continue to extract growth from our core wireless
year ahead.
business, building on the gains that we have established
in 2006. While subscriber growth rates are tapering off to
the single digit levels, the wireless business continues to
present attractive growth opportunities as mobile phones
expand their services.
JAIME AUGUSTO ZOBEL DE AYALA II
Chairman
We will also strengthen our corporate data business to take
advantage of the upbeat business climate, and assert our
presence in the smaller-scale business segments. We will
DELFIN L. LAZARO
introduce more value-added content and services, and
Co-Vice Chairman
explore partnership opportunities outside of our traditional
borders to diversify our portfolio and create new avenues
of growth.
LIM CHUAN POH
Co-Vice Chairman
4
Message of the President
Strong growth amidst stiff competition
2006 was a good year for Globe. Our competitive position
strengthened, our financial results improved, and the
Company’s market value reached new highs as we reaped
the benefits of the strategies we put into play the year
before. Focused execution of key initiatives begun in 2005
enabled us to achieve significantly better performance,
despite an ever challenging market.
The industry continued to be a dynamic and fiercely
competitive one. As the market inched towards the 50%
penetration level, competition intensified even more as
operators worked on further increasing the accessibility and
affordability of communication services. The downward
pressure on price that we saw in 2005 thus carried
through last year as the key players bid for a bigger share
of the consumer wallet and sought to retain the loyalty of
subscribers who have grown increasingly value conscious.
At the same time, consumer spending and usage habits
continued to evolve with the slew of unlimited use tariff
offers. Because of attractive intra-network promotions,
many consumers now carry multiple SIMs, switching from
one network to another to avail of choice offers.
5
Cellsites
CAPEX (In P Mn)
5,159
5,884
3,736
2,190
2002
21,219
20,478
15,814
2,580
2003
2004
2005
2006
2002
2003
2004
14,758
14,832
2005
2006
We promoted greater usage, expanded both our subscriber and
revenue base, and created significant value growth by further
sharpening our understanding of the market, and anticipating the
shifting needs of our priority segments.
Amidst this challenging backdrop, Globe successfully built
industries in the Philippines. Using the Globe Kababayan
on the gains of 2005 by following through on strategies
program as our primary vehicle, we strengthened our tie-ups
focused on four key areas: (1) strengthening our foothold
with operators in key global capitals where our Filipino
in key customer segments; (2) deepening network coverage
kababayans work and live. We extended our per-second
and improving service quality; (3) developing relevant,
charging offer to international voice calls, and introduced
easy-to-use services for our customers by leveraging on
discounted call rates to the US, Canada, Saudi Arabia,
innovations and new technologies; and (4) aggressively
Japan, and various other destinations with large Filipino
managing our costs.
communities. Taking off from the resounding success
of our Kababayan tie-up with Singtel in Singapore, we
Stronger foothold in key segments
launched another co-branded prepaid SIM to serve Filipino
We promoted greater usage, expanded both our subscriber
workers in Taiwan, offering reduced call and text rates.
and revenue base, and created significant value growth by
We leveraged the synergies offered by the Bridge Mobile
further sharpening our understanding of the market, and
Alliance, and tied up with Maxis Malaysia and HK CSL
anticipating the shifting needs of our priority segments.
to allow our subscribers to call their customers at special
This enabled us to deliver more meaningful offers attuned
rates. Beyond connectivity solutions, we also developed
to our customers’ needs – whether flat rate offerings for
remittance, livelihood, and other cross-border programs for
heavy voice users, or unlimited text services for the prolific
this community through our GCash m-commerce services
text senders.
and our Kabalikat programs, in partnership with the
Overseas Workers Welfare Administration.
At the same time, we improved our price competitiveness
through innovative propositions that went beyond mere
Finally, we launched various loyalty and churn management
discounting, such as our unparalleled per-second charging
programs to address the unique preferences of our postpaid
for local and international voice calls, and our highly
subscriber base and successfully defended our dominant
popular unlimited SMS offerings.
position in this segment. At the end of the year, our
postpaid SIM base grew by 8% to just over 640,000 SIMs,
We also zoomed in on
reversing the decline we experienced in 2005.
serving the needs of our
growing overseas Filipino
All these efforts have translated to a stronger, much
community, a segment that
improved competitive position for our Globe and TM brands.
has catalyzed consumer
As of the end of 2006, our wireless SIM base of 15.7
spending across various
million is up a robust 26% from last year. Our mass market
6
brand TM was a major driver to this SIM base growth.
higher levels, bridging our OFWs to their families in the
Following its relaunch in 2005 with a stronger, more
Philippines through video IDD, and allowing full mobility
focused Power Piso proposition, TM‘s SIM base jumped
and enhanced productivity for the executives, professionals,
57%, from 3.1 million at the start of 2006 to 4.9 million
and individuals who are always on the go. Looking ahead,
by year-end. Through compelling value for money offers, an
as 3G handset prices go down and as more and more
energized brand image, and supported by a strengthened
compelling content becomes available, we expect that
regional distribution network, TM SIMs now comprise
the mainstream markets will increasingly take to the
31% of Globe’s total SIM base, accounting for 55% of
conveniences and richer connections that 3G and wireless
subscriber growth in 2006, and contributing P8.7 billion
broadband brings.
in revenues.
Last July, in partnership with Hypercash, we introduced
Meanwhile, our consolidated service revenues grew over
G-Pass, our breakthrough payment application for the
P2 billion or 4% even with a significant reduction in
MRT (Metro Rail Transit) commuters. Using RFID (radio
marketing expenses and subsidies. International service
frequency identification) technology, MRT passengers can
revenues was a major growth driver, rising P440 million
now pay for their fare with a simple tap of their RFID chip
or 3%, on the back of double-digit growth in inbound and
on the turnstiles. Value reloads can be made anytime and
outbound traffic, and despite a much stronger peso.
anywhere via GCash, our equally innovative SMS-based
mobile commerce service. Shortly after its introduction,
Ensuring superior network experience
G-Pass already gained international recognition by making
As we developed easy-to-use and more meaningful offers
it to the shortlist of finalists nominated under the Most
to our customers, we continued to invest in improving
Innovative Technology Development category in the 2007
network reach, depth and quality. Globe’s cellular
Global Mobile Awards of the GSM Association.
phone network of 5,884 cellsites now covers 94% of the
Philippine geography and reached 98% of the country’s
Leveraging on VoIP technology, G-WebCall also made its
population. This was achieved after having invested over
debut in 2006. The service enables frequent travelers to
P45 billion in capital expenditures over the past three
call any Globe or TM subscriber via internet for the price of
years. We also proactively embraced new technologies
a local Philippine call.
and platforms and commenced roll out of our 3G network,
exceeding our target of 1,000 sites by year-end.
While these and other similar innovations have yet to
achieve a critical usership mass, they are contributing
Anchoring growth on innovation
meaningfully to an environment of discovery towards the
In the early part of 2006, we became the first operator
creation of new services.
in the Asia-Pacific region to introduce Mobile Broadband
3G with HSDPA (High
Keeping an eye on costs
Speed Downlink Packet
In addition to growing our revenues and subscribers, we
Access) capabilities to the
continued to be vigilant about our costs, in order to improve
general public. Joining a
the earnings yield on our sales. We calibrated the use of
handful of mostly European
handset subsidies for customer acquisition, and utilized
and American companies
more pinpoint marketing programs targeted at specific
who have introduced the
customer segments rather than amorphous audiences.
HSDPA service, we are
We examined the way we expanded our wireless network,
proud that a Filipino company is the first in the region to
deconstructed the entire roll-out process and reviewed each
bring this promising technology for live use by customers.
major activity and cost item in detail, in order to identify
The faster transmission speed of Mobile Broadband 3G
those components which we could do better, cheaper,
with HSDPA has enabled us to bring connectivity to
and faster. All of these actions contributed to significant
savings and helped us reduce total operating expenses by
Broadband as the next growth frontier
P1.6 billion or 8% year on year.
We believe that the internet access space in general, and
broadband connectivity in particular, is on the cusp of
Our 2006 Performance
witnessing a swell in demand similar to the exponential
We are very pleased that our efforts have resulted to a
growth we saw in the mobile phone industry a few years
significantly improved financial performance in 2006.
back. We intend to be at the forefront of this opportunity,
Consolidated net income stood at P11.8 billion, a healthy
harnessing the capabilities of both wired and wireless
14% improvement over the previous year and an all-time
broadband technologies to make the internet available
high for the Company. Core net income, excluding foreign
and relevant to all. For 2007, we have allocated a
exchange and mark-to-market gains and losses, grew by
substantial portion of our capital budget for infrastructure
an even more buoyant 24%. Moreover, this net income
investments in 3G with HSDPA, DSL, and other broadband
growth was achieved despite a 48% increase in our
technologies as we work towards establishing a pervasive
corporate income taxes to P5.7 billion from P3.9 billion
access network.
the year before, due to the expiration of our tax holiday, the
increase in statutory rates to 35%, and the increase in our
We will likewise set our sights on opportunities outside of
taxable base.
our traditional borders to create new areas of growth for
our portfolio. Where attractive acquisition candidates and
With an improved market position, higher profitability, and
partnership opportunities exist, we will invest in allied
competitive dividend yields, our share prices have grown
industries, technologies, and services complementary to our
68% since the beginning of 2006, outstripping the local
core business, and which builds on the competencies and
composite index which has increased 42% during the same
lessons we have learned in the telco market.
period. Helped by the strength of the peso, our market
capitalization has risen by 82% to US$3.3 billion at the
Strengthening our core businesses
end of 2006, up from US$1.8 billion at the end of 2005.
We will continue to sharpen our competitiveness in our core
wireless business, and drive growth there. Taking the cue
Beyond financial results, we are as encouraged by the
from the success of the past two years, the introduction of
recognition and awards Globe received last year. We
distinctive and meaningful value-based packages based on
were happy to have been named Mobile Operator of the
a better understanding of the market will be our primary
Year during the Asian Mobile News Awards held last July
means to keep the momentum going and to assiduously
in Singapore. The Institute of Corporate Directors also
mine the remaining potentials of the wireless market.
named Globe as one of the Top 5 Companies on Corporate
Governance in the Philippines. Finally, in the Wall Street
As Filipino workers continue to seek fortunes in other
Journal’s Asia’s 200 Most Admired Companies, Globe
lands, we will likewise remain focused on serving the
was ranked third in the Philippines. We were especially
needs of the overseas Filipino communities. We intend
pleased that Globe was also top ranked in the High Quality
to unveil more Kababayan offerings in the coming year
Products and Services category, and placed second in
while building more partnerships with operators within the
Innovation.
Bridge Mobile Alliance.
2007 Prospects
We will also further improve on our service delivery
Looking ahead into 2007, we will focus on three main
platforms and reinforce our customer service capabilities to
imperatives – (1) laying the foundation for future growth
provide our customers a superior experience.
through investments in the broadband business, (2)
continuing to strengthen our consumer wireless business,
Delivering further improvements in our cost model
and (3) delivering further improvements in our cost model.
Finally, we will continue to challenge the way we do things
Looking ahead, we will focus on three main imperatives – (1) laying
the foundation for future growth through investments in the broadband
business, (2) continuing to strengthen our consumer wireless
business, and (3) delivering further improvements in our cost model.
and deliver further improvements in our financing and
Our broadband expansion is in step with the government’s
operating cost structures, starting with the prepayment and
drive to develop the infrastructure to uplift the country’s
re-financing of our 2012 bonds that will generate over P2
ICT (information and communications technology) sector.
billion in estimated interest expense savings over the next
Our leadership role in Innove’s Internet in Schools Program
five years.
and our active participation in GILAS (Gearing Up Internet
Literacy and Access for Students) are aimed to help raise
While 2006 provided some relatively quick wins from the
the computer literacy of our youth by bringing the internet
calibration of marketing and subsidy spending, moving
direct to public school classrooms nationwide. Meanwhile,
forward, we will pursue more structural and fundamental
our long-running support for the award-winning Text2Teach
changes in our cost model. As before, our primary
program gives our public school teachers and students
objective will be to improve the effectiveness with which
access to a wide range of educational videos and lesson
our spending is converted to top-line growth.
plans. Finally, through our livelihood and entrepreneurship
programs under BridgeCom, we hope to provide the skills
All our investments in infrastructure and technology
and opportunities to some of our marginalized communities
would be fruitless without parallel investments in human
to allow them to meaningfully participate in and benefit
capital. We will continue to search for best-in-market
from the over-all growth of our economy.
talent, develop competencies in our people that would
prepare them for the future, and engage the rest of our
In closing, the strides we made in 2006 would not have
stakeholders in realizing the Globe vision of making great
been possible without the support of our subscribers who
things possible for our customers and for our nation.
entrusted us with their loyalty; our business partners
who shared our passion for continuous innovation; our
Giving back to communities
employees who responded to many challenges with
As one of the largest corporations in the country, we
unflagging dedication and hard work; our Board of
recognize and embrace our role in the bigger Filipino
Directors for their continuing guidance and valuable
community. We will continue to support nation building,
perspectives; and our shareholders who gave us their solid
be it through the taxes that we dutifully pay, the
and unwaning support.
community-based initiatives that we pursue, or the disaster
relief operations that we spearhead during times of crisis.
