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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SEC Form 17A 2007
1
Month
Day
Annual Meeting
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SEC Number:
File Number:
1177
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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, 2007
______________________________________
(Fiscal Year Ending)
(Month & Day)
SEC Form 17-A
______________________________________
(Form Type)
______________________________________
Amendment Designation (if applicable)
SEC Form 17A 2007
2
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: 31 December 2007
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,
Postal Code: 1552
Mandaluyong City
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
132,333,551
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: P46,115,300,710.
SEC Form 17A 2007
3
TABLE OF CONTENTS
PART I – BUSINESS AND GENERAL INFORMATION ...............................................................5
ITEM 1. DESCRIPTION OF BUSINESS ..................................................................................................5
ITEM 2. DESCRIPTION OF PROPERTIES ...............................................................................................38
ITEM 3. LEGAL PROCEEDINGS ...........................................................................................................39
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............................................40
PART II – SECURITIES OF THE REGISTRANT.........................................................................41
ITEM 5. MARKET PRICE, DIVIDENDS & RELATED STOCKHOLDER MATTERS .....................................41
ITEM 6. DESCRIPTION OF REGISTRANTS SECURITIES ..........................................................................45
PART III – FINANCIAL INFORMATION .....................................................................................50
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF OPERATIONS .............................50
For the Financial year ended 2007 ...............................................................................................50
For the Financial year ended 2006 ...............................................................................................75
PART IV-MANAGEMENT AND CERTAIN SECURITY HOLDERS ......................................106
ITEM 8. DIRECTORS AND KEY OFFICERS OF THE REGISTRANT ........................................................106
ITEM 9. EXECUTIVE COMPENSATION ...............................................................................................111
ITEM 10. SECURITY OWNERSHIP OF CERTAIN RECORD, BENEFICIAL OWNERS & MANAGEMENT ...114
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................................115
PART V – CORPORATE GOVERNANCE...................................................................................116
SIGNATURES...................................................................................................................................128
PART VI – EXHIBITS AND SCHEDULES...................................................................................129
INDEX TO EXHIBITS.....................................................................................................................130
SEC Form 17A 2007
4
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. We are a full
service telecommunications provider offering digital wireless communication, wireline voice, data
transmission, domestic and international long distance communication, and mobile-commerce
services.
Globe Telecom is listed on the Philippine Stock Exchange with a market capitalization of =
P207,764
million as of 31 December 2007. Our 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 GlobeMackay 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.
In 2001, Globe Telecom acquired Isla Communications Company, Inc. (“Islacom”) which became a
wholly-owned consolidated subsidiary of Globe Telecom effective 27 June 2001.
SEC Form 17A 2007
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In 2003, the National Telecommunications Commission (“NTC”) granted Globe Telecom’s
application to transfer its wireline business assets and subscribers to Islacom pursuant to its 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 Alliance. The joint venture company operates
through a Singapore-incorporated company, BMPL which serves as a commercial vehicle for the JV
partners to build and establish a regional mobile infrastructure and common service platform to deliver
different regional mobile services to their subscribers. The Bridge Alliance had a combined customer
base of 175 million subscribers in 2007 among its partners in India, Thailand, Hong Kong, South
Korea, Macau, Philippines, Malaysia, Singapore, Australia, Taiwan and Indonesia..
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. The Company was assigned with 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 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 =
P11,250.00 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 =
P5,179.35 million and
=9,685.80 million, respectively.
P
SEC Form 17A 2007
6
B. Business of Issuer
1. Overview of the Business
Our Company is a leading telecommunications services provider in the Philippines. We continue to
grow and engage our customers through our clear commitment to enriching lives through ease and
relevance.
The Globe Group is comprised of the following focused companies:
•
Globe provides our wireless telecommunications services;
•
Innove, a wholly-owned subsidiary, provides our fixed line telecommunications services
including fixed line voice, consumer broadband, high-speed internet and private data networks for
enterprise clients, internet protocol-based solutions as well as domestic and international long
distance communications services or carrier services. 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, G-Xchange, Inc. (GXI) which was incorporated in 2004.
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. Our wireless business accounted for 89% of consolidated service revenues,
contributing =
P56.4 billion for the year ended 31 December 2007. Our wireless subscriber base grew
30% from last year’s 15.7 million to reach 20.3 million as of year end.
Globe Postpaid includes all postpaid plans such as G-Plans and consumable G-Flex Plans, and
Platinum (for the high-end market). Our postpaid segment comprises approximately 3% of our total
wireless subscriber base, closing with 709,817 subscribers as of year end.
Globe Prepaid and TM are the prepaid brands of the Globe Group. Each brand is positioned at
different market segments. Globe Prepaid is focused on the mainstream, broad market while TM is
focused on the value-conscious segment of the market. In addition to these brand offerings, Globe has
customized services and benefits to address specific market segments, each with its own unique
positioning and service offers. Our prepaid segment comprises 97% of our total wireless base, with
Globe Prepaid and TM accounting for 62% and 38% of total prepaid subscriber base.
Globe also provides its subscribers with mobile payment and remittance services under the GCash
brand. Now on its third year, this service enables its subscribers to perform international and domestic
remittance transactions, purchase Globe/TM prepaid electronic reloads, access micro-financing,
donate to charitable institutions, and pay for various transactions such as business registration fees,
income taxes, and utility bills. As of 31 December 2007, GCash handled an average monthly
transaction value of around =
P6.2 billion with net registered GCash user base of 1.2 million at year end.
SEC Form 17A 2007
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(b) Wireline Business
We provide fixed line voice services, consumer broadband, private data networks and Internet services
to individuals and enterprises in the Philippines through our wholly-owned subsidiary, Innove.
Our wireline business accounted for 11% of consolidated service revenues, contributing P
=6.8 billion
for the year ended 31 December 2007. The total wireline voice subscribers for the year increased by
11% from last year’s 378,022 to 421,092 in 2007, with subscriber mix of 67% postpaid and 33%
prepaid, and business to residential mix at 19:81. On the other hand, our broadband subscribers grew
133% from 51,246 in 2006 to 120,020 in 2007.
To better serve the various needs of our customers, we have created and organized dedicated customer
facing units (CFUs) within the Company to focus on the wireless and wireline needs of specific
market segments and customers – be they residential subscribers, wholesalers, small and medium scale
enterprises and other large corporate clients. Our Small and Medium Enterprises (SME) and
Enterprise Business Group (EBG) are equipped with their own technical and customer relationship
teams to cater to the needs of our micro to medium enterprises, and large scale corporate clients,
respectively. As part of our continued efforts to refine our customer-focused strategy, we have formed
a Business CFU unit which combines and organizes the resources of the EBG, SME and support units
along targeted customer segments while retaining functional lines such as specialization, scale and key
customer relationships. Through this organizational change, we aim to achieve better segment
penetration, stronger customer orientation and better service delivery and support.
3. Products and Services
(a) Wireless Business
Voice Services
Our wireless voice services include local, national and international long distance (ILD) access
throughout the Philippines and international roaming services through various arrangements with
foreign operators. Our wireless voice segment accounted for 53% of total wireless service
revenues, generating P29.9 billion in service revenues for the year ended 31 December 2007.
In 2004, we implemented flat rates for both postpaid and prepaid subscribers for all intra and
inter-network calls to mobile or fixed line networks without domestic long distance charges.
For Globe Postpaid, subscribers on the highest and lowest postpaid plans are charged
P3.50/minute and P6.00/minute for intra-network calls, and P4.50/minute and P7.50/minute for
inter-network calls, respectively. On the other hand, Globe Prepaid and TM subscribers are
charged P6.50/minute and P5.50/minute for intra-network calls, and P7.50/minute and
P6.50/minute for inter-network calls, respectively.
Recognizing the unique needs of key consumer segments, we also introduced value enhancing
offers customized to serve the needs of priority segments in 2005. For the heavy voice users,
Globe offered promos such as P10 for 3 minute calls and P0.10 per second charging for intranetwork calls. We also relaunched our Touch Mobile brand as TM to strengthen its role in
serving the value-conscious Filipino workers by empowering them through more affordable
mobile phone services. We subsequently launched the TM Power Piso campaign, offering more
affordable call rates through our Todo Tawag offers such as 15 minute call for only P15.
To date, Globe and TM have extended such offerings and continue to provide their subscribers
with various voice services designed to promote acquisition, stimulate usage, and encourage
loyalty among new and existing subscribers.
SEC Form 17A 2007
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Globe and TM subscribers can also make national long distance calls to any subscriber of a
Philippine communications provider located anywhere in the country through the Globe/Innove
Domestic Toll Service. Granted by the NTC with an inter-exchange carrier status, we are allowed
to haul traffic from an originating carrier passing through our transmission network and terminate
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. Settlement changes are based on bilaterally agreed domestic
interconnect contracts with local communications providers.
On the ILD front, Globe offers ILD access to 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. 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. ILD services grew 3% year-on-year, generating P14.4 billion in revenues for
2007.
Globe has been at the forefront of offering IDD services to its subscribers by being the first to
provide IDD capabilities to its GSM subscribers in 1997, pioneering international roaming and
SMS for its prepaid subscribers in 2003 and 2004, respectively and enabling roaming services via
SMS in 2006.
In 2005, Globe launched its IDD CelebRATE! promos with discounted IDD rates targeted at
heavy IDD users and Overseas Filipino Workers (OFW) and their communities. These value
promotions were sustained in 2006 and further supplemented with discounted IDD per minute and
per second rates and bulk voice (P24-for-3 minute calls) offerings to selected Bridge Alliance
partner countries and major OFW destinations such as the US and Canada under the umbrella
campaign, Globe’s Super Sulit Offers.
Globe also partnered with selected Bridge Alliance partners to offer co-branded SIMs to OFWs
which provides them discounted call and SMS rates when connecting with families and friends in
the Philippines.
In addition to innovative tariff promotions, Globe sought to increase accessibility of traveling
subscribers by allowing calls through a PC via Voice Over Internet Protocol (VOIP) technology
through its G-Webcall service.
In 2007, Globe also sustained its discounted off-peak calls to the US and Canada and extended its
per-second charging offer to IDD calls to its Bridge Alliance partners and other popular calling
destinations such as the US, Canada, Hawaii, Saudi Arabia and Japan with a lower rate of P0.15
per second from P0.17 per second. Globe also continued to offer co-branded SIMs and added
local currency reloading options to increase top-up options for its subscribers.
For its frequent travelers, we improved on our G-ROAM (international roaming service) by
lowering the roaming subscribers’ daily maintaining balance from P100 to P50. To keep the
OFW connected to his family and communities, Globe launched an OFW Family Pack for =
P120
only which includes 2 SIMs –an activated international roaming SIM which can be delivered
worldwide to the OFW at no additional cost to the subscriber, and a local SIM for the family in
the Philippines. This pack also comes with the OneAyala ATM card (a banking, rewards and
privilege card offered by various companies under the Ayala Group).
SEC Form 17A 2007
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Data and Other Value-Added Services
We offer wireless data services such as basic SMS messaging, enhanced SMS, mobile advertising
and mobile commerce services. Data services accounted for approximately 47% of total wireless
net service revenues in 2007 compared to 43% in 2006, largely driven by person-to-person (P2P)
SMS.
(i) SMS
Globe pioneered basic SMS messaging service in the Philippines in 1994. SMS 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 2007, subscribers’ SMS usage averaged
approximately 21 SMS messages per day, with our network processing over 384 million SMS
messages per day.
In 2005, Globe launched its CelebRATE! promos which offered subscribers discounted rates for
Globe to Globe and TM to TM SMS. These promotions were enhanced in 2006 under the
UNLIMITXT campaign that included unlimited intra-network SMS for 1, 2 and 5-day
denominations and discounted inter-network SMS rates under the Sulit Text to all networks
promotion. Globe also launched additional SMS packages customized to different needs and
lifestyles for its postpaid and prepaid subscribers - all-day, dayshift, nightshift unlimited SMS
packages and a combination of unlimited intra-network and discounted inter-network SMS
package, TXTPLUS. Similar to Globe’s UNLIMITXT promos, TM subscribers could opt for a
daytime, night time or a combination of unlimited intra-network and discounted inter-network
SMS, Todo Tipid Text to all networks, under its TODO TEXT campaigns.
In 2007, Globe and TM sustained several variants (all-day, dayshift, nightshift) and
denominations (1, 2 or 5 days) of its UNLITXT and TODOTXT SMS offers. These SMS
promotions were further enhanced with bucket SMS offers that allowed 100 Globe to Globe SMS
for only P15 or 75 TM to TM SMS messages via the SULITXT offering for only P10. In addition,
through its TXTPLUS and TXTPLUSCAL promotions, Globe expanded its SMS offerings by
providing reduced rate SMS to other networks and free intra-network calls.
To spur usage of international SMS, Globe extended its P1 international SMS rates to Singtel
subscribers while continuing with its promotion of 5 international SMS for P50. This allows
subscribers to send an international SMS for only P10 compared to the regular rate of P15.
(ii) Value Added 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, based
on 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
SEC Form 17A 2007
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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 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 the Visibility service to its corporate subscribers to provide data
access via GPRS, EDGE, Wi-Fi and dial-up transport channels on a pay-per-use arrangement or
under universal access plans. This was eventually made available to all subscribers in 2006 to
cater to subscribers requiring connections to the internet via various access points including 3G
with High Speed Downlink Packet Access (HSDPA or 3.5G), EDGE and GPRS.
In 2006, Globe launched its 3G services under Globe 3G Mobile Broadband with HSDPA which
include high-speed Internet browsing, video-calling and multimedia streaming using the 3G with
HSDPA technology, making Globe the 1st mobile network operator in the Asia Pacific region to
deploy a commercial HSDPA service.
In 2007, Globe, together with its Bridge Alliance partners, introduced a data roaming plan under
its Bridge DataRoam service which offers flat-rate data roaming to postpaid subscribers while
roaming in selected destinations. Globe has also partnered with Yahoo! to provide easy and
convenient access to online content through the Yahoo! Go 2.0 application which includes
OneSearch, Flickr, local maps and email. Additionally, Globe offered a 50% discount to its
regular local internet browsing rate of P0.15/kb to further stimulate usage.
SEC Form 17A 2007
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(iii) M-Commerce Service
During the fourth quarter of 2004, Globe launched GCash, the first cashless and cardless
integrated payments service in the world. Globe’s flagship mobile commerce service GCash was
born from a simple goal of transforming a mobile phone into a wallet, enabling Globe and TM
subscribers to access a cashless and cardless method of money-transfer via text message.
GCash continues to establish its presence in the mobile commerce industry. Now on its fourth
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.
GCash allows Globe and TM subscribers to pay or transact for the following using their mobile
phone:
•
•
•
•
•
•
•
•
•
•
•
domestic and international remittances
donations to various institutions and organizations
electronic load credits and pins
ferry and airline tickets
insurance premiums
interest and amortization of loans
micro tax payments and business registration
online purchases
sales commissions and payroll disbursements
school tuition fees
train tickets using the GPass chip
GCash continues to receive recognition and awards from local and international institutions.
GCash has received awards 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). GPass also made it to the shortlist of international finalists in the 2007 Global Mobile
Awards of the GSM Association under the “Most Innovative Technology” category.
SEC Form 17A 2007
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(b) Wireline Business
Voice Services
We provide local, national and international long distance and other value-added services through
postpaid, prepaid and payphone offerings.
(i) Postpaid voice service provides basic landline service including toll-free NDD calls to other
Globe landline subscribers for a fixed monthly fee. This service is ideal for personal or small
business calling needs and can be customized with the following optional value-added services
- IDD, phone lock, call waiting and forwarding, multi-calling, call waiting ID, caller ID,
special numbers and voice mail. This service is available in the National Capital Region,
Batangas, Cavite, Visayas and selected areas in Mindanao.
(ii) Postpaid voice plus unlimited internet provides a business landline with unlimited dial-up
internet access and is available in the National Capital Region, Batangas, Cavite and the
Visayas.
(iii) Globe1 is a PIN-based prepaid card service for local, national and international long distance
using a Globe landline (postpaid and prepaid), payphone or mobile service. This all-in-one
communication card is offered in P100 and P300 denominations and is available in our
business and payment centers and prepaid card dealers nationwide.
(iv) 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 that enable
companies to access advanced telecommunications technology such as VOIP and managed IP
communications.
Data Services
Under our Globe Business brand, we offer end-to-end solutions for corporate clients based on
value-priced, high-speed data services over a nationwide broadband network. These include
domestic and international data services, wholesale and corporate internet access, data center
services, and segment-specific solutions customized to the needs of vertical industries. These
services utilize a network built over a fully-digital nationwide backbone using Synchronous Digital
Hierarchy (SDH), Asynchronous Transfer Mode (ATM) and Internet Protocol (IP) on both fiber
optic and digital microwave technologies. Some of the products and services we offer are
described below.
(i) Globe Private Networks offer 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.
(ii) Globe Data Centers optimize the security of mission-critical information and applications
through secure data centers operated and supported by a team of IT experts. Data Center
services include carrier-class facilities for co-location requirements, global hardware platforms
for off-site deployment, 24x7 monitoring and maintenance for dedicated server hosting
applications, fast and reliable LAN-based internet connections for superior hosting services
and a robust infrastructure with skilled technical support for outsourced email, storage and
messaging services. These offer complementary services to Globe’s network services,
ensuring that corporate customers are given end-to-end capabilities and solutions.
SEC Form 17A 2007
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(iii) Globe 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 with rapidly growing needs, and who
demand uninterrupted access for their business operations. This service offering ranges from
high speed private leased lines to fast or gigabit 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.
Globe Broadband and Internet services depend on Globe’s overlay IP network where routers
are deployed in a high-availability configuration (fully-redundant, dual GSR router per node)
and are connected using Gigabit Ethernet technology to provide a total of 2Gbps connectivity
between each IP backbone.
Broadband Internet customers can subscribe to DSL access packages, Internet Direct services
for guaranteed service levels over leased line facilities, Broadband Internet Zones (BIZ) for
broadband to room internet access for hotels and transient travelers, wholesale internet access
through Internet Exchange (GiX), or bandwidth-on-demand based on average usage payment
scheme through our innovative GiX Burstable, and Freeway IP for wholesale internet access
through our managed international private leased line circuit to the U.S.
Dial-up customers can avail of dedicated dial-up services ideal for small office environments.
This service also enables multiple users on a small LAN to access the internet, and includes an
international roaming option that allows the subscriber to connect to the internet in over 150
countries using a local dial-up number and account. SMEs can also take advantage of Ebusiness in a box which is a set of bundled services designed to set up and maintain a web
presence for start-up companies. These include registration of domain names for a
personalized dotcom internet address and free web pages to make the business accessible.
Meanwhile, larger companies or ISPs can take advantage of the Wholesale and Corporate
Remote Access Server (RAS) services by connecting mobile or remote workers to a LAN or
the internet through private and secure access.
In addition to Globe’s own cable capacity, it has multiple peering connections to regional
backbones in Singapore, Hong Kong, Japan and the US, making it a truly redundant network.
Internet Services
We also offer both wired and wireless broadband services to our consumers.
Wired Broadband packages for consumers provide good value as each broadband subscription is
bundled with a Globe postpaid line. Packages start from P995 MSF (monthly service fee) for a
DSL connection for a single PC with download speed of 384 kbps. Meanwhile, high-end plans
include MSF of P5,995 with download speeds of up to 3 mbps. All packages are offered with
waived installation fees and advance payments and include a free basic handset for the postpaid
line.
SEC Form 17A 2007
14
Our wireless broadband packages include services for limited and full mobility, as well as dataonly and bundled voice and data packages. Packages start at P995 for a bundled voice and internet
package with speeds of up to 384 kbps, P995 for an internet only package and a bundled internet
and landline option for P1,295, both with speeds of up to 512 kbps. Visibility is Globe’s unlimited
mobile internet plan that allows internet access at speeds of up to 1.4 mbps via HSDPA, 3G,
EDGE, GPRS as well as unlimited Wi-Fi and dial-up access through over 600 hotspots nationwide.
Business Solutions
Globe also has a rich stream of product and service innovations customized for specific business
segments from SMEs to corporate and enterprise clients.
(i)
Autoload Max Corporate Edition is the enterprise version of our leading electronic prepaid
credit loading system that allows a company to manage, schedule and automatically reload
prepaid credits to their employees’ mobile phones.
(ii)
BillAnalyzer is a web-based tool for corporate representatives to analyze billing information
for corporate subscriptions. It provides a single point of interaction for viewing multiple
bills online via a web page or an interactive kiosk.
(iii) Business Loop is a special billing feature that helps companies cut costs by providing special
calling rates for enrolled subscribers and simplified billing for easier monitoring of business
communications.
(iv) I-cafe Kit or Internet Café Kit is a business-in-a-box” solution to help entrepreneurs start
their own internet surfing or gaming businesses. It includes hardware, software, connectivity
options, marketing support, consultancy and after-sales support in partnership with other
service providers.
(v)
Inventory Ordering System is a business solution specifically designed to cater to retail
requirements of SMEs by providing an easy-to-use platform and system application that can
be customized for any multi-site company with franchises, commissaries, warehouses and
backend ordering operations.
(vi) Mobility Bundle is a special Visibility subscription packaged with a full-featured laptop.
With four universal accessibility plans, entrepreneurs and executives can access the internet
and data via GPRS, EDGE, WiFi and dial-up transport channels. Aside from laptop, a
subscriber may also opt to bundle these Universal Access Plans with a wide range of devices
like PDA's and PC Cards.
(vii) Mobile Office enables mobile professionals to securely access corporate email, browse and
download files from a remote hard drive, and access several PCs (home and office) on one
subscription.
(viii) Mobile Mail allows mobile professionals to securely access enterprise applications,
corporate email, calendar and desktop files via a mobile device or from any internet-enabled
PC.
(ix) Message Connect provides customers with broadcast SMS and MMS services including
volume and scheduled sending to groups and recipients, enable mobile polls, campaigns and
arrange for sales bookings, delivery confirmations and other Line of Business (LOB)
applications.
(x)
Store Express allows clients to conveniently link their retail branches via IP-VPN delivered
using a combination of leased line, DSL or dial-up connection, to the head office. This
provides reliable and fast access to information on retail chain sales and inventory systems
at reasonable rates, as well as internet access, web and email hosting, business continuity
SEC Form 17A 2007
15
and recovery services, managed customer premises equipment, remote video monitoring,
POS software and hardware bundles in partnership with leading equipment providers as
value-added services.
(xi) Tracker Corporate Edition is the enterprise web-based application that enables a company
to monitor and track company personnel and resources such as vehicles and mobile assets.
(xii) TxtConnect allows subscribers to send high-volume text broadcasts to pre-registered groups
such as employees, dealers or customers. Messages can be customized to a group of
recipients and sent via SMS in bulk of up to several thousands of people at a time. Valueadded services include generation of reports on sent and received messages, sending
messages on a set schedule and transmitting system-generated SMS messages.
(xiii) TxtHotline enables two-way, real-time SMS between a company’s customer service group
and its customers to handle complaints quickly and easily – at the speed of text. It also
allows a company to build a database of its customers and contact numbers and analyze and
monitor customer service performance.
(xiv) Webeye is a remote web-based video solution that complements any existing CCTV set-up.
The service allows subscribers to monitor physical resources in multiple outlets and
locations via a broadband internet connection.
4. Sales and Distribution
(a) Wireless Business
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 2007, we have over 610,000 registered sub-distributors and retailers.
Business Centers
In addition to our independent dealers, we have 90 wireless business centers and Hub shops in
major cities across the country. Our business centers provide the venue for customer queries, bill
payments, service subscription, reloading services, GCash transactions, handsets and accessories
purchases, testing communications devices and request for handset repairs.
Our 3 Hub shops, located in strategic areas in Makati City, San Juan and Mandaluyong City,
currently sell state-of-the-art communications devices.
SEC Form 17A 2007
16
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. We also have a dedicated direct sales force to manage our corporate accounts and
high-end customers. Our retail business centers and internal corporate sales staff act as our direct
sales channels.
Our Business CFUs, the SME and EBG groups, also provide wireless services and solutions
specific to the requirements of small and medium businesses, large enterprises and wholesale
customers backed up by a strong support organization and its own domestic and international
backbone networks. Corporate requirements are further served by dedicated account managers
through SPOCs or “single point of contact” to ensure faster service delivery.
(b) Wireline Business
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 GCash transactions,
inquire about services and make bill payments. As of 31 December 2007, we had a total of 46
GPS centers to cater to the various needs of our wireline subscribers.
Others
Globe Business CFUs also provide end-to-end corporate data solutions including: international
and domestic data services, wholesale and corporate internet access services, data center services
and segment-specific solutions customized to the needs of the banking, retail, hotel, cards and
payments and business process outsourcing industries. Sales teams, based in key business districts
in the Philippines, have been segmented to provide business solutions required by vertical
industries. Customers are also appointed SPOCs for any service concerns backed up by strong
service delivery teams and 24x7 assistance from the Fault Management Control Center which
provides technical support for all circuit-related trouble 365 days a year.
Additionally, we have our Channels program to manage ournetwork 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.
SEC Form 17A 2007
17
5. Operating Revenues
Net Operating Revenues by Line of Business:
Year Ended 31 December
(In Millions of Pesos)
2007
%
2006
%
2005
%
56,410
86.1%
50,672
84.5%
48,481
82.5%
29,870
53.0%
28,982
57.2%
28,111
58.0%
26,540
47.0%
21,690
42.8%
20,370
42.0%
6,799
10.4%
6,362
10.6%
6,416
10.9%
Net Service Revenues:
Wireless ……………………………………
1
Voice …………………………………..
2
Data …………………………………..
Wireline……………………………………
3
Voice ………………………………….
4,602
67.7%
4,312
67.8%
4,396
68.5%
Data 4…………………………………..
2,197
32.3%
2,050
32.2%
2,020
31.5%
Net Service Revenues………………………
63,209
96.5%
57,034
95.1%
54,897
93.4%
Non Service Revenues ……………………
2,300
3.5%
2,915
4.9%
3,851
6.6%
Net Operating Revenues…………………….
65,509
100%
59,949
100%
58,748
100%
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 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 (for Globe Prepaid and TM) 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) and (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 and infotext, subscription fees on unlimited and bucket prepaid SMS services 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.
e) Broadband service revenues.
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.
5
Non-service revenues are reported net of discounts on phonekits and SIM packs. The costs related to the sale of the 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.
SEC Form 17A 2007
18
6. Competition
(a) Industry, Competitors and Methods of Competition
(i) Wireless Market
The Philippine wireless market has been marked by rapid growth and intense competition in recent
years. The Philippine government began to liberalize the communications industry in 1993 after a
framework was developed to promote competition within the telecommunications industry and
accelerate market development. Historically, PLDT has been the monopoly operator in the
Philippines. As a result of the liberalization in the 1990’s, numerous communications operators have
entered the Philippine communications market.
Seven wireless operators in the Philippines, including Globe Telecom, were initially granted licenses
to provide nationwide wireless service deploying the network technology of their choice. 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:
Wireless
Operators
Year of
Commercial
Launch
Subscribers
Wireless
System
Wireless
Technology
GSM
Operating
Spectrum
Globe
1994
12,827,892 (1)
Digital
GSM
20MHz
Innove *
1993
7,489,704 (1)
Digital
GSM
10MHz
Smart **
1994
20,339,204 (2)
Digital
ETACS/GSM
15MHz
Piltel **
1991
9,701,826
Analog/
Digital
AMPS/CDMA
11MHz
Bayantel
Not applicable
Not applicable
Digital
GSM
10MHz
Extelcom
1991
No data available
Analog
AMPS
10MHz
Digitel
2003
3,600,000 (3)
Digital
GSM
10MHz
* Wholly-owned subsidiary of Globe; Offers cellular services under the TM prepaid brand.
** Affiliate of PLDT.
Sources:
1) Globe disclosures for the year ended December 31, 2007.
2) PLDT/ Smart/ TNT disclosures as of December 31, 2007
3) Based on publicly available information and Company estimates.
Additionally, three other operators were granted licenses to offer wireless services. Next
Mobile/NEXTEL was granted a license to offer wireless trunked-radio services and currently allows
call service connectivity to wireless and wireline users. Multimedia Telephony was provided with a
license to offer broadband services under the name Broadband Philippines. On the other hand, the
fourth 3G license was awarded to Connectivity Unlimited Resources (CURE) in 2005.
SEC Form 17A 2007
19
Since 2000, the wireless communications industry experienced a number of consolidations. PLDT
acquired and consolidated with Smart and Piltel. On the other hand, Globe Telecom had acquired
Islacom (now named Innove Communications, Inc.). Digitel began its network in 2000 and formally
launched its wireless service under the brand name Sun Cellular in February 2003. Currently, Smart
and Globe continue to lead in the wireless market in terms of subscribers and revenues.
Competition in the wireless industry continues to evolve and has changed the type of products and
services currently being offered in the market. Between 2003 and 2005, operators have engaged in
aggressive promotions in the form of unlimited voice and text offerings and “SIM-swap” programs.
Sun Cellular entered the market with an aggressive price proposition, an unlimited call and text
service for a fixed monthly subscription fee. This made a significant impact in the industry and forced
other operators to create new value propositions for its subscribers. Smart then introduced its
unlimited 258 promos. Globe also launched a similar unlimited plan which was immediately
terminated when it encountered service quality issues. While Sun Cellular was initially well-received
by subscribers, its limited network started to suffer due to congestion problems as subscribers took
advantage of the unlimited offers. To date, Sun subscribers are estimated to be around 3.6 million
Towards the end of 2003 to the first half of 2005, SIM-swap programs became a phenomenon
whereby an operator SIM can be surrendered and exchanged for another operator’s SIM for free which
came with free call and SMS credits. However, these programs were stopped towards the end of the
first half of 2005 when both operators - Smart and Globe – acknowledged that the programs did not
create added value except higher churn rates and lower margins for the participating operators.. More
rational competition has prevailed since the end of the SIM-swap program in 2005 as evidenced by the
significant decline in acquisition costs and more steady churn rates.
In place of unlimited call and text plans, both Globe and Smart started introducing their own versions
of bucket pricing and unlimited text plans to sustain overall competitiveness in the market. The
industry also saw the operators break down barriers to entry through more affordable SIM pack costs,
attractive group plan offers and the availability of low-denomination prepaid reloads, as well as the
introduction of per-second charging for both local and international calls by Globe.
For the growing overseas Filipino communities, operators introduced various promos for the overseas
Filipino workers and their families in the Philippines to further enhance connectivity. Both Globe and
Smart launched their own OFW platforms that included co-branded SIMs, roaming services and
prepaid credit reloading outlets in key OFW markets worldwide. Globe continued to find innovative
and relevant ways to serve OFWs by offering discounted call and SMS rates, lowering prepaid
maintaining balances for OFW roamers, expanding tie-ups with its Bridge Alliance partners and call
card distributors and providing access to relevant OFW information in close association with OFWrelated government agencies.
Globe and Smart launched their 3G services in 2006 and offered video calling and high-speed internet
browsing. Meanwhile, Sun Cellular and CURE are reportedly in the process of rolling out their
networks. Similar to several other emerging markets in South and Southeast Asia, 3G services have
yet to gain traction in the Philippines given the high cost of 3G handsets and the lack of compelling
and relevant 3G content and applications.
SEC Form 17A 2007
20
The following table sets forth wireless subscriber growth within a ten year period beginning 1995:
Cellular Subscribers
Penetration Rates (%)
Growth Rate
1995
493,862
0.7
n.a.
1996
781,714
1.4
58%
1997
1,135,158
1.9
45%
1998
1,622,466
2.5
43%
1999
2,675,261
3.8
65%
2000
6,356,952
8.6
138%
2001
10,956,980
14.2
72%
2002
15,171,491
19.4
38%
2003
22,307,080
27.8
47%
2004
32,872,205
39.9
47%
2005
34,612,196
41.3
5%
2006
41,935,126
48.3
21%
2007
53,958,626*
60.8
29%
* estimated as of December 31, 2007.
Source: National Telecommunications Commission (Statistical Data 2007) publicly available information and Company
estimates
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.
Wireless subscribers increased significantly by a compounded annual growth rate (CAGR) of 51%
from 2001 to 2004 while penetration reached almost 40% from 8.6% during the period. Subsequently,
wireless growth dipped sharply to a CAGR of 25% from 2005 to 2007 owing to a clean up of
subscribers from competitive activities starting in 2005. Accordingly, the number of wireless
subscribers increased from 1.6 million as of December 31, 1998 to approximately 53.9 million as of
December 31, 2007. Wireless penetration rates have also surged from 1.4% in 1996 to 60.8% by the
end of the year.
SEC Form 17A 2007
21
The table below sets forth wireless subscribers per operator from 2002 to 2007:
2002*
2003*
2004*
2005*
2006**
2007**
Bayantel
not
operational
not
operational
not
operational
not
operational
not
operational
not
operational
Digitel
not
operational
732,467
1,200,000
1,860,000
2,000,000
3,600,000
29,896
29,896
13,670
10,374
10,374
No data
available
Globe and Innove
(combined)
6,572,185
8,859,883
12,513,973
12,403,575
15,659,742
20,317,596
Piltel
1,773,620
2,867,085
4,612,450
4,984,425
6,974,379
Smart
6,825,686
10,080,112
14,595,782
15,424,196
17,201,005
20,339,204
TOTAL
15,201,387
22,569,443
32,935,875
34,682,570
41,845,500
53,958,626
Population**
79,476,271
81,054,329
82,652,033
84,214,778
87,002,336
88,700,000
SIM
Penetration
19.13%
27.84%
39.85%
41.18%
(%)
Source: *National Telecommunications Commission (Statistical Data 2007)
** Based on publicly available information and Company estimates.
48.10%
60.83%
Extelcom
9,701,826
By the end of 2007, Globe accounted for 37.6% of total wireless subscribers while Smart and Piltel
contributed 55.6% with Digitel’s Sun Cellular making up the balance. With mass market appeal,
increased affordability of wireless handsets, plans and services from multiple operators and improved
network and population coverage, SIM penetration has dramatically risen from 19% in 2002 to almost
61%. However, market research suggests that current SIM penetration levels have been impacted by
holders of multiple SIMs acquired through attractive group-plan offers. It is estimated that multiple
SIM holders account for 10%-12% of cumulative subscribers.
SEC Form 17A 2007
22
(ii) Wireline Voice Market
There are eight major local exchange carriers (LEC) in the Philippines with licenses to provide local
and domestic long distance services.
Below is a table listing the number of installed and subscribed lines per operator as of 2006 and 2007:
Operator
Installed Lines
Subscribed
Lines
Installed
Subscribed
% To Total
% To Total
Bayantel*
443,910
262,320***
6.17
7.51
Bell Telecom *
489,000
271,000
6.79
7.76
Digitel**
653,616
450,000****
9.08
12.89
91,446
22,467
1.27
0.64
1,507,197
421,092
20.94
12.06
Philcom**
213,236
53,908
2.96
1.54
Piltel**
236,561
40,415***
3.29
1.16
3,009,791
1,724,702
41.81
49.40
PT&T**
129,000
14,493
1.79
0.42
Other LECS**
425,165
231,124
5.90
6.62
7,198,922
3,491,521
100
100
ETPI/TTPI**
Innove
PLDT
TOTAL
* As of November 30, 2006
** As of December 31, 2006.
*** As of September 30, 2007
****Company estimates.
Sources: National Telecommunications Commission (Statistical Data as of December 31, 2006) Report
The Philippine wireline voice market registered weak growth in recent years with the number of lines
in service increasing from 2.9 million in 1999 to approximately 3.5 million in 2007. Traditional fixed
line market growth has been flat over the past years with wireless substitution. With an estimated 3.5
million lines in service, wireline penetration remains at a low 4% compared to 60.8% for the wireless
industry. According to the NTC, capacity utilization remains at approximately half of total installed
lines while most subscribed lines are located in the National Capital region.
Each operator (other than PLDT and Innove, which is authorized to provide nationwide wireline
services) is assigned service areas in which it 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.
SEC Form 17A 2007
23
Additionally, fixed line earnings have remained under pressure due to the steady appreciation of the
peso since 2006 as a significant portion of the fixed operators’ voice revenues are effectively
denominated in US dollars. However, NTC regulations allow for operators to adjust monthly local
service rates in line with movements in the peso versus dollar exchange rates. Total fixed-line
subscriptions are expected to remain stable over the medium term, with rising demand projected for
internet and broadband services balancing mobile substitution pressures.
The broadband sector continues to show potential as significant gains were made by all operators
during the past years. Both PLDT and Globe continued to acquire broadband subscribers with PC
prices coming down. Cumulative broadband subscribers are estimated to have reached approximately
700,000 by the end of 2007. The addressable market is expected to grow as the Philippines is
estimated to have a household PC penetration of less than 10%. Both PLDT and Globe launched
bundled voice and broadband services at rates of less than P1,000 and continued to offer upgraded
speeds and bundled PC equipment to subscribers.
(iii) 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.
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 Globe’s corporate clients’ preferences for integrated mobile
and fixed line communications solutions. Globe’s dedicated business units include complete and
dedicated technical and customer relationship teams to serve its various markets.
(iv) 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 23% and 24%
of Globe’s total net service revenues for 2007 and 2006, 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.
SEC Form 17A 2007
24
(b) Principal Competitive Strengths of the Company
(i) 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.
(ii) 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.
Globe unveiled its new brand identity last August 2007 to reinforce its commitment to serve its
customers better, strengthen consumer recall and serve as a unifying symbol for the Company’s
products and services. The Globe Life is the symbol of Globe’s identity and purpose, integrating all its
powerful brands under one brand identity. It is meant to promise endless possibilities, with each icon
in the logo representing not just the things we offer today, but also those that inspire us to innovate. At
the center is a hand. It represents the center of our lives – the people we touch, our customers. It also
symbolizes our commitment – our promise to enrich and transform lives through a world of services,
making communication technology easy and truly relevant.
The new Globe brand is symbolized by the “Globe Life” logo which illustrates the wealth of products
and services offered by the Globe Group to enrich our customers’ experience. The logo illustrates the
wealth of products and services offered by the Globe Group which surround a hand, representing its
customers, to whom the Company is focused on providing customer satisfaction.
(iii) Financial Strength and Prudent Leverage Policies
Globe has achieved sustained revenue and earnings growth and a strong balance sheet. In 2007, Globe
reported a full year after tax net income of P13.3 billion, a growth of 13% from the same period last
year. As of December 31, 2007, Globe had total interest bearing debt of P30.4 billion, representing
35% of total book capitalization after the early redemption of its US$ 300 million Senior Notes in
April 2007. 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.
(iv) 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.
(v) 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.
SEC Form 17A 2007
25
7. 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, among others, 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).
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 2007, we incurred capital expenditures of P13,922 million compared to P14,880 million in 2006.
For 2008, the Company has allocated US$400-450 million in capital investments in support of key
priorities for 2008 including capex amounts carried over from the previous year. Of this amount, about
US$180 million has been allocated to expand the Company’s DSL and wireless broadband network.
Another US$130 million are expenditures to sustain our core wireless business with US$40 million for
related supporting facilities and services. Lastly, we have allocated US$80-100 million in nonrecurring capital expenditures. This includes certain redundancy investments, as well as amounts
related to Globe’s participation in the TGN-Intra Asia Cable System, a submarine cable facility that
will link the country to Japan, Hong Kong, Singapore and the United States.
8. Customers
Globe Telecom has a wide subscriber base. On the wireless front, our wireless subscribers stood at
20.3 million by the end of 2007. There were 709,817 postpaid and approximately 19.6 million prepaid
subscribers. Our wireline business ended the year with 421,092 subscribers, comprised of 67%
postpaid and 33% prepaid. Due to increased broadband rollout efforts, our broadband subscribers
based expanded by 133% to 120,020.
No single customer and contract accounted for more than 20% of the Company’s total sales in 2007.
SEC Form 17A 2007
26
9. Transactions with Related Parties
Globe Telecom and Innove, in their regular conduct of business, enter into transactions with their
major stockholders, 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
(i)
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 revenues (included in “Service revenues” account in
the consolidated statements of income) earned are as follows:
2007
Traffic settlements receivable - net
Interconnection revenues
P
=63,391
1,573,686
2006
2005
(In Thousand Pesos)
=61,061
P
P
=335,766
1,028,552
1,422,249
(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:
2007
Maintenance and restoration costs
and other transactions
Software development, supply,
license and support
Technical assistance fee
2006
(In Thousand Pesos)
2005
P
=201,576
=240,542
P
=
P266,793
2,074
86,935
29,467
78,872
143,450
35,652
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:
2007
Maintenance and restoration costs
and other transactions
Software development, supply,
license and support
Technical assistance fee
(c)
2006
(In Thousand Pesos)
2005
P
=54,047
=24,203
P
=
P13,738
14,218
25,080
31,004
25,606
11,940
81,019
Globe Telecom reimburses AC for certain operating expenses. The net outstanding
liabilities to AC related to these transactions as of December 31, 2007 are not material.
