globe telecom, inc. (formerly gmcr, inc.) · globe telecom, inc. (formerly gmcr, inc.) ... congress...

Phil SEC 17A 2002 1

SEC Number 1177File Number

________________________________________________

GLOBE TELECOM, INC.(formerly GMCR, Inc.)

________________________________________________(Company’s Full Name)

5th Floor Globe Telecom Plaza (Pioneer Highlands)Pioneer corner Madison Sts., 1552 Mandaluyong City

_________________________________________________(Company’s Address)

(632) 730-2000______________________________________

(Telephone Number)

DECEMBER 31______________________________________

(Fiscal Year Ending)(month & day)

SEC Form 17-A______________________________________

Form Type

______________________________________Amendment Designation (if applicable)

31 December 2002______________________________________

Period Ended Date

__________________________________________________(Secondary License Type and File Number)

Phil SEC 17A 2002 2

SECURITIES AND EXCHANGE COMMISSIONSEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE REVISED SECURITIESACT AND SECTION 141 OF CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended December 31, 2002.

2. SEC Identification Number 1177 3. BIR Tax Identification No. 000-768-480

4. Exact name of registrant as specified in its charter:Globe Telecom, Inc. (formerly GMCR,Inc.)

5. Philippines 6. __________(SEC Use Only)Province, Country or other jurisdiction of Industry Classification Code:incorporation or organization

7. 5th Floor, Globe Telecom Plaza (Pioneer Highlands)Pioneer corner Madison Sts., 1552 Mandaluyong City 1552Address of principal office Postal Code

8. (632) 730-2000Registrant's telephone number, including area code

9. Not ApplicableFormer name, former address, and former fiscal year, if changed since last report.

10. Securities registered pursuant to Sections 4 and 8 of the RSA

Title of Each Class Number of Shares of Common Stock Outstanding Common Stock, P50.00 par value 151,905,400 Preferred Stock, P5.00 par value 158,515,021

11. Are any or all of these securities listed on the Philippine Stock Exchange.Yes [ x ] No [ ]

12. Check whether the registrant:

(a) has filed all reports required to be filed by Section 11 of the Revised Securities Act (RSA)and RSA Rule 11(a)-1 thereunder and Sections 26 and 141 of The Corporation Code of thePhilippines during the preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports);Yes [ x ] No [ ]

(b) has been subject to such filing requirements for the past 90 days.Yes [ x ] No [ ]

13. Aggregate market value of the voting stock held by non-affiliates of the registrant P 13,056,510,153

Phil SEC 17A 2002 3

Globe Telecom, Inc. (formerly GMCR, Inc.)TABLE OF CONTENTS

SEC FORM 17-A

Page

Part I - BUSINESS AND GENERAL INFORMATION

Item 1. Business 4Item 2 Properties 22Item 3 Legal Proceedings 23Item 4 Submission of Matters to a Vote of Security Holders 25

Part II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5 Market for Registrant’s Common Equity and Related StockholderMatters

26

Item 6 Management’s Discussion and Analysis or Plan of Operation 28Item 7 Financial Statements 92Item 8 Changes in and Disagreements With Accountants on Accounting

and Financial Disclosure74

Part III - CONTROL AND COMPENSATION INFORMATION

Item 9 Directors and Executive Officers of the Registrant 75Item 10 Executive Compensation 80Item 11 Security Ownership of Certain Beneficial Owners and

Management82

Item 12 Certain Relationships and Related Transactions 84

Part IV – EXHIBITS AND SCHEDULES

Item 13 a. Exhibits 89b. Reports on SEC Form 17-C (Current Report) 89

SIGNATURES 88

INDEX TO SUPPLEMENTARY SCHEDULES 90

STATEMENT OF MANAGEMENT’S RESPONSIBILITY 91

INDEX TO EXHIBIT 166

Phil SEC 17A 2002 4

PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business

(1) Business Development

(a) Form and year of organization

In 1928, Congress passed Act No. 3495 granting the Robert Dollar Company, a corporationorganized and existing under the laws of the State of California, a franchise to operatewireless long distance message services in the Philippines.

The Robert Dollar Company subsequently incorporated in the Philippines as Globe WirelessLimited and in 1934, Congress passed Act No. 4150 transferring the franchise and privilegesof the Robert Dollar Company to Globe Wireless Limited.

Globe Wireless Limited was subsequently renamed Globe Mackay Cable and RadioCorporation. Congress, through Republic Act 4630 enacted in 1965, further expanded itsfranchise to allow it to operate international communications systems.

Shortly before the expiration of this franchise, the Batasan Pambansa in 1980 enacted BatasPambansa 95 granting Globe Mackay Cable and Radio Corporation a new franchise.

In 1991, Globe Mackay was subsequently merged with the Clavecilla Radio Corporation.Globe Mackay as the surviving company was renamed GMCR, Inc. and on March 19, 1992,the Philippine Congress passed Republic Act 7229 approving the merger and the transfer ofthe franchise of Clavecilla Radio Corporation to the surviving company to be renamedGMCR, Inc.

On 20 August 1998, the Philippine Securities and Exchange Commission (SEC) approved thechange of name to Globe Telecom, Inc.

(b) Any bankruptcy, receivership or similar proceeding.

None.

(c) Any material reclassification, merger, consolidation, or purchase or sale of a significantamount of assets not in the ordinary course of business.

Combination with Islacom

On February 22, 2000, Globe Telecom and its principal shareholders Ayala Corporation(AC) and Singapore Telecom International Pte. Ltd. (STI), a wholly owned subsidiary ofSingapore Telecom (ST), and Islacom and its principal shareholders AsiacomPhilippines, Inc. (Asiacom) and DeTeAsia Holding GmbH (DeTeAsia), a wholly ownedsubsidiary of Deutsche Telekom AG (DT), entered into a General Agreement for acombination of the business and operations of Globe Telecom and Islacom. The GeneralAgreement contemplated the issuance of new Globe Telecom common and preferredshares to Islacom’s shareholders in exchange for 100% of the issued and outstanding

Phil SEC 17A 2002 5

stock of Islacom. The following were undertaken and completed pursuant to theGeneral Agreement and the share swap transaction:

� Globe Telecom restructured its existing capital structure through the execution ofa 1 for 50 reverse stock split and a declassification of Globe Telecom’s CommonA and B shares into a single class of shares in August 2000.

� In the last quarter of 2000, Islacom aligned certain operating and financialpolicies with Globe Telecom which resulted in significant one-time adjustmentsamounting to about P=1.02 billion included in the related accounts in Islacom’sstatements of income. These one-time adjustments include the effects of changein estimated useful lives of outside plant and others and the effects of theelimination of salvage values in computing for depreciation and amortizationexpenses which resulted in an increase in Islacom’s loss from operations of aboutP=847 million in 2000.

� NTC issued its approval on the share swap transaction on February 2, 2001.

� As part of the commitments, representations and warranties made by theshareholders of Globe Telecom and Islacom under the General Agreement: (a)Islacom Board of Directors (BOD) approved on January 19, 2001 the conversionof the $240 million loan from DeTeAsia into additional paid-in capital. OnFebruary 28, 2001, the $240 million loan from DeTeAsia was converted intoDeTeAsia’s equity in Islacom following the approval of the NationalTelecommunications Commission (NTC) of the share swap transaction; and (b)DeTeAsia reimbursed Islacom for all expenses relating to the dispute withLiberty Broadcasting Network Inc. (LBNI) over a microwave backbonetransmission facility. These expenses aggregated to about P=641 million and werealso converted to additional paid-in capital. Further, the parties also agreed thatIslacom’s liability to LBNI in the amount of $14.4 million, which was paid byDeTeAsia, be converted to additional paid-in capital.

� On February 5, 2001, the shareholders of Islacom signed a Settlement Agreementby virtue of which they agreed to mutually settle, and waive and compromise anyand all representations and warranty claims under the General Agreement.

� Islacom has received $68 million (P=3.35 billion) additional paid-in capital fromAsiacom as of February 6, 2001. Asiacom provided additional funding toIslacom for the enhancement of the value of the combination of Islacom andGlobe Telecom.

� On March 5, 2001, AC, STI, DT and Asiacom signed an agreement under which,subject to the approval of the Philippine SEC and PSE, DeTeAsia and Asiacomwill subscribe to 28,830,860 new common and 158,515,021 series “A”convertible preferred shares, respectively, of Globe Telecom in exchange for100% of the issued and outstanding capital stock of Islacom.