Our sincerest thanks to you all.
GERARDO C. ABLAZA, JR.
President and Chief Executive Officer
9
An Overview of our Business
We are committed to
providing our customers with
superior experience across
all touch points...
Customer-centric Organization
With Globe’s Mobile Broadband 3G with
HSDPA service, a field worker checks his
e-mail through wireless connection.
The Philippine telecommunications industry continues to
evolve – driven by changes in technologies and shifts in
consumer behavior. With the advent of convergence and
new technologies, the array of solutions in the marketplace
has exponentially increased. Consumers are becoming
more discerning and value-conscious and are increasingly
demanding a new generation of product offerings to suit a
variety of voice and data needs, presenting various service
creation and delivery opportunities as well as challenges for
the operators.
To differentiate ourselves from competition and to
strengthen our market position, we have adopted a
customer-centric focus in various aspects of our operations.
We are committed to providing our customers with superior
experience across all touch points, and recognize that the
0
crucial first step in ensuring this unrivaled experience lies
Products and Services
in understanding the distinct needs of groups of subscribers
In 2006, the Globe Group offered various product and
in order to create and deliver the most relevant and
service packages to meet the different usage profile of each
innovative products and services.
segment.
In line with this, we reshaped and re-aligned our
Consumer segment
organization and internal processes in 2006 to revolve more
In line with our mission to transform and enrich people’s
closely around the needs, values, and aspirations of our
lives, we delivered innovative and compelling value
clients. We integrated business units formerly focused on
propositions to priority consumer segments. We offered a
product lines into teams organized around consumers and
slew of product packages customized to serve their various
corporate clients sharing similar requirements. We further
needs – be they unlimited offers for our heavy SMS users,
segmented our consumer organization around key customer
flat-rate offers for our heavy voice users, G-Pass services
groupings – be they the youth, the mass markets, our
for our MRT (Metro Rail Transit) commuters, or Visibility
professionals, frequent travelers, or the Overseas Filipino
packages for our subscribers who require unlimited, mobile
Workers and their families. We also formed an Enterprise
internet access.
Business Group which is now empowered to provide
fixed-mobile convergent solutions and integrated account
• Our Globe Super Sulit and TM Power Piso initiatives
management to our large corporate clients. Finally, we
provided a suite of voice and text offers for our
formed dedicated, cross-functional teams to focus on and
Globe and TM subscribers, including our industry-
be more responsive to the requirements of our smaller-size
setting and unrivaled per-second charging promo for
business ventures and microbusinesses.
local and international calls. We also introduced
various discounted IDD call and text rates to selected
As customer needs shift and evolve, we are committed to
destination countries under our Super Sulit Tipid IDD
regularly re-scope the roles and functions of these business
program.
units to ensure alignment. Our end goal is to deliver
• We continued to lead the pack with the introduction
sustained excellence in customer experience, service and
of our Globe Mobile Broadband 3G with HSDPA (High
responsiveness by adopting the viewpoint of our customers
Speed Downlink Packet Access) service which allows
in all our product, service, and business process choices.
for high-speed internet browsing and multi-media
streaming. Meanwhile, through our Visibility plans, we
offered unlimited mobile internet access via 3G with
HSDPA, EDGE and GPRS, as well as unlimited dial-up
and WiFi access to our subscribers through over 520
WiZ hotspots nationwide.
• Based on Voice over Internet Protocol (VoIP) technology,
G-WebCall is a service that allows our postpaid
subscribers from any part of the world to call any Globe
or TM subscriber via the internet for the price of a
local call. Similarly, our GlobeQUEST Webphone, a
groundbreaking web-based softphone service, allows PCto-PC and PC-to-PSTN outbound calls using our Globe 1
prepaid card.
11
For our hardworking Overseas Filipino Workers and their families in
the Philippines, we are creating an ecosystem that includes not just
connectivity, but also remittance, livelihood and other cross-border
capabilities under the Globe Kababayan program.
•
Globelines Postpaid Plus is a landline service bundled
and remittances, bill payments, and purchase of goods
with unlimited dial-up internet access and toll-free
and services.
NDD calls to any Globelines phone anywhere in the
•
•
We also introduced another innovation, G-Pass, that
country, all for a fixed monthly service fee. Recently,
allows our MRT commuters to pay for their fare with a
we launched the Globelines Broadband Budget
simple tap of their RFID (radio frequency identification)
Bundles, a landline service with unlimited broadband
chip on the MRT turnstile. Value reloads can be made
access of up to 384 kbps for only P995/month.
anytime and anywhere via GCash.
MyGlobe IMEVRYWHR is an instant messaging service
•
Our mass market brand TM also introduced its Barangay
that also offers unlimited chatting, voice messaging
Cellphone service – a phone kit that enables barangay
and unlimited photo sending for a fixed daily, weekly or
operators to rent it out to their neighbors as a public phone.
monthly fee.
•
•
Globe Bida Card is an electronic card that rewards
For our hard-working Overseas Filipino Workers and their
our loyal Globe and TM subscribers with discounts
families in the Philippines, we are creating an ecosystem
and promotional items and services at almost 200
that includes not just connectivity, but also remittance,
establishments nationwide.
livelihood, and other cross-border capabilities under the
Our SMS-based mobile commerce service, GCash,
Globe Kababayan program.
allows for convenient person-to-person money transfers
Our special IDD rates under our Kababayan program enable our Overseas Filipino Workers and their families to stay connected.
•
Through our affiliation with the Bridge Mobile
Business and corporate segments
Alliance, our overseas workers in Singapore, Taiwan
We launched a rich stream of service innovations and
and Hong Kong can now enjoy discounted rates when
customized solutions for our corporate and enterprise clients.
calling Globe and TM subscribers through our Globe
Kababayan co-branded SIM with Singtel, Taiwan Mobile
•
•
OK Kababayan SIM and Hong Kong CSL Kumusta Ka
solution that allows entrepreneurs to monitor their
Kababayan SIM.
businesses in other locations throughout the country
We also offer Kababayan IDD phone cards in selected
through the internet.
countries such as Japan and Hong Kong to provide
•
•
GlobeQUEST Store Express enables timely and reliable
discounted international call rates to Globe and TM
exchange of sales and inventory information between a
subscribers.
retail company’s headquarters and its branches. It also
Our Quick Remit and Load service allows our overseas
allows for the hosting of other voice, video and point-of-
workers to send cash and load straight to their family
sale applications.
and friends who are Globe and TM subscribers. This
•
Globe Broadband Webeye offers a remote web-based
•
Biz Starter Kit is a total internet package designed
service is available in Hong Kong, Singapore, Taiwan,
to assist start-ups, allowing entrepreneurs to
Japan, Saipan, Guam, USA and Canada.
systematically run their company with a relevant bundle
Our Globe Kabalikat program, in association with the
of services. Its modern programs also let small-scale
Overseas Workers Welfare Administration, aims to
businesses keep up with the changing needs of its
provide additional support to the OFW families in the
clients, potentially opening its doors to customers here
Philippines through various information campaigns and
and abroad.
livelihood projects.
3
•
GlobeQUEST VoBB (voice over broadband) is a voice
SIM card with a set “load” by the company via our
service that allows subscribers to take advantage of the
AutoloadMAX facility.
VoIP technology via broadband connection.
•
•
GlobeQUEST ICON (IP-Converged Optical Network)
GSM PABX router which Globe connects to the
is the first network in the country that incorporates
company’s existing phone system. By just dialing an
multi-protocol label switching as its core technology,
access number, any employee now has option to make
and which allows traffic prioritization and more cost-
discounted IDD or Globe calls at preferred rates.
effective interworking of various access technologies.
•
Mobile IDD and PABX is a PABX system with a wireless
•
Mobile Deskphone is a telephone unit which has the
We have also introduced various corporate voice
functionality of a cellphone. This enables field offices
plans such as Company Capped which provides the
in the most remote areas to stay connected to the head
employees with a postpaid line subscription under the
office and still enjoy special IDD and cost efficient rates
name of the company with a set “load” or credit limit
through the business loop.
that automatically shifts to a prepaid line when the set
•
Globe Energy Management Solutions (GEMS) allows the
credit has been consumed. We also offer Employee
monitoring of expenses on an hourly, weekly, monthly,
Line Plus which provides employees with a prepaid
or yearly basis through reports that can be sent using
email or SMS.
The faster transmission speed of Globe’s Mobile Broadband 3G with
HSDPA allows full mobility and enhanced productivity for entrepreneurs.
4
Globe Broadband Webeye allows entrepreneurs to monitor their
businesses through the Internet.
We offer convergent SOLUTIONS
to enable entrepreneurs to
monitor and expand their
businesses.
•
Message Connect provides employees real-time access
to the company’s various databases such as inventory
levels, order status, and sales reports through SMS.
•
Managed voice services provide a suite of managed
voice solutions specifically tailored for the burgeoning
Looking ahead into 2007, we will continue to develop a
call center sector.
rich product pipeline that will speak to the unique needs
• MLaunchPad allows the marketer to instantly create,
define, conceptualize, implement and monitor his own
of our priority customers. As we remain faithful to our
programs with the use of a client web user interface,
avowed mission of enriching the Filipino’s daily life through
accessible from his office PC.
communications, we will continue to leverage on strengths
and resources already in place to enable us to develop and
deliver SOLUTIONS that will make greater things possible
for our customers.
5
Management Discussion & Analysis
EXPENSES
Consolidated Results of Operations
Total subsidy, operating and depreciation and amortization
REVENUES
expenses decreased by 1% to P36,952 million from P37,197
Consolidated net service revenues grew by 4% to reach
million for the same period in 2005. As a percentage of total
P57,034 million at year end compared to P54,897 million
service revenues, total marketing expenses and subsidy declined
in 2005. This growth is in spite of revenue losses resulting
year-on-year from 13% in 2005 to 9% by the end of 2006.
from the effects of Typhoons Milenyo, Reming and Seniang
and the earthquake in Taiwan on 26 December that damaged
For the full year ended
(In millions of pesos)
international submarine cables linking the Philippines to the
Wireless service revenues accounted for 89% of consolidated
net service revenues for the year, posting a 5% growth year-onyear to P50,672 million. Wireline service revenues accounted
for the remaining 11%, declining slightly by 1% to P6,362
million due to the strengthening of the peso.
Consolidated non-service revenues dropped by 24% to P2,915
million for the year from last year’s P3,851 million. This is
mainly due to lower handset, SIM pack and SIM card sales
related to subscriber acquisitions following the Company’s
overall thrust towards more cost-effective acquisition and
Globe Group
31 Dec
2005
4,619
2,915
1,704
6,025
3,851
2,174
YoY
Change
(%)
-23%
-24%
-22%
Selling, Advertising and Promotions
3,525
Staff Costs
3,564
Utilities, Supplies & Other
Administrative Expenses
2,121
Rent
2,081
Repairs and Maintenance
2,122
Provisions
446
Services and Others
Insurance and security
1,441
Professional and Other contracted services 1,394
Taxes and Licenses
756
Others
660
Operating Expenses
18,110
4,697
3,519
-25%
1%
1,982
1,840
1,877
683
7%
13%
13%
-35%
1,478
1,495
832
886
19,289
-3%
-7%
-9%
-26%
-6%
Depreciation and Amortization
Total Cost and Expenses
15,734
37,197
9%
-1%
Cost of sales
Less: Non-service revenues
Subsidy
rest of the world.
31 Dec
2006
17,138
36,952
loyalty programs.
NET INCOME
2006 Revenue Breakdown
Total consolidated net income increased by 14% year-on-year
to P11,755 million from last year’s P10,315 million despite a
higher consolidated effective income tax rate of 33% from 27%
in 2005. Excluding foreign exchange and mark-to-market gains
Wireless Data
Wireline Voice
7%
Wireline Data
4%
43%
Wireless
Revenues
89%
and losses, core earnings would have been P10,833 million, a
24% improvement from last year’s P8,715 million.
Wireless Voice
57%
Accordingly, consolidated basic earnings per common share
were P88.56 and P76.74 and consolidated diluted earnings per
common share were P88.32 and P76.60 for the year 2006 and
2005, respectively.
