Information Statement 20-IS - Globe Telecom · Gerardo C. Ablaza, Jr. 8. Romeo L. Bernardo Tay Soo...

G L O B E T E L E C O M , I N C .

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MARISALVE CIOCSON-CO 797-4270

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Amended Articles Number/Section

Total Amount of Borrowings

Domesti Foreig

Fiscal Year Annual Meeting

Secondary License Type, if Applicable

Mont Day Day MontFORM TYPE

(Business Address: No. Street City / Town / Province)

Contact Person Company Telephone Number

COVER SHEET

(Company's Full Name)

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2 7 / F T H E G L O B E T O W E R

3 2 N D S T R E E T C O R N E R 7 T H A V E N U E

B O N I F A C I O G L O B A L C I T Y T A G U I G

________________________________________________________________________________________________________ 1

GLOBE TELECOM, INC.

Annual Stockholders‟ Meeting

Ballroom 2, Fairmont Makati

8 April 2014

9:00 A.M.

PGlOb@ @ Globe Telecom, Inc.

The Globe Tower

32nd Street corner 7th Avenue

Bonifacio Global CityTaguig, Philippines

-f +632.7972000

(ws) www.globe.com.ph

NOTICE OF ANNUAL STOCKHOLDERS' MEETING

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of GLOBE TELECOM, INC. willbe held at the Ballroom 2 of the Fairmont Makati, 1 Raffles Drive, Makati Ave., Makati City on Tuesday,

APRIL 8, 2014 at 9:00 o'clock in the morning with the following

AGENDA

1. Determination of Quorum

2. Approval of Minutes of Previous Meeting

3. Annual Report of Officers

4. Ratification of All Acts and Resolutions of the Board of Directors and Management Adopted During

the Preceding Year

5. Election of Directors (including the Independent Directors)

6. Approval of the Amendments to the Articles of Incorporation:

(i) Third Article - To Specify the Complete Address of the Principal Office of the Corporation

from Metro Manila, Philippines to 32nd Street corner 7th Avenue, Bonifacio Global City, Taguig

(ii) Seventh Article - To Reclassify 31 Million Unissued Common Shares with Par Value of Php50per Share and 90 Million Unissued Voting Preferred Shares with Par Value of Php5 per

Share into a New Class of 40 Million Non-voting Preferred Shares with Par Value of Php50

per Share

7. Approval of the Increase in Directors' Fees

8. Election of Auditors and Fixing of their Remuneration

9. Consideration of Such Other Business as May Properly Come Before the Meeting

10. Adjournment

Only stockholders of record as of February 12, 2014 are entitled to notice of, and to vote at, this

meeting.

Bonifacio Global City, Taguig, Philippines.

March 6, 2014.

SOLOMON M. HERMOSURA

Corporate Secretary

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PROXY

The undersigned stockholder of GLOBE TELECOM, INC. (the “Company”) hereby appoints

__________________________ or in his absence, the Chairman of the meeting, as attorney and proxy, with

power of substitution, to present and vote all shares registered in my/the Corporation‟s name as proxy of the

undersigned stockholder, at the annual meeting of stockholders of the Company on April 8, 2014 and at any of the

adjournments thereof for the purpose of acting on the following matters:

THIS PROXY SHOULD BE RECEIVED BY THE CORPORATE SECRETARY ON OR BEFORE MARCH 24, 2014, THE DEADLINE FOR SUBMISSION OF PROXIES. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER AS DIRECTED HEREIN BY THE STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES AND FOR THE APPROVAL OF THE MATTERS STATED ABOVE AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING IN THE MANNER DESCRIBED IN THE INFORMATION STATEMENT AND/OR AS RECOMMENDED BY MANAGEMENT OR THE BOARD OF DIRECTORS. A STOCKHOLDER GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME BEFORE THE RIGHT GRANTED IS EXERCISED. A PROXY IS ALSO CONSIDERED REVOKED IF THE STOCKHOLDER ATTENDS THE MEETING IN PERSON AND EXPRESSED HIS INTENTION TO VOTE IN PERSON. NOTARIZATION OF THIS PROXY IS NOT REQUIRED.

1. Approval of minutes of previous meeting. Yes No Abstain 2. Approval of annual report. Yes No Abstain 3. Ratification of all acts and resolutions of the Board of

Directors and Management adopted during the preceding year. Yes No Abstain

4. Election of Directors

No. of Votes Jaime Augusto Zobel de Ayala

Delfin L. Lazaro

Mark Chong Chin Kok

Fernando Zobel de Ayala

Gerardo C. Ablaza, Jr.

Romeo L. Bernardo

Tay Soo Meng

Guillermo D. Luchangco

Manuel A. Pacis

Rex Ma. A. Mendoza

Ernest L. Cu

5. Approval of the Amendments to the Articles of Incorporation: (i) Third Article - To Specify the Complete Address

of the Principal Office of the Corporation from Metro Manila, Philippines to 32nd Street corner 7th Avenue, Bonifacio Global City, Taguig Yes No Abstain

(ii) Seventh Article - To Reclassify 31 Million Unissued Common Shares with Par Value of Php50 per Share and 90 Million Unissued Voting Preferred Shares with Par Value of Php5 per Share into a New Class of 40 Million Non-voting Preferred Shares with Par Value of Php50 per Share Yes No Abstain

6. Approval of the Increase in Directors‟ Fees: Yes No Abstain

7. Election of SyCip Gorres Velayo & Co. as the

independent auditor and fixing of their remuneration. Yes No Abstain

8. At their discretion, the proxies named above are authorized to vote upon such other matters as may properly come before the meeting. Yes No

____________________________________ PRINTED NAME OF STOCKHOLDER ____________________________________ SIGNATURE OF STOCKHOLDER/AUTHORIZED SIGNATORY ____________________________________ DATE

________________________________________________________________________________________________________ 4

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 20-IS

Information Statement of

GLOBE TELECOM, INC. Pursuant to Section 20 of the Securities Regulation Code

1. Check the appropriate box: Preliminary Information Sheet Definitive Information Sheet 2. Name of Registrant as specified in its Charter: GLOBE TELECOM, INC. 3. Province, country or other jurisdiction or incorporation or organization: REPUBLIC OF THE

PHILIPPINES 4. SEC Identification Number: 1177 5. BIR Tax Identification Code: 050-000-768-480 6. Address of Principal Office: 27th Floor, The Globe Tower

32nd Street corner 7th Avenue, Bonifacio Global City, Taguig 1634 7. Registrant’s telephone number, including area code: (632) 797-2000 8. Date, time and place of the meeting of security holders: Date - 8 April 2014 Time - 9:00 AM Place - Ballroom 2 Fairmont Makati 1 Raffles Drive, Makati Ave., Makati City 9. Approximate date on which the Information Statement is to be first sent or given to security

holders: 18 March 2014

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

10. Securities registered pursuant to Sections 8 and 12 of the Code or Sections 4 and 8 of the RSA:

a. Shares of Stock as of 31 December 2013

Class Number of Shares Common 132,595,709

Preferred 158,515,021

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b. Amount of Debt Outstanding as of 31 December 2013

Total Debt * P17.0 billion

*Retail bond P10.0 billion registered on 19 March 2012 and Retail bond P7.0 billion registered on 3 June 2013.

11. Are any or all of the registrant’s securities listed in a Stock Exchange Yes No

The shares of the Company have been traded in the Philippine Stock Exchange (PSE) and its predecessors since 1974. As of 31 December 2013, 131,933,828 Common and 158,515,021 Preferred shares are listed in the PSE.

#

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TABLE OF CONTENTS

A. GENERAL INFORMATION ..................................................................................................................................... 7

B. CONTROL AND COMPENSATION INFORMATION ......................................................................................... 8

C. ISSUANCE AND EXCHANGE OF SECURITIES ................................................................................................24

D. OTHER MATTERS ...................................................................................................................................................25

ANNEX “A”- DIRECTORS AND KEY OFFICERS ...................................................................................................28

BOARD OF DIRECTORS ..................................................................................................................................................28 KEY OFFICERS ...............................................................................................................................................................31

ANNEX “B” – NATURE AND SCOPE OF BUSINESS ..............................................................................................34

ANNEX “C” – MANAGEMENT REPORT ..................................................................................................................39

2013 FINANCIAL AND OPERATIONAL RESULTS ...............................................................................................41 2012 FINANCIAL AND OPERATIONAL RESULTS ...............................................................................................72

ANNEX “D” – ANNEX TO THE MD&A SECTION .................................................................................................100

ANNEX “E” – MARKET PRICE AND DIVIDENDS ................................................................................................114

B. MARKET PRICE - PRINCIPAL MARKET WHERE THE REGISTRANT‟S COMMON EQUITY IS TRADED. .................114 B. SHAREHOLDERS ...............................................................................................................................................114 C. DIVIDENDS ........................................................................................................................................................115 D. RECENT SALE OF SECURITIES .........................................................................................................................115 E. CORPORATE GOVERNANCE .............................................................................................................................116

STATEMENT OF MANAGEMENT’S RESPONSIBILITY ……………………………………………………….117

AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES…………...…………………………118

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A. GENERAL INFORMATION

Any references in this Information Statement to “we”, “us”, “our”, “Company” means the Globe Group and references to “Globe” mean Globe Telecom, Inc., not including its wholly-owned subsidiaries. Also, unless otherwise stated or the context indicates otherwise, references to Board of Directors, committees, management, directors, officers and stockholders are references to the Board of Directors, committees, management, directors, officers and stockholders of Globe and references to the Bylaws, Articles of Incorporation or other documents are references to the Bylaws, Articles of Incorporation or other documents of Globe.

1. Date, time and place of meeting of security holders

Date - 8 April 2014 Time - 9:00 A.M.

Place - Ballroom 2 Fairmont Makati 1 Raffles Drive, Makati Ave., Makati City

Principal - 27th Floor, The Globe Tower,

Office 32nd Street corner 7th Avenue, Bonifacio Global City, Taguig The information statement is expected to be first sent or given to the security holders approximately on or before 18 March 2014.

2. Dissenter’s Right of Appraisal There are no proposed corporate actions which may give rise to a possible exercise by security holders of their appraisal rights under Title X of the Corporation Code of the Philippines.

3. Interest of Certain Persons in or Oppositions to Matters to be Acted Upon a. There is no matter to be acted upon in which any Director or Officer is involved or had a direct, indirect or

substantial interest. b. No Director has informed the Company of his opposition to any matter to be acted upon.

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B. CONTROL AND COMPENSATION INFORMATION 1. Voting Securities and Principal Holders Thereof a. Number of Shares Outstanding as of 12 February 2014: Common 132,670,106

Preferred 158,515,021

Security

Issued & Outstanding

Shares

Shares Owned by Foreigners Percentage

Common 132,670,106 85,884,732 64.74%

Preferred 158,515,021 0 0.00%

291,185,127 85,884,732 29.49%

b. Number of Votes Entitled: one (1) vote per share

c. All stockholders of record as of 12 February 2014 are entitled to notice and to vote at the Annual

Stockholders‟ Meeting

d. Manner of Voting

Article I Section 5 of the By-Laws provides: “SECTION 5. VOTING - At every meeting of the stockholders of the Company, every stockholder entitled to vote shall be entitled to one vote for each share of stock standing in his name on the books of the Company; provided, however, that in the case of the election of directors every stockholder entitled to vote shall be entitled to accumulate his votes in accordance with the provision of law in such case made and provided. Every stockholder entitled to vote at any meeting of the stockholders may so vote by proxy, provided that the proxy shall have been appointed in writing by the stockholder himself, or by his duly authorized attorney; in accordance with the existing laws, and rules and regulations of the Securities & Exchange Commission x x x” In case of election of directors, each stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one nominee as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many nominees as he shall see fit, provided that the whole number of votes cast by him shall not exceed the number of shares owned by him multiplied by the whole number of directors to be elected.

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e. Security Ownership of Certain Record and Beneficial Owners and Management as of 12 February 2014 i. Security Ownership of Certain Record and Beneficial Owners (of more than 5%)

Title of Class

Name, address of Record Owner and Relationship with Issuer

Name of Beneficial Owner & Relationship with

Record Owner Citizenship

No. of Shares Held

% of total o/s

shares

Preferred Asiacom Philippines, Inc.

1

34/F Tower 1 Bldg.,Ayala Ave.,Makati City Asiacom Philippines, Inc. (hereafter, “Asiacom”)

Filipino 158,515,021 54.44%

Common Singapore Telecom Int‟l. Pte. Ltd. (STI)

2

31 Exeter Road, Comcentre, Singapore Singapore Telecom Int‟l. Pte. Ltd.

Singaporean 62,646,487 21.51%

Common Ayala Corporation

3

34/F Tower 1 Bldg.Ayala Ave., Makati City Ayala Corporation (“AC”) Filipino 40,328,090 13.85%

Common PCD Nominee Corp. (Non-Filipino)

4

G/F Makati Stock Exch. Bldg.,Ayala Avenue, Makati City

PCD Participants acting for themselves or for their customers

5 Various 23,231,061 7.98%

1 Asiacom Philippines, Inc. is a significant shareholder of the Company. As per the Asiacom 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. Mr. Jaime Augusto Zobel de Ayala has been named and appointed to exercise the voting power.

2 STI, a wholly-owned subsidiary of SingTel (Singapore Telecom), is a significant shareholder of the Company. As per its By-laws,

STI, through its appointed corporate representatives, has the power to decide how the STI shares in Globe are to be voted. Mr. Tay Soo Meng has been named and appointed to exercise the voting power.

3 Ayala Corporation is a significant shareholder of the Company. As per the AC By-laws & the Corporation Code, the Board of

Directors of AC has the power to decide how AC shares in Globe are to be voted. Mr. Jaime Augusto Zobel de Ayala has been named and appointed to exercise the voting power.

4 The PCD Nominee Corporation is a wholly-owned subsidiary of Philippine Central Depository, Inc. and is not related to the

Company. It is the registered owner in the Company’s books and holds shares on behalf of PCD participants and their clients. 5 Each beneficial owner of shares through a PCD participant will be the beneficial owner to the extent of the number of shares in his

account with the PCD participant. None of the 23,231,061 common shares registered in the name of PCD Nominee Corporation (Non-Filipino) beneficially owns more than 5% of the Company’s common shares.

ii. Security Ownership of Directors and Management (Officers)

Title of Class Name of Beneficial Owner Amount and Nature of Beneficial Ownership

Citizenship

Percent of Total

Outstanding Shares

Directors

Common Jaime Augusto Zobel de Ayala 3 (direct) Filipino 0.00%

Common Delfin L. Lazaro 1 (direct) Filipino 0.00%

Common Mark Chong Chin Kok 2 (direct) Singaporean 0.00%

Common Fernando Zobel de Ayala 1 (direct) Filipino 0.00%

Common Gerardo C. Ablaza, Jr.

1 (direct) Filipino

0.00%

Common 61,714 (indirect) 0.02%

Common Romeo L. Bernardo

1,079 (direct) Filipino

0.00%

Common 2,659 (indirect) 0.00%

Common Tay Soo Meng 2 (indirect) Singaporean 0.00%

Common Manuel A. Pacis

100 (indirect) Filipino

0.00%

Preferred 1 (direct) 0.00%

Common Xavier P. Loinaz 10 (direct) Filipino 0.00%

Common Guillermo D. Luchangco 24,500 (direct) Filipino 0.01%

Common Ernest L. Cu


0.02%


________________________________________________________________________________________________________ 10

Officers

Common Ernest L. Cu


0.02%


Common Rebecca V. Eclipse 21,415 (indirect) Filipino 0.01%

Common Gil B. Genio 51,838 (indirect) Filipino 0.02%

Common Alberto M. de Larrazabal 4,322 (indirect) Filipino 0.00%

Common Marisalve Ciocson-Co 1,539 (direct) Filipino 0.00%

Common Bernard P. Llamzon - Filipino 0.00%

Common Henry Rhoel R. Aguda - Filipino 0.00%

Common Vicente Froilan M. Castelo 814 (indirect) Filipino 0.00%

Common Carmina J. Herbosa - Filipino 0.00%

Common Renato M. Jiao - Filipino 0.00%

Common Solomon M. Hermosura 20 (direct) Filipino 0.00%

All Directors and Officers as a group 235,277 0.08%

None of the members of the Company‟s Board of Directors and management owns 2% or more of the outstanding capital stock of the Company.

iii. Voting Trust Holders of 5% or More

There are no voting trust holders of 5% or more. iv. Changes in Control No change of control in the Company has occurred since the beginning of last fiscal year.

2. Directors and Executive Officers Article II Section 1 of the Company‟s By-Laws provides in part: “Section 1. Corporate Powers - xxx corporate power of the corporation shall be exercised, its business conducted, and its property controlled by its board of directors, who shall be elected by the stockholders entitled to vote at the annual meeting and shall hold office for one year and until their successors are elected and qualified. The number of directors shall be eleven (11).” Article III Section 2 of the Company‟s By-Laws likewise provides: “Section 2. Election - Officers shall be elected by each new board at the first meeting after its election. Every Officer shall be subject to removal at any time by the Board of Directors, but all officers unless removed, shall hold office until their successors are appointed. If any vacancy shall occur among the officers of the Company, such vacancy shall be filled by the Board of Directors.”

a. Attendance In 2013, a total of seven (7) meetings were held by the Board of Directors and one (1) Annual Stockholders' Meeting. The attendance of each board member is enumerated below*:

Directors No. of Meetings Attended/Held

1

Percent Present

Jaime Augusto Zobel de Ayala 7/7 100%

Ernest L. Cu 7/7 100%

Delfin L. Lazaro 7/7 100%

Mark Chong Chin Kok2 5/5 100%

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Hui Weng Cheong2 0/2 -

Fernando Zobel de Ayala 6/7 86%

Gerardo C. Ablaza, Jr. 6/7 86%

Romeo L. Bernardo 7/7 100%

Tay Soo Meng 6/7 86%

Guillermo D. Luchangco 7/7 100%

Xavier P. Loinaz 7/7 100%

Manuel A. Pacis

7/7 100% 1 Represents meetings held in 2013 and during the incumbency of the director.

2 Mr. Hui Weng Cheong was replaced by Mr. Mark Chong Chin Kok as Director at the Annual Stockholders' Meeting on

16 April 2013. (*attendance in ASM excluded)

b. Information required of Directors and Executive Officers

i. Directors and Executive Officers – Please refer to Annex “A” for details. The following have been nominated to the Board of Directors for election at the annual meeting of stockholders on 8 April 2014:

Name Age Citizenship

Jaime Augusto Zobel de Ayala 54 Filipino

Delfin L. Lazaro 66 Filipino

Mark Chong Chin Kok 50 Singaporean

Fernando Zobel de Ayala 53 Filipino

Gerardo C. Ablaza, Jr. 60 Filipino

Romeo L. Bernardo 59 Filipino

Tay Soo Meng 64 Singaporean

Guillermo D. Luchangco 74 Filipino

Manuel A. Pacis 69 Filipino

Rex Ma. A. Mendoza 51 Filipino

Ernest L. Cu 53 Filipino

The nomination for the above nominees was formally submitted to the Nomination Committee by a shareholder, Mr. Melchor A. Latina. Mr. Guillermo D. Luchangco, Mr. Manuel A. Pacis, and Mr. Rex Ma. A. Mendoza were nominated as independent directors. Mr. Mendoza was nominated as an independent director to replace Mr. Loinaz, who is not seeking re-election. Mr. Latina is not related to any of the nominees for independent directors The nominees served as directors of the Company for more than five years except for (a) Manuel A. Pacis, who has been an Independent Director since April 2011, (b) Tay Soo Meng, who has been a Director since February 2011, (c) Ernest L. Cu, who has been a Director since April 2009, and (d) Mark Chong Chin Kok, who was a Director for one year, from 6 October 2009 to 8 October 2010, and elected as Director at the Annual Stockholders' Meeting on 16 April 2013. Please refer to Annex “A” for a summary of their qualifications. The Company has adopted the SRC Rule 38 (Requirements on Nomination and Election of Independent Directors) and compliance therewith has been made. The Board of Directors approved the amendments to the By-Laws to adopt SRC Rule 38 on May 5, 2009 and the Securities and Exchange Commission (SEC) approved the amendments on September 20, 2010. The Board of Directors likewise approved the amendments to the Manual of Corporate Governance to adopt SRC Rule 38 on February 4, 2010.

ii. Significant Employees

The Company considers all its employees to be significant partners and contributors to the business.

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iii. Family Relationships

The Chairman, Jaime Augusto Zobel de Ayala and a Director, Fernando Zobel de Ayala, are brothers.

There are no known family relationships between the current members of the Board of Directors and key officers other than the above.

iv. Involvement in Certain Legal Proceedings

(1) Directors, Officers - 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;

(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.

(2) Globe Telecom, Inc. – Below are all the significant legal proceedings involving the Company:

(a) On 23 July 2009, the NTC issued NTC Memorandum Circular (MC) No. 05-07-2009

(Guidelines on Unit of Billing of Mobile Voice Service). The MC provides that the maximum unit of billing for the cellular mobile telephone service (CMTS) whether postpaid or prepaid shall be six (6) seconds per pulse. The rate for the first two (2) pulses, or equivalent if lower period per pulse is used, may be higher than the succeeding pulses to recover the cost of the call set-up. Subscribers may still opt to be billed on a one (1) minute per pulse basis or to subscribe to unlimited service offerings or any service offerings if they actively and knowingly enroll in the scheme. In compliance with NTC MC 05-07-2009, Globe refreshed and offered to the general public its existing per-second rates that, it bears emphasizing, comply with the NTC Memorandum Circular. Globe made per second charging for Globe-Globe/TM-TM/Globe available for Globe Subscribers dialing prefix 232 (GLOBE) OR 803 plus 10-digit TM or Globe number for TM subscribers. The NTC, however, contends that Globe‟s offering does not comply with the circular and with the NTC‟s Order of 7 December 2009 which imposed a three-tiered rate structure with a mandated flag-down of P3.00, a rate of P0.4375 for the 13th to the 160th second of the first minute and P0.65 for every 6-second pulse thereafter. On 9 December 2009, the NTC issued a Cease and Desist Order requiring the carriers to refrain from charging under the previous billing system or regime and refund consumers.

Globe maintains that the Order of the NTC of 7 December 2009 and the Cease and Desist Order are void as being without basis in fact and law and in violation of Globe‟s rights to due process. Globe, Smart, Sun and CURE all filed petitions before the Court of Appeals seeking the nullification of the questioned orders of the NTC. On 18 February 2010, the Court of Appeals issued a Temporary Restraining Order preventing the NTC from enforcing the disputed Order.

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On 25 May 2010, the CA issued a writ of preliminary injunction directing the NTC to cease and desist from enforcing their assailed Order/s. On 28 December 2010, the CA rendered a Decision declaring the questioned decisions invalid for being violative of the Petitioners‟ right to due process, among others. The Petitioners and the NTC filed their respective Motions for Partial Reconsideration. The motions were DENIED by the CA in an Order dated 19 January 2012. Due to lack of material time, the NTC and the Petitioners seasonably filed their respective Motions for Extension of Time to File Petition for Review with the Supreme Court. The Movants are expected to file their respective petitions within the month of March 2012.

Globe believes that its legal position is strong and that its offering is compliant with the NTC‟s Memorandum Circular 05-07-2009, and therefore believes that it would not be obligated to make a refund to its subscribers. If, however, Globe would be held as not being in compliance with the circular, Globe may be contingently liable to refund to any complaining subscribers any charges it may have collected in excess of what it could have charged under the NTC‟s disputed Order of 7 December 2009, if indeed it is proven by any complaining party that Globe charged more with its per second scheme than it could have under the NTC‟s 6-second pulse billing scheme stated in the disputed Order. Management has no estimate of what amount this could be at this time.

(b) On 22 May 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. The Supreme Court ordered the reinstatement of the case and has forwarded it to the NTC-Olongapo for trial.

(c) PLDT and its affiliate, Bonifacio Communications Corporation (BCC) and Innove and Globe

are in litigation over the right of Innove to render services and build telecommunications infrastructure in the Bonifacio Global City. In the case filed by Innove before the NTC against BCC, PLDT and the Fort Bonifacio Development Corporation (FBDC), the NTC has issued a Cease and Desist Order preventing BCC from performing further acts to interfere with Innove‟s installations in the Bonifacio Global City.

In the case filed by PLDT against the NTC in Branch 96 of the Regional Trial Court (RTC) of Quezon City, where PLDT sought to obtain an injunction to prevent the NTC from hearing the case filed by Innove, the RTC denied the prayer for a preliminary injunction and the case has been set for further hearings. PLDT has filed a Motion for Reconsideration and Globe has intervened in this case. In a resolution dated 28 October 2008, the RTC QC denied BCC‟s motion for the issuance of a temporary restraining order (TRO). The case is still pending with the QC RTC.

In the case filed by BCC against FBDC, Globe Telecom and Innove, Bonifacio Communications Corp. before the Regional Trial Court of Pasig, which case sought to enjoin Innove from making any further installations in the BGC and claimed damages from all the parties for the breach of the exclusivity of BCC in the area, the court did not issue a Temporary Restraining Order and has instead scheduled several hearings on the case. In a resolution dated 28 October 2008, the RTC QC denied BCC‟s motion for the issuance of a temporary restraining order (TRO). The case is still pending with the RTC Pasig.

On 11 November 2008, Bonifacio Communications Corp. (BCC) filed a criminal complaint against the officers of Innove Communications Inc., the Fort Bonifacio Development Corporation (FBDC) and Innove contractor Avecs Corporation for malicious mischief and theft arising out of Innove‟s disconnection of BCC‟s duct at the Net Square buildings. The accused officers filed their counter-affidavits and are currently pending before the Prosecutor‟s Office of Pasig. The case is still pending resolution with the Office of the City Prosecutor.

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On 21 January 2011, BCC and PLDT filed with the Court of Appeals a Petition for Certiorari and Prohibition against NTC, et al. seeking to annul the Orders of the NTC dated 28 October 2008 directing BCC, PLDT and FBDC to comply with the provisions of NTC MC 05-05-02 and the CEASE AND DESIST from performing further acts that will prevent Innove from implementing and providing telecommunications services in the Fort Bonifacio Global City pursuant to the authorization granted by the NTC. BCC and PLDT anchor their petition on the grounds that: 1) the NTC has no jurisdiction over BCC it being a non telecommunications entity; 2) the NTC violated BCC and PLDT‟s right to due process; and 3) there was no urgency or emergency for the issuance of the cease and desist order. The case is pending with the court of appeals.

On April 25, 2011, Innove Communications, filed its comment on the case filed by PLDT that seeks to ban all Globe services from the Bonifacio Global City before the CA‟s Tenth Division. In its comment, Globe argued that it is in the public‟s best interest that open access and free competition among telecom operators be allowed at the Bonifacio Global City.

On August 16, 2011, the Ninth Division of the CA ruled that PLDT‟s case against Innove and the National Telecommunications Commission (NTC) lacked merit, and thus denied the petition and DISMISSED the case. PLDT and its co-petitioner, BCC file their motion for reconsideration. The same is still pending resolution.

Other Developments In February 2013, Globe obtained approval from its Board of Directors to invest in a Philippine entity to be named as Taodharma, Inc. to explore growth opportunities in the mobile market. In March 2013, Globe entered into a Shareholders Agreement among four other entities to incorporate Taodharma Inc. (“Tao”). Globe subscribed for the 25% preferred shares of Tao amounting to P55.00 million which has been fully paid up as of August 2013. Tao shall carry on the business of establishing, operating and maintaining retail stores in strategic locations within the Philippines that will sell telecommunications or internet-related services, and devices, gadgets, accessories or embellishments in connection and in accordance with the terms and conditions of the Dealer Agreement executed among all of the entities. Globe also entered into an exclusive dealership arrangement with Tao that included provisions to build and open retail outlet stores scattered across in cities and other major high-traffic locations nationwide. ABS-CBN Deal On 27 May 2013, Globe, Innove and ABS-CBN Convergence Inc. (“ABS-C” and formerly known as Multimedia Telephony Inc.) have entered into a network sharing arrangement in order to provide capacity and coverage for new mobile telephony, data and value-added services to be offered by ABS-C nationwide to its subscribers using shared network and interconnect assets of the parties. Under the network sharing arrangement, Globe and Innove will provide network capacity and coverage to ABS-C on a nationwide basis and connect ABS-C‟s prepaid and postpaid billing, and customer service management system to the network resources to be provided by Globe and Innove. The parties shall use and where necessary, share existing network elements/resources and interconnect assets including switches, servers, towers, and radio elements. The parties will accordingly notify the National Telecommunications Commission of this arrangement. Bayantel Update Globe Telecom, Inc. and Bayan Telecommunications, Inc. obtained approval from the NTC for the joint use of the frequencies 1750-1760 MHz / 1845-1855 MHz originally assigned to BayanTel. The joint-

________________________________________________________________________________________________________ 15

use agreement will enable Globe to address increasing demand for voice, short message and mobile data services, and allow BayanTel to be able to offer mobile-telecommunications services nationwide. In another development, the Company announced in November 2012 that it has obtained the approval by its Board of Directors to commence offers to purchase (the “Debt Offers”) up to 100% of the financial obligations of Bayan Telecommunications, Inc. (“BTI”) and subsidiary Radio Communications of the Philippines, Inc. (“RCPI”) to their respective financial creditors. The Debt Offers were concluded last 22 December 2012, wherein Globe secured the acceptance of 93.66% of the holders of the unsecured financial indebtedness of BTI under the USD 13.5% bonds originally due in 2006; 98.26% of the outstanding other financial indebtedness owed by BTI; and 100% of the outstanding financial indebtedness owed by RCPI, based on outstanding aggregate principal amount under the terms of the rehabilitation plan of BTI and RCPI. BTI has been subject to court-supervised rehabilitation proceedings since 2003. The current rehabilitation plan anticipates that BTI and RCPI will remain in rehabilitation until 2023. Globe intends to apply with the rehabilitation court to amend the terms of the rehabilitation plan in the interest of assuring BTI‟s long-term sustainability. Meanwhile, Globe has also commenced separate discussions with the controlling shareholders of BTI regarding a wide range of commercial arrangements including a potential acquisition by Globe of an equity interest in BTI. The approval of the National Telecommunications Commission is required to complete the acquisition. The parties remain in discussions on the terms of the commercial arrangements including the price and other conditions under which the acquisition may be effected. No definitive arrangement has been executed at this time. Subsequently, last 30 May 2013, Globe, Bayan Telecommunications Holdings Corporation, the controlling shareholder of Bayan Telecommunications, Inc. ("Bayantel"), and Bayantel jointly filed a motion with the court having jurisdiction over Bayantel's debts. The motion seeks to significantly restructure Bayantel's financial debt in order to prevent the recurrence of default and ensure Bayantel's continued viability. Following Globe's tender offers for the Bayantel debt in 2012, Globe currently holds approximately 96.5% of the total financial indebtedness of Bayantel. The joint motion is intended to achieve a successful rehabilitation of Bayantel at the earliest possible date. The current outstanding principal amount of this debt is approximately the equivalent of US$423.3 million. Bayantel's operations have not generated sufficient revenue to continue making the debt payments under its existing rehabilitation plan. This has been attributed to a decline in revenue from traditional fixed line services offered by Bayantel, increasing competitive pressures in the telecommunications industry and Bayantel's inability to make any considerable capital investments while under its high debt burden. The restructuring would, upon confirmation by the court, significantly decrease this through a conversion of up to 69% of the debt into Bayantel shares. As restructured, the outstanding principal debt balance would be reduced to approximately US$131.3 million, assuming the debt to equity conversions occur to their fullest extent. The restructuring, including the debt to equity conversion feature, would apply to all of Bayantel‟s creditors equally upon receipt of certain regulatory approvals, including the confirmation of the court. By acquiring the Bayantel debt, Globe sought to enable Bayantel's continued viability as a telecommunications provider. For Globe's part, such a restructuring would allow Globe to further strengthen collaborative efforts with Bayantel in respect of their local exchange networks, corporate data and broadband businesses. Ensuring that Bayantel remains a going concern would allow both companies to become more competitive in the current industry environment. On the part of Bayantel, a restructuring of its debt and the entry of Globe as a shareholder as well as a Creditor will enable Bayantel to unlock and maximize potential of its key business assets and capabilities, and help accelerate its rehabilitation. Globe appreciates further that Bayantel's continued operations benefits all of its employees, suppliers, stakeholders and public telecommunications customers in the Philippines as a whole. On September 2013, Globe received a Resolution issued by Branch 158 of the Regional Trial Court in Pasig City. This is the court having jurisdiction over the debts of Bayan Telecommunications, Inc. (Bayantel) and its corporate rehabilitation proceedings. The Resolution granted the joint motion filed

________________________________________________________________________________________________________ 16

by Globe and Bayantel to amend current debt restructuring plan and implement a new Master Restructuring Agreement for all Bayantel‟s creditors. The Amendments principally involve a conversion of up to 69% of the debt into Bayantel shares comprising up to 56.6% of Bayantel‟s capital stock, on a fully diluted basis. Globe intends to convert its debt holdings into 38.3% of Bayantel‟s equity initially and to subsequently convert further amounts of Globe‟s debt holdings when relevant regulatory and corporate approvals are obtained, resulting in Globe holding over 50% of Bayantel‟s outstanding shares. Assuming that debt to equity conversion occur to their fullest extent, the Amendments will reduce Bayantel‟s outstanding principal debt by 69% from the equivalent of approximately US$423.3 to approximatedly US$131.3 million. The Amendments also facilitate the entry of Globe into Bayantel as a shareholder and are expected to assure Bayantel‟s successful rehabilitation. In addition to Globe, the debt to equity conversion of the new debt restructuring terms will apply to all Bayantel‟s creditors. The issuances of the new Bayantel shares under the Amendments will require certain regulatory and corresponding corporate approvals. Details on these transactions have been extensively discussed in the disclosures filed with the SEC and PSE and may be accessed from the PSE and Company websites.

v. Certain Relationships and Related Transactions

The Globe Group, in their regular conduct of business, enter into transactions with their major

stockholders, AC and STI, venturers 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:

Entities with joint control over Globe Group – AC and STI

Globe Telecom has interconnection agreements with STI. The related net traffic settlements

receivable (included in “Receivables” account in the consolidated statements of financial

position) and the interconnection revenues earned (included in “Service revenues” account in

the consolidated statements of comprehensive income) are as follows:

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 (see Note 25.6), 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 comprehensive income) incurred under these agreements are as follows:

2013 2012 2011

(In Thousand Pesos)

Traffic settlements receivable - net ₱201,216 ₱126,277 ₱36,994

Interconnection revenues - net 957,232 966,037 1,136,294

2013 2012 2011

(In Thousand Pesos)

Technical assistance fee ₱163,004 ₱140,083 ₱179,014 Maintenance and restoration costs and

other transactions

61,841 64,835 53,996

Software development, supply, license

and support

16,681 12,590 25,999

________________________________________________________________________________________________________ 17

The outstanding balances due to STI (included in the “Accounts payable and accrued expenses” account in the consolidated statements of financial position) arising from these transactions are as follows:

Globe Telecom earns subscriber revenues from AC. The outstanding subscribers receivable from AC (included in “Receivables” account in the consolidated statements of financial position) and the amount earned as service revenue (included in the “Service revenues” account in the consolidated statements of comprehensive income) are as follows:

Globe Telecom reimburses AC for certain operating expenses. The net outstanding liabilities to (included in “Accounts payable and accrued expenses” account in the consolidated statement of financial position) and the amount of expenses incurred (included in the “General, selling and administrative expenses” account in the consolidated statements of comprehensive income) are as follows:

Joint Ventures in which the Globe Group is a venturer (see Note 10)

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. The net outstanding liabilities to BMPL related to these transactions amounted to P=0.98 million and P=2.21 million as of December 31, 2013 and 2012, respectively. Balances related to these transactions (included in “General, selling and administrative expenses” account in the consolidated statements of comprehensive income) amounted to P=3.76 million, P=15.49 million and P=12.24 million for the years ended December 31, 2013, 2012 and 2011, respectively.

In October 2009, the Globe Group entered into an agreement with BPI Globe BanKO for the pursuit of services that will expand the usage of GCash technology. As a result, the Globe Group recognized revenue amounting to P=0.54 million, P=1.58 million and P=2.86 million in 2013, 2012 and 2011, respectively. The related receivables amounted P=1.11 million and P=3.79 million as of December 31, 2013 and 2012, respectively.

2013 2012 2011

(In Thousand Pesos)

Subscriber receivables P=14,761 P=2,143 P=1,718 Service revenues 14,107 14,720 12,640

2013 2012 2011

(In Thousand Pesos)

General, selling and administrative expenses P=7,768 P=9,145 P=7,878

Accounts payable and accrued expenses – – 234

2013 2012 2011

(In Thousand Pesos)

Technical assistance fee P=35,775 P=45,326 P=54,873 Maintenance and restoration

costs and other transactions 20,695 32,372 23,103 Software development, supply,

license and support 4,014 35,268 80,377

________________________________________________________________________________________________________ 18

Transactions with the Globe Group Retirement Plan (GGRP) (see Note 11)

In 2008, Globe Telecom, Innove and GXI pooled its plan assets for single administration by the GGRP, which was created for the management of the retirement fund. The decisions of the GGRP are made through collective decision of the Board of Trustees.

The plan is funded by contributions as recommended by the independent actuary on the basis of reasonable actuarial assumptions. These assumptions and the funded status of the pension plan are disclosed in Note 18.2.

The unfunded status for the pension plan of Globe Group as of December 31, 2013 and 2012 amounted to P=1,607.30 million and P=843.91 million, respectively (see Note 18.2). The fair value of plan assets by each class held by the retirement fund, on a pooled basis follows:

All equity and debt instruments held, except for investment in preferred shares of HALO Group, debt securities issued by private corporations and long-term negotiable certificates of deposit, have quoted prices in active market. The remaining plan assets do not have quoted market prices in active market.

Loans and receivables consist of interest and dividend receivables, receivable on securities sold to brokers and loan granted by the plan to BHI (see Note 25.5).

Liabilities pertain to interest and trust fee payables, accrued professional fees and loan granted to the plan by Globe Telecom.

The plan assets have diverse investments and do not have any concentration risk.

As of December 31, 2013 and 2012, the pension plan assets of the retirement plan include shares of stock of Globe Telecom with total fair value of P=24.77 million and P=13.02 million, and shares of stock of other related parties with total fair value of P=83.31 million and P=71.96 million, respectively. Gains/losses arising from these investments amounted to P=8.34 million and P=10.97 million in 2013 and 2012, respectively.

In 2008, the Globe Group granted a short-term loan to the GGRP amounting to P=800.00 million with interest at 6.20%. Upon maturity in 2009, the loan was rolled over until September 2014 with interest at 7.75%. Further, in 2009, the Globe Group granted an additional loan to the retirement fund amounting to P=168.00 million which bears interest at 7.75% and is due also in September 2014.

The retirement plan utilized the loan to fund its investments in BHI, a domestic corporation organized to invest in media ventures. BHI has controlling interest in Altimax Broadcasting Co., Inc. (Altimax) and Broadcast Enterprises and Affiliated Media Inc. (BEAM), respectively.

On August 13 and December 21, 2009, the Globe Group granted five-year loans amounting to P=250.00 million and P=45.00 million, respectively, to BHI at 8.275% interest. The P=250.00 million loan is covered by a pledge agreement whereby in the event of default, the Globe Group shall be entitled to offset whatever amount is due to BHI from any unpaid fees to BEAM from

2013 2012

(In Thousand Pesos) Cash and cash equivalents ₱84,641

₱28,333

Investment in fixed income

securities

1,048,421

1,032,279

Investment in equity securities 1,507,287

1,515,993

Loans and receivables 1,007,686

1,010,980

Liabilities (994,441)

(995,067)

Balance at end of year ₱2,653,594

₱2,592,518

________________________________________________________________________________________________________ 19

the Globe Group. The P=45.00 million loan is fully secured by a chattel mortgage agreement dated December 21, 2009 between Globe Group and BEAM (see Note 25.5).

On February 1, 2009, the Globe Group entered into a memorandum of agreement (MOA) with BEAM for the latter to render mobile television broadcast service to Globe subscribers using the mobile TV service. As a result, the Globe Group recognized an expense (included in “Professional and other contracted services”) amounting to P=155.00 million, P=194.00 million and P=250.00 million in 2013, 2012 and 2011, respectively.

On October 1, 2009, the Globe Group entered into a MOA with Altimax for the Globe Group‟s co-use of specific frequencies of Altimax‟s for the rollout of broadband wireless access to the Globe Group‟s subscribers. As a result, the Globe Group recognized an expense (included in “General, selling and administrative expenses” account in the consolidated statements of comprehensive income) amounting to P=90.00 million in 2013, 2012 and 2011.

Transactions with other related parties Globe Telecom has money market placements and bank balances, and subscriber receivables (included in “Cash and cash equivalents” and “Receivables” accounts in the consolidated statements of financial position, respectively) and earns service revenues (included in the “Service revenues” account in the consolidated statements of comprehensive income) from its other related parties namely, Ayala Land Inc., Ayala Property Management Corporation, Bank of the Philippine Islands, Manila Water Company, Inc., Integrated Microelectronics, Inc., Stream Global Services, Inc., HR Mall Inc., Honda Cars, Inc., Isuzu Automotive Dealership, Inc., Accendo Commercial Corp., Affinity Express Philippines, Inc., Alveo Land Corp., Asian I-Office Properties,Inc., Avida Land Corp., Avida Sales Corporation, Ayala Hotels, Inc., Ayala Plans, Inc., Ayala Systems Technology, Inc., Cebu Holdings, Inc., Makati Development Corp., myAyala.com, Inc., North Triangle Depot Commercial Corp., PSI Technologies, Inc., Roxas Land Corp, Serendra, Inc., Station Square East Commercial Corp., Ten Knots Development, KHI ALI Manila, Inc., Lagoon Development Corp., Subic Bay Town Center, Inc., Ayala Aviation Corporation, Laguna AAA Water Corp., Liveit Solution, Inc., Liveit Investments, Ltd., Integreon, Inc., Arvo Commercial Corp., Amaia Land Corp., Michigan Power, Philippine Intergrated Energy Solutions, Inc., Southcrest Hotel Ventures, Inc., Bonifacio Hotels and Crestview E-Office.

The balances with other related parties are recorded under the following accounts:

The balances under “General, selling and administrative expenses” and “Property and equipment” accounts consist of expenses incurred on rent, utilities, customer contract services, other miscellaneous services and purchase of vehicles, respectively. These related parties are either controlled or significantly influenced by AC.

Transactions with key management personnel of the Globe Group

The Globe Group‟s compensation of key management personnel by benefit type are as follows:

Notes 2013 2012 2011

(In Thousand Pesos)

Cash and cash equivalents 30 P=166,074 P=199,392 P=1,098,168 Service revenues 437,793 344,206 306,846 General, selling and

administrative expenses 21 346,280 345,004 288,351 Subscriber receivables (included

in “Receivables” account) 4 212,391 102,454 65,694 Property and equipment 7 60,437 71,272 137,209 Accounts payable and accrued

expenses 12 72,440 50,008 32,750

________________________________________________________________________________________________________ 20

Notes 2013 2012 2011

Short-term employee benefits 21 ₱63,172 ₱123,700 ₱75,343

Share-based payments 18.1 50,000 11,502 49,338

Post-employment benefits 18.2 7,466 12,822 1,736

₱120,638 ₱148,024 ₱126,417

(In Thousand Pesos)

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.

The Globe Group granted non-interest bearing short-term loans to its key management personnel amounting to P=0.05 million in 2012, included in the “Prepayments and other current assets” in the consolidated statements of financial position.

For a summary of balances arising from related party transactions for the relevant financial year, please

refer to Note 16 of the 2013 Notes to the Audited Financial Statements.

vi. Ownership Structure and Parent Company

As of 12 February 2014, Ayala Corporation owns 30.4% of the total outstanding common stock of the Company, while STI owns 47.2%. Asiacom owns all of the outstanding voting preferred stock of the Company. (For details, please refer to Security Ownership table in page 8 of the Information Statement).

vii. Resignation of Directors

To date, no director has resigned or declined to stand for re-election for the Board of Directors since the date of the annual meeting of security holders due to any disagreement with the Company relative to the Company‟s operations, policies and practices.

viii. Chairman and Members of the Nomination Committee

Xavier P. Loinaz is the Chairman of the Nomination Committee, while Guillermo D. Luchangco, Mark Chong Chin Kok and Gerardo C. Ablaza, Jr. are members.

3. Compensation of Directors & Executive Officers a. Executive Compensation

The total annual compensation (salary and other variable pay) of the CEO and other senior officers of the Company (excluding its subsidiaries) amounted to P158 million in 2013 and P142 million in 2012. The projected total annual compensation for 2014 is P170 million. The total annual compensation paid to all senior personnel (Executives) of the Company (excluding its subsidiaries) amounted to P1,600 million in 2013 and P1,366 million in 2012. The projected total annual compensation for 2014 is P1,737 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) are shown below.

________________________________________________________________________________________________________ 21

Name and Principal Position

Year

Salary (in P Millions)

Other Variable Pay

3

(in P Millions)

Ernest L. Cu1

President & Chief Executive Officer

Alberto M. de Larrazabal1

Chief Financial Officer & Treasurer

Rebecca V. Eclipse1

Head – Office of Strategy Management

Gil B. Genio1

Head – Business Customer Facing Unit and President – Innove Communications, Inc.

Renato M. Jiao1

Head – Human Resources

CEO & Most Highly Compensated Executive Officers

Actual 2012 75 67

Actual 2013 82 76

Projected 2014 88 82

All other officers 2 as a group

unnamed Actual 2012 837 529

Actual 2013 976 624

Projected 2014 1,058 679 1 CEO & Most Highly Compensated Executive Officers

2 All Other Executives

3 Inclusive of guaranteed bonus, variable pay and other earnings

b. Compensation of Directors

Article II Section 6 of the Company‟s By-Laws provides:

“SECTION 6. COMPENSATION OF DIRECTORS - Directors as such may receive, pursuant to a resolution of the stockholders, fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors (As amended on April 12, 2011).”

The stockholders have ratified a resolution in 2003 fixing the per-diem remuneration of P100,000 for non-executive Directors for every meeting actually attended as a director or as a member of a Board Committee. Additionally, executive directors do not receive per-diem remuneration.

The Company will propose an increase in the per diem of Directors for their attendance in board meetings and stockholders‟ meetings from P100,000 to P200,000 in the shareholders‟ meeting on April 8, 2014. Per diem for attendance in committee meetings or any other meetings will remain the same. This will align Globe with industry standard for Board Meetings. The Company has no other arrangement with regard to the remuneration of its existing directors and officers aside from the compensation herein stated.

c. Employment Contracts and Termination of Employment and Change-in-Control Arrangements

The above named executive officers are covered by Letters of Appointment with the Company stating therein their respective job functionalities, among others.

________________________________________________________________________________________________________ 22

d. Warrants and Options Outstanding: i. The Company offered the Executive Stock Option Plan (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 99,100 common shares exercised in 2013.

Name Position No. of Shares

Date of Grant

Ave Price at date of grant (Offer Price)

Ave Price (Exercise

Price)

Balance of outstanding

& exercisable options at

end of period

Ernest L. Cu

President and Chief Executive Officer

Alberto M. de Larrazabal

Chief Financial Officer and Treasurer

Rebecca V. Eclipse

Head – Office of Strategy Management

Gil B. Genio

Head – Business Customer Facing Unit and President – Innove Communications, Inc.

Renato M. Jiao

Head – Human Resources

All above-named Officers as a Group

99,100 2006, 2007,

2008 & 2009

1,063 1,457 164,000

ii. The Company has not adjusted nor amended the exercise price of the options previously awarded to

the above named officers.

4. Independent Public Accountants a. The principal accountants and independent auditors of the Company is the accounting firm of SyCip,

Gorres, Velayo & Company (SGV & Co.). The same accounting firm is being recommended for re-election at the scheduled annual meeting.

b. Representatives of SGV & Co. for the current year and for the most recently completed fiscal year are

expected to be present at the Annual Stockholders‟ Meeting. They will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

Pursuant to the General Requirements of SRC Rule 68, Par. 3 (Qualifications and Reports of Independent Auditors), the Company has engaged SGV & Co. as external auditor of the Company, with Mr. Gemilo J. San Pedro as the current Partner In-charge. He has been in charge for less than five years.

c. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no disagreements with Globe‟s Independent Auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.

________________________________________________________________________________________________________ 23

d. Audit and Audit-Related Fees

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 the Philippine Securities and Exchange Commission (SEC) to be performed by independent auditors 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. In its meeting last 16 April 2013, the shareholders re-appointed SyCip, Gorres, Velayo and Co. (SGV & Co.), a member firm of Ernst and Young (EY), as the Independent Auditors of Globe Telecom, Inc. and Subsidiaries (Globe Group) for the calendar year 2013. Fees approved in connection with the audit and audit-related services rendered by SGV & Co. pursuant to the regulatory and statutory requirements for the years ended 31 December 2013 and 2012 each amounted to P16.04 million, inclusive of 10% out-of-pocket expenses (OPE). In addition to performing the audit of Globe Group‟s financial statements in 2013, SGV & Co. and EY India were also contracted to provide other services in accordance with established procurement policies. The aggregate fees billed by SGV & Co. and EY India are shown below (with comparative figures for 2012):

(Amount in millions of Pesos) 2013 2012

Audit and Audit-Related Fees

SGV Audit Fee* P 16.04 P 16.04

Non-Audit Fees

EY India 32.58 14.82 SGV 15.89 1.98

48.47 16.80

Total P 64.51 P 32.84 *Excludes 2013 audit fees from GTI HK of P398K (P508K in 2012) audit services performed by EY HK, GT EU of P303K and GT UK of P457K), audit services performed by Wellden and Turnbull LLP.

Audit and Audit-Related 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 2013 and 2012. This also includes assurance and related services that are reasonably related to the performance of the audit or review of the Globe Group‟s financial statements pursuant to the regulatory requirements. Non-Audit Fees. The 2013 non-audit fees include charges on review of data migration, user acceptance and integration testing related to the on-going transformation projects incurred by the Company during its modernization period. This also includes special projects, trainings and seminars rendered by the SGV & Co and its affiliates. The fees presented above include out-of-pocket expenses incidental to the Independent Auditors services. Pursuant to the Pre-Approval of Audit and Non-Audit Services policy, the Audit Committee has reviewed the nature of all non-audit services rendered by SGV & Co. and EY India and the corresponding fees, and concluded that these do not impair their independence. SGV & Co. has confirmed to the Audit Committee that the non-audit services rendered by them and EY India are services that are allowed to be provided to an audit client under existing SEC regulations and the Code of Ethics of Professional Accountants in the Philippines and does not conflict with their role as external auditors of the Company.

Manuel A. Pacis is the Chairman of the Audit Committee while Tay Soo Meng and Romeo L. Bernardo are members.

________________________________________________________________________________________________________ 24

C. ISSUANCE AND EXCHANGE OF SECURITIES

1. Authorization or Issuance of Securities Other than for Exchange

Amendment of the Articles of Incorporation will be submitted to the shareholders for approval covering the following:

Approval of the Amendment to the Seventh Article of the Articles of Incorporation to reclassify 31 Million unissued common shares with par value of Php50 per share and 90 Million unissued voting preferred shares with par value of Php5 per Share into a new class of 40 Million non-voting preferred shares with par value of Php50 per share. The non-voting preferred shares shall be redeemable, non-convertible, non-voting, and cumulative and may be issued in series. All the other terms and conditions of the non-voting preferred shares will be determined by the Board at the time of issuance.

2. Modification or Exchange of Securities

Amendment of the Articles of Incorporation will be submitted to the shareholders for approval covering the following:

Approval of the Amendment to the Seventh Article of the Articles of Incorporation to reclassify 31 Million unissued common shares with par value of Php50 per share and 90 Million unissued voting preferred shares with par value of Php5 per Share into a new class of 40 Million non-voting preferred shares with par value of Php50 per share. The non-voting preferred shares shall be redeemable, non-convertible, non-voting, and cumulative and may be issued in series. All the other terms and conditions of the non-voting preferred shares will be determined by the Board at the time of issuance.

3. Financial and Other Information a. The audited consolidated financial statement as of 31 December 2013 and Management‟s Discussion and

Analysis are attached hereto as Annexes “C” and “D”. In addition, market price of shares and dividends and other data related to the Company‟s financial information are attached hereto as Annex “E”. The schedules required under Part IV(e) of Rule 68 Schedules will be included in the Annual Report (SEC Form 17-A).

b. The consolidated financial statements of the Globe Group have been prepared under the historical cost

convention method, except for derivative financial instruments and available-for-sale (AFS) financial

assets that are measured at fair value.

4. Mergers, Consolidations, Acquisitions and Similar Matters

There are no matters or actions to be taken up in the meeting with respect to merger, consolidation, acquisition by, sale or liquidation of the Company.

5. Acquisition or Disposition of Property

There are no matters or actions to be taken up in the meeting with respect to acquisition or disposition of any property by the Company.

6. Restatement of Accounts

The consolidated financial statements of the Globe Group have been prepared in compliance with

Philippine Financial Reporting Standards (PFRS).

________________________________________________________________________________________________________ 25

The accounting policies adopted are consistent with those of the previous financial year except for the

adoption of the following new and amended PFRS and Philippine Interpretations of International Financial

Reporting Interpretations Committee (IFRIC) which became effective on January 1, 2012. Except as

otherwise indicated, the adoption of the new and amended Standards and Interpretations did not have a

significant impact on the consolidated financial statements. (See Note 2.5 – Changes in Accounting Policies

of the attached Notes to the Consolidated Financial Statements for a more detailed discussion)

The Globe Group will adopt the standards and interpretations enumerated in Note 2.6 – Future Changes in

Accounting Policies of the attached Notes to the Consolidated Financial Statements when these become

effective. Except as otherwise indicated, the Globe Group does not expect the adoption of these new and

amended PFRS and Philippine Interpretations to have significant impact on the consolidated financial

statements.

D. OTHER MATTERS

1. Action with Respect to Reports a. Approval of the Minutes of the 2013 Annual Meeting of the Stockholders held on 16 April 2013 covering

the following matters: i. Annual Report of Officers; ii. Ratification and approval of all acts and resolutions of the Board of Directors and the Executive

Committee for the fiscal year 2012 including the approval of projects and investments, treasury matters including borrowings, opening of accounts, bank transactions & appointment of signatories among others;

iii. Election of Directors (including the Independent Directors); and iv. Election of External Auditors and Fixing their Remuneration

b. Approval of the Annual Report of Management for the year ended 31 December 2013.

2. Matters not required to be submitted All matters or actions to be taken up in the meeting require the vote of the security holders.

3. Amendment of Charter, Bylaws or Other Documents

Amendments to the Articles of Incorporation as follows:

Amendment to the Third Article to specify the complete address of the Principal Office of the Corporation from Metro Manila, Philippines to 32nd Street corner 7th Avenue, Bonifacio Global City, Taguig. This is in compliance with SEC MEMORANDUM CIRCULAR NO. 6 issued on February 20, 2014 directing all affected corporations to file an amended articles of incorporation in order to specify the complete principal address, including street number, street name, barangay, city or municipality, building name, building number, and room or unit number.

Approval of the Amendment to the Seventh Article of the Articles of Incorporation to reclassify 31 Million unissued common shares with par value of Php50 per share and 90 Million unissued voting preferred shares with par value of Php5 per Share into a new class of 40 Million non-voting preferred shares with par value of Php50 per share. The non-voting preferred shares shall be redeemable, non-convertible, non-voting, and cumulative and may be issued in series. All the other terms and conditions of the non-voting preferred shares will be determined by the Board at the time of issuance. The amendment will create a new class of non-voting preferred shares, while maintaining the same level of authorized capital stock. Also, the Company intends to issue preferred shares to fund its capital expenditures.

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4. Other Proposed Actions a. Ratification of all acts and resolutions of the Board of Directors and Management for the period covering

17 April 2013 through 8 April 2014 adopted in the ordinary course of business involving:

i. Approval of projects and investments; ii. Treasury matters including borrowings, opening of accounts and bank transactions; and iii. Appointment of signatories and amendments thereof.

b. Election of the Members of the Board of Directors, including the independent directors, for the ensuing

calendar year. c. Election of External Auditors and Fixing their Remuneration.

5. Voting Procedures a. Vote required In general, the vote of stockholders representing at least a majority of the issued and outstanding capital stock entitled to vote and present at the meeting is required for the approval of matters presented to the stockholders. The affirmative vote of stockholders representing at least 2/3 of the issued and outstanding capital stock is required for the proposed amendment to the Articles of Incorporation. b. Method of Voting: Cumulative Voting Each stockholder will be given a ballot upon registration to enable him to vote in writing per item in the agenda. The Office of the Corporate Secretary will tabulate the votes. In case of election of directors, each stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one nominee as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many nominees as he shall see fit, provided that the whole number of votes cast by him shall not exceed the number of shares owned by him multiplied by the whole number of directors to be elected. All votes shall be tabulated by the Office of the Corporate Secretary and the results shall be validated by the external auditor of the Company, SGV & Co.

CERTIFICATION

Upon the written request of the stockholders, tne company unumuiKea iu minm, 3Q11Jstockholder with a copy of SEC Form 17-A free of charge. Any written request for a copy of SEC

Form 17-A shall be addressed to the following:

GLOBE TELECOM, INC.

27th Floor, The Globe Tower32nd Street corner 7th Avenue,

Bonifacio Global City, Taguig

1634

Attention: Mr. Alberto M. de Larrazabal

Chief Financial Officer

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information

set forth in this report is true, complete and correct. This report is signed in the City of Taguig on

GLOBE TELECOM, INC.

LLI Lby: SOLOMON M. HERMOSUKA

Corporate Secretary

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ANNEX “A”- DIRECTORS AND KEY OFFICERS The write-ups below include positions held as of 31 December 2013 and in the past five years, and personal data as of 31 December 2013, of the directors and executive officers.

Board of Directors

Name Position

Jaime Augusto Zobel de Ayala Chairman Gerardo C. Ablaza, Jr. Co-Vice Chairman Mark Chong Chin Kok Co-Vice Chairman Ernest L. Cu Director, President and Chief Executive Officer Romeo L. Bernardo Director Delfin L. Lazaro Director Tay Soo Meng Director Fernando Zobel de Ayala Director Xavier P. Loinaz Independent Director Guillermo D. Luchangco Independent Director Manuel A. Pacis

Independent Director

Jaime Augusto Zobel de Ayala, Mr. Zobel, 54, Filipino, has served as Chairman of the Board since

December 1996 and a Director since March 1989. He is the Chairman and CEO of Ayala Corporation. He

also holds the following positions: Chairman of Bank of the Philippine Islands, and Integrated Micro-

Electronics, Inc.; Co-Chairman of Ayala Foundation, Inc.; Vice Chairman of Ayala Land, Inc. and AC Energy

Holdings, Inc.; Chairman of Harvard Business School Asia-Pacific Advisory Board and Asia Business

Council; Vice Chairman of the Makati Business Club, and member of the Harvard Global Advisory Council,

Mitsubishi Corporation International Advisory Committee, JP Morgan International Council, International

Business Council of the World Economic Forum; Philippine Representative for APEC Business Advisory

Council. He graduated with B.A. in Economics (with honours) degree from Harvard College in 1981 and

obtained an MBA from the Harvard Graduate School of Business in 1987. Gerardo C. Ablaza, Jr. Mr. Ablaza, 60, Filipino, has served as Director since June 1997. He is a Senior Managing Director of Ayala Corporation and a member of the Ayala Group Management Committee, a post he has held since 1998. He also serves as director for Azalea International Ventures Partners, AsiaCom Philippines, Inc., LiveIt Investment Ltd.; AC Energy Holdings, Inc., Ayala Foundation, Inc. and AG Holdings Limited. Mr. Ablaza is currently the President and CEO of Manila Water Company where he is responsible for overseeing the financial and operational growth within Manila Water‟s service areas in the Metro Manila east zone and in its expansion areas. From 1998 to April 2009, Mr. Ablaza was the President and CEO of Globe Telecom, Inc. During this period, he took the company from being the fourth-ranked mobile services provider to the second-largest full-service telecom operator with a subscriber base of 25 million in 2008. Before joining the Ayala Group, Mr. Ablaza was Vice-President and Country Business Manager for Philippines and Guam of Citibank, N.A. for its Global Consumer Banking Business. Prior to this, he headed the Credit Payments Products Division of Citibank, N.A. Singapore. In 2004, Mr. Ablaza was recognized by CNBC as the Asia Business Leader of the Year, making him the first Filipino CEO to win the award. In the same year, he was awarded by Telecom Asia as the Best Asian Telecom CEO. In 2013, he was recognized for his consistent leadership and innovation across the banking, investment, telecommunications and utility service industries through the Citi Distinguished Alumni Award for Leadership and Ingenuity. He is the first and the only Filipino to be awarded with such an honor. Mr. Ablaza graduated summa cum laude from the De La Salle University in 1974 with a degree in Liberals Arts, Major in Mathematics (Honors Program). As one of the most accomplished graduates of his alma mater, he sits as a member of the Board of Trustess in various De La Salle schools in the country. Ernest L. Cu. Mr. Cu, 53, Filipino, has served as Director since April 2009. He is currently the President and Chief Executive Officer of Globe Telecom, Inc. Mr. Cu joined Globe in October 2008 as Deputy CEO, and was officially appointed President and Chief Executive Officer on 2 April 2009. Since then, he has been passionately driving a sweeping transformation across the company, ultimately to deliver the superior customer experience, anchored on his primary advocacy of Customer First. Under Mr. Cu‟s visionary

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leadership, Globe has progressively risen as a fierce challenger that has successfully wrestled significant market share from competition. In 2010, he was adjudged Best CEO by Finance Asia and was moreover conferred the International Association of Business Communicators (IABC) CEO EXCEL award for communication excellence in telecom and IT. In 2012, Mr. Cu earned international accolade as CEO of the Year by Frost & Sullivan Asia Pacific. In 2013, Ernest was the highest ranked Filipino in the Power 100 of London-based Global Telecoms Business Magazine that recognizes the 100 most influential telecom leaders worldwide. Prior to joining Globe, he was the President and Chief Executive Officer of SPI Technologies, Inc., where he received the Ernst & Young ICT Entrepreneur of the Year award in 2003. Mr. Cu earned his Bachelor of Science in Industrial Management Engineering from De La Salle University in Manila, and his Master of Business Administration from the J.L. Kellogg Graduate School of Management, Northwestern University. Romeo L. Bernardo. Mr. Bernardo, 59, Filipino, has served as Director since September 2001. He is Managing Director of Lazaro Bernardo Tiu and Associates (LBT), a financial advisory firm based in Manila. He is also a GlobalSource economist in the Philippines. He is Chairman of ALFM Family of Funds and Philippine Stock Index Fund. He is likewise a director of several companies and organizations including Aboitiz Power, BPI, RFM Corporation, Philippine Investment Management, Inc. (PHINMA), Philippine Institute for Development Studies (PIDS), BPI-Philam Life Assurance Corporation, National Reinsurance Corporation of the Philippines and Institute for Development and Econometric Analysis. He previously served as Undersecretary of Finance and as Alternate Executive Director of the Asian Development Bank. He was an Advisor of the World Bank and the IMF (Washington D.C.). Mr. Bernardo holds a degree in Bachelor of Science in Business Economics from the University of the Philippines (magna cum laude) and a Masters Degree in Development Economics at Williams College from Williams College in Williamstown, Massachusetts.

Delfin L. Lazaro. Mr. Lazaro, 66, Filipino, has served as Director since January 1997. He is a member of the Management Committee of Ayala Corporation. His other significant positions include: Chairman of Philwater Holdings Company, Inc., Atlas Fertilizer & Chemicals Inc., Chairman and President of Michigan Power, Inc., and A.C.S.T. Business Holdings, Inc.; Chairman of Azalea Intl. Venture Partners, Ltd.; Director of Ayala Land, Inc., Integrated Micro-Electronics, Inc., Manila Water Co., Inc., Ayala DBS Holdings, Inc., AYC Holdings, Ltd., Ayala International Holdings, Ltd., Bestfull Holdings Limited, AG Holdings, AI North America, Inc., Probe Productions, Inc. and Empire Insurance Company; and Trustee of Insular Life Assurance Co., Ltd. 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 successive high growth levels up to the Asian crisis in 1997.

Tay Soo Meng. Mr. Tay, 64, Singaporean, was elected as Director on 8 February 2011. Mr. Tay is the

Group Chief Technology Officer of Singapore Telecommunications Limited (SingTel) since September 2012.

He is responsible for the networks strategy, procurement, planning and operations across both Singapore

and Australia (Optus). He also provides engineering support for SingTel‟s joint venture partners: India

(Bharti), Philippines (Globe), Thailand (AIS), and Indonesia (Telkomsel). Prior to this, Mr. Tay was the

Managing Director for Optus Networks from 2008 and returned to Singapore as Managing Director, Networks

from 2010. Mr. Tay has supported many SingTel‟s interest across Europe, Mauritius, Norway, Sri Lanka, and

Vietnam assisting in the divestment of these operations to focus SingTel in becoming Asia‟s leading

operator. He is a member of the Board of Directors of Next Generation Mobile Networks (NGMN) Ltd. since

July 2013. The strategy for NGMN, an alliance of mobile network operators is to drive industry leadership in

early standardization process on key mobile technologies. He was the GSM Association‟s Asia Pacific

Chairman in 1997, and was responsible for looking after the interests of GSM operators in the Asia Pacific

region. Mr. Tay holds an MBA degree from the University of Leicester (England).

Fernando Zobel de Ayala. Mr. Zobel, Filipino, 53, has served as Director since October 1995. He is the

President and Chief Operating Officer of Ayala Corporation since April 2006. He is also Chairman of Ayala

Land, Inc., Manila Water Company, Inc., AC International Finance Ltd., AC Energy Holdings, Inc., and Hero

Foundation, Inc.; Co-Chairman of Ayala Foundation, Inc.; Director of Bank of The Philippine Islands,

Integrated Micro-Electronics, Inc., LiveIt Investments, Ltd., Ayala International Holdings Limited, Honda Cars

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Philippines, Inc., Isuzu Philippines Corporation, Pilipinas Shell Petroleum Corp., Manila Peninsula and

Habitat for Humanity International; Member of The Asia Society, INSEAD East Asia Council, Chairman of

Habitat for Humanity's Asia-Pacific Capital Campaign Steering Committee; and Member of the Board of

Trustees of Caritas Manila, Pilipinas Shell Foundation, Kapit Bisig para sa Ilog Pasig Advisory Board and

National Museum.

Xavier P. Loinaz. Mr. Loinaz, 70, Filipino, Independent Director since April 2009. He was formerly the President of the Bank of the Philippine Islands (BPI) from 1982 to 2004. He was also President of Bankers Association of the Philippines from 1989 to 1991. He currently holds the following positions: Independent Director of BPI, BPI/MS Insurance Corporation, BPI Family Savings Bank, Inc. and Ayala Corporation; Trustee of E. Zobel Foundation and PETA; and Chairman of Alay Kapwa Kilusan Pangkalusugan. Guillermo D. Luchangco. Mr. Luchangco, 74, Filipino, has served as Independent Director since September 2001. He is also Chairman and Chief Executive Officer of various companies of the ICCP Group, including Investment & Capital Corporation of the Philippines, Science Park of the Philippines, Inc., Pueblo de Oro Development Corp., Cebu Light Industrial Park, Inc., Regatta Properties, Inc., and RFM-Science Park of the Philippines, Inc.; ICCP Venture Partners, Inc. and Manila Exposition Complex, Inc.; Chairman and President of Beacon Property Ventures, Inc.; Independent Director of Phinma Corporation, Trans-Asia Oil & Energy Development Corporation. and Roxas & Co., Inc.; and a regular Director of Ionics, Inc. and Ionics EMS, Inc.

Manuel A. Pacis. Mr. Pacis, 69, Filipino, has served as Independent Director since April 2011. He was formerly a Vice President for Finance of the Procter & Gamble Company (P&G) in Cincinnati, Ohio. He held positions of increasing responsibility in the Philippines, the US, Mexico, China, and Japan including Chief Financial Officer of P&G Asia, and a Global Business Unit (GBU). He also served as Vice President for Internal Controls Worldwide and Financial Systems Worldwide at P&G. His wide-ranging experiences throughout his business career have included leadership roles in corporate governance, strategic planning, internal audit, management systems / IT, M&A, joint ventures, and finance & accounting.

Mark Chong Chin Kok. Mr. Chong, 50, Singaporean, previously served as a Director for one year, from 6

October 2009 to 8 October 2010. He was elected again as Director at the Annual Stockholders' Meeting on 16 April 2013. Mr. Chong was appointed CEO of International, Group Consumer, of Singapore Telecommunications Limited (SingTel) on 14 January 2013 to oversee the growth of SingTel Group‟s international affiliates, strengthen its relationship with overseas partners, and drive regional initiatives for scale and synergies. Prior to this appointment, he was Chief Operating Officer of Advanced Info Service Plc (AIS), the Group‟s associate in Thailand, in charge of sales and marketing products, network operations, IT solutions, customer and services management. Mr. Chong graduated with a Bachelor of Electronics Engineering and Master in Research in Electronic Systems from ENSERG, Grenoble, France, and obtained his Master of Business Administration from the National University of Singapore. He is also a senior fellow with the Singapore Computer Society.