� On March 9, 2001, Globe Telecom filed its application with the Philippine SECto increase its authorized capital stock from P=5 billion to P=11.25 billion to createadditional common and preferred shares and to issue them to DeTeAsia andAsiacom as an exempt transaction under the Revised Securities Act in order to

Phil SEC 17A 2002 6

effect the share swap agreement. This application was approved by the PhilippineSEC on June 2, 2001.

� On June 27, 2001, the Philippine Stock Exchange (PSE) approved the listing ofGlobe Telecom’s 28,830,860 new common shares and 158,515,021 preferredseries “A” shares issued to Islacom’s principal shareholders DeTeAsia andAsiacom, respectively, in exchange for 100% of the issued and outstanding stockof Islacom. On the same day, the parties completed the share swap transactionsand the new shares were listed on the PSE on June 29, 2001.

As a result of the above transactions, Islacom became a consolidated subsidiary ofGlobe Telecom effective June 27, 2001. The combination has been accounted for asa purchase.

Integration of Globe Telecom and Islacom OperationsIn September 2002, Globe Telecom announced the operational integration of GlobeTelecom and Islacom’s wireless networks to increase the Globe Group’s businessfocus and streamline its operations in order to optimize utilization of the network tobenefit subscribers. A key element of the integration involves the migration ofexisting wireless subscribers of Islacom to the improved Touch Mobile service,allowing them to enjoy superior coverage and service offering available through theGlobe-Islacom integrated network.

The operational integration also enabled the joint use of Islacom’s 10 Mhzfrequency resources by Globe Telecom and the use of certain elements of theexisting Islacom network. The NTC approved the joint use of Islacom’s frequencyby the Globe Group on August 1, 2002. Certain elements of the Islacom networkwhich cannot be redeployed to the Globe network were shut down to avoidunnecessary duplication. The shutdown necessitated Islacom’s recognition of losseson retirement of property and equipment of P=2.2 billion and restructuring costsamounting to P=204.66 million

Investments in Pintouch Telecom, LLC and GTHI

Globe Telecom’s 50% and 32.67% investments in the shares of stock of PintouchTelecom, LLC (PTL, a limited partnership organized in the United States ofAmerica) and Globe Telecom Holdings, Inc. (GTHI), respectively, are accounted forunder the equity method. Under this method, the cost of investment is increased ordecreased by the Parent Company’s equity in net earnings or losses of the investeeand reduced by dividends received after date of acquisition. GTHI is a specialpurpose vehicle formed to hold and issue Philippine Depository Receipts (PDRs) ofthe Company.

On October 19, 2000, the BOD approved a resolution to seek the dissolution of PTLand the termination of Globe Telecom’s Limited Liability Agreement with PacificGateway Exchange (PGE) and other agreements with PGE and/or PTL. On January17, 2001, PGE gave its consent to the dissolution of PTL. The dissolution has notbeen effected in order to enable PTL to file its Proof of Claim against PGE beforethe United States Bankruptcy Court, District Court of California (San FranciscoDivision) to recover $5.39 million in receivable. The Proof of Claim was filed on

Phil SEC 17A 2002 7

May 11, 2001. Proceedings before the United States Bankruptcy Court remainpending.

Investments in C2C Pte. Ltd.

In December 2001, Globe Telecom entered into a sale agreement with Tycom AsiaNetworks Ltd. (Tycom). Under this agreement, Globe Telecom sold its investmentin 20 million Class A (4.25%) shares of C2C Pte. Ltd. (C2C) for an aggregateconsideration of $17.26 million. In 2002, Tycom sold to Islacom its 4.25%ownership in C2C Holdings Pte. Ltd. consisting of 20 million Class A shares for anaggregate consideration of $17.26 million.

(2) Business of Issuer

(i) Principal services and their markets indicating their relative contribution tosales of revenues which contribute 10% or more to sales or revenues. If therelative contribution to net income of any product or service, or group of relatedproducts or services, is substantially different than its relative contribution tosales or revenues, appropriate information should be given;

Our principal services are:

• Wireless Business

Globe offers wireless communications services throughout the Philippinesprimarily under the brand name of Globe Handyphone. In September 2001,Globe launched Touch Mobile, which offers communications services toprepaid subscribers. Services offered under the two brand names use a fullydigital network based on GSM technology. Globe offers a single integratedcommunications system allowing subscribers to make and receive local,domestic long distance and international long distance calls from theircellular phones and to access a variety of data services and value-addedservices. While Globe Handyphone is targeted at the higher end marketsegment by offering value-added services, Touch Mobile is targeted atvalue-conscious subscribers by emphasizing best value for quality basicservices. Globe believes that through its dual-brand strategy, Globe is ableto address the needs of specific market segments and maximize its marketshare.

Wireless Voice

Basic Services and International Roaming. Globe’s basic wireless serviceincludes network access throughout the Philippines. In addition tonationwide coverage, Globe’s postpaid and prepaid subscribers can makeand receive calls while away from the Philippines using the wirelessnetworks of foreign operators with whom Globe has roaming arrangements.Subscribers of these foreign providers are able to place and receive callswhile in the Philippines using Globe’s wireless network. As of December31, 2002, Globe had entered into more than 240 roaming agreements in

Phil SEC 17A 2002 8

over 110 destinations worldwide. Globe believes that it has the widestcoverage in terms of international roaming among Philippinecommunications service providers.

Domestic Long Distance(DLD) and International Long Distance (ILD).Globe offers competitively priced international and domestic long distancerates and plans which provide value to its subscribers and spur increasednetwork activity.

Wireless Data

Globe offers wireless data services on its Short Messaging Service (SMS)platform that consists of basic SMS messaging, premium SMS messagingand m-advertising services. Data services accounted for approximately 38%of wireless net service revenues in 2002, consisting mostly of revenue fromSMS messaging.

Basic SMS Messaging. Globe pioneered the basic SMS messaging servicein the Philippines in 1994. The usage of SMS messaging in the Philippines,which is a convenient and cost-efficient alternative to voice and e-mailbased communications, is significantly higher than in most other countries.As of December 2002, approximately 48 million messages per day wereprocessed by Globe’s networks or an average of 9 messages per subscriberper day. Globe also provides voice-centric value-added services under thebrand name Touch Mobile, which allows subscribers to send sound icons orpersonalized voice messages to another mobile subscriber.

Premium SMS Services. Globe offers premium SMS messaging, whichallows subscribers to download icons and ring tones, participate ininteractive TV, mobile chat and play games, send and receive MultimediaMessaging Service (MMS) messages. MMS allows subscribers to send andreceive text messages containing a combination of text, images and sound.This is made possible through Globe’s general packet radio service (GPRS)system, which continues to be introduced in a series of steps, as manyelements of the consumer proposition such as handset choices andcompelling applications are only becoming available recently. Globeorganizes its premium SMS service offerings through a branded portal,myGlobe, in which Globe classifies information and service offerings inuser-friendly, easy-to-understand content categories. Globe intends to usethis portal to expand content and offer the services through many differentmediums, including via SMS, WAP, GPRS, Web and voice applications.We also provide voice-centric value-added services under our brand nameTouch Mobile, which allows subscribers to send sound icons orpersonalized voice messages to another mobile subscriber.

m-advertising. Globe has provided m-advertising for a number of well-recognized consumer businesses, including McDonald’s, Coca-Cola andNestle. Under Globe’s m-advertising program, subscribers receivepromotional messages from participating businesses and are able to collectthe promotion goods free of charge from these businesses.

Phil SEC 17A 2002 9

Wireline Services

Wireline Data – Globe is licensed to provide wireline data servicesnationwide. Globe provides international and domestic leased lines, telex,internet and other wholesale transport services through the GlobeQuestbrand. Globe provides basic internet access for dial-up service subscribers,broadband access and integrated business solutions for dedicated leased linesubscribers such as corporate customers and internet service providers. Inaddition, Globe offers its corporate customers the ability to engage in highspeed and technologically demanding intra-company communication andmanaged network services. Globe also provides its customers with varioustypes of internet exchange services depending on the scale or size requiredby the companies, their business needs and targeted market segments,including dedicated internet access and fully integrated internet serviceprovider solution packages.