6
LIQUIDITY AND CAPITAL RESOURCES
Year end Cash Balance
Total consolidated assets as of end 2006 amounted to
In
P124,580 million compared to P125,102 million in 2005.
Mn
14,812
12,165
Consolidated cash, cash equivalents and short term investments
(including investments in assets available for sale and held to
maturity) was at P14,812 million at the end of the year, 22%
higher than the P12,165 million registered in 2005. Gross
debt to equity ratio as of 31 December 2006 was 0.69:1 on
2005
a consolidated basis and remains well within the 2:1 debt to
2006
equity limit dictated by certain debt covenants. Net debt to
equity ratio was at 0.43:1 as of 31 December 2006.
Consolidated net cash flow from operations amounted to
Year end Consolidated Debt
P32,565 million for the full year ended 31 December 2006, a
In
Mn
12% increase from P28,952 million from last year.
46,693
39,207
Consolidated net cash used in investing activities amounted
to P18,908 million for the year, a 19% increase from the
P15,943 million in 2005. Consolidated capital expenditure,
of P14,832 million remained at par with previous year’s level.
For 2007, Globe is allocating approximately US$350 million
2005
2006
for capital expenditures to deepen coverage for its 2G wireless
network, accelerate broadband network roll-out, and upgrade
necessary support facilities. The 2007 capital expenditure
program will be funded through internally-generated cash and
Gross Debt / Equity
debt financing.
2.00
Maximum per debt covenants
Consolidated net cash used in financing activities for the year
amounted to P17,062 million, a 9% increase compared to
0.96
P15,680 million in 2005. Consolidated total debt as of year
0.69
end amounted to P39,207 million, a 21% decrease from the
P49,693 million from last year. Loan repayments of Globe for
2006 amounted to P10,429 million compared to the P12,527
2005
million paid for in 2005.
As of 31 December 2006, gross debt dropped to P39,207
million, 62% of which are denominated in US$. Of the 62%
US$ denominated debt, 33% has been swapped to pesos.
As a result, the amount of US$ debt swapped into pesos and
peso-denominated debt accounts for approximately 59% of
consolidated loans as of 31 December 2006.
2006
Wireless Business
BUSINESS SEGMENTS
Our Company offers its wireless services including local,
For the full year ended
(In millions of pesos)
Net Operating Revenues by segment
Service Revenues
Wireless
Voice ¹
Data ²
Wireline
Voice ³
Data 4
Net Service Revenues
Non-Service Revenues 5
Total Net Operating Revenues
31 Dec
2006
Globe Group
31 Dec
2005
national long distance, international long distance, international
YoY
Change
(%)
28,982
21,690
28,111
20,370
3%
6%
4,312
2,050
57,034
2,915
59,949
4,396
2,020
54,897
3,851
58,748
-2%
1%
4%
-24%
2%
roaming and other value-added services through three brands:
Globe Postpaid, Globe Prepaid and TM.
Globe Postpaid is the postpaid brand of Globe. This includes
all postpaid plans such as G-Plans and consumable G-Flex
Plans, Platinum (for the high-end market), and GlobeSolutions
(for corporate and business needs).
Globe Prepaid and TM are the prepaid brands of the Globe
Group. Each brand is positioned at different market segments.
¹ Wireless voice net service revenues include the following:
a) Monthly service fees on postpaid plans;
b) Charges for intra-network and outbound calls in excess of the consumable
minutes for various Globe Postpaid plans, including currency exchange rate
adjustments, or CERA net of loyalty discounts credited to subscriber billings;
c) Airtime fees from prepaid reload denominations (for Globe Prepaid and TM)
for intra-network and outbound calls recognized upon the earlier of actual usage
of the airtime value or expiration of the unused value of the prepaid reload
denomination which occurs between 1 and 60 days after activation depending
on the prepaid value reloaded by the subscriber net of (i) bonus credits and (ii)
prepaid reload discounts; and revenues generated from inbound international and
national long distance calls and international roaming calls;
Globe Prepaid is focused on the mainstream, broad market
while TM is focused on value-conscious mass market.
Additionally, Globe has customized services and benefits to
address specific market segments, each with its own unique
positioning and service offerings.
To cater to a wide variety of our prepaid subscribers, we provide
various top up facilities at each subscriber’s convenience. Our
Revenues from (b) to (c) are net of any interconnection or settlement payouts to
international and local carriers and content providers.
Globe Prepaid and TM subscribers can reload airtime value or
credits using various reloading channels, including through our
² Wireless data net service revenues consist of revenues from value-added services
such as inbound and outbound SMS and MMS, content downloading, subscription
fees on prepaid services and infotext net of any interconnection or settlement
payouts to international and local carriers and content providers.
over-the-air reload facility, AMAX, available nationwide.
Overall, the wireless business recorded a 3% year-on-year
³ Wireline voice net service revenues consist of the following:
a) Monthly service fees including CERA;
b) Revenues from local, international and national long distance calls made by
postpaid, prepaid wireline subscribers and payphone customers, net of (i) prepaid
and payphone call card discounts (ii) bonus credits and (iii) loyalty discounts
credited to subscriber billings;
c) Revenues from inbound local, international and national long distance calls
from other carriers terminating on our network; and
d) Installation charges and other one-time fees associated with the establishment
of the service.
operating revenue growth, with P53,561 million in net
operating revenues for the full year ended December 2006 from
last year’s P52,229 million. This increase was mainly driven
by a 5% improvement in total wireless service revenues from
P48,481 million to P50,672 million.
Revenues from (b) and (c) are net of any interconnection or settlement payments
to domestic and international carriers.
Wireless voice revenues contributed 57% to total wireless
Wireline data net service revenues consist of revenues from:
a) Monthly service fees from International and domestic leased lines;
b) Monthly service fees on Corporate Internet services and charges in excess of
free allocation;
c) One-time connection charges associated with the establishment of service;
d) Other wholesale transport services; and
e) Revenues from value-added services.
to P28,982 million on the back of higher usage of local and
Revenues from (b) are net of any interconnection or settlement payments to other
carriers.
main revenue drivers have been the higher subscriptions
Non-service revenues are reported net of discounts on phonekits and SIM
(Subscriber Identification Module) packs. The cost related to the sale of handsets
and SIM packs are shown under cost of sales. The difference between non-service
revenues and cost of sales is referred to as subsidy.
higher usage of value-added services from an expanded prepaid
service revenues. Wireless voice grew by 3% year-on-year
4
international voice services. Wireless data revenues accounted
for the remaining 43% of total wireless service revenues.
Wireless data continued to register positive growth, increasing
6% year-on-year to close the year at P21,690 million. The
acquired from our unlimited SMS offers coupled with the
5
subscriber base.
Key Indicators
Net Cumulative Subscribers/SIMs
Postpaid
Prepaid
Globe Prepaid
TM
Net Average Revenue Per Subscriber
(ARPU)
Postpaid
Prepaid
Globe Prepaid
TM
Subscriber Acquisition Cost (SAC)
Postpaid
Prepaid
Globe Prepaid
TM
Average Monthly Churn Rate (%)
Postpaid
Prepaid
Globe Prepaid
TM
31 Dec
2006
31 Dec
2005
15,659,742 12,403,575
643,901
594,142
YoY
Change
(%)
26%
8%
15,015,841 11,809,433
10,118,897
8,699,687
4,896,944
3,109,746
27%
16%
57%
Our prepaid segment made up 96% of our total subscriber
base. Overall, our consolidated prepaid subscribers significantly
increased by 27% from 11.8 million in 2005 to around 15
million at year end. With lower year-on-year churn levels across
both prepaid brands, consolidated prepaid net additions
improved to 3.2 million in 2006 compared to 74 thousand net
reductions in 2005.
1,673
1,635
2%
262
181
268
214
-2%
-15%
6,787
7,026
-3%
83
91
248
90
-67%
1%
Globe Prepaid registered a 16% year-on-year growth in its SIM
base to close the year with 10.1 million subscribers. TM had
another banner year as it continues to expand its reach and
establish its presence in the market. TM closed the year with
4.9 million cumulative subscribers, a remarkable 57% year-onyear growth in its subscriber base.
Globe Prepaid gross additions were 8% lower year-on-year at 6.8
1.8%
million compared to 7.3 million in 2005. However, the significant
3.1%
improvement in its churn rate from 7.8% down to 4.7% has led to
4.7%
5.9%
healthy net additions of 1.4 million compared to the 1.5 million net
7.8%
9.4%
reductions the previous year. Competitive and unique value offers
and effective retention and loyalty programs are the drivers behind
Our subscriber base continued on an upward trajectory posting
the brand’s strong performance this year.
a significant year-on-year growth of 26%, ending the year with
15.7 million subscribers. Total gross subscriber additions for
TM posted 4.6 million in gross additions compared to last year’s
the year amounted to 11.6 million which is at par with 2005
4.1 million. TM successfully acquired new subscribers and
level. However, gross subscriber additions in 2005 still included
drove down its churn rate. From a high of 12.70% recorded for
acquisitions of prepaid subscribers from the SIM swap program
full year 2004 and 9.4% for 2005, TM’s churn rate stood at a
which created a number of non-revenue generating subscribers
stronger 5.9% for full year 2006. With strong gross additions
that were subsequently churned out after their second expiry.
and healthier churn rate through steady introductions of
With improved churn rates across all brands, Globe’s net
compelling value promotions customized to its target market’s
additions for the full year reached 3.3 million, a reversal from
needs, TM’s net additions for the year stood at 1.8 million, up
the net reduction of 110 thousand in 2005.
27% from last year’s 1.4 million.
Our postpaid segment comprised approximately 4% of our
Wireline Business
total subscriber base. Our cumulative postpaid subscribers
Innove, a wholly-owned subsidiary, provides our wireline voice
grew 8% from last year to reach 643,901 at the end of 2006.
communications, private data networks and internet services
Total postpaid gross additions registered 185,801 for the
to individuals and enterprises in the Philippines under the
year while net additions reached 49,759 as a result of lower
Globelines and GlobeQuest brands.
churn at 1.8%, which is significantly below last year’s churn
rate of 3.1%. The improvements in churn during the year can
Our Globelines brand provides state-of-the-art digital
be attributed to continuing subscriber loyalty programs and
communications technologies to homes and small and medium-
competitive service offers.
sized enterprises. With the availability of postpaid or prepaid
options, subscription to Globelines comes with standard
9
features and value-added services such as IDD, NDD, Phone
On the wireline data front, wireline data business registered
Lock, Caller ID, Call Waiting, Multi-Calling, Call Forwarding,
service revenues of P2 billion, broadly in line with the previous
Voice Mail, Duplex Number, Hotline and Special Numbers.
year. Despite the higher circuit base, total revenues were flat
largely due to the appreciation of the peso.
For our wireline data services, Innove’s GlobeQUEST brand
For the full year ended
(In millions of pesos)
offer end-to-end solutions for corporate clients through valuepriced, high-speed data services over a nationwide broadband
Wireline Data
International
Domestic
Others ¹
Total Wireline Data Service Revenues
network. This includes domestic and international data services,
wholesale and corporate internet access data center services
and segment-specific solutions customized to the needs of
31 Dec
2006
31 Dec
2005
YoY
Change
(%)
604
834
612
2,050
679
797
544
2,020
-11%
5%
13%
1%
vertical industries.
¹ Includes revenues from value-added services and corporate internet services.
Overall, the wireline sales reported P6,362 million in net
service revenues for 2006 compared to P6,416 million in
International Long Distance (ILD) Services
2005. Lower wireline revenues resulted mainly from the
On a consolidated basis, ILD revenues from the Wireless
appreciation of the peso which impacted the business’ US$-
and Wireline services increased by 3% to P13,967 million
linked revenues. In 2006, wireline foreign-currency linked
during the year compared to P13,526 million for the same
revenues comprised 60% of its net revenues.
period in 2005. We continue to see positive results from
the successful launches of various IDD tariff promotions
Innove increased its total wireline voice subscribers by 6%
starting the second half of 2005. This has resulted in higher
to 383,876 from 362,143 in 2005. This subscriber base
inbound and outbound ILD minutes and increased revenue
is comprised of 63% postpaid and 37% prepaid, with the
for our wireless business.
business to residential mix ratio of 22:78 and 23:77 for the
Both Globe and Innove offer ILD services which cover
years 2006 and 2005, respectively.
international calls between the Philippines and over 200
Our broadband business continues to show robust growth,
countries. This service generates revenues from both
registering a year-on-year increase in subscribers of 129%,
inbound and outbound international call traffic with pricing
bringing our cumulative base to 51,426 by the end of 2006.
based on agreed international termination rates for inbound
This growth is attributable to the increasing affordability of our
traffic revenues and NTC-approved ILD rates for outbound
consumer broadband offerings.
traffic revenues.