Rex Ma. A. Mendoza1. Mr. Mendoza, 51, Filipino, is the President and Chief Executive Officer of The

Philippine American Life and General Insurance Company (Philam Life). He is also Chairman of The Philam

Foundation, Inc. and Vice Chairman of BPI Philam Life Assurance Company, Chairman and President of

Rampver Financials, and Director of Philam Properties Corporation, Tower Club, Inc., The Freeport Area of

Bataan and Esquire Financing, Inc. Prior to rejoining Philam Life, he was Senior Vice President and Chief

Marketing and Sales Officer of Ayala Land, Inc. He was also Chairman of Ayala Land International Sales,

Inc., President of Ayala Land Sales, Inc., and Avida Sales Corporation. He currently serves as Director of the

Anvaya Beach and Nature Club, President of Abrio in Nuvali, and is a member of the Globe Advisory Council.

He has a Master‟s Degree in Business Management with distinction from the Asian Institute of Management

and was one of the 10 Outstanding Graduates of his batch at the University of the Philippines where he

obtained a BSBA degree with a double major in marketing and finance. He was awarded Most Distinguished

Alumnus of the University of the Philippines‟ Cesar E.A. Virata School of Business last December 2013. He is

also a fellow with distinction at the Life Management Institute of Atlanta, Georgia, USA, a Registered

Financial Planner and a four-time member of the Million Dollar Round Table. Rex was a professor of

Marketing and Computational Finance at the De La Salle University Graduate School of Business. He taught

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strategic marketing, services marketing and services strategy. He has served as Chairman of the Marketing

Department and was awarded as one of the University‟s most outstanding professors. 1 Mr. Mendoza was nominated as an independent director to replace Mr. Loinaz, who is not seeking re-election. Officers The 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 name and position of our officers as of 31 December 2013.

Officers – Globe Name Position

Ernest L. Cu 1

President and Chief Executive Officer

Alberto M. de Larrazabal

Chief Finance Officer

Henry Rhoel R. Aguda Chief Information Officer and SVP, Information Systems Group

Vicente Froilan M. Castelo

General Legal Counsel and SVP, Corporate and Legal Services Group

Marisalve Ciocson-Co

Compliance Officer and Assistant Corporate Secretary and VP, Legal Services

Rebecca V. Eclipse Chief Customer Experience Officer and EVP, Office of Strategy Management

Gil B. Genio Chief Operating Officer for Business and International Markets and Chief Strategy Officer

Carmina J. Herbosa

Chief Audit Executive and SVP, Internal Controls Group

Renato M. Jiao

Chief Human Resources Officer

Bernard P. Llamzon

EVP, Consumer Sales

Solomon M. Hermosura Corporate Secretary

Consultants Name Position

Peter Bithos

Chief Operating Advisor

Chee Loo Fun

Senior Advisor for Consumer Marketing

Rodolfo A. Salalima Chief Legal Counsel and Senior Advisor

Robert Tan

Chief Technical Advisor 1 Member, Board of Directors.

Alberto M. de Larrazabal. Mr. de Larrazabal, 58, Filipino, is the Chief Finance Officer. He joined Globe in June 2006 as Head of the Treasury Division. Mr. De Larrazabal has had over two decades of extensive experience as a senior executive in Finance, Business Development, Treasury Operations, Joint Ventures, Mergers and Acquisitions, as well as Investment Banking and Investor Relations. Prior to joining Globe, he held such positions as VP and CFO of Marsman Drysdale Corp., VP and Head of the Consumer Sector – JP Morgan, Hong Kong, and SVP and CFO of San Miguel Corporation. Henry Rhoel R. Aguda. Mr. Aguda, 45, Filipino, is the Chief Information Officer. Mr. Aguda is a veteran in the IT profession. Prior to joining Globe, Mr. Aguda was the Chief Technology Officer and Senior Vice-President for the IT Group of the Government Service Insurance System (GSIS), and was awarded the 2010 ASEAN CIO of the Year for the Government Sector by the International Data Group. He also held such positions as Group Chief Information Technology Officer of Digitel Telecommunications Philippines, Vice President for Asia Pacific of Nextel Communications Philippines and held key executive positions in Fujitsu Philippines, Bayantel, and Computer Information Systems Inc. Mr. Aguda earned his Bachelor of Science in Mathematics from the University of the Philippines in 1988. He also obtained his juris doctor Degree from the University of the Philippines in 2008, graduating cum laude and class valedictorian. Mr. Aguda was also a participant in the Strategic Alliance Program of the Wharton School of Business in the University of Pennsylvania. Vicente Froilan M. Castelo. Mr. Castelo, 49, Filipino, has served as General Legal Counsel and Head of the Corporate and Legal Services Group of Globe since April 2011. He is a veteran in the practice of law,

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and is one of the pioneers in the practice of Law in the telecommunications and information communication technology field. He earned his Bachelor of Laws from San Beda College and is the President of the Telecommunications and Broadcast Attorneys of the Philippines. He joined Globe Telecom as the Head of Regulatory Affairs in July 1998. Marisalve Ciocson-Co. Ms. Co, 43, Filipino, has served as Compliance Officer and Assistant Corporate Secretary of Globe since July 2010. She is also the Vice President of Legal Services Division of the Corporate and Legal Services Group. Ms. Co graduated Cum Laude with a degree in Bachelor of Arts in Political Science from the University of the Philippines-Diliman and received her Juris Doctor (Law) degree from Ateneo de Manila University College of Law. Rebecca V. Eclipse. Ms. Eclipse, 51, Filipino, is the Head of Office of Strategy Management and Chief Customer Experience Officer. She joined Globe in March 1995. Ms. Eclipse has more than 15 years of experience in technology and telecom risk management, financial management and auditing drawn from SGV & Co, as well as Eastern Telecoms and Oceanic Wireless Network. Ms. Eclipse joined Globe in March 1995. Gil B. Genio. Mr. Genio, 54, Filipino, is the Head of Corporate Strategy and Business Development, responsible for strategy formulation and driving new initiatives. He is concurrently the Head of International and Business Markets, which are the groups responsible for sales, relationships, marketing, products and support Globe‟s overseas Filipino and service provider customers, and for business customers from SMEs to the largest enterprises. Mr. Genio is also the CEO of wholly-owned subsidiaries - Innove Communications and GTI Business Holdings, as well as board member of G-Exchange, Globe Telecom HongKong Ltd, Globetel European Ltd. and Kickstart Ventures. Mr. Genio joined Globe in July 1997. Among his previous assignments in Globe was Chief Financial Officer, followed by stints as group head for fixed networks, carrier services, and business customers. He is a Managing Director at Ayala Corporation. Prior to joining Globe and AC, Mr. Genio had spent more than 11 years with Citibank in the Philippines, Singapore, Japan and Hong Kong, with stints in financial control, risk management, product development, audit and market risk management. Mr. Genio obtained a Masters in Business Management, graduating With Distinction, from the Asian Institute of Management. He holds a Bachelor of Science degree in Physics, magna cum laude, from the University of the Philippines. Carmina J. Herbosa. Ms. Herbosa, 47, Filipino, is the Head of Internal Audit. She joined Globe in February 2012. Ms. Herbosa is a Certified Public Accountant, a Certified Internal Auditor (US CIA) and a Certified Control Self-Assessment Auditor (US CCSA). Ms. Herbosa has more than 15 years of financial and audit experience having held management positions in Procter & Gamble in Asia, Europe, and the US. Prior to joining Globe, Ms. Herbosa was based in China as Senior Director for Internal Audit for Asia and EMEA of Whirlpool Corporation. Ms. Herbosa earned her Bachelor of Science in Business Administration and Accountancy, cum laude, from the University of the Philippines, and her Master of Business Administration from the Kellogg School of Management, Northwestern University. Renato M. Jiao. Mr. Jiao, 57, Filipino, is the Head of Human Resources. He joined Globe in June 2010. Mr. Jiao has over 30 years of experience in general management and leveraging leading-edge technologies, processes and human capital for competitive advantage. He is a seasoned HR Practitioner with 15 years of experience in multi-functional HR practice areas. Mr. Jiao also held various significant positions in Procter and Gamble (Philippines), Inc. and Procter and Gamble Asia Pte Ltd. Prior to joining Globe, he was President of IBM Business Services, Inc. Mr. Jiao earned his Bachelor of Science degree in Mechanical Engineering from the University of the Philippines. Bernard P. Llamzon. Mr. Llamzon, Filipino, assumed the position of Head of Consumer Sales Division in August 2012. He joined Globe in October 2006 to handle Sales and Distribution for wireless products and has since then created a track record of operational excellence and effective execution. Mr. Llamzon is a veteran in the field of Sales and Distribution with significant contributions in the beverage, tobacco and telecommunications industries. Deriving from 27 years of experience, he possesses broad and deeply-applied knowledge on all sales channel types, practices the disciplines of a global company, has a well-developed local network, and has tested leadership over a large sales organization. Mr. Llamzon holds a bachelor‟s degree in Commerce, major in Business Management, and has attended the Management

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Development Program of the Asian Institute of Management and INSEAD‟s World Class Business Manager Program.

Solomon M. Hermosura. Mr. Hermosura, 51, Filipino, is the Corporate Secretary of Globe. He assumed his role in July 2010. Mr. Hermosura is a Managing Director of Ayala Corporation and a member of its Management Committee and the Ayala Group Management Committee. He is the General Counsel, Corporate Secretary and Compliance Officer of Ayala Corporation, and the CEO of Ayala Group Legal. He also serves as Corporate Secretary of Ayala Land, Inc., Manila Water Company, Inc., Integrated Micro Electronics, Inc., Ayala Foundation, Inc., and a number of other companies in the Ayala Group; and as member of the Boards of Directors of a number of companies in the Ayala Group. Mr. Hermosura graduated valedictorian with Bachelor of Laws degree from San Beda College in 1986 and placed third in the 1986 Bar Examinations. Peter Bithos. Mr. Bithos, 42, American, is the Chief Operating Advisor. He joined Globe in May 2010. Prior to Globe, Mr. Bithos spent five years with SingTel Optus in Australia where he was most recently the Chief Executive Officer of Optus‟ subsidiary Virgin Mobile Australia. Over his tenure at SingTel Optus, Mr. Bithos held executive positions cutting across P&L leadership, operations, strategy and M&A. Prior to SingTel Optus, he spent nine years at the top-tier strategy firm of Bain & Company as a senior engagement leader in strategy development and turnaround projects for Fortune 500 companies in North America, Australia and Asia. Chee Loo Fun. Ms. Chee, Malaysian, is the Senior Advisor for Consumer Marketing. She joined Globe in May 2011. Ms. Chee has had over 20 years of professional and executive-level experience in both telecommunications and advertising industries specializing in brand management and consumer marketing. Prior to joining Globe, she spent over 11 years with Maxis Communications Berhad formulating end-to-end integrated marketing strategies including line management of staff in retail, establishing operational efficiencies and process governance, and leading teams through rapid change. Ms. Chee was also a Director of Client Service of J. Walter Thompson where she created and led integrated marketing communication strategies for key accounts. Rodolfo A. Salalima. Mr. Salalima, 66, Filipino, is the Chief Legal Counsel and Senior Advisor. He joined Globe in 1993. Before his current appointment, Mr. Salalima was Globe‟s Senior Vice President and Head of Corporate and Regulatory Affairs Group and served as its Assistant Corporate Secretary. He had previously worked as a Managing Director of the 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. (TELEBAP). Mr. Salalima is currently the President of the Philippine Chamber of Telecommunications Operators, Inc. (PCTO) and a Director in the Telecoms Infrastructure Corporation of the Philippines (TELICPHIL) and Innove Communications, Inc. He earned his Bachelor of Laws degree, CUM LAUDE, and Bachelor of Arts degree (Philosophy), Magna Cum Laude, both from the San Beda College, Manila. Robert Tan. Mr. Tan, Singaporean, is the Chief Technical Advisor since December 2010. He is now actively driving the rollout of Globe‟s large-scale wireless network modernization undertaking. Mr. Tan has over 3 decades of professional and executive-level experience in the telecommunications industry within the Asia Pacific Region. Prior to his appointment to Globe in December 2010, Mr. Tan was Head of the Transmission and Facilities Engineering group of SingTel Optus for seven years. He also managed the Mobile Deployment and Support Services group which played a critical role in supporting the explosive growth of the wireless broadband business. He joined SingTel in 1975 where he built his expertise in Transmission and Access Engineering, including extensive experience in technical due diligence work that involves the operational and engineering assessment of companies for acquisition and strategic program of JV partners.

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ANNEX “B” – NATURE AND SCOPE OF BUSINESS

Company Overview Globe Telecom, Inc. is a major provider of telecommunications services in the Philippines, supported by over 5,900 employees and over 855,000 retailers, distributors, suppliers, and business partners nationwide. The Company operates one of the largest and most technologically-advanced mobile, fixed line and broadband networks in the country, providing reliable, superior communications services to individual customers, small and medium-sized businesses, and corporate and enterprise clients. Globe currently has about 38.5 million mobile subscribers, over 2,000,000 broadband customers, and over 594,000 million landline subscribers. Globe is one of the largest and most profitable companies in the country, and has been consistently recognized both locally and internationally for its corporate governance practices. It is listed on the Philippine Stock Exchange under the ticker symbol GLO and had a market capitalization of US$4.9 billion as of the end of December 2013. The Company‟s principal shareholders are Ayala Corporation and Singapore Telecom, both industry leaders in their respective countries. Aside from providing financial support, this partnership has created various synergies and has enabled the sharing of best practices in the areas of purchasing, technical operations, and marketing, among others. Globe is committed to being a responsible corporate citizen. Globe BridgeCom, the company‟s umbrella corporate social responsibility program, leads and supports various initiatives that (1) promote education and raise the level of computer literacy in the country, (2) support entrepreneurship and micro-enterprise development particularly in the countryside, and (3) ensures sustainable development through protection of the environment and excellence in operations. Since its inception in 2003, Globe BridgeCom has made a positive impact on the lives of thousands of public elementary and high school students, teachers, community leaders, and micro-entrepreneurs throughout the country. For its efforts, Globe BridgeCom has been recognized and conferred several awards and citations by various Philippine and international organizations. The Globe Group is composed of the following companies:

Globe Telecom, Inc. (Globe) provides mobile telecommunications services;

Innove Communications Inc. (Innove), a wholly-owned subsidiary, provides fixed line telecommunications and broadband services, high-speed internet and private data networks for enterprise clients, services for internal applications, internet protocol-based solutions and multimedia content delivery;

G-Xchange, Inc. (GXI), a wholly-owned subsidiary, provides mobile commerce services under the GCash brand;

Entertainment Gateway Group Corp. and EGGstreme (Hong Kong) Limited (EHL) (collectively referred here as EGG Group), is engaged in the development and creation of wireless products and services accessible through telephones and other forms of communication devices. It also provides internet and mobile value-added services, information technology and technical services including software development and related services;

GTI Business Holdings, Inc. (GTI) is a wholly-owned subsidiary with authority to provide VOIP services. Its wholly-owned subsidiaries are: GTI Corporation (GTIC US), a company organized under the General Corporation Law of the State of Delaware for the purpose of engaging in any lawful act or activity, Globe Telecom HK Limited (GTHK), a limited company organized under the Companies Ordinance of Hong Kong, Globetel European Limited and UK Globetel Limited, a private limited company under the Companies Act of 2006, wherein the registered address is in England and Wales; and

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Kickstart Ventures, Inc. (Kickstart), a wholly-owned subsidiary, is a pioneering business incubator designed to provide aspiring technopreneurs with funds and facilities, mentorship and market access needed to build new businesses.

The Company is a grantee of various authorizations and licenses from the National Telecommunications Commission (NTC) as follows: (1) license to offer and operate facsimile, other traditional voice and data services and domestic line service using Very Small Aperture Terminal (VSAT) technology; (2) license for inter-exchange services; and (3) Certificate of Public Convenience and Necessity (CPCN) for: (a) international digital gateway facility (IGF) in Metro Manila, (b) nationwide digital cellular mobile telephone system under the GSM standard (CMTS-GSM), (c) nationwide local exchange carrier (LEC) services after being granted a provisional authority in June 2005, and (d) international cable landing stations located in Nasugbu, Batangas and Ballesteros, Cagayan. Globe is organized along three key customer facing units (CFUs) tasked to focus on the integrated mobile and fixed line needs of specific market segments. The Company has a Consumer CFU with dedicated marketing and sales groups to address the needs of retail customers, and a Business CFU (Globe Business) focused on the needs of big and small businesses. Globe Business provides end-to-end mobile and fixed line solutions and is equipped with its own technical and customer relationship teams to serve the requirements of its client base. In early 2011, Globe organized an International Business Group to serve the voice and roaming needs of overseas Filipinos, whether transient or permanent. It is tasked to grow the Company‟s international revenues by leveraging on Globe‟s product portfolio and developing and capitalizing on regional and global opportunities.

Business Segments

Mobile Business Globe provides digital mobile communication services nationwide using a fully digital network based on the Global System for Mobile Communication (GSM) technology. It provides voice, data and value-added services to its mobile subscribers through three major brands: Globe Postpaid, Globe Prepaid and TM. Globe Postpaid includes all postpaid plans such as regular G-Plans and consumable G-Flex Plans, Load Allowance Plans, Load Tipid Plans and Platinum Plans (for the high-end market). In 2010, the Company introduced the MY SUPERPLAN and MY FULLY LOADED PLAN which allow subscribers to personalize their plans, choose and combine various unlimited call, text and web browsing service options. In addition, Globe has made available various add-on roaming and mobile browsing plans to cater to the needs of its subscribers. In 2011, Globe further improved postpaid offerings with the All New My Super Plan where subscribers are given the flexibility to create their own plans by either subscribing to an All-Unlimited Plan or an All-Consumable Plan. Subscribers also get to choose their freebies and add-ons which they can change on a monthly basis. A fully-customizable unlimited data plan (Unli Surf Combo Plan) was also made available to its subscribers in mid-2011 which provides uninterrupted unlimited mobile surfing without the need for a WIFI connection. The data plan comes with consumable amounts which the subscriber may use to either local and international calls and text messages. Taking the product customization to the next level, the company launched in the second quarter of 2013 the BEST-EVER MY SUPERPLAN with fully-customizable plan components, bigger plan value and more contract periods to choose from (6, 12, 18, and 30 months). Each plan has a corresponding “peso value” that can be converted to avail of a combination of call, text, or surf services, free or discounted gadgets, and a monthly consumable amount for more calls, texts and surf. Globe Prepaid and TM are the prepaid brands of Globe. Globe Prepaid is focused on the mainstream market while TM caters to the value-conscious segment of the market. Each brand is positioned at different market segments to address the needs of the subscribers by offering affordable innovative products and services. In February 2012, the Company introduced a self-service menu that provides Globe prepaid subscribers an easy access to avail of the latest promos and services of Globe by simply dialing *143#. In early 2013, this

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menu was further developed with Globe Prepaid’s GO SAKTO which allows the subscribers to build their own promos (call, text and surf promos) that is best suited for their needs and lifestyle. Globe also provides its subscribers with mobile payment and remittance services under the GCash brand. GCash transforms a mobile phone into a virtual wallet, enabling secure, fast, and convenient way to transfer money at a cost of a text message. This service enables our subscribers to perform international and domestic remittance transactions, pay fees, utility bills, income taxes, avail of micro-finance transactions, donate to charitable institutions, and buy Globe prepaid reloads. A wide network of local and international partnerships has been established over the years including government agencies, utility companies, cooperatives, insurance companies, remittance companies and commercial establishments, in order to make GCash an accepted mode of payment for various products and services. Globe Prepaid and TM subscribers can reload airtime value or credits using various reloading channels including prepaid call and text cards, bank channels such as ATMs, credit cards, and through internet banking. Subscribers can also top-up via AutoLoad Max retailers nationwide, all at affordable denominations and increments. A consumer-to-consumer top-up facility, Share-A-Load, is also available to enable subscribers to share prepaid load credits via SMS. Globe has a loyalty and rewards program called My Rewards, My Globe for Globe Prepaid subscribers, TM Astig Rewards for TM subscribers and Tattoo+ Rewards for Tattoo Broadband subscribers. Globe Postpaid subscribers can earn points based on their monthly billed amounts in excess of their Monthly Subscription Fee. Subscribers have the option to redeem rewards instantly, or accumulate points to avail of higher value rewards. Redeemed points in the form of telecom services is netted out against revenues whereas points redeemed in the form of non-telco services such as gift certificates and other products are reflected as marketing expense. At the end of each period, Globe estimates and records the amount of probable future liability for unredeemed points.

Mobile Voice

Globe‟s voice services include local, national and international long distance call services. It has one of the most extensive local calling options designed for multiple calling profiles. In addition to its standard, pay-per-use rates, subscribers can choose from bulk and unlimited voice offerings for all-day or off-peak use, and in several denominations to suit different budgets.

Globe keeps Filipinos connected wherever they may be in the world, made possible by its tie-up with over 600 roaming partners in more than 200 calling destinations worldwide. Globe also offers roaming coverage on-board selected shipping lines and airlines, via satellite. Through its Globe Kababayan program, Globe provides an extensive range of international call and text services to allow OFWs (Overseas Filipino Workers) to stay connected with their friends and families in the Philippines. This includes prepaid and reloadable call cards and electronic PINs available in popular OFW destinations worldwide.

Mobile Data and Value-Added Services Globe‟s data services include local and international SMS offerings, mobile browsing and content downloads. Globe also offers various bucket and unlimited SMS packages to cater to the different needs and lifestyles of its postpaid and prepaid subscribers. Additionally, Globe subscribers can send and receive Multimedia Messaging Service (MMS) pictures and video, or do local and international 3G video calling. Globe‟s mobile browsing services allow subscribers to access the internet using their internet-capable handsets, devices or laptops with USB modems. Data access can be made using various technologies including HSPA+, 3G with HSDPA, EDGE and GPRS. Browsing subscribers also have multiple charging

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options available with Globe‟s Flexible Mobile Internet Browsing rates which allow subscribers to choose between time or usage-based rates. They can also choose between hourly, daily or monthly browsing plans. The Company offers a full range of downloadable content covering multiple topics including news, information, and entertainment through its web portal. Subscribers can purchase or download music, movie pictures and wallpapers, games, mobile advertising, applications or watch clips of popular TV shows and documentaries as well as participate in interactive TV, do mobile chat, and play games, among others. Through Globe‟s partnership with major banks and remittance companies, and using Globe‟s pioneering GCash platform, subscribers can perform mobile banking and mobile commerce transactions. Globe subscribers can complete international and domestic remittance transactions, pay fees, utility bills and income taxes, avail of micro-finance transactions, donate to charitable institutions, and buy Globe prepaid load credits using its GCash-activated SIM.

Fixed Line and Broadband Business Globe offers a full range of fixed line communications services, wired and wireless broadband access, and end-to-end connectivity solutions customized for consumers, SMEs (Small & Medium Enterprises), large corporations and businesses. Fixed Line Voice

Globe‟s fixed line voice services include local, national and international long distance calling services in postpaid and prepaid packages through its Globelines brand. Subscribers get to enjoy toll-free rates for national long distance calls with other Globelines subscribers nationwide. Additionally, postpaid fixed line voice consumers enjoy free unlimited dial-up internet from their Globelines subscriptions. Low-MSF (monthly service fee) fixed line voice services bundled with internet plans are available nationwide and can be customized with value-added services including multi-calling, call waiting and forwarding, special numbers and voice mail. For corporate and enterprise customers, Globe offers voice solutions that include regular and premium conferencing, enhanced voice mail, IP-PBX solutions and domestic or international toll free services.

Fixed Line Data

Fixed line data services include end-to-end data solutions customized according to the needs of businesses. Globe‟s product offerings include international and domestic leased line services, wholesale and corporate internet access, data center services and other connectivity solutions tailored to the needs of specific industries. Globe‟s international data services provide corporate and enterprise customers with the most diverse international connectivity solutions. Globe‟s extensive data network allow customers to manage their own virtual private networks, subscribe to wholesale internet access via managed international private leased lines, run various applications, and access other networks with integrated voice services over high-speed, redundant and reliable connections. In addition to bandwidth access from multiple international submarine cable operators, Globe also has two international cable landing stations situated in different locales to ensure redundancy and network resiliency. The Company‟s domestic data services include data center solutions such as business continuity and data recovery services, 24x7 monitoring and management, dedicated server hosting, maintenance for application-hosting, managed space and carrier-class facilities for co-location requirements and dedicated hardware from leading partner vendors for off-site deployment. Other fixed line data services include premium-grade access solutions combining voice, broadband and video offerings designed to address specific connectivity requirements. These include Broadband

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Internet Zones (BIZ) for broadband-to-room internet access for hotels, and Internet Exchange (GiX) services for bandwidth-on-demand access packages based on average usage.

Broadband

Globe offers wired, fixed wireless, and fully mobile internet-on-the-go services across various technologies and connectivity speeds for its residential and business customers. Tattoo@Home consists of wired or DSL broadband packages bundled with voice, or broadband data-only services which are available at download speeds ranging from 1 mbps up to 15 mbps. In selected areas where DSL is not yet available, Globe offers Tattoo WiMAX, a fixed wireless broadband service using its WiMAX network. Meanwhile, for consumers who require a fully mobile, internet-on-the-go broadband connection, Tattoo On-the-Go allows subscribers to access the internet using HSPA+, 3G with HSDPA, EDGE, GPRS or Wi-Fi at various hotspots nationwide using a plug-and-play USB modem. This service is available in both postpaid and prepaid packages. In addition, consumers in selected urban areas who require faster connections have the option to subscribe to Tattoo Torque broadband plans using leading edge GPON (Gigabit Passive Optical Network) technology with speeds of up to 100 mbps. In September 2012, the Company officially launched its Long-Term Evolution (LTE) broadband service with the Tattoo Black Postpaid Plans. The nomadic broadband plans are equipped with an LTE dongle and LTE superstick that deliver browsing speeds of up to 42 Mbps and come with personalized customer handling services such as a dedicated hotline, a relationship manager, and many other perks. In 2013, Tattoo kicked off the year with lower price propositions for its 4G product suite. Tattoo 4G Flash was made available for only P995 with surfing speeds of up to 7.2 Mbps. Also, Tattoo At-Home now offers free unlimited calls to Globe/TM in addition to landline and internet service in every Tattoo@Home Broadband Bundle. During the second quarter, Tattoo Postpaid strengthens its lifestyle positioning with the unveiling of Tattoo-Enjoy Card which allows new Tattoo Postpaid subscribers access to perks and discounts to over 240 brand partners nationwide. Tattoo Prepaid Lifestyle sticks with surfing speed of up to 12 Mbps on the other hand was made available to consumers for only P1,295. Meanwhile, in order to address the increasing demand for mobile Wi-Fi and faster internet connectivity, Tattoo Prepaid re-launched its 4G SuperStick during the third period with a more affordable price of P1,995 from August 15 to December 31, 2013. Tattoo Postpaid also launched its new and improved postpaid personalized and consumable plans with increased surfing speed now up to 42 Mbps. LTE plans which start at P1,299 now comes with a FREE LTE dongle or pay a one-time fee of P2,000 for an upgrade to a mobile Wi-Fi device. Tattoo consumable plans have been further improved with more browsing hours for Plan 299 (from 30 hours to 50 hours) and for Plan 499 (from 50 hours to 85 hours) which can also be upgraded to a mobile Wi-Fi device for only P150 per month. Also during this period, Tattoo launched another revolutionary offer bannering the most affordable tablet bundles, wherein its subscribers can get FREE three devices with unlimited internet browsing and mobile text and call starting at Plan 1,298, consisting of a free Skyworth S73 tablet or a Cloudpad 705W, a Blackberry Curve 9220 and the country‟s fastest broadband Wi-Fi stick which can power up to 10 devices. Other Tattoo tablet bundles are likewise available with varying numbers of free browsing hours together with unlimited calls and texts on free mobile phone and connectivity through the free mobile Wi-Fi starting at Plan 598.

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ANNEX “C” – MANAGEMENT REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following is a discussion and analysis of Globe Group’s financial performance for the year ended 31 December 2013. The prime objective of this MD&A is to help the readers understand the dynamics of the Company’s business and the key factors underlying its financial results. Hence, Globe’s MD&A is comprised of a discussion of its core business, and analysis of the results of operations for each business segment. This section also focuses on key statistics from the unaudited consolidated financial statements and pertains to known risks and uncertainties relating to the telecommunications industry in the Philippines where we operate up to the stated reporting period. However, Globe’s MD&A should not be considered all inclusive, as it excludes unknown risks, uncertainties and changes that may occur in the general economic, political and environmental condition after the stated reporting period. The Globe Group has adopted an expanded corporate governance approach in managing its business risks. An Enterprise Risk Management Policy was developed to systematically view the risks and to manage these risks in the context of the normal business processes such as strategic planning, business planning, operational and support processes. The Company’s MD&A should be read in conjunction with its unaudited consolidated financial statements and the accompanying notes. All financial information is reported in Philippine Pesos (Php) unless otherwise stated. Any references in this MD&A to “we”, “us”, “our”, “Company” means the Globe Group and references to “Globe” mean Globe Telecom, Inc., not including its wholly-owned subsidiaries.

KEY PERFORMANCE INDICATORS

Globe is committed to efficiently managing the Company‟s resources and enhancing shareholder value. The Company regularly reviews its performance against its operating and financial plans and strategies, and use key performance indicators to monitor its progress. Some of its key performance indicators are set out below. Except for Net Income, these key performance indicators are not measurements in accordance with Philippine Financial Reporting Standards (PFRS) and should not be considered as an alternative to net income or any other measure of performance which are in accordance with PFRS. AVERAGE REVENUE PER UNIT (ARPU) ARPU measures the average monthly gross revenue generated for each subscriber. This is computed by dividing recurring gross service revenues (gross of interconnect charges) for a business segment for the period by the average number of the segment‟s subscribers and then dividing the quotient by the number of months in the period. SUBSCRIBER ACQUISITION COST (SAC) SAC is computed by totaling marketing costs (including commissions and handset/SIM subsidies

1) related to

the acquisition programs for the segment for the period divided by the gross incremental subscribers. AVERAGE MONTHLY CHURN The average monthly churn rate is computed by dividing total disconnections (net of reconnections) for the segment by the average number of the segment‟s subscribers, and then divided by the number of months in the period. This is a measure of the average number of customers who leave/switch/change to another type of service or to another service provider and is usually stated as a percentage.

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EBITDA EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) is calculated as service revenues less subsidy

1, operating expenses and other income and expenses

2. This measure provides useful

information regarding a company‟s ability to generate cash flows, incur and service debt, finance capital expenditures and working capital changes. As the Company‟s method of calculating EBITDA may differ from other companies, it may not be comparable to similarly titled measures presented by other companies. EBITDA MARGIN EBITDA margin is calculated as EBITDA divided by total service revenues. Total service revenue is equal to total net operating revenue less non-service revenue. This is useful in measuring the extent to which subsidies and operating expenses (excluding property and equipment-related gains and losses and financing costs), use up revenue.

EBIT and EBIT MARGIN EBIT is defined as earnings before interest, property and equipment-related gains and losses and income taxes. This measure is calculated by deducting depreciation and amortization from EBITDA. Globe Group‟s method of calculating EBIT may differ from other companies, hence, may not be comparable to similar measures presented by other companies. EBIT margin is calculated as EBIT divided by total service revenues. CORE NET INCOME Core net income is defined as net income after tax (NIAT) but excluding foreign exchange and mark-to-market gains (losses), and non-recurring items such as the Company‟s accelerated depreciation charges resulting from the network modernization and IT transformation program implemented in 2012. Starting with the 2012 payout, dividends will be computed against prior year‟s core net income instead of reported net income to ensure that dividends remain sustainable and yields competitive, despite the expected decline in near-term profits arising from accelerated depreciation charges related to the transformation efforts. Beginning third quarter of 2014, dividend distribution will be on a quarterly basis instead of semi-annual. The amended frequency in the payouts will provide the Company with better cash planning and liquidity management and at the same time ensure a more consistent dividend distribution to the shareholders. NET INCOME As presented in the unaudited condensed consolidated financial statements for applicable periods, net income provides an indication of how well the Company performed after all costs of the business have been factored in.

1 Computed as non-service revenues less cost of sales, mostly on sale of handsets/SIM packs, accessories & gadgets.

2 Operating expenses do not include any property and equipment-related gains and losses and financing costs.

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2013 FINANCIAL AND OPERATIONAL RESULTS

GROUP FINANCIAL HIGHLIGHTS

Globe Group

For the Year Ended

Results of Operations (Php Mn)

31-Dec 31-Dec YoY

2013 2012 Change

(%)

Net Operating Revenues ………………………………………...…. 95,141 86,446 10%

Service Revenues……………………………………………….….. 90,500 82,742 9%

Mobile …………………………………………………………..... 72,764 67,189 8%

Broadband……………………………………………………...…. 10,440 8,721 20%

Fixed line Data………………………………………………...….. 4,691 4,167 13%

Fixed line Voice ……………………………………………….… 2,605 2,665 -2%

Non-Service Revenues………………………………………….…. 4,641 3,704 25%

Costs and Expenses ………………………………………………... 58,627 51,432 14%

Cost of Sales………………………………………………………… 9,953 7,679 30%

Operating Expenses 1…………………………………………….. 48,674 43,753 11%

EBITDA ………………………………………………………………… 36,514 35,014 4%

EBITDA Margin……………………………………………………….. 40% 42%

Depreciation…………………………………………………………… 27,478 23,584 17%

Affected by network modernization……………………………….. 9,066 5,080 78%

Others………………………………………………………………… 18,412 18,504 -

EBIT ……………………………………………………………………. 9,036 11,430 -21%

EBIT Margin…………………………………………………………… 9% 13%

Non-Operating Charges 1……………………..…………………….. 2,172 1,678 29%

Net Income After Tax (NIAT) 1

…………………………………….. 4,960 6,845 -28%

Core Net Income 2

……………………………………………………. 11,617 10,264 13% 1 2012 operating expenses/ non-operating charges have been restated to reflect the adoption of amendments to PAS 19.

2Core net income is net income after tax (NIAT) but excluding foreign exchange and mark-to-market gains (losses), and non-

recurring items

Full year consolidated service revenues once again reached a historic-high, registering at P90.5 billion from P82.7 billion last year due to the continued positive growth of Globe‟s mobile, broadband, and fixed line data businesses. Mobile revenues were up by 8% from last year, still led by Globe Postpaid and the Company‟s mass market brand TM, which grew by 18% and 8%, respectively. The increase in mobile revenues was supported by the expansion in mobile subscriber base, which increased 16% year-on-year to 38.5 million from 33.1 million last year. Broadband and fixed line data revenues likewise posted a 20% and 13% growth as against last year's levels, respectively, as the cumulative customer base continued to grow year-on-year.

Total operating expenses and subsidy increased 13% year-on-year to P54.0 billion from P47.7 billion, driven by higher subscriber acquisition and re-contracting costs, following the sustained postpaid subscriber acquisition and retention efforts with the launch of the Best-Ever MySuperplan in 2013. Other drivers for the increase in operating expenses were higher trade provisions and staff-related costs, and services expenses, all of which were in support of the growing subscriber and network base.

Full year 2013 consolidated EBITDA stood at P36.5 billion, up by 4% or P1.5 billion against last year. Full year EBITDA margin stood at 40%. Overall revenue gains fully covered for the overall upsurge in expenses.

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Total depreciation expenses increased by 17% year-on-year driven by the accelerated depreciation charges related to the ongoing network modernization and IT transformation programs. Excluding the accelerated depreciation costs related to the network and IT upgrade, depreciation expenses would have remained flat year-on-year.

Non-operating charges grew by 29% or P494 million driven by foreign exchange and mark-to-market losses, which fully offset the gains posted last year coupled with higher swap costs. These were slightly mitigated by the higher interest income generated from the Bayantel loan receivables and lower interest expenses due to last year‟s one-time pre-termination costs on Globe‟s retail bonds.

The Company‟s full year consolidated net income after tax reached close to P5.0 billion, 28% or P1.9

billion lower compared to 2012 level, as the EBITDA growth and higher interest income were fully offset by higher foreign exchange and mark-to-market losses and increased accelerated depreciation costs related to the transformation projects. Excluding the non-recurring accelerated depreciation expenses and foreign exchange and mark-to-market gains and losses, core net income after tax reached P11.6 as of end 2013, which is 13% or P1.4 billion higher than end of 2012.

Total full year cash capital expenditures stood at about P29.0 billion, 44% above last year's level of P20.1 billion. Globe‟s ongoing network and IT transformation programs comprised 25% of total cash capital expenditures. Globe continues to embark on its network and IT modernization programs, building more sites to adapt to the changing landscape in the country‟s key business districts, boosting capacity and enhancing the overall network performance. As of end 2013, 90% of the network is already on 4G HSPA+ providing faster mobile browsing experience for Globe‟s subscribers. To support the requirements of its subscribers for 2G, 3G and4G services, Globe has a total of 20,656 base stations, including over 7,800 4G base stations.

On top of the transformation programs being undertaken, Globe continued to invest in traditional

services, particularly in building more sites and incorporating needed in-building solutions to address coverage blind spots brought about by the changing skyline in urban areas. These investments were meant to address requirements of Globe‟s core services (voice and SMS) as well as data. Data remained a key investment area for Globe in 2013, with approximately 26% of the total CAPEX for the year, given the growth in demand from subscribers across the different segments. These data-related investments include spends on LTE deployment and fixed broadband roll-out, both of which were considered out-of-scope in Globe‟s modernization programs. Furthermore, Globe spent close to P1.0 billion in investments in international cable systems in 2013, again aligned with the increasing need for data connectivity for Globe‟s mobile, broadband and enterprise segments.

For 2014 the Company expects the market to be more challenging and competition to remain intense but more rationale on the ground. Against this environment, the Company sees consolidated revenues to increase by mid to high single digit from 2013 level. Near-term earnings, meanwhile, will continue to be impacted by (1) non-recurring costs of approximately P1.0 billion related to the purposeful delay of Phase 2 migration of our IT transformation program, (2) trailing accelerated depreciation costs of approximately P1.5 billion for the balance of the assets to be replaced by the modernization, and (3) additional interest expenses from additional debt related to 2014 CAPEX. Moving forward, EBITDA margin is expected to hover at the high-30s to low-40s, given the continuous growth of our postpaid business and the necessary investments in subscribers needed to support this growth and the increasing contribution of lower-margin data-related products. In terms of the balance sheet, Globe‟s gearing ratios are expected to remain elevated in 2014, but are seen to remain well within loan covenants. The Company expects its balance sheet and financial position to remain strong, with dividend pay-outs sustained at competitive levels.

Regular cash dividends paid out in 2013 amounted to P8.9 billion, representing 87% of 2012 core net income. This was in line with the Company‟s dividend policy of distributing 75% to 90% of prior year‟s core net income. Total dividend payout of P67 per common share translates to a dividend yield of 6.2% based on beginning of 2013 share price. In August 2013, the Company amended its frequency of cash dividend distribution from semi-annual to quarterly beginning 2014. In December 2013,

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Globe announced that the affectivity of the said change in distribution of cash dividend will start on the third quarter of 2014. The amended frequency in the payouts will provide the Company with better cash planning and liquidity management and at the same time ensure a more consistent dividend distribution to the shareholders.

For 2014, Globe has earmarked about US$600 to US$650 million in capital expenditures with approximately one third for trailing CAPEX payments related to the transformation initiatives. Another one third of the CAPEX is expected to be incurred for the expansion and capacitation of Globe‟s data network, including continued investments in LTE and fixed broadband. The remaining CAPEX balance is to be invested for traditional services, to enhance Globe‟s network performance and to improve customer experience through additional sites and in-building solutions.

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GROUP OPERATING REVENUES BY SEGMENT

Operating Revenues By Businesses (Php Mn)

For the Year Ended

31-Dec 31-Dec YoY

2013 2012 Change

(%)

Mobile 76,336 69,963 9%

Service Revenues ………………………………………………….. 72,764 67,189 8%

Non-Service Revenues……………………………………………… 3,833 2,774 38%

Fixed Line and Broadband 18,805 16,483 14%

Service Revenues *………………………………………………….. 17,736 15,553 14%

Non-Service Revenues……………………………………………… 808 930 -13%

Total Operating Revenues…………………………………………... 95,141 86,446 10%

The Globe Group closed the year with total net operating revenues of P95.1 billion, 10% above prior year‟s P86.4 billion. Mobile revenues, which accounted for 80% of consolidated service revenues as of end-December, increased to P72.8 billion, up by 8% from last year‟s level of P67.2 billion. The mobile business continued its growth trend driven mainly by higher revenue contributions from mobile browsing and other value-added services and unlimited SMS. Likewise, growth was complemented by the strong subscriber growth due to the sustained acquisitions of the Postpaid brand during the first half of the year and Globe Prepaid’s and TM’s sharp growth in the fourth quarter. Globe‟s broadband businesses flourished in 2013, registering sharp growths on both revenues (+20%) and customer base (+ 22%) year-on-year. Globe ended the year with over 2 million broadband subscribers, with the fixed DSL and wireless broadband segments registering growths of 11% and 24%, respectively. The competitiveness and affordability of the various offers launched throughout the year and the expanded pervasiveness of our fixed and wireless broadband network contributed to the robust performance in the year just ended. Mobile non-service revenues, on the other hand, were up by 38% from previous year‟s level of P2.8 billion to about P3.8 billion in 2013 driven by sales on robust postpaid gross acquisition. Fixed line and broadband non-service revenues likewise dropped by 13% year-on-year.

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MOBILE BUSINESS

For the Year Ended

Mobile Service Revenues (Php Mn)

31-Dec 31-Dec YoY

2013 2012 Change

(%)

Service

Voice 1….…………………………………………………………... 32,367 32,446 -

SMS2 28,794 26,552 8%

Mobile Browsing and Other Data2 11,603 8,191 42%

Mobile Service Revenues *……………………………………….. 72,764 67,189 8%

* 2012 voice and data (sms, mobile browsing and other data) revenues have been restated for comparability.

1 Mobile voice service revenues include the following:

a) Prorated monthly service fees on consumable minutes of postpaid plans; b) Subscription fees on unlimited and bucket voice promotions including the expiration of the unused value of denomination

loaded; c) Charges for intra-network and outbound calls in excess of the consumable minutes for various Globe Postpaid plans,

including currency exchange rate adjustments (CERA) net of loyalty discounts credited to subscriber billings; and d) 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 load credit denomination (for Globe Prepaid and TM SIMs) which occurs between 3 and 120 days after activation depending on the prepaid value reloaded by the subscriber, net of (i) bonus credits and (ii) prepaid load credit discounts; and revenues generated from inbound international and national long distance calls and international roaming calls.

Revenues from (a) to (d) are reduced by any payouts to content providers.

2 Mobile data service revenues consist of prorated monthly service fees on free text allocation of postpaid plans, revenues from value-added services such as inbound and outbound SMS and MMS, content downloading, mobile data browsing and infotext, international VAS and related services, subscription fees on unlimited and bucket prepaid SMS and add-on VAS services, net of any payouts to content providers.

Mobile Voice Mobile voice revenues, which accounted for 44% of total mobile service revenues, was relatively unchanged as of end of 2013, as the drop in international long distance, voice-over-internet protocol (VOIP), regular domestic voice and roaming services was partly offset by the increase in unlimited and bulk domestic voice subscriptions. Against the third quarter however, mobile voice registered a 4% increase due to seasonality. Globe remains the only operator in the country that offers per-second voice charging with Globe‟s Super Sakto Calls and TM‟s Sulit Segundo which allow subscribers to make a local call for only P0.15 per second. The Company continues to provide attractive and affordable bulk voice offers such as Tawag 236 for 20-minute consumable calls for only P20 for Globe Postpaid and Globe Prepaid subscribers and TM’s TodoTawag 15/15 service for 15-minute on-net call for only P15. TM subscribers may also subscribe to SuliTawag for only P5 for 3-minute Globe and TM network calls and TM Dagdag Call worth P5 which is an add-on service to subscribers registered to TM‟s text promotions that provides 3-minute on-net calls. Likewise, GoCall100 was made available via GoSakto which provide Globe Prepaid subscribers 500 minutes of on-net calls to Globe/TM for only P100 for 7 days. Meanwhile, for Filipinos who wish to stay connected with their loved ones abroad, Globe continues to offer its pioneering per-second charging for international voice calls, IDD Sakto Calls for both Globe Postpaid and Globe Prepaid subscribers. Globe Prepaid’s GoTipIDD service remains to be the lowest per-minute IDD rates in the market. In addition, Globe also provides a bucket IDD service to popular and selected overseas destinations with its IDD Tingi promotion, while offering its TipIDD card at various Globe distribution channels. The Company‟s international voice services also include Super IDD, an

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unlimited call service for 24 hours to select destinations worldwide, and Globe Duo International, which provides registered Globe Postpaid and Globe Prepaid subscribers with virtual US landline numbers which they can use to communicate with their loved ones in the USA. Families and friends in the USA in turn may call their loved ones back in the Philippines and be charged at domestic US rates. This service was further expanded to cover Korea, Canada and UK with the launch of Globe DUO Korea, Globe DUO Canada and Globe DUO UK where it assigns a Korean, Canadian or UK number to a Globe/TM mobile number in the Philippines which subscribers may use to call friends and loved ones in Korea, Canada and UK directly while enjoying local (Korea/Canada/UK) domestic calling rates. In the same manner, incoming calls from Korea, Canada and UK to Duo numbers registered in the Philippines are also charged at local Korean, Canadian and UK rates. Globe Duo Korea, Globe Duo Canada and Globe Duo UK are available to Globe Postpaid, Globe Prepaid, and TM subscribers. The Company also provides its subscribers with the best possible mix of voice, SMS, and mobile browsing services through its combo packages. For Globe Prepaid, subscribers have the choice to avail of All-Unli Trio60, SuperUnliAllTxt 25, SuperAll Txt 20, Super Combo 20 and All Net Combo. Another option that Globe Prepaid subscribers may choose to avail of is GoUnli, which provides unlimited SMS to all networks as well as unlimited on-net calls, and unlimited use of Facebook. The Company likewise offers Immortal Trio to Globe Prepaid subscribers to allow 50 on-net SMS, 5 all-network texts and 5 minutes of on-net calls for only P25 per subscription. Globe Prepaid subscribers also have the option to subscribe to UnliTingi to get unlimited all-network texts, unlimited on-net calls, and unlimited mobile browsing valid for 1 hour for only P5. SuperUnli, which allows unlimited calls and SMS within the Globe and TM networks, is also available for one day subscription for Globe Prepaid subscribers for only P25. Another industry-shaking innovation from Globe Prepaid is the launch of GoSakto early this year which empowers the subscribers and gives them the flexibility to tailor-fit their prepaid promo based on their calling, texting and surfing needs for the day, week or month. On top of this, subscribers can even name the offer they created and share it among their friends on Facebook to allow their friends to register to the same promo. Additionally, Globe, in partnership with Viber, launched several value-for-money service offerings in order to give its Globe Prepaid subscribers a richer mobile experience. GoUnli25, which offers the all-time favorite unlimited on-net voice and texts was made even better with FREE unlimited Viber Chat offered at the same price of P25. Likewise, Globe Prepaid’s GoUnli30 which allows unlimited all-network SMS, unlimited on-net call and unlimited Facebook valid for a day was further improved during the third quarter of 2013 to include the best Chat Apps for the same price of P30. Globe Prepaid subscribers can call their friends abroad using Viber, enjoy real-time IM conversations via FB Messenger, send cute, animated stickers using Kakao, and even leave personalized walkie-talkie voice messages using WeChat! Other chat apps like Whatsapp, Line and GMessage can also be used for free with NO WIFI needed. For TM on the other hand, subscribers can choose from a wide array of unlimited and bucket offers which will best fit their budget and lifestyle. Among the Unlimited Promo, TM subscribers can avail of UnliCombo for as low as P15 for 1 day if they want to get unlimited on-net calls from 11PM to 6AM the following day and unlimited on-net SMS for 24 hours. Alternatively, they can subscribe to UnliCombo20 if they want to get unlimited on-net calls from 10 PM to 5 PM the following day and unlimited on-net SMS for 24 hours. Subscribers may also opt to choose a 2-day unlimited on-net SMS with Astigtxt15. Bucket text and call services are likewise available for as low as P10 for an unlimited on-net SMS and bulk on-net voice calls with AstigCombo10. Astigcombo15 is also available which gives unlimited on-net texts and 30 minutes on-net calls for P15 a day. TM subscribers may avail of Combo15 to get unlimited on-net SMS, 50 all-network text service, and 10 consumable minutes within the TM and Globe networks for 2 days as well as Combo20 which offer unlimited on-net texts to Globe/TM plus 50 All-net texts and 20

minutes calls to Globe/TM for only P20. On top of this, TM subscribers can now extend for another 24

hours their favorite TM promo for only P5.

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Mobile SMS Mobile SMS which accounted for 40% of total mobile service revenues, closed the year at P28.8 billion, higher by 8% from P26.6 billion of end 2012, driven by increases from unlimited SMS subscriptions mitigating the decline in regular, bucket SMS and international SMS. On a sequential basis, mobile SMS revenues increased by 4%, due to normal seasonal uplifts in the fourth quarter of the year. Globe showcases a comprehensive line up of mobile SMS services ranging from unlimited and bucket text services to combo voice, SMS and surf promotions. Globe continues to provide its prepaid subscribers with all-day unlimited on-net SMS with UnliTxt and AstigTxt, respectively. Globe Postpaid and Globe Prepaid subscribers may get 30 days of unlimited on-net text service by subscribing to SuperTxt. TM subscribers can likewise subscribe to other variants of the AstigTxt offering for unlimited on-net SMS valid for 2 days, 3 days, or 5 days. For on-net bucket SMS offers, Globe continues to provide SuliTxt which allows 100 and 25 text messages for a single day subscription. The Company also offers all-network text services such as My SuperTxt All, an unlimited text service for 30 days available for postpaid subscribers and UnliTxtAll20 for a 1-day unlimited SMS to all networks for TM subscribers. All network bucket text services are likewise available with Globe Prepaid’s SuperAllTxt for 250 SMS and TM‟s AstigTxtAll for 150 SMS, both valid for a day. Meanwhile, in response to the market‟s clamor for prepaid offers with longer validity periods, Globe Prepaid likewise introduced via GoSakto GoUnlitxt49 which offer its subscribers unlimited on-net texts to Globe/TM for only P49. TM subscribers may avail of Combo10 and Combo15 to get unlimited on-net SMS, 50 all-network text, and 10 consumable minutes to TM and Globe subscribers.

Mobile Browsing and Other Data Mobile browsing & other data revenues which accounted for 16% of total mobile service revenues increased to P11.6 billion as of end 2013, up 42% from P8.2 billion of 2012, driven by the continuous demand for data services and the popularity of data-driven products and applications, the increased pervasiveness of Globe‟s 3G, HSPA+ and LTE networks and the proliferation of data-enabled smartphones. On a sequential basis, mobile browsing & other data revenues declined by 5%, due to the launch of Globe‟s Free Facebook campaign in the fourth quarter of the year. The promotion was part of Globe‟s mobile data strategy to provide seamless customer experience and seed the habit of using mobile internet over Globe‟s expanded 3G, HSPA+ and LTE networks. Despite the near-term impact to revenues, Globe‟s registered mobile data service users almost doubled during the three-month period, a significant index in seeding the habit of internet access through smartphones over the wireless networks. Globe‟s mobile browsing services includes unlimited chatting, downloading, emailing, and surfing offers to its Globe Postpaid and Globe Prepaid subscribers with its add-on data plan SuperSurf for as low as P50 for 1 day. The Company also offers consumable mobile browsing for as low as P15 for 1 hour with Prepaid Power Surf for its Globe Prepaid and TM subscribers. Prepaid and Postpaid subscribers can avail of different Power Surf variants: 50MB for only P99, 300 MB for only P299 and 1GB for only P499. All Power Surf plans are automatically bundled with the Globe No Bill Shock Guarantee, so subscribes who exceed their monthly MB allocations will never pay more than P999. For unlimited access to Facebook, Super Facebook and TM Astig Facebook are available for only P10 a day for its Globe Prepaid and TM subscribers. Meanwhile, Globe and TM Prepaid subscribers who want a full Viber experience with unlimited high-definition voice calls and unlimited chat can avail of Viber20 for P20 a day and those who want unlimited Viber chat only can either avail of Viber10, a one day variant for only P10 or Viber30 for five days unlimited Viber chat for P30. Prepaid subscribers who just want unlimited access to messaging applications (Viber, Whatsapp, Line, FB Messenger, Kakao etc.) may opt to register to Unlichat25 for only P25. For BlackBerry® users, the Company continues to offer Super Surf for BlackBerry® Max for all-in unlimited BlackBerry® services for as low as P50 a day. Globe also provides unlimited use of push email applications such as Yahoo! Mail, GMAIL, MSN and any POP3 or IPOP email account with its add-on data service BlackBerry® Messaging. The Company also provides unlimited access to social networking applications with its BlackBerry® Social offering of P299 valid for 30 days. For unlimited use of

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BlackBerry® Messenger and free on-net SMS, Globe Postpaid and Globe Prepaid subscribers may register to BlackBerry® Chat. The key drivers for the mobile business are set out in the table below:

For the Year Ended

31-Dec 31-Dec YoY

2013 2012 Change

(%)

Cumulative Subscribers (or SIMs) Net (End of period)……….. 38,475,130 33,119,035 16%

Globe Postpaid 1………………………………………………………. 2,025,538 1,734,468 17%

Prepaid .………………………………………………………………... 36,449,592 31,384,567 16%

Globe Prepaid ……………………………………………………… 17,836,441 16,440,142 8%

TM …………………………………………………………………… 18,613,151 14,944,425 25%

Net Subscriber (or SIM) Additions………………………………... 5,356,095 3,078,635 74%

Globe Postpaid . ………………………………………………………. 291,070 279,762 4%

Prepaid .………………………………………………………………... 5,065,025 2,798,873 81%

Globe Prepaid ……………………………………………………… 1,396,299 977,710 43%

TM …………………………………………………………………… 3,668,726 1,821,163 101%

Average Revenue Per Subscriber (ARPU)

ARPU 2

Globe Postpaid ……………………………………………………… 1,199 1,191 1%

Prepaid

Globe Prepaid……………………………………………………….. 141 150 -6%

TM…………………………………………………………………….. 85 92 -8%

Subscriber Acquisition Cost (SAC)

Globe Postpaid……………………………………………………….... 7,473 8,432 -11%

Prepaid

Globe Prepaid……………………………………………………….. 40 20 100%

TM…………………………………………………………………….. 27 16 69%

Average Monthly Churn Rate (%)

Globe Postpaid………………………………………………………… 1.9% 1.8%

Prepaid

Globe Prepaid……………………………………………………….. 5.7% 5.6%

TM…………………………………………………………………….. 6.6% 6.2% 1

As of 4Q 2013, Globe had a total of 2.42 million wireless postpaid subscribers which include 2.03 million mobile telephony and 0.39 million wireless broadband customers. This is higher compared to the 2.36 million wireless postpaid subscribers as of 3Q 2013. Mobile telephony revenues are reflected under “Mobile Service Revenues” while wireless broadband revenues are included under “Broadband.”

2 ARPU is computed by dividing recurring gross service revenues (gross of interconnect expenses) segment by the average number of the segment’s subscribers and then dividing the quotient by the number of months in the period.

Globe closed the year with a total mobile subscriber base of 38.5 million, up 16% from 33.1 million subscribers last year. Fourth quarter‟s gross subscriber acquisitions registered a quarterly-high of 8.8 million subscribers, 19% higher than last quarter, steered by the record acquisitions of the Company‟s prepaid (Globe Prepaid) and mass market brands (TM). Combined, Globe Prepaid and TM gross acquisitions comprised 98% of acquired SIMs during the period. The slowdown in postpaid acquisitions

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in the fourth quarter was fully offset by the increase in gross additions of our prepaid segments, boosted in part by the market relevant promotions we launched during the quarter, including the Free Facebook campaign. Despite the elevated churn rate as of end December of 2013 of 5.95% from 5.69% of 2012, full year net incremental subscribers leapt to 5,356,095, 74% higher than 2012 level of 3,078,635 net additions. The succeeding sections cover the key segments and brands of the mobile business – Globe Postpaid, Globe Prepaid and TM. Globe Postpaid Globe Postpaid maintained its leadership on this segment of the market with the continued growth in acquisitions throughout the year closing 2013 with over 2.0 million subscribers from 1.7 million last year. The continued success of the fully customizable BEST-EVER MY SUPERPLAN bundled with the latest devices from Apple

™, Samsung, and BlackBerry

® helped boost gross additions to reach 711,190 as of full

year 2013, 21% higher than 589,642 a year ago. Also, the Company‟s postpaid plans continued to attract subscriptions from the industry‟s high-end prepaid subscribers who switch to postpaid, as well as unique and new subscribers. Full year net incremental postpaid subscribers stood at 291,070, 4% above 2012 level of 279,762. Globe continued to lead in the Postpaid segment with the Apple

TM launches during the last quarter of

2013 starting with the iPhone 5c and iPhone 5s and the eventual release of the new iPad Air and iPad mini with Retina display. This year‟s iPhone launch (iPhone 5c and iPhone 5s) however, was scaled down and used to promote aid and relief efforts in light of the recent calamity “Haiyan” that affected millions of Filipinos in the Visayas region. Subscribers who attended the event were encouraged to bring in-kind donations as well as donate via Globe‟s GCash facility. The iPhone 5c and iPhone 5s were made available under the Company‟s suite of first-ever fully customizable postpaid plans (Best-Ever mySUPERPLAN) and the exclusive gadget upgrade program (iPhone Forever program). Under the iPhone Forever program, new and existing Globe subscribers who are loyal iPhone users can swap their current devices to get a new iPhone every year for free or with minimal one-time cash out. The iPhone 5c 16GB can be availed starting at iPhone Forever Plan 1599, while the iPhone 5s 16GB is available at iPhone Forever Plan 1999, both for a contract of 24 months and are bundled with 1 gigabyte (GB) of mobile LTE surfing and free calls and texts. Higher value postpaid plans are also available: iPhone Forever Plan 2999, iPhone Forever Plan 5599 and iPhone Forever Plan 6999. The iPad Air and iPad mini with Retina display, on the other hand, can now be availed with the following postpaid plans for 24 months contract period and complete with 85 hours of LTE surfing: iPad Air 16GB is available for as low as P1,624 monthly at Plan 499 with P1,125 monthly cashout while the 32GB variant is available for as low as P1,790 monthly at Plan 499 with P1,291 monthly cashout. Meanwhile, the iPad mini with Retina display 16GB is offered at P1,499 monthly at Plan 499 with P1,000 monthly cashout while the 32GB variant is available at P1,665 monthly at Plan 499 with P1,165 monthly cashout. Globe Postpaid ARPU of P1,199 was 1% higher than last year‟s P1,191 as a result of a higher mix of higher-MSF plans. Globe Postpaid subscriber acquisition cost (SAC) declined year-on-year by 11% from last year‟s P8,432 to P7,473 as of end 2013, driven in part by the healthy mix of smartphones and gadgets with lower subsidy levels. Globe Postpaid SAC remained recoverable within the 24-month contract period. Prepaid Globe‟s prepaid segment, which includes the Globe Prepaid and TM brands, accounts for 95% of its total mobile subscriber base. As of the end of 2013, cumulative prepaid subscribers stood at about 36.5 million, 16% better than last year‟s level of 31.4 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 SMS value. If the subscriber does not reload prepaid credits within the first expiry period, the subscriber retains the use of the mobile number but is only entitled to receive incoming voice calls and text messages for another 120 days (second expiry). The

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second expiry is 120 days from the date of the first 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 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. In 2009, the National Telecommunications Commission (NTC) published Memorandum Circular 03-07-2009 which promulgates the extension of the validity periods of prepaid reloads effective July 19, 2009. Under the new pronouncement, the first expiry periods now range from 3 days for P10 or below to 120 days for reloads amounting to P300 and above. The second expiry remains at 120 days from the date of the new first expiry periods. The succeeding sections discuss the performance of the Globe Prepaid and TM brands in more detail. a. Globe Prepaid Globe Prepaid gross acquisitions substantially improved by 20% or 631,156 new SIMs in the fourth quarter versus the third quarter, bringing the full year gross additions in 2013 to 13.2 million or 12% higher than 2012 level of 11.8 million. This is mainly attributed to continued popularity of unlimited and bucket offers bundled with the best chat apps that have gained traction this year, as well as the successful Free Facebook campaign launched in November 2013. Full year 2013 net incremental subscribers also improved by 43% to 1,396,299 from 977,710 in 2012 despite the elevated churn rates as of end 2013 of 5.75% from 5.63% in 2012. Globe Prepaid continued to offer the best and affordable services to its subscribers. In 2013, the self-service menu (*143#) was further improved with the launch of “GO SAKTO” which allows the subscribers to build their own promos (call, text and surf promos) the will fit their budget and lifestyle. Moreover, in order to be more competitive in the market, Globe Prepaid introduced the following during the year: GoUnli25 which offers the all-time favorite unlimited on-net voice and texts with FREE unlimited Viber Chat; GoUnli30 which offers unlimited all-network SMS, unlimited on-net call and unlimited Facebook with the best Chat Apps (FB Messenger, Viber, Kakao, WeChat!, Whatsapp, Line and GMessage) valid for a day and the recent launch the “Choose Your Number SIM” with FREE unlimited calls to Globe/TM and unlimited text to all networks plus Facebook. Globe Prepaid ARPU declined by 6% year-on-year resulting from the revenue dilution from unlimited and bucket service offerings. Globe Prepaid SAC were significantly higher than last year due to higher ads and promo and commissions. Against last quarter, Globe Prepaid SAC declined by 61%. TM SAC, however, was up 69% year-on-year and 30% quarter-on-quarter due to higher subsidy and increased ads and promo.

b. TM TM on the other hand, generated the highest gross acquisitions particularly during the fourth quarter, achieving a record high of 4.8 million new SIMs or 20% better than previous quarter level of 4,005,807. The free Facebook promo boosted the fourth quarter acquisition and TM‟s ramp-up in project executions in order to stay in step with the competition‟s acquisition efforts. This brings the full year total gross additions to nearly 17 million, up 38% from 12.3 million in 2012. Even with the slightly elevated churn rates as of end December 2013, full year net incremental subscribers improved by 101% from about 1.8 million in 2012 to 3.7 million. TM’s sustained growth momentum was boosted by the different product launches throughout the year that included value-for-money offerings such as AstigCombo10, AstigCombo15, Combo15, Combo20, TM “Extend” as well as TM Astig Facebook. Mobile browsing offers was likewise expanded during the year to include Viber with the launch of Viber products such as Viber20 for unlimited high-definition voice calls and unlimited chat for P20, Viber10 for those who want unlimited Viber chat only and Viber30 for a five (5) day variant of unlimited Viber chat. Also during the last quarter of 2013, TM launched promotions in order to improve its international offers: TipIDD30 which offer four (4) minutes of international calls to Saudi,

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UAE, Kuwait, Bahrain, Italy, UK, Australia and Japan for only P30 a day and AstigItxt20 which gives its subscribers 30 international and all-network texts for only P20 valid for 1 day. TM ARPU was down by 8% year-on-year with the continued shift from regular pay-as-you-use service to unlimited and value offers. TM SAC, however, was up 69% year-on-year and 30% quarter-on-quarter due to higher subsidy and increased ads and promo.

GCash GCash continues to establish its presence in the mobile commerce industry. 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:

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

airline tickets In addition to the above transactions, GCash is also used as a wholesale payment facility. In 2011, Globe increased the number of establishments that offer GCash as an alternative and efficient payment mode. Quick Delivery tapped GCash to be its newest payment mode to make it easier, safer and more convenient to order food from Metro Manila‟s top restaurants, specialty stores, and even wine merchants. The largest local chain of movie theaters, SM Cinema, was able to launch the first mobile ticketing service in the country through GCash, allowing moviegoers to purchase tickets online, pay via GCash, and redeem movie tickets at the cinemas using their mobile phones. In October 2010, Globe launched the GCash Card, the country‟s first customizable ATM card linked to a mobile wallet. This gives subscribers 24/7 access to GCash and allows them to withdraw funds via any of the 9,000 Bancnet, Megalink, ExpressNet or Encash Automated Teller Machines (ATMs) nationwide. In addition, the GCash Card is the only customizable ATM Card in the country where subscribers can make their own personalized ATM card design or choose from a variety of design templates. In 2011, GCash further strengthened its presence in the mobile money transfer business by establishing partnerships with various institutions. Globe partnered with Ericsson to integrate GCash into the new Ericsson Money Services making GCash one of the first partners for this innovative end-to-end mobile money solution. The Company also inked a partnership with US-based IDT Corporation which will enable GXI to strengthen its GCash Remit‟s international remittance service by facilitating connectivity between traditional money transfer operators and GCash utilizing IDT‟s economical corridor routing, transaction settlement and foreign currency exchange services. Globe, through GXI, also partnered with Japan‟s SOFTBANK Corp. through its subsidiary SBPS for an affordable, convenient, and secure remittance service that will allow Filipinos living and working in Japan to remit money to the Philippines via the GCash platform. The Company likewise set up a partnership with Xpress Money, a leading global instant money transfer brand, to further extend the latter‟s strong payout network in the Philippines. With this tie-up, beneficiaries of Xpress Money Cash Pick Up remittances can now claim their money from the network of GCash Remit outlets nationwide.

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In 2012, Globe launched GCash PowerPay+ to provide an additional channel to facilitate mobile transactions. GCash PowerPay+ is a funds disbursement service linked to a Globe or TM SIM and comes with an optional insurance coverage. With GCash PowerPay+,users enjoy mobile money services like sending money, buying Globe or TM airtime load with a 10% rebate, and paying bills at the speed of a text message without the need to cash-in to one‟s GCash account. It also allows 24/7 withdrawal from any of the 9,000 Automated Teller Machines (ATMs) nationwide, cashless shopping through Megalink, BancNet and ExpressNet point of sale and financial assistance for accidental death and burial assistance, life cover, residential fire, and ATM theft. Globe has also launched GCash Remit Service to provide mobile subscribers a quick, affordable and convenient way to send and receive domestic and international remittances. With the approval of the Bangko Sentral ng Pilipinas (BSP) to use its sub-distributors as cash-in and cash-out outlets, GCash now has the largest remittance network in the country withmore than 9,000 active GCash outlets nationwide. Meanwhile, for electronic banking services, GCash secured a partnership with Philippine Savings Bank (PSBank), the thrift banking arm of the Metrobank Group, to enhance its electronic banking channels. Through GCash, PSBank accountholders can do various financial transactions such as payments, account inquiries and reloading from their PSBank account to their enrolled GCash wallet and vice-versa. In the same manner, Globe partnered with UnionBank of the Philippines (UnionBank) for its eMoneyXchange service that will allow customers to link their UnionBank accounts to their GCash mobile wallets enabling UnionBank clients with EON, E-Wallet, ePayCard and UnionBank regular savings and checking accounts to transfer funds to and from their GCash wallets through their UnionBank account via SMS. To further complement its mobile wallet functions, Globe recently partnered with American Express® to launch the GCash American Express® Virtual Card. The prepaid virtual card is linked to a subscriber‟s GCash mobile wallet and allows users to shop conveniently online from both local and international sites. Further, it gives the user a personalized US Address to allow delivery of purchases from international online sites which may not be directly shipping goods to the Philippines. To reach out to a wider audience and complement the increased smartphone penetration, Globe launched a GCash mobile application for BlackBerry® devices in 2011. The mobile application can be downloaded for free via the BlackBerry® App World. Beginning third quarter of 2012, however, the Company has made the GCash mobile wallet available and accessible to a wider subscriber base who may download the application for free from the App Store and Google Play. The efficiency of GCash’s mobile cash transfer system was recognized by various government agencies and socially-oriented organizations such as DSWD (Department of Social Welfare and Development), Simbahang Lingkod ng Bayan (SLB), and the United Nations World Food Programme (WFP). In 2011, GCash Remit was tapped by DSWD and Land Bank of the Philippines for the distribution of the government‟s Conditional Cash Transfers (CCT). A total of about P4.5 billion worth of CCT were distributed to beneficiary families in over 9,000 barangays nationwide via its domestic cash pick-up service. The GCash platform was also utilized by SLB, a church-based, Jesuit-led organization, as a donation channel for its relief operations for typhoon victims. The WFP meanwhile named GCash as a benchmark for their operations worldwide. WFP is the world‟s largest humanitarian agency fighting hunger worldwide. WFP is currently involved in the disaster relief operations for typhoon Sendong victims in Mindanao. To improve its efficiency in delivering assistance, WFP has tapped Globe through its GCash mobile technology platform for the fast, secure and low-cost delivery of financial assistance to families who were severely affected by calamities. The partnership flourished with Globe providing the necessary platform to facilitate the Cash-for-Work program and other relief and recovery operations by the WFP. Through GCash, WFP discovered a new and efficient way of providing financial assistance to help families restore and rebuild their lives. On June 19, 2013, Globe achieved another milestone with its partnership with Home Development Mutual Fund (HDMF) or the PAG-IBIG Fund to allow their over 12.6 million members to transact with Pag-ibig via GCash, making it easy and more convenient for them to facilitate their Pag-Ibig transactions. Pag-Ibig members can now easily pay their monthly mandatory savings and housing loans anytime,

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anywhere using their GCash wallets linked to their Globe or TM phones, eliminating the need to go to a Pag-Ibig office or an accredited payment center. Also, GCash can now be used to purchase load even for other mobile networks via *143#. In addition, CitiExpress and Unilink, as new GCash express partners, started offering GCash express cards to their customers. Moreover, GCash, is set to expand its network service in the country by growing its user base with the recent partnership with TORCHe Global Marketing, Inc. (TGMI), a marketing consultancy firm focused on helping companies reach out to the widest possible consumer base through the latest technologies in mobile commerce and advertising. GCash services that will be made available for use of TGMI affiliates include PowerPay+ Card, Buy Load service and Gcash outlets. During the last quarter of 2013, several initiatives on GCash were launched in order to expand its portfolio of services including real property tax payments via GCash available in Quezon City and Valenzuela; buy through blink coupon codes for subscribers to experience unlimited Movie and TV show streaming; or convert Gcash to rewards points. In addition, subscribers can now also apply for BanKO loan via GCash with low interest rate, fast approval and hassle-free loan payments. Loan credit and collection will be through their GCashPowerPay+ wallet. BPI Globe BanKo On October 9, 2009, the Company announced that the BSP has approved the sale and transfer by Bank of the Philippine Islands (BPI) of its shares of stock in Pilipinas Savings Bank, Inc. (PSBI) that will result in the ownership of PSBI as follows: 40% each for BPI and Globe Telecom and 20% for Ayala Corporation (AC). On October 23, 2009 the official name of PSBI was changed to BPI Globe BanKo, Inc. after getting the approval of both the BSP and the Securities and Exchange Commission (SEC). BPI Globe BanKo, Inc. is the country‟s first mobile microfinance bank. BPI Globe BanKo, Inc. opened its first branch last February 2010, and added 5 provincial branches located in Dipolog, Dumaguete, Lucena, Naga and Tacloban. While the bank‟s initial focus is on wholesale lending to other microfinance institutions, it is now expanding into retail banking products and services to include micro-savings, micro-lending, and insurance. In 2011, BPI Globe BanKO, Inc. launched an innovative product that does not only generate healthy financial returns, but also gives depositors an opportunity to help those in the low-income segment by helping create a solid base for their savings and investments. Called the BanKO Social Initiative (BSI) Deposit, the product is a passbook-based, regular savings account which pays 4.5% interest per annum on a quarterly basis. The minimum deposit requirement is P100,000 with a hold-out period of at least 6 months. The BSI Deposit account, which does not charge depositors with documentary stamp taxes, is also insured with the PDIC for amounts up to P500,000 per depositor. In 2013, BPI-Globe Banko, the first mobile-based, microfinance-focused savings bank in the Philippines, have joined hands with US Agency for International Development, in helping rural communities gain access to formal financial services (i.e. cash in and cash out transactions, bills payment, airtime loading, money remittance, and micro-insurance purchase) using their mobile phones. This partnership was announced during the launch of the mobile money financial service for the llijan Multi-Purpose Cooperative.