DataCentres - Globe also provides carrier class facilities to managecustomer networking and information technology (IT) equipment, with thehighest level of availability, reliability and access distribution. Thesefacilities provide security, first-line maintenance, facilities management,and network access for services ranging from equipment co-location, serverhosting, data storage and business continuity to bandwidth and internetaccess. These services are housed in carrier-friendly premises built over areliable and fully-digital nationwide backbone to ensure fast provisioning oftelecommunications services.

Wireline Voice - Globe and Islacom provide wireline voice communicationsservices to subscribers under the Globelines brand name using an advancedfully digital wireline network. Globelines is available in the NationalCapital Region, Region 4B, Region 12 and the Visayas. The number ofconsolidated wireline voice subscribers decreased from 227,999 at the endof 2001 to 223,249 in 2002 due to an increase in total disconnected lines. AtDecember 31, 2002, approximately 24% of Globe and Islacom’s wirelinevoice subscribers were business customers and 76% were residentialcustomers.

Globe offers its wireline voice subscribers basic telephone services forlocal, national long distance and international long distance within itsservice areas. Globe also offers its subscribers a variety of value-addedservices and special features, including voicemail, caller ID, callforwarding, three-way calling, duplex number and call waiting. Texting andinfo-on-demand services via landline are recent innovations that have beenintroduced by Globelines (1-900-TXT and 1-900-Fun2Knw). Inherent in allGlobelines phones is the Net Express service that allows subscribers toautomatically access or surf the Internet and create web-based emails justby connecting a Globelines phone to a personal computer.

Globelines offers more specialized services for the business sector. Amongthese are: Business Plus, a cost-effective telephone system packed withfeatures for greater efficiency; Trunk Lines, which enable subscribers toutilize customer premises telephony equipment for a more customized

Phil SEC 17A 2002 10

communications service; and ISDN, a digital telecommunicationstechnology that enables the simultaneous transmission of voice and dataover the same line.

Globelines goes beyond providing lines by offering the 1-800 DomesticToll-Free Service, to help its business subscribers become more accessibleto a wider range of clients, and the 1-900 Premium Rate Service, forsubscribers who wish to access specialized information and servicesthrough their telephones. Other services offered:

- Globelines Prepaid. Globe launched Globelines Prepaid in 2001 toserve its subscribers who require the convenience and affordability of aprepaid service. Globelines Prepaid allows subscribers to budget theircalls and control their phone expenses.

- Globe Payphone and Telcard. Globe offers public telephone service inits service areas through Globe Payphone. The service was establishedto expand Globe’s services to the mass market, primarily targetingpeople without access to personal phones. Globe Payphone users havethe option to pay via coins or via prepaid Payphone cards under theGlobe Telcard brand name. Globe Telcards may be purchased from theinternet, Globe’s business centers, leading distributors, and retailoutlets.

- Public Calling Offices. Globe offers communications services to thepublic through its seven public calling offices, or PCOs, in theprovinces of Mindoro Occidental, Palawan and North Cotabato.Through these PCOs, the public may place and receive telephone calls,telegrams and fax messages, for set fees. In areas where demand is low,Globe was permitted to construct PCOs instead of installing wirelines,to satisfy its roll-out requirements under its licenses.

• Carrier Services - Globe and Islacom both offer international and nationallong distance and inter-exchange carrier services (IXC). ILD services areoffered between the Philippines and over 200 countries. Globe uses itsNationwide Digital Transmission Network (NDTN), while Islacom uses itsown backbone transmission network, for hauling national and internationalinterconnection traffic among wireline and wireless operators in thePhilippines. International gateway services provide access to over 200global destinations via services such as the following:

Globe IDD is the International Direct Dialing service of Globe. Thisprovides Globelines and Handyphone subscribers international access foronly US$0.40 per minute.

Globe 105-Collect, also known as Home Country Direct (HCD) services isopen to Globelines, Globe Payphones, Handyphone & Touch Mobilesubscribers calling 13 countries collect with 26 access numbers to choosefrom.


128-99 USA Collect on the other hand, is the USA collect service of Globevia the access code 128-99. This service is available to Globelines, GlobePayphones, Handyphone and TouchMobile subscribers.

Globe 1-800 is a value-added feature, which enables Globe Handyphone,and Globelines subscribers to dial U.S. domestic toll-free numbers. RegularIDD rate is likewise applicable in this service.

(ii) Percentage of sales or revenues and net income contributed by foreign sales(broken down into major markets such as Western Europe, Southeast Asia, etc.)for each of the last three years

Globe markets its telecommunications services mainly in the Philippines.

(iii) Distribution methods of the products or services

Globe’s services are available via subscription. Subscriptions may be filed withGlobe’s authorized dealers or Globe Business Centers located in key urban areas.Prepaid subscriptions are made available via SIM packs, which are sold byGlobe’s dealers and Business Centers while airtime value may be reloaded byavailing of call cards which can by purchased from Globe’s dealers and businesscenters or through electronic channels

Globe sells its wireless and wireline services through three primary distributionchannels:

• direct sales force, comprised of sales representatives and account managers;

• business centers; and

• a network of independent dealers.

Direct Sales Force. Account Managers in Globe’s direct sales force are trainedto manage either corporate or high-end individual subscribers. The AccountManagers interact with customers from the initial marketing contact andcontinue to address their subscribers’ needs through the post-sale relationship.

Business Centers. Globe has established business centers where customers cansubscribe for wireless and wireline services, obtain handset repairs, ask questionsabout Globe’s services and pay bills. Globe’s 80 business centers are located inmajor cities throughout the Philippines. In areas where Globe’s subscribers areheavily concentrated, such as Cavite, Batangas, Makati and Ortigas, Globe hasestablished multiple business centers for increased customer accessibility. Globehas opened several business centers in shopping malls, in the above areas, foradded customer convenience.

Independent Dealers. Globe utilizes a number of independent dealers to sell itswireless and wireline services. These dealers include major distributors ofwireless phone handsets, third-party agents and tend to have their own retailnetworks, direct sales force and sub-dealers in the Philippines. Globe


compensates its dealers based on the type, volume and amount of newsubscriptions sold.

Prior to 01 August 2002, compensation to dealers for prepaid wireless services,took the form of fixed discounts for prepaid airtime cards and SIM packs, andpromotional airtime call cards for phone kits. Effective 01 August 2002, Globeintroduced a new promotional scheme for prepaid sales (covering Globe PrepaidPlus and Touch Mobile) to its dealers. Instead of providing promotional prepaidcards with the sale of a phone kit, Globe discounted its selling price to dealers.

For postpaid wireless services, Globe pays tiered commissions for newsubscriptions based on plan type and volume. This network of dealers ismanaged by Globe’s Dealer Account Managers who regularly conduct trainingsfor the dealers, inform them of upcoming marketing strategies, promotionalcampaigns and product developments. Dealers’ performance is also monitoredby the Account Managers.

Globe also distributes prepaid products (handset kits, SIM kits and prepaid airtime cards) through consumer distribution channels such as convenience stores,gas stations, drugstores, bookstores, photoshops and automated teller machines.

(iv) Status of any publicly announced new product or service (e.g. whether in theplanning stage, whether prototypes exist), the degree to which product designhas progressed or whether further engineering is necessary. Indicate ifcompletion of development of the product would require a material amount ofthe resources of the registrant, and the estimated amount;

Products, as enumerated above, are currently being offered in the market at suchtariffs as are approved by the National Telecommunications Commission.

On April 2002, Globe Telecom launched its International Prepaid RoamingService. As of December 31, 2002, Globe had entered into more than 240roaming agreements in over 110 destinations worldwide.

On 7 July 2002, Globe Telecom introduced another first through the launchingof its Multimedia Messaging Service (MMS), the next generation in messaging.MMS allows a cellular phone subscriber to send and receive messagescontaining a combination of text, images and sound. In addition to regular textcapabilities, MMS allows the subscriber to send and receive animation,speeches, audio and photo messages taken from a phone’s digital camera. WithMMS, Globe was able to introduce services such as “Traffic Cam”, which allowssubscribers to view real time pictures of actual road traffic and “AnimatedMessages”, wherein popular character pictures can be exchanged betweensubscribers.