For the full year ended
While cumulative subscribers grew, churn rates for the year
increased year-on-year from 1.7% to 1.9% owing to the higher
from company-initiated clean up of delinquent accounts.
31 Dec
2006
Cumulative Voice Subscribers Net (End of period)
383,876
Average Revenue Per Subscriber (ARPU)
Gross ARPU
1,110
Net ARPU
978
Average Monthly Churn Rate
1.9%
Broadband Subscribers-Net
(End of period)
51,426
31 Dec
2005
YoY
Change
(%)
362,143
6%
1,233
1,088
1.7%
-10%
-10%
22,479
129%
31 Dec
2005
24%
25%
Total ILD Minutes (in million minutes) ¹
1,948
1,469
33%
Inbound
Outbound
1,689
259
1,251
218
35%
19%
6.5
5.7
Total ILD Revenues as a percentage
of net service revenues
disconnections experienced in the postpaid service resulting
Key Indicators
31 Dec
2006
ILD Inbound / Outbound Ratio (x)
YoY
Change
(%)
¹ ILD minutes originating from and terminating to Globe and Innove networks.
0
Corporate Governance
BOARD OF DIRECTORS
Globe Telecom recognizes the importance of good governance
in realizing its vision, carrying out its mission and living out its
values to create and sustain increased value and returns for its
Key Roles
customers and stakeholders.
The Board is the supreme authority in matters of governance.
The Board establishes the vision, mission, and strategic
As strong advocates of accountability, transparency and integrity
direction of the Company, monitors over-all corporate
in all aspects of the business, the Board of Directors (“Board”),
performance, and protects the long-term interests of the various
management, officers, and employees of Globe Telecom commit
stakeholders by ensuring transparency, accountability, and
themselves to the principles and best practices of governance in
fairness. The Board also ensures the adequacy of internal
the attainment of its corporate goals.
control mechanisms to safeguard company assets, reliability of
financial reporting, and compliance with applicable laws and
The machinery for corporate governance is principally contained
regulations.
in the Company’s Articles of Incorporation and By-Laws
which lay down the basic structure of governance, minimum
In addition, certain matters are reserved specifically for
qualifications of directors, Board membership of at least two
the Board’s disposition, including the approval of corporate
independent directors, as well as the principal duties of the
operating and capital budgets, major acquisitions and disposals
Board and officers of the Company.
of assets, major investments, and changes in authority and
approval limits.
To further strengthen its governance framework and in
compliance with the Securities and Exchange Commission’s
Board Composition
Memorandum Circular No. 2 Series of 2002, the Company
The Board is composed of eleven (11) members, elected by
adheres to a Manual of Corporate Governance which clearly
stockholders entitled to vote during the Annual Stockholders
sets out the principles of appropriate supervision and good
Meeting (ASM). The Board members hold office for one
management, and which defines the specific responsibilities of
year and until their successors are elected and qualified in
the Board, the Board Committees, and management within the
accordance with the By-laws of the Company.
over-all governance framework.
The roles of the Chairman of the Board and the Chief Executive
The Company has likewise adopted a Code of Conduct for
Officer (CEO) are clearly delineated and are held by two (2)
employees as a guide to matters involving work performance,
separate individuals to ensure balance of power and authority
dealings with employees and customers, handling of assets,
and to promote independent decision-making. The Chairman
records and information, and the avoidance of conflict of
is a non-executive director who is not involved in the day-to-day
interest situations and corrupt practices.
management of the business.
Initiatives are regularly being pursued to develop and adopt
The Board includes two (2) independent directors of the caliber
corporate governance best practices, and to build the right
necessary to effectively weigh in on Board discussions and
corporate culture across the organization.
decisions. Globe defines an independent director as a person
who is independent from management and free from any
The following section summarizes the key corporate governance
business or other relationship which could materially interfere
processes and practices adopted by Globe Telecom.
with his exercise of independent judgment in carrying out his
responsibilities as a director.
All board members have the expertise, professional experience,
and background that allow for a thorough examination and
deliberation of the various issues and matters affecting the
Company. In accordance with SEC Memorandum No. 16 Series
of 2002, the qualifications of all nominees are reviewed by the
Nominations Committee, which is chaired by an independent
director. The names and profiles of each individual director are
found in the “Board of Directors” section of this annual report.
21
As of 31 December 2006, the Board comprised the following
Board Committees
members:
To further support the Board in its performance of its functions
and to aid in good governance, the Board has established five
Name
Position
Jaime Augusto Zobel de Ayala II
Delfin L. Lazaro
Lim Chuan Poh
Gerardo C. Ablaza, Jr.
Romeo L. Bernardo
Roberto F. de Ocampo
Koh Kah Sek
Xavier P. Loinaz
Guillermo D. Luchangco
Chairman
Co-Vice Chairman
Co-Vice Chairman
Director
Director
Director
Director
Director
Director
Jesus P. Tambunting
Director
Fernando Zobel de Ayala
Director
(5) committees. The Board Committees regularly met in 2006
Nature of
Appointment
Non-executive
Non-executive
Non-executive
Executive
Non-executive
Non-executive
Non-executive
Non-executive
Non-executive/
Independent
Non-executive/
Independent
Non-executive
to perform their respective functions.
Executive Committee
The Executive Committee (ExCom) is comprised of four (4)
members, at least three of whom are members of the Board.
The ExCom acts by majority vote and in accordance with the
authority granted by the Board or in the absence of the Board.
All actions of the ExCom are reported to the Board at the
meeting following such action and are subject to ratification or
revision and alteration by the Board.
Audit Committee
Jaime Augusto Zobel de Ayala II and Fernando Zobel de Ayala are brothers.
The Audit Committee supports the corporate governance
process through its oversight responsibility relating to the
Board Remuneration
financial statements and the financial reporting process, system
In accordance with the Company’s By-Laws, the Board members
of internal and financial reporting controls, internal audit,
receive stock options and remuneration in the form of a specific
external audit, risk management, and compliance with legal and
sum for attendance at each regular or special meeting of the
regulatory matters.
Board. A per diem of P 100,000 per Board or committee
meeting was agreed and approved by the shareholders during
The committee relies on the expertise of management, internal
the ASM held last April 1, 2003. The remuneration is intended
and external auditors, and ensures that adequate checks and
to provide a reasonable compensation to the directors in
balances exist. It conducts executive sessions with external
recognition of their responsibilities and the potential liability
auditors to review their independence, and with the internal
they assume as a consequence of the high standard of best
auditors to ensure their free and unrestricted access to records,
practices required of the Board as a body, and of the directors
properties, and personnel.
individually, under the SEC-promulgated Code of Corporate
Governance. Also, the level of per diem is in line with
The committee is composed of three (3) members, at least one
standards currently practiced among publicly listed companies
of whom is an independent director. An independent director
similar to Globe Telecom.
chairs the Audit Committee.
Board Performance
Compensation Committee
The Board met eleven (11) times during 2006, including the
The Compensation Committee is tasked to review the
ASM and an organizational meeting. For 2006, all directors
compensation philosophy and structure of the Company and
have complied with the Securities and Exchange Commission’s
the reasonableness of its compensation and incentive plans.
(SEC) minimum attendance requirement of 50%.
It is also responsible for setting the remuneration packages of
certain corporate officers. The committee is composed of three
(3) members, one of whom is an independent director.
Prior to the Board meetings, all of the Directors are provided
with Board papers which include reports on the Company’s
strategic, operational, and financial performance and other
Nominations Committee
regulatory matters. The Board also has access to the Corporate
The Nominations Committee reviews the qualifications of members
Secretary and the Assistant Corporate Secretary who, among
of the Board to ensure that they have all the qualifications and
other functions, oversee the flow of information to the Board
none of the disqualifications stated in the By-Laws and the Manual
prior to the meetings and who serve as advisers to the directors
of Corporate Governance of the Company. They also preview and
on their responsibilities and obligations. The members of
evaluate the qualifications of candidates nominated to positions
the Board also have access to management should they
which require appointment by the Board. The committee is
need to clarify matters concerning items submitted for their
composed of three (3) members, including one independent
consideration.
director. An independent director chairs the committee.
Finance Committee
enterprise-wide risk management framework to enhance the
The Finance Committee is responsible for reviewing and
risk management process and institutionalize a more structured
evaluating the financial affairs of the Company, including
approach to managing the Company’s business risks.
conducting an annual review of all financial activities during the
immediately preceding year prior to each ASM. The committee
A Chief Risk Officer now champions and oversees the entire
is composed of three (3) members.
risk management function. A risk management unit has also
been formally set up to make the function a regular one, rather
The members of each committee are set forth below:
than an ad hoc activity. Risk owners have been designated,
trained, and made responsible and accountable for managing
Executive Committee
Delfin L. Lazaro*
Lim Chuan Poh
Gerardo C. Ablaza, Jr.
Gil B. Genio
Compensation Committee
Delfin L. Lazaro*
Lim Chuan Poh
Guillermo D. Luchangco
Audit Committee
Jesus P. Tambunting*
Delfin L. Lazaro
Lim Chuan Poh
Nominations Committee
Guillermo D. Luchangco*
Delfin L. Lazaro
Lim Chuan Poh
risks, consistent with management’s belief that risks are best
Finance Committee
Delfin L. Lazaro*
Koh Kah Sek
Delfin C. Gonzalez, Jr.
understood and managed by the employees who are responsible
for the particular process or activity from which the risk arises.
The Board provides an oversight role for the Company’s risk
management activities and approves Globe Group’s risk
management policies and any revisions thereto. The CEO,
as the over-all risk executive, oversees the risk management
activities of the Company and ensures that the responsibilities
* Chairman
for managing risk is clear, the level of risk accepted by
MANAGEMENT
the Company is appropriate, and that an effective control
The CEO, with the assistance of the rest of the Senior Executive
environment exists for the Company as a whole.
Group (SEG), is responsible for the development and execution
of strategies in line with the Company’s vision, mission, and
AUDIT AND INTERNAL CONTROLS
values statements, the day-to-day management of the business,
To effectively carry out its objectives, the Audit Committee
and the implementation of the Board’s policies and decisions.
maintains independence from management and the controlling
The SEG meets at least twice a month.
shareholders. It has commissioned the services of the
Internal Audit group to provide independent advisory services
Accountable to the Board, management is obligated to
to the Company to help improve effectiveness and efficiency
provide the Board with complete and accurate information
of operations. The group is also tasked to ensure that the
on the operations and affairs of the Company in a timely
Company’s key organizational and procedural controls are
manner. Management is also required to prepare financial
effective, appropriate and complied with. The Internal Audit
statements for each preceding financial year in accordance
group reports functionally to the Board, through the Audit
with generally accepted accounting standards in the
Committee, and administratively to the President and CEO.
Philippines. Management’s statement of responsibility with
regards to the Company’s financial statements is included in
The Board, through the Audit Committee, also recommends an
this annual report.
independent auditor to perform an independent audit of the
Company’s operations, as well as provide an objective assurance
The annual compensation of the CEO and the seven (7) other
on the reasonableness of the financial statements and relevant
top officers of the company are disclosed in the Definitive
disclosures.
Information Statement distributed to the shareholders. The
total annual compensation includes the basic salary, guaranteed
The representatives of the independent auditor are expected
bonuses, fixed allowances, and variable pay (performance-based
to be present at the ASM and have the opportunity to make a
annual incentive).
statement on the Company’s operations if they desire to do so.
The auditors are also expected to be available to respond to
appropriate questions during the meeting.
ENTERPRISE RISK MANAGEMENT
Recognizing the dynamism of the business and industry, Globe
Telecom aims to continuously improve its corporate governance
The elected principal accountants and external auditors for
and risk management capabilities to maximize profit and
Globe Telecom for 2006 is SyCip, Gorres, Velayo & Company
minimize loss. As early as 2000, the Company completed a
(SGV & Co.). In accordance with regulations issued by the SEC,
risk self-assessment to identify risks and their likely impact
the audit partner handling the Company’s account is rotated
to operations. Since that time, the Company has adopted an
every five (5) years or sooner.