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FIXED LINE AND BROADBAND BUSINESS

For the Year Ended

Service Revenues (Php Mn) 31-Dec 31-Dec YoY

2013 2012 Change

(%)

Service

Broadband 1..……………………………………………………… 10,440 8,721 20%

Fixed line Data 2…………………………………………………… 4,691 4,167 13%

Fixed line Voice 3 ….……………………………………………… 2,605 2,665 -2%

Fixed Line and Broadband Service Revenues……................. 17,736 15,553 14%

1 Broadband service revenues consist of the following:

a) Monthly service fees of wired, fixed wireless, and fully mobile broadband data only and bundled voice and

data subscriptions; b) Browsing revenues from all postpaid and prepaid wired, fixed mobile and fully mobile broadband packages

in excess of allocated free browsing minutes and expiration of unused value of prepaid load credits; c) Value-added services such as games; and d) Installation charges and other one-time fees associated with the service.

2

Fixed line data service revenues consist of the following:

a) Monthly service fees from international and domestic leased lines; b) Other wholesale transport services; c) Revenues from value-added services; and d) One-time connection charges associated with the establishment of service.

3

Fixed line voice service revenues consist of the following:

a) Monthly service fees including CERA of voice-only subscriptions; b) Revenues from local, international and national long distance calls made by postpaid, prepaid fixed line

voice subscribers, and payphone customers, as well as broadband customers who have subscribed to data packages bundled with a voice service. Revenues are net of prepaid and payphone call card discounts;

c) Revenues from inbound local, international and national long distance calls from other carriers terminating on Globe‟s network;

d) Revenues from additional landline features such as caller ID, call waiting, call forwarding, multi-calling, voice mail, duplex and hotline numbers and other value-added features;

e) Installation charges and other one-time fees associated with the establishment of the service; and f) Revenues from DUO and SUPERDUO (Fixed line portion) service consisting of monthly service fees for

postpaid and subscription fees for prepaid.

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Broadband

For the Year Ended

31-Dec 31-Dec YoY

2013 2012 Change

(%)

Cumulative Broadband Subscribers

Wireless 1

………………………………………………………….... 1,653,647 1,331,413 24%

Wired…………………………………………………………………. 378,255 340,560 11%

Total (end of period)………………………………………………… 2,031,902 1,671,973 22% 1 Includes fixed wireless and fully mobile broadband subscribers.

Globe Tattoo Broadband ended 2013 with P10.4 billion, up 20% compared to 2012 as a result of the strong growth in its customer base, reaching over two million subscribers as of end-December 2013. The outstanding revenue performance of the broadband business resulted from the continued aggressive acquisitions campaigns, attractive pricing offers and product bundles. Expansion in both revenues and subscribers was brought about by the Company‟s continued efforts to provide differentiated and value priced broadband products. During the early part of 2013, Tattoo introduced a lower price proposition for its 4G product suite (Tattoo 4G Flash for only P995; Tattoo Prepaid Lifestyle sticks at P1,295). Meanwhile, Tattoo At-Home offered free unlimited calls to Globe/TM in addition to landline and internet service in every Tattoo @ Home Broadband Bundle. Tattoo Prepaid & Tattoo Postpaid launched several attractive promotions such as: 4G SuperStick priced down to P1,995; LTE plans which start at P1,299 now comes with a FREE LTE dongle; Tattoo consumable plans were further improved with more browsing hours for Plan 299 and for Plan 499. Also during this period, Tattoo launched a revolutionary offer bannering the most affordable tablet bundles, wherein its subscribers can get three devices FREE with unlimited internet browsing and mobile text and call starting at Plan 1,298. Tattoo Prepaid tablet bundles was also made available during the last quarter wherein subscribers can save as much as P2,845 with these new offers which carry affordable tablet selection starting at P4,995 for a CloudPad 705W or a SkyWorth S73 and P6,995 for a SkyWorth S82. All these bundles come with FREE Tattoo Mobile Wi-Fi that connects up to 10 devices with speeds of up to 7.2 Mbps. Likewise, Tattoo LTE Mobile Wi-Fi with LTE speed up to 42 Mpbs (with power bank feature which recharges your phone up to 2 times), was made available for only P4,995 with FREE 5GB of data for 7days. Tattoo Postpaid on the other hand, now offers a FREE Mobile Wi-Fi with speed up to 12 Mbps with Tattoo unlimited Plan 999.

Fixed Line Data

Globe Group

For the Year Ended

Service Revenues (Php Mn)

31-Dec 31-Dec YoY

2013 2012 Change (%)

Fixed line Data

International …..…………………………………………………… 928 899 3%

Domestic …… …………………………………………………….. 2,232 1,958 14%

Others 1 …………………………………………………………… 1,530 1,310 17%

Total Fixed line Data Service Revenues……………………….. 4,691 4,167 13% 1 Includes revenues from value-added services such as internet, data centers and bundled services.

The fixed line data segment continued its revenue growth with P4.7 billion, 13% higher year-on-year and 4% higher quarter-on-quarter. The increase was due to the Company‟s continued push to expand its portfolio to remain responsive to the evolving needs and increasing demand for high-speed data nodes, transmission links, and bandwidth capacity of its business and enterprise clients, including those in the financial services, retail, offshoring and outsourcing industries.

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Globe Business launch several initiatives in 2013 in order to further improve its portfolio featuring the first large-scale, private and public-ready, next generation cloud in Asia - the PayrollCloud application, an innovative Software-as-a-Service or SaaS providing on-time and accurate payroll accounting system; Backup-as-a-Service platform which is the most advanced backup and restoration software, that enables continuous data protection, local off-site storage and managed services to industries, enterprises as well as small and medium businesses. Also the Globe HealthCloud, an end-to-end web-based solution seen to revolutionize healthcare delivery in the Philippines was likewise introduced in the market.

Fixed Line Voice

Globe Group

For the Year Ended

31-Dec 31-Dec YoY

2013 2012 Change

(%)

Cumulative Voice Subscribers - 594,527 711,429 -16%

Net (End of period)1………….....................................................

Average Revenue Per Subscriber (ARPU)............................... 335 325 3%

ARPU 2……………………………………………………………

Average Monthly Churn Rate ..……………............................... 4.85% 2.75% 1 Includes DUO and SuperDUO subscribers

2 ARPU is computed by dividing recurring gross service revenues (gross of interconnect expenses) segment by the average

number of the segment’s subscribers and then dividing the quotient by the number of months in the period.

Total fixed line voice revenues declined by 4% quarter-on-quarter bringing total revenues to close the year at P2.6 billion or 2% lower from P2.7 billion the previous year. The decline was primarily caused by lower international airtime rates.

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OTHER GLOBE GROUP REVENUES

International Long Distance (ILD) Services

Globe Group

For the Year Ended

ILD Revenues and Minutes

31-Dec 31-Dec YoY

2013 2012 Change (%)

Total ILD Revenues (Php Mn)* …………………………………... 11,957 12,653 -6%

Average Exchange rates for the period (Php to US$1)…………… 42.188 42.384 -

Total ILD Minutes (in million minutes) 1…………………………. 2,494 2,691 -7%

Inbound………………………………………………………………. 2,190 2,338 -6%

Outbound.……………………………………………………………. 304 353 -14%

ILD Inbound / Outbound Ratio (x) ………………………………... 7.20 6.62

*Prior period revenues have been restated for comparability

Both Globe and Innove offer ILD voice services which cover international call services between the Philippines to more than 200 destinations with over 700 roaming partners. 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. On a consolidated basis, ILD voice revenues from the mobile and fixed line businesses declined year on year by 6% following the global trend, ILD voice revenues are declining due to competitive pressure from over-the-top alternatives such as Facebook, Skype, and Google. However, to mitigate the anticipated decline, Globe continues to offer international retail services (Duo International, Seafarer Sim, Local UK and Italy sim) in countries with large OFW communities. Meanwhile, Globe sustained its promotion on OFW SIM packs and the discounted call rate offers such as IDD Sakto Calls (per-second IDD), TipIDD card, and IDD Tingi – the first bulk IDD service which can be purchased via registration and through AMAX retailers nationwide. This is available in two denominations: P20 for 5-minute calls to US, Canada, Hong Kong Singapore and Taiwan, and P30 for 3-minute calls to Saudi Arabia, UAE and Kuwait. In addition, The Filipino Seafarer SIM enables Filipino seafarers around the world to keep in touch with their loved ones back home at cheaper rates for as low as US$0.20 per minute while sending SMS for only US$0.10 per sms. Subscribers who will avail of the SIM will get two numbers in one SIM – an international mobile number and a Philippine Globe mobile number. Globe and TM subscribers calling the Globe Seafarer SIM are only charged at local rates. The Globe Local UK SIM card alternatively gives Filipinos one affordable rate of only 10 pence for each call or text sent to Globe or TM number in the Philippines as well as calls and text to all UK networks. Subscribers also pay only 10 pence for every MB of mobile internet. Moreover, Globe once again expanded our international footprint with the launch of Globe local Italy SIM last November 24, 2013. Filipino community in Italy can now enjoy calls to Globe in the Philippines for just five Euro cents per minute, the lowest among all Italian mobile operators.

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GROUP OPERATING EXPENSES Total costs and expenses including depreciation for 2013 amounted to P=81,464 million, 14% higher than 2012‟s P=71,312 million. This is mainly due to the increased subscriber acquisition and re-contracting costs following the sustained postpaid subscriber acquisition and retention efforts, higher trade provisions and staff-related costs, services and other expenses on payments on real property tax and licenses as well as catch up accruals booked in the fourth quarter. In addition to the elevated levels of operating expenses, the accelerated depreciation related to the ongoing network modernization and IT transformation programs, led to the increase in total depreciation expenses by 17% compared to the prior year‟s P=23,584 million.

Globe Group

For the Year Ended

Costs and Expenses (Php Mn) 31-Dec 31-Dec YoY

2013 2012 Change (%)

Cost of sales……………………………………………………………. 9,953 7,679 30%

Less: Non-service revenues………………………………………….. 4,641 3,704 25%

Subsidy…………………………………............................................. 5,312 3,975 34%

Interconnect…………………………………………............................ 9,280 8,859 5%

Selling, Advertising and Promotions………………………………… 4,483 4,698 -5%

Re-contracting………………………………………............................ 2,532 1,743 45%

Staff Costs ……………………………………………………………... 7,473 6,426 16%

Utilities, Supplies & Other Administrative Expenses........................ 4,399 4,260 3%

Rent…………………………………………………............................. 3,535 3,153 12%

Repairs and Maintenance……………………………………………. 3,657 3,672 -

Provisions ………………………………………………………………….. 2,457 1,604 53%

Services and Others…………………………………......................... 10,858 9,338 16%

Operating Expenses………………………………………………… 48,674 43,753 11%

Depreciation and Amortization……………….…………………… 27,478 23,584 17%

Affected by network modernization……………………………… 9,066 5,080 78%

Others……………………………………………………………….. 18,412 18,504 -

Costs and Expenses………………………………………………...

81,464 71,312 14%

Interconnect

Interconnect costs grew by 5% from P8,859 million in 2012 to P9,280 this year mainly on Mobile Telephony and Nomadic and was partially reduced by lower Wireline voice. Subsidy

Subsidy, which comprise 10% of total subsidy and operating expenses, rose to P5,312 million in 2013, 34% higher than the P3,975 million booked in the previous year. Increase in subsidy was driven by higher gross additions in Mobile Postpaid (+21%) and Nomadic (+23%). Marketing

Marketing, which comprise 8% of total subsidy and operating expenses, declined by 5% from P4,698 million in 2012 to only P4,483 with lower ads and promo spending for rewards/loyalty, billboards, production costs and etc. Re-contracting

Full year 2013 re-contracting costs grew by 45% to P=2,532 million from P=1,743 million last year. The increase in re-contracting costs is mainly due to the growth in re-contracting subs following the launch of

__________________________________________________________________________ 59

the latest phones and gadgets from Apple™, Samsung and BlackBerry during the year, coupled by the shift of the mix towards the mid to high-end plans as the subscriber renews their contract for another 24 months in order to get a better smartphone, resulting in a higher phone subsidy Staff Costs Staff costs increased by 16% from P6,426 million in 2012 to P7,473 million caused by a larger headcount and its associated employee-related benefits and incentives. Total headcount was at 5,927 in 2013, up from 5,816 in 2012. Utilities, Supplies and Other Administrative Expenses Utilities, supplies and other administrative expenses, including travel and transportation, was up by 3% versus last year level of P4,260 million mainly on higher utilities expense coming from increased electricity and water consumption and partly offset by lower supplies from subscriber installation materials due to reversal of excess accrual in 2012, as well as lower tools. Rent Rent expenses which account for 7% of operating expenses and subsidy increased to P3,535 million or 12% year-on-year growth from P=3,153 million last year following Globe‟s continued expansion of its 2G, 3G, and 4G networks. Provisions Provisions for the year, which include trade, traffic and non-trade provisions, significantly grew by 53% from 2012 level of P=1,604 million mainly for trade due to additional provision for Yolanda accounts, coupled with provisions for Philcox account for data services, higher provision for market decline, obsolescence as well as increased provisions for traffic as partly cushioned by lower provision for probable losses on advances to contractors and vendors. Repairs and Maintenance Repairs and maintenance, which accounted for 7% of total operating expenses and subsidy, stood at P=3,657 million, slightly lower against last year‟s level of P=3,672. This is mainly due to the reversal of 2012 excess accruals largely on TSA, lower blackberry fees due to this year‟s clean-up of accounts in the RIM webtool coupled by savings on blackberry payout fee with the release of blackberry OS10, building improvements, and national transmission, as partially offset by higher outside plant out-of–scope charges (due to typhoon and earthquake), IT and supplies facilities equipment and international cable systems. Services and Others

Services and other expenses increased by 16% to P=10,858 million against last year, coming mostly from higher cost per hour of contracted services and customer contact services due to the high volume of postpaid calls, higher professional fees on various consultant‟s management fees, higher commission fees following stabilization efforts for Phase 1 IT modernization, higher payments for taxes and licenses fees as well as higher credit card charges following increase in availment of 0% interest promo on mobile handsets coupled by this year‟s stretch period from 12 months in 2012 to 24 months in 2013 as partially reduced by lower royalty. Depreciation and Amortization Depreciation and amortization expenses rose to P=27,478 million as of end-December 2013 or about 17% year-on-year growth driven mainly by the continued network and IT transformation projects. Excluding the accelerated depreciation related to the modernization programs, depreciation would have remained flat year-on-year.

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OTHER INCOME STATEMENT ITEMS

Other income statement items include net financing costs, net foreign exchange gain (loss), interest income, and net property and equipment-related income (charges) as shown below:

Globe Group

Non-operating Income / Expense (Php Mn)

For the Year Ended

31-Dec 31-Dec YoY

2013 2012 Change

(%)

Financing Costs – net

Interest Expense 1………………………................................... (2,092) (2,105) 1%

Gain / (Loss) on derivative instruments – net (89) (75) 19%

Swap costs and other financing costs……............................... (245) (183) 34%

Foreign Exchange (loss).…..…………………………………… (486) - -

(2,912) (2,363) 23%

Foreign Exchange gain ……………………............................... 318 -

Interest Income …………………………….................................. 688 580 19%

Others – net………………………………….................................. 52 (213) -124%

Total Other (Expenses) Income……………............................... (2,172) (1,678) 29% 12012 interest expense have been restated to reflect the adoption of amendments to PAS 19

Globe group‟s non-operating charges posted a 29% or P494 million year-on-year increase to close the period at P2.2 billion. This was mainly due to higher foreign exchange loss and swap costs, as partially tempered by higher interest income as of end December 2013. The Company recorded foreign loss of P=486 million as of end-December 2013 in contrast to the P=318 million foreign exchange gains booked in the same period last year. (See related discussion on derivative instruments and swap costs in the Foreign Exchange and Interest Rate Exposure section).

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Liquidity and Capital Resources

Globe Group

31-Dec 31-Dec YoY

2013 2012 Change

(%)

Balance Sheet Data (Php Mn)

Total Assets 1……………………………………………………. 159,079 148,012 7%

Total Debt …………………………………………………………. 69,301 61,779 12%

Total Stockholders‟ Equity1………………………………………. 41,639 45,698 -9%

Financial Ratios (x)

Total Debt to EBITDA ……………………………………………. 1.90 1.78

Debt Service Coverage…………………………………………… 2.83 2.02

Interest Cover (Gross) …………………………………………… 12.54 12.02

Debt to Equity (Gross) …………………………………………… 1.66 1.35

Debt to Equity (Net) 2 …………………………………………….. 1.49 1.20

Total Debt to Total Capitalization (Book) ………………………. 0.62 0.57

Total Debt to Total Capitalization (Market) ...………………….. 0.24 0.30 1 2012 total assets/ total stockholder’s equity have been restated to reflect the adoption of amendments to PAS 19.

2 Net debt is calculated by subtracting cash, cash equivalents and short term investments from total debt.

Globe‟s balance sheet and cash flows remain strong with ample liquidity and gearing comfortably within bank covenants albeit higher year-on-year with the additional debt as a result of Globe‟s transformation and modernization program. Globe Group‟s consolidated assets as of 31 December 2013 amounted to P159,079 million compared to P148,012 million as of end 2012. Consolidated cash, cash equivalents and short term investments (including investments in assets available for sale and held to maturity investments) was at P7,421 million at the end of the period compared to P6,760 million as of end 2012. Gearing ratios increased year-on-year but are still within the covenant limits given the additional debt during the period to fund the transformation initiatives and the impact of accelerated depreciation on net income and retained earnings. Globe ended the year with gross debt to equity ratio on a consolidated basis at 1.66:1 and is well within the 2:1 debt to equity limit dictated by Globe‟s debt covenants. Meanwhile net debt to equity ratio was at 1.49:1 as of end 2013 and 1.20:1 as of end December 2012. 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; and

Secured debt ratio 2 not exceeding 0.2 times.

As of 31 December 2013, Globe is well within the ratios prescribed under its loan agreements.

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 2013.

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Consolidated Net Cash Flows

Globe Group

(Php Mn) 31-Dec 31-Dec YoY

change (%) 2013 2012

Net Cash from Operating Activities1…………………………… 33,233 24,220 37%

Net Cash from Investing Activities1……………………………. (27,368) (24,616) 11%

Net Cash from Financing Activities………………….………… (5,476) 2,198 -349% 1 2012 net cash from operating and investing activities have been restated to reflect the adoption of amendments to PAS 19.

Net cash flows provided by operating activities as of end-December 2013 year stood at P33,233 million, up 37% year on year. This year‟s cash inflows from operating activities were mainly used to fund capital expenditures on the network transformation projects and other initiatives of Globe during the period. Meanwhile, net cash used in investing activities amounting to P27,368 million was up 11% driven by investments in property and equipment as a result of continuing upgrade and migration to a modernized network, and ongoing efforts to expand the coverage and capacities of the broadband network and improve the quality of its mobile service. Consolidated cash capital expenditures as of end December 2013 amounted to P=28,999 million, up 44% from last year‟s P=20,124 million.

Globe Group

(Php Mn)

31-Dec 31-Dec YoY change

(%) 2013 2012

Capital Expenditures (Cash) 1…………………………………….. 28,999 20,124 44%

Increase (decrease) in Liabilities related to Acquisition of PPE… 6,781 6,686 1%

Total Capital Expenditures2……………………………………… 35,780 26,810 33%

Total Capital Expenditures / Service Revenues 2 (%)…………… 40% 32%

1 Cash capital expenditures – property and equipment acquired as of report date

2 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 from financing activities significantly decreased by 349% year on year, driven by

higher repayments of borrowings, dividends and interest payments. Consolidated total debt, on the other

hand, increased by 12% from P=61,779 million in year-end 2012 to P=69,301 million this period. 33% of US$ consolidated loans have been effectively converted to PHP via US$125M in currency hedges. After swaps, effectively 16% of total debt are denominated in US$ as of end-December 2013.

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Below is the schedule of debt maturities for Globe for the years stated below based on total outstanding debt as of 31 December 2013:

Year Due Principal * (US$ Mn)

2014 …………………………………………………………………………………………………………… 252 2015……………………………………………………………………………………………………………. 138 2016……………………………………………………………………………………………………………. 166 2017 …………………………………………………………………………………………………………… 107 2018 through 2023…………………………………………………………………………………………… 907

Total……………………………………………………………………………………………………………. 1,570

* Principal amount before debt issuance costs.

On March 6, 2013, Globe signed a USD 75 million 3-year term loan with floating interest rate with Bank of Tokyo – Mitsubishi UFJ, Ltd., Singapore Branch as lender. The purpose of the loan is to fund Globe Telecom's capital expenditures. On March 22, 2013, Globe signed a USD120 million 7-year term loan with floating interest rate with Metrobank as lender to finance Globe Telecom's capital expenditures. On July 29, 2013, Globe signed a USD40 million 3-year term loan with floating interest rate with Mizuho Bank Ltd. as lender to prepay and refinance certain debts. On May 7, 2013, the BOD approved the Globe Group‟s plan to issue a P7,000 million retail bond to partly finance the capital expenditure requirements for 2013. As registered securities, the bonds will be offered to both institutional and retail investors. The amount comprises P4,000.00 million and P3,000 million bonds due in 2020 and 2023, with interest rate of 4.8875% and 5.2792%, respectively. The retail bonds were issued on July 17, 2013. On December 4, 2013, Globe signed a PHP7 billion 7-year term loan with fixed interest rate with Land Bank as lender. The proceeds of the loan shall be used to partially finance Globe Telecom's general financing and corporate requirements for capital expenditures. Stockholders‟ equity as of end-December 2013 was down 9% from P45,698 million to P41,639 million. Globe‟s capital stock consists of the following:

Preferred Shares Preferred stock 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 has the following features: a. Issued at P5 par; b. Dividend rate to be determined by the BOD at the time of Issue; c. One preferred share is convertible to one common share starting at the end of the 10

th year of the

issue date at a price to be determined by the Globe Telecom‟s BOD at the time of issue which shall not be less than the market price of the common share less the par value of the preferred share;

d. Call option – Exercisable any time by Globe Telecom starting at the end of the 5th year from issue

date at a price to be determined by the BOD at the time of the issue; e. Eligibility of Investors – Only Filipino citizens or corporations or partnerships wherein 60% of the

voting stock of voting power is owned by Filipino; f. With voting rights; g. Cumulative and non-participating; h. Preference as to dividends and in the event of liquidation; and i. No preemptive right to any share issue of Globe Telecom, and subject to yield protection in case

of change in tax laws.

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The dividends for preferred shares are declared upon the sole discretion of the Globe Telecom‟s BOD.

To date, none of the preferred shares have been converted to common shares. 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

The dividend policy of Globe Telecom as approved by the Board of Directors is to declare cash dividends

to its common stockholders on a regular basis as may be determined by the Board. The dividend payout

rate starting 2006 is approximately 75% 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 November 6, 2009, the Board of Directors amended the dividend payment rate from 75% to a range

of 75% - 90% of prior year‟s net income.

On November 8, 2011, the Board of Directors amended the Company‟s dividend policy to be based on

core instead of reported net income. Pay-out range remains at 75% to 90%. This is to ensure that

dividends will remain sustainable and yields competitive despite the expected near-term decline in net

income that would result from the accelerated depreciation charges related to assets that will be

decommissioned as part of the Company‟s network and IT transformation programs. As currently defined,

core net income excludes all foreign exchange, mark-to-market gains and losses, as well as non-

recurring items.

On 5 February 2013, the Board of Directors approved the declaration of the first semi-annual cash

dividend of P33.50 per common share, payable to shareholders on record as of 19 February 2013. Total

dividends of about P4.4 billion were paid on 12 March 2013. On 6 August 2013, the Board of Directors approved the declaration of the second semi-annual cash dividend of P33.50 per common share, payable to shareholders on record as of 22 August 2013. Total dividends of about P4.4 billion were paid on 13 September 2013. The Board of Directors has likewise approved the proposed change in the frequency of the cash dividend distribution from semi-annual to quarterly beginning first quarter of 2014. The quarterly cash dividends will continue to be based on the policy of 75%-90% of prior year‟s core net income. The amended frequency in the payouts will provide the Company with the better cash planning and liquidity management and at the same time ensure a more consistent dividend distribution to the shareholders. On 8 November 2013, Globe‟s Board of Directors approved the declaration and payment of cash dividends for the Company‟s preferred shares. The payment of cash dividends to all shareholders of Globe‟s outstanding preferred shares was based on the average 30-day PDST-F (formerly MART1) as computed by PDEx plus 2%, payable to shareholders on record as of 22 November 2013 and were paid on 8 December 2013. On 10 December 2013, The Company announced that the quarterly cash dividend distribution will be implemented beginning in the third quarter of 2014 instead of the first quarter of 2014. Consolidated Return on Average Equity (ROE) registered at 11% as of end-December 2013, compared to 14% in the same period in 2012 using net income and based on average equity balances for the year ended. Using annualized core net income excluding the effects of accelerated depreciation on net income, return on average equity for the year just ended was at 27% compared to 22% of 2012. Accordingly, consolidated basic earnings per common share were P37.25 and P51.45, while consolidated diluted earnings per common share were P37.22 and P51.38 for the years ended 31 December 2013 and 2012, respectively.

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Financial Risk Management FOREIGN EXCHANGE EXPOSURE Foreign exchange risks are managed such that USD inflows from operations (transaction exposures) are balanced or offset by the net USD liability position of the company (translation exposures). Globe Group‟s objective is to maintain a position which results in, as close as possible, a neutral effect to the P&L relative to movements in the foreign exchange market. Transaction exposures Globe has natural net US$ inflows arising from its operations. Consolidated foreign currency-linked revenues

1 were at 21% and 24% of total service revenues for the periods ended 31 December 2013 and

2012, respectively. In contrast, Globe‟s foreign-currency linked expenses were at 10% and 8% of total operating expenses for the same periods ended, respectively. The US$ flows are as follows:

2013

US$ and US$ Linked Revenues P15.29 billion

US$ Operating Expenses P3.21 billion

US$ Net Interest Expense P0.24 billion

Due to these net US$ inflows, an appreciation of the Peso have a negative impact on Globe‟s Peso EBITDA. Globe occasionally enters into forward contracts to hedge against a peso appreciation. All forwards have matured by year-end 2013. Realized loss from forward contracts that matured in 2013 amounted to P144.70 million.

1Includes 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

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Translation Exposures Globe also has US$ assets and liabilities which are revalued at market rates every period. These are as follows:

December 2013

US$ Assets US$191 million

US$ Liabilities US$549 million

Net US$ Liability Position US$358 million

For accounting purposes, the foreign currency assets and liabilities are revalued at the exchange rate at the end of each reporting period. Given the net US$ liability position, a depreciation of the peso results in a revaluation or forex loss in our P&L. As of December 2013, the Philippine Peso stood at P44.398 to the US dollar, a weakening versus the 2012 year-end rate of P41.078. Due to the weakening peso, the Globe Group charged a total of P486 million in net foreign exchange losses to current operations for the year of 2013. In April 2013, Globe entered into cross currency swaps amounting to US$125 million to hedge the FX and interest rate risk on some of its new USD loans. The MTM of the swap contracts stood at a gain of P491 million as of end-December 2013. INTEREST RATE EXPOSURE

Interest rate exposures are managed via targeted levels of fixed versus floating rate debt that are meant

to achieve a balance between cost and volatility. Globe‟s policy is to maintain between 44-88% of its

peso debt in fixed rate, and between 31-62% of its US$ debt in fixed rate.

As of end-December 2013, Globe has a total of US$26 million in US$ interest swaps, P4.31 billion in PHP

interest rate swaps and $125 million in cross currency swaps that were entered into contracts to achieve

these targets. The US$ and Peso swaps fixed some of the Company‟s outstanding floating rate debts

with quarterly or semi-annual payment intervals up to April 2020.

As of end-December 2013, 63% of peso debt is fixed, while 46% of USD debt is fixed after swaps.

The MTM of the interest rate swap contracts (not including the currency swap contracts) stood at a loss of

P151 million as of end-December 2013.

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CREDIT EXPOSURES FROM FINANCIAL INSTRUMENTS

Outstanding credit exposures from financial instruments are monitored daily and allowable exposures are

reviewed quarterly.

For investments, the Globe Group does not have investments in foreign securities (bonds, collateralized

debt obligations (CDO), collateralized mortgage obligations (CMO), or any instruments linked to the

mortgage market in the US). Globe‟s excess cash is invested in short term bank and SDA deposits.

The Globe Group also does not have any investments or hedging transactions with investment banks.

Derivative transactions as of the end of the period are with large foreign and local banks. Furthermore,

the Globe Group does not have instruments in its portfolio which became inactive in the market nor does

the company have any structured notes which require use of judgment for valuation purposes. (Please

refer to Note 15.2.2 of the attached Notes to the Financial Statements for additional information on active

and inactive markets). VALUATION OF DERIVATIVE TRANSACTIONS The company uses valuation techniques that are commonly used by market participants and that have been demonstrated to provide reliable estimates of prices obtained in actual market transactions. The company uses readily observable market yield curves to discount future receipts and payments on the transactions. The net present value of receipts and payments are translated into Peso using the foreign exchange rate at time of valuation to arrive at the mark to market value. For derivative instruments with optionality, the company relies on valuation reports of its counterparty banks, which are the company‟s best estimates of the close-out value of the transactions. Gains (losses) on derivative instruments represent the net mark-to-market (MTM) gains (losses) on derivative instruments. As of 31 December 2013, the MTM value of the derivatives of the Globe Group amounted to a gain of P336 million while loss on derivative instruments arising from changes in MTM reflected in the consolidated income statements amounted to P233 million. (Please refer to Note 15.8 of the attached Notes to Financial Statements for gains/losses of preceding periods). To measure riskiness, the Company provides a sensitivity analysis of its profit and loss from financial instruments resulting from movements in foreign exchange and interest rates. (Please refer to attached Notes 15.2.1.1 and 15.2.1.2 of the Financial Statements for the sensitivity analysis results.) The interest rate sensitivity estimates the changes to the following P&L items, given an indicated movement in interest rates: (1) interest income, (2) interest expense, (3) mark-to-market of derivative instruments. The foreign exchange sensitivity estimates the P&L impact of a change in the USD/PHP rate as it specifically pertains to the revaluation of the net unhedged liability position of the company, and foreign exchange derivatives.

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Recent Legal Developments

A. On 23 July 2009, the NTC issued NTC Memorandum Circular (MC) No. 05-07-2009 (Guidelines on Unit of Billing of Mobile Voice Service). The MC provides that the maximum unit of billing for the cellular mobile telephone service (CMTS) whether postpaid or prepaid shall be six (6) seconds per pulse. The rate for the first two (2) pulses, or equivalent if lower period per pulse is used, may be higher than the succeeding pulses to recover the cost of the call set-up. Subscribers may still opt to be billed on a one (1) minute per pulse basis or to subscribe to unlimited service offerings or any service offerings if they actively and knowingly enroll in the scheme. In compliance with NTC MC 05-07-2009, Globe refreshed and offered to the general public its existing per-second rates that, it bears emphasizing, comply with the NTC Memorandum Circular. Globe made per second charging for Globe-Globe/TM-TM/Globe available for Globe Subscribers dialing prefix 232 (GLOBE) OR 803 plus 10-digit TM or Globe number for TM subscribers. The NTC, however, contends that Globe‟s offering does not comply with the circular and with the NTC‟s Order of 7 December 2009 which imposed a three-tiered rate structure with a mandated flag-down of P3.00, a rate of P0.4375 for the 13th to the 160th second of the first minute and P0.65 for every 6-second pulse thereafter. On 9 December 2009, the NTC issued a Cease and Desist Order requiring the carriers to refrain from charging under the previous billing system or regime and refund consumers.


On 25 May 2010, the CA issued a writ of preliminary injunction directing the NTC to cease and desist from enforcing their assailed Order/s. On 28 December 2010, the CA rendered a Decision declaring the questioned decisions invalid for being violative of the Petitioners‟ right to due process, among others. The Petitioners and the NTC filed their respective Motions for Partial Reconsideration. The motions were DENIED by the CA in an Order dated 19 January 2012. Due to lack of material time, the NTC and the Petitioners seasonably filed their respective Motions for Extension of Time to File Petition for Review with the Supreme Court. The Movants are expected to file their respective petitions within the month of March 2012. Globe believes that its legal position is strong and that its offering is compliant with the NTC‟s Memorandum Circular 05-07-2009, and therefore believes that it would not be obligated to make a refund to its subscribers. If, however, Globe would be held as not being in compliance with the circular, Globe may be contingently liable to refund to any complaining subscribers any charges it may have collected in excess of what it could have charged under the NTC‟s disputed Order of 7 December 2009, if indeed it is proven by any complaining party that Globe charged more with its per second scheme than it could have under the NTC‟s 6-second pulse billing scheme stated in the disputed Order. Management has no estimate of what amount this could be at this time.

B. On 22 May 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. The Supreme Court ordered the reinstatement of the case and has forwarded it to the NTC-Olongapo for trial.

C. PLDT and its affiliate, Bonifacio Communications Corporation (BCC) and Innove and Globe are in

litigation over the right of Innove to render services and build telecommunications infrastructure in the Bonifacio Global City. In the case filed by Innove before the NTC against BCC, PLDT and the Fort Bonifacio Development Corporation (FBDC), the NTC has issued a Cease and Desist Order preventing BCC from performing further acts to interfere with Innove‟s installations in the Bonifacio Global City.

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In the case filed by PLDT against the NTC in Branch 96 of the Regional Trial Court (RTC) of Quezon City, where PLDT sought to obtain an injunction to prevent the NTC from hearing the case filed by Innove, the RTC denied the prayer for a preliminary injunction and the case has been set for further hearings. PLDT has filed a Motion for Reconsideration and Globe has intervened in this case. In a resolution dated 28 October 2008, the RTC QC denied BCC‟s motion for the issuance of a temporary restraining order (TRO). The case is still pending with the QC RTC. In the case filed by BCC against FBDC, Globe Telecom and Innove, Bonifacio Communications Corp. before the Regional Trial Court of Pasig, which case sought to enjoin Innove from making any further installations in the BGC and claimed damages from all the parties for the breach of the exclusivity of BCC in the area, the court did not issue a Temporary Restraining Order and has instead scheduled several hearings on the case. In a resolution dated 28 October 2008, the RTC QC denied BCC‟s motion for the issuance of a temporary restraining order (TRO). The case is still pending with the RTC Pasig. On 11 November 2008, Bonifacio Communications Corp. (BCC) filed a criminal complaint against the officers of Innove Communications Inc., the Fort Bonifacio Development Corporation (FBDC) and Innove contractor Avecs Corporation for malicious mischief and theft arising out of Innove‟s disconnection of BCC‟s duct at the Net Square buildings. The accused officers filed their counter-affidavits and are currently pending before the Prosecutor‟s Office of Pasig. The case is still pending resolution with the Office of the City Prosecutor. On 21 January 2011, BCC and PLDT filed with the Court of Appeals a Petition for Certiorari and Prohibition against NTC, et al. seeking to annul the Orders of the NTC dated 28 October 2008 directing BCC, PLDT and FBDC to comply with the provisions of NTC MC 05-05-02 and the CEASE AND DESIST from performing further acts that will prevent Innove from implementing and providing telecommunications services in the Fort Bonifacio Global City pursuant to the authorization granted by the NTC. BCC and PLDT anchor their petition on the grounds that: 1) the NTC has no jurisdiction over BCC it being a non telecommunications entity; 2) the NTC violated BCC and PLDT‟s right to due process; and 3) there was no urgency or emergency for the issuance of the cease and desist order. The case is pending with the court of appeals. On April 25, 2011, Innove Communications, filed its comment on the case filed by PLDT that seeks to ban all Globe services from the Bonifacio Global City before the CA‟s Tenth Division. In its comment, Globe argued that it is in the public‟s best interest that open access and free competition among telecom operators be allowed at the Bonifacio Global City. On August 16, 2011, the Ninth Division of the CA ruled that PLDT‟s case against Innove and the National Telecommunications Commission (NTC) lacked merit, and thus denied the petition and DISMISSED the case. PLDT and its co-petitioner, BCC file their motion for reconsideration. The same is still pending resolution.

Other Developments Last February 2013, Globe obtained approval from its Board of Directors to invest in a Philippine entity to be named as Taodharma, Inc. to explore growth opportunities in the mobile market. In March 2013, Globe entered into a Shareholders Agreement among four other entities to incorporate Taodharma Inc. (“Tao”). Globe subscribed for the 25% preferred shares of Tao amounting to P55.00 million which has been fully paid up as of August 2013. Tao shall carry on the business of establishing, operating and maintaining retail stores in strategic locations within the Philippines that will sell telecommunications or internet-related services, and devices, gadgets, accessories or embellishments in connection and in accordance with the terms and conditions of the Dealer Agreement executed among all of the entities. Globe also entered into an exclusive dealership arrangement with Tao that included provisions to build and open retail outlet stores scattered across in cities and other major high-traffic locations nationwide.

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ABS-CBN Deal

On 27 May 2013, Globe, Innove and ABS-CBN Convergence Inc. (“ABS-C” and formerly known as Multimedia Telephony Inc.) have entered into a network sharing arrangement in order to provide capacity and coverage for new mobile telephony, data and value-added services to be offered by ABS-C nationwide to its subscribers using shared network and interconnect assets of the parties. Under the network sharing arrangement, Globe and Innove will provide network capacity and coverage to ABS-C on a nationwide basis and connect ABS-C‟s prepaid and postpaid billing, and customer service management system to the network resources to be provided by Globe and Innove. The parties shall use and where necessary, share existing network elements/resources and interconnect assets including switches, servers, towers, and radio elements. The parties will accordingly notify the National Telecommunications Commission of this arrangement.

Bayantel Update

Globe Telecom, Inc. and Bayan Telecommunications, Inc. obtained approval from the NTC for the joint use of the frequencies 1750-1760 MHz / 1845-1855 MHz originally assigned to BayanTel. The joint-use agreement will enable Globe to address increasing demand for voice, short message and mobile data services, and allow BayanTel to be able to offer mobile-telecommunications services nationwide. In another development, the Company announced in November 2012 that it has obtained the approval by its Board of Directors to commence offers to purchase (the “Debt Offers”) up to 100% of the financial obligations of Bayan Telecommunications, Inc. (“BTI”) and subsidiary Radio Communications of the Philippines, Inc. (“RCPI”) to their respective financial creditors. The Debt Offers were concluded last 22 December 2012, wherein Globe secured the acceptance of 93.66% of the holders of the unsecured financial indebtedness of BTI under the USD 13.5% bonds originally due in 2006; 98.26% of the outstanding other financial indebtedness owed by BTI; and 100% of the outstanding financial indebtedness owed by RCPI, based on outstanding aggregate principal amount under the terms of the rehabilitation plan of BTI and RCPI. BTI has been subject to court-supervised rehabilitation proceedings since 2003. The current rehabilitation plan anticipates that BTI and RCPI will remain in rehabilitation until 2023. Globe intends to apply with the rehabilitation court to amend the terms of the rehabilitation plan in the interest of assuring BTI‟s long-term sustainability. Meanwhile, Globe has also commenced separate discussions with the controlling shareholders of BTI regarding a wide range of commercial arrangements including a potential acquisition by Globe of an equity interest in BTI. The approval of the National Telecommunications Commission is required to complete the acquisition. The parties remain in discussions on the terms of the commercial arrangements including the price and other conditions under which the acquisition may be effected. No definitive arrangement has been executed at this time. Subsequently, last 30 May 2013, Globe, Bayan Telecommunications Holdings Corporation, the controlling shareholder of Bayan Telecommunications, Inc. ("Bayantel"), and Bayantel jointly filed a motion with the court having jurisdiction over Bayantel's debts. The motion seeks to significantly restructure Bayantel's financial debt in order to prevent the recurrence of default and ensure Bayantel's continued viability. Following Globe's tender offers for the Bayantel debt in 2012, Globe currently holds approximately 96.5% of the total financial indebtedness of Bayantel. The joint motion is intended to achieve a successful rehabilitation of Bayantel at the earliest possible date. The current outstanding principal amount of this debt is approximately the equivalent of US$423.3 million. Bayantel's operations have not generated sufficient revenue to continue making the debt payments under its existing rehabilitation plan. This has been attributed to a decline in revenue from traditional fixed line services offered by Bayantel, increasing competitive pressures in the telecommunications industry and Bayantel's inability to make any considerable capital investments while under its high debt burden. The restructuring would, upon confirmation by the court, significantly decrease this through a conversion of up to 69% of the debt into Bayantel shares. As restructured, the outstanding principal debt balance would be reduced to approximately US$131.3 million, assuming the debt to equity conversions occur to their fullest

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extent. The restructuring, including the debt to equity conversion feature, would apply to all of Bayantel‟s creditors equally upon receipt of certain regulatory approvals, including the confirmation of the court. By acquiring the Bayantel debt, Globe sought to enable Bayantel's continued viability as a telecommunications provider. For Globe's part, such a restructuring would allow Globe to further strengthen collaborative efforts with Bayantel in respect of their local exchange networks, corporate data and broadband businesses. Ensuring that Bayantel remains a going concern would allow both companies to become more competitive in the current industry environment. On the part of Bayantel, a restructuring of its debt and the entry of Globe as a shareholder as well as a Creditor will enable Bayantel to unlock and maximize potential of its key business assets and capabilities, and help accelerate its rehabilitation. Globe appreciates further that Bayantel's continued operations benefits all of its employees, suppliers, stakeholders and public telecommunications customers in the Philippines as a whole. On September 2013, Globe received a Resolution issued by Branch 158 of the Regional Trial Court in Pasig City. This is the court having jurisdiction over the debts of Bayan Telecommunications, Inc. (Bayantel) and its corporate rehabilitation proceedings. The Resolution granted the joint motion filed by Globe and Bayantel to amend current debt restructuring plan and implement a new Master Restructuring Agreement for all Bayantel‟s creditors. The Amendments principally involve a conversion of up to 69% of the debt into Bayantel shares comprising up to 56.6% of Bayantel‟s capital stock, on a fully diluted basis. Globe intends to convert its debt holdings into 38.3% of Bayantel‟s equity initially and to subsequently convert further amounts of Globe‟s debt holdings when relevant regulatory and corporate approvals are obtained, resulting in Globe holding over 50% of Bayantel‟s outstanding shares. Assuming that debt to equity conversion occur to their fullest extent, the Amendments will reduce Bayantel‟s outstanding principal debt by 69% from the equivalent of approximately US$423.3 to approximatedly US$131.3 million. The Amendments also facilitate the entry of Globe into Bayantel as a shareholder and are expected to assure Bayantel‟s successful rehabilitation. In addition to Globe, the debt to equity conversion of the new debt restructuring terms will apply to all Bayantel‟s creditors. The issuances of the new Bayantel shares under the Amendments will require certain regulatory and corresponding corporate approvals. Details on these transactions have been extensively discussed in the disclosures filed with the SEC and PSE and may be accessed from the PSE and Company websites.

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2012 FINANCIAL AND OPERATIONAL RESULTS

GROUP FINANCIAL HIGHLIGHTS

Globe Group

For the Year Ended

Results of Operations (Php Mn)

31-Dec 31-Dec YoY

2012 2011 Change

(%)

Net Operating Revenues ………………………………………...…. 86,446 81,518 6%

Service Revenues……………………………………………….….. 82,742 77,765 6%

Mobile 1…………………………………………………………..... 67,189 63,538 6%

Broadband……………………………………………………...…. 8,721 7,496 16%

Fixed line Data………………………………………………...….. 4,167 3,792 10%

Fixed line Voice 1……………………………………………….… 2,665 2,939 -9%

Non-Service Revenues………………………………………….…. 3,704 3,753 -1%

Costs and Expenses ………………………………………………... 51,435 46,414 11%

Cost of Sales………………………………………………………… 7,679 5,888 30%

Operating Expenses ……………………………………………….. 43,756 40,526 8%

EBITDA ………………………………………………………………… 35,011 35,104 -

EBITDA Margin……………………………………………………….. 42% 45%

Depreciation…………………………………………………………… 23,584 18,941 25%

Affected by network modernization……………………………….. 5,080 - -

Others………………………………………………………………… 18,504 18,941 -2%

EBIT ……………………………………………………………………. 11,427 16,163 -29%

EBIT Margin…………………………………………………………… 14% 21%

Non-Operating Charges…………………………………………….. (1,659) (2,066) -20%

Net Income After Tax (NIAT)……………………………………….. 6,857 9,832 -30%

Core Net Income 2

……………………………………………………. 10,275 10,030 2% 1 2011 service revenues have been restated to reflect the change in the presentation of outbound revenues to be at gross of

interconnect expenses (from net previously). 2

Core net income is net income after tax (NIAT) but excluding foreign exchange and mark-to-market gains (losses), and non-recurring items.

Full year 2012 consolidated service revenues soared to a historic-high of P82.7 billion, up 6% from 2011 results of P77.8 billion. The mobile business sustained its strong growth momentum by delivering a 6% year-on-year increase in revenues on account of the record gross acquisitions in the postpaid segment, expansion in mobile browsing usage as well as unlimited and bulk voice services. Incremental revenues compensated for the decline in IDD revenues which were partly weighed down by an appreciating Peso, and also helped to counter market challenges underscored by peaking penetration levels resulting from increasing incidence of multi-SIM, declining yields from unlimited and value promotions, and intensifying competition. Fixed line and broadband revenues likewise contributed additional revenues and registered 9% year-on-year growth with sustained expansion in total broadband subscriber base and steady demand for data services from the corporate sector.

Operating expenses and subsidy increased by 12% year-on-year from P42.7 billion to P47.7 billion driven largely by marketing and subsidy costs which increased substantially following the aggressive acquisition of new postpaid subscribers who opted to get the higher-end gadgets such as the Apple™ iPhone. Marketing costs also increased to support the various brand-building initiatives such as product and service launches for the mobile and broadband business. As a result, marketing and subsidy as a percentage of service revenues rose to 13% in 2012 from 9% in 2011. Network-related costs, which included lease, utilities, and repairs and maintenance were also higher in 2012 as a

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result of the continued expansion of the 2G, 3G, and broadband networks. Operating expenses in 2012 likewise included charges for various outsourced and contracted services, as well as professional fees resulting from the various projects being undertaken by the Company, including our network and IT modernization initiatives. Interconnect costs, on the other hand, were down year-on-year driven by the NTC-mandated reduction in access charges implemented in late 2011.

Consolidated EBITDA of P35.0 billion was lower by about P93 million from previous year‟s total of P35.1 billion as the overall growth in expenses outpaced the increase in revenues. As a result, EBITDA margin declined from 45% in 2011 to 42% in 2012.

Total depreciation expense grew 25% year-on-year from P18.9 billion to P23.6 billion with the increase attributed mainly to charges related to the network modernization and IT transformation programs. As the Company had disclosed in the past, the carrying value of the old, non-useable assets will impact Globe‟s profitability through an acceleration of depreciation over its remaining useful life and until such time when the new, replacement assets are ready for service. Accelerated depreciation charges increased further in the fourth quarter to bring the full year total to P5.1 billion. Excluding this item, total depreciation expense would have declined by 2% against previous year to about P18.5 billion.

Consolidated net income after tax was down 30% year-on-year from P9.8 billion to P6.9 billion as revenue gains were offset by the impact of accelerated depreciation charges related to the Company‟s network modernization and IT transformation programs as well as sustained investments in subscriber postpaid acquisitions. Excluding foreign exchange and mark-to-market gains and losses as well as non-recurring items, core net income was up 2% from P10.0 billion in 2011 to P10.3 billion in 2012.

Full year 2012 capital expenditures amounted to P26.8 billion, 54% higher than previous year‟s spending of P17.4 billion. As a result, total capital expenditures as a percentage of service revenues were up at 32% compared to 22% in 2011. Capital expenditures for the year included amounts to expand and upgrade the Company‟s broadband and mobile networks and to deploy 4G mobile technology via HSPA+ in key areas nationwide. At the end of the year, Globe has a total of 13,241 base stations and 7,097 cell sites to support its 2G, 3G, 4G and WiMAX services.

For 2013, Globe has earmarked about US$550 – 650 million in capital expenditures. This consists of US$160 – 210 million for transformation initiatives and about US$290 million for business as usual spend for provisions for fixed line data investments, international cable facilities, and IT infrastructure. Other capital expenditures for 2013 also include carryover spend of about US$100 million from 2012.

Regular cash dividends paid out in 2012 amounted to P8.6 billion, representing 86% of 2011 core net income. This was in line with the Company‟s dividend policy of distributing 75% to 90% of prior year‟s core net income. Total dividend payout of P65 per common share translates to a dividend yield of 6% based on beginning of 2012 share price. In November 2011, the Company amended its dividend policy to be at 75% to 90% of prior year‟s core net income instead of reported net income. This was to ensure that dividends would remain sustainable and yields competitive, despite the expected decline in near-term profits arising from the accelerated depreciation charges related to the transformation efforts.

For 2013, the Company expects the market to be more challenging given peaking penetration rates as a result of the increasing incidence of multi-SIM, continuing revenue dilution with the impact of unlimited and value service offerings, and intensifying competition with PLDT leveraging on its larger subscriber base. Against this environment, the Company sees consolidated revenues growing by mid-single digit from the 2012 level. Near-term earnings, meanwhile, will continue to be impacted by (1) project management and other transition costs related to the transformation initiatives with the 2013 estimated transition costs amounting to US$17 Million, (2) continued investments in marketing and handset subsidy to respond to competition and fuel the growth of the Company‟s postpaid business, (3) total depreciation charges of about P25 to P26 Billion, inclusive of P8 to P9 Billion in accelerated depreciation expenses related to the network modernization, and (4) additional interest

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expenses from additional debt related to modernization initiatives. However, in spite of the lower near-term earnings, the Company expects its balance sheet and financial position to remain strong, with dividend pay-outs sustained at competitive levels. Overall, Globe sees the coming year as a transition year with the network modernization expected to be completed by end-2013, and a period of sustained investments in customers and in networks, systems and processes.

GROUP OPERATING REVENUES BY SEGMENT

Operating Revenues By Businesses (Php Mn)

For the Year Ended

31-Dec 31-Dec YoY

2012 2011 Change

(%)

Mobile 69,963 66,566 5%


Non-Service Revenues……………………………………………… 2,774 3,028 -8%

Fixed Line and Broadband 16,483 14,952 10%


Non-Service Revenues……………………………………………… 930 725 28%

Total Operating Revenues…………………………………………... 86,446 81,518 6%

* 2011 service revenues have been restated to reflect the change in the presentation of outbound revenues to be at gross of interconnect expenses (from net previously).

The Globe Group closed the year with total net operating revenues of P86.4 billion, 6% above prior year‟s P81.5 billion. The mobile business continued to post robust top line performance which further solidified the gains achieved in prior periods. Full year 2012 revenue growth was organic which resulted from the Company‟s initiatives that included revitalizing retail channels anew with the launch of the deployable Pop-Up stores; increasing presence in international markets by boosting services that included unlimited data roaming, discounted IDD calls, and Globe DUO international, that cater to traveling and overseas-based Filipinos; and expanding the reach of the mobile commerce arm, GCash, through various partnerships and service launches such as the GCash mobile application, Amex Virtual Card, and PowerPay+. The Company likewise continued to offer the latest and much-anticipated gadgets such as the Apple

™ iPhone 5 and

Samsung Galaxy S III, while at the same time it continued to innovate and provide the best value-for-money service offerings to all its subscribers. But most importantly, 2012 was marked by the Company‟s ambitious network modernization aimed at further improving the quality of its voice, SMS, and data services and to eventually prepare the Company for the anticipated surge in mobile data traffic. From these initiatives, Globe delivered revenues of P67.2 billion, up 6% against 2011 despite a maturing industry marked by increasing incidence of multi-SIM usage and peaking penetration levels, and eroding prices and margins resulting from lower-yield value offerings. The broadband and fixed line data segments likewise posted significant gains on account of the rising demand for data and internet connectivity. Full year broadband revenues were up 16% to P8.7 billion as the year marked another milestone for the business with the commercial launch of its broadband LTE service that provided subscribers with alternative tools to improve their overall internet experience. The broadband business likewise continued to ride on the popularity of social networking sites and benefited from declining prices of access devices such as PCs, tablets, and laptops. Total broadband subscribers stood at about 1.7 million by the end of 2012. Mobile non-service revenues, on the other hand, were down by 8% from previous year‟s level of P3.0 billion to about P2.8 billion in 2012 as a result of high subsidies for the postpaid plans. Fixed line and broadband non-service revenues, on the other hand, were up by 28% year-on-year due to sustained strong sales of Tattoo On-The-Go dongles.

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MOBILE BUSINESS

For the Year Ended

Mobile Service Revenues (Php Mn)

31-Dec 31-Dec YoY

2012 2011 Change

(%)

Service

Data 1..……………………………………………………………… 32,819 31,084 6%

Voice 2….…………………………………………………………... 34,370 32,454 6%

Mobile Service Revenues *……………………………………….. 67,189 63,538 6%

* 2011 service revenues have been restated to reflect the change in the presentation of outbound revenues to be at gross of interconnect expenses (from net previously).

1

Mobile data service revenues consist of prorated monthly service fees on free text allocation of postpaid plans, revenues from value-added services such as inbound and outbound SMS and MMS, content downloading, mobile data browsing and infotext, international VAS and related services, subscription fees on unlimited and bucket prepaid SMS and add-on VAS services, net of any payouts to content providers.

2 Mobile voice service revenues include the following:

e) Prorated monthly service fees on consumable minutes of postpaid plans; f) Subscription fees on unlimited and bucket voice promotions including the expiration of the unused value of denomination

loaded; g) Charges for intra-network and outbound calls in excess of the consumable minutes for various Globe Postpaid plans,

including currency exchange rate adjustments (CERA) net of loyalty discounts credited to subscriber billings; and h) 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 load credit denomination (for Globe Prepaid and TM SIMs) which occurs between 3 and 120 days after activation depending on the prepaid value reloaded by the subscriber, net of (i) bonus credits and (ii) prepaid load credit discounts; and revenues generated from inbound international and national long distance calls and international roaming calls.

Revenues from (a) to (d) are reduced by any payouts to content providers.

Mobile Data Mobile data revenues, which comprised 49% of total mobile service revenues, increased by 6% from about P31.1 billion in 2011 to P32.8 billion in 2012. Year-on-year growth was led by mobile data browsing, unlimited SMS subscription and other value-added services. Mobile browsing generated revenues of over P3.1 billion in 2012 compared to P2.0 billion in 2011 resulting from increased smartphone penetration and the Company‟s continued launch of affordable mobile data plans which now include unlimited surfing for TM subscribers. On the other hand, inbound SMS revenues declined year-on-year and was driven by the NTC-mandated reduction in access charges from P0.35 to P0.15 per SMS, implemented in the last quarter of 2011. Local inbound SMS traffic, or SMS originating from other networks but terminating in Globe‟s network, grew against last year, partially mitigating the impact of the reduced access charges. Note further that the reduction in inbound SMS revenues was offset by a greater reduction in interconnect charges (for SMS originating in Globe‟s network but terminating in other networks). The Company provides superior text and data services to serve the needs of its loyal Globe and TM subscribers. Postpaid and prepaid customers get the most value for money with the array of unlimited and bucket offers for both SMS and mobile browsing services. Globe offers all-day unlimited on-net SMS for its postpaid and prepaid subscribers with UnliTxt20, while TM provides AstigTxt10 for the same service. Alternatively, for a 30-day subscription to unlimited on-net text service, Globe Postpaid and Globe Prepaid subscribers may avail of SuperTxt. TM subscribers, on

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the other hand, get unlimited on-net SMS for 2 days, 3 days, or 5 days by subscribing to other variants of the AstigTxt offering. The Company also offers a variant of its unlimited text service that comes with 50 minutes worth of voice calls within the Globe and TM networks with Globe Prepaid‟s SuperCombo20. On the other hand, value-seeking Globe and TM subscribers who wish to cap their daily SMS usage may subscribe to SuliTxt to get 100 and 25 on-net texts per day, respectively. The Company at the same time provides all-network text services led by My SuperTxt All, an unlimited text service for 30 days available for its Globe Postpaid subscribers. TM subscribers, on the other hand, get unlimited SMS to all networks for 1 day with UnliTxtAll20. For its all-network bucket text services, TM provides 150 SMS with its AstigTxtAll service, while Globe Prepaid offers 25 on-net SMS and additional 5 texts to other networks with its Immortal Txt offering. In addition, the SMS allocation from Immortal Txt does not expire for as long as the subscriber maintains a P5 load balance. Globe and TM also offer attractive and affordable mobile browsing services ranging from consumable time-based or volume-based data plans to unlimited mobile surfing. For unlimited chatting, downloading, e-mailing and surfing, Globe Postpaid and Globe Prepaid subscribers may subscribe to SuperSurf. For postpaid and prepaid subscribers who use BlackBerry® devices, Globe offers all-in unlimited BlackBerry® services with SuperSurf for BlackBerry® Max. Alternatively, for those who prefer to use selected services such as unlimited push email applications, Globe Postpaid and Globe Prepaid subscribers may simply avail of BlackBerry® Messaging, while if they only want to get unlimited access to social networking applications, they simply have to register to BlackBerry® Social. For unlimited use of BlackBerry® Messenger and free on-net SMS, Globe Postpaid and Globe Prepaid subscribers may register to BlackBerry® Chat. Alternatively, Globe Postpaid subscribers may avail of consumable add-on data plans with Postpaid PowerSurf which provides 50MB of data usage for as low as P99 for 30 days, while Globe Prepaid and TM subscribers can sign up for consumable time-based mobile browsing services for as low as P15 for 1 hour of use. For unlimited access to Facebook, meanwhile, the Company offers Super Facebook and TM Astig Facebook for only P10 a day for its Globe Prepaid and TM subscribers.

Mobile Voice Mobile voice revenues, which accounted for 51% of total mobile service revenues, increased by 6% from P32.5 billion in 2011 to P34.4 billion in 2012. Revenues grew largely on higher unlimited and bulk voice subscriptions as well as VOIP and roaming services than in 2011. This year-on-year increase compensated as well for the year-on-year decline in regular and IDD voice services. Globe remains the only operator in the country that offers per second voice charging with Globe‟s Super Sakto Calls and TM‟s Sulit Segundo which allow subscribers to make a local call for only P0.15 per second. The Company also provides affordable on-net bucket voice services such as Tawag 236 for 20-minute consumable calls for only P20 for Globe Postpaid and Globe Prepaid subscribers, alongside TM‟s Todo Tawag 15/15 service offering for 15-minute on-net call for only P15. To take a shorter 3-minute call within the TM and Globe networks, on the other hand, TM subscribers may simply register to TM SuliTawag 5 for only P5, or subscribe to TM Dagdag Call to get additional 3 minutes of calls for just P5 as long as a subscriber is registered to any of TM‟s text promotions. Likewise, the Company offers an all-network voice service with TM‟s AstigTawag20 which provides 15 consumable minutes of calls for only P20. Globe, on the other hand, continues to offer the market-changing 2-in-1 mobile and landline service SuperDuo for its postpaid and prepaid subscribers. For its international services meanwhile, Globe continues to offer its pioneering per-second charging, IDD Sakto Calls, and its P5 per minute overseas call, Super Sulit Tipid IDD, to select Bridge Mobile Alliance operators. Globe is at the same time offering a bucket IDD service to popular and selected overseas destinations with IDD Tingi, while continuing to offer its TipIDD card at various Globe distribution channels. The Company‟s international voice services also include Super IDD, an unlimited call service for 24 hours to select destinations worldwide, and Globe Duo International, which provides registered Globe Postpaid and Globe Prepaid subscribers with virtual US landline numbers which they can use to

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communicate with their loved ones in the USA. Families and friends in the USA in turn may call their loved ones back in the Philippines and be charged at domestic US rates only. The Company also provides its subscribers with the best possible mix of voice, SMS, and mobile browsing services through its extensive array of combo packages. Globe Postpaid subscribers, for instance, may take unlimited calls and send unlimited texts to a frequently called Globe or TM number for just P175 for 30 days with its SuperOne service offering. Alternatively, postpaid subscribers may avail of SuperUnli to make unlimited calls and SMS to any Globe or TM subscribers. For Globe Prepaid, subscribers are allowed to make unlimited on-net calls, send unlimited on-net SMS and browse all they want by subscribing to All Unli Trio for as low as P60 a day. Globe Prepaid also offers unlimited all-network SMS plus 1 hour of mobile browsing with SuperUnliAllTxt 25. Subscription to SuperAll Txt 20, on the other hand, allows subscribers to send 250 texts to all networks and make 10 minutes of on-net calls for only P20 a day. Globe Prepaid also offers All Net Combo for unlimited all-network SMS and 10 minutes of all-network calls, 50 minutes of on-net calls, and additional 5 MB of consumable mobile browsing for as low as P25 a day. The Company likewise offers Immortal Trio to Globe Prepaid subscribers to allow 50 on-net SMS, 5 all-network texts and 5 minutes of on-net calls for only P25 per subscription. Similar to the other Immortal services, the SMS and voice allocations from the promos do not expire for as long as the subscriber maintains a P5 load balance. Globe Prepaid subscribers also have the option to subscribe to Unli Tingi to get unlimited all-network texts, unlimited on-net calls, and unlimited mobile browsing valid for 1 hour for only P5. SuperUnli, which allows unlimited calls and SMS within the Globe and TM networks, is also available for one day subscription for Globe Prepaid subscribers for only P25. TM, on the other hand, offers unlimited on-net calls from 10 PM to 5 PM the following day and unlimited on-net SMS for 24 hours with UnliCombo for as low as P20 for 1 day. TM subscribers similarly get bucket text service to all networks, unlimited on-net SMS and bulk on-net voice calls with AstigCombo.

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The key drivers for the mobile business are set out in the table below:

For the Year Ended

31-Dec 31-Dec YoY

2012 2011 Change

(%)

Cumulative Subscribers (or SIMs) Net (End of period)……….. 33,119,035 30,040,400 10%

Globe Postpaid 1………………………………………………………. 1,734,468 1,454,706 19%

Prepaid .………………………………………………………………... 31,384,567 28,585,694 10%

Globe Prepaid ……………………………………………………… 16,440,142 15,462,432 6%

TM …………………………………………………………………… 14,944,425 13,123,262 14%

Net Subscriber (or SIM) Additions………………………………... 3,078,635 3,569,541 -14%

Globe Postpaid . ………………………………………………………. 279,762 388,569 -28%

Prepaid .………………………………………………………………... 2,798,873 3,180,972 -12%

Globe Prepaid ……………………………………………………… 977,710 1,627,716 -40%

TM …………………………………………………………………… 1,821,163 1,553,256 17%


ARPU 2

Globe Postpaid ……………………………………………………… 1,191 1,223 -3%

Prepaid

Globe Prepaid……………………………………………………….. 150 171 -12%

TM…………………………………………………………………….. 92 101 -9%

Subscriber Acquisition Cost (SAC)

Globe Postpaid……………………………………………………….... 8,432 4,479 88%

Prepaid

Globe Prepaid……………………………………………………….. 20 42 -52%

TM…………………………………………………………………….. 16 27 -41%

Average Monthly Churn Rate (%)

Globe Postpaid………………………………………………………… 1.8% 1.5%

Prepaid

Globe Prepaid……………………………………………………….. 5.6% 5.5%

TM…………………………………………………………………….. 6.2% 6.5% 1

As of 4Q 2012, Globe had a total of 2.07 million wireless postpaid subscribers which include 1.73 million mobile telephony and 0.34 million wireless broadband customers. This is higher compared to the 1.99 million wireless postpaid subscribers as of 3Q 2012. Mobile telephony revenues are reflected under “Mobile Service Revenues” while wireless broadband revenues are included under “Broadband.”

2 ARPU is computed by dividing recurring gross service revenues (gross of interconnect expenses) segment by the average number of the segment’s subscribers and then dividing the quotient by the number of months in the period.

Globe ended the year with total mobile subscriber base of 33.1 million, up 10% over previous year‟s 30.0 million. Fourth quarter gross additions registered a quarterly-high of 6.7 million and were led by the record acquisitions in Globe Prepaid and TM during the period. Full year 2012 gross additions, as a result, rose 6% from 2011 level of 23.2 million to 24.6 million new SIMs. While churn rates were maintained within manageable levels, the impact of the slowdown in acquisitions in the third quarter weighed down full year 2012 net incremental subscribers to 3,078,635, 14% below 2011 level of 3,569,541 net additions.

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The succeeding sections cover the key segments and brands of the mobile business – Globe Postpaid, Globe Prepaid and TM. Globe Postpaid The postpaid segment accounted for 5% of the total mobile subscriber base. Globe Postpaid, which remains the stronghold of the Company, continued to post robust acquisitions throughout the year. Sales of the latest devices from Apple

™, Samsung, and BlackBerry

® also helped fuel acquisitions in the

segment which brought full year 2012 gross additions to a record 589,642, slightly up by 1% from 585,724 in 2011. With slightly elevated churn, full year net incremental postpaid subscribers of 279,762 were below the 2011 level of 388,569. Full year 2012 net acquisitions reflected as well the improving quality of acquired subscribers with about 42% of regular postpaid net additions signing up for plans with monthly service fees of P999 and above, compared to just 19% in 2011. Globe capped off the year with the launch of the Apple™ iPhone 5 in the country. The latest device from Apple™ continued to generate a strong following, which was likewise complemented by subscriber availments of the latest gadgets from Samsung, BlackBerry®, and Nokia. These fueled subscriber acquisitions throughout the year and enabled the Company to post record additions in postpaid for 2012. On the other hand, to address the needs of the Filipino traveler and at the same time improve its suite of international services, Globe launched unlimited call, SMS, and mobile data roaming services such as Bridge Data Roam Unlimited, Bridge Data Roam Unlimited Plus, Bridge Voice SMS Roam, and All-Unlimited Roaming in Thailand for on-the-go Filipinos in select destinations during the year. All these initiatives translated to a year-on-year improvement in revenues and helped the Company to defend its strong leadership position in this segment of the market. Globe Postpaid ARPU of P1,191 was 3% below last year‟s P1,223 as a result of a higher mix of lower-MSF plans and the increase in subscriptions to the Company‟s value service offerings. Globe Postpaid subscriber acquisition cost (SAC) increased substantially in 2012 mainly on higher handset subsidies for subscriber availments of devices from Apple

™, Samsung and BlackBerry

®. Costs,

however, remain recoverable well within the 24-month contract period for postpaid subscribers. Prepaid Globe‟s prepaid segment, which includes the Globe Prepaid and TM brands, accounts for 95% of its total mobile subscriber base. As of the end of 2012, cumulative prepaid subscribers stood at about 31.4 million, 10% above the 2011 level of 28.6 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 SMS value. If the subscriber does not reload prepaid credits within the first expiry period, the subscriber retains the use of the mobile number but is only entitled to receive incoming voice calls and text messages for another 120 days (second expiry). The second expiry is 120 days from the date of the first 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 3 days for P10 to 120 days for P500 reloads. 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. In 2009, the National Telecommunications Commission (NTC) published Memorandum Circular 03-07-2009 which promulgates the extension of the validity periods of prepaid reloads effective July 19, 2009. Under the new pronouncement, the first expiry periods now range from 3 days for P10 or below to 120 days for reloads amounting to P300 and above. The second expiry remains at 120 days from the date of the new first expiry periods. The succeeding sections discuss the performance of the Globe Prepaid and TM brands in more detail.