On 16 July 2002, Globe Telecom formally launched to the public its integrateddata and internet services solutions brand, “GlobeQuest”. Globe Telecomdecided to consolidate its GlobeNet and GlobeData services, the two brandsunder its Wireline Data Group, as the brands are often required to bundle theirservices to come up with an integrated solution for the customer. GlobeNet is a


full-service ISP for business applications supporting the growing requirement ofbusiness for information technology and network solutions. GlobeData is acomprehensive suite of domestic and international data services for corporatenetworks utilizing leased lines, frame relay, ATM, IP, xDSL and VSATtechnologies over a scalable and highly reliable broadband network. GlobeQuestwill integrate the above services and offer new capabilities such as IDC, C2Csubmarine cable system and corporate voice solutions such as conferencing andvoice VPN.

On 5 October 2002, Globe launched its XTM service. The XTM service allowssubscribers to send extra long text messages and attach icons. Additionally,subscribers can own an e-mail address even without a computer, and sendmessages, not only to another mobile phone but to an e-mail address as well.

On 10 November 2002, Touch Mobile launched its Karaoke Service. Thisallows Touch Mobile subscribers to choose songs that they can sing along with,record, store and even send to another mobile user.

On 24 November 2002, Globe launched a Hi-Memory SIM card for its prepaidservice. Globe’s Hi-Memory SIM allows prepaid subscribers increasedphonebook and message capacity.

(v) Competition. Describe the industry in which the registrant is selling or expectsto sell its products or services, and where applicable, any recognized trendswithin that industry. Describe the part of the industry and the geographic areain which the business competes or will compete. Identify the principal method ofcompetition (price, service, warranty or product performance). Name theprincipal competitors that the registrant has or expects to have in its area ofcompetition. Indicate the relative size and financial and market strengths of theregistrant’s competitors. State why the registrant believes that it can effectivelycompete with other companies in its area of competition.

As in many other countries, the telecommunications industry in the Philippines ishighly competitive. Currently, seven cellular service providers and eleven majorinternational long distance providers compete directly for customers throughoutthe country.

Seven wireless operators including Globe have been granted ProvisionalAuthorities (PA) or Certificates of Public Convenience and Necessity (CPCN)to provide nationwide service. Wireless operators are free to choose the networktechnology that they wish to deploy. Table 1 below sets forth the technologydeployed, the date of commercial launch and the reported number of subscribers(based on available and disclosed information) as of December 31, 2002 for eachwireless operator:


Table 1 – List of wireless operators

* Wholly owned by Globe(1) Source: Globe disclosures for the year ended December 31, 2002.(2) As of 31 December 2002 disclosures of SMART and Piltel.(3) Subscribers as of December 31, 2000; Source: 2000 annual report of Millicom InternationalCellular, S.A. (in report of Express Telecommunications).(4) No data available.

The wireless communications industry has experienced consolidation since2000. PLDT acquired Smart in March 2000 and Globe acquired Islacom in June2001. Currently, Smart and Globe are the two dominant players in the market.In 2000, Bayantel obtained a license to offer digital wireless services using10MHz of frequency on the 1800 MHz frequency band. However, Bayantel hasbeen delayed in launching commercial operations due to litigation over thevalidity of its license. To date, Bayantel has not formally launched its wirelessservice to the public. Also in 2000, Digitel was granted a license to offer digitalwireless services using 10MHz on the 1800 MHz frequency. Additionally,Infocom Communications Network, Inc. (NEXTEL), although licensed for awireless radio trunked communications system, has also begun to offer callservice connectivity to wireless and wireline users. On 20 February 2003, Digitelbecame the latest industry player, after it announced the commercial launch of itswireless service under the brand name Sun Cellular.

The government has indicated that it may award licenses to new entrants andreallocate frequencies, which have not been used by existing operators. Weexpect the industry will become increasingly competitive with the entry of newcompetitors and changing technology.

On 23 July 2002, the NTC issued permanent CPCNs to Globe and Islacom fortheir respective CMTS, LEC and IGF services. The CPCN allows thetelecommunications firms to operate their respective services for a termpredicated upon and co-terminus with the congressional franchise granted untoit. Globe Telecom and Islacom were granted their permanent licenses afterhaving demonstrated their legal, financial and technical capabilities in operatingand maintaining cellular mobile telephone systems, local exchange carrierservices and international gateway facilities. Additionally, Globe Telecom andIslacom exceeded the 80% minimum compliance requirement for coverage of allprovincial capitals, including all chartered cities within a period of seven years.

Operator

Year ofCommercial

Launch Subscribers Wireless SystemWireless

TechnologyOperatingSpectrum

Globe 1994 5,719,400(1) Digital GSM 20MHzIslacom* 1994 852,785(1) Digital GSM 10MHzSmart 1994 6,825,686(2) Analog/Digital ETACS/GSM 15MHzPiltel 1991 1,773,620(2) Analog/Digital AMPS/CDMA 11MHzBayantel - - Digital GSM 10MHzExtelcom 1991 141,725(3) Analog AMPS 10MHzDigitel 2003 (4) Digital GSM 10MHz


Globe operates digital GSM dual band networks operating at 900 MHz and 1800MHz frequency bands. Globe has access to a total of 30 MHz of frequency for itswireless service, including 7.5 MHz on the 900 MHz frequency band and 12.5MHz on the 1800 MHz frequency band for Globe and 10 MHz on the 900 MHzfrequency band for Islacom. Globe’s wireless network covers the entire country.As of December 31, 2002, Globe had invested approximately P68.2 billion in itswireless network. In addition to extensive nationwide coverage, Globe’s wirelesspostpaid subscribers can also roam to over 110 destinations worldwide.

In the fixed line business, Globe competes with PLDT or both PLDT and Digitelin its service areas. With intense competition, service providers are expected torapidly expand coverage, introduce value-added services, and improve after-sales service to avoid market share loss and decrease in profitability.

Globe’s principal strengths include: (i) a leading market position; (ii) a strongbrand identity; (iii) financial strength and prudent leverage policies; (iv)a provenability to attract and retain quality subscribers; and, (v) size and quality of itsnetworks.

Globe’s principal shareholders are AC, STI and DeTeAsia. AC is thePhilippines’ largest and most widely diversified conglomerate, with operations inreal estate, financial services, telecommunications, manufacturing, electronics,information technology & trade and distribution businesses. STI is a wholly-owned subsidiary of Singapore Telecom, the leading full-servicetelecommunications provider in Singapore. DeTeAsia is a wholly-ownedsubsidiary of Deutsche Telekom, Europe’s largest communications company andone of the largest communications carriers in the world. These principalshareholders provide Globe with significant financial support, technologicaladvisory services, global perspective and local market expertise.

(vi) Sources and availability of raw materials and the names of principal suppliers;If the registrant is or is expected to be dependent upon one or a limited numberof suppliers for essential raw materials, energy or other items, describe.Describe any major existing supply contracts.

Equipment and technology required to render telecom services are mainlysourced from foreign countries. Globe’s principal suppliers are:

For wireless- Nokia Oy (Finland); Ericsson Radio Systems AB (Sweden),Ericsson (Sweden), Digital Microwave Corp., MicrowaveNetworks Inc., ECI Telecoms (Israel), Enavis (Israel), NERA(Norway), NEC Corp. (Japan), ASCOM, Benning (Germany),SEC Cellyte (US), Hawker Batteries, JNB Batteries, Rohas-Euco (Malaysia), Transmast, Andrews Corporation, Allgon(Sweden), Allen Telecom Group (Micom), Kathrein, Cellwave,Huber & Suhner, CMG (Netherlands), Comverse Technologies;Harris Radio Corporation (US/Canada), Cisco Systems (Phils.);Communications Solutions, Inc.

SIM cards and call cards are sourced from SchlumbergerMeasurement & Systems Intl Ltd. (France), Gemplus


Technologies Asia Pte Ltd (France), Banner Plastic Cards(Phils), Orga Card Systems Pte ltd (Germany).

For wireline- Tomen (Japan), Fujitsu Ltd. (Japan), Tomen Telecom Phils.,Sumitomo Corporation (Japan), Mitsubishi (Japan), LucentTechnologies (USA), NEC (Japan), NESIC (Phils.), Alcatel(Italy), Nokia Telecommunications Oy (Finland), NokiaTelecommunications (Phils.), Ericsson Telecommunications(Phils.), Mitsubishi Corp. (Japan & Phils.), Melcom Corp.(Phils.), Comsys Phils, Inc., Cisco Systems (Phils.), DatacraftComm (Phils.), Worldlink Comm. (Phils.), IECI (Phils.),Filipinas Wincomm Corp., RAD Far East Ltd. (Hongkong),Cisco (USA), RAD (Israel), SR (Canada), DMC (USA),Motorola (US), MCI WorldComm (US), Teleglobe (Canada),Cable and Wireless (UK), AT&T Global (US), British Telecom(UK), Singapore Telecom (Singapore).