3
Billings for services rendered in connection with the engagement
FINANCIAL REPORTING
for 2006 amounted to P13.9 million as compared to P16.6
The consolidated financial statements of Globe Telecom and its
million for 2005.
subsidiaries have been prepared in accordance with Philippine
Financial Reporting Standards, which are aligned with International
In addition to performing the audit of Globe Group’s
Financial Reporting Standards. The financial statements are
financial statements, SGV & Co. was also selected, in
reviewed by the Audit Committee (with the support of the Internal
accordance with established procurement policies, to
Audit group) and the external auditors to ensure that they fairly
provide other services in 2006.
present, in all material respects, the financial position of the
Company. The Board also reviews and approves the consolidated
The aggregate fees billed by SGV & Co. are shown below (with
financial statements prior to public release.
comparative figures for 2005):
The financial statements include a breakdown of the Company’s
(In millions of pesos)
Audit fees 1
Billed during the current year
Billed in succeeding year
Total Audit fees
Audit-related fees 2
Tax fees 3
All other fees 4
Total
2006
2005
9.1
4.8
13.9
0.4
3.2
17.5
10.5
6.1
16.6
0.8
0.4
0.8
18.6
assets, liabilities, equity, cash flows, and results of operations.
Information showing the performance of the wireless and wireline
segments is also disclosed to show their respective contributions
to total corporate performance. Finally, the financial statements
include a detailed discussion of the Company’s accounting policies
and any estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
DEALINGS IN SECURITIES
Includes audit of Globe Group’s annual financial statements and review of quarterly
financial statements in connection with the statutory and regulatory filings or
engagements for the years ended 2006 and 2005.
1
Globe Telecom has adopted strict policies and guidelines for trades
involving the Company’s shares made by key officers and those
with access to material non-public information. Key officers and
Includes assurance services related to the review of Globe Group’s financial
statements.
2
those with access to the quarterly results in the course of review
are prohibited from trading in Globe’s shares starting from the
Includes tax consultancy and advisory services outside the scope of financial audits
and reviews.
3
4
time when quarterly results are internally reviewed until after
Globe publicly discloses its results. Notices of trading blackouts
Includes one-time, non-recurring special projects/consulting services and seminars.
are regularly issued to the officers concerned and compliance is
monitored by the Corporate and Regulatory Affairs group. Also,
The Audit Committee has an existing policy to review and to
all key officers are required to submit a report on their trades to
pre-approve the audit and non-audit services rendered by the
a designated compliance officer, for submission to the SEC in
Company’s independent auditors. It does not allow the Globe
accordance with the Securities Regulation Code.
Group to engage the independent auditors for certain non-audit
services expressly prohibited by SEC regulations to be performed
DISCLOSURES ON OWNERSHIP STRUCTURE
by an independent auditor for its audit clients. This is to ensure
Globe Telecom annually discloses the top 20 shareholders of
that the independent auditors maintain the highest level of
the common and preferred equity securities of the Company.
independence from the Company, both in fact and appearance.
Disclosure is also made of the security ownership of certain record
and beneficial owners who hold more than 5% of the Company’s
The Audit Committee has reviewed the nature of non-audit
common and preferred shares. Finally, the shareholdings and
services rendered by SGV & Co. and the corresponding fees
percentage ownership of the directors and key officers are disclosed
and concluded that these are not significant to impair the
in the Definitive Information Statement sent to the shareholders
independence of the auditors.
prior to the ASM.
There were no disagreements with the Company’s independent
SHAREHOLDER RELATIONS
auditors on any matter of accounting principles or practices,
Globe Telecom recognizes the importance of regular communication
financial statement disclosure, or auditing scope or procedure.
with its investors, and is committed to high standards of disclosure,
transparency, and accountability. The Company aims to provide
a fair, accurate, and meaningful assessment of the Company’s
4
financial performance and prospects through the annual report,
sessions, the Company’s employees learn, discover, and work
quarterly financial reports, and analyst presentations.
together in striving for excellence. Balanced performance metrics
are also put in place to support leadership with integrity to ensure
The Company’s quarterly financial results are disclosed to the SEC
that performance targets made are delivered, and eventually
and Philippine Stock Exchange (PSE) within 24 hours from their
reinforced, recognized, and rewarded.
approval by the Board. The Company also files its quarterly and
year-end financial statements and the detailed management’s
The Company believes that leadership and talent management is a
discussion and analysis within forty-five (45) and one hundred and
competitive advantage for winning the future. As such, succession
five (105) calendar days respectively from the end of the financial
planning and talent development processes are institutionalized.
period covered by the report, in compliance with the financial
These are reinforced by feedback, coaching, and career planning
reporting and disclosure requirements of the SEC and the PSE.
programs. Opportunities are also provided for key talents to learn
These reports are also made available to the analysts immediately
from other best practice companies here and in the region. Various
upon confirmation by the SEC of receipt of disclosure, and are
talent pipelines have been put in place to make sure that Globe
posted on the Company’s website.
Telecom is able to grow and develop the next generation of leaders
who will drive the business of the future.
Additionally, any material, market-sensitive information such as
dividend declarations are also disclosed to the SEC and PSE, as
The Globe Group has 5,161 active regular employees as of
well as released through various media including press releases and
December 31, 2006, of which about 14% are covered by a
Company website posting.
Collective Bargaining Agreement (CBA) with the Globe Telecom
Workers Union (GTWU). The CBA is valid until December 31,
The Company regularly holds quarterly investor briefings to discuss
2010 with a renegotiation on the economic aspects in 2008, a
the quarterly financial results. A conference call facility is set up
process that is expected to arrive at a peaceful and swift conclusion
during these investor briefings to enable wider participation. The
as in the previous CBAs. The Company has a long-standing,
Company also participates in both local and international investor
cordial, and constructive relationship with the GTWU characterized
conferences as part of its investor communications program.
by industrial peace. It is a partnership that mutually agrees to
focus on shared goals – one that has in fact allowed the attainment
Globe Telecom likewise holds an annual stockholders’ meeting
of higher levels of productivity and consistent quality of service to
where shareholders are given the opportunity to raise questions and
customers across different segments.
clarify issues relevant to the Company. The Board, CEO, members
of management, and external auditors are present to address any
PLANS TO FURTHER IMPROVE CORPORATE GOVERNANCE
questions raised at these meetings.
Globe Telecom, through its Board of Directors, is continually
reviewing its policies and processes to improve corporate
Enquiries by shareholders, whether by telephone, mail, or electronic
governance within the Company. It is currently evaluating
mail, are dealt with as promptly as possible. Shareholders,
the inclusion of a Whistleblower Policy in its Code of Conduct
investors, and the public may also access the Company’s website to
for employees. The policy will cover the handling, receiving,
obtain information on the Company.
investigating, and reporting of complaints from whistleblowers,
including reports on fraudulent reporting practices. The
EMPLOYEE RELATIONS
Company is likewise reviewing and updating its risk
Globe Telecom is committed to enhancing not just human capital
management structure and policies to continuously strengthen
but also human potential. The Company’s people strategy is
the Company’s risk management capabilities and ensure its on-
centered on empowering, engaging, and constantly energizing its
going relevance and viability.
talents so that no business challenge proves impossible.
As an organization needing to reinvent itself constantly, continuous
improvement, managing change and developing competencies are
disciplines that are being ingrained in various teams. Whether
in training programs, in project post-mortems, through employee
engagement and organization diagnosis surveys, in quarterly
business reviews or in lunch-time brownbag informal learning
25
Corporate Social Responsibility
EDUCATING FUTURE LEADERS
Helping Filipinos to benefit from
methods and know-how, such as cost
improved communications and increased
reduction techniques and logistics, to
connectivity is at the heart of Globe and
enable communities to tackle seemingly
In order to improve the lives of young
Innove. We recognize that our business
intractable problems in the fields of
people and give them world-class
has a vital role to play in developing
education and entrepreneurship.
education, our Text2Teach Program
empowered individuals and communities
brought in learning tools and training
Our flagship programs, Globe’s Bridging
to communities all over the archipelago
Communities (Bridgecom) and Innove’s
through educational videos downloaded
We have moved our concept of Corporate
Internet in Schools Program (ISP), both
via Short Messaging System (SMS).
Social Responsibility (CSR) beyond
reflect our commitment to education
the boundaries of compliance, public
and entrepreneurship as enablers for
Text2Teach proved that multi-media
relations and philanthropy to become
excellence and progress.
assisted learning were effective
ready to lead in a changing world.
a more integral part of corporate
teaching aids, firing up the imagination
governance and strategy. We contribute
This year, we made significant strides in
of students with moving images and
our expertise in problem solving and
bringing our CSR programs to a wider base.
boosting their test scores.
project planning, sharing business
We have moved our concept of Corporate Social Responsibility
beyond the boundaries of compliance, public relations and
philanthropy to become a more integral part of corporate governance
and strategy.
26
Now, teachers can order over 480 kinds
Information Technology (IT) revolution.
We provided free internet access to the
of educational videos in Science, Math,
In 2006, ISP provided web access to
University of the Philippines High School
English and Pilipino from Pearson
551 schools, the bulk of which are in the
in Cebu, enabling them to design the
Education and other sources that were
Visayas, with 371 schools; followed by
website which won the Gold in the 2006
stored in the Nokia Mediamaster after
Mindanao, with 103 and Luzon, 77.
Globalnet’s International Cyberfair.
downloading through Dream Cable. These
videos are supported by 480 lesson
Innove, which led the pack in testing
guides with exercises plus supplemental
Wi-Max (Wireless Inter-operability for
activities designed by the South East
Microwave Access) in the ASEAN region,
Asia Ministers of Education Organization
likewise pioneered the use of the latest IT
(SEAMEO-Innotech). Today, Text2Teach
such as Wi-Max in the public educational
is in 210 public elementary schools
system whereby it launched the first
nationwide (majority of which is found
Wi-Max school in the country this year
in the Autonomous Region of Muslim
- Governor Ferrer Municipal National High
Mindanao) benefiting 122,000 students
School in General Trias, Cavite.
and 920 teachers.
Innove complemented ISP with its
Our Globe Tulong Eskwela (GT Eskwela)
iTEACH, iCARE program, which engaged
We also contributed P100,000
mobilizes employee volunteers to teach
employee volunteers to raise the level
worth of school supplies for Mindoro
students. The program which also
of computer literacy of some 1,500
elementary students in a tie-up with
provides educational TV packages, books
students in 25 public high schools.
“GMA Kapuso for Unang Hakbang-alay
and computers is now present in 5
sa Kabataang Pinoy”.
schools in Quezon City, Oriental Mindoro,
We also continued our partnerships
Quezon and Cebu. Some 210 Globe
with the Ayala Foundation’s Gearing Up
EMPOWERING GRASSROOTS
employee-volunteers invested 4,460
Internet Literacy and Access for Students
COMMUNITIES
volunteer hours in our GT Eskwela. Our
(GILAS), Growth with Equity in Mindanao
employee volunteers tutored 3,000
(GEM)-US Agency for International
By forging sustainable bonds with
students from the selected schools,
Development (USAID)’s Computer
grassroots micro-entrepreneurs, we make
visiting them at least twice a month,
Literacy and Internet Connection Project
them our true partners in progress.
mentoring them in various subjects and
for public high schools in Autonomous
introducing new media teaching methods
Region of Muslim Mindanao (ARMM)
Globe’s three-year old BridgeCom gave
for teachers as well as enterprise
and Conflict Affected Areas in Mindanao
community-based capability-building
development for the students’ parents.
(CAAM) and Ateneo de Manila’s
assistance to barangays where our
Pathways to Higher Education Computer
almost 6,000 cellular sites are located.
Literacy Program.
In all, Globe BridgeCom covered over
More than 60 college students also
benefit from our annual Globe Future
700 barangays in 2006, providing
Business Leaders Conference which
Innove donated continuous internet
livelihood training programs to over
prepares business and management
subscriptions worth P6 million to
2,500 barangay leaders and micro-
students for the competitive world of
institutions such as the Cebu Educational
entrepreneurs.
telecommunications.
Development Foundation for IT, the
Marcelo Fernan Press Center, Cebu
Our Globe Bridgecom sa Bayan (BSB)
Innove’s ISP placed the Philippine public
and the Center for Teacher Excellence
trains barangay officials, micro-
school system at the forefront of the
computer laboratory.
entrepreneurs, micro-finance and
27
cooperative officers, youth groups and
and flexibility, rather than always-on
Albay, Sorsogon, Camarines Sur and
families of Overseas Filipino Workers to
connections and megabits-per-second.
Camarines Norte, thousands more flocked
be the backbone of tomorrow’s economy.
to our “Libreng Tawag” Centers.