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a. Globe Prepaid Globe Prepaid comprised 50% of the total mobile subscriber base. Boosted by value-for-money offerings that included the all-unlimited service GoUnli as well as All Unli Trio, All Net Combo, Immortal Offers and Unli Tingi, and further reinforced by competitively-priced international services such as GoTipIDD, full year gross acquisitions improved by 3% from about 11.4 million in 2011 to nearly 11.8 million in 2012. While churn rates were maintained at manageable levels, the third quarter decline weighed down full year 2012 net incremental subscribers to 977,710, 40% below the 2011 level of 1,627,716 net incremental subscribers. Globe Prepaid continued to offer the best value-for-money services to its subscribers. In 2012, Globe introduced an easy way to connect and subscribe to Globe‟s latest promos with the launch of a self-service menu where subscribers simply have to dial *143# to get a complete list of Globe‟s latest offerings. To beef up its service offerings and be more competitive in the market, Globe Prepaid introduced the following during the year: AllUnliTrio, All Net Combo, Immortal Trio, Immortal Txt, Unli Tingi, and Go Unli. For its mobile browsing service, Globe Prepaid launched SuperFB, Social20, Fun20, Mail20, and PowerSurf Megabytes to address growing demand and increasing mobile data usage. To boost its international service offerings and help connect Filipinos with their loved ones, Globe Prepaid re-launched one of its top-selling international call services and what used to be Super US Direct to Globe Duo International. Globe also offered discounted IDD rates to select partners and popular destinations with the launch of Go TipIDD and Go IDD. Globe Prepaid ARPU declined by 12% year-on-year resulting from the revenue dilution from unlimited and bucket service offerings. Globe Prepaid SAC, on the other hand, was below its 2011 levels due mainly to lower ads and promo spending and remained recoverable within a month‟s ARPU.

b. TM TM, which accounted for 45% of the total mobile subscriber base, generated the highest gross acquisitions in the fourth quarter to bring full year total gross additions to about 12.3 million, up 9% from 11.2 million in 2011. TM benefited from the various product launches throughout the year that included value service offerings such as TM Combo and the enhanced mobile browsing offers for TM which now include SuperSurf, Social20, Mail20, and Fun20. With churn rates maintained within manageable levels, full year net incremental subscribers increased by 17% from about 1.6 million in 2011 to 1.8 million. TM marked the year with the launch of mobile browsing services to its subscribers. To complement the growing number of smartphone users, TM subscribers may already subscribe to SuperFB, SuperSurf, as well as Social20, Fun20, and Mail20 beginning in 2012. Duo International was also made available to TM subscribers who wish to get connected with their loved ones in the US. On the other hand, TM continued to improve as well its existing service offerings with TM Extend, which provides subscribers an extra day of unlimited texts within the TM or Globe networks. TM ARPU was down by 9% year-on-year with the continued shift from regular pay-as-you-use service to unlimited and value offers. TM SAC, on the other hand, was below its 2011 levels due mainly to lower ads and promo spending, and remained recoverable within a month‟s ARPU. GCash GCash continues to establish its presence in the mobile commerce industry. 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:

domestic and international remittances

utility bills

interest and amortization of loans

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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

airline tickets In addition to the above transactions, GCash is also used as a wholesale payment facility. In 2011, Globe increased the number of establishments that offer GCash as an alternative and efficient payment mode. Quick Delivery tapped GCash to be its newest payment mode to make it easier, safer and more convenient to order food from Metro Manila‟s top restaurants, specialty stores, and even wine merchants. The largest local chain of movie theaters, SM Cinema, was able to launch the first mobile ticketing service in the country through GCash, allowing moviegoers to purchase tickets online, pay via GCash, and redeem movie tickets at the cinemas using their mobile phones. In October 2010, Globe launched the GCash Card, the country‟s first customizable ATM card linked to a mobile wallet. This gives subscribers 24/7 access to GCash and allows them to withdraw funds via any of the 9,000 Bancnet, Megalink, ExpressNet or Encash Automated Teller Machines (ATMs) nationwide. In addition, the GCash Card is the only customizable ATM Card in the country where subscribers can make their own personalized ATM card design or choose from a variety of design templates. In 2012, Globe launched GCash PowerPay+ to provide an additional channel to facilitate mobile transactions. GCash PowerPay+ is a funds disbursement service linked to a Globe or TM SIM and comes with an optional insurance coverage. With GCash PowerPay+, users enjoy mobile money services like sending money, buying Globe or TM airtime load with a 10% rebate, and paying bills at the speed of a text message without the need to cash-in to one‟s GCash account. It also allows 24/7 withdrawal from any of the 9,000 Automated Teller Machines (ATMs) nationwide, cashless shopping through Megalink, BancNet and ExpressNet point of sale and financial assistance for accidental death and burial assistance, life cover, residential fire, and ATM theft. Globe has also launched GCash Remit Service to provide mobile subscribers a quick, affordable and convenient way to send and receive domestic and international remittances. With the approval of the Bangko Sentral ng Pilipinas (BSP) to use its sub-distributors as cash-in and cash-out outlets, GCash now has the largest remittance network in the country with more than 9,000 active GCash outlets nationwide. In 2011, GCash further strengthened its presence in the mobile money transfer business by establishing partnerships with various institutions. Globe partnered with Ericsson to integrate GCash into the new Ericsson Money Services making GCash one of the first partners for this innovative end-to-end mobile money solution. The Company also inked a partnership with US-based IDT Corporation which will enable GXI to strengthen its GCash Remit‟s international remittance service by facilitating connectivity between traditional money transfer operators and GCash utilizing IDT‟s economical corridor routing, transaction settlement and foreign currency exchange services. Globe, through GXI, also partnered with Japan‟s SOFTBANK Corp. through its subsidiary SBPS for an affordable, convenient, and secure remittance service that will allow Filipinos living and working in Japan to remit money to the Philippines via the GCash platform. The Company likewise set up a partnership with Xpress Money, a leading global instant money transfer brand, to further extend the latter‟s strong payout network in the Philippines. With this tie-up, beneficiaries of Xpress Money Cash Pick Up remittances can now claim their money from the network of GCash Remit outlets nationwide. For electronic banking services, meanwhile, GCash secured a partnership with Philippine Savings Bank (PSBank), the thrift banking arm of the Metrobank Group, to enhance its electronic banking channels. Through GCash, PSBank accountholders can do various financial transactions such as payments, account inquiries and reloading from their PSBank account to their enrolled GCash wallet and vice-versa. In the same manner, Globe partnered with UnionBank of the Philippines (UnionBank) for its eMoney Xchange service that will allow customers to link their UnionBank accounts to their GCash mobile wallets

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enabling UnionBank clients with EON, E-Wallet, ePayCard and UnionBank regular savings and checking accounts to transfer funds to and from their GCash wallets through their UnionBank account via SMS. To further complement its mobile wallet functions, Globe recently partnered with American Express® to launch the GCash American Express® Virtual Card. The prepaid virtual card is linked to a subscriber‟s GCash mobile wallet and allows users to shop conveniently online from both local and international sites. Further, it gives the user a personalized US Address to allow delivery of purchases from international online sites which may not be directly shipping goods to the Philippines. To reach out to a wider audience and complement the increased smartphone penetration, Globe launched a GCash mobile application for BlackBerry® devices in 2011. The mobile application can be downloaded for free via the BlackBerry® App World. Beginning third quarter of 2012, however, the Company has made the GCash mobile wallet available and accessible to a wider subscriber base who may download the application for free from the App Store and Google Play. The efficiency of GCash’s mobile cash transfer system was recognized by various government agencies and socially-oriented organizations such as DSWD (Department of Social Welfare and Development), Simbahang Lingkod ng Bayan (SLB), and the United Nations World Food Programme (WFP). In 2011, GCash Remit was tapped by DSWD and Land Bank of the Philippines for the distribution of the government‟s Conditional Cash Transfers (CCT). A total of about P4.5 billion worth of CCT were distributed to beneficiary families in over 9,000 barangays nationwide via its domestic cash pick-up service. The GCash platform was also utilized by SLB, a church-based, Jesuit-led organization, as a donation channel for its relief operations for typhoon victims. The WFP meanwhile named GCash as a benchmark for their operations worldwide. WFP is the world‟s largest humanitarian agency fighting hunger worldwide. WFP is currently involved in the disaster relief operations for typhoon Sendong victims in Mindanao. To improve its efficiency in delivering assistance, WFP has tapped Globe through its GCash mobile technology platform for the fast, secure and low-cost delivery of financial assistance to families who were severely affected by calamities. The partnership flourished with Globe providing the necessary platform to facilitate the Cash-for-Work program and other relief and recovery operations by the WFP. Through GCash, WFP discovered a new and efficient way of providing financial assistance to help families restore and rebuild their lives. On October 9, 2009, the Company announced that the BSP has approved the sale and transfer by Bank of the Philippine Islands (BPI) of its shares of stock in Pilipinas Savings Bank, Inc. (PSBI) that will result in the ownership of PSBI as follows: 40% each for BPI and Globe Telecom and 20% for Ayala Corporation (AC). On October 23, 2009 the official name of PSBI was changed to BPI Globe BanKo, Inc. after getting the approval of both the BSP and the Securities and Exchange Commission (SEC). BPI Globe BanKo, Inc. is the country‟s first mobile microfinance bank. BPI Globe BanKo, Inc. opened its first branch last February 2010, and added 5 provincial branches located in Dipolog, Dumaguete, Lucena, Naga and Tacloban. While the bank‟s initial focus is on wholesale lending to other microfinance institutions, it is now expanding into retail banking products and services to include micro-savings, micro-lending, and insurance. In 2011, BPI Globe BanKo, Inc. launched an innovative product that does not only generate healthy financial returns, but also gives depositors an opportunity to help those in the low-income segment by helping create a solid base for their savings and investments. Called the BanKo Social Initiative (BSI) Deposit, the product is a passbook-based, regular savings account which pays 4.5% interest per annum on a quarterly basis. The minimum deposit requirement is P100,000 with a hold-out period of at least 6 months. The BSI Deposit account, which does not charge depositors with documentary stamp taxes, is also insured with the PDIC for amounts up to P500,000 per depositor.

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FIXED LINE AND BROADBAND BUSINESS

For the Year Ended

Service Revenues (Php Mn) 31-Dec 31-Dec YoY

2012 2011 Change

(%)

Service

Broadband 1..……………………………………………………… 8,721 7,496 16%

Fixed line Data 2…………………………………………………… 4,167 3,792 10%

Fixed line Voice 3 ….……………………………………………… 2,665 2,939 -9%

Fixed Line and Broadband Service Revenues……................. 15,553 14,227 9%

1 Broadband service revenues consist of the following:

e) Monthly service fees of wired, fixed wireless, and fully mobile broadband data only and bundled voice and

data subscriptions; f) Browsing revenues from all postpaid and prepaid wired, fixed mobile and fully mobile broadband packages

in excess of allocated free browsing minutes and expiration of unused value of prepaid load credits; g) Value-added services such as games; and h) Installation charges and other one-time fees associated with the service.

2

Fixed line data service revenues consist of the following:

e) Monthly service fees from international and domestic leased lines; f) Other wholesale transport services; g) Revenues from value-added services; and h) One-time connection charges associated with the establishment of service.

3

Fixed line voice service revenues consist of the following:

g) Monthly service fees including CERA of voice-only subscriptions; h) Revenues from local, international and national long distance calls made by postpaid, prepaid fixed line

voice subscribers, and payphone customers, as well as broadband customers who have subscribed to data packages bundled with a voice service. Revenues are net of prepaid and payphone call card discounts;

i) Revenues from inbound local, international and national long distance calls from other carriers terminating on Globe‟s network;

j) Revenues from additional landline features such as caller ID, call waiting, call forwarding, multi-calling, voice mail, duplex and hotline numbers and other value-added features;

k) Installation charges and other one-time fees associated with the establishment of the service; and l) Revenues from DUO and SUPERDUO (Fixed line portion) service consisting of monthly service fees for

postpaid and subscription fees for prepaid. m) 2011 service revenues have been restated to reflect the change in the presentation of outbound revenues to

be at gross of interconnect expenses (from net previously).

Broadband

For the Year Ended

31-Dec 31-Dec YoY

2012 2011 Change

(%)

Cumulative Broadband Subscribers

Wireless 1

………………………………………………………….... 1,331,413 1,121,703 19%

Wired…………………………………………………………………. 340,560 289,463 18%

Total (end of period)………………………………………………… 1,671,973 1,411,166 18% 1 Includes fixed wireless and fully mobile broadband subscribers.

Globe Tattoo expanded its subscriber base by 18% from 1.4 million in 2011 to 1.7 million in 2012. Mobile broadband solutions continued to enjoy popularity amongst customers with 77% of net additions for the

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year opting for Tattoo On-The-Go products. Keeping up with wireless broadband growth, Tattoo DSL

subscribers increased 18% year-on-year to 340,560. Subscriber volume driven growth propelled broadband revenues to P8.7 billion, P1.2 billion higher than 2011‟s P7.5 billion. Broadband revenues now comprise 11% of total gross service revenues, up from 10% in the previous year. This was made possible by a line-up of products and services aimed at empowering subscribers to live without limits. In the first part of the year, the Company launched LiveTattoo.ph, the first-ever online lifestyle site in the country that allows Tattoo users to fuel their passion be it gaming, music, travel or fashion via exclusive offers from over 50 partner establishments. In line with this, the new prepaid dongles, Tattoo Prepaid Lifestyle Sticks do more than give surf speeds of up 7.2 Mbps powered by the largest 4G network, it comes with freebies and perks designed for an individual‟s lifestyle. Globe Tattoo also gave subscribers the power to surf by their own rules. With Tattoo Consumable Plans’ lowest browsing rate of P2.50 for 15 minutes and Supersurf, one can control how they consume their broadband and stretch their Plan 299 and 499 to as much as 172 hours and 292 hours respectively. Always at the forefront of broadband technology, Globe Tattoo rolled-out its LTE service last September. Dubbed as the technology of the future, Long Term Evolution (LTE) delivers breakneck speeds in internet connectivity. With Tattoo Black Plans 1799 and 2499, subscribers can enjoy speeds of up to 28 Mbps and 42 Mbps respectively.

Fixed Line Data

Globe Group

For the Year Ended

Service Revenues (Php Mn)

31-Dec 31-Dec YoY

2012 2011 Change (%)

Fixed line Data

International …..…………………………………………………… 899 956 -6%

Domestic …… …………………………………………………….. 1,958 1,730 13%

Others 1 …………………………………………………………… 1,310 1,106 18%

Total Fixed line Data Service Revenues……………………….. 4,167 3,792 10% 1 Includes revenues from value-added services such as internet, data centers and bundled services.

Fixed line data also contributed to Globe‟s overall top line growth with revenues of almost P4.2 billion, 10% greater than the P3.8 billion booked in 2011. This was accomplished by the Company‟s innovative business solutions and products that capitalized on demand for high-speed data nodes, transmission links, bandwidth capacity and reliable service. Globe Business‟ products include M2M (machine-to-machine) solutions, cloud computing services, domestic and international data services, leased lines and managed services among other solutions for improving a business‟ productivity and IT security.

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Fixed Line Voice

Globe Group

For the Year Ended

31-Dec 31-Dec YoY

2012 2011 Change

(%)

Cumulative Voice Subscribers – Net (End of period) 1

……… 711,429 671,730 6%


ARPU……………………………………………………………….. 325 395 -18%

Average Monthly Churn Rate ..………………………………….. 2.8% 2.8% 1 Includes DUO and SuperDUO subscribers.

Subscription to traditional landline service was slightly revived through low call rate offers and together

with DUO & SUPERDUO’s continued popularity lifted cumulative voice subscriber base 6% to 711,429

customers. However, revenues still fell 9% to P2.7 million as the strategy lowered MSF and consequently

ARPU.

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OTHER GLOBE GROUP REVENUES

International Long Distance (ILD) Services

Globe Group

For the Year Ended

ILD Revenues and Minutes

31-Dec 31-Dec YoY

2012 2011 Change (%)

Total ILD Revenues (Php Mn) ……………………………………... 12,653 13,344 -5%

Average Exchange rates for the period (Php to US$1)…………… 42.384 43.362 -2%

Total ILD Minutes (in million minutes) 1…………………………. 2,691 2,527 6%

Inbound………………………………………………………………. 2,338 2,268 3%

Outbound.……………………………………………………………. 353 259 36%

ILD Inbound / Outbound Ratio (x) ………………………………... 6.62 8.76 1 ILD minutes originating from or terminating to Globe and Innove networks.

In 2012, Globe and Innove unveiled the world‟s first-ever all-unlimited call, text and mobile browsing roaming service. With Globe All-Unli Roam, postpaid subscribers can continue enjoying all three unlimited services for only $40 per day. Also, because the Company is a member of the Bridge Alliance, the alliance between 11 of Asia Pacific‟s leading mobile operators, Globe subscribers get easy access to any of Bridge’s roaming services by dialing *145#. Travelers to Asia Pacific countries can avail of Bridge DataRoam Unlimited, an unlimited mobile surfing promo, for $10. Those going to the US, Europe or China can register to Bridge DataRoam Unlimited Plus to use unlimited web browsing for $15 a day. On top of these new roaming service, the Company continues to offer its OFW SIM packs and its discounted and unlimited international call products such as IDD Sakto Calls (per-second IDD charging), IDD Tingi (bundled IDD minutes), TipIDD (lowest per minute charging, now available from the *143# menu), and Duo International (unlimited IDD calls). This wide range of roaming and international offers are made possible by the strong partnerships Globe has forged with over 600 mobile operators worldwide. These services generate 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. Combined ILD voice revenues for 2012 from the mobile and fixed line business went down 5% from P13,344 million to P12,653 million caused by the 2% strengthening of the Philippine peso against the US dollar coupled by the lower call rates offered by the above-mentioned products and services.

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GROUP OPERATING EXPENSES Total costs and expenses including depreciation for 2012 amounted to P=71,315 million, 16% higher than 2011‟s P=61,602 million. This reflects the elevated levels of marketing and subsidy, and network-related expenditures spent throughout the year in order to acquire and retain subscribers and provide a better and more resilient network. In addition to the rise in operating expenses, the continued accelerated depreciation of assets rendered non-usable by the Company‟s network change-out increased depreciation by 25% to P=23,584 million.

Globe Group

For the Year Ended

Costs and Expenses (Php Mn) 31-Dec 31-Dec YoY

2012 2011 Change (%)

Cost of sales……………………………………………………………. 7,679 5,888 30%

Non-service revenues…………………………………………………. 3,704 3,753 -1%

Subsidy…………………………………………………………………. 3,975 2,135 86%

Interconnect……………………………………………………………... 8,859 9,954 -11%

Selling, Advertising and Promotions ……………………………….. 6,441 4,756 35%

Staff Costs ……………………………………………………………… 6,429 5,810 11%

Utilities, Supplies & Other Administrative Expenses……………….. 4,260 3,805 12%

Rent……………………………………………………………………… 3,153 2,830 11%

Repairs and Maintenance…………………………………………….. 3,672 3,523 4%

Provisions ………………….………………………………………………… 1,604 1,790 -10%

Services and Others…………………………………………………... 9,338 8,058 16%

Operating Expenses…………………………………………………. 43,756 40,526 8%

Depreciation and Amortization ……………….………………….... 23,584 18,941 25%

Affected by modernization………………………………………….. 5,080 -

Others………………………………………………………………… 18,504 18,941 -2%

Total Costs and Expenses…………………………………………... 71,315 61,602 16%

Interconnect Interconnect costs went down 11% from P9,954 million in 2011 to P8,859 this year following an NTC-mandated lowering of the SMS access charge from P0.35 to P0.15 per SMS. As a result, interconnection charges as a percentage of total subsidy and operating expenses declined from 23% to 19%. Subsidy and Marketing Subsidy and marketing, which comprise 22% of total subsidy and operating expenses, surged to P10,416 million in 2012, 51% higher than the P6,891 million booked in the previous year. Subsidies reached P3,975 million while selling, advertising and promotions rose to P6,441 million mainly driven by increased handset issuances and higher subsidy per plan as the Company invested in subscriber acquisition and retention, and other brand-building efforts. In addition to these, Globe also launched several campaigns and promotions in order to defend against competition and increase share in consumer spend. Staff Costs Staff costs grew P619 million to P6,429 million in 2012 caused by a larger headcount and its associated employee-related benefits and incentives. Total headcount was at 5,872 at the end of 2012, up from 5,757 in 2011. Staff costs represent 13% of total subsidy and operating expenses down from 14% in the previous year.

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Utilities, Supplies and Other Administrative Expenses Utilities, supplies and other administrative expenses, including travel and transportation, rose 12% to P4,260 million following higher charges for electricity, gasoline, airfare, and accommodations. Rent Lease charges for cell sites, international cable facilities, joint poles, IP ports and stores went up P=323 million to P=3,153 million on increased number cell sites, base stations, Globe facilities and Globe stores coupled with higher rental rates. Provisions Provisions for the year, which include trade, traffic and non-trade provisions, dropped 10% to P=1,604 million following lower provisions for traffic and lower probable losses from advances to contractors and vendors. Repairs and Maintenance The Company incurred P=3,672 million in charges relating to the maintenance of Globe‟s hardware, software and network facilities in 2012. This represents a 4% increase from last year‟s spending proportionate with the growth of Globe‟s network. Globe‟s cell sites and base stations totaled 20,338 as of December 2012, 4% more than in 2011. Services and Others

Services and other expenses increased 16% to P=9,338 million coming from engaging more contracted services both for day-to-day operations and the ongoing network modernization and paying higher fees for taxes, licenses and royalties. Consequently, services and other expenses for the year comprised 20% of total subsidy and operating expenses, up from 19% in the previous year. Depreciation and Amortization Depreciation costs for the year amounted to P=23,584 million, up 25% from 2011‟s P=18,941 million. As the Company had disclosed in the past, the carrying value of the old, non-usable assets would impact Globe‟s profit and loss statement through an acceleration of depreciation over it remaining useful life and until such time when the new, replacement assets are ready for service. The impact of accelerated depreciation in 2012 amounted to P5,080 or 22% of total depreciation. Excluding this item, depreciation would have been down 2% from P=18,941 million to P=18,504 million.

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NON-OPERATING CHARGES

Other income statement items include net financing costs, net foreign exchange gain (loss), interest income, and net property and equipment-related income (charges) as shown below:

Globe Group

Non-operating Income / Expense (Php Mn)

For the Year Ended

31-Dec 31-Dec YoY

2012 2011 Change

(%)

Financing Costs – net

Interest Expense…………………………………………………... (2,086) (2,059) 1%

Gain / (Loss) on derivative instruments………………………… (75) 25 -400%

Swap costs and other financing costs…………………………... (183) (211) -13%

Foreign Exchange (loss) / gain – net……………………………. 318 (309) -203%

(2,026) (2,554) -21%

Interest Income …………………………………………………….. 580 297 95%

Others – net…………………………………………………………. (213) 191 -212%

Total Other Expenses……………………………………………… (1,659) (2,066) -20%

At end-December 2012, the Globe group‟s non-operating charges decreased by 20% year-on-year from about P2.1 billion to P1.7 billion. This was driven mainly by higher foreign exchange gains and interest income realized in 2012 than in the previous year (See related discussion on derivative instruments and swap costs in the Foreign Exchange and Interest Rate Exposure section). Interest expense was slightly up in 2012 mainly on increased borrowings to support the network modernization and IT transformation projects. Interest expense in 2012 also included payment for the early redemption of the Company‟s fixed rate bonds originally maturing 2014. On the other hand, interest income almost doubled from 2011 to 2012 driven partly by investments in higher-yielding instruments as well as interest on BayanTel-related bonds.

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Liquidity and Capital Resources

Globe Group

31-Dec 31-Dec YoY

2012 2011 Change

(%)

Balance Sheet Data (Php Mn)

Total Assets ………………………………………………………. 148,433 130,839 13%

Total Debt …………………………………………………………. 61,779 48,679 27%

Total Stockholders‟ Equity ………………………………………. 46,755 48,428 -3%

Financial Ratios (x)

Total Debt to EBITDA ……………………………………………. 1.76 1.39

Debt Service Coverage…………………………………………… 2.02 3.10

Interest Cover (Gross) …………………………………………… 12.10 13.24

Debt to Equity (Gross) …………………………………………… 1.32 1.01

Debt to Equity (Net) 1 …………………………………………….. 1.18 0.90

Total Debt to Total Capitalization (Book) ………………………. 0.57 0.50

Total Debt to Total Capitalization (Market) ...………………….. 0.30 0.25

Globe‟s balance sheet and cash flows remain strong with ample liquidity and gearing comfortably within bank covenants albeit higher year-on-year with additional debt raised as a result of Globe‟s transformation initiatives. Globe Group‟s consolidated assets in 2012 amounted to P=148,433 million compared to P=130,839 million in 2011. Consolidated cash, cash equivalents and short term investments (including investments in assets available for sale and held to maturity investments) was at P6,760 million in 2012 compared to P5,159 million in 2011. The Company‟s gearing levels have been increasingly optimized over the past few years with the raised dividend payouts and higher proportion of debt to total capitalization. Globe ended the year with gross debt to equity ratio of 1.32:1 on a consolidated basis which is well within the 2:1 debt to equity limit dictated by its debt covenants. Meanwhile, net debt to equity ratio was at 1.18:1 compared to 0.90:1 in 2011. 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; and

Secured debt ratio 2 not exceeding 0.2 times.

As of 31 December 2012, Globe is well within the ratios prescribed under its loan agreements. (For a more detailed analysis on the balance sheet, please refer to pages 97-99 of Annex D).

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 2012.

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Consolidated Net Cash Flows

Globe Group

(Php Mn) 31-Dec 31-Dec YoY

change (%) 2012 2011

Net Cash from Operating Activities……………………………… 24,237 29,926 -19%

Net Cash from Investing Activities………………………………. (24,633) (18,190) 35%

Net Cash from Financing Activities……………………………… 2,198 (12,521) -118%

Net cash flows provided by operating activities in 2012 stood at P24,237 million, down 19% year-on-year driven by the increase in advances to suppliers and contractors related to the various projects being undertaken. Meanwhile, net cash used in investing activities amounting to P24,633 million was up 35% driven largely by investments in property and equipment resulting from the network modernization projects and ongoing efforts to expand the coverage and capacities of the Company‟s broadband network and improve the quality of its mobile service. Consolidated capital expenditures in 2012 amounted to P26,810 million, up 54% from the 2011 level of P17,417 million.

Globe Group

(Php Mn)

31-Dec 31-Dec YoY change

(%) 2012 2011

Capital Expenditures (Cash) ……………………………………….. 21,085 18,744 12%

Increase (decrease) in Liabilities related to Acquisition of PPE… 5,725 (1,327) -531%

Total Capital Expenditures1 ……………………………………… 26,810 17,417 54%

Total Capital Expenditures / Service Revenues 2 (%)…………… 32% 22%

1 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. 2

2011 service revenues have been restated to reflect the change in the presentation of outbound revenues to be at gross of interconnect expenses (from net previously).

For 2013, Globe has earmarked about US$550 – 650 Million in capital expenditures. This consists of US$160 – 210 Million for transformation initiatives and about US$290 Million for business as usual spend for provisions for fixed line data investments, international cable facilities, and IT infrastructure. Other capital expenditures for 2013 also include carryover spend of about US$100 Million from 2012. Consolidated net cash from financing activities generated an inflow of P2,198 million in 2012 compared to the net cash outflow of P12,521 million in 2011. This was driven largely by the bond issuance and borrowings from banks to fund the Company‟s network modernization and IT transformation program as well as finance business-as-usual capital expenditure requirements. The 2012 inflow was partially offset by payments of cash dividends as well as short-term and long-term loan repayments. Consolidated debt increased by 27% from P48,679 million in 2011 to P61,779 million in 2012. Out of the total debt, 13% are denominated in US$. There were no outstanding currency hedges on debt as of end-December 2012.

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Below is the schedule of debt maturities for Globe for the years stated below based on total outstanding debt as of 31 December 2012:

Year Due Principal * (US$ Mn)

2013 …………………………………………………………………………………………………………… 287 2014……………………………………………………………………………………………………………. 164 2015……………………………………………………………………………………………………………. 207 2016 …………………………………………………………………………………………………………… 65 2017 through 2022…………………………………………………………………………………………… 789

Total……………………………………………………………………………………………………………. 1,512

* Principal amount before debt issuance costs.

In January 2012, Globe Telecom, Inc. signed a ten-year, USD90-Million floating rate term loan facility with China Banking Corporation as lender to finance capital expenditures for 2012, which includes the Company‟s USD790 Million investment for its five-year massive network modernization and IT transformation program to boost voice and data capacity in anticipation of the growing demand for broadband and mobile data use. In the second quarter, Globe successfully issued its P4.5 billion five-year and P5.5 billion seven-year fixed rate bonds due 2017 and 2019, respectively, to help fund the Company‟s ongoing network modernization and IT transformation program as well as finance other capital expenditure requirements for the year. In September this year, Globe signed a P2.0 billion ten-year, fixed-rate term loan facility with The Philippine American Life and General Insurance Company, The Insular Life Assurance Company, Ltd. And Sunlife of Canada (Philippines), Inc. to refinance a portion of the Company‟s debts and to fund capital expenditures for 2013. Stockholders‟ equity at the end of 2012 stood at P46,755 million, 3% below the P48,428 million level in 2011. Globe‟s capital stock as of 31 December 2012 consists of the following:

Preferred Shares Preferred stock 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 has the following features: j. Issued at P5 par; k. Dividend rate to be determined by the BOD at the time of Issue; l. One preferred share is convertible to one common share starting at the end of the 10

th year of the

issue date at a price to be determined by the Globe Telecom‟s BOD at the time of issue which shall not be less than the market price of the common share less the par value of the preferred share;

m. Call option – Exercisable any time by Globe Telecom starting at the end of the 5th year from issue

date at a price to be determined by the BOD at the time of the issue; n. Eligibility of Investors – Only Filipino citizens or corporations or partnerships wherein 60% of the

voting stock of voting power is owned by Filipino; o. With voting rights; p. Cumulative and non-participating; q. Preference as to dividends and in the event of liquidation; and r. No preemptive right to any share issue of Globe Telecom, and subject to yield protection in case

of change in tax laws. The dividends for preferred shares are declared upon the sole discretion of the Globe Telecom‟s BOD.

As of 29 June 2011, none of the preferred shares have been converted to common shares.

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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

The dividend policy of Globe Telecom as approved by the Board of Directors is to declare cash dividends

to its common stockholders on a regular basis as may be determined by the Board. The dividend payout

rate starting 2006 is approximately 75% 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 November 6, 2009, the Board of Directors amended the dividend payment rate from 75% to a range

of 75% - 90% of prior year‟s net income.

On November 8, 2011, the Board of Directors amended the Company‟s dividend policy to be based on

core instead of reported net income. Pay-out range remains at 75% to 90%. This is to ensure that

dividends will remain sustainable and yields competitive despite the expected near-term decline in net

income that would result from the accelerated depreciation charges related to assets that will be

decommissioned as part of the Company‟s network and IT transformation programs. As currently defined,

core net income excludes all foreign exchange, mark-to-market gains and losses, as well as non-

recurring items.

On February 5, 2013, the Board of Directors approved the declaration of the first semi-annual cash

dividend of P33.50 per common share, payable to shareholders on record as of February 19, 2013. Total

dividends of about P4.4 billion will be paid on March 12, 2013. On an annualized basis, the first semester

dividend distribution represents 86% of 2012 core net income. Consolidated Return on Average Equity (ROE) registered at 14% in 2012 compared to 21% in 2011 using net income and based on average equity balances for the year ended. Using core net income to strip out the effects of accelerated depreciation on net income, return on average equity in 2012 was up at 22% compared to 21% in 2011. Accordingly, consolidated basic earnings per common share were P51.54 and P74.02, while consolidated diluted earnings per common share were P51.47 and P73.77 for the years ended 31 December 2012 and 2011, respectively.

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Financial Risk Management FOREIGN EXCHANGE EXPOSURE

Foreign exchange risks are managed such that USD inflows from operations (transaction exposures) are balanced or offset by the net USD liability position of the company (translation exposures). Globe Group‟s objective is to maintain a position which results in, as close as possible, a neutral effect to the P&L relative to movements in the foreign exchange market.

Transaction exposures Globe has natural net US$ inflows arising from its operations. Consolidated foreign currency-linked revenues

1 were at 21% and 24% of total service revenues for the periods ended 31 December 2012 and

2011, respectively. In contrast, Globe‟s foreign-currency linked expenses were at 10% and 8% of total operating expenses for the same periods ended, respectively.

The US$ flows are as follows:

2012

US$ and US$ Linked Revenues P15.4 billion

US$ Operating Expenses P3.4 billion

US$ Net Interest Expense P0.157 billion

Due to these net US$ inflows, an appreciation of the Peso has a negative impact on Globe‟s Peso EBITDA. Globe occasionally enters into forward contracts to hedge against a peso appreciation. Realized gains from forward contracts that matured in 2012 amounted to P21.29 million. There were no outstanding forward contracts as of December 2012.

1Includes 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

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Translation Exposures Globe also has US$ assets and liabilities which are revalued at market rates every period. These are as follows:

December 2012

US$ Assets US$215 million

US$ Liabilities US$376 million

Net US$ Liability Position US$161 million

For accounting purposes, the foreign currency assets and liabilities are revalued at the exchange rate at the end of each reporting period. Given the net US$ liability position, an appreciation of the peso results in a revaluation or forex gain in our P&L. As of December 2012, the Philippine Peso stood at P41.078 to the US dollar, an increase versus the 2011 year-end rate of P43.919. The Globe Group charged a total of P318 million in net foreign exchange gains to current operations for the year of 2012. Globe enters into swaps and forward contracts to hedge the FX risks on its USD capex and debt payments. The Globe Group charged a total of P11.75 million in losses from these instruments as of December 2012. As at end-December 2012, however, there are none of these outstanding forwards or swaps. The swap and forward contracts are not designated as hedges for accounting purposes (please refer to Notes 28.3 and 28.6 of the attached Notes to Financial Statements). INTEREST RATE EXPOSURE

Interest rate exposures are managed via targeted levels of fixed versus floating rate debt that are meant

to achieve a balance between cost and volatility. Globe‟s policy is to maintain between 44-88% of its

peso debt in fixed rate, and between 31-62% of its US$ debt in fixed rate. As of end-December 2012, Globe has a total of US$45.17 million and P6.19 billion in interest rate swap contracts that were entered into to achieve these targets. The US$ and Peso interest rate swaps fixed some of the Company‟s outstanding floating rate debts with quarterly or semi-annual payment intervals up to September 2015. As of end of December 2012, 59% of peso debt is fixed, while 31% of USD debt is fixed after swaps. The MTM of the interest rate swap contracts stood at a loss of P215.24 million as of end-December 2012.

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CREDIT EXPOSURES FROM FINANCIAL INSTRUMENTS

Outstanding credit exposures from financial instruments are monitored daily and allowable exposures are

reviewed quarterly.

For investments, the Globe Group does not have investments in foreign securities (bonds, collateralized debt obligations (CDO), collateralized mortgage obligations (CMO), or any instruments linked to the mortgage market in the US). Globe‟s excess cash is invested in short term bank and SDA deposits. The Globe Group also does not have any investments or hedging transactions with investment banks. Derivative transactions as of the end of the period are with large foreign and local banks. Furthermore, the Globe Group does not have instruments in its portfolio which became inactive in the market nor does the company have any structured notes which require use of judgment for valuation purposes. (Please refer to Note 28.2.2 of the attached Notes to the Financial Statements for additional information on active and inactive markets).

VALUATION OF DERIVATIVE TRANSACTIONS The company uses valuation techniques that are commonly used by market participants and that have been demonstrated to provide reliable estimates of prices obtained in actual market transactions. The company uses readily observable market yield curves to discount future receipts and payments on the transactions. The net present value of receipts and payments are translated into Peso using the foreign exchange rate at time of valuation to arrive at the mark to market value. For derivative instruments with optionality, the company relies on valuation reports of its counterparty banks, which are the company‟s best estimates of the close-out value of the transactions. Gains (losses) on derivative instruments represent the net mark-to-market (MTM) gains (losses) on derivative instruments. As of 31 December 2012, the MTM value of the derivatives of the Globe Group amounted to a loss of P215.24 million while loss on derivative instruments arising from changes in MTM reflected in the consolidated income statements amounted to P53.52 million. (Please refer to Note 28.8 of the attached Notes to Financial Statements for gains/losses of preceding periods). To measure riskiness, the Company provides a sensitivity analysis of its profit and loss from financial instruments resulting from movements in foreign exchange and interest rates. (Please refer to attached Notes 28.2.1.1 and 28.2.1.2 of the Financial Statements for the sensitivity analysis results.) The interest rate sensitivity estimates the changes to the following P&L items, given an indicated movement in interest rates: (1) interest income, (2) interest expense, (3) mark-to-market of derivative instruments. The foreign exchange sensitivity estimates the P&L impact of a change in the USD/PHP rate as it specifically pertains to the revaluation of the net unhedged liability position of the company, and foreign exchange derivatives.

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Recent Legal Developments

D. On 23 July 2009, the NTC issued NTC Memorandum Circular (MC) No. 05-07-2009 (Guidelines on Unit of Billing of Mobile Voice Service). The MC provides that the maximum unit of billing for the cellular mobile telephone service (CMTS) whether postpaid or prepaid shall be six (6) seconds per pulse. The rate for the first two (2) pulses, or equivalent if lower period per pulse is used, may be higher than the succeeding pulses to recover the cost of the call set-up. Subscribers may still opt to be billed on a one (1) minute per pulse basis or to subscribe to unlimited service offerings or any service offerings if they actively and knowingly enroll in the scheme. In compliance with NTC MC 05-07-2009, Globe refreshed and offered to the general public its existing per-second rates that, it bears emphasizing, comply with the NTC Memorandum Circular. Globe made per second charging for Globe-Globe/TM-TM/Globe available for Globe Subscribers dialing prefix 232 (GLOBE) OR 803 plus 10-digit TM or Globe number for TM subscribers. The NTC, however, contends that Globe‟s offering does not comply with the circular and with the NTC‟s Order of 7 December 2009 which imposed a three-tiered rate structure with a mandated flag-down of P3.00, a rate of P0.4375 for the 13th to the 160th second of the first minute and P0.65 for every 6-second pulse thereafter. On 9 December 2009, the NTC issued a Cease and Desist Order requiring the carriers to refrain from charging under the previous billing system or regime and refund consumers.


On 25 May 2010, the CA issued a writ of preliminary injunction directing the NTC to cease and desist from enforcing their assailed Order/s. On 28 December 2010, the CA rendered a Decision declaring the questioned decisions invalid for being violative of the Petitioners‟ right to due process, among others. The Petitioners and the NTC filed their respective Motions for Partial Reconsideration. The motions were DENIED by the CA in an Order dated 19 January 2012. Due to lack of material time, the NTC and the Petitioners seasonably filed their respective Motions for Extension of Time to File Petition for Review with the Supreme Court. The Movants are expected to file their respective petitions within the month of March 2012. Globe believes that its legal position is strong and that its offering is compliant with the NTC‟s Memorandum Circular 05-07-2009, and therefore believes that it would not be obligated to make a refund to its subscribers. If, however, Globe would be held as not being in compliance with the circular, Globe may be contingently liable to refund to any complaining subscribers any charges it may have collected in excess of what it could have charged under the NTC‟s disputed Order of 7 December 2009, if indeed it is proven by any complaining party that Globe charged more with its per second scheme than it could have under the NTC‟s 6-second pulse billing scheme stated in the disputed Order. Management has no estimate of what amount this could be at this time.

E. On 22 May 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. The Supreme Court ordered the reinstatement of the case and has forwarded it to the NTC-Olongapo for trial.

F. PLDT and its affiliate, Bonifacio Communications Corporation (BCC) and Innove and Globe are in

litigation over the right of Innove to render services and build telecommunications infrastructure in the Bonifacio Global City. In the case filed by Innove before the NTC against BCC, PLDT and the Fort Bonifacio Development Corporation (FBDC), the NTC has issued a Cease and Desist Order preventing BCC from performing further acts to interfere with Innove‟s installations in the Bonifacio Global City.

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In the case filed by PLDT against the NTC in Branch 96 of the Regional Trial Court (RTC) of Quezon City, where PLDT sought to obtain an injunction to prevent the NTC from hearing the case filed by Innove, the RTC denied the prayer for a preliminary injunction and the case has been set for further hearings. PLDT has filed a Motion for Reconsideration and Globe has intervened in this case. In a resolution dated 28 October 2008, the RTC QC denied BCC‟s motion for the issuance of a temporary restraining order (TRO). The case is still pending with the QC RTC. In the case filed by BCC against FBDC, Globe Telecom and Innove, Bonifacio Communications Corp. before the Regional Trial Court of Pasig, which case sought to enjoin Innove from making any further installations in the BGC and claimed damages from all the parties for the breach of the exclusivity of BCC in the area, the court did not issue a Temporary Restraining Order and has instead scheduled several hearings on the case. In a resolution dated 28 October 2008, the RTC QC denied BCC‟s motion for the issuance of a temporary restraining order (TRO). The case is still pending with the RTC Pasig. On 11 November 2008, Bonifacio Communications Corp. (BCC) filed a criminal complaint against the officers of Innove Communications Inc., the Fort Bonifacio Development Corporation (FBDC) and Innove contractor Avecs Corporation for malicious mischief and theft arising out of Innove‟s disconnection of BCC‟s duct at the Net Square buildings. The accused officers filed their counter-affidavits and are currently pending before the Prosecutor‟s Office of Pasig. The case is still pending resolution with the Office of the City Prosecutor. On 21 January 2011, BCC and PLDT filed with the Court of Appeals a Petition for Certiorari and Prohibition against NTC, et al. seeking to annul the Orders of the NTC dated 28 October 2008 directing BCC, PLDT and FBDC to comply with the provisions of NTC MC 05-05-02 and the CEASE AND DESIST from performing further acts that will prevent Innove from implementing and providing telecommunications services in the Fort Bonifacio Global City pursuant to the authorization granted by the NTC. BCC and PLDT anchor their petition on the grounds that: 1) the NTC has no jurisdiction over BCC it being a non telecommunications entity; 2) the NTC violated BCC and PLDT‟s right to due process; and 3) there was no urgency or emergency for the issuance of the cease and desist order. The case is pending with the court of appeals. On April 25, 2011, Innove Communications, filed its comment on the case filed by PLDT that seeks to ban all Globe services from the Bonifacio Global City before the CA‟s Tenth Division. In its comment, Globe argued that it is in the public‟s best interest that open access and free competition among telecom operators be allowed at the Bonifacio Global City. On August 16, 2011, the Ninth Division of the CA ruled that PLDT‟s case against Innove and the National Telecommunications Commission (NTC) lacked merit, and thus denied the petition and DISMISSED the case. PLDT and its co-petitioner, BCC file their motion for reconsideration. The same is still pending resolution.

Other Developments Globe Telecom, Inc. and Bayan Telecommunications, Inc. obtained approval from the NTC for the joint use of the frequencies 1750-1760 MHz / 1845-1855 MHz originally assigned to BayanTel. The joint-use agreement will enable Globe to address increasing demand for voice, short message and mobile data services, and allow BayanTel to be able to offer mobile-telecommunications services nationwide. In another development, the Company announced in November 2012 that it has obtained the approval by its Board of Directors to commence offers to purchase (the “Debt Offers”) up to 100% of the financial obligations of Bayan Telecommunications, Inc. (“BTI”) and subsidiary Radio Communications of the Philippines, Inc. (“RCPI”) to their respective financial creditors. The Debt Offers were concluded last 22 December 2012, wherein Globe secured the acceptance of 93.66% of the holders of the unsecured financial indebtedness of BTI under the USD 13.5% bonds originally due in 2006; 98.26% of the outstanding other financial indebtedness owed by BTI; and 100% of the outstanding financial

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indebtedness owed by RCPI, based on outstanding aggregate principal amount under the terms of the rehabilitation plan of BTI and RCPI. BTI has been subject to court-supervised rehabilitation proceedings since 2003. The current rehabilitation plan anticipates that BTI and RCPI will remain in rehabilitation until 2023. Globe intends to apply with the rehabilitation court to amend the terms of the rehabilitation plan in the interest of assuring BTI‟s long-term sustainability. Meanwhile, Globe has also commenced separate discussions with the controlling shareholders of BTI regarding a wide range of commercial arrangements including a potential acquisition by Globe of an equity interest in BTI. The approval of the National Telecommunications Commission is required to complete the acquisition. The parties remain in discussions on the terms of the commercial arrangements including the price and other conditions under which the acquisition may be effected. No definitive arrangement has been executed at this time. Recently, the Company also obtained approval by its Board of Directors of the plan to invest in a Philippine entity to be named as Taodharma, Inc. to explore growth opportunities in the mobile market. Details on these transactions have been extensively discussed in the disclosures filed with the SEC and PSE and may be accessed from the PSE and Company websites.

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ANNEX “D” – ANNEX TO THE MD&A SECTION (For the current year)

1. Any events that will trigger direct or contingent financial obligation that is 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 consolidated financial

statements as of and for the year ended December 31, 2012, except for the adoption of new and

amended standards as of January 1, 2013.

The Globe Group applied for the first time the amendments to PAS 19, Employee Benefits, that

require restatement of previous financial statements.

Several other new standards and amendments apply for the first time in 2013. However, they do not significantly impact the consolidated financial statements of the Globe Group.

The nature and the impact of each new standard/amendment are described below:

PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities These Amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set-off in accordance with PAS 32, Financial Instruments: Presentation. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or „similar agreement‟, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, certain minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period.

The Globe Group has offsetting arrangements with their derivative counterparties that are affected by the amendments to PFRS 7. However, the amendments affected presentation only and had no impact on the Globe Group‟s financial position and performance. Additional disclosures required under the amendment to PFRS 7 are disclosed in Note 28.11.

PFRS 10, Consolidated Financial Statements

PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that

addresses the accounting for consolidated financial statements. It also includes the issues raised

in SIC-12, Consolidation - Special Purpose Entities.

PFRS 10 establishes a single control model that applies to all entities including special purpose entities. PFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in PFRS 10, all three criteria must be met, including: (a) an investor has power over an investee; (b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and (c) the investor has the ability to use its power over the investee to affect the amount of the investor‟s returns.

The Globe Group has concluded that after the adoption of PFRS 10: (a) all existing subsidiaries shall remain to be fully consolidated with the Globe Group‟s consolidated financial statements as management control over these entities remain the same; and (b) no new unconsolidated entity that will have to be consolidated.

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PFRS 11, Joint Arrangements

This Standard replaces PAS 31, and SIC-13, Jointly-controlled Entities - Non-monetary

Contributions by Venturers. It also removes the option to account for jointly controlled entities

(JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture

must be accounted for using the equity method. The adoption of the standard did not have an

impact to Globe Group as they are already accounting for their joint ventures under the equity

method.

PFRS 12, Disclosure of Interests in Other Entities

PFRS 12 sets out the requirements for disclosures relating to an entity‟s interests in subsidiaries,

joint arrangements, associates and structured entities. The requirements in PFRS 12 are more

comprehensive than the previously existing disclosure requirements for subsidiaries (for example,

where a subsidiary is controlled with less than a majority of voting rights). Except for additional

disclosures included in consolidated financial statements, the adoption of the standard has no

impact on the Globe Group‟s financial position or performance. Additional disclosures required

under PFRS12 are disclosed in Note 10.

PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS. PFRS 13 defines fair value as an exit price. PFRS 13 also requires additional disclosures.

As a result of the guidance in PFRS 13, the Globe Group re-assessed its policies for measuring fair values, in particular, its valuation inputs such as non-performance risk for fair value measurement of liabilities. The Globe Group has assessed that the application of PFRS 13 has not materially impacted the fair value measurements of the Globe Group. Additional disclosures, where required, are provided in the individual notes relating to the assets and liabilities whose fair values were determined. Fair value hierarchy is provided in Note 28.12.3.

Amendments to PAS 1, Financial Statement Presentation, Presentation of Items of Other Comprehensive Income The Amendment changed the grouping of items presented in other comprehensive income. Items that could be reclassified (or „recycled‟) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. Other than the change in presentation, the amendment did not have significant impact on the consolidated financial statements.

PAS 19, Employee Benefits (Revised PAS 19)

For defined benefit plans, the Revised PAS 19 requires all actuarial gains and losses to be

recognized in other comprehensive income and unvested past service costs previously

recognized over the average vesting period to be recognized immediately in profit or loss when

incurred.

Prior to adoption of the Revised PAS 19, the Globe Group recognized actuarial gains and losses

as income or expense when the net cumulative unrecognized gains and losses for each individual

plan at the end of the previous period exceeded 10% of the higher of the defined benefit

obligation and the fair value of the plan assets and recognized unvested past service costs as an

expense on a straight-line basis over the average vesting period until the benefits become

vested. Upon adoption of the Revised PAS 19, the Globe Group changed its accounting policy to

recognize all actuarial gains and losses in other comprehensive income and all past service costs

in profit or loss in the period they occur.

The Revised PAS 19 replaced the interest cost and expected return on plan assets with the

concept of net interest on defined benefit liability or asset which is calculated by multiplying the

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net balance sheet defined benefit liability or asset by the discount rate used to measure the

employee benefit obligation, each as at the beginning of the annual period.

The Revised PAS 19 also amended the definition of short-term employee benefits and requires

employee benefits to be classified as short-term based on expected timing of settlement rather

than the employee‟s entitlement to the benefits. In addition, the Revised PAS 19 modifies the

timing of recognition for termination benefits. The modification requires the termination benefits to

be recognized at the earlier of when the offer cannot be withdrawn or when the related

restructuring costs are recognized.

Changes to definition of short-term employee benefits and timing of recognition for termination

benefits do not have any significant impact to the Globe Group‟s financial position and financial

performance.

The changes in accounting policies have been applied retrospectively. The effects of the adoption on the consolidated financial statements are as follows: As at December 31, 2012 As at January 1, 2012

(In Thousand Pesos)

Decrease in: Consolidated statements of financial position Net defined benefit asset (P=1,509,561) (P=1,203,654) Deferred tax liability (452,868) (361,217) Other comprehensive income (481,951) (279,453) Retained earnings (574,742) (562,984) For the Year Ended December 31 2012 2011

(In Thousand Pesos) Consolidated statements of comprehensive income General, selling and administrative (P=1,916) P=109,143 Financing costs 18,713 (70,209)

Income before income tax (16,797) (38,934) Provision for income tax - deferred 5,039 11,680

Net income (11,758) (27,254)

Remeasurement losses on defined benefit plan (289,283) (399,219) Income tax effect 86,785 119,766

Other comprehensive income, net of tax (202,498) (279,453)

Total comprehensive income (P=214,256) (P=306,707)

Basic earnings per share (P=0.09) (P=0.21)

Diluted earnings per share (P=0.09) (P=0.20)

The adoption did not have significant impact on the consolidated statement of cash flows. Change of presentation Upon adoption of the Revised PAS 19, the presentation of the statement of comprehensive income was updated to reflect these changes. Net interest is now shown under the finance cost and others (previously included in staff costs under “General, selling and administrative expenses” account). This presentation better reflects the nature of net interest since it corresponds to the compounding effect of the long-term net defined benefit liability (net defined benefit asset). In the past, the expected return on plan assets reflected the individual performance of the plan assets, which were regarded as part of the operating activities.

PAS 27, Separate Financial Statements (Revised)

As a consequence of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to

accounting for subsidiaries, jointly controlled entities, and associates in separate financial

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statements. The adoption of the amended PAS 27 did not have a significant impact on the

separate financial statements of the entities in the Globe Group.

PAS 28, Investments in Associates and Joint Ventures (Revised)

As a consequence of the new PFRS 11 and PFRS 12, PAS 28 has been renamed

PAS 28, Investments in Associates and Joint Ventures, and describes the application of the

equity method to investments in joint ventures in addition to associates. The adoption of the

standard did not have an impact to the Globe Group as they are already accounting for their joint

ventures under the equity method. Annual Improvements to PFRS (2009 to 2011 cycle) The Annual Improvements to PFRS (2009 to 2011 cycle) contain non-urgent but necessary amendments to PFRS. The amendments are to be applied retrospectively. Earlier application is permitted. Except as otherwise stated, the Globe Group does not expect the adoption of these improvements to have significant impact on the consolidated financial statements.

PAS 1, Presentation of Financial Statements - Clarification of the Requirements for Comparative Information The Amendments clarify the requirements for comparative information that are disclosed voluntarily and those that are mandatory due to retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional comparative period does not need to contain a complete set of financial statements. On the other hand, supporting notes for the third balance sheet (mandatory when there is a retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements) are not required. As a result, the Globe Group has not included comparative information in respect of the opening consolidated statement of financial position as at January 1, 2012. The amendments affect presentation only and have no impact on the Globe Group‟s financial position or performance.

PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment The Amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, plant and equipment when they meet the definition of property, plant and equipment and should be recognized as inventory if otherwise. The amendment does not have any significant impact on the Globe Group‟s financial position or performance.

PAS 32, Financial Instruments: Presentation - Tax Effect of Distribution to Holders of Equity Instruments

The Amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income Taxes. The amendment does not have any significant impact on the Globe Group‟s

financial position or performance.

PAS 34, Interim Financial Reporting – Interim Financial Reporting and Segment Information for Total Assets and Liabilities

The amendment clarifies that the total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the amount disclosed in the entity‟s previous annual financial statements for that reportable segment. The amendment affects disclosures only and has no impact on Globe Group‟s financial position or performance.

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Future Changes in Accounting Policies The Globe Group will adopt the following new and amended standards enumerated below when these become effective. Except as otherwise indicated, the Globe Group does not expect the adoption of these new and amended PAS and PFRS to have significant impact on the consolidated financial statements. Effective January 1, 2014

Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets These amendments remove the unintended consequences of PFRS 13 on the disclosures required under PAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which impairment loss has been recognized or reversed during the period. These amendments are effective retrospectively for annual periods beginning on or after January 1, 2014 with earlier application permitted, provided PFRS 13 is also applied. The amendments affect disclosures only and have no impact on Globe Group‟s financial position or performance.

Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27) They provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under PFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to Globe Group since none of the entities in the Group would qualify to be an investment entity under PFRS 10.

Philippine Interpretation IFRIC 21, Levies IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. The Globe Group does not expect that IFRIC 21 will have material financial impact in the consolidated financial statements.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and Continuation of Hedge Accounting These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. The Globe Group has not novated its derivatives during the current period. However, these amendments would be considered for future novations.

Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments affect presentation only and have no impact on the Globe Group‟s financial position or performance. Effective January 1, 2015

Amendments to PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions The amendments apply to contributions from employees or third parties to defined benefit plans. Contributions that are set out in the formal terms of the plan shall be accounted for as reductions to current service costs if they are linked to service or as part of the remeasurements of the net defined benefit asset or liability if they are not linked to service. Contributions that are discretionary shall be accounted for as reductions of current service cost upon payment of these contributions to the plans.

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Annual Improvements to PFRS (2010-2012 cycle)

The Annual Improvements to PFRS (2010-2012 cycle) contain non-urgent but necessary amendments to the following standards:

PFRS 2, Share-based Payment - Definition of Vesting Condition The amendment revised the definitions of vesting condition and market condition and added the definitions of performance condition and service condition to clarify various issues. This amendment have no significant impact on the financial position or performance of the Globe Group.

PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business Combination The amendment clarifies that a contingent consideration that meets the definition of a financial instrument should be classified as a financial liability or as equity in accordance with PAS 32. Contingent consideration that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of PFRS 9 (or PAS 39, if PFRS 9 is not yet adopted). Globe Group shall consider this amendment for future business combinations.

PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Assets The amendments require entities to disclose the judgment made by management in aggregating two or more operating segments. This disclosure should include a brief description of the operating segments that have been aggregated in this way and the economic indicators that have been assessed in determining that the aggregated operating segments share similar economic characteristics. The amendments also clarify that an entity shall provide reconciliations of the total of the reportable segments‟ assets to the entity‟s assets if such amounts are regularly provided to the chief operating decision maker. The amendments affect disclosures only and have no impact on the Globe Group‟s financial position or performance.

PFRS 13, Fair Value Measurement - Short-term Receivables and Payables The amendment clarifies that short-term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial.

PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of Accumulated Depreciation The amendment clarifies that, upon revaluation of an item of property, plant and equipment, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways: a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation

of the carrying amount of the asset. The accumulated depreciation at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses.

b. The accumulated depreciation is eliminated against the gross carrying amount of the asset.

The amendment shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. The amendment has no impact on the Globe Group‟s financial position or performance.

PAS 24, Related Party Disclosures - Key Management Personnel The amendments clarify that an entity is a related party of the reporting entity if the said entity, or any member of a group for which it is a part of, provides key management personnel services to the reporting entity or to the parent company of the reporting entity. The amendments also clarify that a reporting entity that obtains management personnel services

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from another entity (also referred to as management entity) is not required to disclose the compensation paid or payable by the management entity to its employees or directors. The reporting entity is required to disclose the amounts incurred for the key management personnel services provided by a separate management entity. The amendments are effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. The amendments affect disclosures only and have no impact on the Globe Group‟s financial position or performance.

PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of Accumulated Amortization The amendments clarify that, upon revaluation of an intangible asset, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways: a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation

of the carrying amount of the asset. The accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses.

b. The accumulated amortization is eliminated against the gross carrying amount of the asset.

The amendments also clarify that the amount of the adjustment of the accumulated amortization should form part of the increase or decrease in the carrying amount accounted for in accordance with the standard.

The amendments are effective for annual periods beginning on or after July 1, 2014. The amendments shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. The amendments have no impact on the Globe Group‟s financial position or performance.

Annual Improvements to PFRS (2011-2013 cycle) The Annual Improvements to PFRS (2011-2013 cycle) contain non-urgent but necessary amendments to the following standards:

PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. The amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively.

PFRS 13, Fair Value Measurement - Portfolio Exception The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively. The amendment has no significant impact on the Globe Group‟s financial position or performance.

PAS 40, Investment Property The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying property as investment property or owner-occupied property. The amendment stated that judgment is needed when determining whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of PFRS 3. This judgment is based on the guidance of PFRS 3. This amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively. The amendment has no significant impact on the Globe Group‟s financial position or performance.

Effectivity not yet determined

PFRS 9, Financial Instruments

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PFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 and applies to the classification and measurement of financial assets and liabilities and hedge accounting, respectively. Work on the second phase, which relate to impairment of financial instruments, and the limited amendments to the classification and measurement model is still ongoing, with a view to replace PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through other comprehensive income (OCI) or profit or loss. Equity financial assets held for trading must be measured at fair value through profit or loss. For liabilities designated as at FVPL using the fair value option, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change relating to the entity‟s own credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward to PFRS 9, including the embedded derivative bifurcation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group‟s financial assets, but will potentially have no impact on the classification and measurement of financial liabilities.

On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39 with a more principles-based approach. Changes include replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on the economic relationship between the hedged item and the hedging instrument, and the effect of credit risk on that economic relationship; allowing risk components to be designated as the hedged item, not only for financial items, but also for non-financial items, provided that the risk component is separately identifiable and reliably measurable; and allowing the time value of an option, the forward element of a forward contract and any foreign currency basis spread to be excluded from the designation of a financial instrument as the hedging instrument and accounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedge accounting.

PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before the completion of the limited amendments to the classification and measurement model and impairment methodology. The Globe Group will not adopt the standard before the completion of the limited amendments and the second phase of the project.

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2. Causes of any material change from period to period: 2013 vs. 2012

Assets Current A Increase in cash and cash equivalent- Increased by 661M mainly due to results of operating

activities partially reduced by investing and financing activities.

B Receivable- Increase of 4.1B mainly due to increased billings over collections, increase in data services and larger subscriber base in 2013.

C Allowance for Doubtful Accounts- Increase is attributable to additional provisions for billed subscribers and aged receivables.

D Traffic Settlement- Decrease of 1.1B is mainly due to settlement of prior years‟ long overdue balance.

E Other Receivables- 747M increase is mainly due to higher billings over collections to Dealers credit, AR credit cards, and others.

F Allowance for Doubtful Accounts (Traffic and others) - Decrease mainly due to reversal of disputes on Intl carriers partially reduced by higher allowance provided in local voice/SMS.

G Prepayments and Other Current Assets- Decrease mainly due to net application of down payment to various suppliers/contractors, and decrease in miscellaneous receivables and input vat.

H Inventories and Supplies- Increase of 1.6B mainly due to bulk purchases of handsets, devices, accessories and broadband devices, coupled by increase in wireline inventories.

I Allowance for Inventory Losses- Increase mainly due to higher provision for inventory obsolescence and unaccounted inventory in handsets, devices and accessories offsetted by increase in provision for obsolescence.

Noncurrent J Fixed Assets- Increase in fixed assets due to by higher CAPEX investments related to the

company‟s IT and Network Transformation efforts and additional network assets placed into service during the period.

K Intangible Assets- 47M increase is attributable to acquisition of various computer software and telecom equipment license.

L Investment in Joint Venture and Associates- Decrease mainly due to share in net losses of and changes in net assets of Globe BanKO.

M Deferred Tax Asset – net - Increase is mainly due to write-off of transformation-related

equipment, impact of PAS 19 / OCI amendments and unrealized FX movements for the year.

N Derivative Assets - Increase is due to MTM value gain of cross currency swaps acquired in April 2013.

O

Misc. Deposits and Others- Decrease is mainly due to reclassification of portion in long term notes receivable to short term notes receivable, offsetted by the increase in deferred input VAT capex, advances to developers, rental and bid bond deposits, loan repayment of BHI (a related party) to Globe.

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Liabilities Current P Trade Creditors- Increase of 183M was driven by increase in Wireline largely due to net

increase in foreign and local payables partly offset by decrease in GRIR accounts and higher repayments in Mobile Telephony over purchases and AR revaluation.

Q Liabilities to Partner Establishments- 1.2B increase is due to higher cash in from various

partner establishments over cash out of subscribers and dealers as of year to date.

R Traffic Settlement Payable- 778M decrease is mainly due to higher collections over billings coupled by impact of net TSR/TSP offsetting.

S Taxes Payable- Increase due to higher output VAT and offsetted by overseas

communication tax and final withholding taxes.

T Income Taxes Payable- Decrease due to payment of income taxes.

U Provisions- Increase due to accruals for 2013 real property taxes (RPT) & 2012 and 2013 national taxes.

V Accrued Expenses- Increase of 2.6B is due to higher accruals for manpower benefits,

marketing accruals, utilities and others.

W Accrued Interest on Loans- Decrease of 53M due to lesser amortization and interest payments over accrual of interest.

X Accrued project Cost- 5.2B increase is due to various projects in connection to Network

Transformation and Process improvement.

Y Derivative Liabilities- Reclass of MTM value loss of PHP IRS from non-current to current. These swaps will mature in 2014.

Z Unearned Revenues- 257M increase is mainly due to more deferred revenues Amax,

deferred revenue prepaid and deferred revenue reward.

AA Dividends Payable- All dividends declared were already paid as of December 30, 2013.

AB Notes Payable- Increase is mainly due to additional short term bank loans and forex revaluation.

AC Current Portion of Long Term Debt –Bank - Increase in bank debt was mainly attributable to loan availments, amortization of debt issue cost and bond premium and forex revaluation partially offset by loan repayments.

Noncurrent AD Net Deferred Tax Liability- Reclassification due to net deferred tax asset position.

AE Long Term Commercial Paper- 7B increase mainly attributable to loan availments,

amortization of debt issue cost and bond premium and forex revaluation partially offset by loan repayments.

AF Long Term Debt (Bank) - Increase of P717M is due to increased borrowings from banks.

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AG Other Long-term Liabilities - Increase is attributable to Mobile Telephony's additional accrual for Pension obligation, provisions for ARO, and other accruals.

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.

For details on material commitments and arrangements, see Notes 10 and 11 in the attached 2013 Notes to the Financial Statements.

Globe Telecom and Innove, in their regular conduct of business, enter into transactions with their

major stockholders, AC and STI, venturers and certain related parties.

Globe Telecom also has investments in the following: Associate:

Investment in Bayantel (BTI) - On October 1, 2013, Globe acquired 38% interest in BTI following the conversion of its unsustainable debt (Tranche B) into 45 million common shares equity based on the confirmation of the Court dated August 27, 2013 on the Amended Rehabilitation Plan. Globe will further convert its share of the Tranche A debt upon certain regulatory approvals. Globe's acquisition of BTI is intended to augment its current data and DSL businesses using BTI‟s existing platform.

As of December 31, 2013, the equity in BTI was recognized as investment in an associate carried at acquisition cost valued at nil. BTI remains in a capital deficiency after Tranche B conversion with a negative book value of common shares at P=57.62 per share.

The following is the financial information of BTI, which is not considered material (amounts in thousands):

Share in net loss - unrecognized P=574,672 Share in other comprehensive income 31,881

Share in total comprehensive loss - unrecognized P=606,553

The Globe Group has no share of any contingent liabilities as of December 31, 2013.

Joint ventures:

Investment in BPI Globe BanKO Inc., A Savings Bank (BPI Globe BanKO) – On July 17, 2009, Globe acquired a 40% stake in BPI Globe BanKO (formerly Pilipinas Savings Bank, Inc. or PS Bank) for ₱141.33 million, pursuant to a Shareholder Agreement with Bank of the Philippine Islands (BPI), AC and PS Bank, and a Deed of Absolute Sale with BPI. BPI Globe BanKO will have the capability to provide services to micro-finance institutions and retail clients through mobile and related technology.

On May 10, 2011, the BOD of Globe Telecom approved the additional investment of ₱100.00

million as share for BPI Globe BanKO‟s increase in capitalization to cover its expansion plan

for the next three years. Globe Telecom made the initial capital infusion of ₱79.01 million on

May 10, 2011 and ₱20.99 million last March 28, 2012. As of December 31, 2013 and 2012,

the investment of Globe Telecom in BPI Globe BanKO amounted to ₱85.63 million and

₱114.42 million, respectively, representing 40% interest.

Investment in Bridge Mobile Pte. Ltd. (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 JV 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.

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Globe Group has a ten percent (10%) stake in BMPL. The other joint venture partners each with equal stake in the alliance include SK Telecom, Co. Ltd., Advanced Info Service Public Company Limited, Bharti Airtel Limited, Maxis Communications Berhad, Optus Mobile Pty. Limited, Singapore Telecom Mobile Pte, Ltd., Taiwan Mobile Co. Ltd., PT Telekomunikasi Selular and CSL Ltd. 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, 2013 and 2012, Globe Telecom has invested a total of USD2.20 million (₱111.28 million), in the joint venture.

The following is the aggregate financial information of BPI Globe BanKO and BMPL, which

are not considered material joint ventures: 2013 2012

Share in cumulative translation adjustments

of joint ventures:

Share in net income (loss) (₱79,959) (₱83,582)

Share in other comprehensive income 510 (10,762)

Share in total comprehensive income (loss) (₱79,449) (₱94,344)

(In Thousand Pesos)

The Globe Group has no share of any contingent liabilities of the joint venture as of December 31, 2013 and 2012.

Transactions with the Globe Group Retirement Plan (GGRP) (see Note 11)

In 2008, the Globe Group granted a short-term loan to the GGRP amounting to ₱800.00 million with interest at 6.20%. Upon maturity in 2009, the loan was rolled over until September 2014 with interest at 7.75%. Further, in 2009, the Globe Group granted an additional loan to the retirement fund amounting to ₱168.00 million which bears interest at 7.75% and is due also in September 2014.

The retirement plan utilized the loan to fund its investments in BHI, a domestic corporation

organized to invest in media ventures. BHI has controlling interest in Altimax Broadcasting

Co., Inc. (Altimax) and Broadcast Enterprises and Affiliated Media Inc. (BEAM), respectively.