SEC Form 17A 2007
27
(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, 2007, balances related to
these transactions were not material.
The summary of consolidated outstanding balances resulting from transactions with
related parties follows:
2007
Traffic settlements receivable - net
(included in “Receivables”
account)
Other current assets
Accounts payable and accrued
expenses
2006
(In Thousand Pesos)
2005
P
=63,391
1,925
=61,061
P
1,651
P
=335,766
927
121,820
100,413
129,420
The Globe Group’s compensation of key management personnel by benefit type are as
follows:
2007
Short-term employee benefits
Share-based payments
Post-employment benefits
P
=1,419,490
129,914
50,940
P
=1,600,344
2006
2005
(In Thousand Pesos)
=1,155,899
P
P
=1,073,820
161,628
161,731
21,682
32,938
=1,339,209 =
P
P1,268,489
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.
SEC Form 17A 2007
28
10. Licenses, Patents, and Trademarks
Globe Telecom currently holds the following major licenses:
Service
Globe
Wireless
Local Exchange
Carrier
International
Long Distance
Interexchange
Carrier
VSAT
Innove
1
Wireless
Local Wireline
International
Long Distance
Interexchange
Carrier
Type of
License
Date Issued or Last
Extended
Expiration Date
CPCN (1)
July 22, 2002
December 24, 2030
CPCN (1)
July 22, 2002
December 24, 2030
CPCN (1)
July 22, 2002
December 24, 2030
CPCN (1)
February 14, 2003
December 24, 2030
CPCN (1)
February 6, 1996
February 6, 2021
Type of
License
Action Being
Taken
No action
required
No action
required
No action
required
No action
required
No action
required
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
Certificate of Public Convenience and Necessity. The term of a CPCN is co-terminus with the franchise
term.
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 have 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 GCash, 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.
SEC Form 17A 2007
29
11. 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 of the NTC on interconnection of public 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.
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.
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.
12. Research and Development
Globe did not incur any research and development costs from 2005 to 2007.
13. 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
SEC Form 17A 2007
30
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.
14. Employees
The Globe Group has 5,511 active regular employees as of December 31, 2007, of which about
13% are covered by a Collective Bargaining Agreement (CBA) through the Globe Telecom
Workers Union (GTWU).
Between 2006 and 2007, 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 non-economic
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 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 2007and 2006 are as follows:
Employee Type
Rank & File, CBU
Supervisory
Managerial
Executives
2007*
3,132
1,450
660
269
2006*
3,055
1,329
548
229
Total
5,511
5,161
*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
gains on employee productivity and controlled manpower growth are 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.
15. Risk Factors
(a) Foreign Exchange Risk
The Globe Group’s foreign exchange risk results primarily from movements of the Philippine
Peso (Peso) against the United States Dollar (USD) with respect to USD-denominated financial
assets, USD-denominated financial liabilities and certain USD-denominated revenues. Majority
of Globe Group’s revenues are generated in Peso, while substantially all of capital expenditures
are in USD. In addition, 20% of debt as of December 31, 2007 are denominated in USD before
taking into account any swap and hedges.
SEC Form 17A 2007
31
Additionally, the Philippines has 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 valueadded tax (“VAT”) law as well as strong inflows of OFW remittances, the Peso strengthened to
P53.062 per USD by the end of 2005. The Peso further rose and settled at P49.045 by December
31, 2006. In 2007, steady inflows of OFW remittances as well as the government’s improving
fiscal position allowed the Peso to appreciate by 16% to settle at P41.411 per USD by December
31, 2007.
Globe Group’s foreign exchange exposure 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.
The Globe Group’s foreign exchange risk management policy is to maintain a hedged balance
sheet position, after taking into account expected USD flows from operations and financing
transactions. Globe Telecom then enters into short-term foreign currency forwards and long-term
foreign currency swap contracts in order to achieve this target.
There can be no assurance that declines in the value of the Peso will not occur in the future or that
the availability of foreign exchange will not be limited. Recurrence of these conditions may
adversely affect Globe’s financial condition and results of operations.
(b) Industry and Operational Risks
(i.) Competitive Industry
The Philippine telecommunications industry, particularly wireless communications, is highly
competitive as operators sought to increase market share by attracting new subscribers. The
principal players in Philippine telecommunications are Globe Telecom, 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.
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, deeper penetration into lower-usage subscriber
segments, and the increasing incidence of multi-SIM usage continue to put pressure on average
revenues per subscriber.
Other industry considerations include the capital-intensive nature of the business, the rapid pace
of change in telecommunications technology, and the regulated nature of the industry.
SEC Form 17A 2007
32
(ii.) 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.
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 may be influenced by the overall political and economic
situation of the Philippines In that any political or economic instability in the future may have a
negative impact on the Company’s financial results.
(i.) Economic Considerations
The Philippines has in the past, experienced periods of slow or negative growth, high inflation
and significant depreciation of the Peso. The regional 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 trend of increasing budget
deficits, volatile exchange rates and a relatively weak banking sector.
The sale of key state equity stakes had enabled the Government to reduce its budget deficit for
2007 to P12.4 billion – one of its lowest levels since 1998 and lower than the programmed P63.0
billion for the year. However, economists pointed out that the Government faces a more
challenging year in 2008 as it tries to reach its fiscal goal of balancing the 2008 budget.
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 and Moody’s Investors Service (“Moody’s”) has
assigned a “B1” (four notches below investment grade) rating to the Philippines. In January 2008,
Moody’s changed its ratings outlook for the Philippines from “stable” to “positive”, citing
progress in stabilizing public sector finances and a lessening dependence on external finances.
SEC Form 17A 2007
33
(ii.) 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 sustaining economic growth. On the same
note, we cannot make any assurance that Globe will not be affected, materially or otherwise, by
any change in the Philippine political environment.
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.
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 2007 and have also been rejected.
In February 2006, the Government thwarted a coup plot supposedly involving certain military
rebels and communists. President Arroyo placed 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.
In November 2007, a group of military rebels together with a senator walked out of their trial in
Makati City and occupied the second floor of the Manila Peninsula Hotel calling for President
Arroyo to resign. They were soon joined by a few church officials and former Vice President
Teofisto Guingona who appealed to the public for support. After a few hours, the mutinous group
agreed to surrender to avoid bloodshed.
Since 2007 the Philippine Senate has been conducting inquiries into the allegedly anomalous
US$329 million deal to construct the National Broadband Network (NBN). In February 2008,
former Philippine Forest Corporation president Rodolfo Noel Lozada Jr. testified in the Senate
and accused key Arroyo allies of overpricing the deal and receiving and/or demanding hefty
commissions for the implementation of said deal. The controversy has again fueled mass protests
by various cause-oriented groups calling for the President to resign. The inquiry is still ongoing.
The implementation of the project, in the meantime, has been suspended.
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 recently ruled to deny petitions to allow a “People’s Initiative” that
would have made constitutional changes possible through an abbreviated process and a plebiscite.
Another impeachment complaint against President Arroyo was recently filed, citing the NBN
controversy. This, however, has not yet been taken up by Congress and falls within the
constitutional ban prohibiting the filing of an impeachment complaint within one year from the
filing of the last impeachment complaint.
General elections are expected to be held in 2010.
SEC Form 17A 2007
34
16. Management of Risks
The Globe Group adopts an expanded corporate governance approach in managing its business
risks. An Enterprise Risk Management Policy was developed to systematically view the risks and
to provide a better understanding of the different risks that could threaten the achievement of the
Globe Group’s mission, vision, strategies, and goals, and to provide emphasis on how
management and employees play a vital role in achieving the Globe Group’s mission of enriching
people’s lives. (For additional information on Enterprise Risk Management see Part V Corporate Governance section)
The policies are not intended to eliminate risk but to manage it in such a way that opportunities to
create value for the stakeholders are achieved. Globe Group risk management takes place in the
context of the normal business processes such as strategic planning, business planning,
operational and support processes.
The application of these policies is the responsibility of the BOD through the Chief Executive
Officer. The Chief Financial Officer and concurrent Chief Risk Officer champions and oversees
the entire risk management function supported by a risk management unit. Risk owners have
been identified for each risk and they are responsible for coordinating and continuously
improving risk strategies, processes and measures on an enterprise-wide basis in accordance with
established business objectives.
The risks are managed through the delegation of management and financial authority and
individual accountability as documented in employment contracts, consultancy contracts, letters
of authority, letters of appointment, performance planning and evaluation forms, key result areas,
terms of reference and other policies that provide guidelines for managing specific risks arising
from the Globe Group’s business operations and environment.
17. Debt Issues
Globe Group’s long-term debt consists of:
2007
Corporate notes
Banks:
Local
Foreign
Retail bonds
2012 Senior Notes
Suppliers’ credits
Less current portion
SEC Form 17A 2007
P
=14,407,000
6,534,518
6,193,028
2,738,306
–
–
29,872,852
4,803,341
P
=25,069,511
2006
(In Thousand Pesos)
=
P3,607,000
8,475,367
9,365,119
2,990,741
14,768,630
–
39,206,857
6,271,601
=
P32,935,256
2005
=
P4,109,000
10,137,664
15,973,138
2,983,743
16,386,579
103,264
49,693,388
7,858,150
=
P41,835,238
35
The maturities of long-term debt at nominal values excluding unamortized debt issuance costs as
of December 31, 2007 follow (in thousand pesos):
Due in:
2008
2009
2010
2011
2012 and thereafter
=
P4,820,108
7,595,226
3,831,278
1,601,287
12,094,055
=
P29,941,954
Unamortized debt issuance costs on retail bonds included in the above long-term debt as of
December 31, 2007 amounted to =
P69.10 million.
The interest rates and maturities of the above loans are as follows:
Maturities
Interest Rates
Banks:
1.
Foreign
2008-2012
5.65% to 8.61% in 2007
4.20% to 8.62% in 2006
2.17% to 12.45% in 2005
Local
2008-2010
5.09% to 11.02% in 2007
6.22% to 11.02% in 2006
7.36% to 11.73% in 2005
Corporate notes
2010-2012
5.15% to 16.00% in 2007
6.22% to 16.00% in 2006
7.36% to 16.00% in 2005
Retail bonds
2008-2009
5.16% to 11.70% in 2007
6.57% to 11.83% in 2006
7.26% to 11.70% in 2005
Senior Notes
Globe Telecom’s 2012 Senior Notes was issued on April 4, 2002 and has a maturity date of
April 12, 2012. It bears interest at the rate of 9.75% p.a.
The 2012 Senior Notes are redeemable in whole or in part at the option of Globe Telecom on
or after April 15, 2007 at the redemption dates set forth below:
2007
2008
2009
2010 and thereafter
Redemption price
104.875%
103.250%
101.625%
100.000%
The 2012 Senior Notes provided 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.
On August 22, 2006 and September 1, 2006, Globe Telecom repurchased USD6.46 million in
face value of its 2012 Senior Notes. Bond redemption costs (included in “Financing costs”
account) incurred in 2006 amounted to =
P23.24 million.
On February 23, 2007, Globe Telecom exercised its option to call its USD293.54 million
2012 Senior Notes via an irrevocable notice issued to the Agent, the Bank of New York. On
SEC Form 17A 2007
36
April 16, 2007, Globe Telecom fully settled and redeemed the 2012 Senior Notes through the
Agent.
Under the bond indenture, Globe Telecom was liable to pay the bondholders 104.875% of the
outstanding principal of the 2012 Senior Notes. Globe Telecom charged to other financing
costs (included in the “Financing costs” account) the bond redemption premium of 4.875%,
accelerated the unamortized bond premium of P
=356.48 million over the remaining period up
to settlement, and derecognized the carrying value of the bifurcated call option on the Senior
Notes of P
=971.18 million. Consequently, the total amount of bond redemption-related
financing costs incurred for the year ended December 31, 2007 amounted to
=1,301.51 million of which the cash component amounted to only =
P
P686.81 million,
representing the 4.875% bond redemption premium.
Loss on derivative instruments for the year ended December 31, 2007 includes the losses on
the bond option value prior to the bond call date amounting to P
=454.09 million. Following
the bond redemption, the mark-to-market losses of P
=263.88 million on Globe Telecom’s
cross currency swaps entered into to hedge the Senior Notes and deferred under “Cumulative
translation adjustment” account was charged to profit and loss in April 2007.
2.
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 long-term
indebtedness or guarantees and creation of property encumbrances.
3.
Retail Bonds
The retail bonds are 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.
As of February 4, 2008, Globe Telecom is not in breach of any loan covenants.
SEC Form 17A 2007
37
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, which serves as its corporate headquarters. This building was later renamed as
Globe Telecom Plaza. In addition, the Company also owns host exchanges in the following areas:
Bacoor, Batangas, Ermita, Iligan, Makati, Mandaluyong, Marikina, Vito Cruz, Cubao-Aurora, among
others.
The Company leases office spaces along Buendia, Edsa and Ermita for our technical,
administrative and logistics offices and host exchange, respectively. It also leases the space for most
of its 90 wireless business centers, 46 GPS centers and 6,217 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, business and payment centers and support
facilities with lease agreements, payments, expiration periods and renewal options that are
undeterminable at this time. (For additional details on Buildings and Leasehold Improvements see
Note 7 of the attached notes to the 2007 consolidated financial statements)
B. Telecommunications Equipment
As of 31 December 2007, the Company had the following major telecommunications equipment:
•
•
•
•
•
•
•
22 Mobile Switching Centers (‘MSC’);
9 2G Mobile Switching System (‘MSS’);
2 3G Mobile Switching System (‘MSS’);
15 Home Location Registers (‘HLR’);
6 Short Messaging Service Centers (‘SMSC’);
1 Multimedia Messaging Service Center (‘MMSC’); and
1 Wireless Application Protocol (‘WAP’) Gateway
.
The infrastructure for Innove’s fixed telephone service now includes over 24 telephone switching
exchanges in locations including Makati, Mandaluyong, Batangas, Cavite, Marikina, Cebu, Bohol,
Negros Oriental, Negros Occidental, Panay, Samar, Leyte and Iligan and 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 14 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. 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.
SEC Form 17A 2007
38
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 Construction & Maintenance
Agreements; or indefeasible rights of use (IRUs) under Capacity Purchase Agreements,
To date, Globe has investments in the following cable systems (shown below with their major
connectivity paths):
•
•
•
•
•
•
•
•
•
•
APCN1 – Asia Pacific Cable Network-1 (Trans-Asian region);
APCN2 – Asia Pacific Cable Network-2 (Trans-Asian region);
China-U.S. – (connects North Asia, mainly China to the United States);
EAC – East Asia Crossing (Asia);
FLAG – Cable connecting Southeast Asia-Middle East-Western Europe;
Guam-Philippines - connects Guam to the Philippines;
Japan-U.S. – connects Japan to the U.S. West Coast;
SMW3 – Southeast Asia-Middle East-Western Europe
TGN-Pacific – connects Japan to the United States.
TPC5 – Trans-Pacific Cable 5;
We also have a cable landing station, located in Nasugbu, Batangas that lands 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, has separately purchased capacity in the C2C cable
network which it subsequently transferred to its subsidiary, Innove. (For additional information on
C2C, see Note 25 of the attached 2007 Notes to the Financial Statements)
For more information on the Company’s properties and equipment, refer to Note 7 of the attached
notes to the consolidated financial statements.
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. Hearings are now ongoing with the RTC.
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,
SEC Form 17A 2007
39
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.
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.
SEC Form 17A 2007
40
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 years 2006 and
2007.
COMMON SHARES
Price Per Share (PHP)
Calendar Period
2006:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2007:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
900
1,080
1,080
1,340
725
830
900
1,055
1,440
1,445
1,515
1,740
1,180
1,215
1,210
1,405
The price information as of latest practicable trading date: P1,460 per common share as of April 11, 2008.
SEC Form 17A 2007
41
B. Holders
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
11.
11.
11.
11.
11.
11.
11.
11.
11.
11.
11.
11.
12.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
13.
14.
15.
16.
17.
There are approximately 4,310 holders of common equity security as of 31 December 2007. The following are
the top 20 holders of the common equity securities of the Company:
Stockholder Name
No. of Common Shares
Percentage
(of Common Shares)
Singapore Telecom Int’l. Pte. Ltd.
58,846,486
44.47%
Ayala Corporation
44,114,262
33.34%
PCD Nominee Corp. (Non-Filipino)
24,659,740
18.63%
PCD Nominee Corp. (Filipino)
3,695,212
2.79%
Delfin C. Gonzalez, Jr.
30,000
0.02%
Mark Anthony N. Javier
25,005
0.02%
The First National Co., Inc.
21,001
0.02%
Oscar L. Contreras, Jr.
17,000
0.01%
GTESOP2000-002
16,250
0.01%
Eddie L. Hao
10,250
0.01%
GTESOP98056
10,000
0.01%
GTESOP98057
10,000
0.01%
GTESOP98059
10,000
0.01%
GTESOP98060
10,000
0.01%
GTESOP98061
10,000
0.01%
GTESOP98062
10,000
0.01%
GTESOP98064
10,000
0.01%
GTESOP98053
10,000
0.01%
GTESOP98055
10,000
0.01%
GTESOP98058
10,000
0.01%
GTESOP98063
10,000
0.01%
GTESOP98054
10,000
0.01%
Agaton L.Tiu &/or Remington Tiu
10,000
0.01%
Florentino P. Feliciano
9,487
0.01%
GT ESOWN T2000001 – Trust Account
9,000
0.01%
GT ESOP T95001 – Trust Account
9,000
0.01%
GT ESOP T96001 – Trust Account
9,000
0.01%
GT ESOP T96004 – Trust Account
9,000
0.01%
GT ESOWN T98006 – Trust Account
9,000
0.01%
GT ESOWN T98007 – Trust Account
9,000
0.01%
GT ESOWN T98004 – Trust Account
9,000
0.01%
GT ESOWN T98003 – Trust Account
9,000
0.01%
GT ESOP T96002 – Trust Account
9,000
0.01%
GT ESOP T96003 – Trust Account
9,000
0.01%
GT ESOP T95003 – Trust Account
9,000
0.01%
GT ESOWN T98002 – Trust Account
9,000
0.01%
GT ESOWN T98005 – Trust Account
9,000
0.01%
GT ESOP T95005 – Trust Account
9,000
0.01%
GT ESOP T95002 – Trust Account
9,000
0.01%
GT ESOP T95004 – Trust Account
9,000
0.01%
GT ESOWN T98010 – Trust Account
9,000
0.01%
GT ESOWN T98008 – Trust Account
9,000
0.01%
GT ESOWN T98009 – Trust Account
9,000
0.01%
GT ESOP T96005 – Trust Account
9,000
0.01%
Cesar L. Sison
8,500
0.01%
R. Nubla Securities, Inc.
8,405
0.01%
Jose Tan Yan Doo
8,071
0.01%
GTESOP98011
7,500
0.01%
SEC Form 17A 2007
42
18.
19.
20.
Ramon Antonio Pineda
GT ESOWN T2000002 – Trust Account
Conrado Chua, Sr.
7,263
7,215
6,250
0.01%
0.01%
0.00%
The following are holders of Preferred Equity Securities of the Company:
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*
Percentage
(of Preferred Shares)
100.00%
0.00%
0.00%
0.00%
C. Dividends
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. This 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
to 75% of prior year’s net income and implemented starting the second semi-annual cash dividend declaration
in 2006.
On November 6, 2007, the BOD declared a special cash dividend of P50 per common share based on
shareholders on record as of November 20, 2007 with the payment date of December 17, 2007. The special
dividend was in consideration of the record profitability and strong operating cash flows of Globe Telecom, and
to optimize Globe Telecom’s capital structure and enhance shareholder value.
1. Stock Dividends
No stock dividends were declared from 2005 to 2007.
2. Cash Dividends
a.
PESO
AMOUNT
20.00
20.00
20.00
30.00
33.00
33.00
50.00
Common shares
TOTAL AMOUNT
(In Thousands of Pesos)
2,798,077
2,637,940
2,638,072
3,961,745
4,359,650
4,362,385
6,616,708
SEC Form 17A 2007
DECLARATION
DATE
February 1, 2005
August 2, 2005
February 7, 2006
July 31, 2006
February 5, 2007
August 10, 2007
November 6, 2007
RECORD DATE
PAYMENT DATE
February 18, 2005
August 19, 2005
February 21, 2006
August 17, 2006
February 19, 2007
August 29, 2007
November 20, 2007
March 15, 2005
September 14, 2005
March 15, 2006
September 12, 2006
March 15, 2007
September 14, 2007
December 17, 2007
43
b.
PESO
AMOUNT
0.43
0.41
0.31
c.
Preferred shares
TOTAL AMOUNT
(In Thousands of Pesos)
68,334
64,669
49,449
DECLARATION
DATE
December 13, 2005
December 11, 2006
December 7, 2007
RECORD DATE
PAYMENT DATE
December 31, 2005
December 31, 2006
December 18, 2007
March 15, 2006
March 15, 2007
March 17, 2008
Cash Dividends Declared After Balance Sheet Date
On February 4, 2008, the BOD approved the declaration of the first semi-annual cash dividend in 2008
of P
=4,962.51 million (P
=37.50 per common share) to common stockholders of record as of February
18, 2008 payable on March 13, 2008.
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 a joint venture accounted for under the equity
method totaling =
P4,986.09 million as of December 31, 2007. This amount is not available for dividend
declaration until received in the form of dividends from subsidiaries and the joint venture. 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:
Date of Sale
20 February 2007
Amount Sold
(in Mn Php)
5,000
On February 16, 2007. Globe signed a P5 billion Fixed Rate Corporate Notes Facility. The Notes were issued
on February 20, 2007.
SEC Form 17A 2007
44
Item 6. Description of Registrants Securities
A. Capital Stock
Globe Telecom’s authorized capital stock consists of:
Shares
Preferred stock - Series “A” =
P5 per share
Common stock - =
P50 per
share
2006
2005
2007
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
179,934
8,996,719
Globe Telecom’s issued and subscribed capital stock consists of:
Preferred stock
Common stock
Subscriptions receivable
2006
2005
2007
Shares
Amount
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares)
158,515
=
P792,575
158,515
=
P792,575
158,515
P
=792,575
132,080
6,603,989
131,900
6,595,022
132,334
6,616,677
(46,910)
(53,856)
(42,250)
=
P7,349,654
=
P7,333,741
P
=7,367,002
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 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, 2007, 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 beginning of year
Acquisition of treasury
shares
Exercise of stock options
At end of year
SEC Form 17A 2007
2006
2005
2007
Shares
Amount
Shares
Amount
Amount
(In Thousand Pesos and Number of Shares)
132,080
P
=6,603,989
131,900
=
P6,595,022
139,904
–
254
132,334
–
12,688
P
=6,616,677
–
180
132,080
–
8,967
=
P6,603,989
(8,064)
(403,211)
60
3,033
131,900 =
P6,595,022
45
=
P6,995,200
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 =
P950.00 per share. On March 15, 2005, Globe Telecom acquired 8.06 million 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 12.00 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 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 =
P5,179.35 million and
=9,685.80 million, respectively.
P
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 2007:
Date of
Grant
April 4, 2003
July 1, 2004
SEC Form 17A 2007
Number of
Options
Granted
680,200
Exercise
Price
=
P547.00 per share
803,800
P
=840.75 per share
Fair Value
of each
Exercise Dates
Option
=283.11
P
50% of options
exercisable from April 4, 2005 to
April 14, 2013; the remaining 50%
exercisable from April 4, 2006 to
April 4, 2013
50% of options
exercisable from
July 1, 2006 to June 30, 2014; the
remaining 50% from July 1, 2007 to
June 30, 2014
=357.94
P
46
Fair Value
Measurement
Black-Scholes
option pricing
model
Black-Scholes
option pricing
model
June 30, 2006
749,500
=
P854.74 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
=292.12
P
Trinomial option
pricing model
May 17, 2007
604,000
P
=1,270.50 per share
50% of the options become
exercisable from May 17, 2009 to
May 16, 2017, the remaining 50%
become exercisable from May 17,
2010 to May 16, 2017
=375.89
P
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.
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
Weighted
Weighted
Average
Average
Number of
Exercise
Exercise
Shares
Price
Price
(In Thousands and Per Share Figures)
2005
2007
Number of
Shares
Outstanding, at beginning of
year
Granted
Exercised
Expired/forfeited/cancelled
Outstanding, at end of year
Exercisable, at end of year
1,590,940
604,000
(465,776)
(112,050)
1,617,114
309,614
P
=811.62
1,270.50
782.32
766.69
P
=994.57
P
=785.65
1,281,350
749,500
(435,810)
(4,100)
1,590,940
447,540
=
P730.01
854.75
647.80
604.32
=
P811.62
=
P712.80
Number of
Shares
1,450,600
8,000
(149,000)
(28,250)
1,281,350
172,350
Weighted
Average
Exercise
Price
=
P709.77
547.00
547.00
604.19
=
P730.01
=
P547.00
The average share price at date of exercise of stock options as of December 31, 2007, 2006 and 2005
amounted to P
=1,242.57, P
=989.03 and =
P807.08, respectively.
As of December 31, 2007, 2006 and 2005, the weighted average remaining contractual life of options
outstanding is 8.29 years, 8.17 years and 8.03 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
May 17, 2007
=
P1,340.00
=
P1,270.50
38.14%
10 years
4.93%
7.04%
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 for the years ended December 31, 2007, 2006 and 2005 amounted to
=129.91 million, =
P
P161.63 million and =
P161.73 million, respectively.
SEC Form 17A 2007
47
2. Pension Plan
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 components of pension expense (included in staff costs under “General, selling and administrative
expenses”) in the consolidated statements of income are as follows:
2007
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
=168,374
80,224
(127,872)
11,157
P
=131,883
P
=120,701
2006
(In Thousand Pesos)
=
P92,191
67,443
(108,839)
(2,605)
=
P48,190
=
P191,848
2005
=
P93,305
81,207
(112,833)
(2,454)
=
P59,225
=
P80,456
The funded status included under “Other noncurrent assets” account for the pension plan of Globe Group
is as follows:
2007
Benefit obligation
Plan assets
Unrecognized net actuarial gains (losses)
Asset recognized in consolidated balance sheets
P
=1,690,615
(1,341,568)
349,047
(511,801)
(P
=162,754)
2006
(In Thousand Pesos)
=
P1,267,209
(1,254,906)
12,303
(259,740)
(P
=247,437)
2005
=
P648,825
(1,066,441)
(417,616)
153,592
(P
=264,024)
The following tables present the changes in the present value of defined benefit obligation and fair value
of plan assets:
Defined benefit obligation
2007
Balance at beginning of year
Interest cost
Current service cost
Benefits paid
Actuarial losses (gains)
Balance at end of year
P
=1,267,209
80,224
168,374
(58,635)
233,443
P
=1,690,615
2006
(In Thousand Pesos)
=
P648,825
67,443
92,191
(62,354)
521,104
=
P1,267,209
2005
=
P603,622
81,207
93,305
(69,980)
(59,329)
=
P648,825
Fair value of plan assets
2007
Balance at beginning of year
Expected return
Contributions
Benefits paid
Actuarial gains (losses)
Balance at end of year
SEC Form 17A 2007
P
=1,254,906
127,872
47,200
(58,635)
(29,775)
P
=1,341,568
2006
(In Thousand Pesos)
=
P1,066,441
108,839
31,603
(62,354)
110,377
=
P1,254,906
2005
=
P1,018,309
112,833
14,023
(69,980)
(8,744)
=
P1,066,441
48
The Globe Group expects to make additional contributions to its defined benefit pension plan amounting
to P
=163.50 million in 2008.
The allocation of the fair value of the plan assets of Globe Telecom follows:
2007
68.00%
30.00%
2.00%
Investments in debt securities
Investments in equity securities
Others
2006
72.00%
25.00%
3.00%
2005
84.00%
15.00%
1.00%
2006
74.00%
17.00%
9.00%
2005
89.00%
7.00%
4.00%
The allocation of the fair value of the plan assets of Innove follows:
2007
66.00%
32.00%
2.00%
Investments in debt securities
Investments in equity securities
Others
As of December 31, 2007, the pension plan assets of Globe Telecom and Innove include shares of stock
of Globe Telecom with total fair value of P
=41.55 million, and shares of stock of other related parties with
total fair value of P
=147.50 million.
The assumptions used to determine pension benefits of Globe Telecom and Innove are as follows:
2007
8.25%
10.00%
7.00%
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%
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 four years are as follows:
2007
Defined benefit obligation
Plan assets
Deficit (surplus)
P
=1,690,615
1,341,568
349,047
2006
2005
(In Thousand Pesos)
=
P1,267,209
=
P648,825
1,254,906
1,066,441
12,303
(417,616)
2004
2003
603,622
1,018,309
(414,687)
622,508
920,989
(298,481)
As of December 31, 2007 and 2006, experience adjustments on plan liabilities amounted to =
P170.82
million loss and P
=72.59 million loss, respectively, while experience adjustments on plan assets amounted
to P
=29.78 million loss and =
P102.01 million gain, respectively.
SEC Form 17A 2007
49
PART III – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis (MD&A) of Operations
For the Financial year ended 2007
GROUP FINANCIAL HIGHLIGHTS
For the year ended 31 December 2007
•
Consolidated service revenues increased by 11% year on year from P57.0 billion to P63.2 billion driven by
revenue improvements of 11% and 7% from the Company’s wireless and wireline businesses, respectively. The
sustained popularity of voice and SMS offers combined with an expanded subscriber base enabled our wireless
business to generate P56.4 billion or 89% of total service revenues. Our wireline business likewise realized
revenue gains as broadband subscribers reached new highs and wireline data services delivered increased lease
line revenues from an expanded circuit base.
•
Operating expenses and subsidy increased by 16% year on year to P23 billion driven by higher marketing, staff
costs, utilities, leases, services and provisions, partially offset by lower subsidies. However, in relation to
service revenues, total marketing and subsidy spend remained at the 9% level. Resulting EBITDA of P40.2
billion is higher by 8% than the previous year. EBIT likewise increased by 15% as depreciation was steady at
the P17 billion level. Profit margins continued to be strong with EBITDA and EBIT margins at 64% and 36%
respectively.
•
Double-digit revenue growth and sustained profit margins resulted in a 13% increase in after tax net income of
P13.3 billion despite non-recurring charges related to the early payment of Globe’s US$300 million Senior
Notes. Excluding the one-time impact of the early payment, foreign exchange and mark-to-market gains and
losses, core net income registered at P13.7 billion or 27% higher than the previous year’s level of P10.8 billion.
•
Total capital expenditures in 2007 amounted to P13.9 billion or 6% lower than last year’s P14.9 billion. Capital
expenditures in 2007 included investments to deepen and enhance the Company’s network coverage, expand
broadband capacities and provide network resiliency. At the end of the year, 2G cell sites increased by 6% to
6,217 compared to last year’s 5,884 with geographic and population coverage at 96% and 99%, respectively.
•
Globe’s financial position remained strong, with year-on-year reductions in gearing levels backed up by solid
operating cash flows and ample liquidity. Total cash balance (including investments in assets available for sale
and held-to-maturity) of P9.0 billion is down 39% year-on-year due to higher regular and special dividends paid
and with reduction in debt levels. Total debt decreased by 23% to P30.4 billion with the redemption of its
US$300 million Senior Notes earlier in the year. With record profitability and lower capital expenditures, the
Company generated free cash flow of P21.4 billion, 3% higher than last year.
SEC Form 17A 2007
50
GROUP RESULTS OF OPERATIONS
The following table details the consolidated results of operations for the Globe Group:
Globe Group
For the Year Ended
Results of Operations (Php Mn)
31 Dec
2007
31 Dec
2006
YoY
Change
(%)
Profit & Loss Data
Net Service Revenues ………………………………………………………
63,209
57,034
11%
Subsidy and Operating Expenses………………………………………….
16%
22,989
19,814
-40%
Subsidy 1………………………………………………………………….
1,023
1,704
Operating Expenses ……………………………………………………….
21%
21,966
18,110
EBITDA ……………………………………………………………………..
40,220
37,220
8%
EBITDA Margin…………………………………………………………….
64%
65%
Depreciation and Amortization…………………………………………..
17,189
17,138
EBIT …………………………………………………………………………
15%
23,031
20,082
EBIT Margin……………………………………………………………….
36%
35%
Fnancing……………………………………………………………………..
(5,225)
(4,978)
5%
Interest Income…………………………………………………………..
-15%
728
855
Others - net………………………………………………………………
-8%
1,516
1,640
Provision for Income Tax………………………..........................................
16%
(6,773)
(5,844)
Net Income After Tax (NIAT)………………………………………………
13%
13,277
11,755
27%
Core Net Income 2…………………………………………………………….
13,725
10,849
_________________________________
1
Subsidy is the difference between non-service revenues and cost of sales. Non-service revenues are reported net of
discounts on phonekits and SIM (Subscriber Identification Module) packs while the costs related to the sale of
handsets and SIM packs are shown under cost of sales.
2
Core net income is net income after tax (NIAT) before forex/MTM gains (losses) and charges related to the early
redemption of the Group’s 2012 Senior Notes recognized in the first quarter of 2007.
GROUP OPERATING REVENUES
Globe Group’s total net operating revenues grew by 9% to P65,509 million from last year’s P59,949 million.
Consolidated net service revenues grew by 11% to P63,209 million compared to P57,034 million in 2006.
Globe Group
For the Year Ended
Operating Revenues By Segments (Php Mn)
31 Dec
2007
31 Dec
2006
YoY
Change
(%)
Wireless
Service Revenues…………………………………………………………………
Non-Service Revenues…………………………………………………………..
58,673
56,410
2,263
53,561
50,672
2,889
10%
11%
-22%
Wireline
Service Revenues………………………………………………………………….
Non-Service Revenues…………………………………………………………….
Total Net Operating Revenues……………………………………………………..
6,836
6,799
37
65,509
6,388
6,362
26
59,949
7%
7%
42%
9%
SEC Form 17A 2007
51
WIRELESS BUSINESS
Globe
For the Year Ended
Wireless Revenues (Php Mn)
Service
Voice1 ….…………………………………………………………………………
Data 2..……………………………………………………………………………...
Wireless Net Service Revenues…………………..……............................................
_________________________________________________________________________
1
31
Dec
2007
31
Dec
2006
29,870
26,540
56,410
28,982
21,690
50,672
YoY
Change
(%)
3%
22%
11%
Wireless voice net service revenues include the following:
a)
b)
c)
Monthly service fees on postpaid plans;
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.
Airtime fees 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 (for Globe Prepaid and TM) 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) and (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 and infotext, subscription fees on unlimited and bucket prepaid SMS services net of
any interconnection or settlement payouts to international and local carriers and content providers.
Accounting for 89% of the Company’s total net service revenues, the wireless business continued to deliver growth
through gains from both its voice and data segments. Year on year, voice services grew 3% to =
P29.9 billion while data
services rose by 22% to P
=26.5 billion. Revenue expansion continues to be driven by subscriber growth and increased
take up of Globe’s voice and SMS offers.
During the year, the Company made lower denomination reloads available and made SIM pack costs more affordable. It
also continued to provide consumers with a wide selection of products and services designed to their unique needs and
budgets.
Wireless Voice
The wireless voice segment accounted for 53% of total wireless service revenues for the full year ended. Its 3% yearon-year growth can be attributed to the steady uptake of bulk voice offerings such as Globe’s P10 for a 3-minute call,
TM’s 15 minute call for only P15, and 10 minute call for P20. These call offerings were further supplemented by the
per-second call rates through the “10 centavos kada Segundo” promotion for Globe and TM subscribers which were
sustained from the previous year.
SEC Form 17A 2007
52
In addition to local bulk voice offerings, Globe also introduced various IDD promotions. It introduced its “P24 for a 3
minute IDD call” that allowed subscribers to call the US and Canada at competitive rates. Globe also sustained its
discounted off-peak calls to the US and Canada and extended its per-second charging offer to IDD calls to its Bridge
Alliance partners and other popular calling destinations. These discounted rates applied to calls to Bridge Alliance
partners in Hong Kong, Malaysia, Singapore, Taiwan, Australia, South Korea as well as other popular calling
destinations such as the US, Canada, Hawaii, Saudi Arabia and Japan.
To provide ease and value to its subscribers, Globe also further lowered its IDD rates to P0.15 per second from P0.17
per second. In areas with large concentrations of Overseas Filipino Workers (OFW) such as Singapore, Taiwan, Hong
Kong, Malaysia and Japan, Globe allied with leading operators and launched co-branded SIMs and call cards offering
lower call and SMS rates with local currency reloading options.
For its frequent travelers, Globe lowered its prepaid roaming maintaining balance to P50 from P100. To keep the OFW
connected to his family and communities, Globe also launched an OFW Family Pack that includes 2 SIMs – an activated
international roaming SIM delivered free to the OFW worldwide and a local SIM for the family of the OFW in the
Philippines. The OFW Family Pack priced =
P120, includes 2 SIMs – an activated international roaming SIM which can
be delivered worldwide to the OFW at no additional cost to the subscriber, and a local SIM for the family in the
Philippines. The OFW Family Pack also comes with the OneAyala ATM card (a banking, rewards and privilege card
offered by various companies under the Ayala Group). The minimum maintaining balance for the international roaming
OFW SIM has recently been permanently reduced to zero.
Wireless Data
Wireless data posted strong growth rates, with service revenues rising 22% year-on-year. It now accounts for 47% of
total wireless net service revenues.
During the year, Globe and TM launched and sustained several variants (all-day, dayshift, nightshift) and denominations
(1, 2 or 5 days) of its UNLITXT and TODOTXT SMS offers. These SMS promotions were further enhanced with bucket
SMS offers that allowed 100 Globe to Globe SMS, or 75 TM to TM SMS messages via the SULITXT offering. In
addition, through its TXTPLUS and TXTPLUSCAL promotions, Globe expanded its SMS offerings by providing reduced
rate SMS to other networks and free intra-network calls.
To spur usage of ISMS and value-added services, Globe extended its P1 international SMS rates to Singtel subscribers
while continuing with its promotion of 5 international SMS for P50. This allows subscribers to send an international
SMS for only P10, versus the regular rate of P15. Together with its Bridge Alliance partners, Globe introduced a data
roaming plan, called Bridge DataRoam, that offers flat-rate data roaming to postpaid subscribers while roaming in
selected destinations. These data roaming plans were implemented in cooperation with other members of its Bridge
Alliance operators in Australia, Hong Kong, India, Indonesia, Macau, Malaysia, Singapore, South Korea, Taiwan and
Thailand. Additionally, Globe offered a 50% discount to its regular local internet browsing rate of P0.15/kb.
SEC Form 17A 2007
53
The key drivers for the wireless business are set out in the table below:
Globe
For the Year Ended
Key Drivers
31 Dec
2007
Cumulative Subscribers (or SIMs*) – Net
Postpaid . …………………………………………………………………………….
20,317,596 15,659,742
709,817
643,901
YoY
Change
(%)
30%
10%
19,607,779 15,015,841
12,118,075 10,118,897
7,489,704 4,896,944
31%
20%
53%
Prepaid .……………………………………………………………………….
Globe Prepaid ……………………………………………………………………
TM …………………………………………………………………………………
Average Revenue Per Subscriber (ARPU)
Gross ARPU
Postpaid . ……………………………………………………………………………..
31 Dec
2006
2,150
2,290
-6%
331
199
372
246
-11%
-19%
Net ARPU
Postpaid . ……………………………………………………………………………..
1,588
1,673
-5%
Prepaid
Globe Prepaid ……………………………………………………………………..
TM …………………………………………………………………………………
244
148
262
181
-7%
-18%
Subscriber Acquisition Cost (SAC)
Postpaid . ……………………………………………………………………………..
5,863
6,787
-14%
Prepaid
Globe Prepaid …………………………………………………………………….
TM …………………………………………………………………………………
71
87
83
91
-14%
-4%
Average Monthly Churn Rate (%)
Postpaid . ……………………………………………………………………………
1.51%
1.83%
4.57%
5.58%
4.73%
5.94%
Prepaid1
Globe Prepaid ………………………………………………………………………
TM ………………………………………………………………………………….
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 unlimited and
bucket SMS subscriptions net of free SMS allocation, bonus credits 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 and 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.
SEC Form 17A 2007
54
Globe’s cumulative wireless subscriber base expanded 30% year on year, ending the year with 20.3 million subscribers.
All brands performed strongly, with total gross additions up 30% from 11.6 million in 2006 to 15 million in 2007. With
continued emphasis on managing churn, net additions increased 43% to 4.7 million for the year. TM continues to be a
key driver of SIM base growth, with total SIMs rising by 53%, comprising 56% of total net additions this year.
The succeeding sections cover the key segments and brands of the wireless business – Globe Postpaid, Globe Prepaid
and TM.