To bring the broadband experience to
Our 60 enterprise development training
SMEs, we also provided kiosks with desktop
Globe, Innove and its employees raised
programs taught over 20 livelihood
computers and free broadband access in
P4.3 million in cash and in kind through
and small business opportunities to
10 DTI-identified pilot centers in Makati,
Globe BridgeCom’s Disaster Relief
2,500 barangay leaders and micro-
Lipa, Iloilo, Cebu, Tagbilaran, Cavite,
Operations and Innove’s iGIVE, iCARE
entrepreneurs in 600 barangays and
Bacolod, Tacloban, Iligan and Bulacan.
program. Relief goods were distributed
16 people’s organizations and microfinance institutions in 230 cities and
to families in 32 barangays devastated
CARING FOR THE ENVIRONMENT
municipalities.
by Typhoon Milenyo and Reming. Some
400 volunteers spent 4,000 volunteer
Your Company has an ongoing Safety
hours in this undertaking.
In 2006, our BSB reached out to far-flung
Health and Environment (SHE) program
areas, training local folks in fruit and
to ensure responsible use of resources in
Innove’s iGIVE, iCARE also mobilized
vegetable processing as well as farming,
our business.
relief operations for victims of the
herbal medicine and soap production. We
Southern Leyte mudslide. Our employee
forged partnerships with the private sector
Globe’s “Bantay Baterya” recycled 100%
volunteers called for donations of food,
to develop community-based tourism and
of all used lead-acid batteries from all
mineral water and clothes, repacked and
help barangays manufacture, package
of our operations. Globe employees also
distributed goods.
and market local goods.
volunteered 125 hours for tree planting
while Innove volunteers planted trees
Innove also launched Hotline 167 for the
PREPARING THE FUTURE PILLARS OF
around the Cebu Business Park in co-
Provincial Disaster Coordinating Council
COMMERCE
celebration of Earth Day with the Ayala
in Cebu, thereby ensuring dependable
Foundation and provided a venue for
communications for calamities affecting
Haribon Foundation briefings.
the Visayas region.
Philippine economy, comprising 99.6%
COMMUNITY SERVICE & DISASTER
Our “Makipasko 2006” reached out
of all registered firms nationwide and
RELIEF
to Cebu’s 120 abandoned and abused
Small and medium-sized enterprises
(SMEs) form the backbone of the
employing 69.9% of the labor force.
children aged 4 to 10 years. Over half
SMEs find computer technology useful
Your Company conducted several
a hundred Innove employee volunteers
but regularly require support to better
medical missions and disaster relief
treated these children to a party with
harness broadband to make their
operations in 2006.
games, food, entertainment and gifts.
Globe BridgeCom brought medical missions
Finally, Globe, Innove and its employees
In 2006, Innove partnered with the
to the provinces of Batanes, Ilocos Norte,
helped build the Gawad Kalinga
Department of Trade and Industry
Biliran, Palawan and Cavite to 100
communities in Bagong Silang, Caloocan
(DTI) to educate SMEs in high-speed
barangays and treated 4,500 indigent
City and Mansilingan, Negros Occidental.
connection technology and allow them
patients. Over 100 volunteers rendered
Hundreds of our employee volunteers
to capitalize on the advantages of
2,836 hours of service in these missions.
helped construct homes and provided
businesses more competitive.
broadband.
various assistance projects in these
Our Globe BridgeCom “Libreng Tawag”
communities. To date, there are 21
Innove conducted briefing sessions on
provided free prepaid calls to thousands
houses that were turned-over to the
e-commerce addressing prime SME
of families in war-torn Lebanon and
beneficiaries of Gawad Kalinga.
concerns such as profit, efficiency, speed
Israel. When disaster hit Southern Leyte,
28
All our CSR programs challenge and
GT Eskwela also won the International
in the International Collaboration
bring out the best in our employees,
Association of Business Communicators
Festival in the US, a gathering of
encouraging volunteerism, leadership,
(IABC) Gold Quill Awards.
CSR development strategists, NGOs,
and social responsibility in our workforce.
government and business. Bridgecom
We are pleased to note that there is no
Globe Bridgecom and its
was one of only two CSR programs from
shortage of volunteers amongst employees
entrepreneurship program Bridgecom sa
the Philippines to have been given this
for the Company’s many CSR programs.
Bayan garnered the IABC’s Gold Quill
honor. We also presented BSB in the Asia
and the Public Relations Society of the
Business Perspectives on CSR Forum in
RECOGNITION FOR SERVICE TO THE
Philippines’ Anvil Awards of Excellence
Kuala Lumpur, Malaysia.
COMMUNITY
in 2006. BSB was again cited for
excellence in Corporate-NGO partnership
In 2007, we will further strengthen our
We are pleased to report that our CSR
category in the Kyra Awards of Venture
advocacy to champion education and
programs have been recognized by the
for Fund Raising.
nurture and interconnect the country’s
community in various ways.
present and future entrepreneurs. We
These awards reaffirm and renew our
strongly believe that educated young
Our Text2Teach Program won the 2006
commitment to continue to deliver
Filipinos and empowered community
Asian CSR Awards in the Support and
relevant CSR programs that change the
entrepreneurs are today’s wealth creators
Improvement of Education Category.
lives of the communities we have the
and will be tomorrow’s big companies.
privilege to serve.
Through our CSR programs, we in Globe
and Innove will be a significant part of
The Asian Development Bank also
cited Innove’s iTEACH, iCARE for its
We have had the unique honor of being
contribution to ICT education and youth
asked to share our vision for CSR with
development.
other countries. We presented Bridgecom
that vision.
In 2007, we will further strengthen our advocacy to champion
education and nurture and interconnect the country’s present and
future entrepreneurs.
29
Board of Directors
Jaime Augusto
Zobel de Ayala II
Lim
Chuan
Poh
Delfin L.
Lazaro
Jaime Augusto Zobel de Ayala II.
Chairman of the Board since 1997 and
a Director since 1989. Chairman of the
Board of Directors and Chief Executive
Officer of Ayala Corporation; Chairman
of the Board of Directors of Bank of
the Philippine Islands and Integrated
Micro-electronics, Inc.; Vice Chairman
of Ayala Land, Inc., Co-Vice Chairman
of Ayala Foundation, Inc. Member of JP
Morgan International Council, Mitsubishi
Corporation International Advisory
Committee, Toshiba International Advisory
Group, Harvard University Asia Center
Advisory Committee, Board of Trustees of
the Asian Institute of Management and
a national council member of the World
Wildlife Fund (US). Awardee of the Ten
Outstanding Young Men in the Philippines
in 1999. Awarded Management Man of
the Year for 2006 by the Management
Association of the Philippines.
Delfin L. Lazaro. Director since 1997.
Lim Chuan Poh. Director since 2001.
Chairman of the Executive Committee of
Executive Vice President (Strategic
Globe; Chief Finance Officer from 2003
Investments) of Singapore Telecom;
to 2006 and member of the Management
Chairman of Bridge Mobile Alliance, which
Committee of the Ayala Corporation;
is Asia Pacific’s largest mobile alliance
President of Azalea Technology
Investments; Member of the Board of
Directors of Ayala Land, Inc., Manila Water
Co., Inc., Integrated Micro-electronics,
Inc. and Ayala Automotive Holdings
Corporation. Formerly the President
of Globe Telecom, Inc. and President
and CEO of Benguet Corporation and
Secretary of the Department of Energy
of the Philippine government; Awarded
Management Man of the Year 1999
by the Management Association of the
Philippines.
30
group. Former Deputy Secretary of the
Ministry of Communications. Also served
in different senior appointments in the
Singapore Civil Services.
Gerardo
C. Ablaza, Jr.
Fernando
Zobel de Ayala
Koh
Kah Sek
Gerardo C. Ablaza, Jr. Director since
1998. Currently President and Chief
Executive Officer of Globe Telecom. Senior
Managing Director of Ayala Corporation;
Former Vice President and Country
Business Manager for the Philippines
and Guam of Citibank, N.A. for Global
Consumer Banking business. Former Vice
President of Citibank, N.A. Singapore for
Consumer Banking.
Fernando Zobel de Ayala. Director since
1995. President and Chief Operating
Officer of Ayala Corporation. Chairman
of Ayala Land, Inc., Manila Water Co.,
Inc., AC International Finance Ltd., Ayala
International Pte. Ltd., Ayala Automotive
Holdings Corporation, Roxas Land
Corporation and Alabang Commercial
Corp.; Director of Integrated Microelectronics Inc. and Bank of the Philippine
Islands.; Co-Vice Chairman and Trustee
of Ayala Foundation, Inc.; Member of the
Board of Directors of Habitat for Humanity
International; Member of the East Asia
Council of INSEAD; and Member of the
Board of Trustees of the International
Council of Shopping Centers.
31
Koh Kah Sek. Director since 2006.
Joined SingTel in March 2005 as Group
Financial Controller. Formerly with Far East
Organisation – Yeo Hiap Seng Limited as
Vice President (Finance) responsible for
the financial functions of the Singapore
and US operations. Prior to joining Far
East Organization, spent a number of years
in PricewaterhouseCoopers and Goldman
Sachs.
Romeo L.
Bernardo
Xavier P.
Loinaz
Guillermo D.
Luchangco
Romeo L. Bernardo. Director since 2001.
Xavier P. Loinaz. Director since 2001.
President of Lazaro Bernardo Tiu &
Former President of the Bank of the
Associates, Inc. Member of the Board of
Philippine Islands (BPI). Director of
several private companies such as Bank of
BPI, BPI Capital Corporation, BPI Direct
the Philippine Islands, RFM Corporation,
Savings Bank, Inc., BPI/MS Insurance
PHINMA, Ayala Life Assurance, Philippine
Corporation, BPI Family Savings Bank, Inc.
Institute for Development Studies (PIDS)
Chairman of the Board of Directors of Ayala
Inc.; Chairman of Ayala Life Fixed Income
Life Assurance, Inc. Member of the Board
Fund. Former alternate director of the
of Trustees of BPI Foundation, Inc.
Asian Development Bank and Finance
Undersecretary for International Finance,
Privatization & Treasury Operations of the
Department of Finance of the Republic of
the Philippines. Former President of the
Philippine Economic Society and Chairman
of the Federation of ASEAN Economic
Societies.
32
Guillermo D. Luchangco. Director since
2001. Chairman and Chief Executive
Officer of Investment & Capital Corporation
of the Philippines, Cebu Light Industrial Park, Hermosa Ecozone Development Corp., ICCP Land Management,
Inc., Pueblo de Oro Development Corp.,
Regatta Beacon Land Corporation, Regatta
Properties, Inc, Tech Venture Partners,
Ltd., RFM -Science Park of the Philippines, Inc.; Chairman and President of
Beacon Property Ventures, Inc.; President
and CEO of ICCP Venture Partners, Inc.U.S.A.; Chairman of Bottecelli Holdings,
Inc., ICCP Group Foundation, Inc., ICCP
Venture Partners, Inc., Manila Exposition Complex, Inc. Director of Bacnotan
Consolidated Industries, Inc., Bacnotan
Industrial Park Corp., Iomni Precision,
Inc., Planters Development Bank, Ionics,
Inc., Ionic Circuits, Inc., Ionics EMS, Inc.,
Ionics EMS, Ltd., Ionics Properties, Inc.,
Science Park of the Philippines, Inc. and
Synertronix, Inc.
Roberto F.
de Ocampo
Renato O.
Marzan
Roberto F. de Ocampo. Director since
2003. Immediate past President of the
Asian Institute of Management (AIM); A
member of the AIM Board of Trustees;
Chairman of the Board of Advisors of
the RFO Center for Public Finance and
Regional Economic Cooperation; Former
Secretary of Finance of the Republic of the
Philippines; Former Chairman and Chief
Executive Officer of the Development Bank
of the Philippines; Recipient of Finance
Minister of the Year, Philippine Legion of
Honor, ADFIAP Man of the Year, Chevalier
of the Legion Honor of France, Ten
Outstanding Young Men Award (TOYM),
Several Who’s Who awards and the
2006 Asian HRD Award for Outstanding
Contribution to Society. Member/ Advisory
Board member of The Conference Board,
the Trilateral Commission, the BOAO
Forum for Asia and the Emerging Markets
Forum.
Jesus P.
Tambunting
Renato O. Marzan. Corporate Secretary
since 1993 and a former Director of Globe;
Managing Director of Ayala Corportion;
Director and Corporate Secretary of Honda
Cars Makati, Inc., Isuzu Automotive
Dealership, Inc. and Michigan Holdings,
Inc.; Corporate Secretary of Avida Land,
Corp. (formerly Laguna Properties
Holdings, Inc.), Ayala Systems Technology,
Inc., Azalea Technology Investment, Inc.,
Ayala Hotels, Inc., Laguna Technopark,
Inc., Integrated Micro-electronics, Inc.,
Community Innovations, Inc., and Roxas
Land Corporation; Assistant Corporate
Secretary of Ayala Corporation, Ayala Land,
Inc. and Ayala Foundation, Inc.