(vii) Disclose how dependent the business is upon a single customer or a fewcustomers, the loss of any or more of which would have a material adverse effecton the registrant and its subsidiaries taken as a whole. Identify any customersthat account for, or based upon existing orders will account for, twenty percent(20%) or more of the registrant’s sales; Describe any major existing salescontracts.

Globe has a wide subscriber base. On a Group basis, as of 31 December 2002, ithad 6,572,185 wireless subscribers and 223,249 wireline subscribers. No singlecustomer accounted for more than 20% of Globe’s total sales in 2002.

(viii) Transactions with and/or dependence on related parties

Globe Telecom and Islacom, in their regular conduct of business, enter intotransactions with their principal shareholders and certain affiliates as follows:

Globe Telecom(a) Globe Telecom has interconnection agreements with Singapore Telecom and

DT. Transactions with DT for the years ended December 31, 2002, 2001and 2000 were immaterial. The details of interconnection toll income earnedand net traffic receivable balance due from Singapore Telecom arising fromthese transactions as of and for the years ended December 31 follow:

2002 2001 2000

(In Thousand Pesos)

Interconnection toll income P=1,437,494 P=242,609 P=139,904

Net traffic receivable 736,665 213,524 298,976

(b) Globe Telecom and STI have a technical assistance agreement whereby STIwill provide consultancy and advisory services, including those with respectto the construction and operation of Globe Telecom’s networks andcommunication services, equipment procurement and personnel services. Inaddition, Globe Telecom has software development, supply, license and


support arrangements, lease of cable facilities, maintenance and restorationcosts and other transactions with STI. The details of fees incurred underthese agreements are as follows:

2002 2001 2000(In Thousand Pesos)

Technical assistance fee P=63,420 P=89,620 P=84,294Software development, supply,

license and support fee 98,860 70,736 76,566Lease of cable facilities,

maintenance and restorationcosts and other transactions 50,679 48,857 47,838

The net outstanding balances due to STI arising from these transactions areas follows:

2002 2001 2000

(In Thousand Pesos)Technical assistance P=64,018 P=50,848 P=67,077Software development, supply,

license and support 19,503 – –Lease of cable facilities,

maintenance and restorationcosts and other transactions – 15,273 –

(c) In 2001, Globe Telecom signed a cable equipment supply agreement with C2C,an affiliate of Singapore Telecom. As of December 31, 2002, the equipmentpurchased under this agreement amounted to P=2,679.34 million.

In March 2002, Globe Telecom entered into an equipment lease agreement forthe same equipment obtained from C2C with GB21 (Hong Kong) Limited(GB21). Subsequently, GB21, in consideration of C2C’s agreement to assumeall payment obligations pursuant to the lease agreement, assigned all its rights,obligations and interest in the equipment lease agreement to C2C. As a result ofthe said assignment of the receivables and payables by GB21 and C2C under thetwo agreements, the remaining liability of Globe Telecom to C2C for the cablesupply agreement amounted to P=2,518.48 million and P=2,561.05 million as ofDecember 31, 2002 and 2001, respectively.

Further in June 2002, Globe Telecom purchased capacity in the Japan - U.S.Cable Network from C2C. The cost of capacity purchased amounted to P=110.92million as of December 31, 2002. The amount was fully paid in 2002.

In July 2002, Globe Telecom received advance service fees from C2Camounting to P=85.21 million which will be offset against its share in theoperations and maintenance costs of the cable landing facilities of GlobeTelecom upon finalization of the related Facilities Management ServicesAgreement pursuant to a landing party agreement entered into by both parties inAugust 2000.


(d) Globe Telecom reimburses AC for certain operating expenses. The netoutstanding payable and transactions with AC as of and for the years endedDecember 31, 2002, 2001 and 2000 were immaterial.

Islacom(a) Islacom obtained a total of $30 million emergency loan from DT ($28.9 million

in March 1999 and $1.1 million in January 2000) which bears interest at the 6months USD LIBOR plus a margin of 2%, and was originally payable on July31, 2001. The repayment dates were extended to July 1, 2002 for the first $15million and June 30, 2003 for the second $15 million, and the interest rate basiswas changed to one year USD LIBOR. The total amount of $30 million loan hasbeen fully paid in two installments: in July 2002 for the first $15 million and inNovember 2002, for the balance.

On July 10, 1998, Islacom also obtained non-interest bearing cash advances fromDT amounting to $12.70 million for the acquisition of property and equipment.This was due and paid in September 2001.

(b) Islacom and DT entered into a Technical Assistance Agreement (Agreement)

whereby DT will provide, for a fee, technical advisory services. DT subsequentlyassigned all its rights, title, interests, duties and obligations in the Agreement toConsultancy by Technicus Corporation with the conformity of Islacom. OnAugust 12, 2002, the Agreement was extended from December 31, 2002 toDecember 31, 2003, with no other changes in the original provisions. Technicalfees charged to operations amounted to P=9.90 million and P=43.40 million for theyears ended December 31, 2002 and 2001, respectively. The outstandingbalance, arising from this transaction amounted to P=4.98 million and P=4.40million as of December 31, 2002 and 2001, respectively.

(c) Islacom has interconnection agreements with DT and Singapore Telecom.

Interconnection toll income and the related net traffic receivable as of and for theyears ended December 31 are as follows:

2002 2001(In Thousand Pesos)

DTInterconnection toll income P=984 P=11,394Net traffic receivable 128 9,839

Singapore TelecomInterconnection toll income P=915 P=11,466Net traffic receivable – 1,239


(ix) Summarize the principal terms and expiration dates of all patents, trademarks,copyrights, licenses, franchises, concessions, royalty agreements held; Indicatethe extent to which the registrant’s operations depend, or are expected todepend, on the foregoing and what steps are undertaken to secure these rights;

Globe is a grantee of a Congressional Franchise under Republic Acts (RA) 7229& 7372 and its related laws. These franchises authorize Globe to render all formsof domestic and international telecommunications services.

Tables 2 and 3, below, list the significant provisional authorities of Globe andIslacom from the NTC and their corresponding status.

Table 2 – Globe Telecom’s authorities to render telecommunications serviceCase No. CPCN Issued Subject Expiration Date

84-77 CPCN (24 April 1985) Telegram None86-23 CPCN (7 Aug 1990) International Fax None87-68 CPCN (08 March 1990) Bureau Fax None

87-133 CPCN (25 April 1989) Universal Data TransferServices (UDTS/G-Net)

None

87-97 CPCN (04 May 1990) International LeasedChannel Service

None

90-002 CPCN (06 Feb 1996) VSAT (Domestic LeasedChannel Service)

6-Feb-2021

91-249 CPCN (20 Nov 1992) Notice Telex None92-449 CPCN (22 July 2002) CMTS 24-Dec-203093-072 CPCN (22 July 2002) IGF 24-Dec-2030

93-326/94-256 CPCN (22 July 2002) LEC 24-Dec-203096-410 CPCN (14 Feb 2003) IXC 24-Dec-2030

Table 3 – Islacom’s authorities to render telecommunications serviceCase No. PA/CPCN Issued Subject Expiration Date

93-346,92-379& 93-042

CPCN (22 July 2002) CMTS 10-Apr-2017*

93-118 CPCN (22 July 2002) IGF 10-Apr-2017*93-442 & 94-

033CPCN (22 July 2002) LEC 10-Apr-2017*

94-175 PA (19 June 2002) IXC 26-Sep-2003**

Note: * Term of CPCN is co-terminus with franchise term.** Application for CPCN still pending.

We have applied to the Intellectual Property Office, the independent regulatoryagency responsible for registration of patents, trademarks and technologytransfers in the Philippines, for registration of our brand names, including, GlobeHandyphone, Touch Mobile, Globelines and Globe Link and GlobeQuest for thewireless and wireline services we offer. We received a certificate of registrationfor Globe Handyphone, which is valid for 20 years from December 13, 1999, thedate of registration.


(x) Need for any governmental approval or principal products or services. Ifgovernmental approval is necessary and the registrant has not yet received thatapproval, discuss the status of the approval within the government approvalprocessPlease refer to Tables 2 & 3 for details.

