Schedule of Proceeds from Bond Offering in 2013 (in Mln Php) Gross and net proceeds as disclosed in the Prospectus Gross proceeds 7,000 Net proceeds 6,934 Actual gross and net proceeds Actual gross proceeds 7,000 Actual net proceeds 6,933 Each expenditure item where the proceeds were used (In Million PhP) 3Q13 4Q13 Total Transformation 989 925 1,914 Business as Usual (Network-related, Business Support Systems, others) 2,405 2,614 5,019 Capital expenditures financed by Bonds 3,393 3,539 6,933 Balance of the proceeds as of the end of the reporting period Actual proceeds 6,933 Less: Capital Expenditures financed by Bonds in 2013 6,933 Balance as of December 31, 2013 -
Transcript
Schedule of Proceeds from Bond Offering in 2013
(in Mln Php)
Gross and net proceeds as disclosed in the Prospectus
Gross proceeds
7,000
Net proceeds
6,934
Actual gross and net proceeds
Actual gross proceeds
7,000
Actual net proceeds
6,933
Each expenditure item where the proceeds were used
(In Million PhP) 3Q13 4Q13 Total
Transformation 989 925 1,914
Business as Usual (Network-related, Business Support Systems, others) 2,405 2,614 5,019
Capital expenditures financed by Bonds 3,393 3,539 6,933
Balance of the proceeds as of the end of the reporting period
Actual proceeds
6,933
Less: Capital Expenditures financed by Bonds in 2013 6,933
Balance as of December 31, 2013
-
Schedule 5 - Supplementary schedules required by Annex 68-E
Schedule A Financial Assets
December 31, 2013
Number of Valued based
Name of issuing entity
and association of each
issue
shares or on marketprincipal Amount shown quotation at
amount of in the balance end of reporting Income received
bonds and notes sheet period and accrued
AVA Online Group, Inc
City Sports Club Cebu
Makati Executive Center
Manila Golf & CountryClub Inc.
Manila Polo Club
Phi lam PropertiesCorporation/ Tower Club
Inc.
PLDT
TAODHARMATripid PhilippinesIncorporated
Telecoms Infrastructure
Corp. of the Phil.
ZapGroup Inc.
30,000 shares
1 share
1 share
Club A- 116
350,512 shares
550,000 shares
1,333 shares
2,970,449 shares
62,500 shares
P2,100,000
699,908
30,100.00
3 shares 100,000,000 100,000,000
3 shares 39,896,841 39,896,841
500,000
3,515,120
55,000,000
9,400,000
2,970,449
8,600,000
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Indebtedness to Related Parties (Long-Term Loans from Related Companies)
December 31, 2013
Name of Related Party Balances at beginning of Balance at end of period
period
Not Applicable
Guarantees of Securities of Other Issuers
December 31, 2013
Name of issuing Title of issue Total amount Amount owned Nature of
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION March 31 December 31
Notes 2014
(Unaudited)
2013 (Unaudited)
2013 (Audited)
(In Thousand Pesos)
ASSETS Current Assets Cash and cash equivalents P=6,503,207 P=6,662,470 P=7,420,735 Receivables 14,166,010 11,660,109 15,200,923 Inventories and supplies 3,437,406 3,225,355 3,544,887 Derivative assets 13 18,556 6,424 1,834 Prepayments and other current assets 5 10,716,456 10,157,546 9,462,823 34,841,635 31,711,904 35,631,202 Assets classified as held for sale – 778,321 – 34,841,635 32,490,225 35,631,202 Noncurrent Assets Property and equipment 3 111,493,335 100,096,684 110,424,072 Intangible assets and goodwill 4 4,453,616 5,587,227 3,840,660 Investments in an associate and joint ventures 6 199,852 208,238 162,754 Deferred income tax assets - net 2,005,244 726,021 1,916,878 Derivative assets 13 669,950 – 553,562 Other noncurrent assets 5 6,365,518 7,464,767 6,549,805 125,187,515 114,082,937 123,447,731 Total Assets P=160,029,150 P=146,573,162 P=159,078,933
LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued expenses P=40,681,792 P=29,573,630 P=39,486,830 Notes payable 7 2,240,450 2,045,900 5,219,900 Provisions 331,136 307,433 294,700 Derivative liabilities 13 168,603 261,575 219,694 Income tax payable 2,319,940 2,270,765 1,028,263 Unearned revenues 2,451,491 2,454,721 2,759,644
Current portion of long-term debt 7 6,116,941 10,269,612 5,980,300 54,310,353 47,183,636 54,989,331 Liabilities directly associated with the assets
classified as held for sale – 427,942 – 54,310,353 47,611,578 54,989,331 Noncurrent Liabilities Long-term debt - net of current portion 7 61,527,092 52,108,352 58,100,749 Deferred income tax liabilities - net – 974,351 – Derivative liabilities 13 – 4,104 – Other long-term liabilities - net of current
portion 4,524,949 3,906,875 4,349,602 66,052,041 56,993,682 62,450,351 Total Liabilities 120,362,394 104,605,260 117,439,682 Equity Attributable to equity holders of the Parent Paid-up capital 34,473,266 34,119,694 34,402,396 Cost of share-based payments 204,236 452,237 261,144 Other reserves 8 (699,168) (479,886) (739,575) Retained earnings 8 5,689,580 7,875,857 7,715,286 39,667,914 41,967,902 41,639,251 Noncontrolling interest (1,158) – – Total Equity 39,666,756 41,967,902 41,639,251 Total Liabilities and Equity P=160,029,150 P=146,573,162 P=159,078,933 See accompanying Notes to Interim Condensed Consolidated Financial Statements.