On August 13 and December 21, 2009, the Globe Group granted five-year loans amounting to P=250.00 million and P=45.00 million, respectively, to BHI at 8.275% interest. The P=250.00 million loan is covered by a pledge agreement whereby in the event of default, the Globe Group shall be entitled to offset whatever amount is due to BHI from any unpaid fees to BEAM from the Globe Group. The P=45.00 million loan is fully secured by a chattel mortgage agreement dated December 21, 2009 between Globe Group and BEAM (see Note 25.5).

On February 1, 2009, the Globe Group entered into a memorandum of agreement (MOA) with BEAM for the latter to render mobile television broadcast service to Globe subscribers using the mobile TV service. As a result, the Globe Group recognized an expense (included in “Professional and other contracted services”) amounting to P=155.00 million, P=194.00 million and P=250.00 million in 2013, 2012 and 2011, respectively.

On October 1, 2009, the Globe Group entered into a MOA with Altimax for the Globe Group‟s co-use of specific frequencies of Altimax‟s for the rollout of broadband wireless access to the Globe Group‟s subscribers. As a result, the Globe Group recognized an expense (included in “General, selling and administrative expenses” account in the consolidated statements of comprehensive income) amounting to P=90.00 million in 2013, 2012 and 2011.

__________________________________________________________________________ 112

Loan Receivable from BTI

Loan Receivable from BTI - On November 5, 2012, Globe Telecom obtained internal

approvals to commence offers to purchase up to 100% of the financial obligations of BTI and

Radio Communications of the Philippines, Inc. (RCPI), a subsidiary of BTI, collectively

referred to as “BTI loans”, to their respective financial creditors. For details, please refer to

Note 11 of the 2013 Notes to the Financial Statements.

On May 30, 2013, Globe Telecom and BTI agreed to jointly file a motion with the court having jurisdiction over BTI‟s debt to significantly restructure the financial debt in order to prevent the recurrence of default and ensure BTI‟s continued viability. The joint motion is intended to achieve a successful rehabilitation at the earliest possible date. The restructuring, including the debt to equity conversion feature would apply to all BTI‟s creditors equally upon receipt of certain regulatory approvals, including the confirmation of the court.

On July 1, 2013, Globe Telecom purchased additional BTI bonds with face value of USD2.80 million, part of the BTI loans from their financial creditors, bringing total aggregate principal amount of the USD-denominated notes originally due in 2006 from 93.66% to 95.10% (see Note 11.i).

On August 27, 2013, the joint motion to amend BTI‟s current debt restructuring plan was granted by the Court. Accordingly, a new Master Restructuring Agreement (MRA) for all BTI creditors will be implemented. This principally involves a total conversion of up to 56.60% of its capital stock. Globe Telecom and BTI were directed to provide separate reports on the implementation procedures of the Amended Rehabilitation Plan and its accompanying MRA within a certain period as mandated by the Court. Likewise, Globe Telecom and BTI were directed by the Court to ensure that the details of the mechanics for converting debt positions are clear and properly communicated to the creditors involved.

Pursuant to the resolution of the Court dated August 27, 2013 confirming the Amended Rehabilitation Plan jointly filed by Globe Telecom and BTI, BTI issued common shares certificate to Globe Telecom on October 1, 2013 for the conversion of its unsustainable debt (Tranche B) into 38% equity (Note 10.2). Globe Telecom intends to further convert portion of Tranche A debt, which together with the converted Tranche B debt would represent more than 50% of BTI‟s outstanding shares upon certain regulatory approvals.

On October 29, 2013, Globe filed a report with the court covering the mechanics for converting debt positions as provided for under the MRA.

As of December 31, 2013 and 2012, loans receivable from BTI amounted to P=5.04 billion and

P=4.90 billion comprising of principal and interest due until 2023, with quarterly interest

payments and semi-annual principal payments (see Notes 6 and 11).

Network Sharing Arrangement with ABS-CBN Convergence Inc.

On May 27, 2013, Globe Telecom, Innove and ABS-CBN Convergence Inc. (ABS-C) entered into a network sharing arrangement in order to provide capacity and coverage for new mobile telephony, data and value-added services to be offered by ABS-C nationwide to its subscribers using shared network and interconnect assets of the parties. This arrangement will enable Globe Telecom, Innove and ABS-C to improve public service by enhancing utility, capacity, inter-operability and quality of mobile and local exchange telephony and data services to the public and allow ABS-C to modernize its existing service and expand to a retail base on top of its existing subscriber base.

On May 31, 2013, NTC approved the network sharing agreement and co-use of the number

blocks assigned to Globe Telecom

__________________________________________________________________________ 113

Shareholder‟s and dealership agreement with Taodhama

Investment in Taodharma - In March 2013, Globe entered into a Shareholders Agreement among four other entities to incorporate Taodharma Inc. (“Tao”).

Globe subscribed for the 25% preferred shares of Tao amounting to ₱55.00 million which has been fully paid up as of August 2013. Tao shall carry on the business of establishing, operating and maintaining retail stores in strategic locations within the Philippines that will sell telecommunications or internet-related services, and devices, gadgets, accessories or embellishments in connection and in accordance with the terms and conditions of the Dealer Agreement executed among all of the entities. In March 2013, Globe also entered into an exclusive dealership arrangement with Tao that included provisions to build and open retail outlet stores scattered across in cities and other major high-traffic locations nationwide. As of December 31, 2013, Globe Group has recognized ₱ 67.55 million representing share on costs classified under “Intangible assets and goodwill - net” in the consolidated statements of financial position.

4. Seasonal Aspects that have a material effect on the FS

No seasonal aspects that have a material effect on the financial statements.

__________________________________________________________________________ 114

ANNEX “E” – MARKET PRICE AND DIVIDENDS

A. Market Price - Principal Market where the registrant’s Common equity is traded.

Globe‟s common shares are traded in the Philippine Stock Exchange. Below are the quarterly high and low prices in the last two (2) fiscal years.

COMMON SHARES

Price Per Share (PHP)

Calendar Period High Low

2012

First Quarter 1,249 1,105

Second Quarter 1,138 1,000

Third Quarter 1,235 1,070

Fourth Quarter 1,160 1,078

2013

First Quarter 1,220 1,066

Second Quarter 1,621 1,200

Third Quarter 1,649 1,451

Fourth Quarter 1,780 1,590

The price information as of the close of the latest practicable trading date, 11 March 2014, is P1,700.

B. Shareholders

There are approximately 3,950 holders of common equity as of 12 February 2014. The following are the top 20 registered holders of the common equity of the Company:

Stockholder Name No. of Common

Shares

Percentage owned out of

total outstanding

common shares

1 Singapore Telecom Int‟l. Pte. Ltd. 62,646,487 47.22%

2 Ayala Corporation 40,328,090 30.40%

3 PCD Nominee Corp. (Non-Filipino) 23,231,061 17.51%

4 PCD Nominee Corp. (Filipino) 5,521,716 4.16%

5 Ernest Cu 65,255 0.05%

6 Rodell A. Garcia 28,964 0.02%

7 Guillermo D. Luchangco 22,000 0.02%

8 The First National Co., Inc. 21,001 0.02%

9 Oscar L. Contreras Jr. 17,000 0.01%

10 Cedar Commodities, Inc. 12,900 0.01%

11 GTESOP98061 10,000 0.01%

11 GTESOP98062 10,000 0.01%

11 GTESOP98053 10,000 0.01%

11 GTESOP98055 10,000 0.01%

11 GTESOP98058 10,000 0.01%

11 GTESOP98063 10,000 0.01%

11 GTESOP98054 10,000 0.01%

11 GTESOP98056 10,000 0.01%

11 GTESOP98057 10,000 0.01%

11 GTESOP98059 10,000 0.01%

__________________________________________________________________________ 115

11 GTESOP98060 10,000 0.01%

11 GTESOP98064 10,000 0.01%

11 Bernadette Say Go 10,000 0.01%

12 Florentino P. Feliciano 9,487 0.01%

13 R. Nubla Securities Inc. 8,405 0.01%

14 Ferdinand M. Dela Cruz 8,174 0.01%

15 Jose Tan Yan Doo 8,071 0.01%

16 Ma. Teresa Teng 8,015 0.01%

17 Alfonso S. Teh 6,720 0.01%

18 Pan Malayan Management & Investment Corp. 5,991 0.00%

19 Agro Resources & Development 5,330 0.00%

20 Casimiro C. Hernandez 4,940 0.00%

C. Dividends

Dividends declared by the Company on its stocks are payable in cash or in additional shares of stock.

The payment of dividends in the future will depend upon the earnings, cash flow and financial

condition of the Company and other factors.

Cash dividends are subject to approval by the Company's Board of Directors but no stockholder

approval is required. Total cash dividends distributed per common share for the past 3 years are

listed below.

CASH DIVIDEND (Per Share)

AMOUNT

(Php)

DECLARATION DATE RECORD DATE PAYMENT DATE

31.00 February 8, 2011 February 22, 2011 March 18, 2011

31.00 August 8, 2011 August 22, 2011 September 19, 2011






On 8 November 2013, Globe‟s Board of Directors approved the declaration and payment of cash

dividends for the Company‟s preferred shares. The payment of cash dividends to all shareholders of

Globe‟s outstanding preferred shares shall be based on the average 30-day PDST-F (formerly

MART1) as computed by PDEx plus 2%. The Record Date is on November 22, 2013 and Payment

Date is on December 8, 2013.

Stock dividends, which come in the form of additional shares of stock, are subject to approval by both

the Company's Board of Directors and the Company's stockholders. No stock dividends have been

distributed since the 25% stock dividend back in 2002.

D. Recent Sale of Securities

There were no private placements undertaken in the past three years.

__________________________________________________________________________ 116

E. Corporate Governance

Globe Telecom ethos believes that integrity, accountability and transparency in all aspects of the business are crucial ingredients to the Company‟s success. These are the principles that make up the Company‟s foundation to achieving its mission, vision and goals. With the continuous tests brought by global and national state of affairs, these values help the Company endure these challenges. The Company‟s Articles of Incorporation and By-Laws maintain the basic structure of corporate governance while the Manual of Corporate Governance acts as its supplement. These legal documents are the core of the Company‟s operational framework to its smallest detail including the principal duties of the members of the Board with emphasis on the composition and balance of the Boar d, for a diverse pool of skills and background which ensures that duties and responsibilities are performed in a proper manner despite an increasingly competitive environment. Globe Telecom established a Manual of Corporate Governance that is in line and compliant with the regulations implemented by the Securities and Exchange Commission (SEC). The manual was last updated in 2010 to conform with SEC Memorandum Circular No. 6, Series of 2009 (Revised Code of Corporate Governance) and reviewed regularly to preserve compliance with government regulations. In addition, Globe Telecom has implemented a Code of Conduct, Conflict of Interests and Whistleblower Policy. Formal policies on Unethical, Corrupt and Other Prohibited Practices were put in effect to guard against unbecoming activities and serve as a guide to work performance, dealings with employees, customers and suppliers, and managing assets, records and information including the proper reporting, handling of complaints and fraudulent reports and whistleblowers. These policies cover employees, management and members of the Board. These documents are the key to the balance of control and governance at Globe Telecom.

Globe(x) Globe Telecom, Inc.

The Globe Tower32nd Street corner 7th Avenue

Bonifacio Global City

Taguig, Philippines

+632.7972000

HI www.globe.com.ph

cxATir.iVfF.NT OF MANAGFMFNT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of Globe Telecom, Inc. and Subsidiaries ("Globe Group") is responsible for the

preparation and fair presentation of the consolidated financial statements for the years ended December

31, 2013, 2012 and 2011, including the additional components attached therein, in accordance with

Philippine Financial Reporting Standards. This responsibility includes designing and implementing

internal controls relevant to the preparation and fair presentation of financial statements that are free from

material misstatement, whether due to fraud or error, selecting and applying appropriate accounting

policies, and making accounting estimates that are reasonable in the circumstances.

The Board of Directors reviews and approves the consolidated financial statements and submits the same

to the stockholders.

SyCip Gorres Velayo & Co., the independent auditors appointed by the stockholders, has examined the

consolidated financial statements of the Globe Group in accordance with the Philippine Standards on

Auditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentation

upon completion of such examination. /J ^ *~\

AIME AUGUSTO ZOChairman of tH

President Tfd Chief Executive Officer

AygEfp@ M. DE ifARRAZABALChief Financial Officer and Treasurer

February 10,2014

iat

TAGU1G CITYrSUBSCRIBED AND SWORN to before me this

affiants who are personally known to me or identified through competent evidence ot identity, to wit:

City,

@y

Name

Jairde Au&usfS Zobel De Ayala

- " -pErnest L. Cti\

uly 31, 2012

Expiry Date

July 30, 2017

EB8165201 May 21, 2013 May 20, 2018

r>[~Albertp M-. D"e~Larrazabal EB6611409 Oct. 22, 2012 Oct. 21,2017

@C*

^OOe. NO. =g^~^r-

ATTY.GI

Notary Fu28th FIoq*

ATTY. GH Ey A. ESCOTONotary fjblig ^guig City28th Flopjpi^GlQbe Gwer

32" Stfeet ca ne*-?* Avenue

Bojatfacio Globamty, Taguig 1634

Until December 31, 2015

IBP No. 948318/01-02-14/Eastern Samar

PTR No. A-2016980/01-02-14/Taguig City

*SGVFS005221*

INDEPENDENT AUDITORS’ REPORT

The Stockholders and the Board of DirectorsGlobe Telecom, Inc.The Globe Tower32nd Street corner 7th AvenueBonifacio Global City, Taguig

We have audited the accompanying consolidated financial statements of Globe Telecom, Inc. andSubsidiaries, which comprise the consolidated statements of financial position as atDecember 31, 2013 and 2012 and the consolidated statements of comprehensive income, consolidatedstatements of changes in equity and consolidated statements of cash flows for each of the three yearsin the period ended December 31, 2013, and a summary of significant accounting policies and otherexplanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with Philippine Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation and fair presentation of consolidatedfinancial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on ouraudits. We conducted our audits in accordance with Philippine Standards on Auditing. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the consolidated financial statements. The procedures selected depend on the auditors’ judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditors consider internal controlrelevant to the entity’s preparation and fair presentation of the consolidated financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015

A member firm of Ernst & Young Global Limited

*SGVFS005221*

- 2 -

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of Globe Telecom, Inc. and Subsidiaries as at December 31, 2013 and 2012 andtheir financial performance and their cash flows for each of the three years in the period endedDecember 31, 2013 in accordance with Philippine Financial Reporting Standards.

SYCIP GORRES VELAYO & CO.

Gemilo J. San PedroPartnerCPA Certificate No. 32614SEC Accreditation No. 0094-AR-3 (Group A), February 4, 2013, valid until February 3, 2016Tax Identification No. 102-096-610BIR Accreditation No. 08-001998-34-2012, April 11, 2012, valid until April 10, 2015PTR No. 4225213, January 2, 2014, Makati City

February 10, 2014


*SGVFS005221*

GLOBE TELECOM, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

December 31 January 1

Notes 2013

2012(As restated,

see Note 2.4)

2012(As restated,

see Note 2.4)(In Thousand Pesos)

ASSETSCurrent AssetsCash and cash equivalents 28, 30 P=7,420,735 P=6,759,755 P=5,159,046Receivables 4, 28 15,200,923 12,105,437 10,119,505Inventories and supplies 5 3,544,887 2,076,176 1,911,190Derivative assets 28 1,834 421 9,766Prepayments and other current assets 6, 28 9,462,823 12,308,248 5,586,419

35,631,202 33,250,037 22,785,926Assets classified as held for sale 25.4 – 778,321 778,321

35,631,202 34,028,358 23,564,247

Noncurrent AssetsProperty and equipment 7, 8 110,424,072 101,422,364 99,267,780Investment property 8 – – 191,645Intangible assets and goodwill 7, 9 3,840,660 3,793,958 3,591,514Deferred income tax assets - net 24 1,916,878 1,016,856 864,908Derivative assets 28 553,562 – –Investments in an associate and joint ventures 10 162,754 183,193 249,000Other noncurrent assets 11, 28 6,549,805 7,567,050 2,336,214

123,447,731 113,983,421 106,501,061

Total Assets P=159,078,933 P=148,011,779 P=130,065,308

LIABILITIES AND EQUITYCurrent LiabilitiesAccounts payable and accrued expenses 12, 18, 28 P=39,486,830 P=29,734,126 P=23,041,351Notes payable 14, 28 5,219,900 2,053,900 1,756,760Current portion of long-term debt 14, 28 5,980,300 9,294,888 9,597,367Unearned revenues 4 2,759,644 2,502,903 2,474,142Income tax payable 24 1,028,263 1,341,583 1,157,927Derivative liabilities 28 219,694 235,633 208,247Provisions 13 294,700 203,191 166,773

54,989,331 45,366,224 38,402,567Liabilities directly associated with the assets

classified as held for sale 25.4 – 459,760 583,36554,989,331 45,825,984 38,985,932

Noncurrent LiabilitiesLong-term debt - net of current portion 14, 28 58,100,749 50,430,632 37,324,579Deferred income tax liabilities - net 24 – 2,271,345 3,667,435Derivative liabilities 28 – 5,021 58,370Other long-term liabilities - net of current portion 15, 28 4,349,602 3,780,806 2,443,273

62,450,351 56,487,804 43,493,657Total Liabilities 117,439,682 102,313,788 82,479,589

EquityPaid-up capital 17 34,402,396 34,095,976 33,967,476Cost of share-based payments 16, 18 261,144 472,911 573,436Other reserves 17, 28 (739,575) (526,539) (404,355)Retained earnings 17 7,715,286 11,655,643 13,449,162Total Equity 41,639,251 45,697,991 47,585,719

Total Liabilities and Equity P=159,078,933 P=148,011,779 P=130,065,308

See accompanying Notes to Consolidated Financial Statements.

*SGVFS005221*

GLOBE TELECOM, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31

Notes 2013

2012(As restated see Note 2.4)

2011(As restated,see Note 2.4)

(In Thousand Pesos, Except Per Share Figures)

REVENUESService revenues 16, 29 P=90,500,137 P=82,742,565 P=77,764,964Nonservice revenues 4,640,848 3,703,584 3,753,283

95,140,985 86,446,149 81,518,247

INCOMEInterest income 19, 25.5, 29 688,249 579,851 297,388Gain on disposal of property and equipment - net 7 64,333 42,447 319,250Other income - net 20, 25.1, 29 475,246 716,371 574,768

1,227,828 1,338,669 1,191,406

COSTS AND EXPENSESGeneral, selling and administrative 21 37,318,839 33,602,411 29,413,606Depreciation and amortization 7, 8, 9, 29

Incremental effect of network modernization 9,065,966 5,080,471 –Others 18,411,528 18,502,946 18,941,227

Cost of sales 5 9,953,106 7,678,359 5,887,589Interconnect costs 9,280,229 8,859,309 9,953,663

Financing costs14, 22, 25,

29 2,911,785 2,362,609 2,509,505Impairment losses and others 23 2,482,628 1,863,584 1,918,583Equity in net losses of joint ventures 10, 29 79,959 83,582 27,345

89,504,040 78,033,271 68,651,518

INCOME BEFORE INCOME TAX 6,864,773 9,751,547 14,058,135

PROVISION FOR (BENEFIT FROM)INCOME TAX 24

Current 4,995,416 4,355,699 5,049,479Deferred (3,090,888) (1,449,406) (795,895)

1,904,528 2,906,293 4,253,584

NET INCOME 4,960,245 6,845,254 9,804,551

OTHER COMPREHENSIVE INCOME (LOSS) 17Item that will not be reclassified into profit or loss:Remeasurement losses on defined benefit plan (492,009) (289,283) (399,219)Income tax effect 147,603 86,785 119,766

(344,406) (202,498) (279,453)Items that will be reclassified into profit or loss:Transactions on cash flow hedges - net 223,182 45,529 (53,194)Changes in fair value of available-for-sale investment

in equity securities (22,500) 43,974 1,269Exchange differences arising from translations of

foreign investments (2,357) 4,470 (625)Income tax effect (66,955) (13,659) 15,958

131,370 80,314 (36,592)(213,036) (122,184) (316,045)

TOTAL COMPREHENSIVE INCOME P=4,747,209 P=6,723,070 P=9,488,506

Earnings Per Share 27Basic P=37.25 P=51.45 P=73.81Diluted P=37.22 P=51.38 P=73.57Cash dividends declared per common share 17 P=67.00 P=65.00 P=62.00


*SGVFS005221*

GLOBE TELECOM, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Year Ended December 31, 2013

Notes

CapitalStock

(Note 17)

AdditionalPaid-inCapital

Cost ofShare-Based

Payments(Note 16.5)

OtherReserves(Note 17)

RetainedEarnings Total

(In Thousand Pesos)

As of January 31, 2013, aspreviously presented P=7,412,866 P=26,683,110 P=472,911 (P=44,588) P=12,230,385 P=46,754,684

Effect of adoption of amendments toPAS 19 2.4 – – – (481,951) (574,742) (1,056,693)

As of January 1, 2013, as restated 7,412,866 26,683,110 472,911 (526,539) 11,655,643 45,697,991Total comprehensive income

for the year – – – (213,036) 4,960,245 4,747,209Dividends on: 17.3 Common stock – – – – (8,876,764) (8,876,764) Preferred stock – – – – (23,838) (23,838)Cost of share-based payments 18.1 – – 50,000 – – 50,000Exercise of stock options 17.2 9,494 296,926 (261,767) – – 44,653As of December 31, 2013 P=7,422,360 P=26,980,036 P=261,144 (P=739,575) P=7,715,286 P=41,639,251


NotesCapital

Stock


Cost ofShare-Based

Payments



(In Thousand Pesos)

As of January 1, 2012,as previously presented P=7,410,226 P=26,557,250 P=573,436 (P=124,902) P=14,012,146 P=48,428,156

Effect of adoption of amendments toPAS 19 2.4 – – – (279,453) (562,984) (842,437)

As of January 1, 2012,as restated 7,410,226 26,557,250 573,436 (404,355) 13,449,162 47,585,719

Total comprehensive incomefor the year, as previouslypresented – – – 80,314 6,857,012 6,937,326

Effect of adoption of amendments toPAS 19 2.4 – – – (202,498) (11,758) (214,256)

Total comprehensive incomefor the year, as restated – – – (122,184) 6,845,254 6,723,070

Dividends on: 17.3 Common stock – – – – (8,605,628) (8,605,628) Preferred stock – – – – (33,145) (33,145)Cost of share-based payments 18.1 – – 11,502 – – 11,502Exercise of stock options 17.2 2,640 125,860 (112,027) – – 16,473As of December 31, 2012,

as restated P=7,412,866 P=26,683,110 P=472,911 (P=526,539) P=11,655,643 P=45,697,991

(Forward)

*SGVFS005221*

- 2 -


NotesCapital

Stock


Cost ofShare-Based

Payments



(In Thousand Pesos)

As of January 1, 2011,as previously presented P=7,409,223 P=26,536,781 P=544,794 (P=88,310) P=12,466,640 P=46,869,128

Effect of adoption of amendmentsto PAS 19 2.4 – – – – (535,730) (535,730)

As of January 1, 2011,as restated 7,409,223 26,536,781 544,794 (88,310) 11,930,910 46,333,398

Total comprehensive incomefor the year, as previouslypresented – – – (36,592) 9,831,805 9,795,213

Effect of adoption of amendmentsto PAS 19 2.4 – – – (279,453) (27,254) (306,707)

Total comprehensive incomefor the year, as restated – – – (316,045) 9,804,551 9,488,506

Dividends on: 17.3 Common stock – – – – (8,205,605) (8,205,605) Preferred stock – – – – (80,694) (80,694)Cost of share-based payments 18.1 – – 49,338 – – 49,338Collection of subscription

receivables 776 – – – – 776Exercise of stock options 17.2 227 20,469 (20,696) – – –As of December 31, 2011,

as restated P=7,410,226 P=26,557,250 P=573,436 (P=404,355) P=13,449,162 P=47,585,719


*SGVFS005221*

GLOBE TELECOM, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS


Notes 2013



(In Thousand Pesos)

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax P=6,864,773 P=9,751,547 P=14,058,135Adjustments for: Depreciation and amortization 7, 8, 9 27,477,494 23,583,417 18,941,227 Interest expense 22 2,091,915 2,104,792 1,989,451 Interest income 19 (688,249) (579,851) (297,388) Foreign exchange losses (gains) - net 20, 22 486,308 (318,334) 308,650 Provisions for (reversals of) claims and

assessments 13, 23 88,333 56,327 (47,916) Equity in net losses of a joint venture 10 79,959 83,582 27,345 Gain on disposal of property and equipment 7 (64,333) (42,447) (319,250) Loss (gain) on derivative instruments 20, 22 59,282 9,593 (25,495) Cost of share-based payments 16, 18 50,000 11,502 49,338 Impairment losses on property and equipment and

intangible assets 23 26,312 259,262 128,614 Dividend income – – (503)Operating income before working capital changes 36,471,794 34,919,390 34,812,208Changes in operating assets and liabilities: Decrease (increase) in: Receivables (3,607,858) (2,235,848) (1,678,456) Inventories and supplies (1,468,350) (164,986) (67,358) Prepayments and other current assets 3,547,877 (6,996,121) (774,230) Increase (decrease) in: Accounts payable and accrued expenses 2,459,141 2,578,709 2,212,522 Unearned revenues 256,741 28,761 71,393 Other long-term liabilities 677,032 (106,783) (180,080)Cash generated from operations 38,336,377 28,023,122 34,395,999Income tax paid (5,103,438) (3,802,665) (4,508,758)Net cash provided by operating activities 33,232,939 24,220,457 29,887,241

CASH FLOWS FROM INVESTING ACTIVITIESAdditions to: Property and equipment 7, 30 (28,999,480) (20,124,476) (18,007,055) Intangible assets 9 (101,956) (152,056) (145,208) Investment in joint ventures 10 (59,010) (20,990) (79,010)Proceeds from sale of property and equipment 105,760 70,070 180,939Decrease (increase) in other noncurrent assets 1,418,642 (4,854,588) (360,944)Interest received 268,070 465,711 259,992Dividend received – – 503Net cash used in investing activities (27,367,974) (24,616,329) (18,150,783)

(Forward)

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Notes 2013



(In Thousand Pesos)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from borrowings: 14 Long-term P=16,695,035 P=25,847,770 P=8,000,000 Short-term 3,428,880 5,052,430 1,738,600Repayments of borrowings: 14 Long-term (13,613,525) (12,810,082) (11,552,501) Short-term (432,070) (4,694,020) –Payments of dividends to stockholders: 17 Common (8,876,764) (8,605,628) (8,205,605) Preferred (56,983) (35,295) (45,399)Interest paid (2,665,459) (2,573,745) (2,456,763)Collection of subscriptions receivable and exercise

of stock options 44,653 16,473 776Net cash provided by (used in) financing activities (5,476,233) 2,197,903 (12,520,892)

NET INCREASE (DECREASE) IN CASH ANDCASH EQUIVALENTS 388,732 1,802,031 (784,434)

NET FOREIGN EXCHANGE DIFFERENCE ONCASH AND CASH EQUIVALENTS 272,248 (201,322) 74,494

CASH AND CASH EQUIVALENTSAT BEGINNING OF THE YEAR 6,759,755 5,159,046 5,868,986

CASH AND CASH EQUIVALENTSAT END OF YEAR 28, 30 P=7,420,735 P=6,759,755 P=5,159,046


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GLOBE TELECOM, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Globe Telecom, Inc. (hereafter referred to as “Globe Telecom”) is a stock corporation organizedunder the laws of the Philippines, and enfranchised under Republic Act (RA) No. 7229 and itsrelated laws to render any and all types of domestic and international telecommunicationsservices. Globe Telecom is one of the leading providers of digital wireless communicationsservices in the Philippines under the Globe Handyphone (GHP), Touch Mobile (TM) and Tattoobrands using a fully digital network. It also offers domestic and international long distancecommunication services or carrier services. Globe Telecom’s principal executive office is locatedat The Globe Tower, 32nd Street corner 7th Avenue, Bonifacio Global City, Taguig, MetropolitanManila, Philippines. Globe Telecom is listed in the Philippine Stock Exchange (PSE) and hasbeen included in the PSE composite index since September 17, 2001. Major stockholders ofGlobe Telecom include Ayala Corporation (AC), Singapore Telecom International Pte Ltd. (STI)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 stockcorporation organized under the laws of the Philippines and enfranchised under RA No. 7372 andits related laws to render any and all types of domestic and international telecommunicationsservices. Innove holds a license to provide digital wireless communication services in thePhilippines. Innove also offers a broad range of broadband internet and wireline voice and datacommunication services, as well as domestic and international long distance communicationservices or carrier services. Innove also has a license to establish, install, operate and maintain anationwide local exchange carrier (LEC) service, particularly integrated local telephone servicewith public payphone facilities and public calling stations, and to render and provide internationaland domestic carrier and leased line services.

Globe Telecom owns 100% of G-Xchange, Inc. (GXI). GXI is a stock corporation organizedunder the laws of the Philippines and formed for the purpose of developing, designing,administering, managing and operating software applications and systems, including systemsdesigned for the operations of bill payment and money remittance, payment and delivery facilitiesthrough various telecommunications systems operated by telecommunications carriers in thePhilippines and throughout the world and to supply software and hardware facilities for suchpurposes. GXI is registered with the Bangko Sentral ng Pilipinas (BSP) as a remittance agent andelectronic money issuer. GXI handles the mobile payment and remittance service using GlobeTelecom’s network as transport channel under the GCash brand. The service, which is integratedinto 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 Innovesubscribers to easily and conveniently put cash into and get cash out of the GCash system.

Globe Telecom owns 100% of Entertainment Gateway Group Corporation (EGGC) andEGGstreme (Hong Kong) Limited (EHL) (collectively referred here as “EGG Group”). EGGGroup is engaged in the development and creation of wireless products and services accessiblethrough telephones or other forms of communication devices. It also provides internet and mobilevalue added services, information technology and technical services including softwaredevelopment and related services. EGGC is registered with the Department of Transportation andCommunication (DOTC) as a content provider. EHL was liquidated on February 1, 2013.Accordingly, EHL was dissolved and the cost of investment amounting to P=11.48 million wasderecognized.

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Globe Telecom owns 100% of GTI Business Holdings, Inc. (GTI). The primary purpose of thiscompany is to invest, purchase, subscribe for or otherwise acquire and own, hold, sell or otherwisedispose of real and personal property of every kind and description, provided that GTI shall notengage in the business of an open-ended investment company as defined in the InvestmentCompany Act (Republic Act 2629). GTI was incorporated on November 25, 2008. In July 2009,GTI incorporated its wholly owned subsidiary, GTI Corporation (GTIC), a company organizedunder the General Corporation Law of the State of Delaware for the purpose of engaging in anylawful act or activity for which corporations may be organized under the Delaware GeneralCorporation Law. GTIC has started commercial operations on April 1, 2011. In December 2011,GTI incorporated another wholly owned subsidiary, Globe Telecom HK Limited (GTHK), alimited company organized under the Companies Ordinance (Chapter 32 of the Laws of HongKong). GTHK has started commercial operations on August 1, 2012. On May 10, 2013, GTIincorporated wholly owned subsidiary, Globetel European Limited (GTEU) and the latter’swholly owned subsidiary, UK Globetel Limited (UKGT). It was incorporated to act as holdingcompany for the operating companies of Globe Telecom, which proposed to establish operationsin Europe, marketing and selling mobile telecommunications services, as a mobile networkoperator, or through any other appropriate vehicle, to Filipino individuals and businesses locatedwithin, and to Filipino visitors, initially, in the United Kingdom, Spain and Italy. These entitiesare private limited companies under the Companies Act of 2006, wherein the registered address isin England and Wales, and incorporated to market and sell mobile telecommunications, as amobile virtual network operator, to Filipino individuals and businesses located within the UnitedKingdom and to Filipino visitors in the United Kingdom. Its commercial operations commencedon July 22, 2013.

On July 22, 2013 and October 4, 2013 respectively, GTEU incorporated additional two Europeanwholly owned subsidiaries which are Globe Mobile’ Italy S.r.l. (GMI), a limited liabilitycompany, wherein the registered address is in Milan, Italy and Globetel Internacional EuropeanEspaña, S.L.

On March 28, 2012, Globe Telecom incorporated Kickstart Ventures, Inc. (Kickstart), a stockcorporation organized under the laws of the Philippines and formed for the purpose of investing inindividual, corporate, or start-up businesses, and to do research, technology development andcommercializing of new business ventures. Kickstart has started commercial operations onMarch 29, 2012.

2. Summary of Significant Accounting and Financial Reporting Policies

2.1 Basis of Financial Statement PreparationThe accompanying consolidated financial statements of Globe Telecom, Inc. and Subsidiaries,collectively referred to as the “Globe Group”, have been prepared under the historical costconvention method, except for derivative financial instruments and available-for-sale (AFS)investments that are measured at fair value.

The consolidated financial statements of the Globe Group are presented in Philippine Peso (P=),Globe Telecom’s functional currency, and rounded to the nearest thousands, except whenotherwise indicated.

The consolidated financial statements provide comparative information in respect of the previousperiod. In addition, the Globe Group presents an additional consolidated statement of financialposition at the beginning of the earliest period presented when there is a retrospective applicationof an accounting policy, a retrospective restatement, or a reclassification of items in financial

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statements. An additional consolidated statement of financial position as at January 1, 2012 ispresented in these consolidated financial statements due to retrospective application ofamendments to PAS 19, Employee Benefits (see Note 2.4).

On February 10, 2014, the Board of Directors (BOD) approved and authorized the release of theconsolidated financial statements of Globe Telecom, Inc. and Subsidiaries as ofDecember 31, 2013 and 2012 and for each of the three years in the period endedDecember 31, 2013.

2.2 Statement of ComplianceThe consolidated financial statements of the Globe Group have been prepared in compliance withPhilippine Financial Reporting Standards (PFRS).

2.3 Basis of ConsolidationThe accompanying consolidated financial statements include the accounts of Globe Telecom andthe following subsidiaries:

Percentage ofOwnership

Name of SubsidiaryPlace ofIncorporation Principal Activity 2013 2012

Innove Philippines Wireless and wireline voice and datacommunication services 100% 100%

GXI Philippines Software development for telecommunicationsapplications and money remittance services 100% 100%

EGG Group

EGGC Philippines Mobile content and application developmentservices 100% 100%

EHL Hong Kong Mobile content and application developmentservices – 100%

GTI Philippines Investment and holding company 100% 100%

GTIC United States Wireless and data communication services 100% 100%

GTHK Hong Kong Exclusive distributorship of Globe Telecomproducts in the international market (exceptthe United States) 100% 100%

Globetel European Limited*

London Investment and holding company 100% –

UK Globetel Limited*

London Wireless and data communication services 100% –

Globe Mobile Italy S.R.L. *

Italy Wireless and data communication services 100% –

Globetel Internacional European Espana, S.L. *

Spain Wireless and data communication services 100% –

Kickstart Philippines Investment, research, technology developmentand commercializing for business ventures 100% 100%

*Globetel European Limited started commercial operations on the same date of incorporation.UK Globetel Limited and Globe Mobile Italy S.R.L. started commercial operations on July 22 andNovember 24, 2013, respectively. Globetel Internacional European Espana, S.L. has not yet commenced itsoperations.

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Subsidiaries are consolidated from the date on which control is transferred to the Globe Group andcease to be consolidated from the date on which control is transferred out of the Globe Group.

Control is achieved when the Globe Group is exposed, or has rights, to variable returns from itsinvolvement with the investee and has the ability to affect those returns through its power over theinvestee. Specifically, the Globe Group controls an investee if and only if the Globe Group has:(a) power over the investee (i.e., existing rights that give it the current ability to direct the relevantactivities of the investee); (b) exposure, or rights, to variable returns from its involvement with theinvestee; and (c) the ability to use its power over the investee to affect its returns.

When the Globe Group has less than a majority of the voting or similar rights of an investee, theGlobe Group considers all relevant facts and circumstances in assessing whether it has power overan investee, including: (a) the contractual arrangement with the other vote holders of the investee;(b) rights arising from other contractual arrangements; and (c) the Globe Group’s voting rights andpotential voting rights.

The Globe Group re-assesses whether or not it controls an investee if facts and circumstancesindicate that there are changes to one or more of the three elements of control.

The financial statements of the subsidiaries are prepared for the same reporting year as GlobeTelecom using uniform accounting policies for like transactions and other events in similarcircumstances. All significant intercompany balances and transactions, including intercompanyprofits and losses, were eliminated in full during consolidation in accordance with the accountingpolicy on consolidation.

2.4 Changes in Accounting PoliciesThe accounting policies adopted in the preparation of the consolidated financial statements areconsistent with those followed in the preparation of the Globe Group’s consolidated financialstatements as of and for the year ended December 31, 2012, except for the adoption of new andamended standards as of January 1, 2013.

The Globe Group applied for the first time the amendments to PAS 19, Employee Benefits, thatrequire restatement of previous consolidated financial statements.

Several other new standards and amendments apply for the first time in 2013. However, they donot significantly impact the consolidated financial statements of the Globe Group.

The nature and the impact of each new standard/amendment are described below:

· PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and FinancialLiabilitiesThese Amendments require an entity to disclose information about rights of set-off and relatedarrangements (such as collateral agreements). The new disclosures are required for allrecognized financial instruments that are set-off in accordance with PAS 32, FinancialInstruments: Presentation. These disclosures also apply to recognized financial instrumentsthat are subject to an enforceable master netting arrangement or ‘similar agreement’,irrespective of whether they are set-off in accordance with PAS 32. The amendments requireentities to disclose, in a tabular format unless another format is more appropriate, certainminimum quantitative information. This is presented separately for financial assets andfinancial liabilities recognized at the end of the reporting period.

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The Globe Group has offsetting arrangements with their derivative counterparties that areaffected by the amendments to PFRS 7. However, the amendments affected presentation onlyand had no impact on the Globe Group’s financial position and performance. Additionaldisclosures required under the amendment to PFRS 7 are disclosed in Note 28.11.

· PFRS 10, Consolidated Financial StatementsPFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements,that addresses the accounting for consolidated financial statements. It also includes the issuesraised in SIC-12, Consolidation - Special Purpose Entities.

PFRS 10 establishes a single control model that applies to all entities including specialpurpose entities. PFRS 10 changes the definition of control such that an investor controls aninvestee when it is exposed, or has rights, to variable returns from its involvement with theinvestee and has the ability to affect those returns through its power over the investee. To meetthe definition of control in PFRS 10, all three criteria must be met, including:(a) an investor has power over an investee; (b) the investor has exposure, or rights, to variablereturns from its involvement with the investee; and (c) the investor has the ability to use itspower over the investee to affect the amount of the investor’s returns.

The Globe Group has concluded that after the adoption of PFRS 10: (a) all existingsubsidiaries shall remain to be fully consolidated with the Globe Group’s consolidatedfinancial statements as management control over these entities remain the same; and (b) nonew unconsolidated entity that will have to be consolidated.

· PFRS 11, Joint ArrangementsThis Standard replaces PAS 31, and SIC-13, Jointly-controlled Entities - Non-monetaryContributions by Venturers. It also removes the option to account for jointly controlledentities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of ajoint venture must be accounted for using the equity method. The adoption of the standard didnot have an impact to Globe Group as they are already accounting for their joint venturesunder the equity method.

· PFRS 12, Disclosure of Interests in Other EntitiesPFRS 12 sets out the requirements for disclosures relating to an entity’s interests insubsidiaries, joint arrangements, associates and structured entities. The requirements inPFRS 12 are more comprehensive than the previously existing disclosure requirements forsubsidiaries (for example, where a subsidiary is controlled with less than a majority of votingrights). Except for additional disclosures included in the consolidated financial statements, theadoption of the standard has no impact on the Globe Group’s financial position orperformance. Additional disclosures required under the PFRS 12 are disclosed in Note 10.

· PFRS 13, Fair Value MeasurementPFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements.PFRS 13 does not change when an entity is required to use fair value, but rather providesguidance on how to measure fair value under PFRS. PFRS 13 defines fair value as an exitprice. PFRS 13 also requires additional disclosures.

As a result of the guidance in PFRS 13, the Globe Group re-assessed its policies for measuringfair values, in particular, its valuation inputs such as non-performance risk for fair valuemeasurement of liabilities. The Globe Group has assessed that the application of PFRS 13 hasnot materially impacted the fair value measurements of the Globe Group. Additionaldisclosures, where required, are provided in the individual notes relating to the assets andliabilities whose fair values were determined. Fair value hierarchy is provided in Note 28.12.3.

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· Amendments to PAS 1, Financial Statement Presentation, Presentation of Items of OtherComprehensive IncomeThe Amendment changed the grouping of items presented in other comprehensive income.Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (forexample, upon derecognition or settlement) would be presented separately from items that willnever be reclassified. Other than the change in presentation, the amendment did not havesignificant impact on the consolidated financial statements.

· PAS 19, Employee Benefits (Revised PAS 19)For defined benefit plans, the Revised PAS 19 requires all actuarial gains and losses to berecognized in other comprehensive income and unvested past service costs previouslyrecognized over the average vesting period to be recognized immediately in profit or losswhen incurred.

Prior to adoption of the Revised PAS 19, the Globe Group recognized actuarial gains andlosses as income or expense when the net cumulative unrecognized gains and losses for eachindividual plan at the end of the previous period exceeded 10% of the higher of the definedbenefit obligation and the fair value of the plan assets and recognized unvested past servicecosts as an expense on a straight-line basis over the average vesting period until the benefitsbecome vested. Upon adoption of the Revised PAS 19, the Globe Group changed itsaccounting policy to recognize all actuarial gains and losses in other comprehensive incomeand all past service costs in profit or loss in the period they occur.

The Revised PAS 19 replaced the interest cost and expected return on plan assets with theconcept of net interest on defined benefit liability or asset which is calculated by multiplyingthe net balance sheet defined benefit liability or asset by the discount rate used to measure theemployee benefit obligation, each as at the beginning of the annual period.

The Revised PAS 19 also amended the definition of short-term employee benefits and requiresemployee benefits to be classified as short-term based on expected timing of settlement ratherthan the employee’s entitlement to the benefits. In addition, the Revised PAS 19 modifies thetiming of recognition for termination benefits. The modification requires the terminationbenefits to be recognized at the earlier of when the offer cannot be withdrawn or when therelated restructuring costs are recognized.

Changes to definition of short-term employee benefits and timing of recognition fortermination benefits do not have any significant impact to the Globe Group’s financialposition and financial performance.

The changes in accounting policies have been applied retrospectively. The effects of theadoption on the consolidated financial statements are as follows:

As at December 31, 2012 As at January 1, 2012(In Thousand Pesos)

Decrease in:Consolidated statements of financial positionNet defined benefit asset (P=1,509,561) (P=1,203,654)Deferred tax liability (452,868) (361,217)Other comprehensive income (481,951) (279,453)Retained earnings (574,742) (562,984)

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For the Years Ended December 312012 2011(In Thousand Pesos)

Increase (decrease) in:Consolidated statements of comprehensive incomeGeneral, selling and administrative (P=1,916) P=109,143Financing costs 18,713 (70,209)Income before income tax (16,797) (38,934)Provision for income tax - deferred 5,039 11,680Net income (11,758) (27,254)Remeasurement losses on defined benefit plan (289,283) (399,219)Income tax effect 86,785 119,766Other comprehensive income, net of tax (202,498) (279,453)Total comprehensive income (P=214,256) (P=306,707)

Basic earnings per share (P=0.09) (P=0.21)

Diluted earnings per share (P=0.09) (P=0.20)

The adoption did not have significant impact on the consolidated statement of cash flows.

Change of PresentationUpon adoption of the Revised PAS 19, the presentation of the statement of comprehensiveincome was updated to reflect these changes. Net interest is now shown under the financecost (previously included in staff costs under “General, selling and administrative expenses”account). This presentation better reflects the nature of net interest since it corresponds to thecompounding effect of the long-term net defined benefit liability (net defined benefit asset).In the past, the expected return on plan assets reflected the individual performance of the planassets, which were regarded as part of the operating activities.

· PAS 27, Separate Financial Statements (Revised)As a consequence of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited toaccounting for subsidiaries, jointly controlled entities and associates in separate financialstatements. The adoption of the amended PAS 27 did not have a significant impact on theseparate financial statements of the entities in the Globe Group.

· PAS 28, Investments in Associates and Joint Ventures (Revised)As a consequence of the new PFRS 11 and PFRS 12, PAS 28 has been renamedPAS 28, Investments in Associates and Joint Ventures, and describes the application of theequity method to investments in joint ventures in addition to associates. The adoption of thestandard did not have an impact to the Globe Group as they are already accounting for theirjoint ventures under the equity method.

Annual Improvements to PFRS (2009 to 2011 cycle)The Annual Improvements to PFRS (2009 to 2011 cycle) contain non-urgent but necessaryamendments to PFRS. The amendments are to be applied retrospectively. Earlier applicationis permitted. Except as otherwise stated, the adoption of these improvements have nosignificant impact on the consolidated financial statements.

· PAS 1, Presentation of Financial Statements - Clarification of the Requirements forComparative InformationThe Amendments clarify the requirements for comparative information that are disclosedvoluntarily and those that are mandatory due to retrospective application of an accountingpolicy, or retrospective restatement or reclassification of items in the financial statements.

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An entity must include comparative information in the related notes to the financialstatements when it voluntarily provides comparative information beyond the minimumrequired comparative period. The additional comparative period does not need to containa complete set of financial statements. On the other hand, supporting notes for the thirdbalance sheet (mandatory when there is a retrospective application of an accountingpolicy, or retrospective restatement or reclassification of items in the financial statements)are not required. As a result, the Globe Group has not included comparative informationin respect of the opening consolidated statement of financial position as atJanuary 1, 2012. The amendments affect presentation only and have no impact on theGlobe Group’s financial position or performance.

· PAS 16, Property, Plant and Equipment - Classification of Servicing EquipmentThe Amendment clarifies that spare parts, stand-by equipment and servicing equipmentshould be recognized as property, plant and equipment when they meet the definition ofproperty, plant and equipment and should be recognized as inventory if otherwise. Theamendment does not have any significant impact on the Globe Group’s financial positionor performance.

· PAS 32, Financial Instruments: Presentation - Tax Effect of Distribution to Holders ofEquity InstrumentsThe Amendment clarifies that income taxes relating to distributions to equity holders andto transaction costs of an equity transaction are accounted for in accordance with PAS 12,Income Taxes. The amendment does not have any significant impact on the GlobeGroup’s financial position or performance.

· PAS 34, Interim Financial Reporting - Interim Financial Reporting and SegmentInformation for Total Assets and LiabilitiesThe amendment clarifies that the total assets and liabilities for a particular reportablesegment need to be disclosed only when the amounts are regularly provided to the chiefoperating decision maker and there has been a material change from the amount disclosedin the entity’s previous annual financial statements for that reportable segment. Theamendment affects disclosures only and has no impact on Globe Group’s financialposition or performance.

2.5 Future Changes in Accounting PoliciesThe Globe Group will adopt the following new and amended standards enumerated below whenthese become effective. Except as otherwise indicated, the Globe Group does not expect theadoption of these new and amended PAS and PFRS to have significant impact on the consolidatedfinancial statements.

Effective January 1, 2014· Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-

Financial AssetsThese amendments remove the unintended consequences of PFRS 13 on the disclosuresrequired under PAS 36. In addition, these amendments require disclosure of the recoverableamounts for the assets or cash-generating units (CGUs) for which impairment loss has beenrecognized or reversed during the period. These amendments are effective retrospectively forannual periods beginning on or after January 1, 2014 with earlier application permitted,provided PFRS 13 is also applied. The amendments affect disclosures only and have noimpact on Globe Group’s financial position or performance.

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· Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27)They provide an exception to the consolidation requirement for entities that meet thedefinition of an investment entity under PFRS 10. The exception to consolidation requiresinvestment entities to account for subsidiaries at fair value through profit or loss. It is notexpected that this amendment would be relevant to Globe Group since none of the entities inthe Group would qualify to be an investment entity under PFRS 10.

· Philippine Interpretation IFRIC 21, LeviesIFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggerspayment, as identified by the relevant legislation, occurs. For a levy that is triggered uponreaching a minimum threshold, the interpretation clarifies that no liability should beanticipated before the specified minimum threshold is reached. The Globe Group does notexpect that IFRIC 21 will have material financial impact in the consolidated financialstatements.

· Amendments to PAS 39, Financial Instruments: Recognition and Measurement - Novation ofDerivatives and Continuation of Hedge AccountingThese amendments provide relief from discontinuing hedge accounting when novation of aderivative designated as a hedging instrument meets certain criteria. The Globe Group has notnovated its derivatives during the current period. However, these amendments would beconsidered for future novations.

· Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial Assetsand Financial LiabilitiesThe amendments clarify the meaning of “currently has a legally enforceable right to set-off”and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such ascentral clearing house systems) which apply gross settlement mechanisms that are notsimultaneous. The amendments affect presentation only and have no impact on the GlobeGroup’s financial position or performance.

Effective January 1, 2015· Amendments to PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions

The amendments apply to contributions from employees or third parties to defined benefitplans. Contributions that are set out in the formal terms of the plan shall be accounted for asreductions to current service costs if they are linked to service or as part of theremeasurements of the net defined benefit asset or liability if they are not linked to service.Contributions that are discretionary shall be accounted for as reductions of current service costupon payment of these contributions to the plans.

Annual Improvements to PFRS (2010-2012 cycle)The Annual Improvements to PFRS (2010-2012 cycle) contain non-urgent but necessaryamendments to the following standards:

· PFRS 2, Share-based Payment - Definition of Vesting ConditionThe amendment revised the definitions of vesting condition and market condition andadded the definitions of performance condition and service condition to clarify variousissues. This amendment has no significant impact on the financial position or performanceof the Globe Group.

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· PFRS 3, Business Combinations - Accounting for Contingent Consideration in a BusinessCombinationThe amendment clarifies that a contingent consideration that meets the definition of afinancial instrument should be classified as a financial liability or as equity in accordancewith PAS 32. Contingent consideration that is not classified as equity is subsequentlymeasured at fair value through profit or loss whether or not it falls within the scope ofPFRS 9 (or PAS 39, if PFRS 9 is not yet adopted). Globe Group shall consider thisamendment for future business combinations.

· PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation ofthe Total of the Reportable Segments’ Assets to the Entity’s AssetsThe amendments require entities to disclose the judgment made by management inaggregating two or more operating segments. This disclosure should include a briefdescription of the operating segments that have been aggregated in this way and theeconomic indicators that have been assessed in determining that the aggregated operatingsegments share similar economic characteristics. The amendments also clarify that anentity shall provide reconciliations of the total of the reportable segments’ assets to theentity’s assets if such amounts are regularly provided to the chief operating decisionmaker. The amendments affect disclosures only and have no impact on the Globe Group’sfinancial position or performance.

· PFRS 13, Fair Value Measurement - Short-term Receivables and PayablesThe amendment clarifies that short-term receivables and payables with no stated interestrates can be held at invoice amounts when the effect of discounting is immaterial.

· PAS 16, Property, Plant and Equipment - Revaluation Method - ProportionateRestatement of Accumulated DepreciationThe amendment clarifies that, upon revaluation of an item of property, plant andequipment, the carrying amount of the asset shall be adjusted to the revalued amount, andthe asset shall be treated in one of the following ways:a. The gross carrying amount is adjusted in a manner that is consistent with the

revaluation of the carrying amount of the asset. The accumulated depreciation at thedate of revaluation is adjusted to equal the difference between the gross carryingamount and the carrying amount of the asset after taking into account anyaccumulated impairment losses.

b. The accumulated depreciation is eliminated against the gross carrying amount of theasset.

The amendment shall apply to all revaluations recognized in annual periods beginning onor after the date of initial application of this amendment and in the immediately precedingannual period. The amendment has no impact on the Globe Group’s financial position orperformance.

· PAS 24, Related Party Disclosures - Key Management PersonnelThe amendments clarify that an entity is a related party of the reporting entity if the saidentity, or any member of a group for which it is a part of, provides key managementpersonnel services to the reporting entity or to the parent company of the reporting entity.The amendments also clarify that a reporting entity that obtains management personnelservices from another entity (also referred to as management entity) is not required todisclose the compensation paid or payable by the management entity to its employees ordirectors. The reporting entity is required to disclose the amounts incurred for the keymanagement personnel services provided by a separate management entity. The

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amendments are effective for annual periods beginning on or after July 1, 2014 and areapplied retrospectively. The amendments affect disclosures only and have no impact onthe Globe Group’s financial position or performance.

· PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement ofAccumulated AmortizationThe amendments clarify that, upon revaluation of an intangible asset, the carrying amountof the asset shall be adjusted to the revalued amount, and the asset shall be treated in oneof the following ways:a. The gross carrying amount is adjusted in a manner that is consistent with the

revaluation of the carrying amount of the asset. The accumulated amortization at thedate of revaluation is adjusted to equal the difference between the gross carryingamount and the carrying amount of the asset after taking into account anyaccumulated impairment losses.

b. The accumulated amortization is eliminated against the gross carrying amount of theasset.

The amendments also clarify that the amount of the adjustment of the accumulatedamortization should form part of the increase or decrease in the carrying amountaccounted for in accordance with the standard.

The amendments are effective for annual periods beginning on or after July 1, 2014. Theamendments shall apply to all revaluations recognized in annual periods beginning on orafter the date of initial application of this amendment and in the immediately precedingannual period. The amendments have no impact on the Globe Group’s financial positionor performance.

Annual Improvements to PFRS (2011-2013 cycle)The Annual Improvements to PFRS (2011-2013 cycle) contain non-urgent but necessaryamendments to the following standards:

· PFRS 3, Business Combinations - Scope Exceptions for Joint ArrangementsThe amendment clarifies that PFRS 3 does not apply to the accounting for the formationof a joint arrangement in the financial statements of the joint arrangement itself. Theamendment is effective for annual periods beginning on or after July 1, 2014 and isapplied prospectively.

· PFRS 13, Fair Value Measurement - Portfolio ExceptionThe amendment clarifies that the portfolio exception in PFRS 13 can be applied tofinancial assets, financial liabilities and other contracts. The amendment is effective forannual periods beginning on or after July 1, 2014 and is applied prospectively. Theamendment has no significant impact on the Globe Group’s financial position orperformance.

· PAS 40, Investment PropertyThe amendment clarifies the interrelationship between PFRS 3 and PAS 40 whenclassifying property as investment property or owner-occupied property. The amendmentstated that judgment is needed when determining whether the acquisition of investmentproperty is the acquisition of an asset or a group of assets or a business combinationwithin the scope of PFRS 3. This judgment is based on the guidance of PFRS 3. Thisamendment is effective for annual periods beginning on or after July 1, 2014 and isapplied prospectively. The amendment has no significant impact on the Globe Group’sfinancial position or performance.

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Effectivity not yet determined

· PFRS 9, Financial InstrumentsPFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 andapplies to the classification and measurement of financial assets and liabilities and hedgeaccounting, respectively. Work on the second phase, which relate to impairment offinancial instruments, and the limited amendments to the classification and measurementmodel is still ongoing, with a view to replace PAS 39 in its entirety. PFRS 9 requires allfinancial assets to be measured at fair value at initial recognition. A debt financial assetmay, if the fair value option (FVO) is not invoked, be subsequently measured at amortizedcost if it is held within a business model that has the objective to hold the assets to collectthe contractual cash flows and its contractual terms give rise, on specified dates, to cashflows that are solely payments of principal and interest on the principal outstanding. Allother debt instruments are subsequently measured at fair value through profit or loss. Allequity financial assets are measured at fair value either through other comprehensiveincome (OCI) or profit or loss. Equity financial assets held for trading must be measuredat fair value through profit or loss. For liabilities designated as at FVPL using the fairvalue option, the amount of change in the fair value of a liability that is attributable tochanges in credit risk must be presented in OCI. The remainder of the change in fairvalue is presented in profit or loss, unless presentation of the fair value change relating tothe entity’s own credit risk in OCI would create or enlarge an accounting mismatch inprofit or loss. All other PAS 39 classification and measurement requirements for financialliabilities have been carried forward to PFRS 9, including the embedded derivativebifurcation rules and the criteria for using the FVO. The adoption of the first phase ofPFRS 9 will have an effect on the classification and measurement of the Group’s financialassets, but will potentially have no impact on the classification and measurement offinancial liabilities.

On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model ofPAS 39 with a more principles-based approach. Changes include replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on the economicrelationship between the hedged item and the hedging instrument, and the effect of creditrisk on that economic relationship; allowing risk components to be designated as thehedged item, not only for financial items, but also for non-financial items, provided thatthe risk component is separately identifiable and reliably measurable; and allowing thetime value of an option, the forward element of a forward contract and any foreigncurrency basis spread to be excluded from the designation of a financial instrument as thehedging instrument and accounted for as costs of hedging. PFRS 9 also requires moreextensive disclosures for hedge accounting.

PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before thecompletion of the limited amendments to the classification and measurement model andimpairment methodology. The Globe Group will not adopt the standard before thecompletion of the limited amendments and the second phase of the project.

2.6 Significant Accounting Policies

2.6.1 Revenue RecognitionThe Globe Group provides mobile and wireline voice, data communication and broadbandinternet services which are both provided under postpaid and prepaid arrangements.

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The Globe Group assesses its revenue arrangements against specific criteria in order todetermine if it is acting as principal or agent (see Note 3.1.5).

Revenue is recognized when the delivery of the products or services has occurred andcollectability is reasonably assured.

Revenue is stated at amounts invoiced and accrued to customers, taking into consideration thebill cycle cut-off (for postpaid subscribers), the amount charged against preloaded airtimevalue (for prepaid subscribers), switch-monitored traffic (for carriers and content providers)and excludes value-added tax (VAT) and overseas communication tax. Inbound trafficcharges, net of discounts, are accrued based on actual volume of traffic monitored by GlobeGroup’s network and in the traffic settlement system.

2.6.1.1 Service Revenues

2.6.1.1.1 SubscribersRevenues from subscribers principally consist of: (1) fixed monthly service fees forpostpaid wireless, wireline voice, broadband internet, data subscribers and wirelessprepaid subscription fees for promotional offers; (2) usage of airtime and toll fees forlocal, domestic and international long distance calls in excess of consumable fixedmonthly service fees, less (a) bonus airtime and short messaging services (SMS) onfree Subscribers’ Identification Module (SIM), and (b) prepaid reload discounts,(3) revenues from value-added services (VAS) such as SMS in excess of consumablefixed monthly service fees (for postpaid) and free SMS allocations (for prepaid),multimedia messaging services (MMS), content and infotext services, net of payout tocontent providers; (4) mobile data services, (5) inbound revenues from other carrierswhich terminate their calls to the Globe Group’s network less discounts; (6) revenuesfrom international roaming services; (7) usage of broadband and internet services inexcess of fixed monthly service fees; and (8) one-time service connection fees (forwireline voice and data subscribers).

Postpaid service arrangements include fixed monthly service fees, which arerecognized over the subscription period on a pro-rata basis. Monthly service feesbilled in advance are initially deferred and recognized as revenue during the periodwhen earned. Telecommunications services provided to postpaid subscribers arebilled throughout the month according to the bill cycles of subscribers. As a result ofbill cycle cut-off, monthly service revenues earned but not yet billed at the end of themonth are estimated and accrued. These estimates are based on actual usage lessestimated consumable usage using historical ratio of consumable usage over billableusage.

Proceeds from over-the-air reloading channels and the sale of prepaid cards aredeferred and shown as “Unearned revenues” in the consolidated statement of financialposition. Revenue is recognized upon actual usage of airtime value net of discountson promotional calls and net of free airtime value or SMS and bonus reloads. Unusedload value is recognized as revenue upon expiration.

The Globe Group offers loyalty programs which allow its subscribers to accumulatepoints when they purchase services from the Globe Group. The points can then beredeemed for free services, discounts and raffle coupons, subject to a minimumnumber of points being obtained. The consideration received or receivable isallocated between the sale of services and award credits. The portion of the

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consideration allocated to the award credits is accounted for as unearned revenues.This will be recognized as revenue upon the award redemption.

2.6.1.1.2 TrafficInbound revenues refer to traffic originating from other telecommunications providersterminating to the Globe Group’s network, while outbound charges represent trafficsent out or mobile content delivered using agreed termination rates and/or revenuesharing with other foreign and local carriers and content providers. Adjustments aremade to the accrued amount for discrepancies between the traffic volume per GlobeGroup’s records and per records of the other carriers as these are determined and/ormutually agreed upon by the parties. Outstanding inbound revenues are shown astraffic settlements receivable under the “Receivables” account, while unpaid outboundcharges are shown as traffic settlements payable under the “Accounts payable andaccrued expenses” account in the consolidated statement of financial position unless alegal right of offset exists in which case the net amount is shown either under“Receivables” or “Accounts payable and accrued expenses” account.

2.6.1.1.3 GCashService revenues of GXI consist of SMS revenue arising from GCash transactionspassing through the telecom networks of Globe Telecom. Service revenue alsoincludes transaction fees and discounts earned from arrangements with partners andfrom remittances made through GCash partners using the Globe Group’s facilities.The Globe Group earns service revenue from one-time connection fee received fromnew partners. Depending on the arrangement with partners and when the fee isnonconsumable, outright service revenue is recognized upon cash receipt.

2.6.1.2 Nonservice RevenuesProceeds from sale of handsets, devices and accessories, tattoo prepaid kits, SIM packs,modems and accessories, spare parts and supplies, callcards and others are recognized asrevenue upon delivery of the items and the related cost or net realizable value arepresented as “Cost of sales” in the consolidated statement of comprehensive income.

2.6.1.3 OthersInterest income is recognized as it accrues using the effective interest method.

Lease income from operating lease is recognized on a straight-line basis over the leaseterm.

Dividend income is recognized when the Globe Group’s right to receive payment isestablished.

2.6.2 Subscriber Acquisition and Retention CostsThe related costs incurred in connection with the acquisition of wireless and wireline voicesubscribers are charged against current operations, while the related acquisition costs of datacommunication and broadband internet subscribers are capitalized. Subscriber acquisitioncosts primarily include commissions, handset, phonekit, modems, mobile internet kitsubsidies, device subsidies and selling expenses. Subsidies represent the difference betweenthe cost of handsets, devices and accessories, tattoo prepaid kits, SIM packs, modems andaccessories, spare parts and supplies, callcards and others (included in the “Cost of sales” and“Impairment losses and others” account), and the price offered to the subscribers (included inthe “Nonservice revenues” account). The data communication and broadband internet costsrepresent the acquisition cost of modems (included in the “Property and Equipment” account)

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which are depreciated over a period of two years (included in the “depreciation andamortization” account). Retention costs for existing postpaid subscribers are in the form offree handsets, devices and bill credits. Retention costs are charged against current operationsand included under the “General, selling and administrative expenses” account in theconsolidated statement of comprehensive income upon delivery or when there is a contractualobligation to deliver. Bill credits are deducted from service revenues upon application againstqualifying subscriber bills.

2.6.3 Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to known amounts of cash with original maturities ofthree months or less from date of placement and that are subject to an insignificant risk ofchange in value.

2.6.4 Financial Instruments

2.6.4.1 General

2.6.4.1.1 Initial Recognition and Fair Value MeasurementFinancial instruments are recognized in the Globe Group’s consolidated statement offinancial position when the Globe Group becomes a party to the contractualprovisions of the instrument. Purchases or sales of financial assets that requiredelivery of assets within the time frame established by regulation or convention in themarketplace are recognized (regular way trades) on the trade date, i.e., the date thatthe Globe Group commits to purchase or sell the asset.

Financial instruments are recognized initially at fair value. Except for financialinstruments at FVPL, the initial measurement of financial assets includes directlyattributable transaction costs.

The Globe Group classifies its financial assets into the following categories: financialassets at FVPL, held-to-maturity (HTM) investments, AFS investments, and loans andreceivables. The Globe Group classifies its financial liabilities into financial liabilitiesat FVPL and other financial liabilities. The classification depends on the purpose forwhich the investments were acquired and whether they are quoted in an active market.Management determines the classification of its investments at initial recognition and,where allowed and appropriate, re-evaluates such designation every reporting date.

Where the transaction price in a non-active market is different from the fair value ofother observable current market transactions in the same instrument or based on avaluation technique whose variables include only data from observable market, theGlobe Group recognizes the difference between the transaction price and fair value (a“Day 1” profit or loss) in profit or loss. In cases where no observable data is used, thedifference between the transaction price and model value is only recognized in profitor loss when the inputs become observable or when the instrument is derecognized.For each transaction, the Globe Group determines the appropriate method ofrecognizing the “Day 1” profit or loss amount.

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2.6.4.1.2 Financial Assets or Financial Liabilities at FVPLThis category consists of financial assets or financial liabilities that are held fortrading or designated by management as FVPL on initial recognition. Financial assetsor financial liabilities are classified as held for sale if they are acquired for the purposeof selling or repurchasing in the near term. Derivatives, including separatedembedded derivatives, are also classified as held for trading, unless they aredesignated as effective hedging instruments as defined by PAS 39.

Financial assets or financial liabilities at FVPL are recorded in the consolidatedstatements of financial position at fair value, with changes in fair value being recordedin profit or loss. Interest earned or incurred is recorded as “Interest income orexpense”, respectively, while dividend income is recorded when the right to receivepayment has been established. Both are recorded in profit or loss.

Financial assets or financial liabilities are classified in this category as designated bymanagement on initial recognition when any of the following criteria are met:

· the designation eliminates or significantly reduces the inconsistent treatment thatwould otherwise arise from measuring the assets or liabilities or recognizing gainsor losses on a different basis; or

· the assets and liabilities are part of a group of financial assets, financial liabilitiesor both which are managed and their performance are evaluated on a fair valuebasis in accordance with a documented risk management or investment strategy;or

· the financial instrument contains an embedded derivative, unless the embeddedderivative does not significantly modify the cash flows or it is clear, with little orno analysis, that it would not be separately recorded.

The Globe Group evaluates its financial assets held for trading, other than derivatives,to determine whether the intention to sell them in the near term is still appropriate.When in rare circumstances the Globe Group is unable to trade these financial assetsdue to inactive markets and management’s intention to sell them in the foreseeablefuture significantly changes, the Globe Group may elect to reclassify these financialassets. The reclassification to loans and receivables, AFS or HTM depends on thenature of the asset. This evaluation does not affect any financial assets designated atFVPL using the fair value option at designation because these instruments cannot bereclassified after initial recognition.

Derivatives embedded in host contracts are accounted for as separate derivatives andrecorded at fair value if their economic characteristics and risks are not closely relatedto those of the host contracts and the host contracts are not held for trading ordesignated at fair value though profit or loss. These embedded derivatives aremeasured at fair value with changes in fair value recognised in profit or loss.Reassessment only occurs if there is a change in the terms of the contract thatsignificantly modifies the cash flows that would otherwise be required.

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2.6.4.1.3 HTM InvestmentsHTM investments are quoted non-derivative financial assets with fixed ordeterminable payments and fixed maturities for which the Globe Group’smanagement has the positive intention and ability to hold to maturity. Where theGlobe Group sells other than an insignificant amount of HTM investments, the entirecategory would be tainted and reclassified as AFS investments. After initialmeasurement, HTM investments are subsequently measured at amortized cost usingthe effective interest method, less any impairment losses. Amortized cost iscalculated by taking into account any discount or premium on acquisition and feesthat are an integral part of the effective interest rate. Gains and losses are recognizedin profit or loss when the HTM investments are derecognized or impaired, as well asthrough the amortization process. The amortization is included in “Interest income”in the consolidated statement of comprehensive income. The effects of restatement offoreign currency-denominated HTM investments are recognized in profit or loss.

There are no outstanding HTM investments as of December 31, 2013 and 2012.

2.6.4.1.4 Loans and ReceivablesLoans and receivables are non-derivative financial assets with fixed or determinablepayments that are not quoted in an active market. They are not entered into with theintention of immediate or short-term resale and are not classified as financial assetsheld for trading, designated as AFS investments or designated at FVPL.

This accounting policy relates to the consolidated statement of financial positioncaption “Receivables”, which arise primarily from subscriber and traffic revenues andother types of receivables, “Short-term investments”, which arise primarily fromunquoted debt securities, and other nontrade receivables included under “Prepaymentsand other current assets” and loans receivables included under “Other noncurrentassets”.

Receivables are recognized initially at fair value. After initial measurement,receivables are subsequently measured at amortized cost using the effective interestmethod, less any allowance for impairment losses. Amortized cost is calculated bytaking into account any discount or premium on the issue and fees that are an integralpart of the effective interest rate.

Penalties, termination fees and surcharges on past due accounts of postpaidsubscribers are recognized as revenues upon collection. The losses arising fromimpairment of receivables are recognized in the “Impairment losses and others”account in the consolidated statement of comprehensive income. The level ofallowance for impairment losses is evaluated by management on the basis of factorsthat affect the collectability of accounts (see accounting policy on 2.6.4.2 Impairmentof Financial Assets).

Short-term investments, other nontrade receivables and loans receivable arerecognized initially at fair value, which normally pertains to the consideration paid.Similar to receivables, subsequent to initial recognition, short-term investments, othernontrade receivables and loans receivables are measured at amortized cost using theeffective interest method, less any allowance for impairment losses.

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2.6.4.1.5 AFS InvestmentsAFS investments are those investments which are designated as such or do not qualifyto be classified or designated as at FVPL, HTM investments or loans and receivables.They are purchased and held indefinitely, and may be sold in response to liquidityrequirements or changes in market conditions. They include equity investments.