Globe Postpaid
Our postpaid segment comprises approximately 3% of our total subscriber base. For the year ended, our postpaid
subscribers grew by 10% from last year as we continued to successfully defend our base from aggressive acquisition
plans by our competitors while growing our over-all customer base.
Total postpaid gross additions registered at 188,434, moderately growing from last year’s 185,801. However, total net
additions grew by an encouraging 32% from 49,759 to 65,916 as credit management processes were improved and
loyalty programs expanded. As a result, year-on-year churn rates have gone down from 1.83% to 1.51%.
Our postpaid segment registered gross and net ARPUs of P2,150 and P1,588, relatively lower compared to last year on
lower average voice usage partially offset by higher take up of data services particularly regular and international SMS.
IDD voice revenues continue to be affected by the impact of a stronger peso which appreciated 10% year-on-year.
Postpaid SAC decreased by 14% to P5,863 from P6,787 year-on-year due to lower handset subsidies offset by higher
advertising and promotion campaigns to counter aggressive acquisition offers by our competitors.
Prepaid
Our prepaid segment, which includes the Globe Prepaid and TM brands, comprised 97% of our total subscriber base.
With affordable and superior product offers and strengthened regional sales programs, our consolidated prepaid
subscribers increased by 31% from 15.0 million to 19.6 million.
A prepaid subscriber is recognized upon the activation and use of a new SIM card. The subscriber is provided with 60
days (first expiry) to utilize the preloaded airtime value. If the subscriber does not reload prepaid credits within the first
expiry period, the subscriber retains the use of the wireless number but is only entitled to receive incoming voice calls
and text messages for another 120 days (second expiry). However, if the subscriber does not reload prepaid credits
within the second expiry period, the account is 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 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.
SEC Form 17A 2007
55
The succeeding sections discuss the performance of the Globe Prepaid and TM brands in more detail.
Globe Prepaid
Globe Prepaid maintained strong subscriber growth, posting a 20% year-on-year improvement in its SIM base to reach
12.1 million subscribers. Year-on-year, gross additions were 20% higher at 8.1 million compared to 6.8 million due to
sustained acquisition efforts. On the back of improved churn rates, net additions surged by 41% to 2.0 million from last
year’s 1.4 million. Globe Prepaid subscribers currently account for 60% of total wireless subscribers.
Year-on-year, gross and net ARPUs for Globe Prepaid declined by 11% and 7% respectively as revenues have been
impacted by multi-SIM usage, increased uptake of unlimited SMS and bucket voice offers, as well as the impact of
stronger peso on dollar-linked ILD revenues.
SAC declined by 14% on a year-on-year basis from P83 to P71 due mainly to lower handset and SIM subsidies, partly
offset by increased advertising and promotions spending. In 2007, subsidies comprised 4% of total SAC, advertising and
promotions contributed 90%, while commissions made up the balance of 6%. For 2006, subsidies accounted for 58%
while advertising and promotions and commissions comprised 39% and 3%, respectively.
To further drive acquisitions, Globe Prepaid reduced the price of its 64K SIM by 34% from P99 to P65 last July 2007.
The price of the 64K SIM was further reduced to P55 and a Globe Starter SIM package was introduced in December
that included 25 free SMS at only P45.
TM
TM has been a key growth catalyst for Globe since its relaunch in 2005. Subscriber acquisition remains strong with
gross additions increasing from 4.6 million last year to 6.7 million, while net additions grew to 2.6 million compared to
last year’s 1.8 million. TM net additions account for 56% of Globe’s total net additions for the year. Its 7.5 million
subscribers now comprise 37% of Globe’s total wireless subscribers.
TM’s churn rate for the year was lower at 5.58% compared to 5.94% in 2006. Excluding the terminations due to ISR
(International Simple Resale) activities which are illegal in the Philippines, the average monthly churn rate for TM
would be at 4.96% level compared to the 5.03% registered last year. (See related discussion on ISR in the ILD section)
TM’s ARPU continues to soften due to net incremental subscribers coming from the lower income segments, as well as
lower billable usage for the year. To drive usage, TM introduced a bulk voice offering in the third quarter “Todo Tawag
20” which enables subscribers to make 10 minutes of intra-network calls for only P20. TM also sustained its popular
“Todo Tawag 15/15” and “10 centavos kada Segundo” services. For SMS services, TM continued with its unlimited
TODOTXT and bucket TM SULITXT SMS promotions, providing variants and denominations adapted to its target
segments.
Year-on-year, TM’s SAC decreased by 4% from P91 to P87 as a result of significantly reduced advertising and
promotions during the current year. This was partially offset by higher subsidies in 2007 compared to the previous year
as TM offered bundled and discounted phonekits to its new subscribers. For 2007, about 31% of SAC is composed of
subsidies, 67% from advertising and promotions with commissions making up the balance of 2%. In 2006, advertising
and promotions accounted for 83%, subsidies made up 15% and the balance of 2% were brought about by commissions.
SEC Form 17A 2007
56
GCash
GCash continues to establish its presence in the mobile commerce industry. GCash’s initial thrust towards moneytransfers, 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:
•
•
•
•
•
•
•
•
•
•
•
•
domestic and international remittances
utility bills
interest and amortization of loans
insurance premiums
donations to various institutions and organizations
sales commissions and payroll disbursements
school tuition fees
micro tax payments and business registration
electronic loads and pins
online purchases
ferry and airline tickets
train tickets using the G-PASS chip
In addition to the above transactions, GCash is also used as a wholesale payment facility. Last 29 January 2008,
Western Union and GXI announced an alliance to introduce a cross-border mobile money remittance service that
allows consumers to transfer money to and from mobile wallets through Western Union’s global network of over
320,000 authorized agents in over 200 countries and territories.
As of 31 December 2007, GCash handled an average monthly transaction value of around P6.23 billion. Net
registered GCash user base reached 1.2 million at the end of the year.
SEC Form 17A 2007
57
WIRELINE BUSINESS
Innove
For the Year Ended
Wireline Revenues (Php Mn)
31 Dec
2007
31 Dec
2006
YoY
Change
(%)
Service
Voice 1 ….…………………………………………………………………………
4,602
4,312
7%
Data 2..…………………………………………………………………………….
2,197
2,050
7%
Wireline Net Service Revenues…………………..……............................................
6,799
6,362
7%
___________________________________________________________
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.
e) Broadband service revenues.
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.
Our wireline revenues improved by 7% year on year to P6,799 million from P6,362 million driven by gains in the
broadband segment (included in wireline voice) and higher wireline data revenues from corporate leased line customers.
For 2007 and 2006, voice service revenues accounted for 68% of total wireline revenues while data contributed 32%.
Wireline Voice
Cumulative Voice Subscribers – Net (End of period) 1 …………………………….
Average Revenue Per Subscriber (ARPU)
Gross ARPU…………………………………………………………………………
Net ARPU…………………………………………………………………………..
Average Monthly Churn Rate ..………………………………………………………
Broadband Subscribers-Net (End of period)…………………………………………
____________________________________________________________________________________________________
1
Innove
For the Year Ended
YoY
31 Dec
31 Dec Change
2007
2006
(%)
11%
421,092 378,022
1,062
941
1.50%
120,020
Excludes payphone and data lines. Figures for voice subscribers have been restated in the past periods.
SEC Form 17A 2007
58
1,103
973
1.95%
51,426
-4%
-3%
133%
As of 31 December 2007, Innove increased its total wireline voice subscribers by 11% to 421,092 from 378,022 in 2006.
The subscriber mix is 67% postpaid and 33% prepaid, with the business to residential mix at 19:81.
Wireline business posted a 7% year-on-year growth in service revenues, despite the impact of the strong peso on its US$
linked revenues. Broadband segment continues to increase its contribution to the wireline business through robust
growth in its subscriber base. Similarly, improved domestic leased line revenues from an expanded circuit base have
contributed to the corporate data segment’s steady performance.
During the year, we sustained our Price-Off Promos and PC Bundle Packages to strengthen acquisition efforts. The
Price-Off Promo offered waived installation fees and free Wi-Fi modems for selected packages, while our PC Bundle
Promo packages a landline with broadband service and a personal computer for only P1,995 a month. We also have a
broadband offers with an MSF of P995 which includes a landline option for an additional P300.
To further improve the accessibility of our broadband services, we soft-launched a prepaid version of our DSL
broadband service via our Globe Broadband Prepaid service that allows households to access the internet at broadband
speeds on a pay-per-use basis. This service is initially available in selected areas in Metro Manila and the Visayas.
Wireline Data
Innove
For the Year Ended
Service Revenues (Php Mn)
Wireline Data
International …..…………………………………………………………
Domestic …… ………………………………………………………….
Others 1 …………………………………………………………………
Total Wireline Data Service Revenues…………………………………………..
________________________________________________________________________
1
31 Dec
2007
31 Dec
2006
647
921
629
2,197
604
832
614
2,050
YoY
Change
(%)
7%
11%
2%
7%
Includes revenues from value-added services and corporate internet services.
Our wireline data business increased revenues by 7% to P2,197 million in 2007 from P2,050 million in 2006 due to
improved domestic leased line revenues from an expanded circuit base, offset by lower corporate internet revenues.
These gains have been achieved despite the appreciation of the peso during the current year which brought on lower
revenues from foreign-currency linked subscriber billings.
SEC Form 17A 2007
59
OTHER GLOBE GROUP REVENUES
International Long Distance (ILD) Services
ILD Revenues and Minutes
Total ILD Revenues (Php Mn) ………………………………………………………..
Globe Group
For the Year Ended
31 Dec
31 Dec
YoY
2007
2006 Change
(%)
3%
14,387 13,967
Average Exchange rates for the period (Php to US$1)…………………………………..
46.79
51.89
Total ILD Revenues as a percentage of net service revenues……………………………
23%
24%
Total ILD Minutes (in million minutes) 1………………………………………………
2,221
1,948
14%
1,958
263
7.44
1,689
259
6.52
16%
2%
Inbound………………………………………………………………………………..
Outbound.……………………………………………………………………………
ILD Inbound / Outbound Ratio (x) ………………………………………………
_______________________________________________________________________________________
1
-10%
ILD minutes originating from and terminating to Globe and Innove networks.
On a consolidated basis, ILD revenues from the wireless and wireline business increased by 3% to =
P14,387 million
compared to last year’s =
P13,967 million. This is due to lower payment rates on inbound international calls coupled with
the impact from the continued appreciation of the peso. However, total ILD minutes continued their double-digit
increase to 2.2 billion minutes or a 14% increase over the previous year due to strong growth in inbound call volumes
and improvements in outbound minutes following positive results from various IDD initiatives.
Both Globe and Innove offer ILD services which cover international calls between the Philippines and over 200
countries. Our 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.
During the year, Globe sustained its various competitive IDD offers including (a) P7.50 per minute to its Bridge
Alliance partners in Hong Kong, Malaysia, Singapore and Taiwan, (b) P5.00 per minute rates for calls originating from
selected areas in the Philippines to popular calling destinations such as the US, Canada and Hawaii, (c) P7.50 per minute
discounted off-peak calls to the US and Canada (d) US$0.30 per minute rate for calls to Japan and Saudi Arabia under
its Super Sulit Tipid IDD promotions. Globe also maintained it’s pioneering and unique per second IDD charging under
its Tipid IDD kada-Segundo offer with a P0.17 per second rate to Australia, Canada, China, Hong Kong, Kuwait,
Malaysia, Singapore, South Korea, Taiwan, Thailand, United Kingdom, US and Equatorial Guinea, and (e) P1 per
international SMS to Singtel subscribers.
Various offers were introduced in 2007 to further stimulate international voice, SMS and data usage. New countries and
markets were included in the P7.50 per minute offer with the inclusion of Optus (Australia) and SK Telecom (South
Korea). Under its Tipid IDD Peso charging promo, Globe introduced peso charging for its US$0.0033 per second and
US$0.30 per minute offers at new rates of P0.17 per second and P15 per minute, respectively. This rate was
subsequently lowered to P0.15 per second. Meanwhile, for international roaming subscribers, the daily maintaining
balance was reduced to P50 from P100. Ease of use was also improved by allowing subscribers to turn on their roaming
feature via SMS. Globe also introduced flat rate data roaming plans for its subscribers while roaming in Bridge Alliance
destinations.
During the year, Globe also launched co-branded SIMs with Singtel, Hong Kong CSL, Taiwan Mobile, and Maxis
Malaysia that allows OFWs and their families to enjoy discounted call and SMS rates. The Company also launched the
OFW Family Pack which includes an activated international roaming SIM for the OFW and a local SIM for the family
SEC Form 17A 2007
60
in the Philippines. Finally, Globe partnered with various maritime and satellite partners to provide roaming services to
subscribers while on board ships or in areas covered by satellite coverage.
On the wireline front, Globe continues to offer its Lowest IDD rates promotion via its Globe1 card whereby callers
using Globe’s fixed line and payphone service can enjoy rates of P2.50 per minute for calls to the US, Canada,
Australia, Hong Kong and Singapore, P4.50 per minute for calls to China, Malaysia, Taiwan, South Korea and Thailand,
and US$0.40 per minute for calls to other destinations.
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. 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.
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 which are based on a negotiated
price per minute.
Interconnection expenses as a percentage of gross service revenues remained at the 15% level for 2007 and 2006.
The Globe Group also collects termination fees from local 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.
SEC Form 17A 2007
61
GROUP OPERATING EXPENSES
For the year, the Globe Group’s total costs and expenses increased by 9% to =
P40,178 million from P
=36,952 million in
2006, mainly driven by higher marketing, staff costs, provisions and charges for professional and contracted services.
Globe Group
For the Year Ended
Costs and Expenses (Php Mn)
Cost of sales………………………………………………………………………………….
Less: Non-service revenues………………………………………………………………….
Subsidy
31
31
YoY
Change
Dec
Dec
(%)
2007
2006
3,323
4,619
-28%
2,300
2,915
-21%
1,023
1,704 -40%
Staff Costs ………………………………………………………………………………
Selling, Advertising and Promotions……………………………………………………
Rent……………………………………………………………………………………..
Utilities, Supplies & Other Administrative Expenses………………………………….
Repairs and Maintenance………………………………………………………………..
Provisions ……………………………………………………………………………..
Services and Others
Insurance and security………………………………………………………………
Professional and Other contracted services…………………………………………
Taxes, Licenses and Others…………………………………………………………
Operating Expenses………………………………………………………………………..
Operating Expenses and Subsidy…………………………………………………………
4,536
4,469
2,570
2,243
2,205
1,012
3,564
3,525
2,081
2,121
2,122
446
27%
27%
23%
6%
4%
127%
1,578
1,831
1,522
21,966
22,989
1,441
1,394
1,416
18,110
19,814
10%
31%
7%
21%
16%
Depreciation and Amortization ……………….…………………………………………..
Total…………………………………………………………………………………………
17,189
40,178
17,138
36,952
9%
Subsidy
Total subsidy decreased by 40% to P1,023 million in 2007 from P1,704 million in 2006 due to more focused acquisition
campaigns including SIM and phonekit promotions.
Staff Costs
Staff costs, which accounted for 21% of the total operating expenses, increased by 27% to P4,536 million from P3,564
million in 2006 driven mainly by increased base pay, including structural adjustments to align rates to current market
levels, incentives linked to improved performance and a 7% increase in headcount from 5,161 to 5,511.
Selling, Advertising and Promotions
Total marketing expenses, which comprised 20% of total operating expenses, increased by P944 million to P4,469
million for the year. The 27% increase from last year’s P3,525 million was due to increased advertising costs and
charges for the implementation of loyalty, rewards and retention programs that have contributed to the continued growth
of our subscriber base and our service revenues.
As a percentage of total service revenues, total marketing expenses and subsidy remained at the 9% level on a year on
year basis.
SEC Form 17A 2007
62
Rent Expenses
Rent expenses accounted for 12% of total operating expenses and posted a 23% increase to P2,570 million from last
year’s P2,081 million due to an increase in lease charges for cell sites and international cable facilities associated with
an expanded cellular and broadband network. At the end of the year, Globe increased its 2G network by 6% to 6,217
sites from 5,884 the previous year.
Utilities, Supplies and Other Administrative Expenses
Utilities, Supplies and Other Administrative expenses accounted for 10% of total operating expenses and registered a
6% year-on-year increase to P2,243 million from last year’s P2,121 million. This is mainly due to higher power and
utilities charges from an expanded equipment base and support facilities.
Repairs and Maintenance Expenses
Repairs and Maintenance expenses accounted for 10% of total operating expenses and increased by 4% year-on-year
due mainly to higher maintenance and service fees for the Globe Group’s expanding network facilities and information
systems infrastructure.
Provisions
This account includes provisions related to trade, non-trade and traffic receivables and inventory. Overall, provisions
posted a net increase of P565 million or 127%, from P446 million in 2006 to P1,012 million in 2007.
Of the total increase, P358 million is attributed to the increase in provision for market decline due to more stringent
handset recoverability assessment criteria resulting in faster obsolescence cycle.
On the other hand, provision for trade receivables increased by P227 million year-on-year due to more stringent credit
impairment net flow rates applied.
Services and Others
Services and Others accounted for 22% of total operating expenses and increased by 16% from P4,251 million in 2006
to P4,931 million in 2007. The year-on-year escalation was brought about by higher security services rates and
outsourced services associated with an expanded network and aggressive broadband roll out.
Depreciation and Amortization
There was no significant increase in depreciation and amortization expenses year-on-year. 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 9.16 years. As part of Globe’s continuing review of the assigned EUL of its network elements, the
EUL of certain network components were updated to reflect the more appropriate useful life estimates assigned to such
assets.
SEC Form 17A 2007
63
Other income statement items include net financing costs, net foreign exchange gain, interest income and net property
and equipment related charges as shown below:
Globe Group
For the Year Ended
Other Expenses (Php Mn)
Financing Costs – net
Interest Expense……………………………………………………
(Loss) on derivative instruments – net……………………………
Swap costs and other financing costs………………………………
Foreign Exchange gain – net…………………………………………
Interest Income ………………………………………………………
Property and Equipment related charges - net …………………………
Total Other Expenses…………………………………………………
31 Dec
2007
31 Dec
2006
YoY
Change
(%)
(2,996)
(4,214)
-29%
(802)
(1,427)
(5,225)
(338)
(426)
(4,978)
137%
235%
5%
1,431
728
85
(2,981)
1,706
855
(66)
(2,483)
-16%
-15%
-229%
20%
During the year, the Globe Group registered a 20% year-on-year increase of =
P498 million in net non-operating charges
to close at P2,981 million. This is mainly attributable to the increase in net financing costs resulting from the early
redemption of the US$294 million Senior Notes (due in 2012) which brought about non-recurring bond redemption
charges (included under swap cost and other financing costs) of P1,302 million. This included P687 million in bond
redemption costs and P615 million in non-cash expenses representing net reversal of MTM values related to the bond
call option, net of accelerated amortization of the bond premium. Globe fully redeemed its 2012 Senior Notes on 16
April 2007. Consequently, the mark-to-market losses of P264 million on the Company’s cross currency swaps entered
into to hedge the Senior Notes and deferred under “Cumulative translation adjustment” account was charged to profit
and loss in April 2007.
The Philippine peso continued to appreciate against the US$, ending the year at P41.411. The Company registered a
P1,431 million net foreign exchange gain for the period, compared to last year’s =
=
P1,706 million gain. (See related
discussion on derivative instruments and swap costs in the Foreign Exchange and Interest Rate Exposure section)
Interest expense posted a 29% decline of P1,218 million from P4,214 million to P2,996 million for the full year of 2007.
The decrease is mainly due to repayment of loans to foreign and local banks during the period, 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 68% drop of P266 million due to a reduction in the amount of outstanding swaps. Interest income
likewise decreased by 15% from P855 million in 2006 to P728 million in 2007 due to lower peso interest rates during
the period.
During the year, the Globe Group reversed a portion of estimated provision for impairment losses amounting to P179
million on certain network asset component based on adjusted component values resulting from its continued
implementation of comprehensive component accounting. Net reversal of impairment losses for the year ended 31
December 2007 amounted to P71 million.
The consolidated provisions for current and deferred income tax for the Globe Group registered a 16% increase of P929
million from P5,844 million to P6,773 million in 2007. Consolidated effective income tax rate was 33% for 2006 and
34% for 2007.
SEC Form 17A 2007
64
The Globe Group registered net income after tax of =
P13,277 million or 13% higher compared to last year’s =
P11,755
million. Excluding bond redemption costs, foreign exchange and mark-to-market gains and losses, core earnings would
have been =
P13,725 million, a 27% improvement from last year’s =
P10,849 million. (See related discussion in the
Operating Expenses section)
Accordingly, consolidated basic earnings per common share were P100.07 and P88.56 and consolidated diluted earnings
per common share were P99.58 and P88.32 for the years ended 31 December 2007 and 2006, respectively.
Liquidity and Capital Resources
Globe Group
As of and for the year ended
31 Dec
2007
31 Dec
2006
Balance Sheet Data (Php Mn)
Total Assets …………………………………………………………………….
Total Debt …………………………………………………………………….
Total Stockholders’ Equity …………………………………………………….
116,621
30,373
55,417
124,580
39,207
56,948
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) ...…………………………………
0.76
1.62
13.08
0.55
0.38
0.35
0.13
1.05
2.99
8.74
0.69
0.43
0.41
0.19
1
YoY
Change
(%)
-6%
-23%
-3%
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 2007 amounted to P
=116,621 million compared to =
P124,580
million in 2006 due to cash used in the repayment of Globe’s Senior Notes and higher dividend payouts. (See related
discussion in Consolidated Net Cash Flows section)
Consolidated cash, cash equivalents and short term investments (including investments in assets available for sale and
held to maturity) was at P
=9,041 million at the end of the period, 39% lower than last year’s P14,812 million. Gross debt
to equity ratio was at 0.55:1 on a consolidated basis and is well within the 2:1 debt to equity limit dictated by certain
debt covenants. Meanwhile net debt to equity ratio was at 0.38:1 as of 31 December 2007.
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 coverage 1 exceeding 1.3 times;
Secured debt ratio 2 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.
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. Globe has no
secured debt as of 31 December 2007.
SEC Form 17A 2007
65
Consolidated Net Cash Flows
Globe Group
For the Year Ended (Php Mn)
Net Cash Flows Provided by Operating Activities……………………..
Net Cash Flows Used in Investing Activities…………………………..
Net Cash Flows Used in Financing Activities…………………………..
YoY
31 Dec
31 Dec
change
2007
2006
(%)
32,368
32,565
-1%
(9,864)
(18,908)
-48%
(23,818)
(17,062)
40%
Consolidated net cash flow from operations amounted to =
P32,368 million, a 1% decrease from last year’s P
=32,565
million due mainly to higher actual income taxes paid.
Consolidated net cash used in investing activities amounted to =
P9,864 million, a 48% decrease from the net cash used of
=18,908 million in 2006 due to termination of money market placements during the current period.
P
Globe Group
YoY
31 Dec
31 Dec
change
2007
2006
(%)
Capital Expenditures (Cash) …………………………………………………………
14,116
12,634
12%
Increase (decrease) in Liabilities related to Acquisition of Property &
(194)
2,246
-109%
Equipment…………………………………………………………………………….
Total Capital Expenditures1 ……………………………………………………….
13,922
14,880
-6%
For the Year Ended (Php Mn)
1
Total Capital Expenditures / Service Revenues (%)……………………………..
22%
26%
Consolidated capital expenditures include property and equipment, intangibles and capitalized borrowing costs acquired as of
report date regardless of whether payment has been made or not.
Consolidated capital expenditures of =
P13,922 million in 2007 decreased by 6% over the previous year’s level of P14,880
million. We experienced delays in certain projects during the year but have carried over the allotted budgets to 2008. We
have earmarked approximately US$400 to 450 million in capital investments for 2008. Of this total, about US$180
million are to expand our DSL and wireless broadband network, US$130 million are expenditures to sustain our core
wireless business, including capacity expansion capex in areas where demand is strong and where network coverage
needs to be further enhanced while US$40 million will be used for various support capex. Additionally, we have
allocated around US$80-100 million in non-recurring capex. This budget includes certain redundancy investments, as
well as amounts related to our participation in the TGN-Intra Asia Cable System, a submarine cable facility that will link
the country to Japan, Hong Kong, and Singapore, and the United States.
Consolidated net cash used in financing activities for the year amounted to P
=23,818 million, or 40% higher than 2006
levels due to the redemption of the 2012 Senior Notes redeemed in April 2007. Consequently, consolidated total debt
decreased by 23% from =
P39,207 million to P
=30,373 million. Loan repayments of Globe for the year amounted to
=22,108 million or a 112% increase compared to the P
P
=10,429 million paid in 2006 due mainly to the redemption of
Globe’s US$294 million 9.75% Senior Notes and higher dividend payments in 2007.
Out of total debt of =
P30,373 million, 20% are denominated in US$ out of which 7% have been hedged to pesos. As a
result, the amount of US$ debt swapped into pesos and peso-denominated debt accounts for approximately 81% of
consolidated loans as of 31 December 2007.
SEC Form 17A 2007
66
Below is the schedule of debt maturities for Globe for the years stated below based on total outstanding debt as of 31
December 2007:
Year Due
Principal *
(US$ Mn)
2008 ………………………………………………………………………………..
2009…………………………………………………………………………………
2010…………………………………………………………………………………
2011 through 2012 …………………………………………………………………
Total
* Principal amount before debt issuance costs.
128
183
93
331
735
On 12 January 2007, the Company announced its plans to redeem its US$300 million 9.75% Senior Notes due 2012 in
April 2007 after receiving the Bangko Sentral ng Pilipinas (BSP) approval. On 16 April 2007, Globe fully redeemed its
Senior Notes at 104.875% of its face value. Estimated after-tax interest expense savings of P2.3 billion are expected to
be realized from 2007 to 2012 as a result of the redemption of the Notes. (See related discussion on the impact of the
bond redemption to the current period financial performance in the Other Income statement items section)
On 9 February 2007, Globe signed a US$50 million 5-year floating loan facility with Norddeutsche Landesbank
Girozentrale, Singapore branch. Proceeds of the loan were used to refinance existing debt.
On 16 February 2007, Globe signed a P5 billion Fixed Rate Corporate Notes facility which were issued on 20 February
2007.
Stockholders’ equity for the current period was P55,417 million as of 31 December 2007, a 3% decrease from the
P56,948 million in 2006 due to the collective impact of a higher after tax net income offset by increased dividends paid
during the current year. (See related discussion on dividends in the Consolidated Net Cash Flows section)
As of 31 December 2007, Globe’s capital stock consists of:
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.
b.
c.
d.
e.
f.
g.
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;
Cumulative and non-participating;
Floating rate dividend;
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; and
Preferences as to dividend in the event of liquidation.
The dividends for preferred shares are declared upon the sole discretion of the Globe Telecom BOD.
On 11 December 2006, the BOD approved the declaration of cash dividends to preferred shareholders “Series
A” as of record date 31 December 2006 amounting to P64.67 million. As of 31 December 2007, the Globe
Group has no dividends in arrears to its preferred stockholders.
On 7 December 2007 the BOD approved the declaration of cash dividends to preferred shareholders “Series A”
as of record date 18 December 2007 amounting to P49.45 million.
SEC Form 17A 2007
67
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 29 January 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. On 31 July 2006, the BOD of Globe Telecom amended the dividend
policy increasing the dividend payout rate at approximately 75% of prior year’s net income which was
implemented during the 2006’s second semi-annual cash dividend declaration. This policy will be reviewed
annually, taking into account Globe Telecom’s operating results, cash flows, debt covenants, capital
expenditure levels and liquidity.
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,
an increase of 10% over the previous year semi-annual rate. The first semi-annual cash dividend had a record
date of 19 February 2007 and payment was made on 15 March 2007. On 10 August 2007, the BOD declared
the second semi-annual cash dividend in 2007 of P33 per common share with a record date of 29 August 2007.
The second semi-annual cash dividend was paid on 14 September 2007.
On 6 November 2007, the BOD declared a special cash dividend of P50 per common share based on
shareholders on record as of 20 November 2007. Payment was made on 17 December 2007. This special
dividend brought cumulative dividends paid to common shareholders to P15.3 billion, 132% higher than the
P6.6 billion paid in 2006. The special dividend was in consideration of the record profitability and strong
operating cash flows of the company and to optimize Globe’s capital structure and enhance shareholder value.
On 4 February 2008, the BOD approved the declaration of the first semi-annual cash dividend in 2008 of
=4,962.51 million (P
P
=37.50 per common share) to common stockholders of record as of 18 February 2008
payable on 13 March 2008.
Consolidated Return on Average Equity (ROE) registered at the 24% and 22% level for 2007 and 2006, respectively
using annualized net income and based on average equity balances for the year ended.
SEC Form 17A 2007
68
Foreign Exchange and Interest Rate Exposure
As of 31 December 2007, the Philippine Peso stood at P
=41.411, a 16% appreciation versus the 2006 rate of P49.045.
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 gains of P1,431 million and P1,706 million gain for the years ended 31 December 2007 and 2006,
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 2007, our Company had US$10 million in notional amount of outstanding foreign currency swap
agreements and US$166 million in short-term forward contracts, some of which have option features.
Interest rate swaps are used to manage our interest rate risk in a cost-efficient manner. As of 31 December 2007, our
Company had US$45 million in notional amount of US$ swaps under which it effectively swapped some of its floating
US$ denominated loans into fixed rate, with semi-annual payment intervals up to January 2011. We also have US$5
million in notional amount of US$ swaps under which the Company receives a fixed rate of 9.75% and pays 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$35 million.
Gains (losses) on derivative instruments represent the net mark-to-market (MTM) gains (losses) on derivative
instruments. As of 31 December 2007, the MTM value of outstanding derivatives of the Globe Group amounted to
US$4.5 million while losses on derivative instruments arising from changes in MTM reflected in the consolidated
income statements amounted to P802 million, which includes the losses on the bond option value prior to the bond call
date amounting to P454 million. (See related discussion under Results of Operations)
On the other hand, the Globe Group also has foreign currency-linked revenues 1 and expenses which serve as natural
hedges against our foreign exchange exposure. Consolidated foreign currency-linked revenues were at 25% and 29% of
total net revenues for the periods ended 31 December 2007 and 2006, respectively. Foreign currency-linked revenues
comprised 24% of net wireless revenues and 32% of net wireline revenues. In contrast, our foreign-currency linked
expenses were at 13% (as a percentage of total operating expenses) for both periods.
1
Includes the following revenues:
(1) billed in foreign currency and settled in foreign currency, and
(2) billed in Pesos at rates linked to a foreign currency tariff and settled in Pesos.
SEC Form 17A 2007
69
Annex to the MD&A for the financial year ended 2007
1.
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 in the preparation of the consolidated financial statements are consistent with those
followed in the preparation of the Globe Group’s annual financial statements for the years ended December 31,
2007 and 2006, except for the adoption of new and amended Standards and International Financial Reporting
Interpretations Committee (IFRIC) enumerated below.
• PFRS 7, Financial Instruments: Disclosures, 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 of market risk. It replaces the disclosure
requirements in PAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities
that report under PFRS. Adoption of this standard resulted in the inclusion of additional disclosures on the
consolidated financial statements.
The Globe Group adopted the amendment to the transitional provisions of PFRS 7 as approved by the
Financial Reporting Standards Council of the Philippines, which gives transitory relief with respect to the
presentation of comparative information for the new risk disclosures about the nature and extent of risks
arising from financial instruments. Accordingly, the Globe Group did not present comparative information
for the disclosures required by PFRS 7, unless the disclosure was previously required under PAS 32.
• Amendments to PAS 1, Presentation of Financial Statements, introduce disclosures about the level of an
entity’s capital and how it manages capital. Adoption of the Amendments resulted in inclusion of additional
disclosures on the consolidated financial statements.
• Philippine Interpretation IFRIC 8, Scope of PFRS 2, requires PFRS 2 to be applied to any arrangements
where equity instruments are issued for consideration which appears to be less than fair value. As equity
instruments are only issued to employees in accordance with the employee stock option scheme, adoption of
this Interpretation did not have any significant impact on the consolidated financial statements.
• Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives, 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. Adoption of
this Interpretation did not have any significant impact on the consolidated financial statements.
• Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment, provides that the
frequency of financial reporting does not 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. Adoption of this Interpretation did not
have any significant impact on the consolidated financial statements.
Future Changes in Accounting Policies
The Globe Group has not yet applied the following new and amended PFRS and Philippine Interpretations
which are not yet effective for the year ended December 31, 2007.
SEC Form 17A 2007
70
• Philippine Interpretation IFRIC 11, PFRS 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 the
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 as this is not relevant to the Globe Group’s current operations.
• Philippine Interpretation IFRIC 14, PAS 19, The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction.
This Interpretation will become effective January 1, 2008. This Interpretation provides guidance on how to
assess the limit on the amount of surplus in a defined benefit plan that can be recognized as an asset under
PAS 19, Employee Benefits. The Globe Group will assess the impact of this Interpretation on its current
manner of accounting for its net pension asset.
• Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
This Interpretation will become effective January 1, 2009. The Interpretation addresses accounting by the
entity that grants award credits to its customers. This Interpretation applies to customer loyalty award
credits that: (a) an entity grants to its customers as part of a sales transaction, i.e. sale of goods, rendering
of services or use by a customer of entity assets; and (b) subject to meeting any further qualifying
conditions, the customers can redeem in the future for free or discounted goods or services. The Globe
Group will assess the impact of this Interpretation on its current manner of accounting for customer loyalty
awards.
• 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 on its
current manner of reporting segment information.
• Amendment to PAS 1, Amendment on Statement of Comprehensive Income
This Amendment will become effective January 1, 2009. In accordance with the amendment to PAS 1, the
statements of changes in equity shall include only transactions with owners, while all non-owner changes
will be presented in equity as a single line with details included in a separate statement. Owners are defined
as holders of instruments classified as equity.
In addition, the amendment to PAS 1 provides for the introduction of a new statement of comprehensive
income that combines all items of income and expense recognized in the statements of income together with
‘other comprehensive income’. The revisions specify what is included in other comprehensive income,
such as gains and losses on available-for-sale assets, actuarial gains and losses on defined benefit pension
plans and changes in the asset revaluation reserve. Entities can choose to present all items in one statement,
SEC Form 17A 2007
71
or to present two linked statements, a separate statement of income and a statement of comprehensive
income. The Globe Group does not expect this amendment to have a significant impact on the consolidated
financial statements.
• Amendment to PAS 23, Borrowing Costs
This Amendment will become effective January 1, 2009. It requires the capitalization of borrowing costs
when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a
substantial period of time to get ready for its intended use or sale. In accordance with the transitional
requirements in the standard, the change should be accounted for prospectively. Accordingly, borrowing
costs will be capitalized on qualifying assets with a commencement date after January 1, 2009. No changes
will be made for borrowing costs incurred to this date that have been expensed. The Globe Group does not
expect this amendment to have a significant impact on the consolidated financial statements.
2.
Causes of any material change from period to period of FS:
Assets
Current
a) Cash and Cash Equivalents – Decreased by P1.31 billion due to the additional capital expenditures,
payment of dividends and full redemption of 2012 Senior Notes cushioned by the proceeds on loan
borrowings and maturing short term placements.
b) Short term investments, Available for sale investments and Held to maturity investments – Decreased by
P4.46 billion due to the maturity of investments coupled with decrease in availment of money market
placements.
c) Receivables-net – Increased by P855.64 million due to non-collection of receivables mainly from Innove's
traffic receivables.
d) Inventories and Supplies - Increased by P118.65 million due to the higher purchase of inventories, bulk of
which pertains to equipment for Innove's wireless broadband services plus purchases of handsets and
spare parts cushioned by the net issuance of simpacks and phonekits.
e) Derivative Assets –Decreased by P1.10 billion mainly attributed to derecognition of the embedded bond
call option resulting from full settlement and early redemption of the 2012 Senior Notes in April 2007.
f) Prepayments and other current assets - Increased by P420.32 million attributed to higher value-added taxes
(VAT) for the additional purchases and services availed in support of the network expansion and 3G
rollout and to assist current operations.
Noncurrent
g) Property and Equipment – net - Decreased by 4% or P3.52 billion due to the depreciation and impact of
change on the Estimated Useful Life (EUL) of certain network elements resulting to a higher depreciation,
net of additional purchases and project accruals for the additional network assets put into service and the
3G sites rollout.
h) Investment Property – net - Down by P23.30 million due to depreciation of investment properties.
i) Intangible Assets – Up by P284.31 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.
j) Investments in an Associate and a Joint Venture – Up by 123% or P45.92 million due to additional
investments in Bridge Mobile Alliance net of equity in net losses during the period.
k) Deferred Income Tax - net – Down by P164.14 million due to Innove’s reversal of certain deferred income
tax items which have been realized during the intervening period.
l) Other Noncurrent Assets – Up by 45% or P897.74 million due to the net increase in advances to suppliers
and contractors for the additional equipment acquired for the network expansion coupled with the increase
in deferred VAT.
SEC Form 17A 2007
72
Liabilities
Current
m) Accounts payable and Accrued Expenses – Up by 12% or P1.95 billion due to the accrual of obligations to
n)
o)
p)
q)
local and foreign suppliers in support of the 3G and broadband rollout coupled with the increase in net
traffic settlement payable.
Provisions – Decreased by 12% or P28.62 million due to the reversal of excess provisions for probable
regulatory claims and assessments in light of recent favorable rulings.
Income Taxes Payable – Up by 64% or P530.04 million due to higher taxable operating income during the
intervening period.
Unearned Revenues – Up by 47% or P596.46 million attributed to higher sales over consumption of
prepaid airtime and fixed line credits.
Notes Payable - Acquired for short term working capital; renewable every 30 days, but with maturity of
364 days.
Noncurrent
r) Deferred Tax Liabilities – Down by 1% or P37.11 million due to the realization of forex loss.
s) Long-term Debt – Decreased by P9.33 billion due to the full redemption of 2012 Senior Notes in April
2007 coupled with the scheduled loan installment repayments to foreign and local creditors during the
year, offset by various loan availments during the period.
t) Derivative Liabilities – Decreased by P513.93 million due to the termination of swaps as a result of the
early redemption of 2012 Senior Notes in April 2007.
u) Other Long-term Liabilities – Up by P140.71 million due to the additional accrual and accretion of asset
retirement obligation and accrual for lease obligations cushioned by the settlement of non-interest bearing
long-term liabilities.
Equity
v) Paid-up Capital – Up by 1% or P236.02 million attributed to the issuance of Globe shares due to exercised
stock options triggered by favorable increases in Globe’s share price during the intervening period.
w) Cost of Share-Based Payments – Decreased by P34.39 million due to lower set-up of compensation
expense over value of stock options exercised during the intervening period.
x) Cumulative Translation Adjustment – Down by 195% or P378.20 million due to lower translation loss due
to designation of certain swap instruments from cash flow hedge to non-hedge classification resulting to
transfer of related fair value gain/loss to profit and loss.
y) Retained Earnings – Decreased by 9% or P2.11 billion due to dividends declared to common and preferred
shareholders over 2007’s net income of P13.28 billion.
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.
Investment in BMPL
Globe Telecom and other leading Asia Pacific mobile operators (JV partners) signed an Agreement in 2004 (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).
SEC Form 17A 2007
73
Under the JV Agreement, each partner shall contribute USD4.00 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, 2007, Globe Telecom has paid USD2.20 million (P
=111.28 million) broken down into USD1.00
million (P
=56.33 million) as initial subscription and additional investment totaling USD1.20 million (P
=54.95
million) made last April 24, 2007 and October 26, 2007.
The Globe Group’s interest in the JV is accounted for as follows:
2007
2006
(In Thousand Pesos)
2005
Assets:
Current
Non-current
Liabilities:
Current
Non-current
Income
Expenses
P
=93,088
13,319
=
P46,160
9,423
=
P56,008
9,771
(10,927)
(3,344)
21,465
(30,344)
P
=83,257
(11,262)
(1,300)
15,180
(20,869)
=
P37,332
(9,447)
–
9,749
(23,060)
=
P43,021
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.
Seasonal Aspects that have a material effect on the FS – None.
SEC Form 17A 2007
74
For the Financial year ended 2006
GROUP FINANCIAL HIGHLIGHTS
For the Full Year ended 31 December 2006
•
Our Company posted a net income of P11.8 billion for the year, a 14% improvement over the P10.3 billion
registered in 2005. This net income improvement was achieved in spite of a 47% year-on-year increase in
provisions for income tax due to a higher corporate tax rate, the expiration of Globe’s income tax holiday last
March 2005, and a higher taxable base. The full year consolidated effective tax rate was 33% compared to 27% last
year.