GLOBE TELECOM, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three-Month Period Ended
March 31
Notes 2014
(Unaudited)
2013 (Unaudited)
(In Thousand Pesos)
REVENUES
Service revenues P=23,230,138 P=21,368,505 Nonservice revenues 1,129,991 1,102,188 24,360,129 22,470,693
INCOME Interest income 5 163,705 179,990 Gains on disposals of property and equipment - net 24,981 12,340 Equity in net income of joint ventures – 10,794 Other income - net 119,694 93,739 308,380 296,863
COSTS AND EXPENSES General, selling and administrative 9 9,880,974 8,406,376 Depreciation and amortization Incremental effect of network modernization 3, 4 512,268 3,061,824 Others 3, 4 3,555,211 4,345,021 Cost of sales 2,867,478 2,707,425 Interconnect costs 2,057,295 2,195,423 Impairment losses and others 9 833,683 496,171 Financing costs 9 628,723 689,414 Equity in net losses of joint ventures 26,936 – 20,362,568 21,901,654
INCOME BEFORE INCOME TAX 4,305,941 865,902
PROVISION FOR (BENEFIT FROM) INCOME TAX Current 1,464,892 1,229,751 Deferred (107,943) (1,019,891) 1,356,949 209,860
NET INCOME 2,948,992 656,042
OTHER COMPREHENSIVE INCOME (LOSS) 8 Items to be reclassified to profit or loss in subsequent periods: Transactions on cash flow hedges - net 64,832 45,790 Exchange differences arising from translations of foreign investments 11,485 784 Changes in fair value of available-for-sale investment in equity securities (16,461) 13,816 Income tax effect (19,449) (13,737) 40,407 46,653
TOTAL COMPREHENSIVE INCOME P=2,989,399 P=702,695
Total comprehensive income (loss) attributable to: Equity holders of the Parent P=2,990,052 P=702,695 Noncontrolling interest (653) –
P=2,989,399 P=702,695
(Forward)
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Three-Month Period Ended
March 31
Notes 2014
(Unaudited)
2013 (Unaudited)
Earnings Per Share 12 Basic P=22.15 P=4.88 Diluted P=22.13 P=4.88 Cash dividends declared per common share 8 P=37.50 P=33.50 See accompanying Notes to Interim Condensed Consolidated Financial Statements.
GLOBE TELECOM, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the Three-Month Period Ended March 31, 2014 (Unaudited)
Attributable to Equity Holders of the Parent
Notes
Capital
Stock
Additional
Paid-in
Capital
Cost of
Share-Based
Payments
Other
Reserves
Retained
Earnings
Total
Non-
controlling
Interest Total
(In Thousand Pesos)
As of January 1, 2014 P=7,422,360 P=26,980,036 P=261,144 (P=739,575) P=7,715,286 P=41,639,251 P=– P=41,639,251
Total comprehensive income for the period 8 – – – 40,407 2,949,645 2,990,052 (653) 2,989,399 Dividends on common stock 8 – – – – (4,975,351) (4,975,351) – (4,975,351) Exercise of stock options 4,046 66,824 (56,908) – – 13,962 – 13,962
Noncontrolling interest arising from a business combination 6
–
–
–
–
–
–
(505)
(505)
As of March 31, 2014 P=7,426,406 P=27,046,860 P=204,236 (P=699,168) P=5,689,580 P=39,667,914 (P=1,158) P=39,666,756
For the Three-Month Period Ended March 31, 2013 (Unaudited)
Notes Capital
Stock
Additional Paid-in Capital
Cost of Share-Based
Payments Other
Reserves Retained Earnings Total
(In Thousand Pesos)
As of January 1, 2013 P=7,412,866 P=26,683,110 P=472,911 (P=526,539) P=11,655,643 P=45,697,991 Total comprehensive income for the period 8 – – – 46,653 656,042 702,695 Dividends on common stock 8 – – – – (4,435,828) (4,435,828) Exercise of stock options 602 23,116 (20,674) – – 3,044 As of March 31, 2013 P=7,413,468 P=26,706,226 P=452,237 (P=479,886) P=7,875,857 P=41,967,902 (Forward)
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For the Year Ended December 31, 2013 (Audited)
Notes
Capital Stock
Additional Paid-in Capital
Cost of Share-Based
Payments Other
Reserves Retained Earnings Total
(In Thousand Pesos)
As of January 1, 2013 P=7,412,866 P=26,683,110 P=472,911 (P=526,539) P=11,655,643 P=45,697,991 Total comprehensive income for the year 8 – – – (213,036) 4,960,245 4,747,209 Dividends on: 8 Common stock – – – – (8,876,764) (8,876,764) Preferred stock – – – – (23,838) (23,838) Cost of share-based payments – – 50,000 – – 50,000 Exercise of stock options 9,494 296,926 (261,767) – – 44,653 As 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 See accompanying Notes to Interim Condensed Consolidated Financial Statements.
GLOBE TELECOM, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Month Period Ended
March 31
Notes 2014
(Unaudited)
2013 (Unaudited)
(In Thousand Pesos)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax P=4,305,941 P=865,902 Adjustments for: Depreciation and amortization 3, 4 4,067,479 7,406,845 Interest expense 9 488,007 506,775 Interest income (163,705) (179,990) Foreign exchange losses - net 73,316 49,192 Loss (gain) on derivative instruments - net (59,512) 64,812 Impairment losses on property and equipment
and intangible assets
9 43,530 9,373 Provisions for claims and assessments 9 36,436 104,242 Equity in net losses (income) of joint ventures 26,936 (10,794) Gains on disposals of property and equipment - net 3 (24,981) (12,340) Operating income before working capital changes 8,793,447 8,804,017 Changes in operating assets and liabilities: Decrease (increase) in: Receivables 875,377 431,840 Inventories and supplies 107,482 (1,149,179) Prepayments and other current assets (1,258,820) 2,087,497 Increase (decrease) in: Accounts payable and accrued expenses 398,365 (679,716) Unearned revenues (308,153) (48,182) Other long-term liabilities 110,840 (48,659) Net cash generated from operations 8,718,538 9,397,618 Income taxes paid (172,460) (244,658) Net cash flows provided by operating activities 8,546,078 9,152,960
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to: Property and equipment 3, 15 (4,687,916) (6,917,020) Intangible assets 4 (26,727) (11,834) Investments in an associate and joint ventures (60,000) – Decrease in other noncurrent assets 438,348 241,523 Proceeds from sale of property and equipment 26,792 14,434 Interest received 24,646 36,083 Acquisition of subsidiary, net of cash acquired (3,382) – Net cash flows used in investing activities (4,288,239) (6,636,814)
(Forward)
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Three Months Ended
March 31
Notes 2014
(Unaudited)
2013 (Unaudited)
(In Thousand Pesos)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings: 7 Long-term P=4,000,000 P=3,052,875 Repayments of borrowings: 7 Long-term (597,500) (415,057) Short-term (3,000,000) – Payments of dividends to stockholders: 8 Common (4,975,351) (4,435,828) Preferred – (33,145) Exercise of stock options 13,962 3,044 Interest paid (664,453) (753,511) Net cash flows used in financing activities (5,223,342) (2,581,622)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(965,503) (65,476)
NET FOREIGN EXCHANGE DIFFERENCE
47,975 (31,809)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE PERIOD
7,420,735 6,759,755
CASH AND CASH EQUIVALENTS AT END OF THE
PERIOD P=6,503,207 P=6,662,470 See accompanying Notes to Interim Condensed Consolidated Financial Statements.