Additional Requirements as to Certain Issues or Issuers

(i) Debt Issues

The Company has, in a transaction exempt under the Philippine SecuritiesRegulation Code, issued a 13% US$220 million bond due 2009 and a 9.75%US$200 million bond due 2012.

(ii) Investment in Company Securities:

Not Applicable

(xi) Effect of existing or probable governmental regulations on the business;

Globe is regulated by the NTC under the provisions of the Public Service Act(CA 146), Executive Order (EO) 59, EO 109, and RA 7925. Under these laws:

(a) Globe is required to secure a CPCN/PA from the NTC for those services itoffers which are deemed regulated services, as well as for those rates whichare still deemed regulated, under RA 7925.

(b) Globe is required to observe the provisions of EO 59 on interconnection ofpublic telecommunications networks.

(c) Under EO 109, Gobe was required to observe (and has complied with) anobligation to rollout 700,000 fixed lines as a condition to the grant of itsprovisional authorities for the cellular and international gateway services.

(d) Globe remains under the supervision of the NTC for other matters stated inCA 146 and pays annual supervision fees and permit fees to the NTC.

In 2000 the NTC issued NTC Memorandum Circular 13-6-2000 providing newbilling rules, which would, among others extend the expiration of prepaid cardsfrom two months to two years and change the billing unit from per minute to per6 second pulse. The cellular industry subsequently sought relief from the courts.

Globe Telecom is an intervenor in and Islacom is a party to Civil Case No. Q-00-42221 entitled “Isla Communications Co., Inc. et. al. versus NTC, et. al.” beforethe Regional Trial Court of Quezon City by virtue of which Globe Telecom andIslacom, together with other cellular operators, sought and obtained apreliminary injunction against the implementation of NTC MemorandumCircular No. 13-6-2000. NTC Memorandum Circular No. 13-6-2000 sought,among others, to extend the expiration of prepaid call cards to two (2) years.The NTC appealed the grant of the injunction to the Court of Appeals (CA). On


October 25, 2001, Globe Telecom and Islacom received a copy of the decision ofthe CA ordering the dismissal of the case before the Regional Trial Court forlack of jurisdiction, but without prejudice to the cellular companies’ seekingrelief before the NTC which the CA claims had jurisdiction over the matter. OnNovember 7, 2001, Globe Telecom and Islacom filed a Motion forReconsideration. On January 10, 2002, the Motion was denied. Globe Telecomand Islacom filed a Petition for Review by way of Certiorari to the SupremeCourt on February 10, 2002. On April 16, 2002, the Supreme Court required theSolicitor General to comment on the Petition. On June 17, 2002, the NTC filedits comment. On July 23, 2002, Globe Telecom and Islacom filed its comment.

The Supreme Court, in its resolution dated September 9, 2002, denied thePetition for Review, a copy of which was received by Globe Telecom andIslacom on September 26, 2002. On October 10, 2002, Globe Telecom andIslacom filed a motion for reconsideration (with motion to consolidate) of theSupreme Court’s resolution. The Motion for Reconsideration has since beenconsolidated with the separate petition filed by SMART on the same matter. Inthe event, however, that Globe and Islacom are not eventually sustained in theirposition and the enforcement of the decision is conditional, that is, withoutprejudice to and only after the exhaustion of these relief/remedies and NTCMemorandum Circular No. 13-6-2000 is implemented in its current form, thecompanies would probably incur additional costs for carrying and maintainingprepaid subscribers in its network.

(xii) Indicate the amount spent on research and development activities, and itspercentage to revenues during each of the last three fiscal years;

Not applicable.

(xiii) Costs and effects of compliance with environmental laws

Globe complies with the Environmental Impact System (EIS) of the Departmentof Environment and Natural Resources (DENR) and pays nominal filing feesrequired for the submission of applications for Environmental ClearanceCertificates (ECCs) or Certificates of Non-Coverage (CNCs) for its cellsites andcertain other facilities. Globe pays nominal filing fees and miscellaneousexpenses incurred in the preparation of applications and environmental impactstudies in relation to such applications. The company does not consider theseamounts material.

(xiv) State the number of the registrant’s present employees and number of employeesit anticipates to have within the ensuing twelve (12) months. Indicate thenumber by type of employee (i.e. clerical, operations, administrative, etc.)whether or not any of them are subject to collective bargaining agreements(CBA) and the expiration dates of any CBA. If the registrant’s employees are onstrike, or have been in the past three (3) years, or are threatening to strike,describe the dispute. Indicate any supplemental benefits or incentivearrangements the registrant has or will have with its employees.


On a consolidated basis, Globe Telecom and Islacom increased its headcountfrom 3,887 in 2001 to 3,931 in 2002, 28.7% of which are covered by the 2001-2005 Collective Bargaining Agreement (CBA) concluded in 2001.

In January 2003, Globe began the Wireline Staff Rationalization Program in linewith the Wireline SBU's efforts to ensure business viability, driven by thebusiness' financial state and the landline market's maturation. These efforts werehinged on ensuring competitiveness and efficiency of services rendered tocustomers. The Globe Telecom Workers Union (GTWU) decided to file a Noticeof Strike in February 2003 with the National Conciliation Mediation Boardunder the Department of Labor and Employment (DOLE) against GlobeManagement. Following a series of conciliatory talks between Management andGTWU, where issues were discussed and resolved, the strike was averted.

On-going strategic initiatives are being undertaken to explore a new corporatestructure that will enable the company to fully focus on its strategic businessunits. These will enhance shareholder value, improve corporate agility, andstimulate improvements in operational efficiency and effectiveness for bettercustomer service.

Item 2. Properties

Globe purchased several floors of Pioneer Highlands Towers 1 and 2 to serve as its businessheadquarters which was renamed Globe Telecom Plaza. Globe Telecom Plaza is located atPioneer corner Madison Sts. in Mandaluyong City. It leases the premises for most of itsbusiness centers and cell sites. By end-2002, the Company had over 80 business centers and2,190 cell sites nationwide.

Globelines has a total of 28 switching exchanges all over the country. 15 of these switchingexchanges also function as toll switches to support long distance service between provinceswhere these are located as well as connect subscribers to other switches in other parts of thecountry. In addition to the 15 switches of Globe and Isla, Globe has two switches inBatangas and Bacoor that handle toll calls within its areas only.

The infrastructure for its Globelines fixed telephone service now includes 6 telephone hostexchanges in Makati, Mandaluyong, Marikina, Batangas, Bacoor, Cavite, and Iligan, 10remote switching units (RSUs) and seven public calling offices (PCOs). The Company alsohas installed more than 1.4 million fixed lines.

For its international telephony business, Globe has five toll switching systems in its Ermita,Mandaluyong, Cavite, Batangas and Iligan host exchanges. The Company operates threeinternational gateway facilities. The two international gateway switches are located in MetroManila while the third is in Cebu. Globe has also invested in several submarine cablesystems, in which it either owns or leases a share of the systems’ total capacity.

In November of 2001, Globe inaugurated its first cable landing station to land the City-to-City Cable Network (“C2C CN”), a 17,000 kilometer long submarine cable network linkingthe Philippines to Hongkong, Taiwan, China, Korea, Japan and Singapore. The C2C cablenetwork is one of the largest networks in the Asia-Pacific region in terms of design capacity.This will enable Globe to lower its transmission cost for carrier services by enhancing itscapacity.


In December 2001, Globe Telecom entered into a sale agreement with Tycom Asia NetworksLtd. (Tycom). ). Under this agreement, Globe Telecom sold its investment in 20 millionClass A (4.25%) shares of C2C Pte. Ltd. (C2C) for an aggregate consideration of $17.26million. In 2002, Tycom sold to Islacom its 4.25% ownership in C2C Holdings Pte. Ltd.

On 12 December 2001, Globe inaugurated two buildings in Cebu. Currently, the Globe IslaPlaza in the Cebu Business Park and the Globe Telecom IT Plaza in Lahug, a technical centerand telepark houses the latest in computer and communications systems and applications.InNovember 2002, Globe completed construction of its Makati Host Exchange along ValeroSt., Makati City.