The Company’s improved and expanded network coverage, the launch of various innovative, value-based
propositions, and its expansion into the mass markets through the TM brand have all contributed to the growth of
Globe’s subscriber base and service revenues. Meanwhile, targeted acquisitions and calibrated marketing spend
and the implementation of various cost-reduction initiatives translated to lower operating expenses, higher margins,
and profits.
•
Consolidated EBITDA and EBIT for the year registered double-digit growth of 11% and 13% year-on-year, closing
at P37.2 billion and P20.1 billion, respectively. EBITDA margins stood at 65% of service revenues, up from 61%
for the same period in 2005, while EBIT margins were at 35%, up from 32% last year.
•
Consolidated service revenues grew by 4% year-on-year, mainly driven by the year-on-year improvements in both
the wireless voice and data segments. Meanwhile, wireline service revenues continued to be impacted by the
stronger peso, decreasing by 1%. Total cumulative wireless subscribers stood at 15.7 million, a 26% year-on-year
growth due to healthier net additions across all brands. Targeted subscriber acquisition efforts, competitive service
offers, calibrated marketing spend, and effective retention promotions have all contributed to the strong gross
additions and managed churn levels.
•
Total capital expenditures for the year amounted to P14.88 billion, compared to last year’s P15.12 billion as
Globe’s 2G wireless network expansion program tapers off with geographic coverage of 94% and a population
reach of 98% by year end. Globe is currently carrying out its 3G network roll out as part of its commitment to
innovation and to enhance our subscribers’ experience with the service. Total cell sites reached 5,884 at the end of
December 2006, a 14% increase from 5,159 established last year.
•
The Company closed the year with free cash flow of P20.75 billion, up from last year’s P19.5 billion.
•
In its February 5, 2007 meeting, the Board of Directors declared the first semi-annual dividend for 2007 of P33 per
common share or a 10% increase over the previous semi-annual rate of P30.
SEC Form 17A 2007
75
GROUP RESULTS OF OPERATIONS
The following table details the consolidated results of operations for the Globe Group for the full years
ended 31 December 2006 and 2005.
Globe Group
For the Year Ended
31 Dec 31 Dec
YoY
Profit & Loss Data (Php Mn)
2006
2005
Change
(%)
4%
Net Service Revenues ………………………………………………
57,034
54,897
-8%
Subsidy and Operating Expenses…………………………………
19,814
21,463
-22%
Subsidy 1…………………………………………………………
1,704
2,174
Operating Expenses ……………………………………………
-6%
18,110
19,289
EBITDA ……………………………………………………………
11%
37,220
33,434
EBITDA Margin……………………………………………………
65%
61%
Depreciation and Amortization…………………………………
9%
17,138
15,734
13%
EBIT ……………………………………………………………….
20,082
17,700
-9%
Financing……………………………………………………….
(4,978) (5,444)
Interest Income…………………………………………………
38%
855
620
Others - net………………………………………………………
17%
1,640
1,406
Provision for Income Tax……………………….............................. (5,844) (3,967)
47%
Net Income After Tax (NIAT)……………………………………
14%
11,755
10,315
24%
Core Net Income 2 …………………………………………………
10,849
8,715
_________________________________
1
Subsidy is the difference between non-service revenues and cost of sales. Non-service revenues are reported net
of discounts on phonekits and SIM (Subscriber Identification Module) packs while the costs related to the sale of
handsets and SIM packs are shown under cost of sales.
2
Core net income is net income after tax (NIAT) before forex/MTM gains (losses) and charges related to the
early redemption of the Group’s 2012 Senior Notes. 2006 figures have been restated for presentation purposes.
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 (Php Mn)
Globe Group
For the Year Ended
31 Dec
31 Dec
YoY
2006
2005
Change
(%)
Wireless
Service Revenues…………………………………………………
Non-Service Revenues……………………………………………
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…………………………………….
6,388
6,362
26
59,949
6,519
6,416
103
58,748
-2%
-1%
-75%
2%
SEC Form 17A 2007
76
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 cost-effective
acquisition and loyalty programs.
WIRELESS BUSINESS
Wireless Revenues (Php Mn)
Service
Voice1 ….………………………………………………………….
Data 2..……………………………………………………………
Wireless Net Service Revenues…………………..…….....................
_________________________________________________________________________
1
Globe Group
For the Year Ended
31 Dec
31 Dec
YoY
2006
2005
Change
(%)
28,982
21,690
50,672
28,111
20,370
48,481
3%
6%
5%
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.
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.
SEC Form 17A 2007
77
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 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 internetwork 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.
SEC Form 17A 2007
78
The wireless business results were further driven by the following key drivers set out in the table
below:
Cumulative Subscribers (or SIMs*) – Net
Postpaid . ……………………………………………………
Prepaid .……………………………………………………
Globe Prepaid ……………………………………………
TM ……………………………………………………..
Globe
For the Year Ended
31 Dec
31 Dec
YoY
2006
2005
Change
(%)
15,659,742 12,403,575
26%
643,901
594,142
8%
15,015,841 11,809,433
10,118,897 8,699,687
4,896,944 3,109,746
Average Revenue Per Subscriber (ARPU)
Gross ARPU
Postpaid . ………………………………………………….
Prepaid1
Globe Prepaid ……………………………………………
TM ………………………………………………………
Net ARPU
Postpaid . ……………………………………………………
Prepaid
Globe Prepaid ……………………………………………
TM ………………………………………………………
Subscriber Acquisition Cost (SAC)
Postpaid . ……………………………………………………
Prepaid
Globe Prepaid ……………………………………………
TM ………………………………………………………
Average Monthly Churn Rate (%)
Postpaid . ……………………………………………………
Prepaid
Globe Prepaid ……………………………………………
TM ………………………………………...........................
27%
16%
57%
2,290
2,246
2%
372
246
378
333
-2%
-26%
1,673
1,635
2%
262
181
268
214
-2%
-15%
6,787
7,026
-3%
83
91
248
90
-67%
1%
1.83%
3.10%
4.73%
5.94%
7.77%
9.45%
____________________________________________
*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.
SEC Form 17A 2007
79
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 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-onquarter 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 around 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 SIMswappers 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 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. SIM-swappers are counted
as subscribers after their first reload. However, from the second half of 2004 until the end of the SIMswap 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.
SEC Form 17A 2007
80
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-onquarter 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 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.
SEC Form 17A 2007
81
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.
•
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.
SEC Form 17A 2007
82
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.
SEC Form 17A 2007
83
WIRELINE BUSINESS
Innove
For the Year Ended
31 Dec
31 Dec
YoY
2006
2005
Change
(%)
Service Revenues (Php Mn)
Voice1 ….…………………………………………………
Data 2..……………………………………………………
Wireline Net Service Revenues…………………..……........
_______________________________________
1
4,312
2,050
6,362
4,396
2,020
6,416
-2%
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.
SEC Form 17A 2007
84
Wireline Voice
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)……………
Innove
For the Year Ended
31 Dec
31 Dec
YoY
2006
2005
Change
(%)
378,022
362,143
4%
1,103
973
1.95%
51,426
1,233
1,088
1.7%
22,479
-11%
-11%
129%
As of 31 December 2006, Innove increased its total wireline voice subscribers by 4% to 378,022 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 companyinitiated 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
Service Revenues (Php Mn)
Wireline Data
International …..……………………………………
Domestic …… ………………………………… ……
Others 1 ……………………………………………
Total Wireline Data Service Revenues………………………
________________________________________________________________________
1
Innove
For the Year Ended
31 Dec
31 Dec
YoY
2006
2005
Change
(%)
604
833
614
2,050
679
797
544
2,020
-11%
4%
13%
1%
Includes revenues from value-added services and corporate internet services.
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.
SEC Form 17A 2007
85
To further promote our products and services, we have introduced a stream of service innovations and
customized solutions for our SME and corporate markets. 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 Innove’s 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.
b.
c.
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.
Two months of waived voice MSF for subscribers who upgrade to the Globelines
Postpaid Plus service
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.
SEC Form 17A 2007
86
OTHER GLOBE GROUP REVENUES
International Long Distance (ILD) Services
Globe Group
For the Year Ended
31 Dec 31 Dec YoY
ILD Revenues and Minutes
2006 2005 Change
(%)
3%
Total ILD Revenues (Php Mn) ……………………………………………. 13,967 13,526
.
Total ILD Revenues as a percentage of net service revenues…………………
24%
25%
Total ILD Minutes (in million minutes) 1…………………………………
1,948
1,469
33%
Inbound………………………………………………………………..
Outbound.………………………………………………………………
ILD Inbound / Outbound Ratio (x) ……………………………………
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
=13,967 million during the year compared to =
P
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.
Through our alliance with the Bridge Mobile partners, Globe was also able to launch 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 calling their family in the Philippines.
On the wireline front, Innove launched and continued to offer its Lowest IDD rates promotion where
its 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.
SEC Form 17A 2007
87
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.
SEC Form 17A 2007
88
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 =
P36,952 million from P
=37,197 million for the same period
in 2005.
Costs and Expenses (Php Mn)
Cost of sales……………………………………………………………….
Less: Non-service revenues…………………………………………...
Subsidy……………………………………………………………………
Globe Group
For the Year Ended
31 Dec 31 Dec YoY
2006 2005 Change
(%)
4,619 6,025 -23%
2,915 3,851 -24%
1,704 2,174 -22%
Selling, Advertising and Promotions………………………………...
3,525 4,697
Staff Costs ……………………………………………………………….. 3,564 3,519
Utilities, Supplies & Other Administrative Expenses……………………. 2,121 1,982
Rent………………………………………………………………………. 2,081 1,840
Repairs and Maintenance…………………………………………………… 2,122 1,877
Provisions ………………………………………………………………
446
683
Services and Others……………………………………………………….
Insurance and security…………………………………………………. 1,441 1,478
Professional and Other contracted services……………………………. 1,394 1,495
Taxes and Licenses and Others………………………………………
1,416 1,718
Operating Expenses…………………………………………………………. 18,110 19,289
-25%
1%
7%
13%
13%
-35%
Depreciation and Amortization ……………….………………………...
17,138 15,734
Total………………………………………………………………………….. 36,952 37,197
9%
-1%
-3%
-7%
-18%
-6%
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.
Staff Costs
Staff costs accounted for 20% of total operating expenses. The slight increase of 1% year-on-year was
due to additional personnel hired during the year as total headcount increased by 3.6% to 5,161 from
4,984 in 2005.
SEC Form 17A 2007
89
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-on-year 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 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.
SEC Form 17A 2007
90
Depreciation and Amortization
Depreciation and amortization increased by 9% to =
P17,138 million for the year compared to =
P15,734
million in 2005. This increase reflected the additional depreciation charges related 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.
Other Income Statement Items
Other income statement items include financing costs – net interest income and others – net as shown
below:
Total Other Income (Expenses) (Php Mn)
Financing Costs – net
Interest Expense………………………………………………
Globe Group
For the Year Ended
31 Dec
31 Dec
YoY
2006
2005
Change
(%)
(4,214)
(4,658)
-10%
(338)
(426)
(4,978)
(104)
(682)
(5,444)
225%
-38%
-9%
Foreign Exchange (loss)gain – net………………………………
1,706
Interest Income ……………………………………………………
855
Property and Equipment related charges - net ……………………
(66)
Total Other Income (Expenses) *………………………………
(2,483)
* Figures for 2006 and 2005 have been restated for presentation purposes.
2,303
620
(897)
(3,418)
-26%
38%
-93%
-27%
Gain (Loss) on derivative instruments – net……………………
Swap costs and other financing costs…………………………
For 2006, the Globe Group registered a =
P466 million or 9% year-on-year decrease in financing costs
from the P5,444 million of 2005. 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 P620 million in 2005 to P855 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.
SEC Form 17A 2007
91
The consolidated provision for current and deferred income tax for the Globe Group increased by 47%
or P1,877 million to P5,844 million for the year from P3,967 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.
As a result of the above, the Globe Group’s consolidated net income increased by 14% year-on-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 P
=10,849 million, a 24% improvement from last year’s =
P8,715 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
YoY
change
(%)
31 Dec
2005
Balance Sheet Data (Php Mn)
Total Assets …………………………………………………
Total Debt ……………………………………………………
Total Stockholders’ Equity …………………………………
124,580
39,207
56,948
125,102
49,693
51,619
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) ...………………
1.05
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
1
-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 P
=125,102 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 =
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 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.
SEC Form 17A 2007
92
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.
Consolidated Net Cash Flows
For the full year ended (Php Mn)
Net Cash Provided by Operating Activities ………………..
Net Cash Used in Investing Activities………………………
Net Cash from Financing Activities…………………………
Globe Group
31 Dec
YoY
31 Dec
2005
change
2006
(%)
32,565
28,952
12%
(18,908) (15,943)
19%
(17,062) (15,680)
9%
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 (Php Mn)
31 Dec
31 Dec
YoY change
2006
2005
(%)
Capital Expenditures (Cash) …………………………………..
12,634
16,061
-21%
Increase (Decrease) in Liabilities related to Acquisition of PPE
2,246
(939)
-339%
Total Capital Expenditures1 …………………………………..
14,880
15,122
-2%
Total Capital Expenditures / Service Revenues (%)…………
______________________________________________________________________________
1
26%
28%
Consolidated capital expenditures include property and equipment, intangibles and capitalized borrowing costs
acquired as of report date regardless of whether payment has been made or not.
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 expenditures, of =
P14,880 million
decreased by 2% from the previous year’s level. For 2007, Globe is allocating approximately US$350
million for capital expenditures to deepen coverage for its 2G wireless network, accelerate broadband
network roll-out, and upgrade necessary facilities for 3G. The 2007 capital expenditure program will
be funded through internally-generated cash and debt financing.
Consolidated net cash used in financing activities for the year amounted to =
P17,062 million, a 9%
increase compared to =
P15,680 million in 2005. Consolidated total debt as of year end amounted to
=39,207 million, a 21% decrease from the =
P
P49,693 million from last year. Loan repayments of Globe
for 2006 amounted to =
P10,429 million compared to the =
P12,527 million paid for in 2005.
SEC Form 17A 2007
93
As of 31 December 2006, gross debt dropped to P
=39,207 million, 62% of which are denominated in
US$. 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
2007 ……………………………………………………………………………………
2008……………………………………………………………………………………
2009……………………………………………………………………………………
2010 through 2012 ……………………………………………………………………
Total
Principal
(US$
millions)
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.
SEC Form 17A 2007
94
As of 31 December 2006, Globe’s capital stock consists of:
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.
b.
c.
d.
e.
f.
g.
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;
Cumulative and non-participating;
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
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 10% 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.
SEC Form 17A 2007
95
Foreign Exchange and Interest Rate Exposure
The Philippine Peso stood at =
P49.045 as of 31 December 2006, an 8% appreciation versus =
P53.062 at
the end of 2005.
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
income statements for the year ended 31 December 2006 amounted to P338 million. (See related
discussion under Results of Operations)
SEC Form 17A 2007
96
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 foreigncurrency linked expenses which registered 12% and 15% (as a percentage of total operating expenses)
for the years 2006 and 2005, respectively.
SEC Form 17A 2007
97
Annex to MD&A for the financial year ended 2006
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 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.
•
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
SEC Form 17A 2007
98
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 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
SEC Form 17A 2007
99
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.
SEC Form 17A 2007
100
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 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.
SEC Form 17A 2007
101
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 sum-of-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.
SEC Form 17A 2007
102
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
=9,690,125
P
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
P
=175,051
700,204
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 =
P30.34 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.
SEC Form 17A 2007
103
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 leases is
P
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 =
P2.02 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 =
P4,548.84 million,
=2,444.11 million and =
P
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 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.
SEC Form 17A 2007
104
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 =
P1,133.79 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 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. 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 longterm liabilities” account in the consolidated balance sheets are as follows:
2006
Current
Noncurrent
P
=13,389
100,705
P
=114,094
2005
2004
(In Thousand Pesos)
=14,759
P
P
=17,760
123,166
146,449
=137,925
P
=
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.
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
SEC Form 17A 2007
105
PART IV-MANAGEMENT AND CERTAIN SECURITY HOLDERS
Item 8. Directors and Key Officers of the Registrant
A. Board of Directors
Name
Jaime Augusto Zobel de Ayala
Delfin L. Lazaro
Chang York Chye 1
Gerardo C. Ablaza, Jr.
Romeo L. Bernardo
Roberto F. de Ocampo
Koh Kah Sek
Xavier P. Loinaz
Guillermo D. Luchangco 2
Jesus P. Tambunting 2
Fernando Zobel de Ayala
1
Position
Chairman
Co-Vice Chairman & Chairman of ExCom
Co-Vice Chairman
Director, President and CEO
Director
Director
Director
Director
Director
Director
Director
During the November 6, 2007 BOD meeting, Mr. Chang York Chye was appointed director and co-vice chairman in place of
Mr. Lim Chuan Poh, who resigned effective October 1, 2007.
2
Independent Directors
Jaime Augusto Zobel de Ayala. Mr. Ayala, 48, 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 Micro-electronics, 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 socio-civic 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 a
TOYM (Ten Outstanding Young Men) Awardee in 1999 and was named Management Man of the
Year in 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. He was also
awarded the prestigious Harvard Business School Alumni Achievement Award in 2007.
Delfin L. Lazaro. Mr. Lazaro, 61, Filipino, has served as Director since January 1997. He is
currently the Chairman of the Executive Committee of Globe. He is a member of the Management
Committee of Ayala Corporation. His other significant positions include: Chairman of HRMall, Inc.
and Philwater Holdings Co., Inc.; Chairman and President of AYC Holdings Ltd.; Directors of Ayala
Corporation, Ayala Land, Inc., Manila Water Co., Inc., Integrated Micro-electronics, Inc., AI North
America, AC International Finance Ltd. 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 also cited for stabilizing the
power situation that helped the country achieve successively high growth levels up to the Asian crisis
in 1997.
SEC Form 17A 2007
106
Chang York Chye. Mr. Chang, 40, is currently Executive Vice President (Business) of SingTel.
He serves in the advisory committees of various institutions and is a Board member of the Workforce
Development Agency (WDA) and the Deputy Chairman of the WDA Lifelong Learning Endowment
Fund. Prior to joining Singtel, Mr. Chang was the Managing Director of CISCO Systems’ Advanced
Services Group in Asia Pacific and was responsible for the company’s operations in 13 countries.
Gerardo C. Ablaza, Jr. Mr. Ablaza, 54, 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, 53, Filipino, has served as a director since 2001. He is
President of Lazaro Bernardo Tiu & Associates, Inc., a boutique financial advisory firm. He also
serves as the GlobalSource economist in the Philippines. Mr. Bernardo currently sits on the Board of
Directors of Bank of the Philippine Islands, PSi Technologies Holdings, Inc. (a NASDAQ-listed
company), RFM Corporation, PHINMA, Ayala Life Assurance Inc./Ayala Plans, Inc., Philippine
Institute for Development Studies (PIDS) Inc., East Asia Power Resources Corporation, National
Reinsurance Corporation of the Philippines and is Chairman of ALFM Peso, Dollar and Euro Bond
Funds and the Philippine Stock Index Fund. Mr. Bernardo previously served as Undersecretary of
Finance of the Republic of the Philippines and was Executive Director at the Asian Development
Bank. He was also an Advisor at the World Bank and the IMF (Washington D.C.) and served as
Deputy Chief of the Philippine Delegation to the GATT (WTO), Geneva. Mr. Bernardo also currently
does World Bank and Asian Development Bank-funded policy advisory work. He was formerly
President of the Philippine Economics Society and Chairman of the Federation of ASEAN Societies.
Roberto F. de Ocampo. Dr. de Ocampo, 61, Filipino, has served as director since 2003. He is
presently a member of the Board of Trustees of the Asian Institute of Management (AIM), one of
Asia’s leading international business and management graduate schools based in the Philippines and is
Chairman of the Board of Advisors of the RFO Center for Public Finance and Regional Economic
Cooperation (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 postgraduate 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 had been and is 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.
Koh Kah Sek. Ms. Koh, 36, Singaporean, is currently the Chief Financial Officer (Singapore) of
SingTel. She 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.
SEC Form 17A 2007
107
Xavier P. Loinaz. Mr. Loinaz, 64, 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.; Chairman of the Board of Directors of Ayala Life Assurance, Inc.; Vice Chairman
of FGU Insurance Corporation; and Member of the Board of Trustees of BPI Foundation, Inc.
Guillermo D. Luchangco. Mr. Luchangco, 68, 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, 70, 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 87 development banks in 37 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, 47, 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, Ayala Hotels, Inc. and
Alabang Commercial Corp.; Director of Integrated Micro-electronics Inc., Bank of the Philippine
Islands and AI North America; 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.
SEC Form 17A 2007
108
B. Key Officers
The key officers and consultants of the 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 names and positions of our key officers as of December 31, 2007.
Key Officers – 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 Wireless Business Group
Head – Consumer Broadband Business Group
Chief Information Officer
Chief Financial Officer
Head – Human Resources
Head - Corporate and Regulatory Affairs Group
* Member of the Board of Directors
Renato O. Marzan
Corporate Secretary
Consultants
Name
Lee Han Kheng
Robert L. Wiggins
Chief Operating Adviser
Chief Technical Adviser
Position
Key Officer - Innove
Name
Gil B. Genio
Position
Chief Executive Officer – Innove
Ferdinand M. de la Cruz. Mr. de la Cruz, 41, Filipino, is currently the Head of the Consumer
Wireless 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, 45, Filipino, is the Head of Consumer Broadband Business
Group. 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, 51, 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, 58, Filipino, is the Chief Financial Officer. He joined
Globe in November 16, 2000 as Head of the Finance Group. He had worked previously with San
Miguel Corporation, first with the Strategic Planning and Finance Group and then as Executive Vice
President, CFO and Treasurer until 1999.
Susan Grace Rivera-Manalo. Ms. Manalo, 49, Filipino, is the Head for the Human
Resources Group. She joined Globe in 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 has
led mission-critical functions such as logistics and materials management and was executive sponsor
for strategic processes for HR and customer relations management.
SEC Form 17A 2007
109
Rodolfo A. Salalima. Mr. Salalima, 60, Filipino, lawyer, is Head of Corporate and
Regulatory Affairs Group and the Assistant Corporate Secretary. He has been with Globe since 1993.
He is also Managing Director of Ayala Corporation. From 1992 to 1996, he served as the first
President, Chairman and Founding Director of the Telecommunications and Broadcast Attorneys of
the Philippines, Inc., was President of the Philippine Electronics and Telecommunications Federation
(PETEF) and is currently a Director and the President of the Philippine Chamber of Telecom
Operators, Inc. (PCTO).
Renato O. Marzan. Atty. Marzan, 59, Filipino, has served as Corporate Secretary since 1993
and Compliance Officer since 2002. He is a former Director of Globe. He also serves as General
Counsel, Managing Director and Compliance Officer of Ayala Corporation; Director and Corporate
Secretary of Integrated Micro-electronics, Inc., Honda Cars Makati, Inc. and Isuzu Automotive
Dealership, Inc.; Corporate Secretary of AC International Finance Ltd., Avida Land Corp., Ayala
Hotels, Inc., Cebu Holdings, Inc., Alabang Commercial Corporation, Community Innovations, Inc.,
and Ayala Automotive Corporation; and Assistant Corporate Secretary of Ayala Corporation, Ayala
Land, Inc. and Ayala Foundation, Inc.
Lee Han Kheng. Mr. Lee, 39, Singaporean, joined Globe as Chief Operating Adviser in
2007. He is concurrently Managing Director of Singapore Telecom International (Philippines) Pte.
Ltd. Prior to joining Globe, Mr. Lee was SingTel’s Vice President for Business Products.
Robert L. Wiggins. Mr. Wiggins, 55, 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.
Gil B. Genio. Mr. Genio, 48, 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.
C. Family Relationships
The Chairman of our Board of Directors, Jaime Augusto Zobel de Ayala, 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 9 - Executive Compensation section for
details).
E. Involvement in Certain Legal Proceedings
None of the directors, officers or members of the Company’s senior management had 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;
SEC Form 17A 2007
110
(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.
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.”
The stockholders have ratified a resolution in 2003 fixing the per-diem remuneration of P100,000 for
non-executive Directors per Board meeting actually attended.
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.
For additional information on Board remuneration please see appropriate section in Part V - Corporate
Governance of this report.
Officers
The total annual compensation (including basic salary and other variable pay) of the President and
other top Officers of the Company (excluding its subsidiaries) for 2007 amounted to P112.19 million
and P84.48 million in 2006. The projected total annual compensation for 2008 is P116.15 million.
The total annual compensation paid to all senior personnel from Manager and up of the Company
(excluding its subsidiaries) amounted to P1,339.67 million in 2007 and P938.69 million in 2006. The
projected total annual compensation for 2008 is P1,494.69 million.
The total annual compensation for key officers and managers of the Company includes basic salaries,
guaranteed bonuses, fixed allowances and variable pay (performance-based annual incentive) is shown
below.
SEC Form 17A 2007
111
Name and Principal Position
Gerardo C. Ablaza, Jr.
President & Chief Executive Officer
Delfin C. Gonzalez, Jr.
Chief Financial Officer
Rodolfo A. Salalima
Head – Corporate and Regulatory Affairs
Group
Ferdinand M. dela Cruz
Head – Consumer Wireless Business Group
Susan Rivera-Manalo
Head – Human Resources
Rodell A. Garcia
Chief Information Officer
Rebecca V. Eclipse
Head – Consumer Broadband Business Group
CEO & Most Highly Compensated
Executive Officers
All other officers* as a group unnamed
Year
Salary
(in Php Mn)
Other
Variable Pay
(in Php Mn)
Actual 2006
Actual 2007
Projected 2008
61.86
70.10
77.92
22.62
42.09
38.23
Actual 2006
Actual 2007
Projected 2008
676.08
882.63
1,145.91
262.61
457.04
348.78
*Managers and up
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 Globe Group also has stock-based compensation, pension and benefit plans. The stock-based
compensation includes plans for certain regular employees and senior executives. The number of
shares allocated under the plans shall not exceed the aggregate equivalent of 6% of the authorized
capital stock. The pension plan is a funded, noncontributory, defined benefit plan that covers
substantially all of its regular employees and provides benefits based on years of service and
compensation on the last year of employment. (For additional details on compensation plans, refer to
Notes 3, 16 and 18 of the attached Notes to the Financial Statements on Management’s Significant
Accounting Judgments and Estimates, Employee Benefits and Related Party Transactions,
respectively.)
SEC Form 17A 2007
112
The Company has also offered Executive Stock Option Plans (ESOP) to the Company’s directors and
officers including key officers of its subsidiaries since April 2003. Of the below named directors and
officers, there were 150,250 common shares exercised for the year 2007:
Name
No. of Shares
Gerardo C. Ablaza, Jr.
Ferdinand M. dela Cruz
Rebecca V. Eclipse
Rodell A. Garcia
Delfin C. Gonzalez, Jr.
Lim Chuan Poh
Guillermo D.Luchangco
Renato O. Marzan
Rodolfo A. Salalima
All above-named
Officers and Directors
as a group
150,250
Date of Grant
Exercise Price
Market Price at
Date of Grant
Various
P795.92
P795.92
* 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.
SEC Form 17A 2007
113
Item 10. Security Ownership of Certain Record, Beneficial Owners &
Management
i.
Title of
Class
Preferred
Common
Common
Common
Security Ownership of Certain Record and Beneficial Owners (of more than 5%) as of
31 December 2007.
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) 3
31 Exeter Road, Comcentre,
Singapore 0923
Ayala Corporation 4
34/F Tower One Bldg. Ayala
Ave., Makati City
PCD Nominee Corp. (NonFilipino) 6
G/F Makati Stock Exch. Bldg.,
Ayala Avenue, Makati City
Name of Beneficial
Owner and
Relationship with
Record Owner
Asiacom Philippines,
Inc. 2 (Asiacom)
Singapore Telecom Int’l.
Pte. Ltd.
Ayala
(AC)
Corporation
Hongkong and Shanghai
Banking Corporation
(HSBC) and Standard
Chartered Bank (SCB) 7
5
Citizenship
Filipino
No. of Shares
Held
158,515,021
Percent
54.50%
Singaporean
58,846,486
20.23%
Filipino
44,114,262
15.17%
Various
24,659,740
8.48%
1
Asiacom Philippines, Inc. (“Asiacom”) is a significant shareholder of the Company.
As per By-laws and the Corporation Code, the Board of Directors of Asiacom has the power to decide how the Asiacom shares
in Globe are to be voted.
3
STI, a wholly-owned subsidiary of SingTel (Singapore Telecom), is a significant shareholder of the Company. As per its Bylaws, STI, through its appointed corporate representatives, has the power to decide how the STI shares in Globe are to be
voted.
4
Ayala Corporation is a significant shareholder of the Company.
5
As per By-laws and the Corporation Code, the Board of Directors of AC has the power to decide how the AC shares in Globe
are to be voted.
6
The PCD is not related to the Company.
7
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 24,659,740 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.
2
SEC Form 17A 2007
114
ii. Security Ownership of Directors and Management (Corporate Officers) as of
31 December 2007.
Title of
Class
Name of Beneficial Owner
Amount and Nature
of Beneficial
Ownership
Citizenship
Percent of
Class
Directors
Common
Common
Common
Common
Jaime Augusto Zobel de
Ayala
Delfin L. Lazaro
Chang York Chye
Gerardo C. Ablaza, Jr.
3 (direct & indirect)
1 (direct)
2 (direct)
65,001 (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
11,000 (direct)
Preferred
1 (direct)
Jesus P. Tambunting
Common
2,500 (direct)
Common Fernando Zobel de Ayala
1 (direct & indirect)
CEO and Most Highly Compensated Executive Officers
Common Gerardo C. Ablaza, Jr.
65,001 (direct &
indirect)
Common Ferdinand M. dela Cruz
7,524 (direct &
indirect)
Common Delfin C. Gonzalez, Jr.
30,000 (direct &
indirect)
Common Rodolfo A. Salalima
6,581 (direct &
indirect)
Common Rodell A. Garcia
7,790 (direct)
Common Rebecca V. Eclipse
4,254 (direct &
indirect)
Common Susan Rivera-Manalo
0
All Directors and Officers as a group
136,498
Filipino
0.0000010%
Filipino
Singaporean
Filipino
0.0000003%
0.0000007%
0.0223487%
Filipino
0.0000003%
0.0006306%
0.0000003%
0.0000007%
0.0000003%
0.0000003%
0.0037820%
0.0000003%
0.0008596%
0.0000003%
Filipino
0.0223487%
Filipino
0.0025869%
Filipino
0.0103146%
Filipino
0.0022627%
Filipino
Filipino
0.0026784%
0.0014626%
Filipino
Filipino
Singaporean
Filipino
Filipino
Filipino
Filipino
n/a
0.0469310%
None of the members of the Company’s directors and management owns 2.0% or more of the
outstanding capital stock of the Company.
Item 11. Certain Relationships and Related Transactions
For more information on refer to Note 16 of the attached 2007 Notes to the Consolidated Financial
Statements.
SEC Form 17A 2007
115
PART V – CORPORATE GOVERNANCE
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 for its internal and external
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 basic mechanisms for corporate governance are principally contained in the Company’s Articles
of Incorporation and By-Laws. These constitutive documents lay down, among others, the basic
structure of governance, minimum qualifications of directors, and the principal duties of the Board and
officers of the Company.
The Company’s Manual of Corporate Governance supplements and complements the Articles of
Incorporation and By-Laws by setting forth the principles of good and transparent governance.
The Company has likewise adopted a Code of Conduct, Conflict of Interest, and a Whistleblower
Policy for its employees, and has existing formal policies concerning Unethical, Corrupt and Other
Prohibited Practices covering both its employees and the members of the Board. These policies serve
as guide to matters involving work performance, dealings with employees, customers and suppliers,
handling of assets, records and information, avoidance of conflict of interest situations and corrupt
practices, as well as the reporting and handling of complaints from whistleblowers, including reports
on fraudulent reporting practices.
Moreover, the Company adopted an expanded corporate governance approach in managing business
risks. An Enterprise Risk Management Policy was developed to provide a better understanding of
the different risks that could threaten the achievement of the Company’s mission, vision, strategies,
and goals. The policy also highlights the vital role that each individual in the organization – from the
Senior Executive Group (SEG) to the staff - plays in managing those risks and in ensuring that the
Company’s business objectives are attained.
New initiatives are regularly pursued to develop and adopt corporate governance best practices, and to
build the right corporate culture across the organization.
The following sections summarize the key corporate governance processes and practices adopted by
Globe Telecom.
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, 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.
SEC Form 17A 2007
116
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 individuals to ensure balance of power and authority and to promote independent
decision-making. Of the eleven members of the Board, only the President-CEO is an executive
director; the rest are non-executive directors who are 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. The
members of the Board have likewise attended trainings on corporate governance prior to assuming
office. In accordance with the Securities & Exchange Commission (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 profiles of the directors are found in the “Board of Directors”
section of this annual report.
As of 31 December 2007, the Board is comprised of the following members:
Name
Jaime Augusto Zobel de Ayala
Delfin L. Lazaro
Chang York Chye *
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
* During the November 6, 2007 Board meeting, Mr. Chang York Chye was appointed director and co-vice chairman in place of
Mr. Lim Chuan Poh who resigned effective October 1.
** Mr. Jaime Augusto Zobel de Ayala and Mr. Fernando Zobel de Ayala are brothers.
Nature of Appointment
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 P100,000 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.
SEC Form 17A 2007
117
Also, the level of per diem is in line with standards currently practiced among publicly-listed
companies similar to Globe Telecom.
Board Performance
Directors attend regular meetings of the Board, which are normally held on a monthly basis, as well as
special meetings of the Board, and the ASM. A director must have attended at least 50% of all
meetings held in a year in order to be qualified for re-election in the following year.
The Board met twelve (12) times in 2007, including the ASM. The attendance of the individual
directors at these meetings is duly recorded, as follows:
Jaime Augusto Zobel
de Ayala
Delfin L. Lazaro
Lim Chuan Poh
Chang York Chye *
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
2007
Regular &
Annual
Special Meetings
Stockholders’
Meeting
2006
Regular &
Annual
Special Meetings
Stockholders’
Meeting
Present
Absent
Present
Absent
Present
Absent
Present
Absent
11
0
1
0
9
1
1
0
10
9
2
11
10
11
1
0
0
0
1
0
1
0
0
1
10
10
0
0
1
1
0
0
1
1
1
0
0
0
10
10
10
0
0
0
1
1
1
0
0
0
11
9
7
0
2
4
1
1
1
0
0
0
10
9
7
0
1
3
1
1
1
0
0
0
7
8
4
3
1
1
0
0
8
6
2
4
1
1
0
0
* At the November 6 Board meeting, Mr. Chang York Chye was appointed director and co-vice chairman in place of Mr. Lim
Chuan Poh who resigned effective October 1.
The average attendance rate of members of the Board is at 91% for 2006 and 88% for 2007. All
directors have individually complied with the SEC’s 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.
The Board conducts an annual self-assessment to ensure the continuing effectiveness of its processes
and to identify areas for improvement. During the last meeting of every year, the Board meets in
executive session to evaluate and discuss various matters concerning the Board, including that of its
own performance and that of the Company’s management team.
SEC Form 17A 2007
118
Board Committees
To further support the Board in the performance of its functions and to aid in good governance, the
Board has established five (5) committees. The role and function of each Board Committee is
described in detail below.
Executive Committee
The Executive Committee (ExCom) is comprised of four (4) members appointed by the Board. At
least three of the ExCom members are members of the Board. The ExCom acts by majority vote and
in accordance with the authority granted by 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
The Audit Committee’s roles and responsibilities are clearly defined in the Audit Committee Charter
approved by the Board. The Committee supports the corporate governance process through its
oversight responsibility relating to a) the integrity of the financial statements and the financial
reporting process, b) internal controls and financial reporting principles, policies, and systems, c)
independent auditors’ qualifications and independence, d) internal audit function and independent
auditors’ performance, e) risk management systems, and f) compliance with legal and regulatory
matters. Management however has the primary responsibility for the financial statements and the
reporting process, including the system of internal controls and risk management.
The Committee is composed of three members, at least one of whom is an independent director. An
independent director chairs the Audit Committee. All members of the Audit Committee are appointed
by the Board.
The Committee conducts tenders for independent audit services, reviews audit fees, and recommends
the appointment and fees of the independent auditors to the Board. The Board, in turn, submits the
appointment of the independent auditors and their fees for approval of the shareholders at the ASM.
The amount of audit fees is disclosed in this annual report.
The Audit Committee also approves the work plan of the Company’s Internal Audit Group, as well as
the overall scope and work plan of the independent auditors.
The Audit Committee meets at least once every quarter. During these meetings:
•
The Committee reviews the financial statements and all related disclosures and reports
certified by the Chief Financial Officer, and released to the public and/or submitted to the
SEC and Philippine Stock Exchange (PSE) for compliance with pertinent accounting and
financial reporting standards, as well as legal and regulatory requirements. The Committee,
after its review of the quarterly and annual audited financial statements of Globe Telecom
and its subsidiaries, endorses it to the Board for approval.
•
The Committee meets with the internal and independent auditors to discuss the results of
their audits as to the adequacy and effectiveness of the Company’s internal control system,
including information technology security and control.
•
The Committee reviews the performance and recommends the appointment, retention or
discharge of the independent auditors, including the fixing of their remuneration, to the full
Board. The Committee also reviews and approves the proportion of audit versus non-audit
work, both in relation to their significance to the auditor and in relation to the Company’s
year-end financial statements, as well as total expenditure on consultancy to ensure that nonaudit work will not be in conflict with the audit function of the independent auditor.
SEC Form 17A 2007
119
•
The Committee also reviews the effectiveness of the internal audit function, including
compliance with The Institute of Internal Auditor’s International Standards for the
Professional Practice of Internal Auditing (the “Standards”).
•
The Committee reviews periodic reports of the Company’s Chief Risk Officer providing
updates on the Company’s Enterprise Risk Management (ERM) process, including the results
of management’s annual risk assessment exercise. The Committee also reviews the process
for communicating the governance policies to company personnel, and monitors compliance
therewith, including to applicable laws and regulations pursuant to which the Company
conducts its operations and business activities.
To ensure compliance with regulatory requirements and assess the appropriateness of the existing
Charter for enabling good corporate governance, the Committee also reviewed and endorsed its
revised Audit Committee Charter to the Board which was ratified last November.
Compensation Committee
The Compensation Committee’s roles and responsibilities are clearly defined in the Compensation
Committee Charter approved by the Board. The Committee is composed of three (3) members, one of
whom is an independent director. All members of the Compensation Committee are appointed by the
Board.
The Committee is tasked to review the compensation philosophy and structure of the Company and
the reasonableness of its compensation and incentive plans and structures. The Committee also
reviews and approves the Company’s annual compensation plan and annual incentive plan. In
reviewing the plans, the Committee considers relevant industry and multi-industry benchmarks in
order to assess the reasonableness of management’s recommendations. The compensation plan also
includes retention structures for key positions. The Compensation Committee usually meets at least
twice a year, or more often as required.
The Stock Options Committee is a sub-committee of the Compensation Committee and has two (2)
members. The Stock Options Committee considers the framework for the award of stock options to
managers and executives, to the directors, and to certain key consultants.
Nominations Committee
The Nominations Committee’s roles and responsibilities are clearly defined in the Nominations
Committee Charter approved by the Board. The Committee is composed of three (3) members,
including one independent director. An independent director chairs the Committee. All members of
the Nominations Committee are appointed by the Board.
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. The Committee also reviews the qualifications of candidates
for the SEG – consisting of the President-CEO and his direct reports – and endorses them to the
Board.
The Committee meets at least once in the first quarter of the year to review the qualifications and
attendance of the nominees to the Board prior to the list of nominees being submitted to the
stockholders at the ASM. Thereafter, it meets as often as required to review specific nominations of
key hires and promotions to key positions as they come up in the ordinary course of business.
SEC Form 17A 2007
120
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 (3) members. All members of
the Finance Committee are appointed by the Board.
The members of each Board committee are set forth below:
Executive
Committee
Delfin L. Lazaro *
Compensation
Committee
Delfin L. Lazaro *
Finance
Committee
Delfin L. Lazaro *
Lim Chuan Poh **
Chang York Chye
**
Gerardo C. Ablaza,
Jr.
Gil B. Genio
Lim Chuan Poh **
Chang York Chye
**
Guillermo
D.
Luchangco
Koh Kah Sek
Delfin C. Gonzalez,
Jr.
Audit Committee
Jesus
P.
Tambunting *
Delfin L. Lazaro
Lim Chuan Poh **
Nominations
Committee
Guillermo
D.
Luchangco *
Delfin L. Lazaro
Lim Chuan Poh **
Chang York Chye
**
Chang York Chye
**
* Chairman
** At the November 6 Board meeting, Mr. Chang York Chye was appointed director and co-vice chairman in place of Mr. Lim
Chuan Poh who resigned effective October 1, 2007. Mr. Chang replaced Mr. Lim in the various committees.