GLOBE TELECOM, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS 1. Basis of Financial Statement Preparation
The interim condensed consolidated financial statements of Globe Telecom, Inc. and Subsidiaries (the “Globe Group”) as of and for the quarter ended March 31, 2014 and 2013 were authorized for issue in accordance with a resolution of the Board of Directors (BOD) on May 12, 2014. Globe Telecom, Inc. (herein referred to as “Globe Telecom” or “Globe”) is a company incorporated and domiciled in the Philippines whose shares are publicly traded. The principal activities of Globe and its subsidiaries are described in Note 14. The accompanying interim condensed consolidated financial statements have been prepared in accordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting.
Accordingly, the interim condensed consolidated financial statements do not include all of the information required in the annual audited financial statements, and should be read in conjunction with the Globe Group‟s annual financial statements as at December 31, 2013.
The preparation of the financial statements in compliance with Philippine Financial Reporting Standards (PFRS) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The estimates and assumptions used in the accompanying interim condensed consolidated financial statements are based upon management‟s evaluation of relevant facts and circumstances as of the date of the interim condensed consolidated financial statements. Actual results could differ from such estimates.
The interim condensed consolidated financial statements include the accounts of Globe Telecom and its wholly owned subsidiaries, Innove Communications, Inc. (herein referred to as “Innove”), G-Xchange, Inc. (herein referred to as “GXI”), Entertainment Gateway Group Corp. (EGGC), GTI Business Holdings, Inc. (herein referred to as “GTI”) and its subsidiaries and Kickstart Ventures, Inc. (herein referred to as “Kickstart”) and its subsidiary, collectively referred to as “Globe Group”. Kickstart subsidiary was consolidated starting February 2014. GTI wholly-owned subsidiaries are: GTI Corporation (GTIC US), Globe Telecom HK Limited (GTHK) and Globetel European Limited (GTEU). GTEU wholly owned subsidiaries are UK Globetel Limited (UKGT), Globe Mobile‟ Italy S.r.l. (GMI) and Globetel Internacional European España, S.L. In February 2014, Kickstart acquired 40% equity interest in Flipside Publishing Services, Inc. (FPSI) which is classified as a subsidiary based on its assessment of relevant facts and circumstances. The interim condensed consolidated financial statements are presented in Philippine Peso (P=), the Globe‟s functional currency, and rounded to the nearest thousands except when otherwise indicated.
- 2 -
2. Accounting Policies
2.1 Changes in Accounting Policies The accounting policies adopted in the preparation of the interim condensed 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, 2013, except for the adoption of the following new and amended standards effective as of January 1, 2014.
The nature and impact of each new standard and amendment is described below: Amendments to PFRS 10, PFRS 12 and PAS 27, Investment Entities
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.
Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for
Non-Financial Assets These amendments remove the unintended consequences of PFRS 13, Fair Value
Measurement, 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. The amendments have no impact on the Globe Group‟s financial position or performance.
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 adoption of the standard has no impact to the Globe Group.
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 the criteria for simultaneous settlement mechanisms of clearing houses to qualify for offsetting. The amendments have no impact on the Globe Group‟s financial position
or performance.
- 3 -
3. Property and Equipment The rollforward analysis of property and equipment follows: March 31, 2014
Telecommunications
Equipment
Buildings and
Leasehold
Improvements
Investments in
Cable Systems
Office
Equipment
Transportation
Equipment Land
Assets Under
Construction Total
(Unaudited and In Thousand Pesos)
Cost
At January 1 P=199,195,469 P=34,805,499 P=18,979,908 P=9,223,985 P=2,338,024 P=1,600,413 P=20,318,463 P=286,461,761
adjustments (14,316) (5,290) 808,019 (148,769) 1,443 – – 641,087 At December 31 141,480,546 16,003,575 8,689,260 7,544,300 1,700,206 – – 175,417,887 Impairment Losses At January 1 138,069 – – 3,182 – – 468,987 610,238 Additions (reversals) 123,852 – – – – – (97,540) 26,312 Write-off/adjustments (18,099) – – – – – 1,351 (16,748) At December 31 243,822 – – 3,182 – – 372,798 619,802 Net 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
In the last quarter of 2011, Globe Group has announced to undertake a network and IT transformation program for an estimated investment of USD790.00 million over the next two to three years. External partners were engaged in 2011 to help manage the modernization effort. In the first quarter of 2012, the estimated useful life (EUL) of certain wireless and wireline telecommunications equipment were changed as a result of continuing upgrade and migration to a modernized network. The net effect of the change in EUL resulted in higher depreciation expense of P=371.89 million and P=2,536.35 million for the three-month period ended March 31, 2014 and 2013, respectively. Assets under construction include intangible components of a network system which are to be reclassified to depreciable intangible assets only when assets become available for use (see Note 4). The Globe Group uses its borrowed funds to finance the acquisition of property and equipment and bring it to its intended location and working condition. Borrowing costs incurred relating to these acquisitions were included in the cost of property and equipment using 4.66%, 2.29% and 2.83% capitalization rates for the three-month period ended March 31, 2014 and 2013 and for the year ended December 31, 2013, respectively. The Globe Group‟s total capitalized borrowing costs amounted to P=219.48 million, P=181.06 million and P=823.90 million for the three-month period ended March 31, 2014 and 2013, and for the year ended December 31, 2013, respectively.
The Globe Group is currently recovering decommissioned network assets affected by the conversion to new upgraded equipment from its continuing network modernization project, including computer related assets, from its IT transformation project.
The carrying value of the hardware infrastructure and information equipment held under finance lease (included under “Telecommunications equipment” and “Asset under
construction”) as of March 31, 2014 and 2013, and December 31, 2013 amounted to P=958.63 million, P=738.09 million and P=753.85 million, respectively.
4. Intangible Assets and Goodwill
In the first quarter of 2012, the EUL of certain wireless licenses were changed as a result of continuing upgrade and migration to a modernized network. The net effect of the change in EUL resulted to higher amortization expense of P=140.38 million and P=525.48 million for the three-month period ended March 31, 2014 and 2013, respectively.