Item 3. Legal Proceedings

I.Civil Case No. 95-171, RegionalTrial Court of Makati, Branch 59 –PHILIPPINE COMMUNICATIONSATELITE CORPORATION(PHILCOMSAT) vs. GLOBE MACKAYCABLE AND RADIO CORPORATION

This case involves a complaint by PHILCOMSAT for damages due to Globe Telecom’s(GMCR, Inc.) pre-termination of its lease agreement over an IBS satellite facility in SubicBay. The five-year contract was terminated by Globe Telecom (GMCR, Inc.) after the firstyear due to the closure of the US Navy’s facility in Subic. The US Navy was the sole user ofthe dedicated facility and the contract clearly stated that the facility was for the US Navy’ssole use and was only part of a bigger service which involved ITT’s providing one-half of thefacilities for the USDCA’s communication facilities in Subic, and Globe Telecom (GMCR,Inc.) and PHILCOMSAT providing the local leg of the service. Globe Telecom (GMCR,Inc.) claims that the pre-termination was due to an act of government in serving a terminationnotice to the United States government over all US bases in the Philippines. PHILCOMSATclaims for the balance of the rentals on the five-year contract, in the total amount of US$5Million.

Status: In a decision dated January 5, 1999, the lower court ordered Globe Telecom (GMCR,Inc.) to pay PHILCOMSAT the amount US$ 92,238.00 or its peso equivalent representingrentals, with legal interest until the amount is fully paid and PhP 300,000.00 for attorney’sfees. PHILCOMSAT has filed a notice of appeal with respect to the lower court's decisionand Globe has appealed the award of attorney's fees. On 27 February 2001 the Court ofAppeals rendered a decision sustaining the judgment of the lower court in favor of Globe. On14 March 2001 Philcomsat filed a petition for certiorari before the Supreme Court. Thepetition is pending.

II. Civil Case No. Q-00-42221,Regional Trial Court of QuezonCity,–ISLA COMMUNICATIONCO., INC. et. al vs. NATIONALTELECOMMUNICATIONS COMMISSION (NTC), et. al.


Globe is an intervenor in and Islacom is a party to Civil Case No. Q-00-42221 entitled "IslaCommunications Co., Inc. et. al., versus National Telecommunications Commission et. al.,"before the Regional Trial Court of Quezon City by virtue of which Globe and Islacom,together with other cellular operators, sought and obtained a preliminary injunction againstthe implementation of NTC Memorandum Circular No. 13-6-2000. The NTC appealed theissuance of the injunction to the Court of Appeals (CA). On October 25, 2001, Globe andIslacom received a copy of the decision of the CA ordering the dismissal of the case beforethe Regional Trial Court for lack of jurisdiction, but without prejudice to the cellularcompanies' seeking relief before the NTC which the CA claims had jurisdiction over thematter. On 07 November 2001, the Companies filed a Motion for Reconsideration. Globeand Islacom received a copy of the decision on 15 February 2002. On 22 February 2002, theCompany filed a Petition for Review with the Supreme Court seeking to revise the decisionof the CA. In its Comment dated 17 June 2002, the NTC sought the dismissal of the Petitionfor Review. Globe and Islacom submitted on 23 July 2002, their Reply to the NTC’sComment. The Supreme Court, in its resolution dated 9 December 2002, denied the Petitionfor Review, a copy of which was received by Globe and Islacom on 26 December 2002. On10 October 2002, Globe and Islacom filed a Motion for Reconsideration (with Motion toConsolidate) of the Supreme Court’s resolution. In said Motion, Globe and Islacom soughtthe following: (1) the Petition be consolidated with the another Petition entitled “SmartCommunications, Inc. et. al vs. NTC”, G.R. No. 151908, likewise pending with the SupremeCourt since the two Petitions originated from the same RTC Civil Case and the same Courtof Appeals case; (2) the Supreme Court resolution dated 09 December 2002 be reconsidered;and (3) Globe and Islacom’s Petition in the Supreme Court be given due course. The Motionfor Reconsideration has since been consolidated with the separate petition filed by SMARTon the same matter. Notwithstanding the foregoing, the decision of the CA is still notimmediately final and executory and cannot be implemented as Globe and Islacom still havea number of remedies available to them. In the event, however, that Globe and Islacom arenot eventually sustained in their position and the enforcement of the CA decision isconditional, that is, without prejudice to and only after the exhaustion of these relief/remediesand NTC Memorandum Circular No. 13-6-2000 is implemented in its current form, thecompanies would probably incur additional costs for carrying and maintaining prepaidsubscribers in its network.

III. ORDER OF THE INTERNATIONAL BUREAU OF THE US FEDERALCOMMUNICATIONS BUREAU

On December 26, 2002, we notified AT&T, one of our correspondent carriers in the U.S., ofthe expiration of their rate agreement with us on January 31, 2003 and informed AT&T thatwe would be charging AT&T new termination rates of $0.12 per minute for calls terminatingto Philippine wireline exchanges and $0.16 per minute for calls terminating to Philippinewireless networks. Of our 34 major correspondents for international traffic around the world,at least 27 have already agreed to the new termination rates.

In the six weeks prior to the termination rate, we repeatedly followed up AT&T’s response tothe new termination rates to the Philippines. AT&T, however, turned down our proposednew rates without giving any counterproposal. The January 31, 2003 deadline lapsed withoutthe parties coming to any agreement on rates.

On February 7, 2003, AT&T and WorldCom filed a petition before the FCC seeking an orderto stop all payments to Philippine telecommunications carriers on the ground that Philippinecarriers are supposedly blocking circuits of AT&T and WorldCom in order to force AT&T


and WorldCom to agree to the new rates for their calls terminating to the Philippines. OnMarch 10, 2003, the Chief, International Bureau of the FCC, issued an order suspending allsettlement payments of U.S. facilities-based carriers to a number of Philippine carriers,including us, until such time as the FCC issues a public notice stating otherwise. This orderhas the effect of preventing U.S. facilities-based carriers such as AT&T and WorldCom frompaying the affected Philippine carriers for switched voice services, whether rendered beforeor after the date of the order.

On March 11, 2003, the NTC issued a Memorandum Order dated March 11, 2003 directingall Philippine carriers not to accept traffic on direct circuits with U.S. facilities-based carrierswho do not pay for services rendered and to take all steps necessary to collect payment forservices rendered. Pursuant to this Memorandum Order, we have remained open tonegotiations and commercial transactions with U.S. carriers who pay for services rendered,but we will not accept traffic from U.S. carriers who have expressed their unwillingness ortheir inability to pay for interconnect services. On March 19, Globe reiterated previousdemands for payment from AT&T of overdue receivables, but AT&T failed to pay. As aresult, Globe suspended accepting traffic from AT&T effective as of the close of businesshours on March 25, 2003. We cannot assure you that we will resolve this matter amicablywith AT&T or when the FCC’s ban on payments due to us will be lifted.

We believe that completion of calls to and from the U.S. will not be hampered by theongoing dispute or the stop payment order issued by the FCC. Traffic to and from the U.S.passes through a number of routes aside from direct circuits with U.S. carriers. AT&T itselfhas admitted in its filings before the FCC that it continues to refile its Philippines-terminatingtraffic through other routes. Service to Philippine call centers are also unaffected as thesepass through leased lines. Leased line services are not affected, as the ongoing disputeconcerns termination rates for public switched voice services.

Globe and Islacom are also contingently liable for various claims arising in the ordinarycourse of business and certain tax assessments which are either pending decision by thecourts or are being contested, the outcome of which are not presently determinable. In theopinion of the Companies’ management and legal counsel, the eventual liability under theseclaims, if any, would not have a material or adverse effect on the Companies’ financialposition and results of operation.

Item 4. Submission of Matters to a Vote of Security Holders

None.


PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

(1) Market Information

On February 22, 2000 and June 20, 2000, the Board of Directors (BOD) and thestockholders of Globe Telecom, respectively, approved the following:a) Declassification of Globe Telecom common shares from class “A” and “B” shares

into a single class of common shares;

b) Reverse stock split of the common shares by changing the par value from one pesoper share (P=1.00) to fifty pesos per share (P=50.00);

c) Creation of a new class of preferred shares and increase in authorized capital stockfrom P=5 billion consisting of 100 million single class of common shares at par valueof P=50 per share to P=11.25 billion consisting of 200 million common shares at parvalue of P=50 per share and 250 million preferred shares at par value of P=5 per share;

d) Issuance from the increase in the authorized capital stock of 158,515,021 preferredshares of Globe Telecom with par value of P=5 per share to Asiacom in exchange for1,080,000,000 common shares of Islacom (constituting 60% of the outstandingshares of stock of Islacom) and 28,830,860 common shares of Globe Telecom withpar value of P=50 per share to DTA in exchange for 720,000,000 of Islacom commonshares (constituting 40% of the outstanding common shares of Islacom) ; and,

e) Issuance of additional 31,470,367 preferred shares at the par value of P=5 per share toall stockholders of Globe Telecom, AC and STI, as of record date to be fixed by theBOD in proportion to their respective equity holdings in Globe Telecom.