In 2007, the Audit Committee met five (5) times, while the Nominations and Compensation
Committees have each met once. The attendance of the members of these Committees is duly recorded
as follows:
Directors
Delfin L. Lazaro
Lim Chuan Poh
Guillermo D. Luchangco
Jesus P. Tambunting
Audit Committee
Present
5
5
Absent
0
0
3
2
Nominations Committee
Present
1
1
1
Absent
0
0
0
Compensation
Committee
Present
Absent
1
0
1
0
1
0
Management
The CEO is accountable to the Board for the development and recommendation of strategies and the
execution of the strategic directions set by the Board. The CEO is guided by the Company’s Mission,
Vision, and Values statements, and is responsible for the day-to-day management of the Company.
The CEO is assisted by the Office of Strategy Management (OSM). OSM oversees the Company’s
strategy management processes – from strategy formulation, translation to executable plans and
horizontal alignment of priorities across the organization, then finally to execution and performance
tracking linked into the Company’s rewards system.
Key programs, projects, and major organizational initiatives are taken up at the SEG, composed of the
CEO as well as the heads of each of the customer facing units and the major support groups. All
budgets and major capital expenditures must be approved by the SEG prior to endorsement to the
Board for approval. The Chief Operating Adviser and Chief Technical Adviser also provide inputs to
the SEG as required. The SEG meets at least twice a month.
Management is mandated to provide 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 Philippine Financial Reporting Standards (PFRS).
Management’s statement of responsibility with regards to the Company’s financial statements is
included in this annual report.
SEC Form 17A 2007
121
The annual compensation of the seven (7) top officers of the Company, including the President-CEO,
is 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).
Enterprise Risk Management
Globe Telecom endeavors to continuously improve its risk management capabilities, cognizant of the
dynamism of business and the industry, and in line with its goal to enhance value for its stakeholders.
The Company has adopted an expanded corporate governance approach to manage its various business
risks. It has developed an Enterprise Risk Management Framework that defines the fundamental
structure by which to integrate and align strategies, management systems, culture, and processes, as
well as build competencies towards identifying threats and managing risks. The overriding goal is to
optimize the use of resources to manage critical risks and create value.
On a periodic basis, the Company conducts a strategy and risk self-assessment program, both at the
corporate and business unit level, to evaluate risks and their likely impact to business performance.
Principles of good governance, global risk management standards, and the applicable best practices in
managing business risks are also regularly shared across the organization. Risk owners at the senior
executive level have been identified and made accountable for managing risks. Risk owners are
supported by business process owners who have been designated, trained, and made responsible for
the particular process or activity from which the risk arises. This is consistent with management’s
belief that risks are best understood and managed by the employees who are closest to the process.
The Chief Risk Officer champions and oversees the entire risk management function. The Enterprise
Risk Management Services Division was also set up to dedicate resources to this critical function, and
is tasked to ensure the integration of the risk management discipline into the Company’s daily
operations.
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.
In April 2007, the Company rolled out and introduced an enterprise risk management awareness
program to cascade the Company’s risk management policy throughout the organization. The program
is now run on a bi-monthly basis, covering employees across all levels and functions.
In November 2007, the Enterprise Business Continuity Risk Management Unit under the Office of the
Chief Operating Adviser was created to review and further strengthen the continuity readiness of
every mission critical aspect of the Company’s business. The unit is tasked to develop an integrated
plan that will minimize the over-all effects of severe service disruptions brought on by adverse events
such as natural or man-made disasters, technological failures, or other contingencies.
Audit and Internal Controls
It is the policy of Globe Telecom to establish and support an Internal Audit function as a fundamental
part of its corporate governance practices. Internal audit is a service, providing an independent,
objective assurance and consulting function within the Company that shares the organization’s
common goal of creating and enhancing value for its stakeholders. In providing assistance to the Audit
Committee, the Internal Audit Group aims to assist all members of the organization accomplish their
objectives by bringing a systematic approach in evaluating and improving the effectiveness of the
Company’s risk management, control, and governance process.
The Internal Audit Group performs its auditing functions faithfully by maintaining independence from
management and controlling shareholders as it reports functionally to the Board, through the Audit
SEC Form 17A 2007
122
Committee, and administratively, to the President-CEO. The Internal Audit Group governs its work in
adherence to The Institute of Internal Auditors’ Professional Practices Framework and Code of Ethics,
and the Company’s Code of Conduct. In 2007, the group subjected its activities to an external Quality
Assurance Review (QAR). The independent review resulted to a “Generally Conforms” rating, the
highest rating awarded in connection with the QAR. This means that the group’s activities are
conducted in conformance with the Standards.
The Audit Committee reviews and approves the Annual Internal Audit Work Plan and all deviations
there from, and ensures that internal audit examinations cover at least the evaluation of adequacy and
effectiveness of controls encompassing the Company’s governance processes, information systems,
reliability and integrity of financial and operational information, effectiveness and efficiency of
operations, safeguarding of assets, and compliance with laws, rules, and regulations.
In 2007, the Internal Audit Group reviewed and revised its Internal Audit Charter, which was
accordingly approved by the Audit Committee and the Board, to ensure compliance with regulatory
requirements and appropriateness in enabling good corporate governance.
The Company also engages the services of an independent auditor to conduct an audit and provide
objective assurance on the reasonableness of the financial statements and relevant disclosures. The
independent auditor is directly responsible to the Audit Committee in helping ensure the integrity of
the Company’s financial statements and reporting process.
The appointment of the independent auditor is submitted to the shareholders for approval at the ASM.
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 financial statements and results of operations if
they desire to do so. The auditors are also expected to be available to respond to appropriate questions
during the meeting.
The appointed principal accountants and external auditors for Globe Telecom for 2007 is SyCip,
Gorres, Velayo & Company (SGV & Co.). In accordance with regulations issued by the SEC, the
audit partner principally handling the Company’s account is rotated every five (5) years or sooner. The
most recent rotation occurred in 2007.
There were no disagreements with the Company’s independent auditors on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure.
Billings for services rendered in connection with the engagement for 2007 amounted to P15.1 million
as compared to P13.9 million for 2006.
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 2007.
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.
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.
SEC Form 17A 2007
123
The aggregate fees billed by SGV & Co. are shown below (with comparative figures for 2006):
(Amount in millions of pesos)
2007
2006
Audit Fees
Billed during the current year
Billed in succeeding year
Total Audit Fees
Tax Fees
All Other Fees
Total
P
P
9.0
6.1
15.1
3.1
18.2
P
P
9.1
4.8
13.9
0.4
3.2
17.5
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 2007 and 2006.
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.
Financial Reporting
The consolidated financial statements of Globe Telecom and its subsidiaries have been prepared in
accordance with PFRS, 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 independent 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.
Dealings in Securities
Globe 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 those with
access to the quarterly results in the course of its review are prohibited from trading in Globe’s shares
starting from the time when quarterly results are internally reviewed until after Globe publicly
discloses its results. Notices of trading blackouts are regularly issued to the officers concerned and
compliance is monitored by the Corporate and Regulatory Affairs Group. Also, all key officers are
required to submit a report on their trades to a designated compliance officer, for submission to the
SEC in accordance with the Securities Regulation Code.
SEC Form 17A 2007
124
Ownership Structure
Globe Telecom regularly discloses the top 20 shareholders of the common and preferred equity
securities of the Company. Disclosure is also made of the security ownership of certain record and
beneficial owners who hold more than 5% of the Company’s common and preferred shares. Finally,
the shareholdings and percentage ownership of the directors and key officers are disclosed in the
Definitive Information Statement sent to the shareholders prior to the ASM.
The following are the major shareholders of Globe Telecom as of December 31, 2007:
Common
Shares
% of
Common
Preferred
Shares
Ayala Corp
44,114,262
33%
ST
58,846,486
Stockholders
Asiacom
Public
Total
% of
Preferred
shares
Total
% of
Total
-
44,114,262
15%
45%
-
58,846,486
20%
158,515,021
55%
29,372,803
10%
290,848,572
100%
-
-
158,515,021
29,372,803
22%
-
132,333,551
100%
158,515,021
100%
100%
Shareholder Relations
Globe Telecom recognizes the importance of regular communication 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 financial performance and
prospects through the annual report, quarterly financial reports, and analyst presentations.
The Company’s quarterly financial results are disclosed to the SEC and PSE within 24 hours from
their approval by the Board. The Company also files its quarterly and year-end financial statements
and the detailed management’s discussion and analysis within forty-five (45) and one hundred and
five (105) calendar days respectively from the end of the financial period covered by the report, in
compliance with the financial reporting and disclosure requirements of the SEC and the PSE. These
reports are also made available to the analysts immediately upon confirmation by the SEC of receipt
of disclosure, and are posted on the Company’s website.
Additionally, any material, market-sensitive information such as dividend declarations are also
disclosed to the SEC and PSE, as well as released through various media including press releases and
Company website posting.
The Company regularly holds Analysts’ and Media Briefing to discuss the quarterly financial results.
A conference call facility is set up during these Analysts’ and Media Briefing to enable wider
participation. The company also participates in both local and international investor conferences as
part of its investor communications program.
The Company likewise holds an annual stockholders’ meeting where shareholders are given the
opportunity to raise questions and clarify issues relevant to the Company. The Board, CEO, members
of management, and external auditors are present to address any questions raised at these meetings.
Enquiries by shareholders, whether by telephone, mail, or electronic mail, are dealt with as promptly
as possible. Shareholders, investors, and the public may also access the Company’s website
(http://www.globe.com.ph) to obtain information on the Company.
SEC Form 17A 2007
125
Employee Relations
Every day, Globe Telecom’s employees across the country strive to create and deliver superior value
for our customers. Whether we are serving our subscribers in our business centers; or customizing and
finding solutions for our entrepreneurial or corporate clients; or ensuring the quality and strength of
our networks – in Globe, we believe our business is all about transforming and enriching lives.
Developing Talents and Rewarding Excellence
Our people are our best competitive advantage for winning the future. We constantly enhance our
people development, leadership, and management processes in order to build competencies, sustain
succession planning, coaching, and career management, and raise employee engagement levels. We
have identified the key functional and behavioral competencies needed to win, and have developed
programs to address identified competency gaps and enhance personal effectiveness through
knowledge and skills building. In 2007, we trained as much as 69% of our leaders, up from 49% in
2006. We have enabled 54% or close to 3,000 of our employees to upgrade or refresh their skills by
attending public or in-house training programs, significantly up from 33% in 2006.
We also continue to create opportunities for our employees to learn from other best practice
companies here and in the region through job rotations, web-based learning, foreign training courses,
as well as through cross-posting assignments with SingTel and its Australian subsidiary Optus. Given
the unrelenting war for talent, various pipeline programs for defined talent segments have been put in
place, including our IT Cadetship and Engineering Cadetship Programs for our technical talents, the
Globe Sales and Account Management, Development Program, and the Globe Management
Development Program, a six-month, cross-functional immersion program which we first rolled out in
1995 to develop our future business leaders. Our overarching goal is to make sure that Globe Telecom
is able to proactively grow and develop the next generation of leaders who will drive the business of
the future.
In 2008, our priority is to launch our One Globe University – a platform for creating and sustaining a
learning organization, while fostering a One Globe culture. Designed to employ both classroom and
job-based methodologies, the One Globe University will encompass an integrated performance
management, career development, and learning development system.
We also nurture a strong performance-oriented culture that puts the customers first in all that we do.
We recognize and reward talents who demonstrate and create value for the organization. In 2007, we
redefined our rewards philosophy to align with the Company’s over-all strategy and changing business
landscape, providing a more compelling total rewards experience that encompasses continuous
learning and development, competitive and market-driven compensation, flexible and innovative
benefits, and engaging relationships between leaders and team members.
Volunteerism in Globe
Our employees have kept alive the spirit of volunteerism by reaching out to some of the lessprivileged communities in Manila, Caloocan, Payatas, Cebu, Bacolod, and other parts of the country.
In 2007, over 1,200 employees have volunteered more than 10,000 man-hours to build homes and
communities through Gawad Kalinga. Many others have participated in various programs that
encourage entrepreneurship at the grassroots, and uplift education in our beneficiary schools. We also
took an active part in protecting the environment through various reforestation activities and coastal
cleanups. True to our goal to help build our nation, volunteerism is an integral part of life in Globe.
SEC Form 17A 2007
126
Fostering Harmonious Labor Relations
The Globe Group has 5,511 active regular employees as of December 31, 2007, of which about 13%
are covered by a Collective Bargaining Agreement (CBA) with the Globe Telecom Workers Union
(GTWU). 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 GTWU characterized by
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.
Enhancing Corporate Governance
Globe Telecom is committed to continually improve its corporate governance practices. The Company
recently conducted a corporate governance refresher course for the SEG members and key staff. In the
area of risk management, a business continuity planning team has been organized to lead in the
enhancement and implementation of an integrated disaster response and recovery plan, and to oversee
the conduct of a company-wide awareness campaign to highlight the need for operational
effectiveness and resilience.
In recognition of the Company’s efforts, the Institute of Corporate Directors, together with the SEC
and the PSE, has recently named Globe Telecom as one of the country’s Top Five Publicly Listed
Companies for Corporate Governance. The Management Association of the Philippines also
awarded the Company “Best in Corporate Governance Disclosure for a Non-Financial
Institution” and 1st Runner-up in the “Best Annual Report” category.
SEC Form 17A 2007
127
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 disclosures. Of these, the more significant ones are as follows:
Date
January 9, 2007
January 11, 2007
January 12, 2007
January 24, 2007
February 5, 2007
February 8, 2006
February 9, 2007
February 23, 2007
February 26, 2007
March 26, 2007
March 30, 2007
April 24, 2007
April 24, 2007
May 7, 2007
May 31, 2007
June 19, 2007
July 9, 2007
July 16, 2007
July 23, 2007
July 25, 2007
August 2, 2007
August 10, 2007
August 10, 2007
August 23, 2007
August 28, 2007
September 13, 2007
September 6, 2007
October 24, 2007
November 6, 2007
November 7, 2007
November 12, 2007
November 13, 2007
December 12, 2007
December 13, 2007
SEC Form 17A 2007
Title
Globe and CSL launch a special SIM for OFWs in Hong Kong
Globe cited in the 4th Best Annual Report Awards
Globe announces that the BSP had approved its application to redeem its
US$300 Million senior unsecured notes
Invitation to 4Q’06 Investors’ Briefing
Press Release – Globe 4Q’06 results and presentation materials
GlobeSolutions turns the Bureau of Customs into an SMS-enabled enterprise
Globe Telecom signs US$50 Million term loan facility with Norddeutsche
Landesbank Girozentrale, Singapore Branch
Globe sends formal notice to Bank of NY to exercise its call option on the
Company’s US$300 Million senior unsecured notes.
GlobeSolutions and RIM bring the BlackBerry Pearl to the Philippines
Globe and Maxis launch the first and only Kababayan SIM for OFWs in
Malaysia
Annual Stockholders Meeting Presentation materials
Invitation to 1Q 2007 Investors’ Briefing
Globe bridges the distance between OFWs and their families through ONE
Ayala
Press Release – Globe 1Q’07 results and presentation materials
Moody’s Investors Service upgrades local currency issuer rating to Baa1 from
Baa2
A Whole New Way of Connecting with Globe’s Super 3G Offers
Globe leads small businesses to micro financing through text
Globe launches website especially for SMEs
Jetstar Asia does Mobile Marketing with Globe Telecom
Globe Telecom and Yahoo expand Internet services for Mobile Subscribers in
the Philippines
Invitation to 2Q 2007 Investors’ Briefing
Globe Board of Directors declares 2nd semi-annual cash dividend for 2007 of
P33 per common share
Press Release – Globe 2Q’07 results and presentation materials
Fitch Ratings upgrades Globe LT local currency IDR to BBB- from BB+
Globe Broadband brings Internet access to every Filipino home
Globe and Dexterra Simplify the Path to Business Mobility
Globe Brings Life to Every Home
Invitation to 3Q’07 Investors’ Briefing
Globe Board of Directors declare a special cash dividend of P50 per common
share
Press Release – Globe 3Q’07 results and presentation materials
Globe subsidiary and SSS introduce the new Globe FastLane SSS to employers
and banks
Fitch Ratings affirms Globe’s Issuer and instrument ratings
Globe wins in the 5th Best Annual Report Awards
Globe’s worldwidest coverage now extends to cruise ships and luxury liners
129
INDEX TO EXHIBITS
Description of Exhibit
Remarks/Attachment
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 (Specimen of 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.
SEC Form 17A 2007
130
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Available-for-sale investments
Held-to-maturity investments
Receivables - net
Inventories and supplies
Derivative assets
Prepayments and other current assets - net
Total Current Assets
Noncurrent Assets
Property and equipment - net
Investment property - net
Intangible assets - net
Investments in an associate and a joint venture
Deferred income tax - net
Derivative assets
Other noncurrent assets - net
Total Noncurrent Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses
Provisions
Derivative liabilities
Income taxes payable
Unearned revenues
Notes payable
Current portion of:
Long-term debt
Other long-term liabilities
Total Current Liabilities
Noncurrent Liabilities
Deferred income tax - net
Long-term debt - net of current portion
Derivative liabilities
Other long-term liabilities - net of current portion
Total Noncurrent Liabilities
Total Liabilities
Equity
Paid-up capital
Cost of share-based payments
Cumulative translation adjustment
Retained earnings
Total Equity
December 31
2006
(In Thousand Pesos)
Notes
2007
28, 30
28
28
28
4, 28
5
28
6, 28
P
=6,191,004
500,000
–
2,350,032
6,383,541
1,112,146
528,646
1,675,004
18,740,373
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
7
8
9
10
24
28
11
91,527,820
291,207
2,434,623
83,257
637,721
–
2,905,851
97,880,479
P
=116,620,852
95,052,719
314,503
2,150,318
37,332
801,863
–
2,008,108
100,364,843
P
= 124,579,833
97,692,207
259,538
1,963,190
43,263
1,163,943
71,634
1,014,580
102,208,355
P
= 125,102,390
12, 28
13
28
P
=18,435,453
219,687
326,721
1,361,420
1,866,531
500,000
P
= 16,485,265
248,310
558,087
831,381
1,270,075
–
P
= 13,972,222
231,455
308,688
291,348
1,301,684
–
14, 28
15, 28
4,803,341
86,416
27,599,569
6,271,601
93,422
25,758,141
7,858,150
269,737
24,233,284
24
14, 28
28
15, 28
5,502,890
25,069,511
14,110
3,017,962
33,604,473
61,204,042
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
17
16, 18
28
17
33,720,380
306,358
184,408
21,205,664
55,416,810
P
=116,620,852
28
See accompanying Notes to Consolidated Financial Statements.
33,484,361
340,743
(193,790)
23,316,837
56,948,151
P
= 124,579,833
2005
33,315,408
312,644
(235,892)
18,226,650
51,618,810
P
= 125,102,390
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Notes
REVENUES
Service revenues
Nonservice revenues
Interest income
Others - net
COSTS AND EXPENSES
General, selling and administrative
Depreciation and amortization
Financing costs
Cost of sales
Impairment losses and others
Equity in net losses of an associate and a joint
venture
16
Years Ended December 31
2007
2006
2005
(In Thousand Pesos, Except Per Share Figures)
P
= 63,208,652
2,300,064
728,621
1,804,481
68,041,818
P
= 57,033,619
2,915,389
854,865
2,151,570
62,955,443
P
= 54,896,813
3,850,788
620,089
2,880,803
62,248,493
21
7, 8, 9
22
5
23
21,304,473
17,188,998
5,224,939
3,322,777
941,260
18,080,931
17,137,553
4,978,749
4,618,735
534,948
19,142,262
15,733,959
5,443,920
6,024,711
1,608,856
10
9,023
47,991,470
5,834
45,356,750
13,334
47,967,042
20,050,348
17,598,693
14,281,451
4,391,427
1,452,593
5,844,020
1,847,690
2,119,253
3,966,943
P
= 13,277,019
P
= 11,754,673
P
= 10,314,508
P
= 100.07
P
= 99.58
P
= 88.56
P
= 88.32
P
= 76.74
P
= 76.60
P
= 116.00
P
= 50.00
P
= 40.00
19
20, 25
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM)
INCOME TAX
Current
Deferred
24
6,841,240
(67,911)
6,773,329
NET INCOME
Earnings Per Share
Basic
Diluted
27
Cash dividends declared per common share
17
See accompanying Notes to Consolidated Financial Statements.
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Notes
As of January 1, 2007
Fair value changes to derivatives
accounted under cash flow hedge
Transferred to income and expense
for the period
Tax effect of items taken directly to or
transferred from equity
Changes in fair value of available-forsale equity investments
Net gain recognized directly in equity
Net income for the period
Total income for the period
Dividends on:
Common stock
Preferred stock
Cost of share-based payments
Collection of subscriptions receivable
Exercise of stock options
As of December 31, 2007
As of January 1, 2006
Fair value changes to derivatives
accounted under cash flow hedge
Transferred to income and expense
for the period
Tax effect of items taken directly to or
transferred from equity
Changes in fair value of available-forsale equity investments
Net gain recognized directly in
equity
Net income for the period
Total income for the period
Dividends on:
Common stock
Preferred stock
Cost of share-based payments
Collection of subscriptions receivable
Exercise of stock options
As of December 31, 2006
(Forward)
Additional
Cost of Cumulative
Capital
Retained
Paid-in Share-Based Translation
Stock
Earnings
Total
Capital Payments Adjustment
For the Year Ended December 31, 2007 (In Thousand Pesos)
P
= 7,349,654 P
= 26,134,707
28
P
= 340,743
(P
= 193,790) P
= 23,316,837 P
= 56,948,151
–
–
–
193,165
–
193,165
–
–
–
(26,069)
–
(26,069)
–
–
–
194,944
–
194,944
–
–
–
–
–
–
–
–
–
–
–
–
16,158
378,198
–
378,198
–
–
13,277,019
13,277,019
16,158
378,198
13,277,019
13,655,217
17
–
–
–
– (15,338,743) (15,338,743)
–
–
–
–
(49,449)
(49,449)
–
–
129,914
–
–
129,914
18
4,660
–
–
–
–
4,660
12,688
218,671
(164,299)
–
–
67,060
17
P
= 7,367,002 P
= 26,353,378
P
= 306,358
P
= 184,408 P
= 21,205,664 P
= 55,416,810
For the Year Ended December 31, 2006 (In Thousand Pesos)
P
= 7,333,741 P
= 25,981,667
28
P
= 312,644
(P
= 235,892) P
= 18,226,650 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
17
–
–
–
–
18
–
–
6,946
–
17
8,967
153,040
P
= 7,349,654 P
= 26,134,707
–
–
161,628
–
(133,529)
P
= 340,743
– (6,599,817) (6,599,817)
–
(64,669)
(64,669)
–
–
161,628
–
–
6,946
–
–
28,478
(P
= 193,790) P
= 23,316,837 P
= 56,948,151
Notes
As of January 1, 2005
Fair value changes to
derivatives accounted
under cash flow hedge
Transferred to income and
expense for the period
Tax effect of items taken
directly to or transferred
from equity
Changes in fair value of
available-for-sale equity
investments
Net loss recognized
directly in equity
Net income for the period
Total income (expense) for
the period
Acquisition of treasury
stock for the period
Retirement of treasury
shares
Dividends on:
Common stock
Preferred stock
Cost of share-based
payments
Collection of subscriptions
receivable
Exercise of stock options
As of December 31, 2005
Capital
Stock
Cost of
Additional
ShareTreasury Cumulative
Paid-in
Based
Stock - Translation
Retained
Capital Payments
Common Adjustment
Earnings
For the Year Ended December 31, 2005 (In Thousand Pesos)
P
= 8,323,023 P
= 31,112,554 P
= 193,096 (P
= 8,192,770)
28
17
17
(P
= 151,008) P
= 23,102,289 P
= 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
–
–
–
17 (1,003,283) (5,179,349)
17
–
–
–
–
18
Total
–
–
–
–
– 15,868,428
–
(9,685,796)
–
–
–
–
–
–
(5,436,017)
(68,334)
161,731
–
–
10,968
–
–
3,033
48,462
(42,183)
P
= 7,333,741 P
= 25,981,667 P
= 312,644
See accompanying Notes to Consolidated Financial Statements.
(7,675,658)
–
–
P
=–
–
(7,675,658)
–
(5,436,017)
(68,334)
161,731
–
–
10,968
–
–
9,312
(P
= 235,892) P
= 18,226,650 P
= 51,618,810
GLOBE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization
Interest expense
Bond redemption cost
Cost of share-based payments
Gain on disposal of property and equipment
Equity in net losses of an associate and a joint
venture
Provisions for (reversals of) other probable losses
Loss (gain) on derivative instruments
Impairment losses (reversal of impairment losses)
on property and equipment
Interest income
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
Intangible assets
Capitalized borrowing costs
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)
2007
P
=20,050,348
2006
(In Thousand Pesos)
P
= 17,598,693
P
= 14,281,451
7, 8, 9
22
14, 22
16, 18
7
17,188,998
2,996,347
614,697
129,914
(13,780)
10
23
22
9,023
3,179
(61,463)
23
19
(71,431)
(728,621)
–
40,117,211
88,673
(854,865)
–
38,737,810
925,772
(620,089)
(105)
35,377,144
(855,636)
(118,652)
(669,283)
2,165,694
378,964
(299,287)
(1,792,779)
(233,421)
128,480
2,817,187
596,456
(94,271)
41,793,012
(3,231,924)
(6,193,383)
32,367,705
(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
(13,824,879)
(191,738)
(99,163)
35,849
(11,998,065)
(587,883)
(48,080)
68,520
(15,117,080)
(804,472)
(139,663)
183,434
5,655,349
293,567
(1,492,469)
(936,486)
696,015
–
(9,863,955)
(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)
7
9
7
17,137,553
4,213,976
–
161,628
(22,597)
2005
5,834
84,833
324,082
15,733,959
4,657,748
–
161,731
(28,398)
13,334
(12,694)
264,435
Years Ended December 31
Notes
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings:
Long-term
Short-term
Repayments of borrowings:
Long-term
Short-term
Payments of dividends to stockholders:
Common
Preferred
Collection of subscriptions receivable and exercise of
stock options
Purchase of treasury stock - common
Net cash flows used in financing activities
2007
P
=13,121,044
500,000
2006
(In Thousand Pesos)
P
=–
–
2005
P
= 9,992,181
21,000
14
(22,107,813)
–
(10,429,453)
–
(12,505,808)
(21,000)
(15,338,743)
(64,669)
(6,599,817)
(68,334)
(5,436,017)
(75,128)
71,720
–
(23,818,461)
35,424
–
(17,062,180)
20,280
(7,675,658)
(15,680,150)
(1,314,711)
(3,405,246)
(2,670,881)
28, 30
7,505,715
10,910,961
13,581,842
28, 30
P
=6,191,004
P
= 7,505,715
P
= 10,910,961
17
17
17
NET DECREASE IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR
CASH AND CASH EQUIVALENTS AT END
OF YEAR
See accompanying Notes to Consolidated Financial Statements.
GLOBE TELECOM, INC. AND SUBSIDIARIES
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. Major
stockholders of Globe Telecom include Ayala Corporation, Singapore Telecom, Inc. and Asiacom Philippines, Inc.
None of these companies exercise control over Globe Telecom.
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 by 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. A motion for
extension of PA or issuance of CPCN was filed on July 12, 2007 and the same was granted by the NTC on
December 10, 2007. Innove now has a permanent license (CPCN) to establish, install telephone, operate and
maintain a LEC service, particularly integrated local telephone service with public payphone facilities and public
calling stations, and to render and provide international and domestic leased line services within the territorial
jurisdiction of the Subic Bay Metropolitan Authority, subject to certain conditions. 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 for the purpose of developing,
designing, administering, managing and operating software applications and systems, including systems designed
for the operations of bill 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.
2.
Summary of Significant 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 consolidated financial statements of the Globe Group are presented in Philippine Peso (PHP), Globe
Telecom’s functional currency, and rounded to the nearest thousands except when otherwise indicated.
On February 4, 2008, the Board of Directors (BOD) approved and authorized the release of the consolidated
financial statements of Globe Telecom, Inc. and Subsidiaries as of and for the year ended December 31, 2007,
2006 and 2005.
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, 2007, 2006 and 2005. The subsidiaries, which are
both incorporated in the Philippines, are as follows:
Name of Subsidiary
Innove
GXI
Principal Activity
Wireless and wireline voice and data
communication services
Software development for telecommunications
applications
Percentage of
Ownership
100%
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 in the preparation of the consolidated financial statements are consistent with
those followed in the preparation of the Globe Group’s annual financial statements for the years ended
December 31, 2006 and 2005, except for the adoption of new and amended Standards and International
Financial Reporting Interpretations Committee (IFRIC) enumerated below.
·
PFRS 7, Financial Instruments: Disclosures, 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 of market risk. It replaces the disclosure requirements in
PAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under
PFRS. Adoption of this standard resulted in the inclusion of additional disclosures on the consolidated
financial statements (see Note 28).
The Globe Group adopted the amendment to the transitional provisions of PFRS 7 as approved by the
Financial Reporting Standards Council of the Philippines, which gives transitory relief with respect to the
presentation of comparative information for the new risk disclosures about the nature and extent of risks
arising from financial instruments. Accordingly, the Globe Group did not present comparative information
for the disclosures required by PFRS 7, unless the disclosure was previously required under PAS 32.
·
Amendments to PAS 1, Presentation of Financial Statements, introduce disclosures about the level of an
entity’s capital and how it manages capital. Adoption of the Amendments resulted in inclusion of additional
disclosures on the consolidated financial statements (see Note 31).
·
Philippine Interpretation IFRIC 8, Scope of PFRS 2, requires PFRS 2 to be applied to any arrangements
where equity instruments are issued for consideration which appears to be less than fair value. As equity
instruments are only issued to employees in accordance with the employee stock option scheme, adoption
of this Interpretation did not have any significant impact on the consolidated financial statements.
·
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives, 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.
Adoption of this Interpretation did not have any significant impact on the consolidated financial statements.
·
Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment, provides that the frequency
of financial reporting does not 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. Adoption of this Interpretation did not have any
significant impact on the consolidated financial statements.
2.5 Future Changes in Accounting Policies
The Globe Group has not yet applied the following new and amended PFRS and Philippine Interpretations
which are not yet effective for the year ended December 31, 2007.
·
Philippine Interpretation IFRIC 11, PFRS 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 the
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 as this is not relevant to the Globe Group’s current operations.
·
Philippine Interpretation IFRIC 14, PAS 19, The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction.
This Interpretation will become effective January 1, 2008. This Interpretation provides guidance on how to
assess the limit on the amount of surplus in a defined benefit plan that can be recognized as an asset under
PAS 19, Employee Benefits. The Globe Group will assess the impact of this Interpretation on its current
manner of accounting for its net pension asset.
·
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
This Interpretation will become effective January 1, 2009. The Interpretation addresses accounting by the
entity that grants award credits to its customers. This Interpretation applies to customer loyalty award
credits that: (a) an entity grants to its customers as part of a sales transaction, i.e. sale of goods, rendering
of services or use by a customer of entity assets; and (b) subject to meeting any further qualifying
conditions, the customers can redeem in the future for free or discounted goods or services. The Globe
Group will assess the impact of this Interpretation on its current manner of accounting for customer loyalty
awards.
·
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 on its
current manner of reporting segment information.
·
Amendment to PAS 1, Amendment on Statement of Comprehensive Income
This Amendment will become effective January 1, 2009. In accordance with the amendment to PAS 1, the
statements of changes in equity shall include only transactions with owners, while all non-owner changes
will be presented in equity as a single line with details included in a separate statement. Owners are defined
as holders of instruments classified as equity.
In addition, the amendment to PAS 1 provides for the introduction of a new statement of comprehensive
income that combines all items of income and expense recognized in the statements of income together
with ‘other comprehensive income’. The revisions specify what is included in other comprehensive income,
such as gains and losses on available-for-sale assets, actuarial gains and losses on defined benefit pension
plans and changes in the asset revaluation reserve. Entities can choose to present all items in one
statement, or to present two linked statements, a separate statement of income and a statement of
comprehensive income. The Globe Group does not expect this amendment to have a significant impact on
the consolidated financial statements.
·
Amendment to PAS 23, Borrowing Costs
This Amendment will become effective January 1, 2009. It requires the capitalization of borrowing costs
when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a
substantial period of time to get ready for its intended use or sale. In accordance with the transitional
requirements in the standard, the change should be accounted for prospectively. Accordingly, borrowing
costs will be capitalized on qualifying assets with a commencement date after January 1, 2009. No changes
will be made for borrowing costs incurred to this date that have been expensed. The Globe Group does not
expect this amendment to have a significant impact on the consolidated financial statements.
2.6 Significant Accounting Policies
2.6.1
Revenue Recognition
The Globe Group provides wireless 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), switch-monitored traffic (for carriers and content providers) and excludes valueadded tax (VAT) and overseas communication tax. Inbound traffic revenues, net of estimated prompt
payment discounts, 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 and airtime on free Subscribers’ Identification module
(SIM), (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),
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 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 the 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 net of discounted promotional SMS usage and bonus
reloads. 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 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 following the
established historical pattern of discount availments of the carriers.
2.6.1.2 Nonservice revenues
Proceeds from sale of handsets, phonekits, wireline telephone sets, SIM packs and other
phone accessories are recognized upon delivery of the item to customers or when there is a
constructive obligation to deliver. The related net realizable value 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.
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
cost of handsets, accessories and SIM cards (included in the “Cost of sales” and “Provision for
Inventory Market Decline” 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 General
2.6.4.1.1
Initial recognition and fair value measurement
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 fair value through profit or loss (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, reevaluates 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 no 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 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 as
“Interest income or expense”, respectively, in the consolidated statements of
income 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:
2.6.4.1.3
·
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.
HTM investments
HTM investments are quoted 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 currency-denominated HTM investments
are recognized in the consolidated statements of income.
As of December 31, 2007, 2006 and 2005, the Globe Group has classified
certain special deposits as HTM investments.
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.
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 currency exchange exposure
related to short-term foreign currency-denominated monetary assets and
liabilities. The Globe Group also enters into structured currency forward
contracts where call options are sold in combination with such currency
forward contracts.
The Globe Group enters into deliverable prepaid forward contracts that
entitle the Globe Group to a discount on the contracted forward rate. Such
contracts contain embedded currency derivatives that are bifurcated and
marked-to-market through earnings, with the host debt instrument being
accreted to its face value.
The Globe Group enters into short-term interest rate swap contracts to
manage its interest rate exposures on certain short-term floating rate peso
investments. The Parent Company also enters into long-term currency and
interest rate swap contracts to manage its foreign currency and interest rate
exposures arising from its long-term loan. Such swap contracts are
sometimes entered into in combination with options. The Globe Group also
sells 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 as a hedge of
an identified risk exposure, hedge documentation, probability of occurrence
of the forecasted transaction in a cash flow hedge, assessment (both
prospective and retrospective bases) 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, 2007, 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) interest rate swaps as cash flow hedge of the interest rate risk of a
floating rate foreign currency-denominated obligation and (b) certain foreign
exchange forward contracts as cash flow hedge of expected United States
Dollar (USD) revenues.
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 the 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 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
2.6.4.1.8
Other Derivative Instruments Not Accounted for as Accounting 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.
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 loss on wireless
subscriber accounts 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
For receivable balances that appear doubtful of collection, allowance is
provided after review of the status of settlement with each carrier and
roaming partners, taking into consideration normal payment cycles and the
credit history of the parties.
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 financial 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 made 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 cashflows 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
2.6.5
Financial Liability
A financial liability is derecognized when the obligation under the liability is
discharged or cancelled or expires. Where an existing financial liability is
replaced by another from the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the
recognition of a new liability, and the difference in the respective carrying
amounts is recognized in the consolidated statements of income.
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 after a
certain period. 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 property and equipment.
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 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 lives 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 software licenses 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. In 2007, costs of telecommunications
equipment software licenses were reclassified to intangible assets from property and equipment.
Accordingly, the prior years’ comparative figures have been reclassified to conform to the current
year’s presentation.
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
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 in net assets of the
associate and JV, less any allowance for impairment losses. The consolidated statements of income
include Globe Group’s share in the results of operations of its 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.
2.6.11
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
cash-generating 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, investment property and intangible assets) had no impairment loss been recognized for the
asset in prior years. A reversal of an impairment loss is credited to current operations.
2.6.12
Income Taxes
2.6.12.1
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.
2.6.12.2
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 income nor taxable income 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.
2.6.13
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 pre-tax rate that reflects
current market assessment of the time value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision due to the passage of time is
recognized as interest expense under “Financing costs” in the consolidated statements of income.
2.6.14
Share-based Payment Transactions
Certain employees (including directors) of the Globe Group receive remuneration in the form of sharebased 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 27).
2.6.15
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.
2.6.16
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.
2.6.17
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 “Longterm 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.
2.6.18
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 included in the lease term;
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.
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.
2.6.18.1
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 in
the consolidated balance sheets. 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” in the consolidated statements of income.
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.
2.6.18.2
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.
2.6.19
Selling, Advertising and Promotions Expenses
Selling, advertising and promotions expenses are charged against current operations as incurred.
2.6.20
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.
2.6.21
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.
2.6.22
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.
2.6.23
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.
2.6.24
3.
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.
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 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 final reconciliation with other carriers. 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
= 468.24 million and P
= 170.01 million as of
December 31, 2007 and 2006, respectively.
Total unsettled net inbound traffic revenues from local and foreign traffic carriers as of
December 31, 2007, 2006 and 2005 (included under “Receivables”) amounted to
P
= 2,605.91 million, P
= 1,959.17million and P
= 3,120.37 million, respectively (see Note 4). Total
unsettled net outbound traffic to local and foreign carriers as of December 31, 2007, 2006 and
2005 (included under “Accounts payable and accrued expenses”) amounted to
P
= 2,085.88 million, P
= 1,501.93 million and P
= 1,544.66 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 for the years ended December 31, 2007, 2006 and 2005
amounted to P
= 711.40 million, P
= 422.83 million and P
= 615.73 million, respectively (see Note
23). Receivables, net of allowance for impairment losses, amounted to P
= 6,383.54 million,
P
= 5,527.91 million and P
= 6,764.13 million as of December 31, 2007, 2006 and 2005,
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 for the years ended December 31, 2007 and 2005
amounted to P
= 298.12 million and P
= 80.05 million, respectively. Reversal of inventory
obsolescence and market decline for the year ended December 31, 2006 amounted to
P
= 61.39 million (see Note 23).
Inventories and supplies, net of allowances, amounted to P
= 1,112.15 million, P
= 993.50 million
and P
= 1,372.46 million as of December 31, 2007, 2006 and 2005, 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 6.96%, 7.50% and 14.62% in 2007, 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, 2007, 2006 and 2005, ARO amounted to P
= 1,623.83 million,
P
= 1,316.61 million and P
= 907.05 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
Switch
Outside plant
Distribution dropwires and other
wireline assets
Cellular facilities and others
Buildings
Leasehold improvements
Investments in cable systems
Furniture, fixtures and equipment
Transportation and work
equipment
20
10 and 15
10 and 20
2-10
2-10
20
5 years or lease term, whichever is shorter
15
3-5
2-5
The EUL of investment property is 20 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 a change in accounting estimates.
In the first quarter of 2007, Globe changed the EUL of certain wireless network elements
resulting from new information affecting usability of these assets. The wireline business also
recognized additional depreciation due to shortened remaining useful lives of certain assets as
a result of continuing network upgrade and expansion. The net effect of the change in EUL
resulted in higher depreciation of P
= 105.31 million for the year ended December 31, 2007.
As of December 31, 2007, 2006 and 2005, property and equipment, investment property and
intangible assets amounted to P
= 94,253.65 million, P
= 97,517.54 million and P
= 99,914.94 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 business; and
significant negative industry or economic trends.
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 2005, the Globe Group recognized impairment losses on certain network assets amounting
to P
= 925.77 million as a result of impairment reviews (see Note 23).
In the first quarter of 2007, the Globe Group reversed a portion of estimated provision for
impairment losses amounting to P
= 178.80 million on a certain network asset component based
on adjusted component values resulting from its continuing implementation of comprehensive
asset component accounting.
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 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.
Property and equipment, investment property, intangible assets and investment in an
associate and a joint venture amounted to P
= 94,336.91 million, P
= 97,554.87 million and
P
= 99,958.20 million as of December 31, 2007, 2006 and 2005, 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 (see Notes 24).