- 5 -
The rollforward analysis of intangible assets and goodwill follows:
March 31, 2014
Licenses and
Application
Software
Customer
Contracts
Exclusive
Dealership
Right
Total
Intangible
Assets Goodwill
Total
Intangible
Assets and
Goodwill
(Unaudited and In Thousand Pesos)
Cost
At January 1 P=13,681,879 P=28,381 P=67,552 P=13,777,812 P=327,125 P=14,104,937
At March 31 10,506,872 28,381 6,901 10,542,154 – 10,542,154
Net Book Value at March 31 P=4,036,296 P=– P=90,195 P=4,126,491 P=327,125 P=4,453,616
March 31, 2013
Licenses and Application
Software Customer Contracts
Total Intangible
Assets Goodwill
Total Intangible Assets and
Goodwill (Unaudited and In Thousand Pesos)
Cost At January 1 P=11,260,680 P=28,381 P=11,289,061 P=327,125 P=11,616,186 Additions 11,834 – 11,834 – 11,834 Reclassifications/
adjustments (Note 3) 2,371,335 –
2,371,335 –
2,371,335 At March 31 13,643,849 28,381 13,672,230 327,125 13,999,355 Accumulated Amortization At January 1 7,796,686 25,542 7,822,228 – 7,822,228 Amortization
Affected by network modernization 525,477
–
525,477
–
525,477
Others 62,330 – 62,330 – 62,330 Reclassifications/adjustments 2,093 – 2,093 – 2,093 At March 31 8,386,586 25,542 8,412,128 – 8,412,128 Net Book Value at March 31 P=5,257,263 P=2,839 P=5,260,102 P=327,125 P=5,587,227
(Note 3) (2,758) – – (2,758) – (2,758) At December 31 10,232,761 28,381 3,135 10,264,277 – 10,264,277 Net Book Value at December 31 P=3,449,118 P=– P=64,417 P=3,513,535 P=327,125 P=3,840,660
Intangible assets pertain to (1) telecommunications equipment software licenses, corporate application software and licenses and other VAS software applications that are not integral to the hardware or equipment; (2) costs of the web application system developed by a third party for Kickstart; (3) intangible assets identified to exist during the acquisition of EGG Group for its existing customer contracts and (4) exclusive dealership right in Taodharma.
5. Loan Receivable from Bayan Telecommunications Inc. (BTI) For the three-month period ended March 31, 2014 and March 31, 2013, interest income related to loans receivable from BTI amounted to P=125.25 million and P=37.99 million, respectively. Principal remittances for the three-month period ended March 31, 2014 amounted to USD$4.37 million (P=197.21 million). As of March 31, 2014 and 2013, and December 31, 2013, loans receivable from BTI amounted to P=4.87 billion, P=5.05 billion and P=5.04 billion, respectively, comprising of principal and interest due until 2023, with quarterly interest payments and semi-annual principal payments. The current portion of the BTI loans is classified under “Prepayments and other current assets” and the noncurrent portion is classified under “Noncurrent assets” in the statements of
financial position. 6. Investments
Investment in BTI On October 1, 2013, Globe Telecom acquired 38% interest in BTI following the conversion of its unsustainable debt (Tranche B) into 45 million common shares based on the confirmation of the court dated August 27, 2013 of the Amended Rehabilitation Plan. Globe Telecom will further convert its share of the Tranche A debt upon certain regulatory approvals. Globe Telecom‟s acquisition of BTI is intended to increase its current data and DSL businesses using BTI‟s existing platform. As of March 31, 2014, 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=47.45 per share. The accumulated unrecognized share in net loss and other comprehensive income as of March 31, 2014 amounted to P=488.68 million and P=31.88 million, respectively.
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As of March 31, 2014, the National Telecommunications Commission (NTC) approval for the change in control of BTI is still pending.
Investment in Automatic Fare Collection System Inc. (AFCS) On January 30, 2014, following a competitive bidding process, the Department of Transportation and Communication (DOTC) awarded to AF consortium, composed of AC Infrastructure Holdings Corp., BPI Card Finance Corp., Globe Telecom, Inc., Meralco Financial Services, Inc., Metro Pacific Investments Corp., and Smart Communications, Inc. the rights to design, build and operate the P=1.72 billion automated fare collection system (AFCS). This is a public-private partnership project intended to upgrade and consolidate the fare collection systems of the three urban rail transit systems which presently serve Metro Manila. On February 10, 2014, AF Consortium incorporated a special purpose company, Automated Fare Collection Services, Inc., which will assume the rights and obligations of the concessionaire. These rights and obligations include the construction and establishment of systems, infrastructure including implementation, test, acceptance and maintenance plans, and operate the urban transit system for a period of 10 years. Globe Telecom‟s investment in the consortium amounts to P=300 million or 20% interest. Investment in FPSI On December 19, 2013, Kickstart entered into a Memorandum of Agreement with FPSI and FPSI‟s stockholders to subscribe to 5.07 million common shares of FPSI for a total subscription price of P=18.88 million to obtain 65% cumulative ownership. FPSI is engaged in acquiring, publishing rights to produce, publish, market and sell printed and electronic books and other electronic documents and content for international and domestic sales. On February 4, 2014, Kickstart entered into a subscription agreement with FPSI for the acquisition of 2.08 million common shares for a total subscription price of P=8.22 million which constitutes 40% ownership. The purchase price consideration had been allocated to the identifiable assets and liabilities of FPSI on the basis of its book values. As permitted by the revised PFRS 3, Kickstart will recognize any adjustment to those provisional values as an adjustment to goodwill upon determining the final fair values of identifiable assets and liabilities within 12 months from acquisition date. From the date of acquisition, FPSI has contributed P=0.11 million of revenue and a loss before income tax of P=1.10 million.
Net cash outflow from the acquisition is as follows (in thousand pesos):
Total cash paid on acquisition P=3,580 Cash and cash equivalents acquired from Flipside (198) Net cash outflow on acquisition P=3,382
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7. Notes Payable and Long-term Debt
Notes payable consist of short-term unsecured US dollar and peso-denominated promissory notes from local banks for working capital requirements. As of March 31, 2014 and 2013, and December 31, 2013, notes payable amounting to P=2,240.45 million, P=2,045.90 million and P=5,219.90 million, respectively, bear interest ranging from 1.26% to 1.55%, 1.12% to 1.65% and 1.12% to 3.00%, respectively.