After initial measurement, AFS investments are subsequently measured at fair value.Interest earned on holding AFS investments are reported as interest income using theeffective interest rate. The unrealized gains and losses arising from the fair valuechanges of AFS investments are included in other comprehensive income and arereported as “Other reserves” (net of tax where applicable) in the equity section of theconsolidated statement of financial position. When the investment is disposed of, thecumulative gains or losses previously recognized in equity is recognized in profit orloss.

When the fair value of AFS investments cannot be measured reliably because of lackof reliable estimates of future cash flows and discount rates necessary to calculate thefair value of unquoted equity instruments, these investments are carried at cost, lessany allowance for impairment losses. Dividends earned on holding AFS investmentsare recognized in profit or loss when the right to receive payment has beenestablished.

The losses arising from impairment of such investments are recognized as“Impairment losses and others” in the consolidated statement of comprehensiveincome.

2.6.4.1.6 Other Financial LiabilitiesIssued financial instruments or their components, which are not designated at FVPLare classified as other financial liabilities where the substance of the contractualarrangement results in the Globe Group having an obligation either to deliver cash oranother financial asset to the holder, or to satisfy the obligation other than by theexchange of a fixed amount of cash or another financial asset for a fixed number ofown equity shares. The components of issued financial instruments that contain bothliability and equity elements are accounted for separately, with the equity componentbeing assigned the residual amount after deducting from the instrument as a whole theamount separately determined as the fair value of the liability component on the dateof issue. After initial measurement, other financial liabilities are subsequentlymeasured at amortized cost using the effective interest method. Amortized cost iscalculated by taking into account any discount or premium on the issue and fees thatare an integral part of the effective interest rate. Any effects of restatement of foreigncurrency-denominated liabilities are recognized in profit or loss.

This accounting policy applies primarily to the Globe Group’s debt, accounts payableand other obligations that meet the above definition (other than liabilities covered byother accounting standards, such as income tax payable).

2.6.4.1.7 Derivative Instruments

2.6.4.1.7.1 GeneralThe Globe Group enters into short-term deliverable and nondeliverable currencyforward contracts to manage its currency exchange exposure related to short-termforeign currency-denominated monetary assets and liabilities and foreign currencylinked revenues.

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The Globe Group also enters into long-term currency and interest rate swapcontracts to manage its foreign currency and interest rate exposures arising fromits long-term loan. Such swap contracts are sometimes entered into incombination with options.

2.6.4.1.7.2 Recognition and MeasurementDerivative financial instruments are initially recognized at fair value on the dateon which a derivative contract is entered into and are subsequently remeasured atfair value. Derivatives are carried as financial assets when the fair value ispositive and as financial liabilities when the fair value is negative. The method ofrecognizing the resulting gain or loss depends on whether the derivative isdesignated as a hedge of an identified risk and qualifies for hedge accountingtreatment. The objective of hedge accounting is to match the impact of thehedged item and the hedging instrument in profit or loss. To qualify for hedgeaccounting, the hedging relationship must comply with strict requirements such asthe designation of the derivative as a hedge of an identified risk exposure, hedgedocumentation, probability of occurrence of the forecasted transaction in a cashflow hedge, assessment (both prospective and retrospective bases) andmeasurement of hedge effectiveness, and reliability of the measurement bases ofthe derivative instruments.

Upon inception of the hedge, the Globe Group documents the relationshipbetween the hedging instrument and the hedged item, its risk managementobjective and strategy for undertaking various hedge transactions, and the detailsof the hedging instrument and the hedged item. The Globe Group also documentsits hedge effectiveness assessment methodology, both at the hedge inception andon an ongoing basis, as to whether the derivatives that are used in hedgingtransactions are highly effective in offsetting changes in fair values or cash flowsof hedged items.

Hedge effectiveness is likewise measured, with any ineffectiveness being reportedimmediately in profit or loss.

2.6.4.1.7.3 Types of HedgesThe Globe Group designates derivatives which qualify as accounting hedges aseither: (a) a hedge of the fair value of a recognized fixed rate asset, liability orunrecognized firm commitment (fair value hedge); or (b) a hedge of the cash flowvariability of recognized floating rate asset and liability or forecasted salestransaction (cash flow hedge).

Fair Value HedgesFair value hedges are hedges of the exposure to variability in the fair value ofrecognized assets, liabilities or unrecognized firm commitments. The gain or losson a derivative instrument designated and qualifying as a fair value hedge, as wellas the offsetting loss or gain on the hedged item attributable to the hedged risk,are recognized in profit or loss in the same accounting period. Hedgeeffectiveness is determined based on the hedge ratio of the fair value changes ofthe hedging instrument and the underlying hedged item. When the hedge ceasesto be highly effective, hedge accounting is discontinued.

As of December 31, 2013 and 2012, there were no derivatives designated andaccounted for as fair value hedges.

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Cash Flow HedgesThe Company designates as cash flow hedges the following derivatives: (a)interest rate swaps as cash flow hedge of foreign exchange and interest rate risk ofUnited States Dollar (USD) loans, (b) interest rate swaps as cash flow hedge ofinterest rate risk of a floating rate obligation, and (c) certain foreign exchangeforward contracts as cash flow hedge of expected USD revenues.

A cash flow hedge is a hedge of the exposure to variability in future cash flowsrelated to a recognized asset, liability or a forecasted sales transaction. Changesin the fair value of a hedging instrument that qualifies as a highly effective cashflow hedge are recognized in “Other reserves,” which is a component of equity.Any hedge ineffectiveness is immediately recognized in profit or loss.

If the hedged cash flow results in the recognition of a nonfinancial asset orliability, gains and losses previously recognized directly in equity are transferredfrom equity and included in the initial measurement of the cost or carrying valueof the asset or liability. Otherwise, for all other cash flow hedges, gains andlosses initially recognized in equity are transferred from equity to profit or loss inthe same period or periods during which the hedged forecasted transaction orrecognized asset or liability affect earnings.

Hedge accounting is discontinued prospectively when the hedge ceases to behighly effective. When hedge accounting is discontinued, the cumulative gains orlosses on the hedging instrument that has been recognized in OCI is retained in“Other reserves” until the hedged transaction impacts profit or loss. When theforecasted transaction is no longer expected to occur, any net cumulative gains orlosses previously recognized in “Other reserves” is immediately recycled in profitor loss.

For cash flow hedges of USD revenues, the effective portion of the hedgetransaction coming from the fair value changes of the currency forwards aresubsequently recycled from equity to profit or loss and is presented as part of theUS dollar-based revenues upon consummation of the transaction or when thehedge become ineffective.

2.6.4.1.7.4 Other Derivative Instruments not Accounted for as AccountingHedgesCertain freestanding derivative instruments that provide economic hedges underthe Globe Group’s policies either do not qualify for hedge accounting or are notdesignated as accounting hedges. Changes in the fair values of derivativeinstruments not designated as hedges are recognized immediately in profit or loss.For bifurcated embedded derivatives in financial and nonfinancial contracts thatare not designated or do not qualify as hedges, changes in the fair values of suchtransactions are recognized in profit or loss.

2.6.4.1.8 OffsettingFinancial assets and financial liabilities are offset and the net amount is reported in theconsolidated statements of financial position if, and only if, there is a currentlyenforceable legal right to offset the recognized amounts and there is an intention tosettle on a net basis, or to realize the asset and settle the liability simultaneously. Thisis not generally the case with master netting agreements; thus, the related assets andliabilities are presented gross in the consolidated statements of financial position.

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2.6.4.2 Impairment of Financial AssetsThe Globe Group assesses at end of the reporting date whether a financial asset or groupof financial assets is impaired.

2.6.4.2.1 Assets Carried at Amortized CostIf there is objective evidence that an impairment loss on financial assets carried atamortized cost (e.g., receivables) has been incurred, the amount of the loss ismeasured as the difference between the asset’s carrying amount and the present valueof 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 is to be recognized in profit or loss.

The Globe Group first assesses whether objective evidence of impairment existsindividually for financial assets that are individually significant, and individually orcollectively for financial assets that are not individually significant. If it is determinedthat no objective evidence of impairment exists for an individually assessed financialasset, whether significant or not, the asset is included in a group of financial assetswith similar credit risk characteristics and that group of financial assets is collectivelyassessed for impairment.

Assets that are individually assessed for impairment and for which an impairment lossis or continues to be recognized are not included in a collective assessment ofimpairment.

If, in a subsequent period, the amount of the impairment loss decreases and thedecrease can be related objectively to an event occurring after the impairment wasrecognized, the previously recognized impairment loss is reversed. Any subsequentreversal of an impairment loss is recognized in profit or loss to the extent that thecarrying value of the asset does not exceed what should have been its amortized costat the reversal date.

With respect to receivables, the Globe Group performs a regular review of the riskprofile of accounts, designed to identify accounts with objective evidence ofimpairment and provide the appropriate allowance for impairment losses. The reviewis accomplished using a combination of specific and collective assessmentapproaches, with the impairment losses being determined for each risk groupingidentified by the Globe Group.

2.6.4.2.1.1 SubscribersManagement regularly reviews its portfolio and assesses if there are accountsrequiring specific provisioning based on objective evidence of high defaultprobability. Observable data indicating high impairment probability could bedeterioration in payment status, declaration of bankruptcy or national/localeconomic indicators that might affect payment capacity of accounts.

Full allowance for impairment losses, net of average recoveries, is provided forreceivables from permanently disconnected wireless, wireline and broadbandsubscribers. Permanent disconnections are made after a series of collection stepsfollowing nonpayment by postpaid subscribers. Such permanent disconnectionsgenerally occur within a predetermined period from due date.

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Impairment losses are applied to active wireless, wireline and broadband accountsspecifically identified to be doubtful of collection where there is information onfinancial incapacity after considering the other contractual obligations betweenGlobe Group and the subscriber. Allowance is applied regardless of age bucket ofidentified accounts.

Application of impairment losses to receivables, net of receivables with appliedspecific loss, is also determined based on the results of net flow to permanentdisconnection methodology.

For wireless, net flow tables are derived from account-level monitoring ofsubscriber accounts between different age brackets depending on the definedpermanent disconnection timeline, from current to 150 days past due and up. Thenet flow to permanent disconnection methodology relies on the historical data ofnet flow tables to establish a percentage (“net flow rate”) of subscriber receivablesthat are current or in any state of delinquency as of reporting date that willeventually result to permanent disconnection. The allowance for impairmentlosses is then computed based on the outstanding balances of the receivables atthe end of reporting date and the net flow rates determined for the current andeach delinquency bucket. Full allowance is provided for receivables of activeconsumer accounts in the 150 days past due and up bucket.

For active wireline voice and broadband subscribers, the allowance forimpairment loss is also determined based on the results of net flow rate topermanent disconnection computed from account-level monitoring of accountsfrom current to 90 days past due and up age bucket except for consumer whereimpairment rate applied at 90 days past due and up bucket is full allowance net ofaverage recoveries prior to permanent disconnection.

2.6.4.2.1.2 TrafficAs per PAS 39, impairment provision is recognized in the light of actual lossesincurred by the Globe Group as a result of one or more events that occurred afterthe initial recognition of the asset (a “loss event”) and that loss event (or events)has an impact on the estimated future cash flows of the financial asset or group ofassets that can be reliably estimated.

For traffic receivables, impairment losses are made for accounts specificallyidentified to be doubtful of collection regardless of the age of the account. Foraccounts that have no established recovery rate yet, full provision for ten monthsand above traffic receivable is being applied. For receivable balances that appeardoubtful of collection, allowance is provided after review of the status ofsettlement with each carrier and roaming partner, taking into consideration normalpayment cycles, recovery experience and credit history of the counterparties.

2.6.4.2.1.3 Other ReceivablesOther receivables from dealers, credit card companies and other parties areprovided with allowance for impairment losses if specifically identified to bedoubtful of collection regardless of the age of the account.

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2.6.4.2.2 AFS Investments Carried at CostIf there is objective evidence that an impairment loss has been incurred on anunquoted equity instrument that is not carried at fair value because its fair valuecannot be reliably measured, or on a derivative asset that is linked to and must besettled by delivery of such unquoted equity instrument, the amount of the loss ismeasured as the difference between the asset’s carrying amount and the present valueof estimated future cash flows discounted at the current market rate of return for asimilar financial asset. The carrying amount of the asset is reduced through the use ofan allowance account.

2.6.4.2.3 AFS Investments Carried at Fair ValueIf an AFS investment carried at fair value is impaired, an amount comprising thedifference between its cost (net of any principal repayment and amortization) and itscurrent fair value, less any impairment loss previously recognized in profit or loss, istransferred from equity to profit or loss. Reversals of impairment losses in respect ofequity instruments classified as AFS are not recognized in profit or loss. Reversals ofimpairment losses on debt instruments are made through profit or loss if the increasein fair value of the instrument can be objectively related to an event occurring after theimpairment loss was recognized in profit or loss.

2.6.4.3 Derecognition of Financial Instruments

2.6.4.3.1 Financial AssetA financial asset (or, where applicable a part of a financial asset or part of a group offinancial 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 partyunder a “pass-through” arrangement; or

· the Globe Group has transferred its rights to receive cash flows from the asset andeither (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 hastransferred the control of the asset.

Where the Globe Group has transferred its rights to receive cash flows from an assetand has neither transferred nor retained substantially all the risks and rewards of theasset nor transferred control of the asset, the asset is recognized to the extent of theGlobe Group’s continuing involvement in the asset. Continuing involvement thattakes the form of a guarantee over the transferred asset is measured at the lower of theoriginal carrying amount of the asset and the maximum amount of consideration thatthe Globe Group could be required to pay.

2.6.4.3.2 Financial LiabilityA financial liability is derecognized when the obligation under the liability isdischarged or cancelled or has expired. Where an existing financial liability isreplaced by another from the same lender on substantially different terms, or the termsof an existing liability are substantially modified, such an exchange or modification istreated as a derecognition of the original liability and the recognition of a newliability, and the difference in the respective carrying amounts is recognized in profitor loss.

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2.6.5 Fair Value MeasurementFair value is the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at the measurementdate. The fair value measurement is based on the presumption that the transaction tosell the asset or transfer the liability takes place either:

· In the principal market for the asset or liability, or· In the absence of a principal market, in the most advantageous market for the

asset or liability

The principal or the most advantageous market must be accessible to by the GlobeGroup.

The fair value of an asset or a liability is measured using the assumptions that marketparticipants would use when pricing the asset or liability, assuming that marketparticipants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a marketparticipant’s ability to generate economic benefits by using the asset in its highest andbest use or by selling it to another market participant that would use the asset in itshighest and best use.

The Globe Group uses valuation techniques that are appropriate in the circumstancesand for which sufficient data are available to measure fair value, maximizing the useof relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in theconsolidated financial statements are categorized within the fair value hierarchy,described as follows, based on the lowest level input that is significant to the fairvalue measurement as a whole:

· Level 1 - Quoted (unadjusted) market prices in active markets for identical assetsor liabilities

· Level 2 - Valuation techniques for which the lowest level input that is significantto the fair value measurement is directly or indirectly observable

· Level 3 - Valuation techniques for which the lowest level input that is significantto the fair value measurement is unobservable

For assets and liabilities that are recognized in the consolidated financial statementson a recurring basis, the Globe Group determines whether transfers have occurredbetween Levels in the hierarchy by re-assessing categorization (based on the lowestlevel input that is significant to the fair value measurement as a whole) at the end ofeach reporting period.

For the purpose of fair value disclosures, the Globe Group has determined classes of assetsand liabilities on the basis of the nature, characteristics and risks of the asset or liability andthe level of the fair value hierarchy as explained above.

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2.6.6 Inventories and SuppliesInventories and supplies are stated at the lower of cost and net realizable value (NRV). NRVfor handsets, modems, devices and accessories is the selling price in the ordinary course ofbusiness less direct costs to sell; while NRV for SIM packs, call cards, spare parts andsupplies consists of the related replacement costs. In determining the NRV, the Globe Groupconsiders any adjustment necessary for obsolescence, which is generally provided 80% fornon-moving items after a certain period. Cost is determined using the moving averagemethod.

2.6.7 Non-current Assets Held for SaleNon-current assets classified as held for sale are measured at the lower of carrying amount andfair value less cost to sell. Non-current assets (and the related liabilities) are classified as heldfor sale if their carrying amounts will be recovered through a sale transaction rather thanthrough continuing use. This condition is regarded as met only when the sale is highlyprobable and the asset is available for immediate sale in its present condition.

Events or circumstances may extend the period to complete the sale beyond one year. Anextension of the period required to complete a sale does not preclude an asset from beingclassified as held for sale if the delay is caused by events or circumstances beyond the entity'scontrol and there is sufficient evidence that the entity remains committed to its plan to sell theasset.

Items of property and equipment and intangible assets once classified as held for sale are notdepreciated/amortized.

Assets that ceases to be classified as held for sale are measured at the lower of its carryingvalue before the assets were classified as held for sale, adjusted for any depreciation thatwould have been recognized had the asset not been classified as held for sale, and itsrecoverable amount at the date of the changes to the plan of sale. Adjustment is recognized inprofit or loss.

2.6.8 Property and EquipmentProperty 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 costattributable in bringing the property and equipment to its intended location and workingcondition. Cost also includes: (a) interest and other financing charges on borrowed fundsspecifically used to finance the acquisition of property and equipment to the extent incurredduring the period of installation and construction; and (b) asset retirement obligations (ARO)specifically on property and equipment installed/constructed on leased properties.

Expenditures incurred after the property and equipment have been put into operation, such asrepairs and maintenance, are normally charged to income in the period when the costs areincurred. In situations where it can be clearly demonstrated that the expenditures haveresulted in an increase in the future economic benefits expected to be obtained from the use ofan item of property and equipment beyond its originally assessed standard of performance, theexpenditures are capitalized as additional costs of property and equipment.

Subsequent costs are capitalized as part of property and equipment only when it is probablethat future economic benefits associated with the item will flow to the Globe Group and thecost of the item can be measured reliably.

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Assets under construction (AUC) are carried at cost and transferred to the related property andequipment account when the construction or installation, and the related activities necessary toprepare the property and equipment for their intended use are complete, and the property andequipment are ready for service.

Depreciation and amortization of property and equipment commences once the property andequipment are available for use and computed using the straight-line method over theestimated useful lives (EUL) of the property and equipment.

Leasehold improvements are amortized over the shorter of their EUL or the correspondinglease terms.

The EUL of property and equipment are reviewed annually based on expected asset utilizationas anchored on business plans and strategies that also consider expected future technologicaldevelopments and market behavior to ensure that the period of depreciation and amortizationis consistent with the expected pattern of economic benefits from items of property andequipment.

When property and equipment is retired or otherwise disposed of, the cost and the relatedaccumulated depreciation, amortization and impairment losses are removed from the accounts.Any resulting gain or loss is credited to or charged against current operations.

2.6.9 AROThe Globe Group is legally required under various contracts to restore leased property to itsoriginal condition and to bear the cost of dismantling and deinstallation at the end of thecontract period. The Globe Group recognizes the present value of these obligations andcapitalizes these costs as part of the carrying value of the related property and equipmentaccounts, and are depreciated on a straight-line basis over the useful life of the relatedproperty and equipment or the contract period, whichever is shorter.

The amount of ARO is recognized at present value and the related accretion is recognized asinterest expense.

2.6.10 Investment PropertyInvestment property is initially measured at cost, including transaction costs. Subsequent toinitial recognition, investment property is carried at cost less accumulated depreciation andany impairment losses.

Expenditures incurred after the investment property has been put in operation, such as repairsand maintenance costs, are normally charged to profit or loss in the period in which the costsare incurred.

Depreciation of investment property is computed using the straight-line method over its usefullife. The EUL and the depreciation method are reviewed periodically to ensure that the periodand method of depreciation are consistent with the expected pattern of economic benefits fromitems 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 toanother party or completion of construction or development. Transfers are made frominvestment property when, and only when, there is a change in use, evidenced by thecommencement of owner occupation or commencement of development with the intention tosell.

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Investment property is derecognized when it has either been disposed of or permanentlywithdrawn from use and no future benefit is expected from its disposal.

Any gain or loss on derecognition of an investment property is recognized in profit or loss inthe period of derecognition. In 2012, the Globe Group transferred the investment property toproperty and equipment due to change in use.

2.6.11 Intangible AssetsIntangible assets consist of: 1) costs incurred to acquire application software (not an integralpart of its related hardware or equipment) and telecommunications equipment softwarelicenses; 2) intangible assets identified to exist during the acquisition of EGG Group for itsexisting customer contracts; and 3) exclusive dealership right in Taodharma, Inc.(Taodharma). Costs directly associated with the development of identifiable software thatgenerate expected future benefits to the Globe Group are recognized as intangible assets. Allother costs of developing and maintaining software programs are recognized as expense whenincurred.

Subsequent to initial recognition, intangible assets are measured at cost less accumulatedamortization and any impairment losses. The EUL of intangible assets with finite lives areassessed at the individual asset level. Intangible assets with finite lives are amortized on astraight-line basis over their useful lives. The periods and method of amortization forintangible assets with finite useful lives are reviewed annually or more frequently when anindicator of impairment exists.

A gain or loss arising from derecognition of an intangible asset is measured as the differencebetween the net disposal proceeds and the carrying amount of the asset and is recognized inthe consolidated statement of comprehensive income when the asset is derecognized.

2.6.12 Business Combinations and GoodwillBusiness combinations are accounted for using the purchase method. The cost of anacquisition is measured as the aggregate of the consideration transferred, measured atacquisition date fair value and the amount of any non-controlling interest in the acquiree. Foreach business combination, the Globe Group elects whether it measures the non-controllinginterest in the acquiree either at fair value or at the proportionate share of the acquiree’sidentifiable net assets. Acquisition costs incurred are expensed and included in administrativeexpenses.

When the Globe Group acquires a business, it assesses the financial assets and financialliabilities assumed for appropriate classification and designation in accordance with thecontractual terms, economic circumstances and pertinent conditions as at the acquisition date.This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognized in profitor loss. It is then considered in the determination of goodwill. Any contingent considerationto be transferred by the acquirer will be recognized at fair value at the acquisition date.Subsequent changes to the fair value of the contingent consideration that is deemed to be anasset or liability will be recognized in accordance with PAS 39 either in profit or loss or as achange to OCI. If the contingent consideration is classified as equity, it will not beremeasured. Subsequent settlement is accounted for within equity. In instances where thecontingent consideration does not fall within the scope of PAS 39, it is measured inaccordance with the appropriate PFRS.

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Goodwill is initially measured at cost, being the excess of the aggregate of the considerationtransferred and the amount recognized for non-controlling interest over the net identifiableassets acquired and liabilities assumed. If this consideration is lower than the fair value of thenet assets of the subsidiary acquired, the difference is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.For the purpose of impairment testing, goodwill acquired in a business combination is, fromthe acquisition date, allocated to each of the Globe Group’s cash-generating units (CGUs) thatare expected to benefit from the combination, irrespective of whether other assets or liabilitiesof the acquiree are assigned to those units.

Where goodwill forms part of a CGU and part of the operation within that unit is disposed of,the goodwill associated with the operation disposed of is included in the carrying amount ofthe operation when determining the gain or loss on disposal of the operation. Goodwilldisposed of in this circumstance is measured based on the relative values of the operationdisposed of and the portion of the CGU retained.

2.6.13 Investments in Associate and Joint VenturesAn associate is an entity over which the Globe Group has significant influence. Significantinfluence is the power to participate in the financial and operating policy decisions of theinvestee, but is not control or joint control over those policies.

A joint venture (JV) is a type of joint arrangement whereby the parties that have joint controlof the arrangement have rights to the net assets of the joint venture. Joint control is thecontractually agreed sharing of control of an arrangement, which exists only when decisionsabout the relevant activities require unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar tothose necessary to determine control over subsidiaries.

The Globe Group’s investments in its associate and joint venture are accounted for using theequity method.

Under the equity method, the investments in associate and JV are carried in the consolidatedstatement of financial position at cost plus post-acquisition changes in the Globe Group’sshare in net assets of the associate and JV, less any allowance for impairment losses. Theprofit or loss includes Globe Group’s share in the results of operations of its associate or JV.Any change in OCI of those investees is presented as part of the Globe Group’s OCI. Inaddition, where there has been a change recognized directly in the equity of the associate orJV, the Globe Group recognizes its share of any changes and discloses this, when applicable,in other OCI.

The financial statements of the associate or joint venture are prepared for the same reportingperiod as the Globe Group.

Upon loss of significant influence over the associate or joint control over the joint venture, theGlobe Group measures and recognizes any retained investment at its fair value. Anydifference between the carrying amount of the associate or joint venture upon loss ofsignificant influence or joint control and the fair value of the retained investment and proceedsfrom disposal is recognized in profit or loss.

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2.6.14 Impairment of Nonfinancial AssetsFor nonfinancial assets, excluding goodwill, an assessment is made at the end of the reportingdate to determine whether there is any indication that an asset may be impaired, or whetherthere is any indication that an impairment loss previously recognized for an asset in priorperiods may no longer exist or may have decreased. If any such indication exists and whenthe carrying value of an asset exceeds its estimated recoverable amount, the asset or CGU towhich the asset belongs is written down to its recoverable amount. The recoverable amount ofan asset is the higher of its fair value less cost to sell and value in use. Recoverable amountsare estimated for individual assets or investments or, if it is not possible, for the CGU to whichthe asset belongs. For impairment loss on specific assets or investments, the recoverableamount represents the fair value less cost to sell.

In assessing value in use, the estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments of the time value ofmoney and the risks specific to the asset.

An impairment loss is recognized only if the carrying amount of an asset exceeds itsrecoverable amount. An impairment loss is charged against operations in the year in which itarises. A previously recognized impairment loss is reversed only if there has been a change inestimate used to determine the recoverable amount of an asset, however, not to an amounthigher than the carrying amount that would have been determined (net of any accumulateddepreciation and amortization for property and equipment, investment property and intangibleassets) had no impairment loss been recognized for the asset in prior years. A reversal of animpairment loss is credited to current operations.

For assessing impairment of goodwill, a test for impairment is performed annually and whencircumstances indicate that the carrying value may be impaired. Impairment is determined forgoodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which thegoodwill relates. Where the recoverable amount of the CGU is less than their carryingamount, an impairment loss is recognized. Impairment losses relating to goodwill cannot bereversed in future periods.

2.6.15 Income Tax

2.6.15.1 Current Income TaxCurrent tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the tax authority. The tax rates and taxlaws used to compute the amount are those that are enacted or substantively enacted as atthe end of the reporting date.

2.6.15.2 Deferred Income TaxDeferred income tax is provided using the balance sheet liability method on all temporarydifferences, with certain exceptions, at the end of the reporting date between the tax basesof assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, withcertain exceptions. Deferred income tax assets are recognized for all deductibletemporary differences, with certain exceptions, and carryforward benefits of unused taxcredits from excess minimum corporate income tax (MCIT) over regular corporate incometax (RCIT) and net operating loss carryover (NOLCO) to the extent that it is probable thattaxable income will be available against which the deductible temporary differences andthe carryforward benefits of unused MCIT and NOLCO can be used.

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Deferred income tax is not recognized when it arises from the initial recognition of anasset or liability in a transaction that is not a business combination and, at the time oftransaction, affects neither the accounting income nor taxable income or loss. Deferredincome tax liabilities are not provided on nontaxable temporary differences associatedwith investments in an associate and JV.

Deferred income tax relating to items recognized directly in equity or OCI is included inthe related equity or OCI account and not in profit or loss.

The carrying amounts of deferred income tax assets are reviewed every end of reportingdate and reduced to the extent that it is no longer probable that sufficient taxable incomewill be available to allow all or part of the deferred income tax assets to be utilized.

Deferred income tax assets and liabilities are offset, if a legally enforceable right exists toset off current income tax assets against current income tax liabilities and the deferredincome taxes relate to the same taxable entity and the same taxation authority.

Deferred income tax assets and liabilities are measured at the tax rates that are expected toapply 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 substantively enacted as at the end of thereporting date.

Movements in the deferred income tax assets and liabilities arising from changes in taxrates are charged or credited to income for the period.

2.6.16 ProvisionsProvisions are recognized when: (a) the Globe Group has a present obligation (legal orconstructive) as a result of a past event; (b) it is probable (i.e., more likely than not) that anoutflow 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 arereviewed every end of the reporting period and adjusted to reflect the current best estimate. Ifthe effect of the time value of money is material, provisions are determined by discounting theexpected future cash flows at a pre-tax rate that reflects current market assessment of the timevalue of money and, where appropriate, the risks specific to the liability. Where discountingis used, the increase in the provision due to the passage of time is recognized as interestexpense under “Financing costs” in consolidated statement of comprehensive income.

2.6.17 Share-based Payment TransactionsCertain employees (including directors) of the Globe Group receive remuneration in the formof share-based payment transactions, whereby employees render services in exchange forshares or rights over shares (“equity-settled transactions”) (see Note 18).

The cost of equity-settled transactions with employees is measured by reference to the fairvalue at the date at which they are granted. In valuing equity-settled transactions, vestingconditions, including performance conditions, other than market conditions (conditions linkedto share prices), shall not be taken into account when estimating the fair value of the shares orshare options at the measurement date. Instead, vesting conditions are taken into account inestimating the number of equity instruments that will vest.

The cost of equity-settled transactions is recognized in profit or loss, together with acorresponding 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

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reporting date until the vesting date reflects the extent to which the vesting period has expiredand the number of awards that, in the opinion of the management of the Globe Group at thatdate, based on the best available estimate of the number of equity instruments, will ultimatelyvest.

No expense is recognized for awards that do not ultimately vest, except for awards wherevesting is conditional upon a market condition, which are treated as vesting irrespective ofwhether or not the market condition is satisfied, provided that all other performance conditionsare satisfied.

Where the terms of an equity-settled award are modified, as a minimum, an expense isrecognized as if the terms had not been modified. In addition, an expense is recognized forany increase in the value of the transaction as a result of the modification, measured at the dateof modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date ofcancellation, 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 areplacement award on the date that it is granted, the cancelled and new awards are treated as ifthey were a modification of the original award, as described in the previous paragraph. Thedilutive effect of outstanding options is reflected as additional share dilution in thecomputation of earnings per share (EPS) (see Note 27).

2.6.18 Capital StockCapital stock is recognized as issued when the stock is paid for or subscribed under a bindingsubscription agreement and is measured at par value. The transaction costs incurred as anecessary part of completing an equity transaction are accounted for as part of that transactionand are deducted from equity.

2.6.19 Additional Paid-in CapitalAdditional paid-in capital includes any premium received in excess of par value on theissuance of capital stock.

2.6.20 Treasury StockTreasury stock is recorded at cost and is presented as a deduction from equity. When theshares are retired, the capital stock account is reduced by its par value and the excess of costover par value upon retirement is debited to additional paid-in capital to the extent of thespecific or average additional paid-in capital when the shares were issued and to retainedearnings for the remaining balance.

2.6.21 Other Comprehensive IncomeOCI are items of income and expense that are not recognized in the profit or loss for the yearin accordance with PFRS.

2.6.22 Pension CostThe net defined benefit liability or asset is the aggregate of the present value of the definedbenefit obligation at the end of the reporting period reduced by the fair value of plan assets (ifany), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. Theasset ceiling is the present value of any economic benefits available in the form of refundsfrom the plan or reductions in future contributions to the plan.

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The cost of providing benefits under the defined benefit plans is actuarially determined usingthe projected unit credit method. Defined benefit costs comprise service cost, net interest onthe net defined benefit liability or asset and remeasurements of net defined benefit liability orasset.

Service costs which include current service costs, past service costs and gains or losses onnon-routine settlements are recognized as expense in profit or loss. Past service costs arerecognized when plan amendment or curtailment occurs. These amounts are calculatedperiodically by independent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in thenet defined benefit liability or asset that arises from the passage of time which is determinedby applying the discount rate based on government bonds to the net defined benefit liability orasset. Net interest on the net defined benefit liability or asset is recognized as expense orincome in profit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any changein the effect of the asset ceiling (excluding net interest on defined benefit liability) arerecognized immediately in OCI in the period in which they arise. Remeasurements are notreclassified to profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifyinginsurance policies. Plan assets are not available to the creditors of the Globe Group, nor canthey be paid directly to the Globe Group. Fair value of plan assets is based on market priceinformation. When no market price is available, the fair value of plan assets is estimated bydiscounting expected future cash flows using a discount rate that reflects both the riskassociated with the plan assets and the maturity or expected disposal date of those assets (or, ifthey have no maturity, the expected period until the settlement of the related obligations). Ifthe fair value of the plan assets is higher than the present value of the defined benefitobligation, the measurement of the resulting defined benefit asset is limited to the presentvalue of economic benefits available in the form of refunds from the plan or reductions infuture contributions to the plan.

2.6.23 Borrowing CostsBorrowing costs are capitalized if these are directly attributable to the acquisition,construction or production of a qualifying asset. Capitalization of borrowing costscommences when the activities for the asset’s intended use are in progress and expendituresand borrowing costs are being incurred. Borrowing costs are capitalized until the assets areready for their intended use. These costs are amortized using the straight-line method over theEUL of the related property and equipment. If the resulting carrying amount of the assetexceeds its recoverable amount, an impairment loss is recognized. Borrowing costs includeinterest charges and other related financing charges incurred in connection with the borrowingof funds, as well as exchange differences arising from foreign currency borrowings used tofinance these projects to the extent that they are regarded as an adjustment to interest costs.Premiums on long-term debt are included under the “Long-term debt” account in theconsolidated statement of financial position and are amortized using the effective interestmethod.

Other borrowing costs are recognized as expense in the period in which these are incurred.

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2.6.24 LeasesThe determination of whether an arrangement is, or contains a lease, is based on the substanceof the arrangement and requires an assessment of whether the fulfillment of the arrangement isdependent on the use of a specific asset or assets and the arrangement conveys a right to usethe asset. A reassessment is made after inception of the lease only if one of the followingapplies:

· there is a change in contractual terms, other than a renewal or extension of thearrangement;

· a renewal option is exercised or an extension granted, unless that term of the renewal orextension was initially included in the lease term;

· there is a change in the determination of whether fulfillment is dependent on a specifiedasset; or

· there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date whenthe change in circumstances gave rise to the reassessment for any of the scenarios above, andat the date of renewal or extension period for the second scenario.

2.6.24.1 Globe Group as LesseeFinance leases, which transfer to the Globe Group substantially all the risks and rewardsincidental to ownership of the leased item, are capitalized at the inception of the lease atthe fair value of the leased property or, if lower, at the present value of the minimum leasepayments and included in the “Property and equipment” account with the correspondingliability to the lessor included in the “Other long-term liabilities” account in theconsolidated statement of financial position. Lease payments are apportioned between thefinance charges and reduction of the lease liability so as to achieve a constant rate ofinterest on the remaining balance of the liability. Finance charges are charged directly as“Interest expense” in the consolidated statement of comprehensive income.

Capitalized leased assets are depreciated over the shorter of the EUL of the assets and therespective lease terms.

Leases where the lessor retains substantially all the risks and rewards of ownership of theasset are classified as operating leases. Operating lease payments are recognized as anexpense in profit or loss on a straight-line basis over the lease term.

2.6.24.2 Globe Group as LessorFinance leases, where the Globe Group transfers substantially all the risk and rewardsincidental to ownership of the leased item to the lessee, are included in the consolidatedstatement of financial position under “Prepayments and other current assets” account. Alease 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 inthe consolidated statement of comprehensive income.

Leases where the Globe Group does not transfer substantially all the risk and rewards ofownership of the assets are classified as operating leases. Initial direct costs incurred innegotiating operating leases are added to the carrying amount of the leased asset andrecognized over the lease term on the same basis as the rental income. Contingent rentsare recognized as revenue in the period in which they are earned.

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2.6.25 General, Selling and Administrative ExpensesGeneral, selling and administrative expenses, except for rent, are charged against currentoperations as incurred (see Note 2.6.24.1).

2.6.26 Foreign Currency TransactionsThe functional and presentation currency of the Globe Group is the Philippine Peso, except forEHL whose functional currency is the Hong Kong Dollar (HKD) and GTHK and GTIC USwhose functional currency is the USD and GTEU, GT UK and GT Italy whose functionalcurrency is Euro. Transactions in foreign currencies are initially recorded at the functionalcurrency rate prevailing at the date of the transaction. Outstanding monetary assets andliabilities denominated in foreign currencies are retranslated at the functional currency rate ofexchange ruling at the end of reporting period.

Nonmonetary items that are measured in terms of historical cost in a foreign currency aretranslated using the exchange rate as at the date of the initial transaction and are notsubsequently restated. Nonmonetary items measured at fair value in a foreign currency aretranslated using the exchange rate at the date when the fair value was determined. All foreignexchange differences are taken to profit or loss, except where it relates to equity securitieswhere gains or losses are recognized directly in other OCI.

As at the reporting date, the assets and liabilities of EHL, GTIC US and GTHK, GTEU, GTUK and GT Italy are translated into the presentation currency of the Globe Group at the rateof exchange prevailing at the end of reporting period and its profit or loss is translated at themonthly weighted average exchange rates during the year. The exchange differences arisingon the translation are taken directly to a separate component of equity under “Other reserves”account. Upon disposal of EHL, GTIC US, GTHK, GTEU, GT UK and GT Italy, thecumulative translation adjustments shall be recognized in profit or loss.

2.6.27 EPSBasic EPS is computed by dividing net income attributable to common stock by the weightedaverage number of common shares outstanding, after giving retroactive effect for any stockdividends, stock splits or reverse stock splits during the period.

Diluted EPS is computed by dividing net income by the weighted average number of commonshares 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 dilutiveoptions and dilutive convertible preferred shares. Outstanding stock options will have adilutive effect under the treasury stock method only when the average market price of theunderlying common share during the period exceeds the exercise price of the option. If therequired dividends to be declared on convertible preferred shares divided by the number ofequivalent common shares, assuming such shares are converted, would decrease the basicEPS, then such convertible preferred shares would be deemed dilutive. Where the effect ofthe assumed conversion of the preferred shares and the exercise of all outstanding optionshave anti-dilutive effect, basic and diluted EPS are stated at the same amount.

2.6.28 Operating SegmentThe Globe Group’s major operating business units are the basis upon which the Globe Groupreports its primary segment information. The Globe Group’s business segments consist of: (1)mobile communication services; (2) wireline communication services; and (3) others. TheGlobe Group generally accounts for intersegment revenues and expenses at agreed transferprices.

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2.6.29 ContingenciesContingent liabilities are not recognized in the consolidated financial statements. These aredisclosed unless the possibility of an outflow of resources embodying economic benefits isremote. Contingent assets are not recognized in the consolidated financial statements but aredisclosed when an inflow of economic benefits is probable.

2.6.30 Events after the Reporting PeriodAny post period-end event up to the date of approval of the BOD of the consolidated financialstatements that provides additional information about the Globe Group’s position at the end ofreporting period (adjusting event) is reflected in the consolidated financial statements. Anypost period-end event that is not an adjusting event is disclosed in the consolidated financialstatements when material.

3. Management’s Significant Accounting Judgments and Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with PFRSrequires management to make estimates and assumptions that affect the amounts reported in theconsolidated financial statements and accompanying notes. The estimates and assumptions usedin the accompanying consolidated financial statements are based upon management’s evaluationof relevant facts and circumstances as of the date of the consolidated financial statements. Actualresults could differ from such estimates.

Judgments and estimates are continually evaluated and are based on historical experience andother factors, including expectations of future events that are believed to be reasonable under thecircumstances.

3.1 Judgments

3.1.1 Leases

3.1.1.1 Operating Lease Commitments as LessorThe Globe Group has entered into a lease agreements as a lessor. Critical judgment wasexercised by management to distinguish the lease agreement as either an operating orfinance lease by looking at the transfer or retention of significant risk and rewards ofownership of the properties covered by the agreements. The Globe Group has determinedthat it retains all the significant risks and rewards of ownership of the properties and soaccounts for the agreement as an operating lease (see Note 25.1.1).

3.1.1.2 Operating Lease Commitments as LesseeThe Globe Group has entered into various lease agreements as a lessee where it hasdetermined that the lessors retain all the significant risks and rewards of ownership of theproperties and, as such, accounts for the agreements as operating lease (see Note 25.1.1).

3.1.1.3 Finance LeaseThe Globe Group has entered into a finance lease agreement related to hardwareinfrastructure and information equipment. They have determined, based on the evaluationof the terms and conditions of the arrangement, that they bear substantially all the risksand rewards incidental to ownership of the said machineries and equipment and soaccount for the contracts as finance leases (see Note 25.1.2).

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3.1.2 Fair Value of Financial InstrumentsWhen the fair value of financial assets and financial liabilities recorded in the consolidatedstatement of financial position cannot be derived from active markets, their fair value isdetermined using valuation n techniques including the discounted cash flow model. The inputsto these models are taken from observable markets where possible, but where this is notfeasible, a degree of judgment is required in establishing fair values. The judgments includeconsiderations of inputs such as liquidity risk, credit risk and volatility. Changes inassumptions about these factors could affect the reported fair value of financial instruments.

3.1.3 Financial Assets not Quoted in an Active MarketThe Globe Group classifies financial assets by evaluating, among others, whether the asset isquoted or not in an active market. Included in the evaluation on whether a financial asset isquoted in an active market is the determination on whether quoted prices are readily andregularly available, and whether those prices represent actual and regularly occurring markettransactions on an arm’s-length basis.

3.1.4 Allocation of Goodwill to Cash-Generating UnitsThe Globe Group allocated the carrying amount of goodwill to the mobile content andapplication development services business CGU, for the Globe Group believes that this CGUrepresents the lowest level within the Globe Group at which the goodwill is monitored forinternal management reporting purposes; and not larger than an operating segment determinedin accordance with PFRS 8.

3.1.5 Determination of Whether the Globe Group is Acting as a Principal or an AgentThe Globe Group assesses its revenue arrangements against the following criteria to determinewhether it is acting as a principal or an agent:

· whether the Globe Group has primary responsibility for providing the goods and services;· whether the Globe Group has inventory risk;· whether the Globe Group has discretion in establishing prices; and,· whether the Globe Group bears the credit risk.

If the Globe Group has determined it is acting as a principal, the Group recognizes revenue ona gross basis, with the amount remitted to the other party being accounted for as part of costsand expenses.

If the Globe Group has determined it is acting as an agent, only the net amount retained isrecognized as revenue.

The Globe Group assessed its revenue arrangements and concluded that it is acting as aprincipal in some arrangements and as an agent in other arrangements.

3.1.6 Provisions and ContingenciesGlobe Group is currently involved in various legal proceedings. The estimate of the probablecosts for the resolution of these claims has been developed in consultation with internal andexternal counsel handling Globe Group’s defense in these matters and is based upon ananalysis of potential results. Globe Group currently does not believe that these proceedingswill have a material adverse effect on the consolidated statements of financial position andresults of operations. It is possible, however, that future results of operations could bematerially affected by changes in the estimates or in the effectiveness of the strategies relatingto these proceedings (see Note 26).

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3.1.7 Classification of Noncurrent Assets Held for SaleThe Globe Group classified certain non-current assets as held-for-sale in 2010. PFRS 5,Noncurrent Assets Held for Sale and Discontinued Operations, requires that the sale should beexpected to qualify for recognition as a completed sale within one year from the date ofclassification, with certain exceptions. Globe Group has determined that circumstances haveoccurred which will qualify as exception to the timing of the recognition of the sale inprevious years.

In 2013, the Globe Group ceased to classify these assets as held for sale due to the substantialdelay in the completion of the transaction. The Globe Group recognized a catch updepreciation amounting to P=397.00 million for the year ended December 31, 2013(see Note 25.8).

As of December 31, 2012, the Globe Group retained the classification of its non-current assetsas held for sale, including the related liabilities. Globe Group expects no changes in the termsof agreement and on the valuation as the considerations have already been fixed, and remainsto be committed to its plan to sell the assets.

3.1.8 Assessment of Investment in Bayan Telecommunications Inc. (BTI)and Receivables from BTIThe Globe Group purchased BTI’s outstanding debts from its creditors and was recognized attransaction price which was considered its fair value. The total debt of BTI is comprised ofsustainable Tranche A and unsustainable Tranche B. A portion of the debt (Tranche B) wasconverted into equity and was valued at nil while the total consideration at point of tender wasassigned to the collectible portion of Tranche A (see Notes 6, 11 and 16.6).

Critical judgment was exercised to assess the facts and circumstances indicating the elementsof control or level of influence of Globe Group over BTI. The Globe Group determines that ithas significant influence in the financial and operating policy decisions of BTI but not controlover those policies. The converted portion of debt (Tranche B) to the Globe Group’s interest isrecognized as investment in associate and is accounted for using the equity method.

The collectible portion of Tranche A is determined to be a financial asset classified as “Loansreceivable” and not as trading assets nor designated at FVPL or AFS since this has fixed ordeterminable payments that are not quoted in an active market and is measured at amortizedcost using the effective interest rate reasonably determined by the Globe Group.

3.2 Estimates

3.2.1 Revenue RecognitionThe Globe Group’s revenue recognition policies require management to make use of estimatesand assumptions that may affect the reported amounts of revenues and receivables.

The Group estimates the fair value of points awarded under its Loyalty programmes, whichare within the scope of Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, byapplying estimation procedures using historical data and trends. The points expected to beredeemed is estimated based on the remaining points, the run-rate redemption by thesubscribers and the points to peso conversion. As of December 31, 2013 and 2012, theestimated liability for unredeemed points included in “Unearned revenues” amounted toP=323.38 million and P=244.25 million, respectively.

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3.2.2 Allowance for Impairment Losses on ReceivablesThe Globe Group maintains an allowance for impairment losses at a level considered adequateto provide for potential uncollectible receivables. The Globe Group performs a regular reviewof the age and status of these accounts, designed to identify accounts with objective evidenceof impairment and provide the appropriate allowance for impairment losses. The review isaccomplished using a combination of specific and collective assessment approaches, with theimpairment 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 Groupmade different judgments or utilized different methodologies. An increase in allowance forimpairment losses would increase the recorded operating expenses and decrease current assets.

Impairment losses on receivables for the years ended December 31, 2013, 2012 and 2011amounted to P=2,046.52 million, P=1,377.32 million and P=1,599.97 million, respectively(see Note 23). Receivables, net of allowance for impairment losses, amounted toP=15,200.92 million and P=12,105.44 million as of December 31, 2013 and 2012, respectively(see Note 4).

3.2.3 Obsolescence and Market DeclineThe Globe Group, in determining the NRV, considers any adjustment necessary forobsolescence which is generally provided 80% for nonmoving items after a certain period.The Globe Group adjusts the cost of inventory to the recoverable value at a level consideredadequate to reflect market decline in the value of the recorded inventories. The Globe Groupreviews the classification of the inventories and generally provides adjustments forrecoverable values of new, actively sold and slow-moving inventories by reference toprevailing values of the same inventories in the market.

The amount and timing of recorded expenses for any period would differ if differentjudgments were made or different estimates were utilized. An increase in allowance forobsolescence and market decline would increase recorded operating expenses and decreasecurrent assets.

Inventory obsolescence and market decline for the years ended December 31, 2013, 2012 and2011 amounted to P=321.46 million, P=170.68 million and P=237.92 million, respectively(see Note 23).

Inventories and supplies, net of allowances, amounted to P=3,544.89 million andP=2,076.18 million as of December 31, 2013 and 2012, respectively (see Note 5).

3.2.4 AROThe Globe Group is legally required under various contracts to restore leased property to itsoriginal condition and to bear the costs of dismantling and deinstallation at the end of thecontract period. These costs are accrued based on an in-house estimate, which incorporatesestimates of asset retirement costs and interest rates. The Globe Group recognizes the presentvalue of these obligations and capitalizes the present value of these costs as part of the balanceof the related property and equipment accounts, which are being depreciated and amortized ona straight-line basis over the EUL of the related asset or the lease term, whichever is shorter.

The present value of dismantling costs is computed based on an average credit-adjustedrisk-free rate of 6.67% and 6.85% in 2013 and 2012, respectively. Assumptions used tocompute ARO are reviewed and updated annually.

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The amount and timing of recorded expenses for any period would differ if differentjudgments were made or different estimates were utilized. An increase in ARO wouldincrease recorded operating expenses and increase noncurrent liabilities.

The Globe Group updated its assumptions on timing of settlement and estimated cashoutflows arising from ARO on its leased premises. As a result of the changes in estimates, theGlobe Group adjusted downward its ARO liability (included under “Other long-termliabilities” account) by P=16.03 million and P=26.80 million in 2013 and 2012, respectively,against the book value of the assets on leased premises (see Note 15).

As of December 31, 2013 and 2012, ARO amounted to P=1,724.30 million andP=1,594.63 million, respectively (see Note 15).

3.2.5 EUL of Property and Equipment, Investment Property and Intangible AssetsGlobe Group reviews annually the EUL of these assets based on expected asset utilization asanchored on business plans and strategies that also consider expected future technologicaldevelopments and market behavior. It is possible that future results of operations could bematerially affected by changes in these estimates brought about by changes in the factorsmentioned.

A reduction in the EUL of property and equipment, investment property and intangible assetswould increase the recorded depreciation and amortization expense and decrease noncurrentassets.

The EUL of property and equipment of the Globe Group are as follows:

YearsTelecommunications equipment: Tower 20 Switch 7 and 10 Outside plant, cellsite structures and improvements 10-20 Distribution dropwires and other wireline assets 2-10 Cellular equipment and others 3-10Buildings 20Leasehold improvements 5 years or lease term,

whichever is shorterInvestments in cable systems 15Office equipment 3-5Transportation equipment 3-5

The EUL of investment property is twenty (20) years.

Intangible assets comprising of licenses and application software are amortized over the EULof the related hardware or equipment ranging from three (3) to ten (10) years or life of thetelecommunications equipment where it is assigned.

In 2013 and 2012, the Globe Group changed the EUL of certain wireless and wirelinetelecommunications equipment and licenses resulting from new information affecting theexpected utilization of these assets. The net effect of the change in EUL resulted in higherdepreciation of P=7,829.72 million and P=4,245.30 million in 2013 and 2012, respectively.

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As of December 31, 2013 and 2012, the aggregate carrying value of property and equipment,investment property and intangible assets amounted to P=114,264.73 million andP=105,216.32 million, respectively (see Notes 7, 8 and 9).

3.2.6 Estimation of Residual ValueThe Globe Group estimates a residual value (RV) for assets subjected to accelerateddepreciation caused by network transformation. The group continues to retain the RV basedon the progress of disposal of decommissioned assets as of December 31, 2013.

The Globe Group regularly assesses the need to adjust the RV on a periodic basis.

3.2.7 Asset Impairment

3.2.7.1 Impairment of Nonfinancial Assets Other Than GoodwillThe Globe Group assesses impairment of assets (property and equipment, investmentproperty, intangible assets and investments in associate and joint ventures) wheneverevents or changes in circumstances indicate that the carrying amount of an asset may notbe recoverable.

The factors that the Globe Group considers important which could trigger an impairmentreview include the following:

· significant underperformance relative to expected historical or projected futureoperating results;

· significant changes in the manner of use of the acquired assets or the strategy for theoverall business; and,

· significant negative industry or economic trends.

An impairment loss is recognized whenever the carrying amount of an asset or investmentexceeds its recoverable amount. The recoverable amount is the higher of an asset’s fairvalue less cost to sell and value in use. The fair value less cost to sell is the amountobtainable from the sale of an asset in an arm’s length transaction, while value in use isthe present value of estimated future cash flows expected to arise from the continuing useof an asset and from its disposal at the end of its useful life. Recoverable amounts areestimated for individual assets or investments or, if it is not possible, for the CGU towhich the asset belongs.

For impairment loss on specific assets or investments, the recoverable amount representsthe fair value less cost to sell.

For the Globe Group, the CGU is the combined mobile and wireline asset groups of GlobeTelecom and Innove. This asset grouping is predicated upon the requirement contained inExecutive Order (EO) No.109 and Republic Act (RA) No.7925 requiring licensees ofCellular Mobile Telephone System (CMTS) and International Digital Gateway Facility(IGF) services to provide 400,000 and 300,000 Local Exchange Carrier lines, respectively,as a condition for the grant of such licenses.

In determining the present value of estimated future cash flows expected to be generatedfrom the continued use of the assets or holding of an investment, the Globe Group isrequired to make estimates and assumptions that can materially affect the consolidatedfinancial statements.

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The aggregate carrying value of property and equipment, investment property, intangibleassets, and investments in associate and joint ventures amounted to P=114,427.49 millionand P=105,399.52 million as of December 31, 2013 and 2012, respectively(see Notes 7, 8, 9 and 10).

3.2.7.2 Impairment of GoodwillThe Globe Group’s impairment test for goodwill is based on value in use calculations thatuse a discounted cash flow model. The cash flows are derived from the budget for thenext five years and do not include restructuring activities that the Globe Group is not yetcommitted to or significant future investments that will enhance the asset base of the CGUbeing tested. The recoverable amount is most sensitive to the discount rate used for thediscounted cash flow model as well, as the expected future cash inflows and the growthrate used for extrapolation purposes. As of December 31, 2013 and 2012, the carryingvalue of goodwill amounted to P=327.13 million (see Note 9).

Goodwill acquired through business combination with EGG Group was allocated to themobile content and applications development services business CGU, which is part of the“Others” reporting segment (see Note 29).

The recoverable amount of the CGU, which exceeds the carrying amount of the relatedgoodwill by P=3,967.15 million and P=962.34 million, as of December 31, 2013 and 2012,respectively, has been determined based on value in use calculations using cash flowprojections from financial budgets covering a five-year period. The pretax discount rateapplied to cash flow projections was 9.40 % in 2013 and 11% in 2012, and cash flowsbeyond the five-year period are extrapolated using a 3% long-term growth rate in 2013and 2012.

3.2.8 Deferred Income Tax AssetsThe carrying amounts of deferred income tax assets are reviewed at each reporting date andreduced to the extent that it is no longer probable that sufficient taxable income will beavailable to allow all or part of the deferred income tax assets to be utilized (see Note 24).

As of December 31, 2013 and 2012, Innove, GXI and EGG Group has net deferred income taxassets amounting to P=840.73 million and P=1,016.86 million, respectively.

As of December 31, 2013, Globe Telecom has net deferred income tax assets amounting toP=1,076.15 million and net deferred income tax liabilities amounting to P=2,271.35 million as ofDecember 31, 2012 (see Note 24). Globe Telecom and Innove have no unrecognized deferredincome tax assets as of December 31, 2013 and 2012.

As of December 31, 2012, GXI recognized deferred income tax assets from NOLCOamounting to P=16.02 million (see Note 24).

3.2.9 Financial Assets and Financial LiabilitiesGlobe Group carries certain financial assets and liabilities at fair value, which requiresextensive use of accounting estimates and judgment. While significant components of fairvalue measurement were determined using verifiable objective evidence (i.e., foreignexchange rates, interest rates), the amount of changes in fair value would differ if the GlobeGroup utilized different valuation methodologies. Any changes in fair value of these financialassets and financial liabilities would affect the consolidated statements of comprehensiveincome and consolidated statements of changes in equity.

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Financial assets comprising AFS investments and derivative assets carried at fair values as ofDecember 31, 2013 and 2012, amounted to P=723.11 million and P=141.87 million,respectively, and financial liabilities comprising of derivative liabilities carried at fair valuesas of December 31, 2013 and 2012, amounted to P=219.69 million and P=240.65 million,respectively (see Note 28.12).

3.2.10 Estimation of Losses and Recognition of Claims from InsurerThe Globe Group assesses the extent of losses arising from natural calamities. Certainmethodology and reasonable estimates are exercised considering all factors includinginsurance coverage, type of losses sustained. The Globe Group determines the recoverabilityof losses from insured assets.

Provision for impairment of assets recognized in 2013 amounted to P=139.00 million.

3.2.11 Pension and Other Employee BenefitsThe cost of defined benefit pension plans and as well as the present value of the pensionobligation are determined using actuarial valuations. The actuarial valuation involves makingvarious assumptions. These include the determination of the discount rates, future salaryincreases, mortality rates and expected return on plan assets. Due to the complexity of thevaluation, the underlying assumptions and its long-term nature, defined benefit obligations arehighly sensitive to changes in these assumptions. All assumptions are reviewed at eachreporting date.

In determining the appropriate discount rate, management considers the interest rates ofgovernment bonds that are denominated in the currency in which the benefits will be paid,with extrapolated maturities corresponding to the expected duration of the defined benefitobligation.

The mortality rate is based on the 1994 Group Annuity Mortality Table developed by theSociety of Actuaries, which provides separate rates for males and females and is modifiedaccordingly with estimates of mortality improvements. Future salary increases and pensionincreases are based on expected future inflation rates for the specific country.

The net pension liability as at December 31, 2013 and 2012 amounted to P=1,607.30 millionand P=843.91 million, respectively. Further details are provided in Note 18.

The Globe Group also determines the cost of equity-settled transactions using assumptions onthe appropriate pricing model. Significant assumptions for the cost of share-based paymentsinclude, among others, share price, exercise price, option life, expected dividend and expectedvolatility rate.

Cost of share-based payments in 2013, 2012 and 2011 amounted to P=50.00 million,P=11.50 million and P=49.34 million, respectively (see Notes 16.5 and 18.1).

The Globe Group also estimates other employee benefit obligations and expenses, includingcost of paid leaves based on historical leave availments of employees, subject to the GlobeGroup’s policy. These estimates may vary depending on the future changes in salaries andactual experiences during the year.

The accrued balance of other employee benefits (included in the “Accounts payable andaccrued expenses” account and in the “Other long-term liabilities” account in the consolidatedstatements of financial position) as of December 31, 2013 and 2012 amounted toP=545.36 million and P=484.60 million, respectively (see Notes 12 and 15).

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While the Globe Group believes that the assumptions are reasonable and appropriate,significant differences between actual experiences and assumptions may materially affect thecost of employee benefits and related obligations.

4. Receivables

This account consists of receivables from:

Notes 2013 2012(In Thousand Pesos)

Subscribers 16, 28.2.2 P=15,616,059 P=11,508,305Traffic settlements - net 12, 16, 28.2.2 1,503,841 2,611,358Dealers 28.2.2 1,210,535 844,838Others 28.2.2 1,060,533 679,008

19,390,968 15,643,509Less allowance for impairment losses: Subscribers 28.2.2 3,970,421 3,317,014 Traffic settlements and others 28.2.2 219,624 221,058

4,190,045 3,538,072P=15,200,923 P=12,105,437

Subscriber receivables arise from wireless and wireline voice, data communications andbroadband internet services provided under postpaid arrangements.

Amounts collected from wireless subscribers under prepaid arrangements are reported under“Unearned revenues” in the consolidated statements of financial position and recognized asrevenues upon actual usage of airtime value or upon expiration of the prepaid credit. Theunearned revenues from these subscribers amounted to P=2,436.26 million and P=2,258.65 millionas of December 31, 2013 and 2012, respectively.

Traffic settlements receivable are presented net of traffic settlements payable from the samecarrier amounting to P=2,249.60 million and P=3,503.52 million as of December 31, 2013 and 2012,respectively.

Receivables are noninterest-bearing and are generally collectible in the short-term.

5. Inventories and Supplies

This account consists of:

2013 2012(In Thousand Pesos)

At cost: Modems and accessories P=112,668 P=– Spare parts and supplies 3,110 6,142 Call cards and others 2,805 508 SIM cards and SIM packs 61 29

118,644 6,679At NRV: Handsets, devices and accessories 2,562,689 1,139,463 Nomadic broadband device 390,646 62,639

(Forward)

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Spare parts and supplies P=313,092 P=246,103 SIM cards and SIM packs 111,252 36,160 Modems and accessories 44,824 375,037 Call cards and others 3,740 210,095

3,426,243 2,069,497P=3,544,887 P=2,076,176

Inventories recognized as expense during the year amounting to P=10,274.57 million,P=7,849.04 million and P=6,142.34 million in 2013, 2012 and 2011, respectively, are included aspart of “Cost of sales” and “Impairment losses and others” accounts (see Note 23) in theconsolidated statements of comprehensive income. An insignificant amount is included under“General, selling and administrative expenses” as part of “Utilities, supplies and otheradministrative expenses” account (see Note 21).

Cost of sales incurred consists of:

2013 2012 2011(In Thousand Pesos)

Handsets, devices and accessories P=8,028,405 P=6,565,510 P=4,928,921Nomadic broadband device 1,314,176 561,310 545,354SIM cards and SIM packs 349,558 245,462 245,418Call cards and others 251,692 228,198 77,033Spare parts and supplies 8,014 4,472 1,440Modems and accessories 1,261 73,407 89,423

P=9,953,106 P=7,678,359 P=5,887,589

There are no unusual purchase commitments and accrued net losses as of December 31, 2013 and2012.

6. Prepayments and Other Current Assets



Current portion of loan receivable from: Globe Group retirement plan (GGRP) 11, 16.3, 18.2 P=968,000 P=– BTI 11 481,366 347,910 Bethlehem Holdings, Inc. (BHI) 11, 25.5 158,620 –Advance payments to suppliers and

contractors 25.3 5,223,600 8,815,534Prepayments 25.1 949,203 1,050,731Deferred input VAT 11 466,982 527,276Input VAT - net 450,525 638,626Creditable withholding tax 225,079 300,680Miscellaneous receivables - net 16, 28.12 220,025 425,426Other current assets 28.12 319,423 202,065

P=9,462,823 P=12,308,248

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The “Prepayments” account includes prepaid insurance, rent, maintenance, and NationalTelecommunications Commissions (NTC) spectrum users’ fee among others.

Deferred input VAT pertains to various purchases of goods and services which cannot be claimedyet as credits against output VAT liabilities, pursuant to the existing VAT rules and regulations.However, these can be applied on future output VAT liabilities.

As of December 31, 2013, Innove, GXI, GTI and KVI reported net input VAT amounting toP=450.53 million, net of output VAT of P=125.84 million. As of December 31, 2012, Innove andGXI reported net input VAT amounting to P=638.63 million, net of output VAT ofP=110.94 million.

7. Property and Equipment

The rollforward analysis of this account follows:

2013Tele-

communicationsEquipment

Buildings andLeasehold

ImprovementsInvestments inCable Systems

OfficeEquipment

TransportationEquipment Land

Assets UnderConstruction Total

(In Thousand Pesos)

CostAt January 1 P=202,201,632 P=28,852,761 P=14,144,444 P=7,951,568 P=2,311,840 P=1,573,994 P=17,596,471 P=274,632,710Additions 13,784,885 348,336 251,136 284,219 257,635 – 20,754,416 35,680,627Retirements/disposals (22,281,856) (3,649) – (32,931) (243,245) – (1,015) (22,562,696)Reclassifications/

adjustments 5,490,808 5,608,051 4,584,328 1,021,129 11,794 26,419 (18,031,409) (1,288,880)At December 31 199,195,469 34,805,499 18,979,908 9,223,985 2,338,024 1,600,413 20,318,463 286,461,761Accumulated

Depreciationand Amortization

At January 1 143,047,869 14,551,973 6,485,043 6,834,232 1,680,991 – – 172,600,108Depreciation and

amortization Incremental effect

of network modernization 7,747,607 23,880 1,259 56,978 – – – 7,829,724

Others 12,938,614 1,436,398 1,394,939 833,998 247,540 – – 16,851,489Retirements/disposals (22,239,228) (3,386) – (32,139) (229,768) – – (22,504,521)Reclassifications/

adjustments (14,316) (5,290) 808,019 (148,769) 1,443 – – 641,087At December 31 141,480,546 16,003,575 8,689,260 7,544,300 1,700,206 – – 175,417,887Impairment LossesAt January 1 138,069 – – 3,182 – – 468,987 610,238Additions (reversals) 123,852 – – – – – (97,540) 26,312Write-off/adjustments (18,099) – – – – – 1,351 (16,748)At December 31 243,822 – – 3,182 – – 372,798 619,802Net Book Value at

December 31 P=57,471,101 P=18,801,924 P=10,290,648 P=1,676,503 P=637,818 P=1,600,413 P=19,945,665 P=110,424,072

2012Tele-




OfficeEquipment



(In Thousand Pesos)

CostAt January 1 P=187,924,112 P=27,374,020 P=13,129,153 P=7,333,754 P=2,206,974 P=1,527,375 P=11,955,324 P=251,450,712Additions 5,026,981 58,025 351,345 212,107 257,696 – 20,751,350 26,657,504Retirements/disposals (1,030,704) (1,960) – (139,907) (154,746) – (5,600) (1,332,917)Reclassifications/

adjustments 10,281,243 1,422,676 663,946 545,614 1,916 46,619 (15,104,603) (2,142,589)At December 31 202,201,632 28,852,761 14,144,444 7,951,568 2,311,840 1,573,994 17,596,471 274,632,710

(Forward)

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2012Tele-




OfficeEquipment



(In Thousand Pesos)

AccumulatedDepreciationand Amortization

At January 1 P=125,417,729 P=13,087,427 P=5,569,643 P=6,152,934 P=1,582,493 P=– P=– P=151,810,226Depreciation and

amortizationIncremental effect of

networkmodernization 4,202,766 8 5,043 37,488 – – – 4,245,305

Others 14,185,102 1,264,176 858,464 815,831 241,031 – – 17,364,604Retirements/disposals (999,456) (1,797) – (139,841) (142,533) – – (1,283,627)Reclassifications/

adjustments 241,728 202,159 51,893 (32,180) – – – 463,600At December 31 143,047,869 14,551,973 6,485,043 6,834,232 1,680,991 – – 172,600,108Impairment LossesAt January 1 159,837 – – 3,182 – – 209,687 372,706Additions – – – – – – 259,262 259,262Write-off/adjustments (21,768) – – – – – 38 (21,730)At December 31 138,069 – – 3,182 – – 468,987 610,238Net Book Value at

December 31 P=59,015,694 P=14,300,788 P=7,659,401 P=1,114,154 P=630,849 P=1,573,994 P=17,127,484 P=101,422,364

In the last quarter of 2011, Globe Group has announced to undertake a network and ITtransformation program for an estimated investment of USD790.00 million over the next two tothree years. External partners were engaged in 2011 to help manage the modernization effort. Inthe first quarter of 2012, the EUL of certain wireless and wireline telecommunications equipmentwere changed as a result of continuing upgrade and migration to a modernized network. The neteffect of the change in EUL resulted in higher depreciation expense of P=7,829.72 million andP=4,245.30 million for the years ended December 31, 2013 and 2012, respectively.

Assets under construction include intangible components of a network system which are to bereclassified to depreciable intangible assets only when assets become available for use(see Note 9).

Investments in cable systems include the cost of the Globe Group’s ownership share in thecapacity of certain cable systems under a joint venture or a consortium or private cable set-up andindefeasible rights of use (IRUs) of circuits in various cable systems. It also includes the cost ofcable landing station and transmission facilities where the Globe Group is the landing party.

The costs of fully depreciated property and equipment that are still being used in the networkamounted to P=129,699.68 million and P=87,165.41 million as of December 31, 2013 and 2012,respectively.

The Globe Group uses its borrowed funds to finance the acquisition of property and equipmentand bring it to its intended location and working condition. Borrowing costs incurred relating tothese acquisitions were included in the cost of property and equipment using 2.83%, 3.01% and3.19% capitalization rates in 2013, 2012 and 2011, respectively. The Globe Group’s totalcapitalized borrowing costs amounted to P=823.90 million, P=808.25 million and P=591.66 millionfor the years ended December 31, 2013, 2012 and 2011, respectively (see Note 22).

In 2011, the Globe Group entered into an asset exchange transaction with an equipment supplierwhereby Globe Group conveyed and transferred ownership of certain hardware equipment andlicenses nearing end of economic life and then later purchased upgraded equipment from the sameequipment supplier. This transaction resulted in a gain amounting to P=244.37 million (includedunder “Gain on disposal of property and equipment - net” in the consolidated statements ofcomprehensive income), equivalent to the difference between the fair value of the new equipmentand the carrying amount of the old platforms and equipment at the time the transaction wasconsummated.

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The Company is currently recovering decommissioned network assets affected by the conversionto new upgraded equipment from its continuing network modernization project, includingcomputer related assets, from its IT transformation project.

The carrying value of the hardware infrastructure and information equipment held under financelease (included under “Telecommunications equipment” and “Asset under construction”) atDecember 31, 2013 and 2012 amounted to P=753.85 million and P=738.09 million, respectively (seeNote 25.1.2).

8. Investment Property

The rollforward analysis of this account as of December 31, 2012 follows (in thousand Pesos):

CostAt January 1 and December 31 P=390,641Reclassification (Note 7) (390,641)At December 31 –Accumulated DepreciationAt January 1 198,996Depreciation 6,457Reclassification (Note 7) (205,453)At December 31 –Net Book Value at December 31 P=–

Investment property represents the portion of a building that was held for lease to third parties in2009. In 2012, the Globe Group transferred the remaining book value of the Investment propertyto Property and equipment (see Note 7).