33
Jesus P. Tambunting. Director since 2003.
Chairman and Chief Executive Officer of
Planters Development Bank, Chairman
of Planters DB Properties Inc., PDB
Insurance Agency, SME.com.ph., PDBFMO Development Center; Association
of Development Financing Institutions in
Asia and the Pacific (ADFIAP); Director
of Philam Asset Management, Inc. ;
Former Ambassador Extraordinary and
Plenipotentiary to the United Kingdom
of Great Britain and Northern Ireland;
Conferred Management Man of the Year
2003 by the Management Association of
the Philippines; “Knight of the Equestrian
Order of the Holy Sepulchre of Jerusalem”
by the Vatican in 2004 and the Lifetime
achievement Award in 2005 by the Asian
Bankers Association.
Senior Executive Group
Gerardo C.
Delfin C.
PRESIDENT & CHIEF EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER
GONZALEZ, Jr.
ABLAZA, Jr.
Gil B.
Rodolfo A.
CHIEF EXECUTIVE OFFICER - INNOVE
CORPORATE AFFAIRS &
REGULATORY MATTERS
HEAD
GENIO
SALALIMA
Rodell A.
GARCIA
CHIEF INFORMATION OFFICER
34
Ferdinand M.
DE LA CRUZ
CONSUMER BUSINESS HEAD
Rebecca V.
Susan
STRATEGY MANAGEMENT HEAD
HUMAN RESOURCES HEAD
ECLIPSE
Consultants
RIVERA-MANALO
Andrew
Robert L.
CHIEF OPERATING ADVISOR
CHIEF TECHNICAL ADVISOR
BUAY
35
WIGGINS
Audit Committee Report
Report of the Audit Committee to the Board of Directors
For the Year Ended 31 December 2006
The Audit Committee’s roles and responsibilities are defined in the Audit Committee Charter approved by the Board of Directors.
It assists the Board of Directors in fulfilling its oversight responsibility to the shareholders relating to the a) financial statements
and financial reporting process; b) system of internal controls; c) risk management; d) performance of internal and independent
auditors; and e) compliance with legal and regulatory matters.
In compliance with the Audit Committee Charter, we confirm that:
• An independent director chairs the Audit Committee;
• We had six meetings during the year, five of which were in-person meetings and included an executive session with the internal
auditors;
• We have reviewed and discussed the quarterly unaudited financial statements and the audited annual financial statements of
Globe Telecom, Inc. and Subsidiaries (Globe Group), including Management’s Discussion and Analysis of Financial Condition and
Results of Operations, with the management, internal auditors and SGV & Co., the independent auditor of the Globe Group. These
activities were performed in the following context:
» That management has the primary responsibility for the financial statements and the financial reporting process; and
» That SGV & Co. is responsible for expressing an opinion on the conformity of the Globe Group’s consolidated audited
financial statements with Philippine Financial Reporting Standards;
• We have discussed and approved the overall scope and the respective audit plans of the internal auditors and SGV & Co. We
have also discussed the results of their audits and their assessment of the Globe Group’s internal controls and the overall quality
of the financial reporting process;
• We have reviewed and approved all audit, audit-related and permitted non-audit services provided by SGV & Co. to the
Globe Group and the related fees for such services and concluded that the non-audit fees are not significant to impair their
independence;
• We have reviewed the reports of the internal auditors and regulatory agencies, where applicable, ensuring that management is
taking appropriate corrective actions in a timely manner, including addressing internal control and compliance issues; and
• We have reviewed and discussed the adequacy of the Globe Group’s enterprise-wide risk management process, including the
nature of significant risk exposures, the related risk mitigation efforts and initiatives. This activity was reviewed in the context
that management is primarily responsible for the risk management process.
Based on the reviews and discussions undertaken, and subject to the limitations on our roles and responsibilities referred to above,
the Audit Committee recommends to the Board of Directors that the audited financial statements be included in the Annual Report
for the year ended December 31, 2006 for filing with the Securities and Exchange Commission. We are also recommending to the
Board of Directors the re-appointment of SGV & Co. as the Globe Group’s independent auditor for 2007 based on the review of their
performance and qualifications.
5 February 2007
Ambassador JESUS P. TAMBUNTING
DELFIN L. LAZARO
Audit Committee Chairman
Audit Committee Member
36
LIM CHUAN POH
Audit Committee Member
Statement of Management’s Responsibility
The management of GLOBE TELECOM, INC. is responsible for all information and representations contained in the consolidated
balance sheets as at December 31, 2006 and 2005, and the consolidated statements of income, consolidated statements of
changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2006,
and the summary of significant accounting policies and other explanatory notes. The consolidated financial statements have been
prepared in accordance with Philippine Financial Reporting Standards and reflect amounts that are based on the best estimates and
informed judgment of management with an appropriate consideration to materiality.
In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to
ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and
liabilities are recognized. The management likewise discloses to the Company’s audit committee and to its external auditor: (i)
all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process,
and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other
employees who exercise significant roles in internal controls.
The Board of Directors reviews the consolidated financial statements before such statements are approved and submitted to the
stockholders of the Company.
SyCip Gorres Velayo & Co., the independent auditors appointed by the Board of Directors and stockholders, has audited the
consolidated financial statements of the Company and its Subsidiaries in accordance with Philippine Standards on Auditing and has
expressed their opinion on the fairness of presentation upon completion of such audit, in their report to the Stockholders and Board
of Directors.
JAIME AUGUSTO ZOBEL DE AYALA II
GERARDO C. ABLAZA, JR.
DELFIN C. GONZALEZ, JR.
Chairman, Board of Directors
President and Chief Executive Officer
Chief Financial Officer
37
Report of Independent Auditors
The Stockholders and the Board of Directors
Globe Telecom, Inc.
5th Floor, Globe Telecom Plaza, Pioneer Highlands
Pioneer corner Madison Streets
Mandaluyong City
We have audited the accompanying consolidated financial statements of Globe Telecom, Inc. and Subsidiaries, which comprise the
consolidated balance sheets as at December 31, 2006, 2005 and 2004, and the consolidated statements of income, consolidated
statements of changes in equity and consolidated statements of cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine
Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to
the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance
with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Globe Telecom,
Inc. and Subsidiaries as of December 31, 2006, 2005 and 2004, and their financial performance and their cash flows for the years
then ended in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Luis Y. Benitez
Partner
CPA Certificate No. 19698
SEC Accreditation No. 0067-AR-1
Tax Identification No. 105-339-766
PTR No. 0266529, January 2, 2007, Makati City
February 5, 2007
38
Consolidated Balance Sheets
39
Consolidated Statements of Income
40
Consolidated Statements of Changes in Equity
41
42
Consolidated Statements of Cash Flows
43
44
Notes to Consolidated Financial Stetements
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
Globe Telecom Business Centers
24-HOUR CUSTOMER SERVICE HOTLINE
730-1000 or 211 from your Globe/TM handset
GMA REGION
North GMA
SM FAIRVIEW
PODIUM HUB
Unit 2004, 2/F SM Fairview
(Sales Dedicated Center)
Quirino Highway corner Regalado Avenue
5/F The Podium Bldg
Greater Lagro, Quezon City (near Shakey’s)
ADB Avenue, Ortigas Center
Mandaluyong City
ALI MALL CUBAO
SM NORTH EDSA
Space 35, Upper Ground Ali Mall II
Right Wing, SM Car Park Plaza III
Araneta, Cubao
SM City North Edsa
ROBINSONS GALLERIA
Quezon City
Quezon City (near Informatics)
1-A11, G/F Robinson’s Galleria Mall
CALOOCAN
SM SUPERCENTER PASIG
Unit F-6, 4/F Araneta Square
Unit 101-102a SM Supercenter Pasig
Bonifacio Monument Circle
Frontera Drive, C-5
ROCKWELL HUB
Caloocan City
Pasig City
(Sales Dedicated Center)
GATEWAY
SM VALENZUELA
Rockwell, Makati City
3/F Gateway Mall
Unit 338-339
(near bowling alley)
Araneta, Cubao
3/F SM Valenzuela Super center
Quezon City
McArthur Highway
SHANGRI-LA LINK
Valenzuela City
1/F Shangri-la Plaza
(near SM Cinema)
Ortigas Avenue
(near Pizza Hut)
Unit 317, 3/F Powerplant Mall
Edsa corner Shaw Blvd.
GREENHILLS HUB
G/F Greenhills Connecticut
Carpark 1 Bldg., Ortigas Avenue
Mandaluyong City (across Marks & Spencer)
Central GMA
SM MAKATI
San Juan
DIGITAL XCHANGE GLORIETTA 3
4/F Concourse Area
QUEZON AVENUE
(Sales Dedicated Center)
SM Makati, Ayala Center
Unit 103-A, G/F National Bookstore Inc.
Store 6, 3/F Glorietta 3
Makati City
Quezon Avenue
Ayala Center, Makati City
SM MEGAMALL
Quezon City
GLORIETTA HUB
5/F SM Megamall Building B
ROBINSONS METRO EAST LINK
(Sales Dedicated Center)
Ortigas Center
Level 1 Robinsons Metro East
Unit 252/254
Pasig City
Marcos Highway corner Imelda Avenue
2/F Glorietta 4
(near Megatrade)
Pasig City (corner Big R)
Ayala Center, Makati City
(near National Bookstore)
TOWER ONE
Unit C
SM CENTERPOINT
Unit 310, 3/F SM Centerpoint
PARK SQUARE 1
G/F Tower One and Exchange Plaza
Magsaysay Blvd corner Araneta Avenue
Park Square 1, South Drive
Ayala Avenue, Makati City
Sta. Mesa, Manila (near Bingo Plaza)
Ayala Center, Makati City
(across The Enterprise)
(near exit of Park Square 1 parking)
111
South GMA
SM MANILA
OLONGAPO
Unit 430, 4/F SM City Manila
G/F 1799 Rizal Avenue
ALABANG TOWN CENTER
Arroceros corner Marcelino Streets
West Bajac-Bajac
3/F New Wing
Concepcion Avenue, Manila
Olongapo City
Alabang Town Center
(near Chowking)
SAN FERNANDO
Alabang, Muntinlupa City
SM SAN LAZARO
G/F Provincial Administrative Bldg.
BINONDO
3/F SM San Lazaro
Quezon Avenue
G/F & 2/F Enrique T. Yuchengco Bldg.
Feliz Huertas corner Lacson Streets
San Fernando, La Union
484 Quintin Paredes Street
Sta. Cruz, Manila
SM BAGUIO
Binondo, Manila
SM SOUTHMALL LINK
Unit 349 & 350
2/F Cyberzone, SM Southmall
3/F SM City Baguio, Luneta Hill
FESTIVAL SUPERMALL
Zapote-Alabang Road
Upper Session Road, Baguio City
Unit 4064 A&B
Las Piñas City
(near RCBC Bank)
SM CLARK
4/F Alabang Zapote Wing
Filinvest Festival Supermall
SM SUCAT LINK
Unit 203-204, 2/F SM City Clark
Filinvest Corporate City, Alabang
3/F SM Supersucat Center
Clarkfield, Pampanga
Muntinlupa City
Sucat Road
(near Game Worx)
Paranaque City
TARLAC (near SM Cinema)
G/F Metrotown Mall
MALL OF ASIA
Juan Luna Street corner McArthur Highway
Unit 202, 2/F North Parking Bldg
Tarlac City
SM Mall of Asia
NORTH LUZON REGION
URDANETA Pasay City
Unit 303, 3/F Urdaneta Magic Mall
MARKET! MARKET!
Northwest Luzon
Alexander corner Poblacion Street
Urdaneta, Pangasinan
Unit 444 & 445
4/F Market! Market!
BALANGA LINK
Lot C Bonifacio Global City
G/F Recar Commercial Complex
VIGAN Taguig
J.P. Rizal Street
Collegio Business Center, Mart 1
Balanga City, Bataan
Nueva Segovia Street
Vigan City
METROPOINT MALL
Unit 417, 4/F Metropoint Mall
CANDON
Edsa corner Taft Avenue
KanPing Commercial Bldg
Pasay City
Maharlika Highway, Bgy. San Antonio
Central Northeast Luzon
Candon City, Ilocos Sur
CABANATUAN LINK
ROBINSONS PLACE MANILA LINK Space 020, 3/F Pedro Gil Wing
DAGUPAN Unit 4B, G/F NE Pacific Mall
Robinsons Place
Unit 127, G/F Nepo Mall Dagupan
Km. 111, Maharlika Highway
Manila
Arellano Avenue
Cabanatuan City, Nueva Ecija
(near Headway Barber Shop Salon)
Dagupan, Pangasinan
MALOLOS LINK
SM BICUTAN LINK
LAOAG
103-A E & R Bldg.