Long-term debt consists of:
March 31 December 31
2014
(Unaudited)
2013 (Unaudited)
2013 (Audited)
(In Thousand Pesos) Term Loans: Peso P=31,577,844 P=38,035,050 P=28,018,106 Dollar 14,184,117 8,605,548 14,321,158 Corporate notes 4,884,400 5,821,284 4,877,621 Retail bonds 16,997,672 9,916,082 16,864,164 67,644,033 62,377,964 64,081,049 Less current portion 6,116,941 10,269,612 5,980,300 P=61,527,092 P=52,108,352 P=58,100,749
The maturities of long-term debt at nominal values as of March 31, 2014 follow (in thousand pesos):
Due in: 2014 P=5,402,643 2015 6,136,428
2016 7,554,934 2017 4,924,099 2018 and thereafter 44,011,364 P=68,029,468
Unamortized debt issuance costs included in the above long-term debt as of March 31, 2014 and 2013, and December 31, 2013 amounted to P=385.44 million, P=321.39 million and P=402.34 million, respectively. The interest rates and maturities of the above loans are as follows:
Maturities Interest Rates Term Loans: Peso 2014-2022 1.02% to 6.00% in 2014 0.99% to 6.00% in 2013 Dollar 2015-2022 1.26% to 1.75% in 2014 1.27% to 1.80% in 2013 Corporate notes 2014-2016 1.65% to 8.43% in 2014 and
2013 Retail bonds 2017-2023 4.89% to 6.00% in 2014 4.89% to 6.00% in 2013
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7.1 Term Loans and Corporate Notes Globe Telecom‟s unsecured term loans and corporate notes, which consist of fixed and floating rate notes and dollar and peso-denominated term loans, bear interest at stipulated and prevailing market rates. On March 6, 2013, Globe Telecom signed a USD75 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 Telecom 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 Telecom 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 December 4, 2013, Globe Telecom signed a P=7,000.00 million 7-year term loan credit facility with fixed interest rate with Land Bank of the Philippines as lender. The proceeds of the loan shall be used to partially finance Globe Telecom‟s general financing and
corporate requirements for capital expenditures. The loan agreements with banks and other financial institutions provide for certain restrictions and requirements with respect to, among others, maintenance of financial ratios and percentage of ownership of specific shareholders, incurrence of additional long-term indebtedness or guarantees and creation of property encumbrances.
As of March 31, 2014, the Globe Group is not in breach of any loan covenants.
7.2 Retail Bonds
On June 1, 2012, Globe Group issued P=10,000.00 million fixed rate bonds. The amount comprises P=4,500.00 million and P=5,500.00 million fixed rate bonds due in 2017 and 2019, with interest rate of 5.75% and 6.00%, respectively. The net proceeds of the issue shall be used to partially finance Globe 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 two years before maturity date and on the anniversary thereafter at a price equal to 101.00% and 100.50%, respectively, of the principal amount of the bonds and all accrued interest to the date of the redemption.
On July 17, 2013, the Globe Group issued P=7,000.00 million fixed rate bond. The amount comprises P=4,000.00 million and P=3,000.00 million bonds due in 2020 and 2023, with interest rate of 4.8875% and 5.2792%, respectively. The net proceeds of the issue shall be used to partially finance the Globe Group‟s capital expenditure requirements in 2013.
The seven-year and ten-year retail bonds may be redeemed in whole, but not in part only, starting two years for the seven-year bonds and three years for the ten-year bonds before the maturity date and 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 of redemption.
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The prepayment feature is assessed as clearly and closely related to the host debt instrument, and hence need not be separately accounted for at fair value through profit or loss.
The Globe Group has to meet certain bond covenants including a maximum debt-to-equity ratio of 2 to 1. As of March 31, 2014, the Globe Group is not in breach of any bond covenants.
8. Equity and Other Comprehensive Income
8.1 Preferred Shares
On February 10, 2014, the BOD approved the amendment of Articles of Incorporation (AOI) to reclassify 31 million of unissued common shares with par value of P=50 per share and 90 million of unissued voting preferred shares with par value of P=5 per share into a new class of 40 million non-voting preferred shares with par value of P=50 per share. As of May 12, 2014, Globe Telecom is still processing its application for the aforementioned amendment of AOI with the Securities and Exchange Commission (SEC).
8.2 Common Stock
The rollforward of outstanding common shares follows:
March 31, 2014 March 31, 2013 December 31, 2013 Shares Amount Shares Amount Shares Amount (In Thousand Pesos and Number of Shares)
At beginning of year 132,596 P=6,629,785 132,406 P=6,617,424 132,406 P=6,620,291 Exercise of stock options 80 4,076 11 3,469
190
9,494
At end of period 132,676 P=6,633,861 132,417 P=6,620,893 132,596 P=6,629,785
8.3 Cash Dividends
Information of Globe Group‟s cash dividends follows:
Date
Per Share Amount Record Payable
(In Thousand Pesos, Except Per Share Figures)
Preferred stock dividends declared on: November 8, 2013 P=0.15 P=23,838 November 22, 2013 December 8, 2013
Common stock dividends declared on: 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 February 10, 2014 37.50 4,975,351 February 26, 2014 March 20, 2014
The dividend policy of Globe Telecom as approved by the BOD is to declare cash dividends to its common stockholders on a regular basis as may be determined by the BOD. On November 8, 2011, the BOD approved the current dividend policy of Globe Telecom to distribute cash dividends at the rate of 75% to 90% of prior year‟s core net income. On August 6, 2013, the BOD further approved the change in distribution from semi-annual dividend payments to quarterly dividend distributions. However, on December 10, 2013, the BOD approved to 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, taking into account Globe Telecom‟s operating results, cash flows, debt covenants, capital expenditure levels and liquidity.
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8.4 Retained Earnings Available for Dividend Declaration The total unrestricted retained earnings available for dividend declaration amounted to P=3,256.86 million as of March 31, 2014. This amount excludes the undistributed net earnings of consolidated subsidiaries, accumulated equity in net earnings of joint ventures accounted for under 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 is also subject to loan covenants that restrict its ability to pay dividends.
8.5 Other Comprehensive Income
Other Reserves For the Three-Month Period Ended March 31, 2014
Cash flow
hedges
Available-for-
sale financial
assets
Exchange
differences arising
from translations
of foreign
investments
Remeasurement
losses on defined
benefit plan
Total
(Unaudited and In Thousand Pesos)
As of January 1, 2014 P=35,027 P=57,775 (P=6,020) (P=826,357) (P=739,575)
Fair value changes 83,257 (16,461) – – 66,796
Transferred to profit or loss (18,425) – – – (18,425)
Exchange differences – – 11,485 – 11,485
Income tax effect (19,449) – – – (19,449)
As of March 31, 2014 P=80,410 P=41,314 P=5,465 (P=826,357) (P=699,168)
For the Three-Month Period Ended March 31, 2013
Cash flow hedges
Available-for- sale financial
assets
Exchange differences arising
from translations of foreign
investments
Remeasurement losses on defined
benefit plan Total (Unaudited and 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 (9,215) 13,816 – – 4,601 Transferred to profit or loss 55,005 – – – 55,005 Exchange differences – – 784 – 784 Income tax effect (13,737) – – – (13,737) As of March 31, 2013 (P=89,147) P=94,091 (P=2,879) (P=481,951) (P=479,886)
For the Year Ended December 31, 2013
Cash flow
hedges AFS financial
assets
Exchange differences
arising from translations
of foreign investments
Remeasurement losses on defined
benefit plan Total (Audited and 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) – – 383,694 Transferred 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 80,648 Exchange 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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9. Costs and Expenses
9.1 General, selling and administrative expenses consist of:
Three-Month Period Ended
2014 2013
(Unaudited and In Thousand Pesos)
Staff costs P=1,950,086 P=1,666,028 Professional and other contracted services 1,756,156 1,102,517 Selling, advertising and promotions 1,731,142 1,296,996 Utilities, supplies and other administrative expenses 1,144,650 1,001,275 Repairs and maintenance 1,089,295 966,281 Rent 915,942 839,856 Courier, delivery and miscellaneous expenses 408,912 466,441 Taxes and licenses 407,603 589,688 Insurance and security services 347,038 335,331 Others 130,150 141,963 P=9,880,974 P=8,406,376
The “Others” account includes various items that are individually immaterial.