9. Intangible Assets and Goodwill


2013

Licenses andApplication

SoftwareCustomerContracts

ExclusiveDealership

Right(Note 25.10)

TotalIntangible

Assets Goodwill

TotalIntangibleAssets and

GoodwillCostAt January 1 P=11,260,680 P=28,381 P=– P=11,289,061 P=327,125 P=11,616,186Additions 30,486 – 67,552 98,038 – 98,038Retirements/disposals (351,474) – – (351,474) – (351,474)Reclassifications/adjustments

(Note 7) 2,742,187 – – 2,742,187 – 2,742,187At December 31 13,681,879 28,381 67,552 13,777,812 327,125 14,104,937Accumulated Depreciation and

AmortizationAt January 1 7,796,686 25,542 – 7,822,228 – 7,822,228Amortization: Incremental effect of

network modernization 1,236,242 – – 1,236,242 – 1,236,242 Others 1,554,065 2,839 3,135 1,560,039 – 1,560,039Retirements/disposals (351,474) – – (351,474) – (351,474)Reclassifications/adjustments

(Note 7) (2,758) – – (2,758) – (2,758)At December 31 10,232,761 28,381 3,135 10,264,277 – 10,264,277Net Book Value at December 31 P=3,449,118 P=– P=64,417 P=3,513,535 P=327,125 P=3,840,660

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2012

Licenses andApplication

SoftwareCustomerContracts

TotalIntangible

Assets Goodwill

TotalIntangible

Assets andGoodwill

(In Thousand Pesos)

CostAt January 1 P=9,063,214 P=28,381 P=9,091,595 P=327,125 P=9,418,720Additions 152,056 – 152,056 – 152,056Retirements/disposals (119) – (119) – (119)Reclassifications/adjustments (Note 7) 2,045,529 – 2,045,529 – 2,045,529At December 31 11,260,680 28,381 11,289,061 327,125 11,616,186Accumulated Depreciation and

AmortizationAt January 1 5,807,340 19,866 5,827,206 – 5,827,206Amortization:

Incremental effect of networkmodernization 835,166 – 835,166 – 835,166

Others 1,126,209 5,676 1,131,885 – 1,131,885Retirements/disposals (58) – (58) – (58)Reclassifications/adjustments (Note 7) 28,029 – 28,029 – 28,029At December 31 7,796,686 25,542 7,822,228 – 7,822,228Net Book Value at December 31 P=3,463,994 P=2,839 P=3,466,833 P=327,125 P=3,793,958

No impairment loss on intangible assets was recognized in 2013, 2012 and 2011.

In the first quarter of 2012, the EUL of certain wireless and wireline licenses were changed as aresult of continuing upgrade and migration to a modernized network. The net effect of the changein EUL resulted to higher amortization expense of P=1,236.24 million and P=835.17 million for theyears ended December 31, 2013 and 2012, respectively.

Intangible assets pertain to (1) telecommunications equipment software licenses, corporateapplication software and licenses and other VAS software applications that are not integral to thehardware or equipment; (2) costs of the web application system developed by a third party forKickstart; (3) intangible assets identified to exist during the acquisition of EGG Group for itsexisting customer contracts and (4) exclusive dealership right in Taodharma.

10. Investments in an Associate and Joint Ventures

This account consists of the following as of December 31:

Country ofIncorporation Principal Activities 2013 2012

Associate

BTI PhilippinesTelecommunication

services 38% –Joint Ventures

BPI Globe BanKO Inc., A SavingsBank (BPI Globe BanKO) Philippines

Micro-financeenterprises banking

services 40% 40%

Bridge Mobile Pte. Ltd. (BMPL) Philippines

Mobile technologyinfrastructure and

common service 10% 10%

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The movement in investment in an associate and joint ventures are as follows:


Acquisition CostAt January 1 P=352,610 P=331,620Acquisition during the year 59,010 20,990At December 31 411,620 352,610Accumulated Equity in Net Losses:At January 1 (169,417) (75,073)Equity in net losses (79,959) (83,582)

(249,376) (158,655)Net foreign exchange difference 510 (10,762)At December 31 (248,866) (169,417)Carrying Value at December 31 P=162,754 P=183,193

10.1 Investment in BTIOn October 1, 2013, Globe acquired 38% interest in BTI following the conversion of itsunsustainable debt (Tranche B) into 45 million common shares equity based on the confirmationof the Court dated August 27, 2013 on the Amended Rehabilitation Plan. Globe will furtherconvert its share of the Tranche A debt upon certain regulatory approvals. Globe’s acquisition ofBTI is intended to augment its current data and DSL businesses using BTI's existing platform.As of December 31, 2013, the equity in BTI was recognized as investment in an associate carriedat acquisition cost valued at nil. BTI remains in a capital deficiency after Tranche B conversionwith a negative book value of common shares at P=57.62 per share.

The following is the financial information of BTI which is not considered material associate(amounts in thousands) from October 2013 to December 2013:

Share in net loss - unrecognized P=574,672Share in other comprehensive income 31,881Share in total comprehensive loss - unrecognized P=606,553

The Globe Group has no share of any contingent liabilities as of December 31, 2013.

10.2 Investment in BPI Globe BanKOOn July 17, 2009, Globe acquired a 40% stake in BPI Globe BanKO (formerly Pilipinas SavingsBank, Inc. or PS Bank) for P=141.33 million, pursuant to a Shareholder Agreement with Bank ofthe Philippine Islands (BPI), AC and PS Bank, and a Deed of Absolute Sale with BPI. BPI GlobeBanKO will have the capability to provide services to micro-finance institutions and retail clientsthrough mobile and related technology.

On May 10, 2011, the BOD of Globe Telecom approved the additional investment ofP=100.00 million as share for BPI Globe BanKO’s increase in capitalization to cover its expansionplan for the next three years. Globe Telecom made the initial capital infusion of P=79.01 million onMay 10, 2011, and P=20.99 million last March 28, 2012. As of December 31, 2013 and 2012, theinvestment of Globe Telecom in BPI Globe BanKO amounted to P=85.63 million andP=114.42 million, respectively, representing 40% interest.

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10.3 Investment in BMPLGlobe Telecom and other leading Asia Pacific mobile operators (JV partners) signed anAgreement in 2004 (JV Agreement) to form a regional mobile alliance, which will operate througha Singapore-incorporated company, BMPL. The JV company is a commercial vehicle for the JVpartners to build and establish a regional mobile infrastructure and common service platform anddeliver different regional mobile services to their subscribers.

Globe Group has a ten percent (10%) stake in BMPL. The other joint venture partners each withequal stake in the alliance include SK Telecom, Co. Ltd., Advanced Info Service Public CompanyLimited, Bharti Airtel Limited, Maxis Communications Berhad, Optus Mobile Pty. Limited,Singapore Telecom Mobile Pte, Ltd., Taiwan Mobile Co. Ltd., PT Telekomunikasi Selular andCSL Ltd. Under the JV Agreement, each partner shall contribute USD4.00 million based on anagreed schedule of contribution. Globe Telecom may be called upon to contribute on dates to bedetermined by the JV. As of December 31, 2013 and 2012, Globe Telecom has invested a total ofUSD2.20 million (P=111.28 million) in the joint venture.

The following is the aggregate financial information of BPI Globe BanKO and BMPL, which arenot considered material joint ventures:


Share in net loss (P=79,959) (P=83,582)Share in other comprehensive income 510 (10,762)Share in total comprehensive loss (P=79,449) (P=94,344)

The Globe Group has no share of any contingent liabilities of the joint ventures as ofDecember 31, 2013 and 2012.

11. Other Noncurrent Assets


Notes 2013

2012(As restated,

see Note 2.4)(In Thousand Pesos)

Loan receivable from BTI - net of currentportion 6 P=4,556,287 P=4,548,782

Deferred input VAT 6 1,013,833 927,096Miscellaneous deposits 25.1 694,487 609,060

AFS investment in equity securities25.10, 28.10,

28.12 222,712 141,446Loan receivable from BHI 6, 16.3, 25.5 – 295,000Loan receivable from GGRP 16.3, 18.2 – 968,000Others - net 62,486 77,666

P=6,549,805 P=7,567,050

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Loan Receivable from BTIOn November 5, 2012, Globe Telecom obtained internal approvals to commence offers topurchase up to 100% of the financial obligations of BTI and Radio Communications of thePhilippines, Inc. (RCPI), a subsidiary of BTI, collectively referred to as “BTI loans”, to theirrespective financial creditors.

On December 21, 2012, Globe Telecom settled its tender offers for:

i. 93.66% of the aggregate remaining principal amount of the USD-denominated notes originallydue in 2006;

ii. 98.26% of the aggregate remaining principal amount of peso and USD-denominated BTIloans; and

iii. 100% of the aggregate remaining principal amount of peso and USD-denominated RCPIloans.

The total consideration for the tender offers is USD/P=310.00 per USD/P=1,000.00 face amount, fora total payment of P=5,354.76 million, composed of US Dollar and Philippine peso-denominatedloans amounting to USD110.55 million and P=818.74 million, respectively.

The acquired loans were part of the original debt subjected to rehabilitation plan approved onJune 28, 2004. The plan was reviewed and evaluated by a court appointed receiver who wastasked to monitor and oversee the implementation of the Plan. The implementing term sheetsubmitted by the receiver was approved on March 15, 2005.

The restructured loan is divided into sustainable (Tranche A) and unsustainable debt (Tranche B)and is denominated in existing currencies with an option for any of the creditors in Tranche B toconvert their USD-denominated restructured debt into PHP at an agreed exchange rate on the dateof implementation.

Tranche A is repayable semi-annually on a pari passu basis up to December 31, 2023 based on atable of debt reduction computed at certain percentages of the principal. Tranche B is a non-interest bearing convertible debt and to be repaid only if there are sufficient future cash flows andupon full repayment of Tranche A. At the conclusion of the rehabilitation period, other than as theresult of an event of default, Tranche B is to be converted into new BTI shares, considering noconversion had been previously made. The conversion rights in relation to Tranche B are up to amaximum of 40% of the authorized share capital as at the effective date. The loans were initiallyaccounted for at fair value, and the entire acquisition price was allocated to Tranche A.

On May 30, 2013, Globe Telecom and BTI agreed to jointly file a motion with the court havingjurisdiction over BTI’s debt to significantly restructure the financial debt in order to prevent therecurrence of default and ensure BTI’s continued viability. The joint motion is intended to achievea successful rehabilitation at the earliest possible date. The restructuring, including the debt toequity conversion feature would apply to all BTI’s creditors equally upon receipt of certainregulatory approvals, including the confirmation of the court.

On July 1, 2013, Globe Telecom purchased additional BTI bonds with face value ofUSD2.80 million, part of the BTI loans from their financial creditors, bringing total aggregateprincipal amount of the USD-denominated notes originally due in 2006 from 93.66% to 95.10%(see Note 11.i).

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On August 27, 2013, the joint motion to amend BTI’s current debt restructuring plan was grantedby the Court. Accordingly, a new Master Restructuring Agreement (MRA) for all BTI creditorswill be implemented. This principally involves a total conversion of up to 56.60% of its capitalstock. Globe Telecom and BTI were directed to provide separate reports on the implementationprocedures of the Amended Rehabilitation Plan and its accompanying MRA within a certainperiod as mandated by the Court. Likewise, Globe Telecom and BTI were directed by the Court toensure that the details of the mechanics for converting debt positions are clear and properlycommunicated to the creditors involved.

Pursuant to the resolution of the Court dated August 27, 2013 confirming the AmendedRehabilitation Plan jointly filed by Globe Telecom and BTI, BTI issued common shares certificateto Globe Telecom on October 1, 2013 for the conversion of its unsustainable debt (Tranche B) into38% equity (see Note 10.2). Globe Telecom intends to further convert portion of Tranche A debt,which together with the converted Tranche B debt would represent more than 50% of BTI’soutstanding shares upon certain regulatory approvals.

On October 29, 2013, Globe filed a report with the court covering the mechanics for convertingdebt positions as provided for under the MRA.

As of February 10, 2014, the NTC approval for the change in control of BTI is still pending.

As of December 31, 2013 and 2012, loans receivable from BTI amounted to P=5.04 billion andP=4.90 billion, respectively, comprising of principal and interest due until 2023, with quarterlyinterest payments and semi-annual principal payments (see Note 16.6).

12. Accounts Payable and Accrued Expenses


Notes 2013


(In Thousand Pesos)

Accrued project costs 25.3 P=16,557,492 P=11,400,188Accounts payable 16 11,540,568 8,837,714Accrued expenses 16, 18.2 9,572,302 7,019,084Traffic settlements - net 4 1,596,233 2,374,154Output VAT - net 220,235 69,841Dividends payable 17.3 – 33,145

P=39,486,830 P=29,734,126

The “Accrued expenses” account includes accruals for services, advertising, manpower andvarious general, selling and administrative expenses.

Traffic settlements payable are presented net of traffic settlements receivable from the samecarrier amounting to P=2,120.89 million and P=3,318.91 million as of December 31, 2013 and 2012,respectively.

As of December 31, 2013, Globe Telecom and EGG reported net output VAT amounting toP=220.24 million, net of input VAT of P=621.33 million. As of December 31, 2012, Globe Telecomand EGG reported net output VAT amounting to P=69.84 million, net of input VAT ofP=558.95 million.

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13. Provisions



At beginning of year P=203,191 P=166,773Provisions for claims and assessments 23 93,309 56,327Payments (1,800) (19,909)At end of year P=294,700 P=203,191

Provisions relate to various pending unresolved claims and assessments over the Globe Group’smobile and wireline businesses. The information usually required by PAS 37, Provisions,Contingent Liabilities and Contingent Assets, is not disclosed as it may prejudice the outcome ofthese on-going claims and assessments. As of February 10, 2014, the remaining pending claimsand assessments are still being resolved.

14. Notes Payable and Long-term Debt

Notes payable consist of short-term, unsecured US dollar and peso-denominated promissory notesfrom local banks for working capital requirements amounting to P=5,219.90 million; which bearsinterest ranging from 1.12% to 3.00%, P=2,053.90 million, which bears interest ranging from1.12% to 1.65% as of December 31, 2013 and 2012, respectively.

Long-term debt consists of:


Term Loans: Peso P=28,018,106 P=38,164,986 Dollar 14,321,158 5,829,588Corporate notes 4,877,621 5,819,400Retail bonds 16,864,164 9,911,546

64,081,049 59,725,520Less current portion 5,980,300 9,294,888

P=58,100,749 P=50,430,632

The maturities of long-term debt at nominal values, excluding unamortized debt issuance costs, asof December 31, 2013 follow (amounts in thousands):

Due in: 2014 P=5,990,143 2015 6,136,058 2016 7,386,806 2017 4,763,236 2018 and thereafter 40,207,150

P=64,483,393

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Unamortized debt issuance costs included in the above long-term debt as of December 31, 2013and 2012 amounted to P=402.34 million and P=314.07 million, respectively (see Note 28.2.3).

Total interest expense recognized, excluding the capitalized interest, amounted toP=2,091.92 million, P=2,104.79 million and P=1,989.45 million in 2013, 2012 and 2011, respectively(see Notes 7 and 22).

The interest rates and maturities of the above debt are as follows:

Maturities Interest RatesTerm Loans: Peso 2014-2022 0.99% to 6.00% in 2013

1.19% to 7.03% in 2012

Dollar 2015-2022 1.27% to 1.80% in 20131.83% to 4.19% in 2012

Corporate notes 2014-2016 1.65% to 8.43% in 20131.83% to 8.43% in 2012

Retail bonds 2017-2023 4.89% to 6.00% in 20135.75% to 6.00% in 2012

14.1 Term Loans and Corporate NotesThe Globe Group’s unsecured term loans and corporate notes, which consist of fixed and floatingrate notes and dollar and peso-denominated bank loans, bear interest at stipulated and prevailingmarket rates.

On March 6, 2013, Globe signed a USD75 million 3-year term loan with floating interest rate withBank of Tokyo - Mitsubishi UFJ, Ltd., Singapore Branch as lender. The purpose of the loan is tofund Globe Telecom’s capital expenditures.

On March 22, 2013, Globe signed a USD120 million 7-year term loan with floating interest ratewith Metrobank as lender to finance Globe Telecom’s capital expenditures

On July 29, 2013, Globe signed a USD40 million 3-year term loan with floating interest rate withMizuho Bank Ltd. as lender to prepay and refinance certain debts.

On December 4, 2013, Globe signed a P=7,000.00 million 7-year term loan with fixed interest ratewith Land Bank as lender. The proceeds of the loan shall be used to partially finance GlobeTelecom’s general financing and corporate requirements for capital expenditures.

The loan agreements with banks and other financial institutions provide for certain restrictions andrequirements with respect to, among others, maintenance of financial ratios and percentage ofownership of specific shareholders, incurrence of additional long-term indebtedness or guaranteesand creation of property encumbrances.

As of December 31, 2013, the Globe Group is not in breach of any loan covenants.

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14.2 Retail BondsOn January 17, 2012, Globe Group exercised its option to redeem the P=3,026.00 million fixed ratebonds thru an irrevocable notice issued to its trustee bank. The full settlement happened onFebruary 27, 2012, with redemption cost of P=60.51 million.

On February 10, 2012, the BOD approved and authorized a corporate bond program to fund theGlobe Group’s capital expenditures with a principal amount of up to P=15,000.00 million forissuance in one or more tranches. The Globe Group management has been authorized to determinethe final features and other terms and conditions of the offer and issuance of the corporate bonds,including all agreements related to such offer and issuance.

On June 1, 2012, Globe Group issued P=10,000.00 million fixed rate bonds. The amount comprisesP=4,500.00 million and P=5,500.00 million fixed rate bonds due in 2017 and 2019, with interest rateof 5.75% and 6.00%, respectively. The net proceeds of the issue shall be used to partially financeGlobe Group’s capital expenditure requirements in 2012.

The five-year and seven-year retail bonds may be redeemed in whole, but not in part, starting twoyears before maturity date and on the anniversary thereafter at a price equal to 101.00% and100.50%, respectively, of the principal amount of the bonds and all accrued interest to the date ofthe redemption.

On July 17, 2013, the Globe Group issued P=7,000.00 million fixed rate bond. The amountcomprises P=4,000.00 million and P=3,000.00 million bonds due in 2020 and 2023, with interest rateof 4.8875% and 5.2792%, respectively. The net proceeds of the issue shall be used to partiallyfinance the Company’s capital expenditure requirements in 2013.

The seven-year and ten-year retail bonds may be redeemed in whole, but not in part only, startingtwo years for the seven-year bonds and three years for the ten-year bonds before the maturity dateand on the anniversary thereafter at a price ranging from 101.0% to 100.5% and 102.0% to 100.5%,respectively, of the principal amount of the bonds and all accrued interest depending on the year ofredemption.

The prepayment feature is assessed as clearly and closely related to the host debt instrument, andhence need not be separately accounted for at FVPL.

The Globe Group has to meet certain bond covenants including a maximum debt-to-equity ratio of2 to 1. As of December 31, 2013, the Globe Group is not in breach of any bond covenants.

15. Other Long-term Liabilities


Notes 2013


(In Thousand Pesos)

ARO 3.2.4, 7 P=1,724,304 P=1,594,633Accrued pension 18.2 1,607,299 843,911Accrued lease obligations and others 25.1.2 1,017,999 1,342,262

P=4,349,602 P=3,780,806

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The rollforward analysis of the Globe Group’s ARO follows:


At beginning of year P=1,594,633 P=1,476,597Capitalized to property and equipment

during the year - net of reversal 30 15,675 25,022Accretion expense during the year 22 130,021 119,814Adjustments due to changes in estimates 3.2.4 (16,025) (26,800)At end of year P=1,724,304 P=1,594,633

16. Related Party Transactions

Parties are considered to be related to Globe Group if it has the ability, directly or indirectly, tocontrol the Group or exercise significant influence over the Group in making financial andoperating decisions, or vice versa, or where the Group and the party are subject to common controlor common significant influence. Related parties may be individuals (being members of keymanagement personnel, significant shareholders and/or their close family members) or entities andinclude entities which are under the significant influence of related parties of the Group wherethose parties are individuals, and post-employment benefit plan which are for the benefit ofemployees of the Group or of any entity that is a related party of the Group.

The Globe Group, in their regular conduct of business, enter into transactions with their majorstockholders, AC and STI, venturers and certain related parties. These transactions, which areaccounted for at market prices normally charged to unaffiliated customers for similar goods andservices, include the following:

16.1 Entities with Joint Control over Globe Group - AC and STI

· Globe Telecom has interconnection agreements with STI. The related net traffic settlementsreceivable (included in “Receivables” account in the consolidated statements of financialposition) and the interconnection revenues earned (included in “Service revenues” account inthe consolidated statements of comprehensive income) are as follows:


Traffic settlements receivable - net P=201,216 P=126,277 P=36,994Interconnection revenues - net 957,232 966,037 1,136,294

· Globe Telecom and STI have a technical assistance agreement whereby STI will provideconsultancy and advisory services, including those with respect to the construction andoperation of Globe Telecom’s networks and communication services (see Note 25.6),equipment procurement and personnel services. In addition, Globe Telecom has softwaredevelopment, supply, license and support arrangements, lease of cable facilities, maintenanceand restoration costs and other transactions with STI.

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The details of fees (included in repairs and maintenance under the “General, selling andadministrative expenses” account in the consolidated statements of comprehensive income)incurred under these agreements are as follows:


Technical assistance fee P=163,004 P=140,083 P=179,014Maintenance and restoration costs

and other transactions 61,841 64,835 53,996Software development, supply,


The outstanding balances due to STI (included in the “Accounts payable and accruedexpenses” account in the consolidated statements of financial position) arising from thesetransactions are as follows:


Technical assistance fee P=35,775 P=45,326 P=54,873Maintenance and restoration costs

and other transactions 20,695 32,372 23,103Software development, supply,


· Globe Telecom earns subscriber revenues from AC. The outstanding subscribers receivablefrom AC (included in “Receivables” account in the consolidated statements of financialposition) and the amount earned as service revenue (included in the “Service revenues”account in the consolidated statements of comprehensive income) are as follows:


Subscriber receivables P=14,761 P=2,143 P=1,718Service revenues 14,107 14,720 12,640

· Globe Telecom reimburses AC for certain operating expenses. The net outstanding liabilitiesto (included in “Accounts payable and accrued expenses” account in the consolidatedstatement of financial position) and the amount of expenses incurred (included in the“General, selling and administrative expenses” account in the consolidated statements ofcomprehensive income) are as follows:


General, selling and administrativeexpenses P=7,768 P=9,145 P=7,878

Accounts payable and accruedexpenses – – 234

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16.2 Joint Ventures in which the Globe Group is a Venturer (see Note 10)· 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, amongothers, coordination and facilitation of preferred roaming arrangement among JV partners, andprocurement and maintenance of telecommunications equipment necessary for delivery ofseamless roaming experience to customers. Globe Telecom also earns or incurs commissionfrom BMPL for regional top-up service provided by the JV partners. The net outstandingliabilities to BMPL related to these transactions amounted to P=0.98 million and P=2.21 millionas of December 31, 2013 and 2012, respectively. Balances related to these transactions(included in “General, selling and administrative expenses” account in the consolidatedstatements of comprehensive income) amounted to P=3.76 million, P=15.49 million andP=12.24 million for the years ended December 31, 2013, 2012 and 2011, respectively.

· In October 2009, the Globe Group entered into an agreement with BPI Globe BanKO for thepursuit of services that will expand the usage of GCash technology. As a result, the GlobeGroup recognized revenue amounting to P=0.54 million, P=1.58 million and P=2.86 million in2013, 2012 and 2011, respectively. The related receivables amounted P=1.11 million andP=3.79 million as of December 31, 2013 and 2012, respectively.

16.3 Transactions with the Globe Group Retirement Plan (GGRP) (see Note 11)· In 2008, Globe Telecom, Innove and GXI pooled its plan assets for single administration by

the GGRP, which was created for the management of the retirement fund. The decisions of theGGRP are made through collective decision of the Board of Trustees.

The plan is funded by contributions as recommended by the independent actuary on the basisof reasonable actuarial assumptions. These assumptions and the funded status of the pensionplan are disclosed in Note 18.2.

The unfunded status for the pension plan of Globe Group as of December 31, 2013 and 2012amounted to P=1,607.30 million and P=843.91 million, respectively (see Note 18.2).

The fair value of plan assets by each class held by the retirement fund, on a pooled basisfollows:


Cash and cash equivalents P=84,641 P=28,333Investment in fixed income securities 1,048,421 1,032,279Investment in equity securities 1,507,287 1,515,993Loans and receivables 1,007,686 1,010,980Liabilities (994,441) (995,067)Balance at end of year P=2,653,594 P=2,592,518

All equity and debt instruments held, except for investment in preferred shares of HALOGroup, debt securities issued by private corporations and long-term negotiable certificates ofdeposit, have quoted prices in active market. The remaining plan assets do not have quotedmarket prices in active market.

Loans and receivables consist of interest and dividend receivables, receivable on securitiessold to brokers and loan granted by the plan to BHI (see Note 25.5).

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Liabilities pertain to interest and trust fee payables, accrued professional fees and loan grantedto the plan by Globe Telecom.

The plan assets have diverse investments and do not have any concentration risk.

As of December 31, 2013 and 2012, the pension plan assets of the retirement plan includeshares of stock of Globe Telecom with total fair value of P=24.77 million and P=13.02 million,and shares of stock of other related parties with total fair value of P=83.31 million andP=71.96 million, respectively. Gains/losses arising from these investments amounted toP=8.34 million and P=10.97 million in 2013 and 2012, respectively.

· In 2008, the Globe Group granted a short-term loan to the GGRP amounting toP=800.00 million with interest at 6.20%. Upon maturity in 2009, the loan was rolled over untilSeptember 2014 with interest at 7.75%. Further, in 2009, the Globe Group granted anadditional loan to the retirement fund amounting to P=168.00 million which bears interest at7.75% and is due also in September 2014.

The retirement plan utilized the loan to fund its investments in BHI, a domestic corporationorganized to invest in media ventures. BHI has controlling interest in Altimax BroadcastingCo., Inc. (Altimax) and Broadcast Enterprises and Affiliated Media Inc. (BEAM),respectively.

· On August 13 and December 21, 2009, the Globe Group granted five-year loans amounting toP=250.00 million and P=45.00 million, respectively, to BHI at 8.275% interest. TheP=250.00 million loan is covered by a pledge agreement whereby in the event of default, theGlobe Group shall be entitled to offset whatever amount is due to BHI from any unpaid fees toBEAM from the Globe Group. The P=45.00 million loan is fully secured by a chattel mortgageagreement dated December 21, 2009 between Globe Group and BEAM (see Note 25.5).

· On February 1, 2009, the Globe Group entered into a memorandum of agreement (MOA) withBEAM for the latter to render mobile television broadcast service to Globe subscribers usingthe mobile TV service. As a result, the Globe Group recognized an expense (included in“Professional and other contracted services”) amounting to P=155.00 million, P=194.00 millionand P=250.00 million in 2013, 2012 and 2011, respectively.

· On October 1, 2009, the Globe Group entered into a MOA with Altimax for the GlobeGroup’s co-use of specific frequencies of Altimax’s for the rollout of broadband wirelessaccess to the Globe Group’s subscribers. As a result, the Globe Group recognized an expense(included in “General, selling and administrative expenses” account in the consolidatedstatements of comprehensive income) amounting to P=90.00 million in 2013, 2012 and 2011.

16.4 Transactions with Other Related PartiesGlobe Telecom has money market placements and bank balances, and subscriber receivables(included in “Cash and cash equivalents” and “Receivables” accounts in the consolidatedstatements of financial position, respectively) and earns service revenues (included in the“Service revenues” account in the consolidated statements of comprehensive income) from itsother related parties namely, Ayala Land Inc., Ayala Property Management Corporation, Bank ofthe Philippine Islands, Manila Water Company, Inc., Integrated Microelectronics, Inc., StreamGlobal Services, Inc., HR Mall Inc., Honda Cars, Inc., Isuzu Automotive Dealership, Inc.,Accendo Commercial Corp., Affinity Express Philippines, Inc., Alveo Land Corp., Asian I-OfficeProperties,Inc., Avida Land Corp., Avida Sales Corporation, Ayala Hotels, Inc., Ayala Plans,Inc., Ayala Systems Technology, Inc., Cebu Holdings, Inc., Makati Development Corp.,

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myAyala.com, Inc., North Triangle Depot Commercial Corp., PSI Technologies, Inc., RoxasLand Corp, Serendra, Inc., Station Square East Commercial Corp., Ten Knots Development, KHIALI Manila, Inc., Lagoon Development Corp., Subic Bay Town Center, Inc., Ayala AviationCorporation, Laguna AAA Water Corp., Liveit Solution, Inc., Liveit Investments, Ltd., Integreon,Inc., Arvo Commercial Corp., Amaia Land Corp., Michigan Power, Philippine Intergrated EnergySolutions, Inc., Southcrest Hotel Ventures, Inc., Bonifacio Hotels and Crestview E-Office.

The balances with other related parties are recorded under the following accounts:

Notes 2013 2012 2011(In Thousand Pesos)

Cash and cash equivalents 30 P=166,074 P=199,392 P=1,098,168Service revenues 437,793 344,206 306,846General, selling and administrative

expenses 21 346,280 345,004 288,351Subscriber receivables (included in

“Receivables” account) 4 212,391 102,454 65,694Property and equipment 7 60,437 71,272 137,209Accounts payable and accrued

expenses 12 72,440 50,008 32,750

The balances under “General, selling and administrative expenses” and “Property and equipment”accounts consist of expenses incurred on rent, utilities, customer contract services, othermiscellaneous services and purchase of vehicles, respectively.

These related parties are either controlled or significantly influenced by AC.

16.5 Transactions with Key Management Personnel of the Globe GroupThe Globe Group’s compensation of key management personnel by benefit type are as follows:


Short-term employee benefits 21 P=63,172 P=123,700 P=75,343Share-based payments 18.1 50,000 11,502 49,338Post-employment benefits 18.2 7,466 12,822 1,736

P=120,638 P=148,024 P=126,417

There are no agreements between the Globe Group and any of its directors and key officersproviding for benefits upon termination of employment, except for such benefits to which theymay be entitled under the Globe Group’s retirement plans.

The Globe Group granted non-interest bearing short-term loans to its key management personnelamounting to P=0.05 million in 2012, included in the “Prepayments and other current assets” in theconsolidated statements of financial position.

16.6 Transaction with an associateThe Globe group purchased BTI’s outstanding debts from its creditors and was recognized attransaction price which was considered its fair value. The total debt of BTI is comprised ofsustainable Tranche A and unsustainable Tranche B. A portion of the debt (Tranche B) wasconverted into equity and was valued at nil while the total consideration at point of tender wasassigned to the collectible portion of Tranche A.

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As of December 31, 2013 and 2012, loans receivable from BTI amounted to P=5.04 billion andP=4.90 billion comprising of principal and interest due until 2023, with quarterly interest paymentsand semi-annual principal payments (see Notes 6 and 11).

Globe Telecom and BTI executed an agreement to jointly use BTI frequencies for their respectivetelecommunications services (see Note 25.8).

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The summary of balances arising from related party transactions for the relevant financial year (in thousands) follows:

2013Amount/Volume Outstanding Balance

RevenuesCost andExpenses

Property andEquipment

(Note 7)Cash

(Note 30)

AmountsOwed by

RelatedParties

OtherCurrent

Assets

AmountsOwed toRelated

Parties Terms ConditionsEntities with joint control over

Globe GroupAC P=14,107 P=7,768 P=– P=– P=14,761 P=– P=– Interest-free, settlement in cash Unsecured, no impairmentSTI 957,232 241,526 – – 201,216 – 60,484 Interest-free, settlement in cash Unsecured, no impairment

Jointly controlled entitiesBMPL – 3,762 – – – – 977 Interest-free, settlement in cash Unsecured, no impairmentBPI Globe BanKO 541 – – – 1,107 – – Interest-free, settlement in cash Unsecured, no impairment

AssociateBTI 475,822 5,000 – – 5,037,653 – 9,500 Loan receivable - 20 years, 9.60%

to 11.55%; lease capacityprovisioning - interest-free

Unsecured, no impairment

Other related partiesGGRP – – – – 968,000 – – 5 years, 7.75% Unsecured, no impairmentBHI – – – – 158,620 – – 5 years, 8.28% The P=250.00 million is covered by

a pledge agreement while theP=45.00 million is fully securedby chattel mortgageagreement.

BEAM – 155,000 – – – – – – –Altimax – 90,000 – – – – – – –Key management personnel – – – – – – – Interest-free, settlement in cash Unsecured, no impairmentOthers 437,793 346,280 60,437 166,074 212,391 – 72,440 Interest-free, settlement in cash Unsecured, no impairmentTotal P=1,885,495 P=849,336 P=60,437 P=166,074 P=6,593,748 P=– P=143,401

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2012Amount/Volume Outstanding Balance

RevenuesCost andExpenses

Property andEquipment

(Note 7)Cash

(Note 30)

AmountsOwed by

RelatedParties

OtherCurrentAssets

AmountsOwed toRelated

Parties Terms ConditionsEntities with joint control over

Globe GroupAC P=14,720 P=9,145 P=– P=– P=2,143 P=– P=– Interest-free, settlement in cash Unsecured, no impairmentSTI 966,037 217,508 – – 126,277 – 112,966 Interest-free, settlement in cash Unsecured, no impairment

Jointly controlled entities –BMPL – 15,491 – – – – 2,208 Interest-free, settlement in cash Unsecured, no impairmentBPI Globe BanKO 1,584 – – – 3,792 – – Interest-free, settlement in cash Unsecured, no impairment

Other related partiesGGRP – – – – 968,000 – – 5 years, 7.75% Unsecured, no impairmentBHI – – – – 295,000 – – 5 years, 8.275% The P=250.00 million is covered by

a pledge agreement while theP=45.00 million is fully securedby chattel mortgageagreement.

BEAM – 194,000 – – – – – – –Altimax – 90,000 – – – – – – –Key management personnel – – – – 53 – – Interest-free, settlement in cash Unsecured, no impairmentOthers 344,206 345,004 71,272 199,392 102,454 6,281 50,008 Interest-free, settlement in cash Unsecured, no impairmentTotal P=1,326,547 P=871,148 P=71,272 P=199,392 P=1,497,719 P=6,281 P=165,182

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17. Equity and Other Comprehensive Income

Globe Telecom’s authorized capital stock consists of:

2013 2012Shares Amount Shares Amount

(In Thousand Pesos and Number of Shares)

Preferred stock - P=5 per share 250,000 P=1,250,000 250,000 P=1,250,000Common stock - P=50 per share 179,934 8,996,719 179,934 8,996,719

Globe Telecom’s issued and subscribed capital stock consists of:

2013 2012Shares Amount Shares Amount


Preferred stock 158,515 P=792,575 158,515 P=792,575Common stock 132,596 6,629,785 132,406 6,620,291Total capital stock P=7,422,360 P=7,412,866

17.1 Preferred Stock

Preferred stock has the following features:(a) Issued at P=5 par;(b) Dividend rate to be determined by the BOD at the time of issue;(c) One preferred share is convertible to one common share starting at the end of the 10th year of

the issue date at a price to be determined by the Globe Telecom’s BOD at the time of issuewhich shall not be less than the market price of the common share less the par value of thepreferred share;

(d) Call option - Exercisable any time by Globe Telecom starting at the end of the 5th year fromissue date at a price to be determined by the BOD at the time of issue;

(e) Eligibility of Investors - Only Filipino citizens or corporations or partnerships wherein 60% ofthe voting stock or voting power is owned by Filipino;

(f) With voting rights;(g) Cumulative and non-participating;(h) Preference as to dividends and in the event of liquidation; and(i) No preemptive right to any share issue of Globe Telecom, and subject to yield protection in

case of change in tax laws.

The dividends for preferred shares are declared upon the sole discretion of the Globe Telecom’sBOD.

17.2 Common StockThe rollforward of outstanding common shares are as follows:

2013 2012 2011Shares Amount Shares Amount Shares Amount


At beginning of year 132,406 P=6,620,291 132,353 P=6,617,651 132,348 P=6,617,424Exercise of stock options 190 9,494 53 2,640 5 227At end of year 132,596 P=6,629,785 132,406 P=6,620,291 132,353 P=6,617,651

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17.3 Cash DividendsInformation on Globe Telecom’s declaration of cash dividends follows:

DatePer Share Amount Record Payable

(In Thousand Pesos, Except Per Share Figures)

Preferred stock dividends declared on: February 8, 2011 P=0.29 P=45,399 February 22, 2011 March 18, 2011 December 15, 2011 0.22 35,295 December 29, 2011 March 18, 2012 December 11, 2012 0.21 33,145 December 27, 2012 January 24, 2013 November 8, 2013 0.15 23,838 November 22, 2013 December 8, 2013

Common stock dividends declared on: February 8, 2011 31.00 4,102,803 February 22, 2011 March 18, 2011 August 8, 2011 31.00 4,102,802 August 22, 2011 September 19, 2011 February 10, 2012 32.50 4,302,737 February 24, 2012 March 16, 2012 August 6, 2012 32.50 4,302,891 August 28, 2012 September 18, 2012

February 5, 2013 33.50 4,435,828 February 19, 2013 March 12, 2013 August 6, 2013 33.50 4,440,936 August 22, 2013 September 22, 2013

The dividend policy of Globe Telecom as approved by the BOD is to declare cash dividends to itscommon stockholders on a regular basis as may be determined by the BOD. OnNovember 8, 2011, the BOD approved the current dividend policy of Globe Telecom is todistribute cash dividends at the rate of 75% to 90% of prior year's core net income. OnAugust 6, 2013, the BOD further approved the change in distribution from semi-annually dividendpayments to quarterly dividend distributions. However, on December 10, 2013, the BOD approvedto defer the implementation of the quarterly dividend payout to the second semester of 2014.

The dividend distribution is reviewed annually and subsequently each quarter of the year, takinginto account Globe Telecom's operating results, cash flows, debt covenants capital expenditurelevels and liquidity.

17.4 Retained Earnings Available for Dividend DeclarationThe total unrestricted retained earnings available for dividend declaration amounted toP=6,518.88 million as of December 31, 2013. This amount excludes the undistributed net earningsof consolidated subsidiaries, accumulated equity in net earnings of joint ventures accounted forunder the equity method, unrealized gains recognized on asset and liability currency translations,unrealized gains on fair value adjustments and deferred income tax assets. The Globe Group isalso subject to loan covenants that restrict its ability to pay dividends (see Note 14).

17.5 Other Comprehensive Income

Other ReservesFor the Year Ended December 31, 2013

Cash flowhedges

AFS financialassets

Exchangedifferences

arisingfrom

translationsof foreign

investments

Remeasurementlosses on

definedbenefit plan Total

(In Thousand Pesos)

As of January 1, 2013 (P=121,200) P=80,275 (P=3,663) (P=481,951) (P=526,539)Fair value changes 406,194 (22,500) – – 383,694Transferred to profit or loss (183,012) – – – (183,012)Remeasurement losses on defined benefit plan – – – (492,009) (492,009)Income tax effect (66,955) – – 147,603 80,648Exchange differences – – (2,357) – (2,357)As of December 31, 2013 P=35,027 P=57,775 (P=6,020) (P=826,357) (P=739,575)

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For the Year Ended December 31, 2012 (As restated, see Note 2.4)

Cash flow hedgesAFS financial

assets

Exchangedifferences arisingfrom translations

of foreigninvestments

Remeasurementlosses on defined

benefit plan Total(In Thousand Pesos)

As of January 1, 2012 (P=153,070) P=36,301 (P=8,133) (P=279,453) (P=404,355)Fair value changes 32,760 43,974 – – 76,734Transferred to profit or loss 12,769 – – – 12,769Remeasurement losses on defined benefit plan – – – (289,283) (289,283)Income tax effect (13,659) – – 86,785 73,126Exchange differences – – 4,470 – 4,470As of December 31, 2012 (P=121,200) P=80,275 (P=3,663) (P=481,951) (P=526,539)

For the Year Ended December 31, 2011 (As restated, see Note 2.4)

Cash flow hedgesAFS financial

assets

Exchangedifferences arisingfrom translations

of foreigninvestments

Remeasurementlosses on defined

benefit plan Total(In Thousand Pesos)

As of January 1, 2011 (P=115,834) P=35,032 (P=7,508) P=– (P=88,310)Fair value changes (239,094) 1,269 – – (237,825)Transferred to profit or loss 185,900 – – – 185,900Remeasurement losses on defined benefit plan – – – (399,219) (399,219)Income tax effect 15,958 – – 119,766 135,724Exchange differences – – (625) – (625)As of December 31, 2011 (P=153,070) P=36,301 (P=8,133) (P=279,453) (P=404,355)

18. Employee Benefits

18.1 Stock Option PlansThe Globe Group has a share-based compensation plan called the Executive Stock Option Plan(ESOP). The number of shares allocated under the ESOP shall not exceed the aggregateequivalent of 6% of the authorized capital stock.

On October 1, 2009, the Globe Group granted additional stock options to key executives andsenior management personnel under the ESOP. The grant requires the grantees to pay anonrefundable option purchase price of P=1,000.00 until October 30, 2009, which is the closingdate for the acceptance of the offer. In order to avail of the privilege, the grantees must remainwith Globe Telecom or its affiliates from grant date up to the beginning of the exercise period ofthe corresponding shares.

The following are the stock option grants to key executives and senior management personnel ofthe Globe Group under the ESOP from 2003 to 2009:

Date of Grant

Number ofOptionsGranted Exercise Price Exercise Dates

Fair Valueof eachOption

Fair ValueMeasurement

April 4, 2003 680,200 P=547.00 per share 50% of options exercisable fromApril 4, 2005 to April 14, 2013;the remaining 50% exercisablefrom April 4, 2006 to April 14,2013

P=283.11 Black-Scholesoption pricingmodel

July 1, 2004 803,800 P=840.75 per share 50% of options exercisable fromJuly 1, 2006 to June 30, 2014;the remaining 50% from July 1,2007 to June 30, 2014

P=357.94 Black-Scholesoption pricingmodel

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Date of Grant

Number ofOptionsGranted Exercise Price Exercise Dates

Fair Valueof eachOption

Fair ValueMeasurement

March 24, 2006 749,500 P=854.75 per share 50% of the options becomeexercisable from March 24,2008 to March 23, 2016; theremaining 50% becomeexercisable fromMarch 24, 2009 to March 23,2016

P=292.12 Trinomial optionpricing model

May 17, 2007 604,000 P=1,270.50 per share 50% of the options becomeexercisable from May 17, 2009to May 16, 2017, the remaining50% become exercisable fromMay 17, 2010 to May 16, 2017


August 1, 2008 635,750 P=1,064.00 per share 50% of the options becomeexercisable from August 1,2010 to July 31, 2018, theremaining 50% becomeexercisable from August 1,2011 to July 31, 2018


October 1, 2009 298,950 P=993.75 per share 50% of the options becomeexercisable from October 1,2011 to September 30, 2019,the remaining 50% becomeexercisable from October 1,2012 to September 30, 2019


The exercise price is based on the average quoted market price for the last 20 trading dayspreceding the approval date of the stock option grant.

A summary of the Globe Group’s ESOP activity and related information follows:

2013 2012 2011

Numberof Shares

WeightedAverageExercise

PriceNumber

of Shares


PriceNumber

of Shares


Price(In Thousand Number of Shares Except Per Share Figures )

Outstanding, atbeginning of year 1,366 P=1,081.01 1,740 P=1,055.03 1,848 P=1,047.80

Exercised (771) 1,085.79 (359) 952.28 (51) 856.65Expired/forfeited (21) 729.82 (15) 1,145.88 (57) 997.06Outstanding, at

end of year 574 P=1,087.76 1,366 P=1,081.01 1,740 P=1,055.03

Exercisable, atend of year 574 P=1,087.76 1,366 P=1,081.01 1,661 P=1,057.94

The average share prices at dates of exercise of stock options as in 2013, 2012 and 2011 amountedto P=1,586.10, P=1,213.00 and P=1,005.55, respectively.

As of December 31, 2013 and 2012, the weighted average remaining contractual life of optionsoutstanding is 3.85 years and 4.68 years, respectively.

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The following assumptions were used to determine the fair value of the stock options at effectivegrant dates:

October 1,2009

August 1,2008

May 17,2007

March 24,2006

July 1,2004

April 4,2003

Share price P=995.00 P=1,130.00 P=1,340.00 P=930.00 P=835.00 P=580.00Exercise price 993.75 1,064.00 1,270.50 854.75 840.75 547.00Expected volatility 48.49% 31.73% 38.14% 29.51% 39.50% 34.64%Option life 10 years 10 years 10 years 10 years 10 years 10 yearsExpected dividends 6.43% 6.64% 4.93% 5.38% 4.31% 2.70%Risk-free interest rate 8.08% 9.62% 7.04% 10.30% 12.91% 11.46%

The expected volatility measured at the standard deviation of expected share price returns wasbased on analysis of share prices for the past 365 days. Cost of share-based payments for theyears ended December 31, 2013, 2012 and 2011 amounted to P=50.00 million, P=11.50 million andP=49.34 million, respectively (see Note 16.5).

18.2 Pension PlanThe Globe Group has a funded, noncontributory, defined benefit pension plan coveringsubstantially all of its regular employees. The benefits are based on years of service andcompensation on the last year of employment.

The Plan is managed and administered by a Board of Trustees (BOT) whose members areunanimously appointed by the Globe Group acting through its BOD. The BOT is authorized toappoint one or more fund managers to hold, invest and reinvest the assets of the Plan and executean Investment Agreement with the said fund managers. The Plan is held and invested by the fundmanagers, in accordance with the guidelines set by the BOT.

Under the existing regulatory framework, Republic Act 7641 requires a provision for retirementpay to qualified private sector employees in the absence of any retirement plan in the entity,provided however that the employee’s retirement benefits under any collective bargaining andother agreements shall not be less than those provided under the law. The law does not requireminimum funding of the plan.

The components of pension expense (included in staff costs under “General, selling andadministrative expenses”) in the consolidated statements of comprehensive income are as follows:

2013



(In Thousand Pesos)

Current service cost P=348,399 P=282,746 P=199,555

Actual return on plan assets P=107,268 P=197,785 P=140,792

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The accrued pension is as follows:

2013


(In Thousand Pesos)

Present value of benefit obligation P=4,262,206 P=3,437,028Fair value of plan assets (2,654,907) (2,593,117)Liabilities recognized in the consolidated statements

of financial position P=1,607,299 P=843,911

The following tables present the changes in the present value of defined benefit obligation and fairvalue of plan assets:

Present value of defined benefit obligation

2013


(In Thousand Pesos)

Balance at beginning of year P=3,437,028 P=2,722,289Current service cost 348,399 282,746Interest cost 184,708 165,676Benefits paid directly by the Group (957) –Benefits paid from plan assets (165,182) (116,063)Transfers in (out) – (20,217)Remeasurements in other comprehensive income: Actuarial changes arising from changes in

assumptions 271,077 313,924 Actuarial changes arising from experience

adjustment 186,916 88,673Past service cost 217 –Balance at end of year P=4,262,206 P=3,437,028

Fair value of plan assets

2013


(In Thousand Pesos)

Balance at beginning of year P=2,593,117 P=2,376,680Benefits paid (165,182) (116,063)Interest income on plan assets 141,597 146,962Contributions 119,392 92,441Return on plan assets (excluding amount included in

net interest) (34,017) 113,314Transfers in (out) – (20,217)Balance at end of year P=2,654,907 P=2,593,117

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The recommended contribution for the Globe Group retirement fund for the year 2014 amountedto P=378.73 million. This amount is based on the Globe Group’s actuarial valuation report as ofDecember 31, 2013.

The fair value of plan assets by each class as of December 31, 2013 and 2012 follows:


Cash and cash equivalents P=121,330 P=44,573Investments in fixed income securities: Government 696,382 183,993 Corporate 298,750 1,100,846 Loans 22,801 – Others 9,033 62,052Investments in equity securities 1,506,611 1,201,653

P=2,654,907 P=2,593,117

The assumptions used to determine pension benefits of Globe Group are as follows:

2013 2012Discount rate 5.27% 6.25%Salary rate increase 5.13% 4.50%

The assumptions regarding future mortality rates are based on the 1994 Group Annuity MortalityTable developed by the Society of Actuaries, which provides separate rate for males and females.

In 2013 and 2012, the Globe Group applied a single weighted average discount rate that reflectsthe estimated timing and amount of benefit payments.

The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation as of December 31, 2013, assuming if allother assumptions were held constant:

Increase (decrease)Impact on defined benefit

obligation Increase (decrease)(In Thousand Pesos)

Discount rates +0.50% (P=180,415)-0.50% 400,155

Future salary increases +1% 837,919-1% (348,846)

Mortality +10% (266)-10% 620

The objective of the plan’s portfolio is capital preservation by earning higher than regular depositrates over a long period given a small degree of risk on principal and interest. Asset purchases andsales are determined by the plan’s investment managers, who have been given discretionaryauthority to manage the distribution of assets to achieve the plan’s investment objectives. Thecompliance with target asset allocations and composition of the investment portfolio is monitoredby the BOT on a regular basis.

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The defined benefit retirement plan is funded by the participating companies, namely Globe,Innove and G-Xchange. The plan contributions are based on the actuarial present value ofaccumulated plan benefits and fair value of plan assets are determined using an independentactuarial valuation.

The average duration of the defined benefit obligation as of December 31, 2013 is 22.21 years.

19. Interest Income

Interest income is earned from the following sources:


Loans receivable 11, 16.3 BTI P=475,822 P=138,385 P=– GGRP 76,257 76,273 76,056 BHI 25.5 13,721 24,818 24,750 Others 24,431 6,384 –Short-term placements 30 79,813 316,894 188,557Cash in banks 30 18,205 17,097 8,025

P=688,249 P=579,851 P=297,388

20. Other Income



Lease income 25.4, 25.1.1 P=172,499 P=172,499 P=172,499Foreign exchange gain - net 22, 28.2.1.2 – 318,334 –Gain on derivative instruments 28 – – 25,495Others 302,747 225,538 376,774

P=475,246 P=716,371 P=574,768

The peso to US dollar exchange rates amounted to P=44.398, P=41.078 and P=43.919 as ofDecember 31, 2013, 2012 and 2011, respectively.

The Globe Group’s net foreign currency-denominated liabilities amounted to USD363.75 million,USD161.22 million and USD188.97 million as of December 31, 2013, 2012 and 2011,respectively (see Note 28.2.1.2).

These combinations of net liability movements and peso rate depreciation/appreciation resulted inforeign exchange loss in 2013 and 2011 (see Note 22).

The “Others” account includes insurance claims and other items that are individually immaterial.

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21. General, Selling and Administrative Expenses


Notes 2013



(In Thousand Pesos)

Staff costs 16.5, 18 P=7,473,499 P=6,426,592 P=5,918,974Selling, advertising and promotions 7,014,729 6,440,554 4,756,425Professional and other contracted

services 16 5,966,481 5,193,217 4,214,284Utilities, supplies and other

administrative expenses 5 4,399,110 4,260,773 3,804,762Repairs and maintenance 16 3,656,671 3,672,038 3,522,778Rent 16, 25 3,534,975 3,153,505 2,830,382Taxes and licenses 2,055,909 1,595,842 1,380,270Insurance and security services 1,383,294 1,330,648 1,381,633Courier, delivery and miscellaneous

expenses 1,320,112 1,055,375 1,116,181Others 514,059 473,867 487,917

P=37,318,839 P=33,602,411 P=29,413,606

The “Others” account includes various other items that are individually immaterial.

22. Financing Costs


Notes 2013



(In Thousand Pesos)

Interest expense - net* 7, 14 P=2,091,915 P=2,104,792 P=1,989,451Foreign exchange loss - net 20, 28.2.1.2 486,308 – 308,650Swap and other financing costs - net 245,187 183,007 211,404Loss on derivative instruments 28 88,375 74,810 –

P=2,911,785 P=2,362,609 P=2,509,505*This account is net of the amount capitalized borrowing costs (see Note 7).

In 2012 and 2011, net foreign exchange gain amounting to P=318.33 million and gain on derivativeinstruments amounting to P=25.50 million, respectively, was presented as part of“Other income - net” account in the consolidated statements of comprehensive income(see Note 20).

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Interest expense - net is incurred on the following:

Notes 2013



(In Thousand Pesos)

Long-term debt 14 P=1,660,094 P=1,657,862 P=1,762,501Accretion expense 15, 25.4 193,815 168,707 167,445Amortization of debt issuance cost 14 131,967 103,497 116,618Short term notes payable 14 57,954 82,047 3,823Net interest cost (benefit) on defined

benefit obligation – 18,714 (70,209)Others 48,085 73,965 9,273

P=2,091,915 P=2,104,792 P=1,989,451

23. Impairment Losses and Others



Impairment loss on: Receivables 4, 6, 28.2.2 P=2,046,523 P=1,377,317 P=1,599,967 Property and equipment and

intangible assets 26,312 259,262 128,614Provisions for (reversal of): Inventory obsolescence and

market decline 5 321,460 170,678 237,918 Other claims and assessments 13 88,333 56,327 (47,916)

P=2,482,628 P=1,863,584 P=1,918,583

24. Income Tax

The significant components of the deferred income tax assets and liabilities of the Globe Grouprepresent the deferred income tax effects of the following:

2013


(In Thousand Pesos)

Deferred income tax assets on: Allowance for impairment losses on receivables P=1,267,463 P=1,081,543 Unearned revenues already subjected to

income tax 801,636 730,079 Accrued pension 643,823 428,060 ARO 476,901 440,857 Accumulated impairment losses on property

and equipment 185,941 183,072 Inventory obsolescence and market decline 146,965 103,196

(Forward)

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2013


(In Thousand Pesos)

Cost of share-based payments P=136,424 P=44,236 Accrued rent expense under PAS 17 119,087 109,237 Accrued vacation leave 116,561 103,110 Unrealized foreign exchange losses 109,666 1,108 Provisions for claims and assessments 52,696 68,496 Allowance for doubtful accounts for long-

outstanding net advances 40,497 12,654 Unrealized loss on derivative transactions 26,414 72,070 NOLCO (see Note 3.2.8) – 15,005 MCIT (see Note 3.2.8) – 2,176 Others 29,390 25,672

4,153,464 3,420,571Deferred income tax liabilities on: Undepreciated capitalized borrowing costs

already claimed as deduction for tax reporting 1,432,724 1,553,478 Excess of accumulated depreciation and

amortization of Globe Telecom equipment fortax reporting(a) over financial reporting(b) 815,677 2,946,566

Unrealized foreign exchange gain (19,047) 144,476 Unamortized discount on noninterest bearing

liability 850 7,910 Interest accretion 6,382 6,382 Customer contracts of acquired company – 858Others – 15,390

2,236,586 4,675,060Net deferred income tax assets (liabilities) P=1,916,878 (P=1,254,489)(a) Sum-of-the-years digit method(b) Straight-line method

Net deferred tax assets and liabilities presented in the consolidated statements of financial positionon a net basis by entity are as follows:

2013


(In Thousand Pesos)

Net deferred tax assets* P=1,916,878 P=1,016,856Net deferred tax liabilities (Globe Telecom) – 2,271,345*2013 consist of Globe, Innove, GXI and EGG Group*2012 consist of Innove, GXI and EGG Group.

GXI’s NOLCO amounting to P=34.87 million expired in 2011. GTI’s NOLCO amounting toP=0.05 million expired in 2012.

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The reconciliation of the provision for income tax at statutory tax rate and the actual current anddeferred provision for income tax follows:

2013



(In Thousand Pesos)

Provision at statutory income tax rate P=2,059,432 P=2,925,464 P=4,217,441Add (deduct) tax effects of: Deferred tax on unexercised stock

options and basis differences ondeductible and reported stockcompensation expense (176,949) (54,524) 5,324

Equity in net losses of joint ventures 23,988 25,075 8,203 Income subjected to lower tax rates (16,861) (823,505) (517,986) Others 14,918 833,783 540,602Actual provision for income tax P=1,904,528 P=2,906,293 P=4,253,584

The current provision for income tax includes the following:


RCIT or MCIT whichever is higher P=4,949,057 P=4,291,409 P=5,011,849Final tax 46,359 64,290 37,630

P=4,995,416 P=4,355,699 P=5,049,479

The corporate tax rate is 30% in 2013, 2012 and 2011.

Globe Telecom and Innove are entitled to certain tax and nontax incentives and have availed ofincentives for tax and duty-free importation of capital equipment for their services under theirrespective franchises.

25. Agreements and Commitments

25.1 Lease Commitments

25.1.1 Operating lease commitments

(a) Globe Group as lessee

Globe Group leases certain premises for some of its telecommunications facilities andequipment and for most of its business centers and network sites. The operating leaseagreements are for periods ranging from one to 10 years from the date of the contracts andare renewable under certain terms and conditions. The agreements generally requirecertain amounts of deposit and advance rentals, which are shown as part of the“Prepayment and other current assets” and “Other noncurrent assets” accounts in theconsolidated statements of financial position (see Notes 6 and 11). The Globe Group alsohas short term renewable leases on transmission cables and equipment. The GlobeGroup’s rentals incurred on these various leases (included in “General, selling andadministrative expenses” account in the consolidated statements of comprehensive

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income) amounted to P=3,534.98 million, P=3,153.51 million and P=2,830.38 million for theyears ended December 31, 2013, 2012 and 2011, respectively (see Note 21).

The future minimum lease payments under these operating leases are as follows:


Not later than one year P=798,706 P=786,356After one year but not more than five years 4,374,751 4,799,558After five years 2,309,172 3,337,817

P=7,482,629 P=8,923,731

(b) Globe Group as lessor

Globe Telecom have certain lease agreements on equipment and office spaces. Theoperating lease agreements are for periods ranging from one (1) to fourteen (14) yearsfrom the date of contracts. These include Globe Telecom’s lease agreement withC2C Pte. Ltd. (C2C) (see Note 25.4).

Total lease income amounted to P=172.50 million for the years ended December 31, 2013,2012 and 2011, respectively (included in “Other income” account in the consolidatedstatements of comprehensive income).

The future minimum lease receivables under these operating leases are as follows:


Within one year P=146,694 P=146,615After one year but not more than five years 183,367 329,884

P=330,061 P=476,499

25.1.2 Finance lease commitments

Globe Group as lesseeThe Globe Group engaged the services of various suppliers for the upgrade of its wireless,data and telephony network. In partnership with equipment and service provider and theappointment of a project and program manager, Globe Group will undertake a transformationupgrade and overhaul of its business support systems within the USD790.00 millionmodernization project.

Part of the managed service engagement with the service provider is a lease for hardwareinfrastructure and information equipment valued over the seven-year term of the lease atP=893.28 million. Total lease payments as of December 31, 2013 and 2012 amounted toP=168.26 million and P=112.00 million, respectively. The managed service engagement hasterms of renewal and purchase options, among others.

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Future minimum lease payments under finance leases with the present value of the netminimum lease payments are as follows:

2013 2012MinimumPayments

Present Valueof Payments

MinimumPayments

Present Valueof Payments

(In Thousand Pesos)Within one year P=183,726 P=168,707 P=112,171 P=99,941After one year but not more than five years 510,561 491,311 448,684 417,878More than five years 30,938 30,483 224,342 220,267Total minimum lease payments 725,225 690,501 785,197 738,086Less amounts representing finance charges (34,724) – (47,111) –Present value of minimum lease payments P=690,501 P=690,501 P=738,086 P=738,086

In addition, total payments to service provider based on the seven-year agreement for themaintenance of servers, which includes application development and maintenance, servicedesign, managed network services, office automation or end-user computing, service deskservices and business supports systems amounted to P=95.70 million and P=49.00 million as ofDecember 31, 2013 and 2012, respectively.

25.2 Agreements and Commitments with Other CarriersGlobe Telecom and Innove have existing international telecommunications service agreementswith various foreign administrations and interconnection agreements with localtelecommunications companies for their various services. Globe also has international roamingagreements with other foreign operators, which allow its subscribers access to foreign networks.The agreements provide for sharing of toll revenues derived from the mutual use oftelecommunication networks.

25.3 Arrangements and Commitments with SuppliersGlobe Telecom and Innove have entered into agreements with various suppliers for thedevelopment or construction, delivery and installation of property and equipment. Under theterms of these agreements, advance payments are made to suppliers and delivery, installation,development or construction commences only when purchase orders are served. While thedevelopment or construction is in progress, project costs are accrued based on the billingsreceived. Billings are based on the progress of the development or construction and advancepayments are being applied proportionately to the milestone billings. When development orconstruction and installation are completed and the property and equipment is ready for service,the balance of the value of the related purchase orders is accrued.

The consolidated accrued project costs as of December 31, 2013 and 2012 included in the“Accounts payable and accrued expenses” account in the consolidated statements of financialposition amounted to P=16,557.49 million and P=11,400.19 million, respectively (see Note 12). Asof December 31, 2013 and 2012, the consolidated expected future billings on the outstandingpurchase orders issued amounted to P=38,320.44 million and P=35,279.00 million, respectively.

The settlement of these liabilities is dependent on the payment terms and project milestonesagreed with the suppliers and contractors. As of December 31, 2013 and 2012, the unappliedadvances made to suppliers and contractors relating to purchase orders issued amounted toP=5,223.60 million and P=8,815.53 million, respectively (see Note 6).

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25.4 Agreements with C2C/PacnetIn 2001, Globe Telecom signed a cable equipment supply agreement with C2C as the supplier. InMarch 2002, Globe Telecom as lessor entered into an equipment lease agreement for the saidequipment with GB21 Hong Kong Limited (GB21).

Subsequently, GB21, in consideration of C2C’s agreement to assume all payment obligationspursuant to the lease agreement, assigned all its rights, obligations and interest in the equipmentlease agreement to C2C. As a result of the said assignment of payables by GB21 to C2C, GlobeTelecom’s liability arising from the cable equipment supply agreement with C2C was effectivelyconverted into a noninterest- bearing long-term obligation accounted for at net present value underPAS 39 starting 2005.

In January 2003, Globe Telecom received advance lease payments from C2C for its use of aportion of Globe Telecom’s cable landing station facilities. Based on the amortization schedule,Globe Telecom recognized lease income amounting to P=12.26 million for the years endedDecember 31, 2013, 2012 and 2011.

On November 17, 2009, Globe Telecom and Pacnet Cable Ltd. (Pacnet), formerly C2C, signed amemorandum of agreement (MOA) to terminate and unwind their Landing Party Agreement datedAugust 15, 2000 (LPA). The MOA further requires Globe Telecom, being duly licensed andauthorized by the NTC to land the C2C Cable Network in the Philippines and operate the C2CCable Landing Station (CLS) in Nasugbu, Batangas, Philippines, to transfer to Pacnet’s designatedqualified partner, the license of the C2C CLS, the CLS, a portion of the property on which theCLS is situated, certain equipment and associated facilities thereof.

In return, Pacnet will compensate Globe Telecom in cash and by way of C2C cable capacitiesdeliverable upon completion of certain closing conditions. The MOA also provided for novationof abovementioned equipment supply and lease agreements and reciprocal options for GlobeTelecom to purchase future capacities from Pacnet and Pacnet to purchase backhaul and ductsfrom Globe Telecom at agreed prices.

In the second quarter of 2010, the specific equipment, portion of the property and facilities, andthe liabilities associated with the transfer were identified, classified and shown separately in theconsolidated statement of financial position as “Assets classified as held for sale” and “Liabilitiesdirectly associated with the assets classified as held for sale”.

As of December 31, 2012, assets classified as held for sale and the liabilities directly associatedwith the assets classified as held for sale amounted to P=778.32 million and P=459.76 million,respectively.

In 2013, the Globe Group ceased to classify these assets as held for sale due to the substantialdelay in the completion of the transaction. The Globe Group recognized a catch up depreciationamounting to P=397.00 million for the year ended December 31, 2013.

25.5 Agreement with BHIOn August 11, 2009, Globe Telecom signed a credit facility agreement with BHI amounting toP=750.00 million. As of December 31, 2013 and 2012 the total drawdown of BHI amounted toP=295.00 million. The loan is payable in one full payment, five years from the date of initialdrawdown, with a prepayment option in whole or in part on an interest payment date. Interest is atthe rate of 8.275%, payable semi-annually in arrears and the loan is secured by a pledge andchattel mortgage agreement. Interest income amounted to P=13.72 million, P=24.82 million andP=24.75 million in 2013, 2012 and 2011, respectively (see Note 19). As of December 31, 2013 and

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2012, the outstanding balance of loan receivable from BHI amounted to P=158.62 million andP=295.00 million, respectively (see Notes 6 and 11).

25.6 Agreement with STIIn 2009, STI agreed to sell to Globe Telecom its own capacity in a certain cable system. In 2009also, Globe Telecom agreed to sell to STI capacities that it owns in a certain cable system (seeNote 16.1). In March 2011, the final agreements were executed between Globe Telecom and STIwhereby Globe Telecom conveyed and transferred ownership of certain IRU of certaininternational cables systems in exchange for IRUs of certain cables systems of STI. The assetsreceived were booked at its fair value amounting to P=120.19 million.

25.7 Construction Maintenance Agreement for South-East Asia Japan Cable System (SJC)In April 2011, the global consortium of telecommunication companies formed to build and operatethe South-East Asia Japan Cable (SJC) system officially started the construction of the project thatwill link Brunei, China Mainland, Hong Kong, Philippines, Japan, and Singapore with options toextend to Thailand. The SJC consortium is composed of Globe Telecom and nine otherinternational carriers. Globe Telecom’s estimated investment for this project amounts toUSD63.91 million and USD63.60 million and total expenditures incurred was at 95.43% and74.00% as of December 31, 2013 and 2012, respectively (see Note 7).

25.8 Agreement with BTIOn July 26, 2012, Globe Telecom and BTI executed an agreement to jointly use BTI frequenciesfor their respective telecommunications services. Globe Telecom agreed to pay BTI a capacityprovision fee per annum and grant access to each other’s network, resources and facilities toenable joint and efficient use of the frequency.

On October 1, 2012, the NTC provisionally approved the joint use by Globe Telecom and BTI thefrequencies assigned to BTI. The joint use agreement will allow Globe Telecom to address theincreasing demand for voice, SMS and mobile data services; and for BTI to be able to offermobile telecommunications services nationwide. The NTC imposed conditions to both parties,which includes the continuous payment of annual spectrum usage fee (SUF) imposed by the NTCto both parties, and where Globe Telecom shall improve and maintain the required quality servicein order to continue the joint use of the assigned frequencies.

25.9 Network Sharing Arrangement with ABS-CBN Convergence Inc.On May 27, 2013, Globe Telecom, Innove and ABS-CBN Convergence Inc. (ABS-C) entered intoa network sharing arrangement in order to provide capacity and coverage for new mobiletelephony, data and value-added services to be offered by ABS-C nationwide to its subscribersusing shared network and interconnect assets of the parties.

This arrangement will enable Globe Telecom, Innove and ABS-C to improve public service byenhancing utility, capacity, inter-operability and quality of mobile and local exchange telephonyand data services to the public and allow ABS-C to modernize its existing service and expand to aretail base on top of its existing subscriber base.

On May 31, 2013, NTC approved the network sharing agreement and co-use of the number blocksassigned to Globe Telecom.

25.10 Shareholders’ and dealership agreement with TaodharmaIn March 2013, Globe Telecom entered into a Shareholders Agreement among four other entitiesto incorporate Taodharma.

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Globe Telecom subscribed for the 25% preferred shares of Taodharma amounting toP=55.00 million which has been fully paid up as of August 2013 (see Note 11). Taodharma shallcarry on the business of establishing, operating and maintaining retail stores in strategic locationswithin the Philippines that will sell telecommunications or internet-related services, and devices,gadgets, accessories or embellishments in connection and in accordance with the terms andconditions of the Dealer Agreement executed among all of the entities.

In March 2013, Globe Telecom also entered into an exclusive dealership arrangement withTaodharma that included provisions to build and open retail outlet stores scattered across in citiesand other major high-traffic locations nationwide.

As of December 31, 2013, Globe Group has recognized P=67.55 million representing share on costsclassified under “Intangible assets and goodwill - net” in the consolidated statements of financialposition (see Note 9).

26. Contingencies

On July 23, 2009, the NTC issued NTC Memorandum Circular (MC) No. 05-07-2009 (Guidelineson Unit of Billing of Mobile Voice Service). The MC provides that the maximum unit of billingfor the CMTS whether postpaid or prepaid shall be six (6) seconds per pulse. The rate for the firsttwo (2) pulses, or equivalent if lower period per pulse is used, may be higher than the succeedingpulses to recover the cost of the call set-up. Subscribers may still opt to be billed on a one (1)minute per pulse basis or to subscribe to unlimited service offerings or any service offerings ifthey actively and knowingly enroll in the scheme.

On December 28, 2010, the Court of Appeals (CA) rendered its decision declaring null and voidand reversing the decisions of the NTC in the rates applications cases for having been issued inviolation of Globe and the other carrier’s constitutional and statutory right to due process.However, while the decision is in Globe’s favor, there is a provision in the decision that NTC didnot violate the right of petitioners to due process when it declared via circular that the per pulsebilling scheme shall be the default.

Last January 21, 2011, Globe and two other telecom carriers, filed their respective Motions forPartial Reconsideration (MR) on the pronouncement that “the Per Pulse Billing Scheme shall bethe default”. The MR is pending resolution as of February 10, 2014.