As of December 31, 2007, 2006 and 2005, Innove and GXI have net deferred income tax
assets P
= 637.72 million, P
= 801.86 million and P
= 1,163.94 million, respectively. As of December
31, 2007, 2006 and 2005, Globe Telecom has net deferred income tax liabilities of
P
= 5,502.89 million, P
= 5,540.00 million and P
= 4,432.87 million, respectively (see Note 24). Globe
Telecom and Innove have no unrecognized deferred income tax assets as of
December 31, 2007, 2006 and 2005. 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 comprising of available for sale investments and derivative assets carried at
fair values as of December 31, 2007, 2006 and 2005, amounted to P
= 528.65 million,
P
= 1,920.28 million and P
= 2,769.21 million, respectively, and financial liabilities comprising of
derivative liabilities carried at fair values as of December 31, 2007, 2006 and 2005, amounted
to P
= 340.83 million, P
= 1,086.12 million and P
= 731.75 million, respectively (see Note 28.10).
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 rates increase (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, 2007 and 2006, Globe Group has unrecognized actuarial losses of
P
= 511.80 million and P
= 259.74 million, respectively, while unrecognized actuarial gain as of
December 31, 2005 amounted to P
= 153.59 million (see Note 18.2).
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 for the years ended December 31, 2007, 2006 and 2005
amounted to P
= 129.91 million, P
= 161.63 million and P
= 161.73 million, respectively (see Notes 16
and 18.1).
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, 2007, 2006 and 2005 amounted to P
= 294.35 million,
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
4.
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 26).
Receivables
This account consists of receivables from:
Notes
Subscribers
Traffic settlements - net
Others
Less allowance for impairment losses
Subscribers
Traffic settlements and others
16
2007
P
= 4,759,249
2,605,913
401,854
7,767,016
1,097,423
286,052
1,383,475
P
= 6,383,541
2006
2005
(In Thousand Pesos)
P
= 5,947,904
P
= 8,022,307
1,959,169
3,120,374
305,615
305,076
8,212,688
11,447,757
2,485,188
199,595
2,684,783
P
= 5,527,905
4,468,009
215,618
4,683,627
P
= 6,764,130
Traffic settlements receivable are presented net of traffic settlements payable of P
= 7,297.75 million,
P
= 3,675.43 million and P
= 1,979.29 million as of December 31, 2007, 2006 and 2005, respectively.
5.
Inventories and Supplies
This account consists of:
2007
At cost:
Wireline telephone sets
SIM packs, spare parts and supplies
Call cards and others
At NRV:
Handsets and accessories
SIM packs, spare parts and supplies
Wireline telephone sets
2006
(In Thousand Pesos)
2005
P
= 264,404
42,876
13,105
320,385
P
=–
97,692
21,390
119,082
P
=–
203,818
10,601
214,419
382,192
346,093
63,476
791,761
P
= 1,112,146
520,352
288,102
65,959
874,413
P
= 993,495
840,244
265,517
52,279
1,158,040
P
= 1,372,459
Inventories recognized as expense during the year amounting to P
= 3,620.89 million, P
= 4,557.34 million and
P
= 6,104.76 million in 2007, 2006 and 2005, respectively, is included as part of “Cost of Sales” and “Provision for
Inventory Losses, Obsolescence and Market Decline” (see Note 23) account in the consolidated statements of
income. An insignificant amount is included under General, Selling and Administrative expense as part of Utilities,
Supplies and Other Administrative expenses (see Note 21).
6.
Prepayments and Other Current Assets
This account consists of:
Notes
Prepayments
Miscellaneous receivables - net
Input VAT - net
Other current assets - net
2007
P
= 534,959
245,985
8,521
16, 25.1d
28.2.3
2006
2005
(In Thousand Pesos)
P
= 392,840
P
= 297,109
188,263
349,824
43,000
286,784
885,539
630,579
181,752
P
= 1,675,004
P
= 1,254,682
P
= 1,115,469
GXI’s net input VAT amounting to P
= 8.52 million as of December 31, 2007 is presented net of output VAT of
P
= 0.16 million. Innove and GXI’s net input VAT amounting to P
= 43.00 million and P
= 286.78 million as of
December 31, 2006 and 2005, respectively, is presented net of output VAT of P
= 85.26 million and P
= 102.74 million,
respectively.
7.
Property and Equipment
The rollforward analysis of this account follows:
2007
Telecommunications
Equipment
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
Accumulated Depreciation,
Amortization and
Impairment Losses
At January 1
Depreciation and amortization
Retirements/disposals
At December 31
Net Book Value at
December 31
P
= 130,620,854
3,253,235
(34,080)
6,062,896
139,902,905
65,330,126
12,973,133
(188,514)
78,114,745
P
= 61,788,160
Buildings and
Leasehold
Improvements
P
= 20,377,768
145,563
(9,157)
850,617
21,364,791
7,114,230
1,910,873
62,538
9,087,641
P
= 12,277,150
Investments in
Cable Systems
P
= 10,017,962
181,975
–
(271,559)
9,928,378
2,641,340
659,958
(54,582)
3,246,716
P
= 6,681,662
Furniture, Transportation
and Work
Fixtures and
Equipment
Equipment
(In Thousand Pesos)
P
= 4,515,457
269,558
(15,476)
357,585
5,127,124
Land
Assets Under
Construction*
P
= 1,478,232
316,667
(147,596)
(3,942)
1,643,361
P
= 897,914
–
–
50,401
948,315
3,439,085
781,626
26,580
4,247,291
974,189
218,888
(121,991)
1,071,086
–
–
–
–
–
–
–
–
P
= 879,833
P
= 572,275
P
= 948,315
P
= 8,380,425
Total
P
= 6,643,502 P
= 174,551,689
9,563,221
13,730,219
(50,019)
(256,328)
(7,776,279)
(730,281)
8,380,425
187,295,299
79,498,970
16,544,478
(275,969)
95,767,479
P
= 91,527,820
*Assets under construction include intangible components which are reclassified to depreciable intangible assets only when assets become available for use.
2006
Telecommunications
Equipment
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
Accumulated Depreciation,
Amortization and
Impairment Losses
At January 1
Depreciation and amortization
Retirements/disposals
At December 31
Net Book Value at
December 31
Buildings and
Leasehold
Improvements
Investments in
Cable Systems
Furniture, Transportation
and Work
Fixtures and
Equipment
Equipment
(In Thousand Pesos)
Land
Assets Under
Construction*
P
= 124,240,124
2,029,891
(586,074)
4,936,913
130,620,854
P
= 18,936,608
119,722
(41,548)
1,362,986
20,377,768
P
= 9,062,539
1,085,011
–
(129,588)
10,017,962
P
= 4,081,346
371,135
(67,869)
130,845
4,515,457
P
= 1,332,825
301,720
(156,447)
134
1,478,232
P
= 897,914
–
–
–
897,914
52,804,231
13,040,824
(514,929)
65,330,126
5,359,332
1,786,497
(31,599)
7,114,230
2,060,828
622,632
(42,120)
2,641,340
2,615,819
872,593
(49,327)
3,439,085
894,672
205,366
(125,849)
974,189
–
–
–
–
–
–
–
–
P
= 897,914
P
= 6,643,502
P
= 65,290,728
P
= 13,263,538
P
= 7,376,622
P
= 1,076,372
P
= 504,043
Total
P
= 2,875,733 P
= 161,427,089
10,385,091
14,292,570
(16,946)
(868,884)
(6,600,376)
(299,086)
6,643,502
174,551,689
*Assets under construction include intangible components which are reclassified to depreciable intangible assets only when assets become available for use.
63,734,882
16,527,912
(763,824)
79,498,970
P
= 95,052,719
2005
Telecommunications
Equipment
Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments
At December 31
Accumulated Depreciation,
Amortization and
Impairment Losses
At January 1
Depreciation and amortization
Retirements/disposals
At December 31
Net Book Value at
December 31
Buildings and
Leasehold
Improvements
Furniture, Transportation
Fixtures and
and Work
Equipment
Equipment
(In Thousand Pesos)
Investments in
Cable Systems
P
= 117,295,781
984,848
(3,549,702)
9,509,197
124,240,124
P
= 15,689,565
107,372
(19,819)
3,159,490
18,936,608
P
= 10,145,676**
33,350
(1,126,800)
10,313
9,062,539
P
= 3,436,885
442,238
(446,965)
649,188
4,081,346
P
= 1,191,319
222,534
(85,181)
4,153
1,332,825
42,798,727
11,996,778
(1,991,274)
52,804,231
3,792,009
1,582,670
(15,347)
5,359,332
1,625,453**
618,345
(182,970)
2,060,828
2,182,048
811,403
(377,632)
2,615,819
760,902
193,740
(59,970)
894,672
P
= 71,435,893
P
= 13,577,276
P
= 7,001,711
P
= 1,465,527
P
= 438,153
Land
P
= 928,222
36
(30,344)
–
897,914
Assets Under
Construction*
Total
P
= 4,142,164 P
= 152,829,612
12,527,692
14,318,070
–
(5,258,811)
(13,794,123)
(461,782)
2,875,733
161,427,089
–
–
–
–
–
–
–
–
P
= 897,914
P
= 2,875,733
51,159,139
15,202,936
(2,627,193)
63,734,882
P
= 97,692,207
*Assets under construction include intangible components which are reclassified to depreciable intangible assets only when assets become available for use.
**Includes PAS 39 adjustment (see Note 25).
Fully depreciated property and equipment still in use amounted to P
= 15,268.34 million, P
= 10,833.65 million and
P
= 5,899.79 million in 2007, 2006 and 2005, respectively.
The carrying values of property and equipment held under finance leases where the Globe Group is the lessee are
as follows (see Note 25.1c):
2007
Furniture, fixtures and equipment
Transportation and work equipment
Less accumulated depreciation
Net book value at end of period
P
= 125,169
–
125,169
125,169
P
=–
2006
2005
(In Thousand Pesos)
P
= 144,372
P
= 138,978
4,043
3,850
148,415
142,828
147,793
136,481
P
= 622
P
= 6,347
The Globe Group’s information about borrowing costs follows:
2007
Capitalized interest
Other capitalized borrowing costs
P
= 78,679
20,484
P
= 99,163
2006
2005
(In Thousand Pesos)
P
= 45,530
P
= 111,340
2,550
28,323
P
= 48,080
P
= 139,663
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 2.80%, 1.13% and 2.47% capitalization rates in 2007, 2006 and 2005,
respectively.
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.
Disposal of property and equipment resulted in gains of P
= 13.78 million, P
= 22.60 million and P
= 28.40 million in 2007,
2006 and 2005, respectively.
8.
Investment Property
The rollforward analysis of this account follows:
2007
Cost
At January 1
Additions
At December 31
Accumulated Depreciation
At January 1
Depreciation
Reclassifications/adjustments
At December 31
Net Book Value at December 31
2006
(In Thousand Pesos)
2005
P
= 403,687
–
403,687
P
= 308,455
95,232
403,687
P
= 290,834
17,621
308,455
89,184
23,296
–
112,480
P
= 291,207
48,917
19,197
21,070
89,184
P
= 314,503
29,318
19,599
–
48,917
P
= 259,538
Investment property represents the portion of a building that is currently being held for lease to third parties (see
Note 25.1b). 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:
2007
Lease income
Direct expenses
P
= 40,570
23,564
2006
(In Thousand Pesos)
P
= 33,445
40,788
2005
P
= 29,011
20,091
The fair value of the investment property as determined by market data approach, amounted to P
= 293.53 million
based on the report issued by an independent appraiser dated December 19, 2007.
9.
Intangible Assets
The rollforward analysis of this account follows:
2007
Cost
At January 1
Additions
Disposals
Reclassifications
At December 31
Accumulated Amortization
At January 1
Amortization
Disposals
Reclassifications
At December 31
Net Book Value at December 31
2006
(In Thousand Pesos)
2005
P
= 4,626,740
191,738
(249)
730,281
5,548,510
P
= 3,848,130
587,883
(742)
191,469
4,626,740
P
= 2,718,524
804,472
(91,012)
416,146
3,848,130
2,476,422
621,224
(11)
16,252
3,113,887
P
= 2,434,623
1,884,940
590,444
(6)
1,044
2,476,422
P
= 2,150,318
1,436,722
511,424
(63,097)
(109)
1,884,940
P
= 1,963,190
Intangible assets pertain to telecommunications equipment software licenses, corporate application software 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:
2007
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
P
= 111,280
–
111,280
2006
(In Thousand Pesos)
P
= 56,332
–
56,332
(19,000)
–
(19,000)
(13,166)
–
(13,166)
(9,023)
–
(9,023)
(5,834)
–
(5,834)
83,257
–
P
= 83,257
37,332
–
P
= 37,332
2005
P
= 56,332
98
56,430
–
167
167
(13,311)
(23)
(13,334)
43,021
242
P
= 43,263
10.1 Investment in BMPL
Globe Telecom and other leading Asia Pacific mobile operators (JV partners) signed an Agreement in 2004
(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 USD4.00 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, 2007, Globe Telecom has paid USD2.20 million (P
= 111.28 million) broken down into
USD1.00 million (P
= 56.33 million) as initial subscription and additional investment totaling USD1.20 million
(P
= 54.95 million) made last April 24, 2007 and October 26, 2007.
The Globe Group’s interest in the JV is accounted for as follows:
2007
Assets:
Current
Noncurrent
Liabilities:
Current
Noncurrent
Income
Expenses
2006
(In Thousand Pesos)
2005
P
= 93,088
13,319
P
= 46,160
9,423
P
= 56,008
9,771
(10,927)
(3,344)
21,465
(30,344)
P
= 83,257
(11,262)
(1,300)
15,180
(20,869)
P
= 37,332
(9,447)
–
9,749
(23,060)
P
= 43,021
10.2 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:
Notes
Deferred input VAT
Advance payments to suppliers and
contractors
Miscellaneous deposits
Prepaid pension
AFS investment in equity securities
at cost - net
Others - net
18
28.2.3
2007
2006
(In Thousand Pesos)
P
= 1,112,370
P
= 938,513
2005
P
= 92,264
992,212
364,628
162,754
355,959
340,134
247,437
279,206
342,492
264,024
–
273,887
P
= 2,905,851
–
126,065
P
= 2,008,108
–
36,594
P
= 1,014,580
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 25.4).
12. Accounts Payable and Accrued Expenses
This account consists of:
Notes
Accounts payable
Accrued expenses
Accrued project costs
Traffic settlements - net
Output VAT
Dividends payable
16
16
25.3
17.4
2007
2006
2005
(In Thousand Pesos)
P
= 6,747,779
P
= 5,855,423
P
= 5,744,393
4,893,285
4,378,534
4,101,400
4,448,646
4,548,838
2,444,114
2,085,881
1,501,931
1,544,657
210,413
135,870
69,324
49,449
64,669
68,334
P
= 18,435,453
P
= 16,485,265
P
= 13,972,222
Traffic settlements payable are presented net of traffic settlements receivable amounting to P
= 7,011.72 million,
P
= 5,135.88 million and P
= 7,478.60 million as of December 31, 2007, 2006 and 2005, respectively.
As of December 31, 2007, Globe Telecom and Innove reported a net output VAT amounting to P
= 210.41 million, net
of input VAT of P
= 384.49 million. As of December 31, 2006 and 2005, Globe Telecom reported a net output VAT
amounting to P
= 135.87 million and P
= 69.32 million, net of input VAT of P
= 156.16 million and P
= 207.07 million,
respectively.
13. Provisions
The rollforward analysis of this account follows:
Notes
At beginning of year
Provisions
Reversals
At end of year
23
2007
2006
2005
(In Thousand Pesos)
P
= 248,310
P
= 231,455
P
= 282,308
3,179
84,833
(12,694)
(31,802)
(67,978)
(38,159)
P
= 219,687
P
= 248,310
P
= 231,455
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 pertain to Globe Group’s
wireless and wireline business amounting to P
= 219.69 million, P
= 248.31 million and P
= 231.46 million as of
December 31, 2007, 2006 and 2005, respectively. As of February 4, 2008, the remaining pending regulatory claims
and assessments are still being resolved.
The provisions 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:
2007
Corporate notes
Banks:
Local
Foreign
Retail bonds
2012 Senior Notes
Suppliers’ credits
Less current portion
P
= 14,407,000
6,534,518
6,193,028
2,738,306
–
–
29,872,852
4,803,341
P
= 25,069,511
2006
(In Thousand Pesos)
P
= 3,607,000
8,475,367
9,365,119
2,990,741
14,768,630
–
39,206,857
6,271,601
P
= 32,935,256
2005
P
= 4,109,000
10,137,664
15,973,138
2,983,743
16,386,579
103,264
49,693,388
7,858,150
P
= 41,835,238
The maturities of long-term debt at nominal values excluding unamortized debt issuance costs as of
December 31, 2007 follow (in thousand pesos):
Due in:
2008
2009
2010
2011
2012 and thereafter
P
= 4,820,108
7,595,226
3,831,278
1,601,287
12,094,055
P
= 29,941,954
Unamortized debt issuance costs on retail bonds included in the above long-term debt as of December 31, 2007
amounted to P
= 69.10 million.
The interest rates and maturities of the above loans are as follows:
Maturities
Interest Rates
2008-2012
5.65% to 8.61% in 2007
4.20% to 8.62% in 2006
2.17% to 12.45% in 2005
2008-2010
5.09% to 11.02% in 2007
6.22% to 11.02% in 2006
7.36% to 11.73% in 2005
Corporate notes
2010-2012
5.15% to 16.00% in 2007
6.22% to 16.00% in 2006
7.36% to 16.00% in 2005
Retail bonds
2008-2009
5.16% to 11.70% in 2007
6.57% to 11.83% in 2006
7.26% to 11.70% in 2005
Banks:
Foreign
Local
14.1 Senior Notes
Globe Telecom’s 2012 Senior Notes was issued on April 4, 2002 and has a maturity date of April 12, 2012.
It bears interest at the rate of 9.75% p.a.
The 2012 Senior Notes are redeemable in whole or in part at the option of Globe Telecom on or after
April 15, 2007 at the redemption dates set forth below:
2007
2008
2009
2010 and thereafter
Redemption price
104.875%
103.250%
101.625%
100.000%
The 2012 Senior Notes provided 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.
On August 22, 2006 and September 1, 2006, Globe Telecom repurchased USD6.46 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 February 23, 2007, Globe Telecom exercised its option to call its USD293.54 million 2012 Senior Notes
via an irrevocable notice issued to the Agent, the Bank of New York. On April 16, 2007, Globe Telecom fully
settled and redeemed the 2012 Senior Notes through the Agent (see Note 28.3).
Under the bond indenture, Globe Telecom was liable to pay the bondholders 104.875% of the outstanding
principal of the 2012 Senior Notes. Globe Telecom charged to other financing costs (included in the
“Financing costs” account) the bond redemption premium of 4.875%, accelerated the unamortized bond
premium of P
= 356.48 million over the remaining period up to settlement, and derecognized the carrying value
of the bifurcated call option on the Senior Notes of P
= 971.18 million. Consequently, the total amount of bond
redemption-related financing costs incurred for the year ended December 31, 2007 amounted to
P
= 1,301.51 million of which the cash component amounted to only P
= 686.81 million, representing the 4.875%
bond redemption premium (see Note 22).
Loss on derivative instruments for the year ended December 31, 2007 includes the losses on the bond option
value prior to the bond call date amounting to P
= 454.09 million. Following the bond redemption, the mark-tomarket losses of P
= 263.88 million on Globe Telecom’s cross currency swaps entered into to hedge the Senior
Notes and deferred under “Cumulative translation adjustment” account was charged to profit and loss in
April 2007 (see Note 22).
14.2 Bank Loans and Corporate Notes
Globe Telecom’s unsecured corporate notes, which consist of fixed and floating rate notes and pesodenominated 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 long-term indebtedness or guarantees and creation of property
encumbrances.
14.3 Retail Bonds
The retail bonds are 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.
As of February 4, 2008, Globe Telecom is not in breach of any loan covenants.
15. Other Long-term Liabilities
This account consists of:
Notes
ARO
Noninterest bearing liabilities
Accrued lease obligations and others
Advance lease
25.4, 28.2.5
25
25.4
Less current portion
2007
2006
2005
(In Thousand Pesos)
P
= 1,623,830
P
= 1,316,612
P
= 907,053
830,637
1,062,635
1,235,810
564,881
470,331
548,082
85,030
114,094
137,925
3,104,378
2,963,672
2,828,870
86,416
93,422
269,737
P
= 3,017,962
P
= 2,870,250
P
= 2,559,133
The maturities of other long-term liabilities at nominal amounts as of December 31, 2007 follow (in thousand
pesos):
Due in:
2008
2009
2010
2011
2012 and thereafter
P
= 83,928
90,501
97,669
105,486
2,726,794
P
= 3,104,378
The rollforward analysis of the Globe Group’s ARO follows:
Notes
At beginning of year
Capitalized to property and equipment
during the year - net of reversal
Accretion expense during the year
At end of year
2007
P
= 1,316,612
30
22
150,051
157,167
P
= 1,623,830
2006
2005
(In Thousand Pesos)
P
= 769,795
P
= 907,053
281,557
128,002
P
= 1,316,612
44,433
92,825
P
= 907,053
16. Related Party Transactions
Globe Telecom and Innove, in their regular conduct of business, enter into transactions with their major
stockholders, 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:
16.1 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 revenues (included in “Service revenues” account in the consolidated statements of
income) earned are as follows:
2007
Traffic settlements receivable - net
Interconnection revenues
(b)
P
= 63,391
1,573,686
2006
2005
(In Thousand Pesos)
P
= 61,061
P
= 335,766
1,028,552
1,422,249
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:
2007
Maintenance and restoration costs
and other transactions
Software development, supply,
license and support
Technical assistance fee
2006
(In Thousand Pesos)
2005
P
= 201,576
P
= 240,542
P
= 266,793
2,074
86,935
29,467
78,872
143,450
35,652
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:
2007
Maintenance and restoration costs
and other transactions
Software development, supply,
license and support
Technical assistance fee
(c)
2006
(In Thousand Pesos)
2005
P
= 54,047
P
= 24,203
P
= 13,738
14,218
25,080
31,004
25,606
11,940
81,019
Globe Telecom reimburses AC for certain operating expenses. The net outstanding liabilities to AC
related to these transactions as of December 31, 2007 are 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, 2007, balances related to these transactions were not material.
The summary of consolidated outstanding balances resulting from transactions with related parties follows:
Traffic settlements receivable - net
(included in “Receivables”
account)
Other current assets
Accounts payable and accrued
expenses
Notes
2007
2006
(In Thousand Pesos)
2005
4
6
P
= 63,391
1,925
P
= 61,061
1,651
P
= 335,766
927
12
121,820
100,413
129,420
The Globe Group’s compensation of key management personnel by benefit type are as follows:
Short-term employee benefits
Share-based payments
Post-employment benefits
Notes
2007
18
18
P
= 1,419,490
129,914
50,940
P
= 1,600,344
2006
2005
(In Thousand Pesos)
P
= 1,155,899
P
= 1,073,820
161,628
161,731
21,682
32,938
P
= 1,339,209 P
= 1,268,489
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:
2007
2006
2005
Shares
Amount
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares)
Preferred stock - Series “A” P
= 5 per share
Common stock - P
= 50 per
share
250,000 P
= 1,250,000
250,000 P
= 1,250,000
250,000 P
= 1,250,000
179,934
179,934
179,934
8,996,719
8,996,719
8,996,719
Globe Telecom’s issued and subscribed capital stock consists of:
2007
2006
2005
Amount
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares)
158,515 P
= 792,575
158,515 P
= 792,575
158,515 P
= 792,575
132,334 6,616,677
132,080 6,603,989
131,900 6,595,022
(42,250)
(46,910)
(53,856)
P
= 7,367,002
P
= 7,349,654
P
= 7,333,741
Shares
Preferred stock
Common stock
Subscriptions receivable
17.1 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 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, 2007, the Globe Group has no dividends in arrears to its preferred stockholders.
17.2 Common Stock
The rollforward of outstanding common shares are as follows:
Shares
At beginning of year
Acquisition of treasury
shares
Exercise of stock options
At end of year
2007
2006
2005
Amount
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares)
132,080 P
= 6,603,989
131,900 P
= 6,595,022
139,904 P
= 6,995,200
–
–
254
12,688
132,334 P
= 6,616,677
–
–
180
8,967
132,080 P
= 6,603,989
(8,064) (403,211)
60
3,033
131,900 P
= 6,595,022
17.3 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
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.
17.4 Cash Dividends
Information on Globe Telecom’s BOD declaration of cash dividends follows:
Per share
Preferred stock dividends declared on:
December 13, 2005
December 11, 2006
December 7, 2007
Common stock dividends declared on:
February 1, 2005
August 2, 2005
February 7, 2006
July 31, 2006
February 5, 2007
August 10, 2007
November 6, 2007
Date
Amount
Record
Payable
(In Thousand Pesos, Except Per Share Figures)
P
= 0.43
0.41
0.31
P
= 68,334
64,669
49,449
December 31, 2005
December 31, 2006
December 18, 2007
March 15, 2006
March 15, 2007
March 17, 2008
P
= 20.00
20.00
20.00
30.00
33.00
33.00
50.00
P
= 2,798,077
2,637,940
2,638,072
3,961,745
4,359,650
4,362,385
6,616,708
February 18, 2005
August 19, 2005
February 21, 2006
August 17, 2006
February 19, 2007
August 29, 2007
November 20, 2007
March 15, 2005
September 14, 2005
March 15, 2006
September 12, 2006
March 15, 2007
September 14, 2007
December 17, 2007
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.
On November 6, 2007, the BOD declared a special cash dividend of P50 per common share based on
shareholders on record as of November 20, 2007 with the payment date of December 17, 2007. The special
dividend was in consideration of the record profitability and strong operating cash flows of Globe Telecom,
and to optimize Globe Telecom’s capital structure and enhance shareholder value.
Cash Dividends Declared After Balance Sheet Date
On February 4, 2008, the BOD approved the declaration of the first semi-annual cash dividend in 2008 of
P
= 4,962.51 million (P
= 37.50 per common share) to common stockholders of record as of February 18, 2008
payable on March 13, 2008.
17.5 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 a joint venture accounted for under the equity method totaling
P
= 4,986.09 million as of December 31, 2007. This amount is not available for dividend declaration until
received in the form of dividends from subsidiaries and the joint venture. The Globe Group is also subject to
loan covenants that restrict its ability to pay dividends (see Note 14).
18. Employee Benefits
18.1 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 2007:
Date of
Grant
April 4, 2003
Number of
Options
Granted
680,200
Exercise
Price
P
= 547.00 per share
July 1, 2004
803,800
P
= 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
P
= 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
May 17, 2007
604,000 P
= 1,270.50 per share
50% of the options become
exercisable from May 17, 2009
to May 16, 2017, the remaining
50% become exercisable from
May 17, 2010 to May 16, 2017
P
= 375.89
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
of each
Option
P
= 283.11
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:
Outstanding, at beginning of year
Granted
Exercised
Expired/forfeited/cancelled
Outstanding, at end of year
Exercisable, at end of year
2007
2006
2005
Weighted
Weighted
Weighted
Average
Average
Average
Number of
Exercise
Number of Exercise
Number of
Exercise
Shares
Price
Shares
Price
Shares
Price
(In Thousands and Per Share Figures)
1,590,940
P
=811.62
1,281,350
P
= 730.01
1,450,600
P
= 709.77
604,000
1,270.50
749,500
854.75
8,000
547.00
547.00
(465,776)
782.32
(435,810)
647.80
(149,000)
604.19
(112,050)
766.69
(4,100)
604.32
(28,250)
1,617,114
P
=994.57
1,590,940
P
= 811.62
1,281,350
P
= 730.01
309,614
P
=785.65
447,540
P
= 712.80
172,350
P
= 547.00
The average share price at date of exercise of stock options as of December 31, 2007, 2006 and 2005
amounted to P
= 1,242.57, P
= 989.03 and P
= 807.08, respectively.
As of December 31, 2007, 2006 and 2005, the weighted average remaining contractual life of options
outstanding is 8.29 years, 8.17 years and 8.03 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
May 17, 2007
June 30, 2006
July 1, 2004
April 4, 2003
P
= 1,340.00
P
= 1,270.50
38.14%
10 years
4.93%
7.04%
P
= 930.00
P
= 854.75
29.51%
10 years
5.38%
10.30%
P
= 835.00
P
= 840.75
39.50%
10 years
4.31%
12.91%
P
= 580.00
P
= 547.00
34.64%
10 years
2.70%
11.46%
The expected volatility measured at the standard deviation of expected share price returns was based on
analysis of share prices for the past 365 days.
Cost of share-based payments for the years ended December 31, 2007, 2006 and 2005 amounted to
P
= 129.91 million, P
= 161.63 million and P
= 161.73 million, respectively.
18.2 Pension Plan
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 components of pension expense (included in staff costs under “General, selling and administrative
expenses”) in the consolidated statements of income are as follows:
2007
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
= 168,374
80,224
(127,872)
11,157
P
= 131,883
P
= 120,701
2006
(In Thousand Pesos)
P
= 92,191
67,443
(108,839)
(2,605)
P
= 48,190
P
= 191,848
2005
P
= 93,305
81,207
(112,833)
(2,454)
P
= 59,225
P
= 80,456
The funded status included under “Other noncurrent assets” account for the pension plan of Globe Group is
as follows:
2007
Benefit obligation
Plan assets
Unrecognized net actuarial gains (losses)
Asset recognized in the consolidated balance
sheets
P
= 1,690,615
(1,341,568)
349,047
(511,801)
(P
= 162,754)
2006
2005
(In Thousand Pesos)
P
= 1,267,209
P
= 648,825
(1,254,906)
(1,066,441)
12,303
(417,616)
(259,740)
153,592
(P
= 247,437)
(P
= 264,024)
The following tables present the changes in the present value of defined benefit obligation and fair value of
plan assets:
Defined benefit obligation
2007
Balance at beginning of year
Interest cost
Current service cost
Benefits paid
Actuarial losses (gains)
Balance at end of year
P
= 1,267,209
80,224
168,374
(58,635)
233,443
P
= 1,690,615
2006
2005
(In Thousand Pesos)
P
= 648,825
P
= 603,622
67,443
81,207
92,191
93,305
(62,354)
(69,980)
521,104
(59,329)
P
= 1,267,209
P
= 648,825
Fair value of plan assets
2007
Balance at beginning of year
Expected return
Contributions
Benefits paid
Actuarial gains (losses)
Balance at end of year
P
= 1,254,906
127,872
47,200
(58,635)
(29,775)
P
= 1,341,568
2006
2005
(In Thousand Pesos)
P
= 1,066,441
P
= 1,018,309
108,839
112,833
31,603
14,023
(62,354)
(69,980)
110,377
(8,744)
P
= 1,254,906
P
= 1,066,441
The Globe Group expects to make additional contributions to its defined benefit pension plan amounting to
P
= 163.50 million in 2008.
The allocation of the fair value of the plan assets of Globe Telecom follows:
2007
68.00%
30.00%
2.00%
Investments in debt securities
Investments in equity securities
Others
2006
72.00%
25.00%
3.00%
2005
84.00%
15.00%
1.00%
2006
74.00%
17.00%
9.00%
2005
89.00%
7.00%
4.00%
The allocation of the fair value of the plan assets of Innove follows:
2007
66.00%
32.00%
2.00%
Investments in debt securities
Investments in equity securities
Others
As of December 31, 2007, the pension plan assets of Globe Telecom and Innove include shares of stock of
Globe Telecom with total fair value of P
= 41.55 million, and shares of stock of other related parties with total fair
value of P
= 147.50 million.
The assumptions used to determine pension benefits of Globe Telecom and Innove are as follows:
2007
8.25%
10.00%
7.00%
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%
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 four years are as follows:
2007
Defined benefit
obligation
Plan assets
Deficit (surplus)
P
= 1,690,615
1,341,568
349,047
2006
2005
(In Thousand Pesos)
P
= 1,267,209
1,254,906
12,303
P
= 648,825
1,066,441
(417,616)
2004
603,622
1,018,309
(414,687)
2003
622,508
920,989
(298,481)
As of December 31, 2007 and 2006, experience adjustments on plan liabilities amounted to P
= 170.82 million
loss and P
= 72.59 million loss, respectively, while experience adjustments on plan assets amounted to
P
= 29.78 million loss and P
= 102.01 million gain, respectively.
19. Interest Income
Interest income is earned from the following sources:
2007
2006
(In Thousand Pesos)
P
= 566,358
P
= 640,545
161,630
212,755
633
1,565
P
= 728,621
P
= 854,865
Short-term placements
Cash in banks
Others
2005
P
= 548,348
61,153
10,588
P
= 620,089
20. Other Income
This account consists of:
Notes
2007
28
8, 25
P
= 1,431,214
220,258
153,009
P
= 1,804,481
Foreign exchange gain
Rent
Miscellaneous
2006
2005
(In Thousand Pesos)
P
= 1,706,387
P
= 2,303,327
229,488
241,299
215,695
336,177
P
= 2,151,570
P
= 2,880,803
The peso to US dollar exchange rates amounted to P
= 41.411, P
= 49.045 and P
= 53.062 as of December 31, 2007, 2006
and 2005, respectively.
The Globe Group’s net foreign currency-denominated liabilities amounted to USD188.16 million, USD408.88 million
and USD556.61 million as of December 31, 2007, 2006 and 2005, respectively.
These combinations of net liability movements and peso rate appreciation resulted to foreign exchange gain over
these periods.
21. General, Selling and Administrative Expenses
This account consists of:
Notes
Staff costs
Selling, advertising and promotions
Rent
Utilities, supplies and other administrative
expenses
Repairs and maintenance
Professional and other contracted services
Insurance and security services
Others
18
25
16
2006
2005
(In Thousand Pesos)
P
= 4,536,508
P
= 3,564,239
P
= 3,518,910
4,469,486
3,524,546
4,697,406
2,569,773
2,080,746
1,839,999
2007
2,243,308
2,205,476
1,831,121
1,578,296
1,870,505
P
= 21,304,473
2,121,369
2,122,192
1,394,191
1,441,091
1,832,557
P
= 18,080,931
1,982,396
1,877,425
1,495,634
1,477,739
2,252,753
P
= 19,142,262
22. Financing Costs
This account consists of:
Interest expense
Loss on derivative instruments
Swap and other financing costs - net
Notes
2007
14, 28
14.1
P
= 2,996,347
801,617
1,426,975
P
= 5,224,939
Notes
2007
14
15, 25.4
P
= 2,726,466
268,390
–
1,491
P
= 2,996,347
2006
2005
(In Thousand Pesos)
P
= 4,213,976
P
= 4,657,748
338,061
104,301
426,712
681,871
P
= 4,978,749
P
= 5,443,920
Interest expense is incurred on the following:
Long-term debt
Accretion expense
Suppliers’ credit
Others
2006
2005
(In Thousand Pesos)
P
= 3,982,743
P
= 4,389,733
228,768
216,437
1,993
47,512
472
4,066
P
= 4,213,976
P
= 4,657,748
23. Impairment Losses and Others
This account consists of:
2007
Impairment loss (reversal of impairment loss) on:
Receivables
Property and equipment
Provisions for (reversal of):
Inventory obsolescence and market decline
Other probable losses
2006
(In Thousand Pesos)
2005
P
= 711,396
(71,431)
P
= 422,834
88,673
P
= 615,729
925,772
298,116
3,179
P
= 941,260
(61,392)
84,833
P
= 534,948
80,049
(12,694)
P
= 1,608,856
24. 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:
2007
Deferred income tax assets on:
Unearned revenues and advances already
subjected to income tax
Allowance for impairment losses on receivables
Cost of share-based payments
ARO
Accumulated impairment losses on property
and equipment
Provision for other probable losses
Accrued rent expense
Inventory obsolescence and market decline
Accrued vacation leave
Prepaid pension
Deferred charges
Unrealized foreign exchange losses
Deferred income tax liabilities on:
Excess of accumulated depreciation and
amortization of Globe Telecom equipment for
tax purposes (a) over financial reporting
purposes (b)
Capitalized borrowing costs already claimed as
deduction for tax purposes
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)
Sum-of-the-years digit method
(b)
Straight-line method
2006
(In Thousand Pesos)
2005
P
= 686,740
496,717
300,714
291,520
P
= 484,780
954,927
155,520
212,967
P
= 518,293
1,664,166
31,370
154,956
285,106
165,149
110,959
73,017
16,841
1,835
489
–
2,429,087
144,164
94,973
91,212
47,374
57,591
–
14,525
–
2,258,033
223,562
42,984
70,328
101,345
47,583
–
51,868
400,440
3,306,895
5,435,482
5,077,030
4,815,995
1,404,139
264,485
1,369,788
241,894
1,352,303
–
133,822
56,328
–
–
7,294,256
P
= 4,865,169
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
Net deferred tax assets and liabilities presented in the consolidated balance sheets on a net basis by entity are as
follows:
2007
Net deferred tax assets (Innove and GXI)
Net deferred tax liabilities (Globe Telecom)
P
= 637,721
5,502,890
2006
2005
(In Thousand Pesos)
P
= 801,863
P
= 1,163,943
5,539,999
4,432,867
The details of GXI’s NOLCO are as follows (in thousands):
Inception Year
2005
2006
2007
Amount
P
= 18,176
36,720
47,589
P
= 102,485
Expiry Year
2008
2009
2010
The remaining balance of unexpired NOLCO relates to GXI, which can be claimed as a deduction from taxable
income in future years, was not recognized since there is no assurance that GXI will generate sufficient taxable
income to allow all or part of its NOLCO to be utilized.
The reconciliation of the provision for income tax at statutory tax rate and the actual current and deferred provision
for income tax follows:
2007
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 a
joint venture
Unearned revenues under income tax
holiday (ITH)
Income under ITH
Others
Actual provision for income tax
P
= 7,017,622
(71,599)
(107,310)
3,158
–
–
(68,542)
P
= 6,773,329
2006
2005
(In Thousand Pesos)
P
= 6,159,543
P
= 4,641,472
(263,414)
(96,045)
2,042
–
–
41,894
P
= 5,844,020
(222,142)
(36,087)
4,334
(365,344)
(254,486)
199,196
P
= 3,966,943
The current provision for income tax includes the following:
2007
Regular corporate income tax
Final tax
P
= 6,723,422
117,818
P
= 6,841,240
2006
2005
(In Thousand Pesos)
P
= 4,251,899
P
= 1,747,249
139,528
100,441
P
= 4,391,427
P
= 1,847,690
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.
25. Agreements and Commitments
25.1 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 also has short term renewable leases on transmission cables and
equipment. 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
= 2,569.77 million, P
= 2,080.75 million and P
= 1,840.00 million for the years ended December 31, 2007,
2006 and 2005, respectively (see Note 21).
As of December 31, 2007, 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
(b)
P
= 1,998,509
9,841,286
2,608,838
P
= 14,448,633
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
= 163.73 million, P
= 182.02 million and P
= 194.01 million for the years
ended December 31, 2007, 2006 and 2005, 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
P
= 146,744
586,975
476,917
P
= 1,210,636
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 and renewable under certain terms
and conditions. As of December 31, 2007, the future minimum lease receivables under this operating
lease amounted to P
= 31.27 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 EUL of three
years, which is also equivalent to the lease term.
As of December 31, 2007, the consolidated present value of the net minimum lease payments due
within a year amounted to P
= 0.21 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 and 2005, the present value of the net minimum lease payments receivable
included under “Prepayments and other current assets” account in the consolidated balance sheets
amounted to P
= 5.13 million and P
= 2.02 million, respectively. As of December 31, 2007, Innove does not
have existing finance lease arrangements for its office equipment.
25.2 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.
25.3 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, 2007, 2006 and 2005 included in the “Accounts payable and accrued expenses” account in the
consolidated balance sheets amounted to P
= 4,448.65 million, P
= 4,548.84 million and P
= 2,444.11 million,
respectively (see Note 12). As of December 31, 2007, the consolidated expected future payments amounted
to P
= 9,840.37 million. The settlement of these liabilities is dependent on the payment terms agreed with the
suppliers and contractors.
25.4 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 with carrying values amounting to P
= 830.63 million, P
= 1,062.64 million and P
= 1,235.81 million as
of December 31, 2007, 2006 and 2005, respectively (see Note 15).
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 USD4.11 million. Accordingly, based on agreed
amortization schedule, Globe Telecom recognized lease income amounting to P
= 12.53 million, P
= 13.97 million
and P
= 15.06 million for the years ended December 31, 2007, 2006 and 2005, respectively.
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):
2007
Current
Noncurrent
P
= 11,305
73,725
P
= 85,030
2006
(In Thousand Pesos)
P
= 13,389
100,705
P
= 114,094
2005
P
= 14,759
123,166
P
= 137,925
As of December 31, 2005, 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 ceased to be a
related party.
26. 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
The Globe Group 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. Hearings on this case are now ongoing with the RTC.