9.2 Impairment losses and others consist of:
Three-Month Period Ended
Note 2014 2013
(Unaudited and In Thousand Pesos)
Impairment loss on: Receivables 3 P=660,231 P=355,990 Property and equipment 43,530 9,373 Provisions for: Inventory obsolescence and market decline
93,486 26,566 Other probable losses 36,436 104,242 P=833,683 P=496,171
9.3 Financing costs consist of:
Three-Month Period Ended
2014 2013
(Unaudited and In Thousand Pesos)
Interest expense* P=488,007 P=506,775 Foreign exchange loss - net 73,316 49,192 Swap and other financing costs - net 67,400 65,487 Loss on derivative instruments – 67,960 P=628,723 P=689,414
*This account is net of capitalized expense and inclusive of amortization of debt issuance costs.
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Interest expense is incurred on the following: Three-Month Period Ended
10. Contingencies The Globe Group is contingently liable for various claims arising in the ordinary conduct of business and certain tax assessments which are either pending decision by the courts or are being contested, the outcome of which are not presently determinable. In the opinion of management and legal counsel, the possibility of outflow of economic resources to settle the contingent liability is remote.
11. Agreements and Commitments
Agreements and commitments with suppliers The Globe Group engaged the services of various suppliers for the upgrade of its wireless, data and telephony network. In partnership with an equipment and service provider and the appointment of a project and program manager, Globe Group is undertaking a transformation upgrade and overhaul of its business support systems, engaging a solution partner for this USD790.00 million modernization project. Deed of Assignment of Certificate of Public Convenience and Necessity by Wordwide Communication Inc. (WWCI) On July 5, 2013, the NTC approved the “Deed of Assignment” (DoA) dated February 13, 2013 executed by WWCI in favor of Globe Telecom. Through the DoA, WWCI assigned and transferred its entire interest including the operation of its Trunk Radio Network, the Certificate of Public Convenience and Necessity granted by the NTC and the pertinent permits necessary to operate the trunk radio to Globe Telecom. The total consideration under the said original DoA was P=30.00 million. On April 1, 2014, Globe Telecom and WWCI signed the Supplemental Agreement to the DoA for final consideration of P=150.00 million to be paid in tranches upon fulfillment of stated conditions. Conditions include reassignment and reallocation of Radio Station Licenses and issuance of associated Frequency Assignment Sheets in the name of Globe. Pending compliance on the conditions, payments will be recorded as advances classified under „Prepayments and other current assets‟ in the statements of financial position.
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12. Earnings Per Share Globe Group‟s earnings per share amounts were computed as follows:
Three-Month Period Ended
2014 2013
(Unaudited and In Thousand Pesos and Number of Shares, Except
Per Share Figures)
Net income attributable to common shareholders for basic earnings per share (a) P=2,939,132 P=646,706
Add dividends on preferred shares 9,860 9,336 Net income attributable to common shareholders
for diluted earnings per share (b) P=2,948,992 P=656,042
Common shares outstanding, beginning 132,596 132,406 Add exercised stock options 80 11 Weighted average number of shares for basic
earnings per share (c) 132,676 132,417 Dilutive shares arising from: Convertible preferred shares 469 700 Stock options 139 116 Adjusted weighted average number of common
shares for diluted earnings per share (d) 133,284 133,233 Basic earnings per share (a/c) P=22.15 P=4.88 Diluted earnings per share (b/d) P=22.13 P=4.88
13. Capital and Risk Management and Financial Instruments
13.1 General The Globe Group adopts an expanded corporate governance approach in managing its business risks. An Enterprise Risk Management Policy was developed to systematically view the risks and to provide a better understanding of the different risks that could threaten the achievement of the Globe Group‟s mission, vision, strategies, and goals, and to provide emphasis on how management and employees play a vital role in achieving the Globe Group‟s mission of transforming and enriching lives through communications.
The policies are not intended to eliminate risk but to manage it in such a way that opportunities to create value for the stakeholders are achieved. Globe Group risk management takes place in the context of the normal business processes such as strategic planning, business planning, operational and support processes.
The application of these policies is the responsibility of the BOD through the Chief Executive Officer. The Chief Financial Officer and concurrent Chief Risk Officer champions and oversees the entire risk management function. Risk owners have been identified for each risk and they are responsible for coordinating and continuously improving risk strategies, processes and measures on an enterprise-wide basis in accordance with established business objectives.
The risks are managed through the delegation of management and financial authority and individual accountability as documented in employment contracts, consultancy contracts,
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letters of authority, letters of appointment, performance planning and evaluation forms, key result areas, terms of reference and other policies that provide guidelines for managing specific risks arising from the Globe Group‟s business operations and environment.
The Globe Group continues to monitor and manage its financial risk exposures according to its BOD approved policies.
13.2 Credit Risk
Applications for postpaid service are subjected to standard credit evaluation and verification procedures. The Globe Group continuously reviews credit policies and processes and implements various credit actions, depending on assessed risks, to minimize credit exposure. Receivable balances of postpaid subscribers are being monitored on a regular basis and appropriate credit treatments are applied at various stages of delinquency. Likewise, net receivable balances from carriers of traffic are also being monitored and subjected to appropriate actions to manage credit risk. The maximum credit exposure relates to receivables net of any allowances provided.
With respect to credit risk arising from other financial assets of the Globe Group, which comprise cash and cash equivalents, short-term investments, AFS financial investments, and certain derivative instruments, the Globe Group‟s exposure to credit risk arises from
the default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Globe Group‟s investments comprise short-term bank deposits and government securities. Credit risk from these investments is managed on a Globe Group basis. For its investments with banks, the Globe Group has a counterparty risk management policy which allocates investment limits based on counterparty credit rating and credit risk profile.
The Globe Group makes a quarterly assessment of the credit standing of its investment counterparties, and allocates investment limits based on size, liquidity, profitability, and asset quality. For investments in government securities, these are denominated in local currency and are considered to be relatively risk-free. The usage of limits is regularly monitored. For its derivative counterparties, the Globe Group deals only with foreign counterparty banks with investment grade ratings and large local banks. Credit ratings of derivative counterparties are reviewed quarterly.