The Globe Group is contingently liable for various claims arising in the ordinary conduct ofbusiness and certain tax assessments which are either pending decision by the courts or are beingcontested, the outcome of which are not presently determinable. In the opinion of managementand legal counsel, the possibility of outflow of economic resources to settle the contingent liabilityis remote.

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27. Earnings Per Share

The Globe Group’s earnings per share amounts were computed as follows:

2013

2012(As restated,

see Note 2.4)

2011(As restated,

see Note 2.4)(In Thousand Pesos and Number of Shares, Except

Per Share Figures)

Net income attributable to common shareholdersfor basic earnings per share (a) P=4,936,407 P=6,812,109 P=9,769,256

Add dividends on preferred shares 23,838 33,145 35,295Net income attributable to shareholders for

diluted earnings per share (b) 4,960,245 6,845,254 9,804,551Common shares outstanding, beginning 132,406 132,353 132,348Add exercise of stock options 109 41 1Weighted average number of shares for basic

earnings per share (c) 132,515 132,394 132,349Dilutive shares arising from: Stock options 535 136 40 Convertible preferred shares 233 699 882Adjusted weighted average number of common

stock for diluted earnings per share (d) 133,283 133,229 133,271Basic earnings per share (a/c) P=37.25 P=51.45 P=73.81

Diluted earnings per share (b/d) P=37.22 P=51.38 P=73.57

28. Capital and Risk Management and Financial Instruments

28.1 GeneralThe Globe Group adopts an expanded corporate governance approach in managing its businessrisks. An Enterprise Risk Management Policy was developed to systematically view the risks andto provide a better understanding of the different risks that could threaten the achievement of theGlobe Group’s mission, vision, strategies, and goals, and to provide emphasis on howmanagement and employees play a vital role in achieving the Globe Group’s mission oftransforming and enriching lives through communications.

The policies are not intended to eliminate risk but to manage it in such a way that opportunities tocreate value for the stakeholders are achieved. Globe Group risk management takes place in thecontext of the normal business processes such as strategic planning, business planning, operationaland support processes.

The application of these policies is the responsibility of the BOD through the Chief ExecutiveOfficer. The Chief Financial Officer and concurrent Chief Risk Officer champions and overseesthe entire risk management function. Risk owners have been identified for each risk and they areresponsible for coordinating and continuously improving risk strategies, processes and measureson an enterprise-wide basis in accordance with established business objectives.

The risks are managed through the delegation of management and financial authority andindividual accountability as documented in employment contracts, consultancy contracts, letters ofauthority, letters of appointment, performance planning and evaluation forms, key result areas,terms of reference and other policies that provide guidelines for managing specific risks arisingfrom the Globe Group’s business operations and environment.

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The Globe Group continues to monitor and manage its financial risk exposures according to itsBOD approved policies.

The succeeding discussion focuses on Globe Group’s capital and financial risk management.

28.2 Capital and Financial Risk Management Objectives and PoliciesCapital includes convertible preference shares and equity attributable to equity holders of theparent.

The primary objective of the Globe Group’s capital management is to ensure that it maintains astrong credit rating and healthy capital ratios in order to support its business and maximizeshareholder value.

The Globe Group monitors its use of capital using leverage ratios, such as debt to totalcapitalization and makes adjustments to it in light of changes in economic conditions and itsfinancial position.

The Globe Group is not subject to regulatory imposed capital requirements. The ratio of debt tototal capitalization for the years ended December 31, 2013 and 2012 was at 62% and 57%,respectively.

The main purpose of the Globe Group’s financial risk management is to fund its operations andcapital expenditures. The main risks arising from the use of financial instruments are market risk,credit risk and liquidity risk. The Globe Group also enters into derivative transactions, thepurpose of which is to manage the currency and interest rate risk arising from its financialinstruments.

Globe Telecom’s BOD reviews and approves the policies for managing each of these risks. TheGlobe Group monitors market price risk arising from all financial instruments and regularlyreports 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 Market RiskMarket risk is the risk that the fair value of future cash flows of a financial instrument willfluctuate because of changes in market prices. Globe Group is mainly exposed to two types ofmarket risk: interest rate risk and currency risk.

Financial instruments affected by market risk include loans and borrowings, AFS investments,and derivative financial instruments.

The sensitivity analyses in the following sections relate to the position as atDecember 31, 2013 and 2012. The analyses exclude the impact of movements in marketvariables on the carrying value of pension, provisions and on the non-financial assets andliabilities of foreign operations.

The following assumptions have been made in calculating the sensitivity analyses:

· The statement of financial position sensitivity relates to derivatives.· The sensitivity of the relevant income statement item is the effect of the assumed changes

in respective market risks. This is based on the financial assets and financial liabilitiesheld as at December 31, 2013 and 2012 including the effect of hedge accounting.

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· The sensitivity of equity is calculated by considering the effect of any associated cashflow hedges for the effects of the assumed changes in the underlying.

28.2.1.1 Interest Rate RiskThe Globe Group’s exposure to market risk from changes in interest rates relates primarilyto the Globe Group’s long-term debt obligations. Please refer to table presented under28.2.3 Liquidity Risk.

Globe Group’s policy is to manage its interest cost using a mix of fixed and variable ratedebt, targeting a ratio of between 31-62% fixed rate USD debt to total USD debt, andbetween 44-88% fixed rate PHP debt to total PHP debt. To manage this mix in a cost-efficient manner, Globe Group enters into interest rate swaps, in which Globe Groupagrees to exchange, at specified intervals, the difference between fixed and variableinterest amounts calculated by reference to an agreed-upon notional principal amount.

After taking into account the effect of currency and interest rate swaps, 46% and 63%,31% and 59% of the Globe Group’s USD and PHP borrowings as of December 31, 2013and 2012, respectively, are at a fixed rate of interest.

The following tables demonstrate the sensitivity of income before tax to a reasonablypossible change in interest rates after the impact of hedge accounting, with all othervariables held constant.

2013

Increase/decreasein basis points

Effect on incomebefore income tax

Increase (decrease)Effect on equity

Increase (decrease)(In Thousand Pesos)

USD +35bps (P=22,496) (P=58)-35bps 22,496 58

PHP +100bps (209,419) 1,648-100bps 209,032 (2,100)

2012

Increase/decreasein basis points

Effect on incomebefore income tax



USD +35bps (P=4,462) P=4,624-35bps 4,457 (3,198)

PHP +100bps (71,844) 8,244-100bps 66,850 (7,761)

28.2.1.2 Foreign Exchange RiskThe Globe Group’s foreign exchange risk results primarily from movements of the PHPagainst the USD with respect to USD-denominated financial assets, USD-denominatedfinancial liabilities and certain USD-denominated revenues. Majority of revenues aregenerated in PHP, while substantially all of capital expenditures are in USD. In addition,24% and 13% of debt as of December 31, 2013 and 2012, respectively, are denominatedin USD before taking into account any swap and hedges.

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Information on the Globe Group’s foreign currency-denominated monetary assets andliabilities and their PHP equivalents are as follows:

2013 2012US

DollarPeso

EquivalentUS

DollarPeso

Equivalent(In Thousands)

AssetsCash and cash equivalents $25,572 P=1,135,339 $41,508 P=1,705,082Receivables 68,178 3,026,975 73,127 3,003,898Long-term notes receivable 97,578 4,332,248 100,302 4,120,226

191,328 8,494,562 214,937 8,829,206

LiabilitiesAccounts payable and accrued expenses 174,181 7,733,269 182,505 7,496,940Short-term notes payable 50,000 2,219,900 50,000 2,053,900Long-term debt 325,000 14,429,350 143,648 5,900,752Unearned revenues 194 8,611 – –

549,375 24,391,130 376,153 15,451,592Net foreign currency-denominated

liabilities $358,047 P=15,896,568 $161,216 P=6,622,386*This table excludes derivative transactions disclosed in Note 28.3

The following tables demonstrate the sensitivity to a reasonably possible change in thePHP to USD exchange rate, with all other variables held constant, of the Globe Group’sincome before tax (due to changes in the fair value of financial assets and liabilities).

2013Increase/decrease

in Peso toUS Dollar exchange rate

Effect on income beforeincome tax



+.40 (P=143,219) P=52-.40 143,219 (52)

2012Increase/decrease

in Peso toUS Dollar exchange rate

Effect on income beforeincome tax



+.40 (P=64,493) P=5-.40 64,493 (5)

The movement on the effect on income before income tax is a result of a change in the fairvalue of derivative financial instruments not designated in a hedging relationship andmonetary assets and liabilities denominated in US dollars, where the functional currencyof the Globe Group is Philippine Peso. Although the derivatives have not been designatedin a hedge relationship, they act as a commercial hedge and will offset the underlyingtransactions when they occur.

The movement in equity arises from changes in the fair values of derivative financialinstruments designated as cash flow hedges.

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In addition, the consolidated expected future payments on foreign currency-denominatedpurchase orders related to capital projects amounted to USD666.22 million andUSD537.49 million as of December 31, 2013 and 2012, respectively (see Note 25.3). Thesettlement of these liabilities is dependent on the achievement of project milestones andpayment terms agreed with the suppliers and contractors. Foreign exchange exposureassuming a +/-40 centavos in 2013 and 2012 movement in PHP to USD rate oncommitments amounted to P=266.49 million and P=215.00 million gain or loss, respectively.

The Globe Group’s foreign exchange risk management policy is to maintain a hedgedfinancial position, after taking into account expected USD flows from operations andfinancing transactions. Globe Telecom enters into short-term foreign currency forwardsand long-term foreign currency swap contracts in order to achieve this target.

28.2.2 Credit RiskApplications for postpaid service are subjected to standard credit evaluation and verificationprocedures. The Credit and Billing Management of the Globe Group continuously reviewscredit policies and processes and implements various credit actions, depending on assessedrisks, to minimize credit exposure. Receivable balances of postpaid subscribers are beingmonitored on a regular basis and appropriate credit treatments are applied at various stages ofdelinquency. Likewise, net receivable balances from carriers of traffic are also beingmonitored and subjected to appropriate actions to manage credit risk. The maximum creditexposure relates to receivables net of any allowances provided.

With respect to credit risk arising from other financial assets of the Globe Group, whichcomprise cash and cash equivalents, short-term investments, AFS financial investments andcertain derivative instruments, the Globe Group’s exposure to credit risk arises from thedefault of the counterparty, with a maximum exposure equal to the carrying amount of theseinstruments. The Globe Group’s investments comprise short-term bank deposits andgovernment securities. Credit risk from these investments is managed on a Globe Groupbasis. For its investments with banks, the Globe Group has a counterparty risk managementpolicy which allocates investment limits based on counterparty credit rating and credit riskprofile.

The Globe Group has not executed any credit guarantees in favor of other parties. There isalso no concentration of credit risk within the Group.

The Globe Group makes a quarterly assessment of the credit standing of its investmentcounterparties, and allocates investment limits based on size, liquidity, profitability, and assetquality. For investments in government securities, these are denominated in local currencyand are considered to be relatively risk-free. The usage of limits is regularly monitored. Forits derivative counterparties, the Globe Group deals only with counterparty banks withinvestment grade ratings and large local banks. Credit ratings of derivative counterparties arereviewed quarterly.

Following are the Globe Group exposures with its investment counterparties for cash and cashequivalents as of December 31:

2013 2012Local bank deposits 30% 36%Onshore foreign bank 70% 36%Special deposit account – 20%Offshore bank deposit – 8%

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The Globe Group has not executed any credit guarantees in favor of other parties. There isalso minimal concentration of credit risk within the Globe Group. Credit exposures fromsubscribers and carrier partners continue to be managed closely for possible deterioration.When necessary, credit management measures are proactively implemented and identifiedcollection risks are being provided for accordingly. Outstanding credit exposures fromfinancial instruments are monitored daily and allowable exposures are reviewed quarterly.

The tables below show the aging analysis of the Globe Group’s receivables as ofDecember 31.

2013Neither Past Past Due But Not Impaired Impaired

Due Nor Less than 31 to 60 61 to 90 More than FinancialImpaired 30 days days Days 90 days Assets Total

(In Thousand Pesos)

Wireless receivables: Consumer P=421,441 P=830,032 P=540,192 P=297,678 P=3,313,742 P=1,501,094 P=6,904,179 Key corporate accounts 5,865 54,851 121,562 133,771 1,790,681 170,412 2,277,142Other corporations and Small

and Medium Enterprises(SME) 8,276 139,846 139,840 89,979 685,456 344,817 1,408,214

435,582 1,024,729 801,594 521,428 5,789,879 2,016,323 10,589,535Wireline receivables: Consumer 269,178 239,189 155,270 65,571 81,820 1,459,396 2,270,424 Key corporate accounts 131,074 179,856 432,353 230,771 1,083,291 314,513 2,371,858 Other corporations and

SME 48,501 51,385 47,539 19,076 34,055 143,508 344,064448,753 470,430 635,162 315,418 1,199,166 1,917,417 4,986,346

Other trade receivables 22 40,156 – – – – 40,178Traffic receivables: Foreign 1,189,372 – – – – 161,362 1,350,734 Local 122,033 – – – – 31,074 153,107

1,311,405 – – – – 192,436 1,503,841Other receivables 2,256,332 – – – – 14,736 2,271,068Total P=4,452,094 P=1,535,315 P=1,436,756 P=836,846 P=6,989,045 P=4,140,912 P=19,390,968

2012Neither Past Past Due But Not Impaired Impaired

Due Nor Less than 31 to 60 61 to 90 More than FinancialImpaired 30 days days Days 90 days Assets Total

(In Thousand Pesos)

Wireless receivables: Consumer P=1,074,174 P=1,036,145 P=485,308 P=277,761 P=646,642 P=1,102,113 P=4,622,143 Key corporate accounts 1,278 215,499 216,293 185,195 407,679 138,754 1,164,698Other corporations and Small

and Medium Enterprises(SME) 189,558 202,800 107,798 59,396 377,067 311,587 1,248,206

1,265,010 1,454,444 809,399 522,352 1,431,388 1,552,454 7,035,047Wireline receivables: Consumer 248,568 244,694 134,382 66,115 71,340 1,492,204 2,257,303 Key corporate accounts 82,666 179,561 321,359 227,458 797,021 265,827 1,873,892 Other corporations and

SME 56,449 42,032 31,786 16,209 16,190 151,087 313,753387,683 466,287 487,527 309,782 884,551 1,909,118 4,444,948

Other trade receivables – 28,310 – – – – 28,310Traffic receivables: Foreign 2,107,169 – – – – 164,302 2,271,471 Local 296,453 – – – – 43,434 339,887

2,403,622 – – – – 207,736 2,611,358Other receivables 1,511,217 – – – – 12,629 1,523,846Total P=5,567,532 P=1,949,041 P=1,296,926 P=832,134 P=2,315,939 P=3,681,937 P=15,643,509

Total allowance for impairment losses amounted to P=4,190.05 million and P=3,538.07 millionincludes allowance for impairment losses arising from specific and collective assessmentamounted to P=986.10 million and P=341.73 million as of December 31, 2013 and 2012,respectively (see Note 4).

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The tables below provide information regarding the credit risk exposure of the Globe Groupby classifying assets according to the Globe Group’s credit ratings of receivables as ofDecember 31. The Globe Group’s credit rating is based on individual borrower characteristicsand their relationship to credit event experiences.

2013Neither past-due nor impaired

High QualityMedium

Quality Low Quality Total(In Thousand Pesos)

Wireless receivables: Consumer P=169,064 P=234,119 P=18,258 P=421,441 Key corporate accounts 2,976 2,804 85 5,865 Other corporations and SME 5,617 698 1,961 8,276

177,657 237,621 20,304 435,582Wireline receivables: Consumer 228,761 40,413 4 269,178 Key corporate accounts 124,166 6,331 577 131,074 Other corporations and SME 44,126 4,179 196 48,501

397,053 50,923 777 448,753Total P=574,710 P=288,544 P=21,081 P=884,335

2012Neither past-due nor impaired

High Quality Medium Quality Low Quality Total(In Thousand Pesos)

Wireless receivables: Consumer P=725,362 P=257,307 P=91,505 P=1,074,174 Key corporate accounts 1,092 156 30 1,278 Other corporations and SME 100,336 42,378 46,844 189,558

826,790 299,841 138,379 1,265,010Wireline receivables: Consumer 218,599 29,968 1 248,568 Key corporate accounts 77,572 5,061 33 82,666 Other corporations and SME 52,600 3,646 203 56,449

348,771 38,675 237 387,683Total P=1,175,561 P=338,516 P=138,616 P=1,652,693

High quality accounts are accounts considered to be high value and have consistentlyexhibited good paying habits. Medium quality accounts are active accounts with propensity ofdeteriorating to mid-range age buckets. These accounts do not flow through to permanentdisconnection status as they generally respond to credit actions and update their paymentsaccordingly. Low quality accounts are accounts which have probability of impairment basedon historical trend. These accounts show propensity to default in payment despite regularfollow-up actions and extended payment terms. Impairment losses are also provided for theseaccounts based on net flow rate.

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Traffic receivables that are neither past due nor impaired are considered to be high qualitygiven the reciprocal nature of the Globe Group’s interconnect and roaming partner agreementswith the carriers and the Globe Group’s historical collection experience.

Other receivables are considered high quality accounts as these are substantially from creditcard companies and Globe dealers.

The following is a reconciliation of the changes in the allowance for impairment losses forreceivables as of December 31 (in thousand pesos) (see Notes 4 and 23):

2013Subscribers

ConsumerKey corporate

accounts

Othercorporations

and SME

TrafficSettlementsand Others

Non-trade(Note 6) Total

At beginning of year P=2,453,266 P=320,404 P=543,344 P=221,058 P=124,082 P=3,662,154Charges for the year 1,665,993 225,907 203,343 14,254 (62,974) 2,046,523Reversals/write offs/

adjustments (1,377,237) (5,786) (58,813) (15,688) (2,694) (1,460,218)At end of year P=2,742,022 P=540,525 P=687,874 P=219,624 P=58,414 P=4,248,459

2012Subscribers

ConsumerKey corporate

accounts

Othercorporations

and SME

TrafficSettlementsand Others

Non-trade(Note 6) Total

At beginning of year P=2,433,222 P=263,464 P=434,603 P=249,341 P=88,356 P=3,468,986Charges for the year 1,121,634 85,006 173,994 (20,485) 17,168 1,377,317Reversals/write offs/

adjustments (1,101,590) (28,066) (65,253) (7,798) 18,558 (1,184,149)At end of year P=2,453,266 P=320,404 P=543,344 P=221,058 P=124,082 P=3,662,154

28.2.3 Liquidity RiskThe Globe Group seeks to manage its liquidity profile to be able to financecapital expenditures and service maturing debts. To cover its financing requirements, theCompany intends to use internally generated funds and available long-term and short-termcredit facilities. As of December 31, 2013 and 2012, Globe Group has available uncommittedshort-term credit facilities of USD6.90 million and P=7,920.00 million, USD36.40 million andP=10,720.00 million, respectively.

As of December 31, 2013, the Globe Group has P=7,000.00 million in available committedlong-term facilities.

As part of its liquidity risk management, the Globe Group regularly evaluates its projected andactual cash flows. It also continuously assesses conditions in the financial markets foropportunities to pursue fund raising activities, in case any requirements arise. Fund raisingactivities may include bank loans, export credit agency facilities and capital market issues.

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The following tables show comparative information about the Globe Group’s financial instruments as of December 31 that are exposed to liquidity risk andinterest rate risk and presented by maturity profile including forecasted interest payments for the next five years from December 31 figures (in thousands)(see Note 14).

Long-term Liabilities

2013

2014 2015 2016 20172018 and

thereafterTotal

(in USD)Total

(in PHP)

DebtIssuance

CostsCarrying Value

(in PHP)Fair Value

(in PHP)LiabilitiesLong-term debt Fixed rate Philippine peso P=1,386,300 P=71,100 P=2,117,800 P=4,550,000 P=19,300,000 $– P=27,425,200 P=221,887 P=27,203,313 P=28,327,286 Interest rate 4.85%;7.40%;

8.36%4.85%;8.36% 4.85%;8.36% 5.75%;4.85% 4.89%;5.28%;

6.00%;4.85% Floating rate USD notes $– $900 $117,100 $2,100 $204,900 325,000 – 108,192 14,321,158 5,876,330 Interest rate – Libor 3mo. +

1.50% marginLibor 6-mo. +

1.00% margin;Libor 3mo. +

0.90% margin;Libor 3mo. +

1.00% margin;Libor 3mo. +1.5% margin

Libor 6-mo. +1.00% margin;

Libor 3mo. +1.50% margin

Libor 6-mo. +1.00% margin;

Libor 3mo. +1.50% margin

Philippine peso P=4,603,843 P=6,025,000 P=70,000 P=120,000 P=11,810,000 – 22,628,843 72,265 22,556,578 28,266,107 Interest rate PDSTF 6mo. +

1.25% margin;PDSTF 3mo. +0.75% margin;PDSTF 3mo. +1.25% margin;PDSTF 3mo. +1.00% margin

PDSTF 3mo. +0.75% margin;PDSTF 3mo. +0.65% margin

PDSTF 3mo. +0.60% margin



$325,000 P=50,054,043 P=402,344 P=64,081,049 P=62,469,723Interest payable* PHP debt P=1,996,351 P=1,834,261 P=1,656,312 P=1,492,003 P=3,113,584 $– P=10,092,511 P=– P=– P=– USD debt $4,799 $4,776 $3,799 $3,146 $10,733 $27,252 P=– $– $– $–*Used month-end USD LIBOR and Philippine Dealing and Exchange Corporation (PDEX) rates.*Using P=44.398 - USD exchange rate as of December 31, 2013.

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2012

2013 2014 2015 20162017 andthereafter

Total (in USD)

Total(in PHP)

DebtIssuance

CostsCarrying Value

(in PHP)Fair Value

(in PHP)LiabilitiesLong-term debt Fixed rate Philippine peso P=3,397,450 P=1,406,300 P=1,991,100 P=2,117,800 P=16,850,000 $– P=25,762,650 P=124,414 P=25,638,236 P=28,327,286 Interest rate 5.97%, 7.03%,

7.40%7.03%, 7.40%,5.89%, 8.36%

7.03%, 8.36%,5.89%

8.36%, 5.89% 5.89%, 5.75%,6.00%

Floating rate USD notes $14,273 $17,710 $11,730 $11,735 88,200 143,648 – 71,164 5,829,588 5,876,330 Interest rate Libor 6-mo. plus

3.40% margin;Libor 6-mo. plus

2.65% margin

Libor 6-mo. plus3.40% margin;

Libor 6-mo. plus2.65% margin


Libor 3-mo. plus1.50% margin


Libor 3mo +1.50% margin

Libor 3mo +1.50% margin

Philippine peso P=5,747,343 P=4,603,843 P=6,025,000 P=70,000 P=11,930,000 – 28,376,186 118,490 28,257,696 28,266,107 Interest rate PDSTF 3mo +

0.75% margin;PDSTF 3mo +1.25% margin;PDSTF 3mo +1.00% margin;PDSTF 6mo +1.25% margin;PDSTF 3mo +1.50% margin

PDSTF 3mo +0.75% margin;PDSTF3mo +

1.25% margin;PDSTF3mo +

1% margin;PDSTF6mo +1.25% margin

PDSTF 3mo +0.75% margin;PDSTF3mo +0.65% margin

PDSTF 3mo +0.60% margin

PDSTF 3mo +0.50% margin;PDSTF 3mo +0.60% margin

$143,648 P=54,138,836 P=314,068 P=59,725,520 P=62,469,723Interest payable* PHP debt P=2,092,544 P=1,754,816 P=1,578,270 P=1,355,781 P=2,933,782 $– P=9,715,194 P=– P=– P=– USD debt $3,661 $3,022 $2,392 $1,951 $8,646 $19,672 P=– $– $– $–*Used month-end USD LIBOR and Philippine Dealing and Exchange Corporation (PDEX) rates.*Using P=41.078 - USD exchange rate as of December 31, 2012.

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The following tables present the maturity profile of the Globe Group’s other liabilities and derivative instruments (undiscounted cash flows including swapcosts payments/receipts except for other long-term liabilities) as of December 31 (in thousands):

2013

Other Financial Liabilities

On demandLess than

1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years TotalAccounts payable and accrued expenses* P=2,737,211 P=33,971,965 P=– P=– P=– P=– P=– P=36,709,176Notes payable – 5,219,900 – – – – – 5,219,900Other long-term liabilities – – – – – – 1,017,680 1,017,680

P=2,737,211 P=39,191,865 P=– P=– P=– P=– P=1,017,680 P=42,946,756*Excludes taxes payable which is not a financial instrument.

Derivative Instruments

2014 2015 2016 2017 and beyond 2018 and beyondReceive Pay Receive Pay Receive Pay Receive Pay Receive Pay

Projected Swap Coupons*:Interest Rate Swaps - Peso P=28,606 P=173,464 P=32,285 P=50,461 P=– P=– P=– P=– P=– P=–Interest Rate Swaps - USD $1,554 $3,904 $– $– $– $– $– $– $– $–Cross Currency Swaps - USD $84,749 $162,025 $81,963 $162,025 $65,966 $102,602 $76,720 $84,794 $264,525 $212,450

Projected Principal Exchanges*Cross Currency Swaps - Peso P=– P=– P=– P=– P=– P=3,062,500 P=– P=– P=– P=2,063,750Cross Currenc y Swaps - USD $– $– $– $– $75,000 $– $– $– $50,000 $–

*Projected USD swap coupons were converted to PHP at the balance sheet date.

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2012

Other Financial Liabilities

On demandLess than

1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years TotalAccounts payable and accrued expenses* P=1,834,283 P=25,862,630 P=– P=– P=– P=– P=– P=27,696,913Notes payable – 2,053,900 – – – – – 2,053,900Liabilities directly associated with the assets classified as held for sale – 457,185 – – – – – 457,185Other long-term liabilities – – – – – – 1,347,519 1,347,519

P=1,834,283 P=28,373,715 P=– P=– P=– P=– P=1,347,519 P=31,555,517*Excludes taxes payable which is not a financial instrument.

Derivative Instruments

2013 2014 2015 2016 2017 and beyondReceive Pay Receive Pay Receive Pay Receive Pay Receive Pay

Projected Swap Coupons*:Interest Rate Swaps P=– P=203,073 P=182 P=11,639 P=3,847 P=– P=– P=– P=– P=–

*Projected USD swap coupons were converted to PHP at the balance sheet date.

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28.2.4 Hedging Objectives and PoliciesThe Globe Group uses a combination of natural hedges and derivative hedging to manage itsforeign exchange exposure. It uses interest rate derivatives to reduce earnings volatilityrelated to interest rate movements.

It is the Globe Group’s policy to ensure that capabilities exist for active but conservativemanagement of its foreign exchange and interest rate risks. The Globe Group does not engagein any speculative derivative transactions. Authorized derivative instruments include currencyforward contracts (embedded), currency swap contracts, interest rate swap contracts andcurrency option contracts (embedded). Certain swaps are entered with option combination orstructured provisions.

28.3 Derivative Financial InstrumentsThe Globe Group’s freestanding and embedded derivative financial instruments are accounted foras hedges or transactions not designated as hedges. The tables below set out information about theGlobe Group’s derivative financial instruments and the related fair values as of December 31 (inthousands):

2013NotionalAmount

NotionalAmount

DerivativeAsset

DerivativeLiability

Derivative instruments designated as hedgesCash flow hedgesCross currency swaps $125,000 P=– P=553,562 P=62,174Interest rate swaps 26,000 187,500 – 3,484Derivative instruments not designated as hedgesFreestandingInterest rate swaps – 4,125,000 – 148,009EmbeddedCurrency forwards* 6,849 – 1,834 6,027Net P=555,396 P=219,694*The embedded currency forwards are at a net sell position.

2012NotionalAmount

NotionalAmount

DerivativeAsset

DerivativeLiability

Derivative instruments designated as hedgesCash flow hedgesInterest rate swaps $26,000 P=1,437,500 P=– P=31,810Derivative instruments not designated as hedgesFreestandingInterest rate swaps 19,168 4,750,000 – 183,432EmbeddedCurrency forwards* 12,557 – 421 25,412Net P=421 P=240,654*The embedded currency forwards are at a net sell position.

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The table below also sets out information about the maturities of Globe Group’s derivativeinstruments as of December 31 that were entered into to manage interest and foreign exchangerisks related to the long-term debt and US dollar-based revenues (in thousands).

2013

<1 year>1-<2years

>2-<3years

>3-<4years

>4-<5years Total

(In Thousands)Derivatives:Interest Rate Swaps

Floating-FixedNotional PHP P=2,287,500 P=2,025,000 P=– P=– P=– P=4,312,500Notional USD $26,000 $– $– $– $– $26,000Pay-fixed rate 3.90%-4.92% for PHP;

0.67% for USDReceive-floating rate USD LIBOR 3mo.,

PDSTF 3mo.Cross Currency Swaps

Floating-FixedNotional USD $– $– $75,000 $– $50,000 $125,000

Pay-fixed rate2.48% - 4.12% for PHP

Receive-floating rateUSD LIBOR + 1.0%

2012<1 year >1-<2 years >2-<3 years >3-<4 years >4-<5 years Total

Derivatives:Interest Rate Swaps: Floating-Fixed Notional Peso P=1,875,000 P=2,287,500 P=2,025,000 P=– P=– P=6,187,500 Notional USD $19,168 $26,000 $– $– $– $45,168 Pay-fixed rate 3.90%-4.92% for PHP,

0.67%-0.86% for USD Receive-floating rate USD LIBOR, 3moPDSTF

The Globe Group’s other financial instruments that are exposed to interest rate risk are cash andcash equivalents. These mature in less than a year and are subject to market interest ratefluctuations.

The Globe Group’s other financial instruments which are non-interest bearing and therefore notsubject to interest rate risk are trade and other receivables, accounts payable and accrued expensesand long-term liabilities.

The subsequent sections will discuss the Globe Group’s derivative financial instruments accordingto the type of financial risk being managed and the details of derivative financial instruments thatare categorized into those accounted for as hedges and those that are not designated as hedges.

28.4 Derivative Instruments Accounted for as HedgesThe following sections discuss in detail the derivative instruments accounted for as cash flowhedges.

· Cross Currency SwapsThe Globe Group entered into cross currency swap contracts to hedge the foreign exchangeand interest rate risk on dollar loans with maturities until April 2020. These cross currencyswaps have a notional amount of USD125.00 million as of December 31, 2013. The fair value

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gain amounted to P=491.39 million as of December 31, 2013, of which P=47.35 million (net oftax) is reported in the equity section of the consolidated statements of financial position.

· Interest Rate SwapsAs of December 31, 2013 and 2012, the Globe Group has USD26.00 million in notionalamount of USD interest rate swap that have been designated as cash flow hedge of interestrate risk from USD loans. The interest rate swap effectively fixed the benchmark rate of thehedged USD loan at 0.67% over the duration of the agreement, which involves quarterlypayment intervals up to April 2014.

The Globe Group also has PHP interest rate swap contracts with a total notional amount ofP=187.50 million and P=1,437.50 million as of December 31, 2013 and 2012, respectively,which have been designated as cash flow hedges of interest rate risk from PHP loans. Theseinterest rate swaps effectively fixed the benchmark rate of the hedged PHP loans at 3.90%over the duration of the swaps, with quarterly payment intervals up to July 2014.

As of December 31, 2013 and 2012, the fair value of the outstanding swap amounted toP=3.48 million and P=31.81 million losses, respectively, of which P=12.32 million andP=121.20 million (net of tax), respectively, is reported as “Other reserves” in the equity sectionof the consolidated statements of financial position (see Note 17.5).

Accumulated swap cost for the years ended December 31, 2013, 2012 and 2011 amounted toP=67.80 million, P=35.46 million and P=213.66 million, respectively.

· Deliverable and Nondeliverable ForwardsThe Globe Group has no outstanding deliverable and nondeliverable forwards as ofDecember 31, 2013 and 2012.

Hedging gains/losses on derivatives intended to manage foreign currency fluctuations ondollar based revenues for the years ended December 31, 2013, 2012 and 2011 amounted toP=144.70 million loss, P=21.29 million gain and P=28.27 million gain, respectively. Thesehedging gains/losses are reflected under “Service revenues” in the consolidated statements ofcomprehensive income.

28.5 Other Derivative Instruments not Designated as HedgesThe Globe Group enters into certain derivatives as economic hedges of certain underlyingexposures. Such derivatives, which include embedded and freestanding currency forwards,embedded call options, and certain currency and interest rate swaps with option combination orstructured provisions, are not designated as accounting hedges. The gains or losses on theseinstruments are accounted for directly in profit or loss in the consolidated statements ofcomprehensive income. This section consists of freestanding derivatives and embeddedderivatives found in both financial and nonfinancial contracts.

28.6 Freestanding DerivativesFreestanding derivatives that are not designated as hedges consist of currency forwards andinterest rate swaps entered into by the Globe Group. Fair value changes on these instruments areaccounted for directly in profit or loss in the consolidated statements of comprehensive income.

· Interest rate swapsThe Globe Group also has an outstanding PHP interest rate swap contract which swaps afloating PHP loan into fixed rate of 4.92% and involves quarterly payment intervals up toSeptember 2015. Outstanding notional as of December 31, 2013 and 2012 amounted toP=4,125.00 million and P=4,750.00 million, respectively.

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The fair values on the interest rate swaps as of December 31, 2013 and 2012 amounted to aP=148.01 million and P=183.43 million net losses, respectively.

· Deliverable and Nondeliverable ForwardsAs of December 31, 2013 and 2012, the Globe Group has no outstanding deliverable andnondeliverable currency forwards contracts not designated as hedges.

28.7 Embedded DerivativesThe Globe Group has instituted a process to identify any derivatives embedded in its financial ornonfinancial contracts. Based on PAS 39, the Globe Group assesses whether these derivatives arerequired to be bifurcated or are exempted based on the qualifications provided by the saidstandard. The Globe Group’s embedded derivatives include embedded currency derivatives notedin non-financial contracts.

· Embedded Currency ForwardsAs of December 31, 2013 and 2012, the total outstanding notional amount of currencyforwards embedded in nonfinancial contracts amounted to USD6.85 million andUSD12.56 million, respectively. The nonfinancial contracts consist mainly of foreigncurrency-denominated purchase orders with various expected delivery dates and unbilledleaselines receivables and payables denominated in foreign currency with domesticcounterparties. The net fair value losses of the embedded currency forwards as ofDecember 31, 2013 and 2012 amounted to P=4.19 million and P=24.99 million, respectively.

28.8 Fair Value Changes on DerivativesThe net movements in fair value changes of all derivative instruments are as follows:

December 312013 2012

(In Thousand Pesos)

At beginning of year (P=240,233) (P=256,851)Net changes in fair value of derivatives: Designated as cash flow hedges 307,431 (555) Not designated as cash flow hedges (138,765) (190,444)

(71,567) (447,850)Less fair value of settled instruments (407,269) (207,617)At end of year P=335,702 (P=240,233)

28.9 Hedge Effectiveness ResultsAs of December 31, 2013 and 2012, the effective fair value changes on the Globe Group’s cashflow hedges that were deferred in equity amounted to P=12.32 million gain and P=121.20 millionloss, net of tax, respectively. Total ineffectiveness for the years ended December 31, 2013 and2012 is immaterial.

The distinction of the results of hedge accounting into “Effective” or “Ineffective” representdesignations based on PAS 39 and are not necessarily reflective of the economic effectiveness ofthe instruments.

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28.10 Categories of Financial Assets and Financial LiabilitiesThe table below presents the carrying value of Globe Group’s financial instruments by category asof December 31:


Financial AssetsFinancial assets at FVPL: Derivative assets designated as cash flow hedges P=553,562 P=– Derivative assets not designated as hedges 1,834 421AFS investment in equity securities (Note 11) 222,712 141,446Loans and receivables - net* 29,166,805 25,547,243

P=29,944,913 P=25,689,110Financial LiabilitiesFinancial liabilities at FVPL: Derivative liabilities designated as cash

flow hedges P=65,658 P=31,810 Derivative liabilities not designated as hedges 154,036 208,844Financial liabilities at amortized cost** 107,027,805 91,281,037

P=107,247,499 P=91,521,691** This consists of cash and cash equivalents, short-term investments and long-term investments, receivables, other nontrade

receivables and loans receivables.** This consists of accounts payable, accrued expenses, accrued project cost, traffic settlement-net, dividends payable, notes

payable, long-term debt (including current portion) and other long-term liabilities (including current portion).

As of December 31, 2013 and 2012, the Globe Group has no investments in foreign securities.

28.11 Offsetting Financial Assets and Financial LiabilitiesThe Globe Group has derivative financial instruments that have offsetting arrangements. Uponadoption of the amendment to PFRS 7, the Globe Group has determined that there is no impact onfinancial position or on profit or loss, but resulted on additional disclosures about such offsettingarrangements. Accordingly, these additional disclosures are set forth below.

December 31, 2013

Grossamounts

Amountsoffset under

PAS 32

Reportedamounts

in theconsolidatedstatement of

financialposition

Amountsoffset under

masternetting

arrangementsor othersimilar

contracts

Amountsoffset byfinancial

collateralreceived or

pledgedNet

exposure(In Thousand Pesos)

Derivative assets P=493,222 P=– P=493,222 (P=148,009) P=– P=345,213Derivative liabilities 157,521 – 157,521 (148,009) – 9,512

December 31, 2012

Grossamounts

Amountsoffset under

PAS 32

Reportedamounts

in theconsolidatedstatement of

financialposition

Amountsoffset under

master nettingarrangements

or othersimilar

contracts

Amountsoffset byfinancialcollateral

received orpledged

Netexposure

(In Thousand Pesos)Derivative assets P=421 P=− P=421 P=− P=− P=421Derivative liabilities 240,654 − 240,654 − − 240,654

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The Globe Group makes use of master netting agreements with counterparties with whom asignificant volume of transactions are undertaken. Such arrangements provide for single netsettlement of all financial instruments covered by the agreements in the event of default on anyone contract. Master netting arrangements do not normally result in an offset of balance sheetassets and liabilities unless certain conditions for offsetting under PAS 32 apply.

Although master netting arrangements may significantly reduce credit risk, it should be noted that:a) Credit risk is eliminated only to the extent that amounts due to the same counterparty will be

settled after the assets are realized; andb) The extent to which overall credit risk is reduced may change substantially within a short

period because the exposure is affected by each transaction subject to the arrangement andfluctuations in market factors.

28.12 Fair Values of Financial Assets and Financial LiabilitiesThe table below presents a comparison of the carrying amounts and estimated fair values of all theGlobe Group’s financial instruments as of:

December 312013 2012

Carrying Value Fair ValueCarrying

Value Fair Value(In Thousand Pesos)

Financial AssetsDerivative assets P=555,396 P=555,396 P=421 P=421AFS investment in equity securities

(Note 11) 222,712 222,712 141,446 141,446P=778,108 P=778,108 P=141,867 P=141,867

Financial LiabilitiesDerivative liabilities (including current

portion) P=219,694 P=219,694 P=240,654 P=240,654Long-term debt (including current

portion) 64,081,049 62,469,723 59,725,520 62,469,723P=64,300,743 P=62,689,417 P=59,966,174 P=62,710,377

The following discussions are methods and assumptions used to estimate the fair value of eachclass of financial instrument for which it is practicable to estimate such value.

28.12.1 Non-derivative Financial InstrumentsThe fair values of cash and cash equivalents, short-term investments, AFS investments,subscriber receivables, traffic settlements receivable, loan receivable, miscellaneousreceivables, accrued interest receivables, accounts payable, accrued expenses and notespayable are approximately equal to their carrying amounts considering the short-termmaturities of these financial instruments.

The fair value of AFS investments are based on quoted prices. Unquoted AFS equitysecurities are carried at cost, subject to impairment.

For variable rate financial instruments that reprice every three months, the carrying valueapproximates the fair value because of recent and regular repricing based on current marketrates. For variable rate financial instruments that reprice every six months, the fair value isdetermined by discounting the principal amount plus the next interest payment using theprevailing market rate for the period up to the next repricing date. The discount rates usedrange from 0.24% to 2.25% (for USD floating loans) and 0.50% to 2.96% (for PHP floating

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loans). For noninterest bearing obligations, the fair value is estimated as the present value ofall future cash flows discounted using the prevailing market rate of interest for a similarinstrument.

28.12.2. Derivative InstrumentsThe fair value of freestanding and embedded forward exchange contracts is calculated byusing the interest rate parity concept.

The fair values of interest rate swaps and cross currency swap transactions are determinedusing valuation techniques with inputs and assumptions that are based on market observabledata and conditions and reflect appropriate risk adjustments that market participants wouldmake for credit and liquidity risks existing at the end each of reporting period. The fair valueof 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 onchanges in the term structure of interest rates of each currency and the spot rate.

The fair values were tested to determine the impact of credit valuation adjustments. However,the impact is immaterial given that the Globe Group deals its derivatives with large foreignand local banks with minimal risk of default.

28.12.3 Fair Value Measurement HierarchyThe following tables provide the fair value measurement hierarchy of the Globe Group’sassets and liabilities:

December 31, 2013Fair value measurement using

Quotedprices in

activemarkets(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3) Total

(In Thousand Pesos)Assets measured at fair value:Derivative assets: Cross currency swaps P=– P=553,562 P=– P=553,562 Embedded currency forwards – 1,834 – 1,834AFS investment in equity securities - net 222,712 – – 222,712Liabilities measured at fair value:Derivative liabilities: Cross currency swaps – 62,174 – 62,174 Interest rate swaps – 151,493 – 151,493 Embedded currency forwards – 6,027 – 6,027Liabilities for which fair values are

disclosed:Long-term debt (including current portion) – 62,469,723 – 62,469,723

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December 31, 2012Fair value measurement using

Quotedprices in

activemarkets

(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3) Total

(In Thousand Pesos)Assets measured at fair value:Derivative assets: Embedded currency forwards P=– P=421 P=– P=421AFS investment in equity securities - net 141,446 – – 141,446Liabilities measured at fair value:Derivative liabilities: Interest rate swaps – 215,242 – 215,242 Embedded currency forwards – 25,412 – 25,412Liabilities for which fair values are

disclosed:Long-term debt (including current portion) – 62,469,723 – 62,469,723

There were no transfers from Level 1 and Level 2 fair value measurements for the years endedDecember 31, 2013 and 2012. The Globe Group has no financial instruments measured underLevel 3.

29. Operating Segment Information

The Globe Group’s reportable segments consist of: (1) mobile communications services;(2) wireline communication services; and (3) others, which the Globe Group operates andmanages as strategic business units and organize by products and services. The Globe Grouppresents its various operating segments based on segment net income.

Intersegment transfers or transactions are entered into under the normal commercial terms andconditions that would also be available to unrelated third parties. Segment revenue, segmentexpense and segment result include transfers between business segments. Those transfers areeliminated in consolidation.

Most of revenues are derived from operations within the Philippines, hence, the Globe Group doesnot present geographical information required by PFRS 8. The Globe Group does not have asingle customer that will meet the 10% or more reporting criteria.

The Globe Group also presents the different product types that are included in the report that isregularly reviewed by the chief operating decision maker in assessing the operating segmentsperformance.

Segment assets and liabilities are not measures used by the chief operating decision maker sincethe assets and liabilities are managed on a group basis.

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The Globe Group’s segment information is as follows:

2013Mobile Wireline

Communications CommunicationsServices Services Others Consolidated

(In Thousand Pesos)RevenuesService revenues: External customers: Voice P=32,298,848 P=2,605,121 P=– P=34,903,969 Data 40,312,908 4,691,004 151,937 45,155,849 Broadband – 10,440,319 – 10,440,319Nonservice revenues: External customers 3,512,861 807,778 320,209 4,640,848Segment revenues 76,124,617 18,544,222 472,146 95,140,985EBITDA 32,860,810 3,969,773 (316,766) 36,513,817Depreciation and amortization (17,044,186) (10,418,889) (14,419) (27,477,494)EBIT 15,816,624 (6,449,116) (331,185) 9,036,323

Net Income (Loss) Before Income Tax2 13,839,780 (6,652,267) (322,740) 6,864,773Provision for income tax2 (1,670,053) (148,909) (85,566) (1,904,528)Net Income (Loss) P=12,169,727 (P=6,801,176) (P=408,306) P=4,960,245Other Segment InformationIntersegment revenues (P=100,633) (P=556,902) (P=507,334) (P=1,164,869)Subsidy1 (5,044,591) (297,288) 29,621 (5,312,258)Interest income2 629,817 53,977 1,213 685,007Interest expense (2,086,823) (4,344) (748) (2,091,915)Equity in net losses of joint ventures (79,959) – – (79,959)Impairment losses and others (1,628,964) (835,564) 4,947,156 2,482,628Capital expenditure (31,997,462) (3,720,333) (60,871) (35,778,666)Cash FlowsNet cash provided by (used in): Operating activities 26,857,607 7,571,395 151,624 34,580,626 Investing activities (23,623,945) (3,628,351) (115,678) (27,367,974) Financing activities (2,667,872) (3,000,000) 191,639 (5,476,233)1 Computed as non-service revenues less cost of sales2 Net of final tax

2012 (As restated, see Note 2.4)Mobile Wireline


(In Thousand Pesos)RevenuesService revenues: External customers: Voice P=34,343,471 P=2,665,559 P=– P=37,009,030 Data 32,743,644 4,166,919 102,041 37,012,604 Broadband – 8,720,931 – 8,720,931Nonservice revenues: External customers 2,791,596 929,592 (17,604) 3,703,584Segment revenues 69,878,711 16,483,001 84,437 86,446,149EBITDA 32,445,341 2,737,792 (172,323) 35,010,810Depreciation and amortization (13,220,052) (10,350,911) (12,454) (23,583,417)EBIT 19,225,289 (7,613,119) (184,777) 11,427,393

Net Income (Loss) Before Income Tax2 17,670,349 (7,732,316) (186,487) 9,751,547Benefit from (provision for) income tax2 (3,549,158) 693,237 (50,372) (2,906,293)Net Income (Loss) P=14,121,191 (P=7,039,079) (P=236,859) P=6,845,254

(Forward)

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2012 (As restated, see Note 2.4)Mobile Wireline


Intersegment revenues (P=77,679) (P=206,911) (P=207,454) (P=492,044)Subsidy1 (4,033,824) 62,117 (3,068) (3,974,775)Interest income2 448,300 67,081 181 515,562Interest expense (2,021,189) (83,447) (156) (2,104,792)Equity in net losses of joint ventures (83,582) – – (83,582)Impairment losses and others (1,186,031) (677,553) – (1,863,584)Capital expenditure (23,165,833) (3,615,609) (28,118) (26,809,560)Cash FlowsNet cash provided by (used in): Operating activities 17,884,980 6,259,215 76,262 24,220,457 Investing activities (24,226,680) (344,365) (45,284) (24,616,329) Financing activities 2,197,903 – – 2,197,9031 Computed as non-service revenues less cost of sales2 Net of final taxes

2011(As restated, see Note 2.4)Mobile Wireline


RevenuesService revenues: External customers: Voice P=35,290,101 P=2,938,717 P=– P=38,228,818 Data 28,139,234 3,791,928 108,481 32,039,643 Broadband – 7,496,503 – 7,496,503Nonservice revenues: External customers 3,028,245 725,038 – 3,753,283Segment revenues 66,457,580 14,952,186 108,481 81,518,247EBITDA 32,145,366 3,056,714 (87,007) 35,115,073Depreciation and amortization (11,402,577) (7,527,599) (11,051) (18,941,227)EBIT 20,742,789 (4,470,885) (98,058) 16,173,846

Net Income (Loss) Before Income Tax2 18,633,438 (4,478,893) (96,410) 14,058,135Benefit from (provision for) income tax2 (4,216,248) (34,101) (3,235) (4,253,584)Net Income (Loss) P=14,417,190 (P=4,512,994) (P=99,645) P=9,804,551Other Segment InformationIntersegment revenues (P=34,747) (P=264,929) (P=246,673) (P=476,855)Subsidy1 (2,091,403) (42,060) (843) (2,134,306)Interest income2 172,156 87,532 70 259,758Interest expense (1,924,162) (65,289) – (1,989,451)Equity in net losses of joint ventures (27,345) – – (27,345)Impairment losses and others (1,068,597) (849,986) – (1,918,583)Capital expenditure (13,530,030) (3,777,427) (109,925) (17,417,382)Cash FlowsNet cash provided by (used in): Operating activities 23,566,299 6,114,936 206,006 29,887,241 Investing activities (13,695,708) (4,345,211) (109,864) (18,150,783) Financing activities (12,520,892) – – (12,520,892)1 Computed as non-service revenues less cost of sales2 Net of final taxes

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A breakdown of gross revenues to net revenues and a reconciliation of segment revenues to thetotal revenues presented in the consolidated statements of comprehensive income are shownbelow:


Gross service revenues P=90,500,137 P=82,742,565 P=77,764,964Interconnection charges (9,280,229) (8,859,309) (9,953,663)Net service revenues 81,219,908 73,883,256 67,811,301Nonservice revenues 4,640,848 3,703,584 3,753,283Segment revenues 85,860,756 77,586,840 71,564,584Interest income 688,249 579,851 297,388Other income - net 475,246 716,371 574,768Total revenues P=87,024,251 P=78,883,062 P=72,436,740

The reconciliation of the EBITDA to income before income tax presented in the consolidatedstatements of comprehensive income is shown below:

2013



(In Thousand Pesos)

EBITDA P=36,513,817 P=35,010,810 P=35,115,073Gain on disposal of property and

equipment - net 64,333 42,447 319,250Interest income 688,249 579,851 297,388Equity in net losses of joint

ventures (79,959) (83,582) (27,345)Financing costs (2,911,785) (2,362,609) (2,509,505)Depreciation and amortization (27,477,494) (23,583,417) (18,941,227)Other items 67,612 148,047 (195,499)Income before income tax P=6,864,773 P=9,751,547 P=14,058,135

Segment assets and liabilities are not measures used by the chief operating decision maker sincethe assets and liabilities are managed on a group basis.

29.1 Mobile Communications ServicesThis reporting segment is made up of digital cellular telecommunications services that allowsubscribers to make and receive local, domestic long distance and international long distance calls,international roaming calls, mobile data or internet services and other value added services in anyplace within the coverage areas.

29.1.1 Mobile communication 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 (CERA) netof loyalty discounts credited to subscriber billings;

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c) Airtime fees for intra network and outbound calls recognized upon the earlier of actualusage of the airtime value or expiration of the unused value of the prepaid reloaddenomination (for Globe Prepaid and TM) which occurs between 1 and 60 days afteractivation depending on the prepaid value reloaded by the subscriber net of (i) bonuscredits and (ii) prepaid reload discounts; and

d) Revenues generated from inbound international and national long distance calls andinternational roaming calls.

Revenues from (a) to (d) are net of any settlement payouts to international and local carriers.

29.1.2 Mobile communication data net service revenues consist of revenues from value-addedservices such as inbound and outbound SMS and MMS, content downloading, mobile data orinternet services and infotext, subscription fees on unlimited and bucket prepaid SMS servicesnet of any settlement payouts to international and local carriers and content providers.

29.1.3 Globe Telecom offers its wireless communications services to consumers, corporateand SME clients through the following two (2) brands: Globe Handyphone Postpaid andPrepaid and Touch Mobile Prepaid brands.

The Globe Group also provides its subscribers with mobile payment and remittance servicesunder the GCash brand.

29.2 Wireline Communications ServicesThis reporting segment is made up of fixed line telecommunications services which offersubscribers local, domestic long distance and international long distance voice services in additionto broadband and fixed mobile internet services and a number of VAS in various areas covered bythe Certificate of Public Convenience and Necessity (CPCN) granted by the NTC.

29.2.1 Wireline voice net service revenues consist of the following:

a) Monthly service fees including CERA of voice-only subscriptions;b) Revenues from local, international and national long distance calls made by postpaid,

prepaid wireline subscribers and payphone customers, as well as broadband customerswho have subscribed to data packages bundled with a voice service. Revenues are net ofprepaid and payphone call card discounts;

c) Revenues from inbound local, international and national long distance calls from othercarriers terminating on our network;

d) Revenues from additional landline features such as caller ID, call waiting, call forwarding,multi-calling, voice mail, duplex and hotline numbers and other value-added features; and

e) Installation charges and other one-time fees associated with the establishment of theservice.

Revenues from (a) to (c) are net of any settlement payments to domestic and internationalcarriers.

29.2.2 Wireline data net service revenues consist of the following:

a) Monthly service fees from international and domestic leased lines. This is net of anysettlement payments to other carriers;

b) Other wholesale transport services;c) Revenues from value-added services; andncd) One-time connection charges associated with the establishment of service.

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29.2.3 Broadband service revenues consist of the following:

a) Monthly service fees on mobile and fixed wireless and wired broadband plans and chargesfor usage in excess of plan minutes; and

b) Prepaid usage charges consumed by mobile broadband subscribers.

29.2.4 The Globe Group provides wireline voice communications (local, national andinternational long distance), data and broadband and data services to consumers, corporate andSME clients in the Philippines.

a) Consumers - the Globe Group’s postpaid voice service provides basic landline servicesincluding toll-free NDD calls to other Globe landline subscribers for a fixed monthly fee.For wired broadband, consumers can choose between broadband services bundled with avoice line, or a broadband data-only service. For fixed wireless broadband connectionusing its WiMax network and 3G with High-Speed Downlink Packet Access (HSDPA)network, the Globe Group offers broadband packages bundled with voice, or broadbanddata-only service.

For subscribers who require full mobility, Globe Broadband Tattoo service come inpostpaid and prepaid packages and allow them to access the internet via 3G with HSDPA,Enhanced Datarate for GSM Evolution (EDGE), General Packet Radio Service (GPRS) orWiFi at hotspots located nationwide.

b) Corporate/SME clients - for corporate and SME enterprise clients wireline voicecommunication needs, the Globe Group offers postpaid service bundles which come witha business landline and unlimited dial-up internet access. The Globe Group also providesa full suite of telephony services from basic direct lines to Integrated Services DigitalNetwork (ISDN) services, 1-800 numbers, International Direct Dialing (IDD) andNational Direct Dialing (NDD) access as well as managed voice solutions such as VoiceOver Internet Protocol (VOIP) and managed Internet Protocol (IP) communications.Value-priced, high speed data services, wholesale and corporate internet access, datacenter services and segment-specific solutions customized to the needs of verticalindustries.

29.3 OthersThis reporting segment represents mobile value added data content and application developmentservices. Revenues principally consist of revenue share with various carriers on contentdownloaded by their subscribers and contracted fees for other application development servicesprovided to various partners.

30. Notes to Consolidated Statements of Cash Flows

The principal noncash transactions are as follows:

Note 2013 2012 2011(In Thousand Pesos)

Increase (decrease) in liabilities related to theacquisition of property and equipment P=5,838,624 P=5,699,760 (P=1,353,939)

Capitalized ARO 15 15,675 25,022 27,403Dividends on preferred shares – 33,145 35,295

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The cash and cash equivalents account consists of:


Cash on hand and in banks P=4,468,305 P=2,632,954 P=1,182,895Short-term placements 2,952,430 4,126,801 3,976,151

P=7,420,735 P=6,759,755 P=5,159,046

Cash in banks earn interest at the respective bank deposit rates. Short-term placements representshort-term money market placements.

The ranges of interest rates of the above placements are as follows:

2013 2012 2011Placements: PHP 0.15% to 3.90% 1.35% to 4.69% 1.50% to 4.88% USD 0.02% to 1.75%% 0.06% to 1.85% 0.05% to 1.75%

31. Events after the Reporting Period

On February 10, 2014, the BOD approved the following:a. Declaration of the first semi-annual cash dividend of P=37.50 per common share, payable

to common stockholders of record as of February 26, 2014. Total dividends amounting toP=4,972.35 million will be payable on March 20, 2014.

b. Amendment of Articles of Incorporation to reclassify 31 million of unissued commonshares with par value of P=50 per share and 90 million of unissued voting preferred shareswith par value of P=5 per share into a new class of 40 million non-voting preferred shareswith par value of P=50 per share.

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INDEPENDENT AUDITORS’ REPORTON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsGlobe Telecom, Inc.The Globe Tower32nd Street corner 7th AvenueBonifacio Global City, Taguig

We have audited in accordance with Philippine Standards of Auditing, the consolidated financialstatements of Globe Telecom, Inc. and Subsidiaries (the “Group”) as at December 31, 2013 and 2012and for each of the three years in the period ended December 31, 2013, included in this Form 17-A,and have issued our report thereon dated February 10, 2014. Our audits were made for the purpose offorming an opinion on the consolidated financial statements taken as a whole. The schedules listed inthe Index to the Consolidated Financial Statements and Supplementary Schedules are theresponsibility of the Group’s management. These schedules are presented for purposes of complyingwith Securities Regulation Code Rule 68, As Amended (2011) and are not part of the consolidatedfinancial statements. These schedules have been subjected to the auditing procedures applied in theaudit of the consolidated financial statements and, in our opinion, fairly state, in all material respects,the information required to be set forth therein in relation to the consolidated financial statementstaken as a whole.

SYCIP GORRES VELAYO & CO.

Gemilo J. San PedroPartnerCPA Certificate No. 32614SEC Accreditation No. 0094-AR-3 (Group A), February 4, 2013, valid until February 3, 2016Tax Identification No. 102-096-610BIR Accreditation No. 08-001998-34-2012, April 11, 2012, valid until April 10, 2015PTR No. 4225213, January 2, 2014, Makati City

February 10, 2014

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015


GLOBE TELECOM, INC. AND SUBSIDIARIESIndex to the Consolidated Financial Statements and Supplementary Schedules

Schedule 1 - Schedule of all the effective standards and interpretations as of December 31, 2013

Schedule 2 - Reconciliation of retained earnings available for dividend declaration

Schedule 3 - Map of the relationships of the companies within the Group

Schedule 4 - Financial soundness indicators

Schedule 5 - Supplementary schedules required by Annex 68-E

*Not early adopted

Schedule 1

SCHEDULE OF ALL THE EFFECTIVE STANDARDS AND INTERPRETATIONS UNDERTHE PHILIPPINE FINANCIAL REPORTING STANDARDS (PFRS)AS OF DECEMBER 31, 2013

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2013 Adopted

NotAdopted

NotApplicable

Framework for the Preparation and Presentation of Financial StatementsConceptual Framework Phase A: Objectives and qualitative characteristics

ü

PFRSs Practice Statement Management Commentary ü

Philippine Financial Reporting Standards

PFRS 1(Revised)

First-time Adoption of Philippine Financial Reporting Standards ü

Amendments to PFRS 1 and PAS 27: Cost of an Investment in aSubsidiary, Jointly Controlled Entity or Associate

ü

Amendments to PFRS 1: Additional Exemptions for First-timeAdopters

ü

Amendment to PFRS 1: Limited Exemption from Comparative PFRS7 Disclosures for First-time Adopters

ü

Amendments to PFRS 1: Severe Hyperinflation and Removal ofFixed Date for First-time Adopters

ü

Amendments to PFRS 1: Government Loans ü

PFRS 2 Share-based Payment ü

Amendments to PFRS 2: Vesting Conditions and Cancellations ü

Amendments to PFRS 2: Group Cash-settled Share-based PaymentTransactions

ü

PFRS 3(Revised)

Business Combinations ü

PFRS 4 Insurance Contracts ü

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts ü

PFRS 5 Non-current Assets Held for Sale and Discontinued Operations ü

PFRS 6 Exploration for and Evaluation of Mineral Resources ü

PFRS 7 Financial Instruments: Disclosures ü

Amendments to PAS 39 and PFRS 7: Reclassification of FinancialAssets

ü

Amendments to PAS 39 and PFRS 7: Reclassification of FinancialAssets - Effective Date and Transition

ü

Amendments to PFRS 7: Improving Disclosures about FinancialInstruments

ü

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets ü

Amendments to PFRS 7: Disclosures - Offsetting Financial Assetsand Financial Liabilities

ü

Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 andTransition Disclosures*

ü

PFRS 8 Operating Segments ü

- 2 -

*Not early adopted


NotAdopted

NotApplicable

PFRS 9 Financial Instruments* ü

Amendments to PFRS 9: Mandatory Effective Date of PFRS 9 andTransition Disclosures*

ü

PFRS 10 Consolidated Financial Statements ü

Amendments to PFRS 10: Investment Entities* ü

PFRS 11 Joint Arrangements ü

PFRS 12 Disclosure of Interests in Other Entities ü

Amendments to PFRS 10: Investment Entities* ü

PFRS 13 Fair Value Measurement ü

Philippine Accounting Standards

PAS 1(Revised)

Presentation of Financial Statements ü

Amendment to PAS 1: Capital Disclosures ü

Amendments to PAS 32 and PAS 1: Puttable Financial Instrumentsand Obligations Arising on Liquidation

ü

Amendments to PAS 1: Presentation of Items of OtherComprehensive Income

ü

PAS 2 Inventories ü

PAS 7 Statement of Cash Flows ü

PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors ü

PAS 10 Events after the Reporting Period ü

PAS 11 Construction Contracts ü

PAS 12 Income Taxes ü

Amendment to PAS 12 - Deferred Tax: Recovery of UnderlyingAssets

ü

PAS 16 Property, Plant and Equipment ü

PAS 17 Leases ü

PAS 18 Revenue ü

PAS 19 Employee Benefits ü

Amendments to PAS 19: Actuarial Gains and Losses, Group Plansand Disclosures

ü

PAS 19(Amended)

Employee Benefits ü

Amendments to PAS 19: Defined Benefit Plans: EmployeeContributions*

ü

PAS 20 Accounting for Government Grants and Disclosure of GovernmentAssistance

ü

PAS 21 The Effects of Changes in Foreign Exchange Rates ü

Amendment: Net Investment in a Foreign Operation ü

PAS 23(Revised)

Borrowing Costs ü

PAS 24(Revised)

Related Party Disclosures ü

- 3 -

*Not early adopted


NotAdopted

NotApplicable

PAS 26 Accounting and Reporting by Retirement Benefit Plans ü

PAS 27 Consolidated and Separate Financial Statements ü

PAS 27(Amended)

Separate Financial Statements* ü

Amendments to PAS 27: Investment Entities ü

PAS 28 Investments in Associates ü

PAS 28(Amended)

Investments in Associates and Joint Ventures ü

PAS 29 Financial Reporting in Hyperinflationary Economies ü

PAS 31 Interests in Joint Ventures ü

PAS 32 Financial Instruments: Disclosure and Presentation ü

Amendments to PAS 32 and PAS 1: Puttable Financial Instrumentsand Obligations Arising on Liquidation

ü

Amendment to PAS 32: Classification of Rights Issues ü

Amendments to PAS 32: Offsetting Financial Assets and FinancialLiabilities

ü

Amendments to PAS 32: Offsetting Financial Assets and FinancialLiabilities*

ü

PAS 33 Earnings per Share ü

PAS 34 Interim Financial Reporting ü

PAS 36 Impairment of Assets ü

Amendments to PAS 36: Recoverable Amount Disclosures for Non-Financial Assets*

ü

PAS 37 Provisions, Contingent Liabilities and Contingent Assets ü

PAS 38 Intangible Assets ü

PAS 39 Financial Instruments: Recognition and Measurement ü

Amendments to PAS 39: Transition and Initial Recognition ofFinancial Assets and Financial Liabilities

ü

Amendments to PAS 39: Cash Flow Hedge Accounting of ForecastIntragroup Transactions

ü

Amendments to PAS 39: The Fair Value Option ü

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts ü

Amendments to PAS 39 and PFRS 7: Reclassification of FinancialAssets

ü

Amendments to PAS 39 and PFRS 7: Reclassification of FinancialAssets - Effective Date and Transition

ü

Amendments to Philippine Interpretation IFRIC-9 and PAS 39:Embedded Derivatives

ü

Amendment to PAS 39: Eligible Hedged Items ü

Amendments to PAS 39: Novation of Derivatives and Continuationof Hedge Accounting*

ü

PAS 40 Investment Property ü

PAS 41 Agriculture ü

- 4 -

*Not early adopted


NotAdopted

NotApplicable

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration and SimilarLiabilities

ü

IFRIC 2 Members' Share in Co-operative Entities and Similar Instruments ü

IFRIC 4 Determining Whether an Arrangement Contains a Lease ü

IFRIC 5 Rights to Interests arising from Decommissioning, Restoration andEnvironmental Rehabilitation Funds

ü

IFRIC 6 Liabilities arising from Participating in a Specific Market - WasteElectrical and Electronic Equipment

ü

IFRIC 7 Applying the Restatement Approach under PAS 29 FinancialReporting in Hyperinflationary Economies

ü

IFRIC 8 Scope of PFRS 2 ü

IFRIC 9 Reassessment of Embedded Derivatives ü

Amendments to Philippine Interpretation IFRIC-9 and PAS 39:Embedded Derivatives

ü

IFRIC 10 Interim Financial Reporting and Impairment ü

IFRIC 11 PFRS 2- Group and Treasury Share Transactions ü

IFRIC 12 Service Concession Arrangements ü

IFRIC 13 Customer Loyalty Programmes ü

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction

ü

Amendments to Philippine Interpretations IFRIC- 14, Prepaymentsof a Minimum Funding Requirement

ü

IFRIC 16 Hedges of a Net Investment in a Foreign Operation ü

IFRIC 17 Distributions of Non-cash Assets to Owners ü

IFRIC 18 Transfers of Assets from Customers ü

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments ü

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine* ü

IFRIC 21 Levies* ü

SIC-7 Introduction of the Euro ü

SIC-10 Government Assistance - No Specific Relation to OperatingActivities

ü

SIC-12 Consolidation - Special Purpose Entities ü

Amendment to SIC - 12: Scope of SIC 12 ü

SIC-13 Jointly Controlled Entities - Non-Monetary Contributions byVenturers

ü

SIC-15 Operating Leases - Incentives ü

SIC-25 Income Taxes - Changes in the Tax Status of an Entity or itsShareholders

ü

- 5 -

*Not early adopted


NotAdopted

NotApplicable

SIC-27 Evaluating the Substance of Transactions Involving the Legal Formof a Lease

ü

SIC-29 Service Concession Arrangements: Disclosures ü

SIC-31 Revenue - Barter Transactions Involving Advertising Services ü

SIC-32 Intangible Assets - Web Site Costs ü

Schedule 2

RECONCILIATION OF RETAINED EARNINGS AVAILABLE FOR DIVIDENDDECLARATIONAS OF DECEMBER 31, 2013

ItemsAmount

(In thousands)Unappropriated Retained Earnings, beginning P=10,538,036Adjustment• Adjustments in prior year –Unappropriated Retained Earnings, as adjusted, beginning 10,538,036Net Income based on the face of AFS 6,000,502Less: Non-actual/unrealized income net of tax• Recognized deferred income tax assets (610,677)• Unrealized foreign exchange gain - net (except those attributable to Cash and

Cash Equivalents) –• Unrealized actuarial gain –• Fair value adjustment (M2M gains) –• Fair value adjustment of Investment Property resulting to gain –• Adjustment due to deviation from PFRS/GAAP-gain –• Other unrealized gains or adjustments to the retained earnings as a result of

certain transactions accounted for under the PFRS –Add: Non-actual losses• Depreciation on revaluation increment (after tax) –• Adjustment due to deviation from PFRS/GAAP - loss –• Loss on fair value adjustment of investment property

(after tax) –Net Income Actual/Realized 5,389,825Less:• Dividend during the period (8,900,602)• Effects of prior period adjustments (508,375)

(9,408,977)Unappropriated Retained Earnings, as adjusted, ending P=6,518,884

Schedule 3

MAP OF THE RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUPAS OF DECEMBER 31, 2013

Schedule 4

FINANCIAL SOUNDNESS INDICATORS December 312013 2012

FINANCIAL RATIOSDebt to EBITDA 1.90 1.78

Debt Service Coverage Ratio 2.83 2.02

Interest Coverage Ratio 12.54 12.02

Debt to Equity (D/E Ratio) - gross 1.66 1.35

Debt to Equity (D/E Ratio) - net 1.49 1.20

Debt to Total Capitalization - book 0.62 0.57

Debt to Total Capitalization - market 0.24 0.30

Total Asset to Equity Ratio 3.82 3.24

Current Ratio 0.65 0.74

PROFITABILITY MARGINSEBITDA Margins 40% 42%

Net Profit Margin 5.2% 7.9%

-T-@ ' 1t**- ' , J'^ ^-i^' ^V^WSSS^SSSJI SisSPSSS 1

Globe Telecom, Inc.

The Globe Tower

32nd Street corner 7th Avenue,

Bonifacio Global City,

Taguig, Philippines 1634

+632.7972000

www.globe.com.ph

12 March 2014

Securities and Exchange Commission

SEC Building, Mandaluyong City

Attention: Mr. Vicente Graciano P. Felizmenio, Jr.

Director, Markets & Securities Regulation Department

Sir:

This is to certify that none of the current Globe Telecom, Inc. Board of Directors, including

Independent Directors, mentioned in the attached 2013 Definitive Information Statement holds any

position in the Philippine Government or in any government agency.

Thank you.

Very truly yours,

y&&@0-

MVI U^MUk ' VyOATTY.IBWRISALVECIOCSON-COComptffdce Officer, Assistant Corporate Secretary &

VP-Legal Services

Information Statement 20-IS - Globe Telecom · Gerardo C. Ablaza, Jr. 8. Romeo L. Bernardo Tay Soo...

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