Unit 212 Bldg B
G/F Lazo Bldg.
Malolos Crossing
2/F SM Bicutan
Rizal corner Abadilla Street
McArthur Highway corner Mabini
(near SM Cinema)
Barrio San Lorenzo
Malolos, Bulacan (near Chowking)
Laoag City
112
PLARIDEL
CALAPAN
SM LIPA
Grid E-F & 1-2
014 JP Rizal Street
2/F SM Mall
Walter Mart Supermarket
San Vicente Central Calapan City
Ayala Highway
Cagayan Valley Road
Oriental Mindoro
Lipa City
LEGASPI SM LUCENA 2/F Pacific Mall
Unit 343, 3/F SM City Lucena
SANTIAGO CITY Landco Business Park
Dalahican corner Pagbilao Road
Unit 7 - VMG Bldg.
Bitano, Legaspi City
Bgy. Ibabang Dupay Red V
Barrio Banga 1
Plaridel, Bulacan
Maharlika Highway, Centro East
Santiago City, Isabela
Lucena City
NAGA
1/F LCC Central Mall
SM MOLINO
SM MARILAO
Felix Plaza Street
Unit 230, 2/F Mezzanine
Unit 219, 2/F SM City Marilao
Naga City
SM Supercenter
KM. 21 Barangay Ibayo
McArthur Highway, Bulacan
Molino, Cavite
PUERTO PRINCESA
G-7 & M-7 Pacific Plaza Bldg.
SM STA. ROSA
SM PAMPANGA
Rizal Avenue, Puerto Princesa City
Unit 281, 2/F SM City Sta. Rosa
G/F SM City Pampanga
Palawan
Brgy. Tagapo
Lagundi, Mexico, Pampanga
(in front of Play & Display)
Sta. Rosa City, Laguna
SAN PABLO
Unit 30 Ultimart Shopping Mall
TAGAYTAY
SOLANO
M. Paulino Street
K1-K3 Magallanes Square
225 J.P. Rizal Avenue
San Pablo, Laguna
Tagaytay City
Maharlika Highway, Solano
Nueva Vizcaya
SM BACOOR 3/F SM Bacoor
TUGUEGARAO Aguinaldo Highway corner Tirona
Unit 57-B Chowking Bldg.
Bacoor, Cavite
Balzain Road
(in front of Bingo Bonanza)
VISAYAS
BACOLOD Tuguegarao City
Cagayan Valley
SM BATANGAS
3/F Robinsons Place
(beside Chowking)
2/F SM City Batangas
Mandalagan, Bacolod City
Units 229& 230, Pastor Village
Pallocan West, Batangas City
SOUTH LUZON REGION
CEBU AYALA CENTER 2/F Paseo Verde, Ayala Center
SM DASMARINAS Cebu Business Park
2/F SM Dasmarinas
Cebu City
South Luzon
Governors Drive 1 Brgy.
Sampaloc, Dasmarinas
DUMAGUETE
CALAMBA
Cavite
G/F Sol Y Mar Bldg
2/F J. Alcasid Bldg.
San Juan Street cor Rizal Blvd.
Crossing
Dumaguete City
Calamba, Laguna
(in front of the Blvd.)
(in front of Mercury Drug Store)
113
ELIZABETH MALL
TAGBILARAN
SM DAVAO T-020, 3/F Elizabeth Mall
Digal Bldg.
3/F SM City Davao
N Bacalso corner Keon Kilat Streets
Carlos P. Garcia Avenue
Ecoland Subdivision, Quimpo Blvd.
Cebu City
Tagbilaran City
Davao City (near SM Cinema)
TAGUM
KALIBO
G/F NCCC Mall
L/G Gaisano City
MINDANAO
National Highway
Roxas Avenue Extension
Tagum City
BUTUAN VP DAVAO 3/F Gaisano Mall
2/F Victoria Plaza
CALBAYOG
J.C. Aquino Avenue
J.P. Laurel Avenue
Unit 2 Crown Bldg.
Butuan City
Bajada, Davao City
CAGAYAN DE ORO ZAMBOANGA
Bgy. Andagao
Kalibo, Aklan
Magsaysay Blvd.
Calbayog City, Western Samar
Unit 313, 3/F SM City
Door 2&3 ARV Bldg.
ROXAS CITY
Gran Via Street corner Mastersons Avenue
San Jose Road
Area 9 Gaisano Arcade
Cagayan De Oro City
Zamboanga City
Arnaldo Boulevard
Roxas City
CDO LIMKETKAI
Unit M2-101 Limketkai Mall
SM CEBU
Entrance 2, Lapasan Highway
3/F SM City Cebu
Cagayan De Oro
North Reclamation
Cebu City
COTABATO CITY (near Megatrade)
G/F El Marco Bldg.
Sinsuat Avenue
SM DELGADO
Cotabato City
Ground Floor, SM Delgado
corner Valeria & Delgado Streets
GENERAL SANTOS
Iloilo City
Unit 201, 2/F KCC Mall of Gensan
J. Catololico Avenue
SM ILOILO General Santos City
2/F SM City Iloilo
B. Aquino Avenue
ILIGAN Mandurriao
G/F Kimberly Bldg.
Iloilo City
National Highway
Tibanga, Iligan City
TACLOBAN
Uyping Commercial Bldg.
OZAMIZ
Justice Romualdez Street
B-5, G/F Gaisano Ozamis City Mall
Tacloban City
Rizal Avenue corner Zamora Extension
Ozamiz City, Misamis Occidental
114
Globelines Payments and Services Center
CUSTOMER CARE DIRECTORY
Luzon
(02) 9198888
Visayas & Mindanao
(032) 4108888
or
171 from any Globelines
Metro Manila
SM NORTH EDSA
Batangas
Unit 158-B, G/F Cyberzone Carpark Bldg.
ALABANG
SM North Edsa
LEMERY
1014 G/F Festival Mall
North Avenue, Quezon City
CJ Bldg.
Independencia Street
Filinvest Corporate City
Alabang
UN AVENUE
Lemery, Batangas
G/F Globe Telecom UN Building
GLOBE TELECOM PLAZA (PIONEER)
United Nations Avenue
SM BATANGAS
Upper Ground Floor
Ermita, Manila
G/F SM City Batangas
Brgy. Pallocan West, Batangas City
Globe Telecom Plaza Tower 1
Pioneer corner Madison Streets
Mandaluyong City
South Luzon
MARIKINA
Cavite
SM LIPA
2/F SM City Lipa
Ayala Highway
Lipa City, Batangas
2/F, Blue Wave Mall
Sumulong Highway corner G. Fernando Ave.
BACOOR
Brgy. Sto. Nino
General Tirona Highway
Marikina City
Barangay Dulong Bayan
Oriental Mindoro
CALAPAN
Bacoor, Cavite
G/F Ferraren Bldg.
PARK SQUARE 2
G/F Park Square Bldg.
GENERAL TRIAS
M. Leuterio Street, San Vicente
Ayala Center, Makati City
2/F Trinidad Ybay Building
Calapan City, Oriental Mindoro
National Highway, Brgy. Tejero
SM MEGAMALL
General Trias, Cavite
East Visayas
4/F SM Megamall B
Cyberzone Area
MOLINO
Doña Julia Vargas Avenue
2/F SM Supercenter
Mandaluyong City
Molino IV
Cebu
AYALA CENTER
Bacoor, Cavite
2/F West Entrance
SM STA. MESA
3/F SM Sta. Mesa
SM DASMARINAS
Paseo Ciudad, Ayala Center
Aurora Boulevard
2/F SM City Dasmarinas
Cebu Business Park
Quezon City
Governor’s Drive 1, Barangay Sampaloc
Cebu City
Dasmarinas, Cavite
115
BOGO
UBAY
Fernan Street
N. Reyes Street
Negros Oriental
Bogo, Cebu
Poblacion Ubay
DUMAGUETE
Bohol G/F Sol y Mar Bldg.
CARCAR
Rizal Blvd. corner San Juan Street
Leyte
Dumaguete City MAASIN
TANJAY
Maasin Port Terminal
Kyle’s Foodshoppe
ELIZABETH MALL
Commercial Complex
Magallanes Street, Tanjay City
2/F Elizabeth Mall
Demeterio Street
Sanciangko corner L. Kilat Streets
Agbao, Maasin City
Panay
ORMOC
GAISANO ILOILO
MANDAUE
MFT Bldg.
2/F Gaisano City
2/F Fortune Square Bldg.
Real Street
La Paz, Iloilo City M.C. Briones Highway
Ormoc City
corner A.S. Fortuna Street
POTOTAN
Mandaue City
TACLOBAN
Teresa Magbanua Street
22 P. Burgos Street
Pototan, Iloilo
Door 2 Sharon Uy Bldg.
Poblacion 3, Awayan
Carcar, Cebu
Cebu City
PARDO
Tacloban City Prince Warehouse Club
SM CITY ILOILO
Bulacao, Pardo
Samar
2/F SM City Iloilo
Cebu City Diversion Road
BORONGAN
Mandurriao, Iloilo City
SM CEBU 2/F Wilsam Uptown Mall
2/F SM City Cebu
Borongan, Samar Capiz
North Reclamation Area
ROXAS
Cebu City West Visayas
TOLEDO
2/F Nesbel and Sons Bldg.
Negros Occidental
P. Gomez corner Legaspi Streets
Roxas City
Antique
P. Rodriguez Street
Toledo City
BACOLOD
27th corner Lacson Streets
SAN JOSE
Bohol
Mandalangan, Bacolod City
T. Fornier Street
San Jose, Antique
ISLAND CITY MALL (GPS I.C.M)
HINIGARAN
U/G Island City Mall
2/F Cor. Rizal and Aguinaldo Streets
Aklan
Dao District
Hinigaran, Negros Occidental
KALIBO
Tagbilaran City
SAN CARLOS
Arch. Reyes Street
TAGBILARAN
CL Ledesma Sr. Avenue
Kalibo, Aklan
Door 5 EB Gallares Bldg.
San Carlos City Negros Occidental Carlos P. Garcia Avenue
Tabilaran City SAGAY
Mindanao
ATB Bldg., Maranon Street
TUBIGON
Poblacion II
DAVAO
Pooc Occidental, Poblacion
Sagay City, Negros Occidental
3/F NCCC Mall
Tubigon, Bohol McArthur Highway
Matina, Davao
116
Corporate Offices
Shareholder Services
GLOBE TELECOM, INC.
For inquiries regarding dividend payments, change of address
and account status, and lost or damaged stock certificates,
5th Floor, Globe Telecom Plaza 1
please contact our stock transfer agent:
Pioneer corner Madison Streets
1552 Mandaluyong City
Bank of the Philippines Islands
Philippines
Stock Transfer Office
Trunkline (02) 7302000
16th Floor, BPI Building
Fax:
Ayala Avenue corner Paseo de Roxas
(02) 7392000
Makati City
Website: www.globe.com.ph
Philippines
Subsidiaries
INNOVE COMMUNICATIONS, INC.
Tel:
(02) 8169067
(02) 8169321
Fax:
(02) 8455515
Investor Relations
Innove Corporate Office (Luzon)
GT Telepark
For inquiries from institutional investors, the financial community
111 Valero Street, Salcedo Village
and analysts, please contact the Investor Relations team:
Makati City
Philippines
5th Floor, Globe Telecom Plaza 1
Tel:
(02) 7302000
Pioneer corner Madison Streets
Fax: (02) 7392000
1552 Mandaluyong City
Philippines
Innove Corporate Office (Visayas)
Tel: (02) 7302820
Innove Plaza
(02) 7303251
Samar Loop corner Panay Road
Fax: (02) 7390072
Cebu Business Park
Email: [email protected]
Philippines
Tel: (032) 4158888
Fax: (032) 4158822
Customer Services
For inquiries about our wireless and wireline products and
G-XCHANGE, INC.
services, please contact our customer service:
6th Floor, Globe Telecom Plaza 1
Pioneer corner Madison Streets
1552 Mandaluyong City
Philippines
Tel: (02) 7302000
Fax: (02) 7392000
Hotline: (02) 7301000
Email: [email protected]
Stock Trading Information
Globe Telecom, Inc. is listed on the Philippine Stock Exchange.
Ticker symbol: GLO
Agency K2 Interactive (Asia) Inc.
Photography Wig Tysmans (Portraiture / Cover), Tom Epperson (Portraiture / Operationals)
117
GLOBE TELECOM, INC.
A member of the Ayala group of companies
5F Globe Telecom Plaza I,
Pioneer corner Madison Streets,
1552 Mandaluyong City,
Pasig