Following are the Globe Group exposures with its investment counterparties for cash and cash equivalents:
March 31 December 31
2014
(Unaudited)
2013 (Unaudited)
2013 (Audited)
Local bank deposits 48% 42% 30% Onshore foreign bank 52% 36% 70% Special deposit account - 22% -
The Globe Group has not executed any credit guarantees in favor of other parties. There is also minimal concentration of credit risk within the Globe Group. Credit exposures from subscribers and carrier partners continue to be managed closely for possible deterioration. When necessary, credit management measures are proactively implemented and identified collection risks are being provided for accordingly. Outstanding credit exposures from financial instruments are monitored daily and allowable exposures are reviewed quarterly.
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The Globe Group‟s credit exposures and related allowances for impairment follow:
March 31 December 31
2014
(Unaudited) 2013
(Unaudited) 2013
(Restated) (In Thousand Pesos) Subscribers ₱15,662,472 ₱11,873,264 ₱15,616,059 Traffic Settlements - net 1,096,929 2,497,735 1,503,841 Dealers and others 1,888,515 912,581 2,271,068 18,647,916 15,283,580 19,390,968 Less allowance for impairment losses:
Total ₱3,502,537 ₱2,063,000 ₱1,333,067 ₱971,251 ₱6,840,838 ₱3,937,223 ₱18,647,916
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March 31, 2013
Neither Past Past Due But Not Impaired Impaired
Due Nor Impaired
Less than 30 days 31 to 60 days 61 to 90 days More than 90
days Financial
Assets Total (Unaudited and In Thousand Pesos)
Wireless receivables: Consumer ₱615,498 ₱597,889
₱655,453
₱399,753
₱1,548,387
₱1,264,574
₱5,081,554
Key corporate accounts (94,672)
151,507
156,307
152,096
670,455
147,961
1,183,654 Other corporations and
SME 128,866 103,601
131,489
68,864
425,332
335,904
1,194,056 649,692 852,997
943,249
620,713
2,644,174
1,748,439
7,459,264
Wireline receivables: Consumer 257,048 243,222
120,326
55,933
52,282
1,369,109
2,097,920
Key corporate accounts 161,403 159,343
260,471
268,068
866,689
262,721
1,978,695 Other corporations and
SME 48,901 41,088
25,839
12,372
16,105
160,338
304,643 467,352 443,653
406,636
336,373
935,076
1,792,168
4,381,258
Other trade receivables - 32,742
-
-
-
-
32,742 Traffic receivables:
Foreign 2,224,277 -
-
-
-
161,321
2,385,598 Local 86,539 -
-
-
-
25,598
112,137 2,310,816 -
-
-
-
186,919
2,497,735 Other receivables 899,716 -
-
-
-
12,865
912,581 Total ₱4,327,576
₱1,329,392
₱1,349,885
₱957,086
₱3,579,250
₱3,740,391
₱15,283,580
December 31, 2013
Neither Past Past Due But Not Impaired Impaired
Due Nor Impaired
Less than 30 days 31 to 60 days 61 to 90 days More than 90
days Financial
Assets Total (Audited and In Thousand Pesos) Wireless receivables: Consumer ₱421,441 ₱830,032 ₱540,192 ₱297,678 ₱3,313,742 ₱1,501,094 ₱6,904,179 Key corporate accounts 5,865 54,851 121,562 133,771 1,790,681 170,412 2,277,141 Other corporations and 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 5,789,878 2,016,323 10,589,535 Wireline 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 2,371,857 Other corporations and SME 48,501 51,385 47,539 19,076 34,055 143,508 344,064 448,753 470,430 635,161 315,419 1,199,165 1,917,418 4,986,346 Other trade receivables 22 40,157 40,179 Traffic receivables: Foreign 1,189,372 161,362 1,350,733 Local 122,033 31,074 153,108 1,311,405 192,436 1,503,841 Other receivables 2,256,331 14,736 2,271,068 Total ₱4,452,093 ₱1,535,316 ₱1,436,756 ₱836,847 ₱6,989,044 ₱4,140,913 ₱19,390,968
Total allowance for impairment losses net of recoveries, amounting to ₱4,481.91 million, ₱3,623.47 million and ₱4,190.05 million includes allowance for impairment arising from collective assessment amounting to ₱990.80 million, ₱298.86 million and ₱986.10 million as of March 31, 2014 and 2013 and December 31, 2013, respectively.
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The table below provides information regarding the credit risk exposure of the Globe Group by classifying assets according to the Globe Group‟s credit ratings of receivables. The Globe Group‟s credit rating is based on individual borrower characteristics and their relationship to credit event experiences.
March 31, 2014
Neither Past Due Nor Impaired High Quality Medium
Quality Low Quality Total
(Unaudited and In Thousand Pesos) Wireless receivables: Consumer ₱94,385 ₱86,115 ₱18,447 ₱198,947 Key corporate accounts 2,663 2,578 50 5,291 Other corporations and SME 24,734 7,146 14,534 46,414 121,782 95,839 33,031 250,652 Wireline receivables: Consumer 287,873 55,807 4 343,684 Key corporate accounts 113,377 10,723 156 124,256 Other corporations and SME 43,394 6,486 347 50,227 444,644 73,016 507 518,167 Total ₱566,426 ₱168,855 ₱33,538 ₱768,819
March 31, 2013
Neither Past Due Nor Impaired High Quality Medium
Quality Low Quality Total
(Unaudited and In Thousand Pesos) Wireless receivables: Consumer ₱370,346 ₱194,895 ₱50,257 ₱615,498 Key corporate accounts (83,517) (10,122) (1,033) (94,672) Other corporations and SME 70,303 - 58,563 128,866 357,132 184,773 107,787 649,692 Wireline receivables: Consumer 215,143 41,904 1 257,048 Key corporate accounts 156,766 4,630 7 161,403 Other corporations and SME 44,092 4,479 330 48,901 416,001 51,013 338 467,352 Total ₱773,133 ₱235,786 ₱108,125 ₱1,117,044
December 31, 2013
Neither Past Due Nor Impaired High Quality Medium
Quality Low Quality Total
(Audited and In Thousand Pesos) Wireless receivables: Consumer ₱169,064 ₱234,119 ₱18,257 ₱421,440 Key corporate accounts 2,976 2,804 84 5,864 Other corporations and SME 5,617 698 1,962 8,277 177,657 237,621 20,303 435,581 Wireline 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 50,923 777 448,753 Total ₱574,710 ₱288,544 ₱21,080 ₱884,334
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High quality accounts are accounts considered to be high value and have consistently exhibited good paying habits. Medium quality accounts are active accounts with propensity of deteriorating to mid-range age buckets. These accounts do not flow through to permanent disconnection status as they generally respond to credit actions and update their payments accordingly. Low quality accounts are accounts which have probability of impairment based on historical trend. These accounts show propensity to default in payment despite regular follow-up actions and extended payment terms. Impairment losses are also provided for these accounts based on net flow rate. As a result of the migration to new billing systems, billing cycles were pushed back and bills were delivered to customers beyond the normal cycles. As a result, Globe Telecom extended payment due dates, resulting to a temporary increase in the level of receivables with a shift to non-current age buckets. Based on the results of collection efforts, Globe Telecom has assessed that customers' payment habits have not changed significantly and assessment on quality of accounts remain valid. Traffic receivables that are neither past due nor impaired are considered to be high quality given the reciprocal nature of the Globe Group‟s interconnect and roaming partner