In the event, however, that the Globe Group is not eventually sustained in its 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.
27. Earnings Per Share
The Globe Group’s earnings per share amounts were computed as follows:
2007
2006
2005
(In Thousand Pesos and Number of Shares,
Except Per Share Figures)
Net income attributable to common
shareholders for basic earnings per share
Add dividends on preferred shares
Net income attributable to common
shareholders for diluted earnings per
share
Weighted average number of shares for basic
earnings per share
Dilutive shares arising from:
Convertible preferred shares
Stock options
Adjusted weighted average number of common
stock for diluted earnings per share
Basic earnings per share
Diluted earnings per share
P
= 13,227,570
49,449
P
= 11,690,004
64,669
P
= 10,246,174
68,334
13,277,019
11,754,673
10,314,508
132,184
131,998
133,520
564
576
800
301
982
146
133,324
P
= 100.07
P
= 99.58
133,099
P
= 88.56
P
= 88.32
134,648
P
= 76.74
P
= 76.60
28. Risk Management and Financial Instruments
28.1 General
The Globe Group adopts an expanded corporate governance approach in managing its business risks. An
Enterprise Risk Management Policy was developed to systematically view the risks and to provide a better
understanding of the different risks that could threaten the achievement of the Globe Group’s mission, vision,
strategies, and goals, and to provide emphasis on how management and employees play a vital role in
achieving the Globe Group’s mission of enriching people’s lives.
The policies are not intended to eliminate risk but to manage it in such a way that opportunities to create
value for the stakeholders are achieved. Globe Group risk management takes place in the context of the
normal business processes such as strategic planning, business planning, operational and support processes.
The application of these policies is the responsibility of the BOD through the Chief Executive Officer. The
Chief Financial Officer and concurrent Chief Risk Officer champions and oversees the entire risk management
function supported by a risk management unit. Risk owners have been identified for each risk and they are
responsible for coordinating and continuously improving risk strategies, processes and measures on an
enterprise-wide basis in accordance with established business objectives.
The risks are managed through the delegation of management and financial authority and individual
accountability as documented in employment contracts, consultancy contracts, letters of authority, letters of
appointment, performance planning and evaluation forms, key result areas, terms of reference and other
policies that provide guidelines for managing specific risks arising from the Globe Group’s business
operations and environment.
The succeeding discussion focuses on Globe Group’s financial risk management.
28.2 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:
28.2.1
Interest Rate Risk
The Globe Group’s exposure to market risk from changes in interest rates relates primarily to the
Globe Group’s long-term debt obligations. Please refer to table presented under 28.2.5 Liquidity
Risk.
Globe Telecom’s policy is to manage its interest cost using a mix of fixed and variable rate debt,
targeting a ratio of between 31-62% fixed rate 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, 2007, after taking into account the effect of currency and interest rate swaps,
38% and 56% of the Globe Group’s USD and PHP borrowings, respectively, are at a fixed rate of
interest.
The following table demonstrates the sensitivity of income before tax as of December 31, 2007 to a
reasonably possible change in interest rates, with all other variables held constant.
Increase/decrease
in basis points
USD
PHP
28.2.2
+5 bps
-5 bps
+100 bps
-100 bps
Effect on income
before tax
Effect on equity
Increase (decrease)
Increase (decrease)
(In Thousand Pesos)
(P
= 1,424)
P
= 2,288
1,425
(2,291)
6,257
(24,760)
(6,689)
25,157
Foreign Exchange Risk
The Globe Group’s foreign exchange risk results primarily from movements of the PHP against the
USD with respect to USD-denominated financial assets, USD-denominated financial liabilities and
certain USD-denominated revenues. Majority of revenues are generated in PHP, while substantially
all of capital expenditures are in USD. In addition, 20% of debt as of December 31, 2007 are
denominated in USD before taking into account any swap and hedges.
Information on the Globe Group’s foreign currency-denominated monetary assets and liabilities and
their PHP equivalents are as follows:
2007
Peso
US
Dollar Equivalent
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
2006
Peso
US
Dollar
Equivalent
(In Thousands)
US
Dollar
2005
Peso
Equivalent
$24,081
–
59,324
P
=997,203
–
2,456,648
$140,430
88
53,849
P
= 6,887,362
4,326
2,641,048
$78,901
–
50,162
P
= 4,186,627
–
2,661,691
9
83,414
389
3,454,240
750
195,117
36,774
9,569,510
5,238
134,301
277,948
7,126,266
99,873 4,135,830
149,586 6,194,516
22,112
915,667
271,571 11,246,013
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
2,840,690
32,446,723
1,373,734
36,661,147
Net foreign currencydenominated liabilities
$188,157 P
=7,791,773
$408,879 P
= 20,053,472
*This table excludes derivative transactions disclosed in Note 28.3.
$556,609 P
= 29,534,881
The following table demonstrates the sensitivity to a reasonably possible change in the PHP to USD
exchange rate, with all other variables held constant, of the Globe Group’s income before tax (due to
changes in the fair value of financial assets and liabilities).
Increase/decrease
in Peso to
US Dollar rate
+.125
-.125
Effect on income
before tax
Effect on Equity
Increase (decrease)
Increase (decrease)
(In Thousand Pesos)
(P
= 22,133)
(P
= 15,453)
22,133
15,453
In addition, as of December 31, 2007, the consolidated expected future payments on foreign
currency-denominated purchase orders related to capital projects amounted to USD225.00 million.
The settlement of these liabilities is dependent on the achievement of project milestones and
payment terms agreed with the suppliers and contractors. Foreign exchange exposure assuming a
+/- 12.50 centavos movement in PHP to USD rate on commitments amounted to P
= 28.13 million gain
or loss.
The Globe Group’s foreign exchange risk management policy is to maintain a hedged balance sheet
position, after taking into account expected USD flows from operations and financing transactions.
Globe Telecom enters into short-term foreign currency forwards and long-term foreign currency swap
contracts in order to achieve this target.
28.2.3
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. The maximum credit exposure relates to receivables net of any
allowances provided.
With respect to credit risk arising from other financial assets of the Globe Group, which comprise
cash and cash equivalents, short-term investments, available for sale financial assets, HTM assets,
and certain derivative instruments, the Globe Group’s exposure to credit risk arises from the default
of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.
The Globe Group’s investments comprise of short-term bank deposits and government securities.
Credit risk from these investments is managed on a Globe Group basis. For its investments with
banks, the Globe Group has a counterparty risk management policy which allocates investment
limits based on counterparty credit rating and credit risk profile.
The Globe Group makes a quarterly assessment of the credit standing of its investment
counterparties, and allocates investment limits based on size, liquidity, profitability, and asset quality.
For investments in government securities, these are denominated in local currency and are
considered to be relatively risk-free. The usage of limits is regularly monitored. For its derivative
counterparties, the Globe Group deals only with counterparty banks with investment grade ratings.
Credit ratings of derivative counterparties are reviewed quarterly.
The Globe Group has not executed any credit guarantees in favor of other parties. There is also no
concentration of credit risk within the Globe Group.
The table below shows the aging analysis of the Globe Group’s receivables as of
December 31, 2007. Comparative amounts for 2006 and 2005 are not presented since efforts
required to present the information shown below will be impracticable.
Wireless receivables:
Consumer
Corporate
Small and Medium
Enterprises (SME)
Wireline receivables:
Consumer
Corporate
SME
Traffic receivables:
Foreign
Local
Other receivables
Total
Past Due But Not Impaired
Impaired
Financial
Assets
Total
P
=155,202
181,610
P
=266,268
191,683
P
=1,377,247
645,874
16,763
134,134
73,691
410,503
216,574
674,525
465,580
2,488,701
71,227
13,728
205,634
290,589
55,060
12,499
172,296
239,855
7,941
188,545
11,365
207,851
163,053
143,251
64,577
370,881
661,175
708,526
900,847
2,270,548
–
–
–
–
P
=566,914
–
–
–
–
P
=373,989
–
–
–
–
P
=618,354
38,449
234,106
272,555
16,523
P
=1,334,484
1,682,618
923,295
2,605,913
401,854
P
=7,767,016
Neither Past
Due Nor
Impaired
Less than
30 days
P
=383,776
13,950
P
=349,596
116,406
P
=151,452
95,807
P
=70,953
46,418
67,501
465,227
61,985
527,987
29,066
276,325
234,259
314,822
110,065
659,146
129,635
35,681
336,910
502,226
1,644,169
–
689,189
–
2,333,358
–
385,331
–
P
=3,843,062 P
=1,030,213
31 to 60
61 to 90
More than
days
days
90 days
(In Thousands Pesos)
Total allowance for impairment losses amounting to P
= 1,383.48 million as of December 31, 2007
includes allowance from impairment arising from collective assessment amounting to P
= 48.99 million.
The table below provides information regarding the credit risk exposure of the Globe Group by
classifying assets according to the Globe Group’s credit ratings of receivables as of
December 31, 2007. The Globe Group’s credit rating is based on individual borrower characteristics
and their relationship to credit event experiences.
Neither Past Due Nor Impaired
High Quality Medium Quality
Low Quality
(In Thousands Pesos)
Wireless receivables:
Consumer
Corporate
SME
Wireline receivables:
Consumer
Corporate
SME
Total
Total
P
= 338,862
12,354
54,692
405,908
P
= 41,007
923
7,755
49,685
P
= 3,907
673
5,054
9,634
P
= 383,776
13,950
67,501
465,227
95,950
308,286
68,009
472,245
P
= 878,153
127,670
–
40,053
167,723
P
= 217,408
10,639
6,536
2,003
19,178
P
= 28,812
234,259
314,822
110,065
659,146
P
= 1,124,373
High quality accounts are accounts considered to be high value and have consistently exhibited good
paying habits. Medium quality accounts are active accounts with propensity of deteriorating to midrange age buckets. These accounts do not flow through to permanent disconnection status as they
generally respond to credit actions and update their payments accordingly. Low quality accounts are
accounts which have probability of impairment based on historical trend. These accounts show
propensity to default in payment despite regular follow-up actions and extended payment terms.
Impairment losses are also provided for these accounts based on net flow rate.
Traffic receivables that are neither past due nor impaired are considered to be high quality given the
reciprocal nature of the Globe Group’s interconnect and roaming partner agreements with the
carriers and the Globe Group’s historical collection experience.
Other receivables are considered high quality accounts as these are substantially from credit card
companies and Globe dealers.
The following is a reconciliation of the changes in the allowance for impairment losses for receivables
as of December 31 (in thousand pesos) (see Note 4):
2007
At beginning of year
Charges for the year
Reversals/write-offs/adjustments
At end of year
Subscribers
P
= 2,485,188
621,885
(2,009,650)
P
= 1,097,423
Traffic
Settlements
Non-trade
and Others (Note 6 and 11)
P
= 199,595
P
= 43,581
90,507
(996)
(4,050)
(6,865)
P
= 286,052
P
= 35,720
Total
P
= 2,728,364
711,396
(2,020,565)
P
= 1,419,195
2006
At beginning of year
Charges for the year
Reversals/write-offs/adjustments
At end of year
Subscribers
P
= 4,468,009
396,587
(2,379,408)
P
= 2,485,188
Traffic
Settlements
and Others
P
= 215,618
42,559
(58,582)
P
= 199,595
Non-trade
(Note 6 and 11)
P
= 71,134
(16,312)
(11,241)
P
= 43,581
Total
P
= 4,754,761
422,834
(2,449,231)
P
= 2,728,364
Subscribers
P
= 4,787,070
660,307
(979,368)
P
= 4,468,009
Traffic
Settlements
and Others
P
= 301,721
(43,573)
(42,530)
P
= 215,618
Non-trade
(Note 6 and 11)
P
= 73,510
(1,005)
(1,371)
P
= 71,134
Total
P
= 5,162,301
615,729
(1,023,269)
P
= 4,754,761
2005
At beginning of year
Charges for the year
Reversals/write-offs/adjustments
At end of year
28.2.4 Impairment assessment
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 wireless postpaid subscribers, 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 accounts and each delinquency
bracket.
For active residential and business wireline voice subscribers, full allowance is generally provided for
outstanding receivables that are past due by 90 and 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.
Specific tests of impairment are not performed on subscriber receivables since the balances are
individually insignificant.
For traffic receivables, impairment losses are made for accounts specifically identified to be doubtful
of collection regardless of the age of the account. Full allowance is generally provided after review of
the status of settlement with the carriers for net receivables not settled within industry observed
settlement periods.
Other receivables from dealers and credit card companies are provided with allowance for
impairment losses if specifically identified to be doubtful of collection regardless of the age of the
account.
Specific tests of impairment are performed on the Globe Group’s other financial assets such as cash
and cash equivalents, short-term investments, AFS financial assets and HTM investments.
28.2.5 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, 2007, Globe Group has available uncommitted short-term credit facilities of
USD39.00 million and P
= 4,520.00 million. The Globe Group currently has no committed long-term
facilities.
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.
The following tables show comparative information about the Globe Group’s financial instruments as of December 31 that are exposed to interest rate risk and presented by maturity
profile including forecasted interest payments for the next five years from December 31, 2007 figures (in thousands).
Long-term Liabilities:
2007
Total
(in USD)
Total
(in PHP)
Debt
Issuance Carrying Value
Costs
(in PHP)
Fair Value
(in PHP)
<1 year
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
$11,116
6.44%
$6,140
6.44%
$–
–
$–
–
$–
–
$17,256
P
= 714,596
P
=–
P
= 714,596
P
= 731,506
P
= 2,208,550
P
= 4,700,000
10.72%-11.70% 11.70% fixed; 3 mo
fixed; 3 mo
MART + 1.38%
MART+ 1.375%
P
=–
–
P
= 520,000
16% fixed
P
= 6,087,000
13.79%, 5.97%
fixed; MART
+1.50%
–
13,515,550
–
13,515,550
14,700,078
$33,822
LIBOR+1.20%,
LIBOR+.85%,
3 mo/6 mo
LIBOR+.43%
$32,222
LIBOR+.85%
3 mo/6 mo
LIBOR+.43%
$26,111
Libor+.85%,
3 mo/6 mo,
LIBOR+.43%
$5,000
3 mo/6 mo
LIBOR+.43%
132,576
5,490,089
11,657
5,478,432
5,579,271
P
= 684,423
P
= 1,240,373
Mart 1+1%
3 mo Mart 1+
margin
1.38%
Mart 1+1.30% Mart 1+1% margin
margin
Mart 1+1.30%
margin
P
= 2,496,923
Mart 1+1%
margin 3 mo
Mart 1+1.30%,
Mart 1+1.10%
margin
P
=–
P
= 5,800,000
13.79%,
5.97% fixed; Mart
1+ 1.50% margin
3 mo Mart 1+
1.30% , Mart 1+
1.10% margin
–
10,221,719
57,445
10,164,274
10,221,719
Interest Expense*
P
=2,087,837
P
=1,587,623
P
=1,138,130
P
=877,264
*Used month-end Libor and Philippine Dealing and Exchange Corporation (PDEX) rates.
P
=315,008
$149,832
P
=–
P
=29,941,954
P
=6,005,862
P
=69,102
P
=–
P
=29,872,852
P
=–
P
=31,232,574
P
=–
Liabilities:
Long-term debt
Fixed rate
USD notes
Interest rate
Philippine peso
Interest rate
Floating rate
USD notes
Interest rate
Philippine peso
Interest rate
$35,421
LIBOR+1.2%,
LIBOR+.85%,
3 mo/6 mo
LIBOR+.43%
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%
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
>5 years
Total
(in USD)
Total
(in PHP)
Premium and
Issuance Carrying Value
Costs
(in PHP)
Fair Value
(in PHP)
$11,116
6.44%
$6,140
6.44%
$–
–
$–
–
$293,540
10.83%
$329,179
P
= 16,144,584
P
= 371,961
P
= 16,516,545 P
= 18,829,694
P
= 1,306,400
P
= 2,249,800
10.18%-10.47% 10.18%-10.47%
P
= 4,700,000
10.47%-11.70%
P
=–
0.00%
P
= 520,000
16%
P
= 1,087,000
13.79%
–
9,863,200
(9,258)
9,853,942
11,488,488
$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%
$11,111
Libor +.85%
$–
155,311
7,617,204
–
7,617,204
5,220,964
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%
P
=–
3 mo Mart1 +
1.75%
Mart 1 + 1%
margin
P
=–
–
5,219,166
–
5,219,166
5,219,166
$484,490
P
= 38,844,154
P
= 362,703
P
= 39,206,857 P
= 40,758,312
2005
<1 year
Liabilities:
Long-term debt
Fixed rate
USD notes
Interest rate
$20,329
4.81% -6.55%
>1-<2 years
$18,383
4.81% -6.55%
Philippine peso
P
= 876,400
P
= 1,347,650
Interest rate
10.37% - 10.72% 10.37% - 10.72%
Floating rate
USD notes
$91,695
$69,902
Interest rate
Libor only; Libor + Libor only; Libor +
.45% - Libor +
.45% - Libor +
3.20%
3.20%
Philippine peso
Interest rate
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
P
= 797,447
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%
$28,254
Libor + .6755% Libor +1.63%
$23,822
Libor +1.20% Libor + 1.63%
P
= 684,423
Mart 1 + 1.3%
margin;
Mart 1 + 1.5%
margin;
Mart 1 + 1%
margin
P
= 1,240,373
Mart 1 + 1%
3 mo Mart +
1.375%
3 mo Mart + 1%
>4-<5 years
$–
–
>5 years
$300,000
10.83%
Total
(in PHP)
Premium and
Issuance
Costs
$355,968 P
= 18,888,369
P
= 467,979
Total
(in USD)
Carrying
Value
(in PHP)
Fair Value
(in PHP)
P
= 19,356,348 P
= 21,870,614
P
=–
P
= 1,607,000
– 13.49% - 16%
–
11,041,600
(16,256)
11,025,344
12,201,003
$22,222
$11,111
Libor +1.63% Libor +1.63%
247,006
13,106,632
−
13,106,632
13,273,951
–
6,205,064
−
6,205,064
6,205,064
$602,974 P
= 49,241,665
P
= 451,723
P
= 2,496,923
3 mo Mart 1 +
1.75%
Mart 1 + 1%
margin
P
=–
P
= 49,693,388 P
= 53,550,632
The following tables present the maturity profile of the Globe Group’s other liabilities and derivative instruments (undiscounted cash flows including swap costs payments/receipts
except for other long-term liabilities) as of December 31, 2007 (in thousands):
Other Liabilities:
Accounts payable and accrued
expenses
Derivative liabilities
Notes payable*
On demand
Less than
1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
Over 5 years
Total
P
= 1,151,747
–
–
P
= 17,283,706
218,772
500,000
P
=–
6,689
–
P
=–
–
–
P
=–
19,035
–
P
=–
96,335
–
P
=–
–
–
P
= 18,435,453
340,831
500,000
Other long-term liabilities
–
72,623
79,196
86,364
94,181
102,705
395,568
830,637
P
= 1,151,747
P
= 18,075,101
P
= 85,885
P
= 86,364
P
= 113,216
P
= 199,040
P
= 395,568
P
= 20,106,921
*On December 11, 2007, the Globe Group obtained a short-term promissory note from a local bank for working capital requirements. This note bears interest at 5.25% annually and will mature on
January 10, 2008.
Derivative Instruments:
2008
2009
Receive
Pay
P
=–
50,058
2010
Receive
Pay
P
= 21,447
P
=–
–
22,902
2011
Receive
Pay
P
= 13,259
P
=–
–
756
2012 and beyond
Receive
Pay
Receive
Pay
P
= 13,259
P
=–
–
1,680
P
= 13,259
P
=–
P
= 6,648
–
956
–
Projected Swap Coupons*:
Principal Only Swaps
Interest Rate Swaps
*Projected USD swap coupons were converted to PHP at the balance sheet rate. Further, it was assumed that 3m Libor, 3m PDSTF, and 6m PDSTF would stay at December 31, 2007 levels.
2008
2009
2010
2011
2012 and beyond
Receive
Pay
Receive
Pay
Receive
Pay
Receive
Pay
Receive
Pay
$5,000
P
= 280,850
$–
P
=–
$–
P
=–
$–
P
=–
$5,000
P
= 281,650
P
= 242,256
–
P
= 964
–
–
–
–
–
–
–
Projected Principal Exchanges*:
Principal Only Swaps
Forwards (Deliverable and
Nondeliverable)
*Projected principal exchanges represent commitments to purchase USD for payment of USD debts with the same maturities. Projected USD payments on NDFs were converted to PHP at balance
sheet rate.
28.2.6
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 transactions. Authorized derivative instruments include currency forward contracts
(freestanding and embedded), currency swap contracts, interest rate swap contracts and currency
option contracts (freestanding and embedded). Certain currency swaps are entered with option
combination or structured provisions.
28.3 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:
2007
Notional
Amount
Derivative instruments designated as
hedges:
Cash flow hedges:
Nondeliverable forwards*
Interest rate swaps
Derivative instruments not designated
as hedges:
Freestanding:
Nondeliverable forwards**
Interest rate swaps
Currency swaps and cross
currency swaps
Embedded:
Currency forwards***
Currency options****
Net
Derivative
Liability
$120,000
35,000
P
=–
–
P
= 267,865
–
P
=–
15,026
46,000
15,000
–
2,000,000
115,064
58,922
97,027
11,613
10,000
–
–
172,194
34,305
430
–
–
86,781
14
P
= 528,646
44,971
–
P
= 340,831
*Sell position: USD120,000
**Buy position: USD20,000; Sell position: USD26,000
***Buy position: USD10,118; Sell position USD24,187
****All embedded options are long call positions.
Notional
Derivative
Asset
Amount
(In Thousands)
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:
Nondeliverable forwards*
Currency swaps and cross currency
swaps
Interest rate swaps
Sold currency call options (including
premiums receivable)
Embedded:
Interest call option on 2012
Senior Notes (see Note 14.1)
Currency forwards**
Currency options***
Net
Notional
Derivative
Amount
Asset
(In Thousands)
Derivative
Liability
$55,807
12,098
P
=–
–
P
=–
8,644
P
= 574,654
–
74,000
–
23,526
66,633
73,742
17,000
–
2,000,000
–
139,178
402,365
17,705
3,000
–
–
–
293,540
–
1,425,270
–
6,416
898
–
–
30,029
20
P
= 1,626,667
24,766
–
P
= 1,086,123
Notional
Derivative
Assets
Amount
(In Thousands)
Derivative
Liabilities
*Buy position: USD5,000; Sell position: USD40,000; Subsidized: USD29,000
**The embedded currency forwards are at a net sell position.
***All embedded options are long call positions
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:
Interest call option on 2012
Senior Notes(see Note 14.1)
Currency forwards*
Currency options**
Net
$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
–
1,268,712
–
11,720
1,080
–
–
101,808
235
P
= 1,548,891
30,326
–
P
= 731,746
* The embedded currency forwards are at a net sell position.
**All embedded options are long call positions
The table below also sets out information about the Globe Group’s derivative instruments that were entered
into to manage interest and foreign exchange risks related to the long-term liabilities shown under liquidity risk
as of December 31 (in thousands).
2007
<1 year
Derivatives:
Currency Swaps:
Notional amount
Weighted swap rate
Pay fixed 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
>1-<2 years
>2-<3 years
>3-<4 years
>4-<5 years
Total
$5,000
$10,000
P
=56.25
4.62% - 5.89%
$5,000
–
–
P
=1,000,000
–
–
–
–
–
–
$5,000
$24,148
$5,000
LIBOR+4.23% Mart +1.38%
9.75% - 11.70%
–
$11,667
P
=1,000,000
$13,333
–
$13,333
–
$6,667
–
–
$24,148
$45,000
4.84% - 7.09%
USD LIBOR Mart +1.38%
2006
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
<1 year
>1-<2 years
>2-<3 years >3-<4 years
$13,879
$10,000
$10,000
$6,094
$417
–
>4-<5 years
>5 years
Total
$5,000
$15,000
$65,000
$118,879
P
= 53.524
4.62%-10.25%
–
–
–
$6,511
11.00% - 15.23%
USD Libor
P
= 51.52
$3,742
$417
–
–
–
–
$4,159
Mart+ 1.25% - 1.90%
USD Libor
P
= 51.03
–
–
–
–
P
= 1,000,000
–
–
–
–
–
–
$5,000
$20,389
$5,000
Libor+ 4.23%-Mart+1.38%
9.75%-11.70%
–
$24,098
–
–
P
= 1,000,000
–
–
–
–
–
–
–
$20,389
$24,098
USD 2.30% - 7.10%
USD Libor Mart+1.38%
2005
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 USD
Pay-fixed rate
Receive-floating
rate
<1 year
>1-<2 years
>2-<3 years >3-<4 years
$21,548
$13,880
$10,000
$10,000
$13,755
$6,094
$417
–
>4-<5 years
>5 years
Total
$5,000
$80,000
$140,428
P
= 53.16
4.62% - 10.25%
–
–
$20,266
11.00% - 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+1.38%
9.75% - 11.70%
$32,065
$24,098
–
–
–
–
$56,163
USD 2.30% - 4.20%
USD Libor
The Globe Group’s other financial instruments that are exposed to interest rate risk are cash and cash
equivalents, AFS 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 trade and other receivables, accounts payable and accrued expenses and 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.
28.4 Derivative Instruments Accounted for as Hedges
The following sections discuss in detail the derivative instruments accounted for as cash flow hedges.
·
Interest Rate Swaps
As of December 31, 2007 the Globe Group has USD35.00 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 4.835% over the duration of the agreement, which involves semiannual payment intervals up to January 2011.
As of December 31, 2007, the fair value of the outstanding swap amounted to P
= 15.03 million loss, of
which P
= 9.77 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, 2007
amounted to P
= 7.36 million.
·
Nondeliverable Forwards
The Globe Group entered into short-term nondeliverable currency forward contracts to hedge the
changes in the cash flows of USD revenues related to changes in foreign currency exchange rates.
These currency forward contracts with a notional amount of USD120.00 million have maturities until
January 2009. The fair value of the outstanding short-term nondeliverable currency forwards as of
December 31, 2007 amounted to P
= 267.86 million gain of which P
= 174.11 million (net of tax) is reported in
the equity section of the consolidated balance sheets.
28.5 Other Derivative Instruments not Designated as Hedges
The Globe Group 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.
28.6 Freestanding Derivatives
Freestanding derivatives that are not designated as hedges consist of currency forwards, options, currency
and interest rate swaps entered into by the Globe Group. Fair value changes on these instruments are
accounted for directly in the consolidated statements of income.
·
Currency Swaps and Cross-Currency Swaps
The Globe Group also has outstanding foreign currency swap agreements with certain banks, under
which it swaps the principal of USD10.00 million USD-denominated loans into PHP up to April 2012.
Under these contracts, swap costs are payable in semi-annual intervals in PHP or USD.
·
Nondeliverable Forwards
The Globe Group entered into short-term nondeliverable currency forward contracts. These currency
forward contracts with a notional amount of USD46.00 million with maturities extending to
December 2008. The unrealized gain amounted to P
= 18.04 million in 2007.
·
Interest Rate Swaps
The Globe Group has outstanding interest rate swap contracts which swap certain fixed and floating
USD-denominated loans into floating and fixed rate with semi-annual payments interval up to April 2012.
The swaps have outstanding notional of USD15.00 million as of December 31, 2007.
The Globe Group also has an outstanding interest rate swap contract with a notional amount of
P
= 1,000.00 million, which effectively swaps a fixed rate PHP-denominated bond into floating rate, with
quarterly payment intervals up to February 2009. The Globe Group also has an outstanding interest rate
swap contracts amounting to P
= 1,000.00 million that effectively swap the floating rate coupon back to a
fixed rate, with quarterly payment intervals up to February 2009.
The fair values on the interest rate swaps as of December 31, 2007 amounted to a net gain of
P
= 58.92 million and loss of P
= 11.61 million.
28.7 Embedded Derivatives and Other Financial Instruments
The Globe Group’s embedded derivatives include embedded currency derivatives noted in both financial and
nonfinancial contracts and embedded call options in debt instruments.
·
Embedded Currency Forwards
As of December 31, 2007, the total outstanding notional amount of currency forwards embedded in
nonfinancial contracts amounted to USD34.30 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, 2007 amounted to P
= 41.81 million.
·
Embedded Currency Options
As of December 31, 2007, the total outstanding notional amount of currency options embedded in
nonfinancial contracts amounted to USD0.43 million. The fair value of the embedded currency options
as of December 31, 2007 amounted to P
= 0.01 million.
28.8 Fair Value Changes on Derivatives
The net movements in fair value changes of all derivative instruments are as follows:
2007
At beginning of year
Net changes in fair value of derivatives:
Designated as accounting hedges
Not designated as accounting hedges
Less fair value of settled instruments
At end of year
P
= 540,544
193,165
(1,512,636)
(778,927)
(966,742)
P
= 187,815
2006
2005
(In Thousand Pesos)
P
= 817,145
P
= 1,266,411
(254,589)
45,462
608,018
67,474
P
= 540,544
(429,336)
27,006
864,081
46,936
P
= 817,145
28.9 Hedge Effectiveness Results
As of December 31, 2007, the effective fair value changes on the Globe Group’s cash flow hedges that were
deferred in equity amounted to P
= 164.34 million, net of tax. Total ineffectiveness recognized immediately in
the consolidated statements of income for the year ended December 31, 2007 is immaterial.
The distinction of the results of hedge accounting into “Effective” or “Ineffective” represent designations based
on PAS 39 and are not necessarily reflective of the economic effectiveness of the instruments.
28.10 Categories of Financial Assets and Financial Liabilities
The table below presents the carrying value of Globe Group’s financial instruments by category as of
December 31:
2007
Financial assets:
Financial assets at FVPL:
Derivative assets designated
as cash flow hedges
Derivative assets not designated as
hedges
AFS financial assets
HTM investments
Loans and receivables - net
Financial liabilities:
Financial liabilities at FVPL:
Derivative liabilities designated
as cash flow hedges
Derivative liabilities not designated
as hedges
Financial liabilities at amortized cost
2006
(In Thousand Pesos)
2005
P
= 267,865
P
= 8,644
P
= 74,148
260,781
–
2,350,032
13,074,545
1,618,023
293,614
857,563
19,188,969
1,474,743
1,220,318
33,441
17,675,091
P
= 15,026
P
= 574,654
P
= 431,320
325,805
48,160,525
511,469
55,880,129
300,426
64,183,705
28.11 Fair Values of Financial Assets and Financial Liabilities
The table below presents a comparison of the carrying amounts and estimated fair values of all the Globe
Group’s financial instruments as of December 31:
2005
2007
2006
Carrying Value Fair Value Carrying Value Fair Value Carrying Value
Fair Value
(In Thousand Pesos)
Financial assets:
Cash and cash
equivalents
Short-term investments
AFS investments
HTM investments
Receivables - net
Derivative assets
(Forward)
P
= 6,191,004
500,000
–
2,350,032
6,383,541
528,646
P
= 6,191,004
500,000
–
2,350,032
6,383,541
528,646
P
= 7,505,715 P
= 7,505,715
6,155,349
6,155,349
293,614
293,614
857,563
857,825
5,527,905
5,527,905
1,626,667
1,626,667
P
= 10,910,961 P
= 10,910,961
–
–
1,220,318
1,220,318
33,441
33,404
6,764,130
6,764,130
1,548,891
1,548,891
2005
2007
2006
Carrying Value Fair Value Carrying Value Fair Value Carrying Value
Fair Value
(In Thousand Pesos)
Financial liabilities:
Accounts payable and
accrued expenses
Derivative liabilities
(including current
portion)
Notes payable
Long-term debt
(including current
portion)
Other long-term
liabilities (including
current portion)
P
= 16,392,155
P
= 16,392,155
P
= 15,140,306 P
= 15,140,306 P
= 12,706,425 P
= 12,706,425
340,831
500,000
340,831
500,000
1,086,123
–
1,086,123
–
731,746
–
731,746
–
29,872,852
31,232,574
39,206,857
40,758,312
49,693,388
53,550,632
1,395,518
1,486,606
1,532,966
1,561,973
1,783,892
2,219,844
Traffic settlements receivable, included in 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.
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.
28.11.1
Non-derivative Financial Instruments
The fair values of cash and cash equivalents, short-term investments, AFS investments, subscriber
receivables, traffic settlements receivable, accounts payable, accrued expenses and notes payable
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.
For variable rate financial instruments 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 financial instruments 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 3.23% to 4.59% (for
USD loans). The variable rate PHP loans reprice every six 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.
28.11.2.
Derivative Instruments
The fair value of freestanding and embedded forward exchange contracts is calculated by using the
net present value concept.
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 are valued using the simple option pricing model of Bloomberg.
29. Segment Reporting
The Globe Group’s reportable segments consist of:
Wireless Communications Services - represents cellular telecommunications services that allow subscribers to make
and receive local, domestic long distance and international long distance calls to and from any place within the
coverage area. Revenues principally consist of one-time registration fees, fixed monthly service fees for postpaid,
subscription fees for prepaid, revenues from value-added services such as text messaging, content downloads and
web browsing, proceeds from sale of phonekits, 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, toll fees
for intranetwork, domestic and international outbound calls and text messaging services used by subscribers which
vary based primarily on the monthly volume of calls and text messaging services, the network on which the
call/service terminates and exchange rate movements to a certain extent and inbound toll fees from local and
foreign carriers and partners.
Wireline Communications Services - represents fixed line telecommunications services which offer subscribers local,
domestic long distance and international long distance voice services in addition to broadband and internet services
and a number of value-added services in various areas covered by the CPCN granted by the NTC. Revenues
consist principally of fixed monthly basic fee for service and equipment, one-time fixed line and broadband and
internet service connection fee, value-added service charges, and toll fees for domestic and international long
distance calls of voice and broadband subscribers, and inbound toll fees from local and foreign carriers. 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 packet-switching services, broadband, and
internet services.
The Globe Group’s segment information is as follows (in thousand pesos):
2007
Wireless
Communications
Services
Wireline
Communications
Services
Eliminations
Consolidated
P
=56,410,341
P
=6,798,311
P
=–
P
=63,208,652
Nonservice revenues
2,263,186
36,878
–
2,300,064
Intersegment revenues
1,008,887
135,890
565,101
163,520
Service revenues
Interest income
Other income - net
Total revenue
(Forward)
(1,144,777)
–
–
728,621
7,228,846
124,638
(5,549,003)
1,804,481
67,476,361
7,259,237
(6,693,780)
68,041,818
Wireless
Communications
Services
Wireline
Communications
Services
Eliminations
Consolidated
(P
=18,055,871)
(P
=4,877,421)
P
=1,628,819
(P
=21,304,473)
(13,938,120)
(2,938,844)
Financing costs
(5,122,657)
(102,282)
–
(5,224,939)
Cost of sales
(3,798,189)
(90,917)
566,329
(3,322,777)
(572,189)
(369,071)
–
(941,260)
General, selling and administrative
Depreciation and amortization
Impairment losses and others
(312,034)
(17,188,998)
Equity in net losses of an associate and a
joint venture
Income (loss) before income tax
Benefit from (provision for) income tax
Net income (loss)
(9,023)
25,980,312
(7,112,783)
–
(1,119,298)
339,454
–
(4,810,666)
–
(P
=4,810,666)
(9,023)
20,050,348
(6,773,329)
P
=13,277,019
P
=18,867,529
(P
=779,844)
P
=10,151,435
P
=3,770,522
P
=–
P
=13,921,957
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
730,291
124,574
4,203,917
3,492
(2,055,839)
Other segment information:
Capital expenditure
2006
Service revenues
Nonservice revenues
Other income - net
Total revenue
(502,942)
–
–
854,865
2,151,570
58,880,358
6,633,866
(2,558,781)
62,955,443
General, selling and administrative
(15,653,285)
(3,670,489)
1,242,843
(18,080,931)
Depreciation and amortization
(14,211,642)
(2,574,042)
Financing costs
(4,887,283)
(91,466)
–
(4,978,749)
Cost of sales
(4,535,197)
(84,479)
941
(4,618,735)
(243,778)
(291,170)
–
(534,948)
Impairment losses and others
(351,869)
(17,137,553)
Equity in net losses of an associate and a joint
venture
Income (loss) before income tax
Benefit from (provision for) income tax
Net income (loss)
(5,834)
19,343,339
(5,856,503)
–
(77,780)
12,483
P
= 13,486,836
(P
= 65,297)
P
= 12,598,829
P
= 2,281,624
–
(1,666,866)
–
(P
= 1,666,866)
(5,834)
17,598,693
(5,844,020)
P
= 11,754,673
Other segment information:
Capital expenditure
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
566,302
53,787
Service revenues
Nonservice revenues
Other income - net
Total revenue
(Forward)
(1,006,355)
–
–
620,089
5,648,872
(3,611)
(2,764,458)
2,880,803
59,089,140
6,930,166
(3,770,813)
62,248,493
Wireless
Wireline
Communications
Communications
Services
General, selling and administrative
Depreciation and amortization
Services
Eliminations
Consolidated
(P
= 17,542,682)
(P
= 3,578,904)
P
= 1,979,324
(P
= 19,142,262)
(12,920,623)
(2,449,546)
Financing costs
(5,341,139)
(102,781)
–
(5,443,920)
Cost of sales
(5,927,286)
(142,936)
45,511
(6,024,711)
Impairment losses and others
Equity in net losses of an associate and a joint
venture
(1,455,431)
(153,425)
–
(1,608,856)
Income (loss) before income tax
15,888,645
Provision for income tax
–
(13,334)
502,574
(3,809,377)
Net income (loss)
(157,566)
P
= 12,079,268
P
= 345,008
P
= 13,855,569
P
= 1,266,973
(363,790)
–
(2,109,768)
–
(P
= 2,109,768)
(15,733,959)
(13,334)
14,281,451
(3,966,943)
P
= 10,314,508
Other segment information:
Capital expenditure
P
=–
P
= 15,122,542
The segment assets and liabilities as of December 31, 2007, 2006 and 2005 are as follows (in thousand pesos):
2007
Segment assets
Investments in a joint venture under equity
method
[1]
Consolidated total assets
Consolidated total liabilities
[1]
[1]
Wireless
Communications
Services
P
=115,164,527
Wireline
Communications
Services
P
=20,727,496
Eliminations
(P
=19,992,148)
Consolidated
P
=115,899,875
83,257
P
=115,247,784
–
P
=20,727,496
–
(P
=19,992,148)
83,257
P
=115,983,132
P
=56,764,134
P
=2,593,317
(P
=3,656,299)
P
=55,701,152
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
Consolidated total assets and liabilities do not include deferred income taxes.
2006
Segment assets
Investments in a joint venture under equity
method
[1]
Consolidated total assets
Consolidated total liabilities
[1]
[1]
Consolidated total assets and liabilities do not include deferred income taxes.
2005
Segment assets
Investments in an associate and a joint
venture under equity method
[1]
Consolidated total assets
Consolidated total liabilities
[1]
[1]
Consolidated total assets and liabilities do not include deferred income taxes.
30. Notes to Consolidated Statements of Cash Flows
The principal noncash transactions are as follows:
2007
Increase (decrease) in liabilities related to the
acquisition of property and equipment
Capitalized ARO
Dividends on preferred shares
(P
= 193,823)
150,051
49,449
2006
(In Thousand Pesos)
P
= 2,246,425
281,557
64,669
2005
(P
= 938,673)
44,433
68,334
The cash and cash equivalents account consists of:
2007
Cash on hand and in banks
Short-term placements
P
= 1,679,081
4,511,923
P
= 6,191,004
2006
2005
(In Thousand Pesos)
P
= 2,861,698
P
= 736,200
4,644,017
10,174,761
P
= 7,505,715
P
= 10,910,961
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.
31. Capital Management
The primary objective of the Globe Group’s capital management is to ensure that it maintains a strong credit rating
and healthy capital ratios in order to support its business and maximize shareholder value.
The Globe Group monitors its use of capital using leverage ratios, such as debt to total capitalization and makes
adjustments to it in light of changes in economic conditions and its financial position. The management, upon
review of its dividend policy, recommended an increase in the dividend payment to stockholders. On July 31, 2006,
Globe Telecom’s BOD approved an amendment to its dividend policy, increasing the pay-out from 50% to 75% of
prior year’s income.
Further on November 6, 2007, the BOD approved a special cash dividend totaling P
= 6,616.71 million partly to
optimize its capital structure (see Note 17.4).
The Globe Group is not subject to externally imposed capital requirements. The ratio of debt to total capitalization
for the years ended December 31, 2007, 2006 and 2005 was at 35%, 41% and 49%, respectively.