agreements with the carriers and the Globe Group‟s historical collection experience. Other receivables are considered high quality accounts as these are substantially from credit card companies and Globe dealers. The following is a reconciliation of the changes in the allowance for impairment losses:
March 31, 2014
Subscribers
Consumer
Key corporate accounts
Other Corporations
and SME
Traffic Settlements and Others Non-trade Total
(Unaudited In Thousand Pesos) At beginning of the year ₱2,742,022 ₱540,525 ₱687,874 ₱219,624 ₱58,414 ₱4,248,459 Charges for the period 517,736 41,779 61,875 31,208 7,632 660,231 Reversals/write offs/adjustments (308,979) (1,224) (50,188) (346) 1,379 (359,359) At end of year ₱2,950,780 ₱581,080 ₱699,561 ₱250,485 ₱67,425 ₱4,549,331
March 31, 2013
Subscribers
Consumer
Key corporate accounts
Other Corporations
and SME
Traffic Settlements and Others Non-trade Total
(Unaudited and In Thousand Pesos) At beginning of the year ₱2,453,266
₱320,404 ₱543,344 ₱221,058 ₱124,082 ₱3,662,154
Charges for the year 299,993 27,091 41,200 (19,302) 7,011 355,993 Reversals/write offs/adjustments (194,632) (53,865) (15,322) 236 (662) (264,245) At end of period ₱2,558,627
₱293,630 ₱569,222 ₱201,992 ₱130,431 ₱3,753,902
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December 31, 2013
Subscribers
Consumer
Key corporate accounts
Other Corporations
and SME
Traffic Settlements and Others Non-trade Total
(Audited and In Thousand Pesos) At beginning of the year ₱2,453,266 ₱320,404 ₱543,344 ₱221,058 ₱124,082 ₱3,662,154 Charges for the period 1,665,992 225,907 203,343 14,254 (62,974) 2,046,523 Reversals/write offs/adjustments (1,377,236) (5,786) (58,813) (15,688) (2,694) (1,460,218) At end of year ₱2,742,022 ₱540,525 ₱687,874 ₱219,624 ₱58,414 ₱4,248,459
13.3 Categories of Financial Assets and Financial Liabilities
The table below presents the carrying value of Globe Group‟s financial instruments by
category (in thousand pesos):
March 31 December 31 2014
(Unaudited)
2013 (Unaudited)
2013 (Audited)
Financial assets: Financial assets at FVPL: Derivative assets designated as cash flow hedges P=671,357 P=3,973 P=553,562 Derivative assets not designated as hedges 17,149 2,451 1,834 AFS investments in equity securities - net 260,977 146,496 222,712 Loans and receivables - net* 25,754,588 28,920,306 29,166,805 P=26,704,071 P=29,073,226 P=29,944,913 Financial liabilities: Financial liabilities at FVPL: Derivative liabilities designated as cash flow hedges P=75,960 P=28,892 P=65,658 Derivative liabilities not designated as hedges 92,643 236,787 154,036 Financial liabilities at amortized cost** 107,967,986 93,366,505 107,027,805 P=108,136,589 P=93,632,184 P=107,247,499 * This consists of cash and cash equivalents, and long-term investments, receivables, other nontrade receivables and loans
payable, long-term debt (including current portion) and other long-term liabilities (including current portion).
As of March 31, 2014 and 2013, and December 31, 2013, the Globe Group has no investments in foreign securities.
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13.4 Fair Values of Financial Assets and Financial Liabilities The table below presents a comparison of the carrying amounts and estimated fair values of all the Globe Group‟s financial instruments as of:
March 31 December 31
2014
(Unaudited)
2013 (Unaudited)
2013 (Audited)
Carrying Value Fair Value Carrying Value Fair Value Carrying Value Fair Value (In Thousand Pesos)
The following methods and assumptions were used to estimate the fair values:
For variable rate financial instruments that reprice every three months, the carrying value approximates the fair value because of recent and regular repricing based on current market rates. For variable rate financial instruments that reprice every six months, the fair value is determined by discounting the principal amount plus the next interest payment using the prevailing market rate for the period up to the next repricing date. The discount rates used range from 0.09% - 2.09% (for USD floating loans) and 1.02% - 1.23% (for Php floating loans). For noninterest bearing obligations, the fair value is estimated as the present value of all future cash flows discounted using the prevailing market rate of interest for a similar instrument. The fair value of freestanding and embedded forward exchange contracts is calculated by using the interest rate parity concept. The fair values of interest rate swaps and cross currency swap transactions are determined using valuation techniques with inputs and assumptions that are based on market observable data and conditions and reflect appropriate risk adjustments that market participants would make for credit and liquidity risks existing at the end each of reporting period. The fair value of interest rate swap transactions is the net present value of the estimated future cash flows. The fair values of currency and cross currency swap transactions are determined based on changes in the term structure of interest rates of each currency and the spot rate. The fair values 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 foreign and local banks with minimal risk of default.
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13.5 Fair Value Hierarchy
The following tables provide the fair value measurement hierarchy of the Globe Group‟s
disclosed: Long-term debt (including current portion) – 68,046,189 – 68,046,189
There were no transfers from Level 1 and Level 2 fair value measurements as of March 31, 2014 and 2013, and December 31, 2013. The Globe Group has no financial instruments classified under Level 3.
14. 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 and manages as strategic business units and organize by products and services. The Globe Group presents its various operating segments based on segment net income.
Intersegment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Segment revenue, segment expense and segment result include transfers between business segments. Those transfers are eliminated in consolidation.
Most of revenues are derived from operations within the Philippines, hence, the Globe Group does not present geographical information required by PFRS 8, Operating Segments. The Globe Group does not have a single customer that will meet the 10% reporting criteria.
The Globe Group also presents the different product types that are included in the report that is regularly reviewed by the chief operating decision maker in assessing the operating segments‟ performance.