GLOBE TELECOM, INC. AND SUBSIDIARIES
SCHEDULE A - Short-term Cash Investments
As of December 31, 2007
(In Thousand Pesos)
Name of Issuing Entity and Association of Each Issue
Curr
Principal Amount
Balance as of
December 31, 2007
(In PhP)
Interest Received &
Accrued
(in PHP)
Special Savings Deposit
Chinabank
PHP
500,000
500,000
500,000
500,000
11,385
11,385
PHP
PHP
PHP
PHP
880,696
600,220
200,396
668,720
2,350,032
880,696
600,220
200,397
668,720
2,350,032
36,684
73,886
9,632
20,960
141,162
USD
PHP
2,850,032
2,850,032
152,547
Short Term Investment
Bank of the Philippine Islands
Deutsche Bank
ING Bank
Standard Chartered Bank
TOTAL
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, 2007
(In Thousand Pesos)
Name and Designation of Debtor
Balance as of
December 31,
2006
Additions
Collections
Balance as of
December 31,
2007 (1)
Receivable from employees:
Medical, salary and other loans (see B.1 and B.2)
59,429
100,777
(96,544)
63,662
1,642
294
(11)
1,925
51
807
(755)
103
1,693
1,101
(766)
2,028
61,122
101,878
(97,310)
65,690
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, 2007 are classified under current.
GLOBE TELECOM, INC.
Schedule B.1 - Hospitalization, Medicines and Others
As of December 31, 2007
ABADILLA
ABAG
ABAGAT
ABALAYAN
ABALOS
ABALOYAN
ABARQUEZ
ABECIA
ABELLA
ABELLA
ABELLADA
ABELLO
ABRASADO
ACEBES
ACELADOR
ADAME
ADRE
ADVIENTO
AGUILAR
AGUILAR
AGUILAR
AGUSTIN
AGUSTIN
ALAO
ALBANO
ALBISO
ALDAY
ALDOVINO
ALENTAJAN
ALMAZAN
ALMORADIE
ALUNAN
ALVARADO
ALVIZ
AMAT
AMBION
AMISOLA
AMORES
AMORES
AMPARO
AMURAO
ANG
ANIMAS
ANSELMO
APOLTO
AQUINO
Employee name
EDGARDO
JUVY
ADREANNE
JOSEPH
ROCHIE
WENDELL
ROSEMARIE
MARIA RHODA
FIDEL JR.
DENNIS
JOSE RAUL
JOCELYN
PAULO
SHEILA MARIE
SHERYL
ARMANDO
ELISEO JR.
MONA LISSA
RAYMOND MARTIN
JEROME JENJIE
JONALYN
JOEL
ULYSSES
OFELIA
DENNIS CHRISTOPHER
CLEOFE
EDMAR
ROMEL
TARA ANN MARIE
BERNARDO
ALAN
JESSE JAMES RAYMOND
MARY ANN
MAY
LEO
MELANIE
MARY ROSE
EMELYN
ARVIN
FENEE MARIE EVELYN
GENIE
CATHERINE
RANDY
IMELDA
MARIA GLENISE
NICHOLAS III
AMOUNT
133,333
23,333
25,000
30,000
49,470
29,167
60,000
27,574
24,975
54,174
35,000
41,600
23,606
37,399
30,893
28,736
79,888
44,145
22,476
60,980
62,500
76,133
80,041
48,308
67,054
65,687
56,307
97,989
83,055
94,333
21,231
31,183
51,061
25,112
30,423
50,000
24,548
50,000
80,000
300,000
57,500
160,497
63,000
75,585
22,225
23,875
AQUITANIA
ARCEO
ARCEO
AREVALO
AREVALO
ARLOS
ARRIOLA
ASESOR
ASUNCION
AUSON
AUSTRIA
AVELINO
AVERION
AZANZA
BABAS
BABIA
BAGNES
BALASICO
BALDIA
BALLARAN
BALMACEDA
BANAGA
BANTILAN
BANZON
BARCELONA
BARRAQUIAS
BASILLA
BATAC
BATAC
BAUTISTA
BAUTISTA
BAYLOSIS
BAYOT
BEA
BEASON
BELTRAN
BENERAYAN
BENITO
BERGADO
BERNALES
BERNARDO
BERSAMINA
BESA
BIAZON
BIEN
BILLONES
BISNAR
BITO
BOC
BORDON
Employee name
NOEMI
ANA FELISA
SANTIAGO
HEIDI
ROBERTO
JOY CRISTINE
ALBERTO
GEOFFREY
LAWRENCE
GALLARDO
ANALYN
RICARDO JR.
AILENE
LOUISA
MARIA CONSUELO
ETHELWIN
CELSO
RICARDO
MARLY PEARL
ZACHARY
MARY ANNE
ANGELITO
ROSELLE
ANNIE FRANCIS
MA LOURDES
MA. VILMA
MARIA JOCEN
CECILIA
PABLITO
MARIA AMOR
LEODEL
CHRISTIAN
ANNE CLAIRE
ROMUALDO
GINA
LAMBERTO
JUNFOR
VENERANDO JR.
CARMELA SOCORRO
FELIZARDO
JON EVERARD
ROGELIO
MELISSA
LLEWELLYN MOISES
LODEVICA
JOSEFINA
THEODORE
JESUS
JONATHAN
LEDILLA
AMOUNT
32,000
20,089
27,818
50,139
160,409
27,708
20,833
34,125
38,324
37,500
38,374
35,135
110,997
59,870
43,846
24,044
304,167
21,250
89,088
67,205
58,856
167,641
58,575
54,309
22,152
297,801
33,497
40,602
218,109
20,299
39,570
67,915
87,372
202,117
26,753
48,891
23,889
34,375
96,987
41,667
244,879
33,517
31,041
100,000
21,275
35,367
117,485
83,155
88,711
62,975
BORROMEO
BOTOR
BRICIA
BRIZUELA
BROSAS
BUALA
BUENAVENTURA
BUNAG
BURAGA
BURGOS
CABANERO
CABEZAS
CABILDO
CABILUNA
CABILUNA
CABORNAY
CACHERO
CADA
CADO
CAFE
CAGAMPAN
CAGUIOA
CAIPANG
CAISIP
CALABIA
CALDERON
CALIMAG
CALINAWAN
CALMA
CAMPOS
CANORA
CAPIENDO
CAPISTRANO
CAPULE
CARANDANG
CARIASO
CASINO
CASTANEDA
CASTELO
CASTILLO
CASTRO
CASTRO
CEDENO
CENIZA
CEPEDA
CHANCO
CHAVEZ
CHUA
CO
COBAR
Employee name
JENNY
CHRISTIE
ALBERTO II
JENNIFER
ELBERT
LEONARD
JENNIFER
MELANIE ROSE
GLENN ALFRED
AILEEN
LYDIA ROSA
NONITA
CHRISTOPHER
ELEUTERIO SHANE
MELISSA PAULA
AGNES JOY
PAMELA
ELIXIR JOSE
BRIGETH
KAREN
LANIE
ELLENNETTE
CLINTON
KAREN
MIRASOL
ANNA MARIE
SEGUNDO III
JOAN
MA. THERESA
CLAIRE
EDWARD
MYRA LYN
RICHARD BENEDICT
LORENA
HILDA
DENNIS
MANUEL
TERESA
MAUREEN JHOANNA
MA. CAMILA CECILIA
CRISTY
PRISCILLA
ROCARLEO JUNO
LYNETTE
PEARL ANGELA
JOANE
MELISSA
ANTONIA
MARISALVE
ROVI
AMOUNT
57,295
84,565
43,750
23,333
22,662
27,500
38,296
59,603
46,637
35,168
53,159
26,450
56,103
50,000
80,389
36,316
35,697
49,138
43,696
67,628
28,117
65,234
68,314
27,790
38,923
78,869
45,042
102,438
27,046
32,445
26,435
36,667
88,173
28,619
89,197
34,574
21,147
30,896
31,825
23,750
37,520
107,500
45,500
49,546
58,978
47,710
60,000
77,938
97,180
80,098
COLOQUIO
COMODA
CONCEPCION
CONSTANTINO
CORDERO
CORONADO
CORPUZ
CORPUZ
CRISOSTOMO
CRISOSTOMO
CRUZ
CRUZ
CRUZ
CRUZ
CRUZ
CRUZ
CRYSTAL
CUADRADO
CUARESMA
CUEVAS
CUSTODIO
CUSTODIO
DADUYA
DANAN
DANGAN
DANTES
DASALLA
DATINGUINOO
DATU
DAVID
DAVID
DE CASTRO
DE CASTRO
DE GUZMAN
DE GUZMAN
DE GUZMAN
DE LEON
DE LOS REYES
DE LUNA
DE MESA
DE MESA
DE QUINTO
DE VILLA
DEL MUNDO
DEL ROSARIO
DEL ROSARIO
DELA CRUZ
DELA CRUZ
DELA CRUZ
DELA CRUZ
Employee name
JAHIL
GERRY
OLIVER
VIRGILIO
FARAH DEANNE
XERXEZ APRONIANO
CHARINA
JESUS
EDEN
CRISTINO
GOLDA MEIR
RONNIE
OLIVER
CIRIACO
GABRIEL RESURECCION
CARMENCITA
RAYMUNDO
CLARISSA
GUISEPPE
CECILIA
LEILA
ISAGANI
CARMELITA
JANETTE
ARNIE MAE
JENNIFER
FERDINAND
JERONIMO DUNSTAN
JEROME JACOBO
RONALDO
ANA ROTESSA
LOURDES GRACE
CORAZON
DULCE CORAZON
JANET
JOSEPHINE
THOMAS JEFFERSON
GIL
NAZARENE
LUISA
REGINALD
MAUREEN
ROMEO
MARLON
CECILIA
MA. EUGENIA GERTRUDES
JENNIFER
DIERDRE
ROMMEL
DONNY
AMOUNT
30,507
128,507
23,333
28,285
20,000
31,264
27,289
43,750
26,875
33,500
22,917
25,075
39,000
53,873
83,958
95,000
92,632
60,347
48,255
66,616
43,271
66,600
24,903
32,903
30,000
22,809
22,116
23,900
56,029
24,999
68,925
36,458
54,389
21,308
33,537
46,251
135,140
29,142
52,663
63,998
68,216
31,667
28,993
72,000
26,750
35,000
20,000
21,050
25,000
26,661
DELA CRUZ
DELA CRUZ
DELA CRUZ
DELA CRUZ
DELA ROSA
DELESTE
DELGADO
DELLEVA
DELLOSA
DELOS REYES
DELOS REYES
DELOS SANTOS
DELOS SANTOS
DESAMERO
DESPOJO
DIAZ
DIGNOS
DILIDILI
DILOY
DIMAANO
DIN
DINO
DIOMAMPO
DOLDOL
DOLINA
DOMINGO
DOMINGO
DON
DONATO
DORADO
DOTIG
DUEÑAS
DUNGO
DURAN
EALA
EBANA
EDIONG
EKONG
ENCALLADO
ENDAYA
ENDRIGA
ENRIQUEZ
ENRIQUEZ
ENSOMO
ERGUIZA
ESCOTO
ESGUERRA
ESPINA
ESPINOSA
ESPIRITU
Employee name
MARIA JENNIFER
CHERRY ANNE
SHEILA MARIE
MICHEL
ANNA MARIE
DORREN JADE
DARIUS JOSE
MARCELITO JR.
MA. LUZ FATIMA
ANNA
PATRICIA
ISABELITO JR.
JESSICA ANNE
NORBERTO
RAY
ANGELINA
TOM ROBERT
CRISALDO
EMELISSA
MARIA JEWEL
JOSEPH
ROMINA PAULA
JOSE ANTONIO
ENCARNATO
ROBERT SCOTT
MARITES
RICARDO JR.
ROLITA
PAUL ASHLEY
IREEN
JULIE
MARIA RITA PAZ
LADY LYNN
GIGI
ROSEMARIE
REY
CHERRY NINA
KHRISTINE
TEOFANIS
ERWIN
MARIGOLD
ANNA MARIE
CHITO
CHRISTIAN
RUEL
GILBERT
GENER
LINA
PAULINO
JUSTINIANO
AMOUNT
30,000
39,333
53,333
101,908
57,331
41,208
105,943
20,833
99,434
23,011
29,709
21,380
113,552
31,796
53,712
40,000
147,946
21,633
30,000
57,104
30,636
82,500
30,417
47,500
33,254
22,917
83,586
25,854
29,246
89,583
37,946
58,647
78,658
44,678
172,279
60,000
47,500
35,986
25,000
20,183
43,742
29,431
73,417
27,708
22,333
79,167
43,275
41,293
61,164
24,525
ESTAMPADOR
ESTANDARTE
ESTANISLAO
ESTEPA
ESTRADA
ESTRELLA
EVANGELIO
EVANGELISTA
FABELLORE
FAJARDO
FAJARDO
FAJATIN
FAJUTAGANA
FALAMINIANO
FALCIS
FALLER
FAMADOR
FAUSTO
FERIA
FERNANDEZ
FERRER
FIGUERRES
FINEZ
FLORES
FRAGINAL
FRANCISCO
FRANCISCO
GABIN
GAGUA
GAGUI
GALAPON
GALICIA
GALO
GALVEZ
GAMBAN
GAMBOA
GAMBOA
GARCIA
GARCIA
GARCIA
GARCIA
GARCIA
GARDINER
GASMIDO
GAYANELO
GELITO
GERALDES
GERONIMO
GERVACIO
GIGANTE
Employee name
KATHERINE ROCHELLE
MICHELLE ANN
EMMYLOU
MARIA ANA
RICKY
RAYMOND
LANIE
ANTONET
MARY ANN
MARJORIE
JOSE MARI
FERDINAND
ROBERTO
BONAVILLE RUSHELL
FEDERICO
JENNIFER
CYRELLE VINCENT
MA. ISABELITA
RICHARD NEAL
MARIA DOLORES
KRISTINE
VENANCIO JR.
MA. THERESA
MA. THERESA
JAIME JR.
LEAH
ARNOLD
FRANSLOME JOHN
FELICISIMO JR.
JOE ANTHONY
SAMUEL
ANN SALVACION
LEA MAE MARY
MAYETTE
JOSE ERWIN
CEFERINO
AVELINO, JR.
BENJAMIN
RODELL
RAY PATRICK
SUNSHINE MARY
BENJAMIN JOSE
CHRISTINE
GERRILYNN
EDUARDO ROBERTO
IAN ROWELL
ROLAND JOSEPH
JOEL
EMANUELLE CHRISTIAN
ALBERT
AMOUNT
58,222
83,333
33,276
39,583
40,653
25,000
50,457
33,074
23,750
21,459
115,027
64,495
22,459
32,540
21,535
42,250
101,901
79,465
31,456
52,300
49,562
32,506
158,452
27,450
40,000
35,287
59,738
176,934
71,348
137,016
161,244
77,567
44,240
20,000
26,532
28,125
100,856
20,417
34,664
36,667
57,816
77,425
68,333
43,605
50,767
34,993
20,833
45,899
20,625
158,045
GILBER
GILBUENA
GO
GOHETIA
GONZALES
GONZALES
GONZALEZ
GOROSPE
GOSECO
GO-SOCO
GUANLAO
GUERRERO
GUINTO
GUTIERREZ
GUTIERREZ
GUTIERREZ
GUZMAN
HABULAN
HECHANOVA
HERMOGENES
HERNAEZ
HERNANDEZ
HERNANDEZ
HIDALGO
HIPOLITO
HONRADO
HORTILLO
IGTOS
ILAGAN
ILAGAN
ILAGAN
INFANTE
IRIOLA
ISRAEL
JACINTO
JACOB
JALECO
JAMALI
JAUDIAN
JAVELLANA
JAVIER
JEREZA
JIMENEZ
JOSE
JOSUE
KONG
LABRADO
LACANDAZO
LACONICO
LACSAMANA
Employee name
VANESSA
ALAN
GRISELDA
JESSIE SR.
LUDOVICA
GEMMA
REGINA
REY
GAIL
JOSEFINA
EVANGELINE
IRENE ABIGAIL
DIANNA
VENERANDA
EFRAIM
ROWENA
ANNELY
KARLA
ROMEO
MICHAEL MARTIN
JOSE ROLANDO
VIRGINIA
MARCELLUS ANTHONY
LILETH
ANA TEODORA
JOSEFINA
ANNE MICHELLE
ANGELIE JOY
EDGARD
RONNETH
MA. RECHILDA
JOSEPHINE
SALVADOR JR.
DAVID
MELCHOR
RODOLFO JR.
JOSEPHINE
ABDULGANI
JENETTE
MARITA
MA. BERNADETTE
MELANIE
MA. CRISTINA
MELANIE
ROSALIE
TERESA
JASPER JACINTO
LILYNER
PANFILO JR.
LEONARD
AMOUNT
50,585
23,440
339,167
38,793
26,500
68,454
180,910
22,677
37,501
33,495
31,516
29,167
34,500
20,000
20,000
61,270
84,094
30,758
30,000
29,800
25,000
54,552
96,250
44,709
57,500
21,825
80,000
45,250
36,617
58,608
83,638
26,921
149,005
26,250
50,662
66,750
58,608
29,229
30,926
33,662
120,460
42,227
40,000
32,083
23,371
27,598
29,928
40,832
45,447
23,579
LACSON
LAMPA
LANGCAUON
LAWSIN
LAZO
LEONCIO
LEONOR
LIBAO
LIBARNES
LIBERIA
LIM
LIM
LIM
LIM
LIMQUECO
LIWANAG
LIZARONDO
LLAMEG
LLEGO
LLEGO
LLENO
LOBARBIO
LOPEZ
LOPEZ
LORISTO
LOTO
LOYA
LUZANO
MACARANAS
MACASUSI
MACATANGAY
MADAMBA
MAGAHIS
MAGDATO
MAGLASANG
MAGNO
MAGPANTAY
MALALUAN
MALAPIRA
MALIXI
MALLARI
MALLARI
MALLARI
MANALO
MANALO
MANALOTO
MANANGUIT
MANANSALA
MANN
MANZANO
Employee name
MA. VIRGINIA
JUDITH
RUSHELL
JANTHON
FEDERICO JR.
RYAN
MA. REGINA
GENALYN
HAROLD BENJAMIN
MARGARITA ROMANA FE
CHARLYN MARIE
MELISSA
BRYAN PATRICK
CRISTINA
ARLEEN
DONALD
ROY
MILAGROS
MARIBELLE MONIQUE
ROEL
ADOLFO JR.
MARY JEAN
RODOLFO JR.
LEVI
JULIE ANN
MARJORIE
ROSANNA
SALVACION
GIL PONCIANO
JOSEPH
EVELYN
NATHALYN
JOCELYN
ENRIL
EDUARDO JR.
VICTOR
AREEN
ARMI
MA. VILMA
HENRIETTA
VICTOR JAMES
JOCELYN
JEANNA
JENNIFER
SUSAN GRACE
JOSEPH ALLAN
NOEL
MARITES
JOEL RAPHAEL
GIOVANI
AMOUNT
50,632
30,000
92,267
25,100
21,625
36,230
112,436
42,439
94,960
54,826
25,000
30,928
55,829
64,380
76,083
27,083
30,146
63,276
23,829
25,000
35,601
30,316
26,536
43,664
74,348
28,988
28,333
65,391
93,363
46,252
39,095
43,750
22,690
23,127
20,000
211,280
30,063
238,801
57,375
46,896
24,585
30,631
50,360
30,409
276,987
23,600
47,830
44,231
44,107
185,709
MARCELO
MARCOS
MARIANO
MARIANO
MARQUEZ
MARQUEZ
MARTIN
MARTINEZ
MARTINEZ
MATADLING
MATEO
MAURICIO
MAYORES
MEDINA
MEDINA
MENDEZ
MENDOZA
MERCADO
MILAÑEZ
MILO
MINOZA
MIRANDA
MIRO
MOLINA
MONDELO
MONGAYA
MONTANIEL
MONTANO
MONTECILLO
MORALES
MORALES
MORAS
MORIN
MORRISON
MURGA
NANCA
NAPOLES
NARCELLES
NARVAEZ
NATIVIDAD
NOBLE
NOBLEZA
NOCHE
OBNIAL
OCAMPO
OCAMPO III
OCHAVO
OFIAZA
OFRECIO
OLFINDO
Employee name
JOHN
MARIELY
MAE SHELL
HERMINIA
PAUL
ARMILENE
MARLON
LANCE ISADORE
RICARDO
GEMMA RUTH
JOSEPHINE
EMELYN JENNIFER
ANNA LIZA
RIZALINDA
RESORTE
JOSEPH
JAIME
MARVIN
MARY ROSE
ROMELIA
JASON
JOCELYN
RICHARD
ROLLIE
ANTONIO JR.
JOMAR
JOEL
SOTERO JR.
ROELA
DEO ANTONIO
ARMANDO
ROWENA
SYLVIA
MYRA
JOSEPH RONALD
ANDREW
MARY JANE
SALVADOR III
LILA GRACE
MANUEL JR.
LYNOR
JIMMY, JR.
NATHALIE
JOAN CHRIS
APRIL
CARLOS
EVANGELINE
NENITA
DANISON
FEBRALYNN
AMOUNT
35,833
31,042
20,513
47,150
30,000
59,375
59,942
38,313
44,167
28,500
30,300
44,721
40,322
42,731
57,949
24,590
32,646
46,673
45,000
68,333
36,576
38,913
65,936
29,583
46,586
20,833
32,752
31,284
41,250
56,905
182,402
54,100
23,000
50,768
32,486
141,528
30,000
86,667
23,290
106,467
28,493
58,911
21,251
81,503
87,662
20,000
51,653
22,182
21,774
35,040
OMBLERO
ONG
ONG
ONGSIP
ORTEGA
ORTEGA
ORYAN
PACE
PACIA
PADILLA
PADILLA
PAGE
PALADO
PALANCA
PALISOC
PAMAONG
PANGANIBAN
PANIGBATAN
PANLAQUI
PARAGAS
PARCON
PAREDES
PASCUAL
PASTOR
PATINIO
PATRICIO
PEDRIALVA
PELEGRINA
PENALBA
PERALTA
PEREZ
PERIDO
PEVIDAL
PIEDAD
PINEDA
PINGOL
PIOQUINTO
POCA
POLICARPIO
PORTES
PRINCIPE
PRING
PRIVADO
PULIDO
PUNZALAN
QUIAMBAO
QUIJADO
QUILILAN
QUIMPO
QUINTOS
Employee name
MARIANNE
JONCRIS
VINCENT CHARLES
JACKSON
MITCHEL
JOSEPH
WILMA
MILA
ROWENA
MARIA TANIA KATHRINA
DEXTER
PATRICK HERBERT
ELMER
MA. CLARISSA
ROSEMARIE
NELSON
ROSALIE
DENNIS
MA.ARSENIA
FREDIE
ANNA IRENE
MARIA ROMA
ANTONIO
MICHAEL
ZORAIDA
RODOLFO JR.
ROGER ANGELO
BEVERLY
RAQUEL
REYNALDO
MIRHAM
ALBERT
ELMER
MARIA BELINDA LOURDES
RAYMUND CARLO
RONALDO
SHERWIN
KATRINA LILIA
AUDEY
MARY JOY
ANANEL LOURDES
MARLITA
EMELYN
JULIE EVE
CONCEPCION
VERONICA
AGNES ROWENA
ALVIN GERARD
ANGELINE
NORBEN
AMOUNT
77,552
23,752
219,913
24,066
68,359
99,763
26,167
65,150
20,000
226,840
232,153
23,887
30,048
114,444
45,589
26,154
51,247
60,175
48,796
44,345
32,925
51,546
27,173
26,283
34,084
21,899
28,000
69,954
21,837
114,325
55,372
78,336
31,569
20,833
23,100
61,875
33,889
66,894
25,341
21,076
20,000
28,513
42,083
29,060
137,000
23,085
24,983
194,961
36,404
27,362
RACELA
RAFLORES
RAGANDANG
RAMIREZ
RAMOSO
RAQUEDAN
RAYOS DEL SOL
REBENQUE
REBONG
RED
REODIQUE
RESTUA
RESURRECCION
REYES
REYES
REYES
REYES
REYES
REYES
RIBO
RICARTE
RIVERA
ROBIS
ROBRIGADO
ROCELES
ROCERO
RODELAS
RODRIGUEZ
RODRIGUEZ
ROMABILES
ROMAN
ROMANO
ROMERO
ROMERO
RONQUILLO
ROQUE
ROQUE
ROTEA
SADORRA
SAGMIT
SALAVERRIA
SALAZAR
SALGADO
SALUD
SALVADOR
SALVADOR
SAMSON
SAMUDIO
SAN DIEGO
SAN GABRIEL
Employee name
TEODORA
IRNAND
MYRA
MEDEL
ESTELA
LUISA
MARIANNETTE
VERZALEN
KENNETH
FE
DOMINGO
VIOLETA
CATLEYA BLANCA
ARISTOTLE RAYMUND
CZARINA
MARY ANN
PIA MARIE
JOSE LUIS
MADELIENE
NORMA
WALTER
CHOICY
EDUARDO JR.
CIELO
ANNA LIZA
JERONIMO
NOEL
ARNEL
KAREN
LANA RENEE
ALVIN
NADJA AVA
MARIZEN
GREG
CRESENCIO, JR.
GLEN MAR
ERWIN
DEENAH ROSE
MARIA ANNA PATRICIA
RICARDO III
ARNOLD
JOSEPH II
RUEL
DEMETRIO JR.
BERNARD
JOSEPH
NUMERIANO
MARIA TERESA
ELISA
ALAN
AMOUNT
118,750
77,940
64,060
82,835
36,540
37,131
135,453
42,667
62,808
45,282
26,250
114,126
26,045
23,471
27,708
37,832
49,258
73,467
117,134
121,552
45,000
37,196
50,000
29,083
47,636
120,945
44,099
22,083
38,427
33,250
185,265
28,250
25,270
61,515
46,875
71,349
120,417
25,187
24,630
201,141
28,473
49,926
70,236
21,525
25,000
26,564
41,999
39,437
29,007
25,000
SAN JOSE
SAN MATEO
SANA
SANDICO
SANTIAGO
SANTIAGO
SANTIAGO
SANTILLAN
SANTILLAN
SANTOS
SANTOS
SANTOS
SANTOS
SAWIT
SAY
SEBIAL
SEGUERRA
SELIM
SERRANILLO
SERRANO
SEVERINO
SIAHINGCO
SIASOCO
SIBAL
SILVA
SIMPINO
SINGSON
SION
SIONGCO
SOLATRE
SONZA
SOSING
SOTECO
STA. CATALINA
STA. MARIA
SULIT
SUNER III
SUSON
TABIGUE
TADURAN
TAMESIS
TAN
TAN
TAN
TAN
TAN
TANGOG
TARROJA
TECSON
TECSON
Employee name
MARJORETTE
CELSO
CESAR JR.
JOSEPH RICHARD
TEODORA FELICITACION
EDITH
WILMA
JOSEPHINE
JENNYLYN
MELVIN
GRACE
JOAN
ROSEMARIE
SHEILA MARIE
VANESSA ELAINE
LYN
MITCHEL
JEROME JOHN
ERICSON
WILFREDO
ANTONIO LINO
MERCY KORINA
DIVINA JEAN
TIMOTHY JOSE
MA. REMEDIOS
EVANGELINE
BERNADETTE
OPILANO
NATHANIEL PASCHAL
JEFFREY
MARY ANTONETTE
CECILE
ROSITA
RONALD
ALLYN GRACE
WALTER
LINO EDGAR
MA. MINDA
RICHARD
KAREN
GENE VICENTE JR.
AILEEN
MARY JOY
JACLYN JANE
LORYLOUIE
AGNES
SILVINO JR.
REGINALD
JOTHER
CHARISSE
AMOUNT
44,722
137,370
62,500
23,766
31,787
37,077
37,389
40,275
72,063
28,779
32,417
36,000
57,926
21,675
21,545
66,667
118,713
36,913
29,500
71,787
62,075
85,963
71,650
34,238
25,742
34,950
37,417
31,042
79,346
26,686
118,282
20,840
67,190
41,890
58,256
36,500
22,500
113,871
35,000
26,333
51,423
23,000
29,471
30,000
37,670
39,000
29,167
214,691
21,410
38,449
TELAN
TENG
TEODORO
TIAMBENG
TIANGHA
TIANO
TIONGSON
TIRONA
TIVIDAD
TOLENTINO
TORRES
TORRES
TORRES
TORRES
TRESMANIO
TUANDO
TY
UNGOS
URIBE
UY
UYCHUTIN
VALDEZ
VALENCIA
VALENCIA
VARIAS
VASQUEZ
VEGA
VELOSO
VERGEL DE DIOS
VICERA
VICTORINO
VILLA
VILLAFLOR
VILLAFLOR
VILLAFRANCA
VILLAFUERTE
VILLANUEVA
VILLANUEVA
VILLANUEVA
VILLANUEVA
VILLASENOR
VILLENA
VINAS
VINOYA
VIRAY
YAP
YAPCINCO
YU
YUMUL
ZABALA
Employee name
ABEL JOSEPH
MA. TERESA
JANE ROSE
SHYDEE
FERDINAND, JR
JENNIFER
CHRISTOPHER
BEL HARRY
AIDA
DJHOANNA CARMELA
MA. ELENITA
ARNOLD
ALLEN
VICENTE
JESUS
ROSARY JOY
CHRISTOPHER
PAULINO JR.
ALVIN
MAE ANN
RONALD
ALDY
JOSE CRIS
MARIA CRISTINA
HENRY JEFFREY
MAYETTE
MAYFLOR GRACE
DAISY
ERMELO SATURNINO III
DAISY
LUIS ALBERT
LILIAN
ANA PAULA
SANTOS JR.
PRISCILA BELINDA
VERNON
ROMEL
JENNIFER
MARIA SUZETTE
LUIS
RACHELLE JOANNA
MA LILIBETH
ULYSSES
ANNA LEE
ZENY
MYRLYN
FERDINAND
ALBERT WILLIAM
MICHAEL
JESSEBEL
AMOUNT
22,294
111,823
24,816
31,556
30,000
24,375
31,848
137,438
433,990
26,752
22,917
31,250
34,692
52,000
218,077
28,000
40,097
52,150
29,167
21,112
79,661
23,322
33,267
56,708
35,000
77,500
62,000
29,667
73,893
66,000
20,000
30,000
30,000
46,656
43,333
106,973
21,667
34,453
75,197
86,225
28,903
39,592
48,668
43,277
58,032
139,499
196,104
237,520
22,973
24,975
Employee name
ZAMORA
ROBERTO
ZUNO
ANA MARIE
Others (below 20k),
Total Hospitalization, Medicines & Other Loans
AMOUNT
33,021
20,000
13,612,139
50,018,530
SCHEDULE B.2 - Medical, salary and other loans
As of December 31, 2007
Employee
Balance
CRUCILLO MANUEL JR.
1,517,845.00
PASCUAL RODELIO
1,010,347.41
URMENETA KIMBERLY B
769,883.70
SAZON MARISSA
769,133.51
SAYSON ARIES
332,601.04
PASCUAL-TITCO MA. THERESA
290,000.00
DELA CRUZ EDNA
256,250.00
REYES NIEVELINDA
254,330.56
GATCHALIAN JOSEPH
200,600.00
MARASIGAN BENIGNO, JR.
165,000.00
TAN BENJAMIN
123,333.36
GARRIDO JASMINE
111,140.95
JANOLO JOSELITO
105,222.23
CLARAVALL FRANCISCO FERNANDO IV
105,000.02
CACHO VICTOR
103,484.81
DONATO CINDY
99,000.00
AYSON CESAR
86,691.12
ROSARIO SHIELA MAE
80,000.00
TAN JOHENSON
80,000.00
VILLAPENA EDUARDO
78,375.11
GARCES GLENN
75,466.68
SALAMAT NARCISO
71,470.84
BAUTISTA MA. LOURDES
71,250.00
ALANO JOSEFINA
70,000.00
MALABANAN NARCISO
70,000.00
ISAIS MOISES
68,612.48
CAGURANGAN RACQUEL
67,500.00
AMAT MA. CORAZON
67,500.00
RADA ALDRIN NEIL
67,010.01
PARILLA ROLAND
66,645.20
DETCHING DANILO
64,884.20
FLORES MARIA ROSA ISABEL
63,568.64
TIDOR DOMINADOR
62,575.00
DE LA CRUZ MARLON
61,843.75
PINEDA LAURO
61,390.26
GONZALES GARY
61,262.30
ARINES MA. VICTORIA
60,112.50
VALLEJO OLIVER
60,099.40
AVERION ANGELITO
60,000.00
GAMBITO JOHNNY
60,000.00
MENDOZA CARLO
60,000.00
DOBLAS MIGUEL
59,000.00
ONGKINGCO RUEL
58,650.00
SAYSON ARIES
57,951.68
NECESARIO JO PAUL
57,740.00
ROMERO JESUS
54,166.68
LAFIGUERA GERARDO
52,500.04
SCHEDULE B.2 - Medical, salary and other loans
As of December 31, 2007
Employee
Balance
MATIAS HOSMER
51,458.35
ZAFRA ZEL
51,458.35
PENALOSA JOHN OHMAR
51,291.59
ALAIR ELMER
50,072.52
GREGORIO LIVERN
50,000.00
BALANDRA MA. PAMELA
50,000.00
CONCEPCION JOLLY
48,750.02
DAGA MA. GRACIA
46,500.00
ESTRADA FEDERICO JR.
46,416.67
DE LA CRUZ CYNTHIA
45,729.20
SO RONALD
45,000.00
CUACHON LINO JR.
43,333.34
BUELVA IHREEN
42,999.94
GUEVARA GERARD
41,708.42
BRAGAS ELMER
41,666.68
FERAREN JOJI VISSIA
41,666.68
MACABASCO NUNILON JR.
41,666.68
PADRIGA ROGER
40,629.91
CANOSO ROMEL
40,000.00
BUNAO ERWIN
40,000.00
MALATA REGINA
40,000.00
ECARMA EDWIN
39,583.35
PASCUAL RODELIO
38,750.00
REMOROZA MINERVA D
35,464.22
GONZALODO JOSE III.
35,000.00
DIANGO JOHN JARVIS
34,966.55
TELAN ROWENA
34,666.68
AZORES ARNEL ALEXIS
33,333.42
REALINA TEODORO
33,043.75
BANTIGUE, MICHAEL
32,480.00
ARROYO LEILA
32,051.70
NUNAG RODERICK
31,666.70
YMAS JONELLE
31,666.65
MANAOAG CHRISTOPHER
31,654.34
ALEJANDRO LEMUEL
31,400.00
INAJADA LUCIO
30,980.00
TULAY JOSE VIRGILIO
30,750.02
AESQUIVEL RAMON NONATO JR.
30,716.68
TABORADA GEROME
30,667.60
MILAN LLIENETH
30,416.68
BASCARA CARMELO
30,166.66
EDNA DELA CRUZ FINAL PAY
30,039.05
ABARRO JOSEPH REX
30,000.00
RONQUILLO JOEL
30,000.00
GEORGE PARRILLA
29,321.95
BORRES ROMEO ROMMEL
29,291.65
BORCENA NELSON
29,141.25
SCHEDULE B.2 - Medical, salary and other loans
As of December 31, 2007
Employee
Balance
CONCEPCION RUBEN
28,333.26
SUMARAGO RICKY
27,166.68
BOLTRON ERNEZAR
26,916.65
SUYCANO ROGER
26,822.37
ESPINOLA ARNOLD
26,250.02
CAMBRONERO NOEL
26,250.00
DAGA MA. GRACIA
26,176.68
TRESVALLES CECILIA
25,875.00
SAMSON RANULFO
25,872.25
DELA CRUZ ROCHE
25,833.36
AGUILAR VILDA GRACE
25,749.24
CANONG CYNTHIA
25,541.54
SY BUENAVENTURA
25,500.00
MANIQUIZ ALAIN
25,375.00
ASIGNAR MARICEL
25,288.31
GUYAMIN ORLANDO
25,000.07
MARCELINO LARRY
25,000.00
BAUTISTA BENJAMIN
25,000.00
CORONADO EDWIN
25,000.00
AUJERO ARIEL ANTHONY
25,000.00
GARCIA FERNANDO
25,000.00
MANAOG CHRISTOPHER ALLAN
25,000.00
MACARAYO ANGELA
25,000.00
ENRIQUEZ REICHEL REBECCA
24,764.16
BACAL ARIEL
24,353.68
NAVEA RACHEL
24,113.12
CARLOBOS JOSELITO
23,833.34
LATOJA MARISSA
23,750.00
BARRAMEDA MA. BELLA
23,512.50
AYSON CESAR
23,500.00
FABI NORMAN JASON
22,975.02
SOLLANO DANILO
22,954.35
PINEDA JAY
22,500.00
TANGLAY ADORA
22,500.00
MAPANAO ANTHONY GARTH
22,000.02
SARSONAS NORBERTO
21,875.00
CARAG BENIGNO
21,816.69
DORAN GRACE CECILIA
21,723.78
LAMANO, MICHAEL
21,401.52
LONTOC RONALDO
21,375.00
QUIZON ALEXIS
20,916.28
CAIPANG MA. LOURDES
20,000.00
EMPLEO JAIME JR.
20,000.00
CASACLANG DONATO
20,000.00
Others (below 20K)
2,543,476.62
As of Dec 31, 2007
13,643,297.24
GLOBE TELECOM, INC. AND SUBSIDIARIES
SCHEDULE E - Intangible Assets
As of December 31, 2007
(In Thousand Pesos)
Classification
Cost
Accumulated amortization
Balance as of
December 31, 2006
Additions at cost
Charged to cost
and expenses
Reclassifications /
Adjustments
Disposals
Balance as of
December 31, 2007
4,626,740
191,738
(249)
730,281
5,548,510
(2,476,422)
(621,224)
11
(16,252)
(3,113,887)
2,150,318
(429,486)
(238)
714,029
2,434,623
Globe Telecom, Inc.
SCHEDULE F - Long Term Debt
As of December 31, 2007
(in thousand pesos)
Nature of Funded
Obligation
Amount shown under
caption "Current
Amount authorized by
portion of long-term
indenture
debt" in related balance
sheet
Retail Bond
Citibank NA
2,743,450
Corporate Notes
Hongkong Shanghai Bank
Metrobank
Standard Chartered Bank
520,000
5,000,000
8,887,000
Banks
Local
Citibank
Land Bank of the Philippines
Development Bank of the Philippines
Global Business Bank
Rizal Commercial Banking Corporation
Security Bank Corporation
Citibank, N.A.
475,386
461,538
553,846
125,000
62,500
41,250
4,867,300
158,462
153,846
184,615
125,000
62,500
41,250
2,167,300
714,595
2,070,550
3,220,855
198,684
460,325
411,066
920,244
132,456
29,941,954
4,803,341
Foreign
Japan Bank for International Cooperation
DBS Bank
Nordeutsche Landesbank
Societe Generale
TOTAL
(1)
(2)
net of unamortized debt issuance cost in accordance with PAS 39 adoption
current portion of unamortized debt issue cost
Amount shown
under caption "LongTerm Debt" in related
balance sheet
2,738,306
(4,418)
(9,305)
(2)
(2)
520,000
4,987,459
8,860,964
Rate During the
Year
(1)
(1)
(1)
316,924
307,692
369,231
0
0
0
2,700,000
(1)
254,270
1,647,826
2,300,611
66,228
25,069,511
(1)
Date of
Maturity
5.162%-11.70%
2009
16%
5.148%- 5.940%
5.578%-13.785%
2011
2010 - 2012
2012
5.088% - 6.215%
5.088% - 6.215%
5.088% - 6.215%
5.419%-5.957%
5.119%-5.668%
10.72%
9.105% - 11.021%
2010
2010
2010
2008
2008
2008
2008 - 2009
6.44%
5.651% - 5.794%
6.22% - 6.249%
6.6% - 8.61%
2009
2012
2011
2009
GLOBE TELECOM, INC. AND SUBSIDIARY
SCHEDULE G - Indebtedness to Related Parties (Other long-term liabilities)
As of December 31, 2007
(In Thousand Pesos)
Name of Related Party
C2C Pte. Ltd (affiliate of Singapore Telecom Int'l Pte. Ltd)
Non-interest bearing liability
Advance lease and service revenues
Balance as of
December 31, 2006
1,235,810
Balance as of
December 31, 2007
NO NEED TO DISCLOSE
137,925
1,373,735
C2C NOT A RELATED PARTY ANYMORE
1,062,635
114,094
1,176,729
Globe Telecom, Inc.
SCHEDULE I - Capital Stock
As of December 31, 2007
Class of Stock
Number of Shares
Authorized
No. of shares
allocated to stock
option
Total Issued and
Outstanding
Shares Held by
Majority
Stockholders
Directors, Officers
and Employees
Number of Shares
Reserved for
Warrants
Minority
Stockholders
Common
179,934,373
12,000,000
132,333,551
102,960,748
163,495
29,209,308
0
Preferred (Series "A")
250,000,000
0
158,515,021
158,515,018
3
0
0