As of 31 December 2002, there were 151.9 million common shares subscribed and 158.5million preferred shares outstanding.

The following sets forth the high and low price per share for each quarter, within the last2 fiscal years:

COMMON SHARES WARRANTS*Price Per Share (PHP) Price Per Share (PHP)

Calendar Period High Low High Low2001:**First Quarter 800.00 660.00 625.00 520.00Second Quarter 700.00 650.00 520.00 450.00Third Quarter 695.00 610.00 470.00 450.00Fourth Quarter 680.00 640.00 480.00 365.002002:**First Quarter 815.00 660.00 N.A. N.A.Second Quarter 810.00 520.00 N.A. N.A.Third Quarter 565.00 465.00 N.A. N.A.Fourth Quarter 462.50 390.00 N.A. N.A.

Legend:* The Warrants were listed in the PSE on 17 September 1998. There were no new stock rights orwarrants issued in 2002. Warrant holders were given until January 28, 2002 to exercise their warrants.The number of warrants exercised as of January 28, 2002 after reverse stock split totaled 24,539,463with an adjusted exercise offer price of P=164.50 per share.

** Share prices adjusted to reflect the 1:50 reverse stock split effective 24 August 2000.


(2) Holders

The number of shareholders of record as of 31 December 2002 for common shares andwarrants was 6,154 and 51, respectively. Common shares issued as of 31 December 2002were 151,905,400.

Top 20 stockholders as of 31 December 2002:

NAME / ADDRESS NO. OF SHARESRECORD(R) /

BENEFICIAL (B)OWNER

PERCENTAGE

Singapore Telecom Int’l. Pte. Ltd.31 Exeter Road, Comcentre, Singapore0923

44,148,996 (R) 29.06%

Ayala Corporation34F Tower One, Ayala Ave., Makati City

41,132,925 (R) 27.08%

DeTeAsia Holding GMBHFriedrich-Edbert-Allee 14053113 Bonn, Federal Republic of Germany

37,448,920 (R) 24.65%

PCD Nominee Corp. – Non Filipino c/oPCD

15,161,052 (R) 9.98%

PCD Nominee Corporation-FilipinoMSE Building, Ayala Avenue, Makati City

10,378,721 (R) 6.83%

Ayala Healthcare, Inc.Ayala Life Building, 6786 Ayala Avenue,Makati City

248,141 (R) 0.16%

Ayala Plans IncorporatedAyala Life Building, 6786 Ayala AvenueMakati City

222,046 (R) 0.15%

Insular Life Assurance Co. Ltd.C/o Office of the PresidentInsular Life Bldg, Ayala Ave., Makati City

171,750 (R) 0.11%

Globe ESOWN Trust AccountGlobe Telecom PlazaPioneer St., Mandaluyong City

96,453 (R) 0.06%

Insular Life Employees Retirement FundC/o Office of the President,Insular Life Bulding, Ayala Avenue, MakatiCity

59,371 (R) 0.04%

Globe ESOP – Trust AccountC/p Ramon M. de Leon—HR (ESOP) 15/FBPI Paseo Co Bldg., Paseo de Roxas,Makati City

54,940 (R) 0.04%

Benjamin C. Liao 37,662 (R) 0.02%


NAME / ADDRESS NO. OF SHARESRECORD(R) /

BENEFICIAL (B)OWNER

PERCENTAGE

Edan Corporation562 Holy Cross St., Barrio Greenhills EastMandaluyong, Metro Manila

34,735 (R) 0.02%

Paulino Lim 25,000 (R) 0.02%FGU Insurance Corporation17F AMTG Ayala WingBPI Head Office, Ayala Avenue,Makati City

25,000 (R) 0.02%

The First National Co., Inc.C/o La Suerte Cigar & Cigarette Factory

21,001 (R) 0.01%

Nancy Saw 19,250 (R) 0.01%Insular & HIH General Insurance Co., Inc. 18,173 (R) 0.01%Rogelio M. Gonzales 16,750 (R) 0.01%Jaime Augusto Zobel de Ayala 16,549 (R) 0.01%

The Company has not declared any cash dividends during the past two (2) fiscal years to itscommon shareholders. The Company’s loan agreements contain a number of negativecovenants that restrict the Company’s ability to take certain actions without lender approval,including paying dividends.

On January 29, 2002, the BOD approved the declaration of a 25% stock dividend payable toall common stockholders of record as of April 30, 2002. The stock dividends declarationwas approved by Globe Telecom’s stockholders on April 11, 2002 and approved by thePhilippine SEC in June 2002. A total of 30,379,672 additional common shares were issuedin June 2002 as payment for the said stock dividends. The stock dividends were issued at parout of additional paid-in capital.

Globe Telecom’s BOD approved the declaration of dividends amounting to P=64.00 millionand P=47.07 million in 2002 and 2001, respectively, payable to series “A” convertiblepreferred shareholders. On December 27, 2002, Globe Telecom made a partial payment ofdividends amounting to P=3.00 million to its preferred shareholder. Preferred “A” shares werelisted on June 29, 2001 with the PSE.

Item 6. Management’s Discussion and Analysis or Plan of Operation

Globe Telecom is one of the country’s major telecommunications companies. From itserstwhile niche as a traditional provider of telex/telegram and VSAT services, the Companyhas shifted its business focus to cellular, landline and international gateway facility servicesfor long distance telephone calls.

Globe Telecom’s evolution into a full-line telecommunications firm came about in 1993 as aresult of the Philippine government’s efforts to liberalize the industry through EO 59 and 109and RA 7925. These enabled the Company to acquire provisional authorities for a nationwidedigital cellular mobile telephone system (CMTS) in 1993, international gateway facility


(IGF) service in 1994, and local exchange carrier (LEC) service at the end of 1994. In July2002, The NTC issued a permanent CPCN to Globe and Islacom that would allow thecompanies to operate their respective telecommunications services for a term predicatedupon and co-terminus with the congressional franchise granted unto them.

The following is management’s discussion and analysis of financial conditions and results ofoperations for the last three full fiscal years:

(1) 2002

Operating Revenues

Globe (Group)

For the year ended 31 December (In million pesos) 2002 2001

Wireless Services ................................................................………… 33,537 79% 23,604 79%

Wireline Services ............................................................................... 4,188 10% 3,497 12%

Voice.............................................................................................. 3,104 74% 2,503 72%

Data ............................................................................................... 1,084 26% 994 28%

Carrier Services .................................................................................. 4,647 11% 2,741 9%

Total Net Operating Service Revenues .............................................. 42,372 100% 29,841 100%

Globe registered consolidated net operating revenues of P=45,815 million for 2002 comparedto P=35,403 million for 2001. The breakdown of consolidated service and non-servicerevenues is P=42,372 million and P=3,443 million, respectively. Of the total consolidated netoperating service revenues, consolidated wireless services accounted for 79% or P=33,537million, wireline voice services 7% or P=3,104 million, wireline data 3% or P=1,084 millionand carrier services 11% or P4,647 million. Compared to 2001, net operating servicerevenues increased by 42% driven by higher voice and Short Message Service (SMS) trafficgenerated by an expanded subscriber base that brought higher service revenues for thewireless business.

Net operating revenues include the value of all telecommunications services provided whichare recognized when earned and stated net of the share of other telecommunications carriersand content providers under existing correspondence or interconnection and settlementagreements.

Wireless Services

Globe provides nationwide wireless communications services under the brand name GlobeHandyphone using its GSM network, while Islacom provides wireless GSM services underthe Touch Mobile brand. Touch Mobile was launched on 12 September 2001.

Wireless net operating revenues include: (1) fixed monthly charges plus charges for localcalls in excess of the free minutes for various Globe Handyphone postpaid plans, includingcurrency exchange rate adjustments (CERA); (2) airtime fees from the prepaid card service(Globe Prepaid Plus and Touch Mobile) recognized upon the earlier of (a) actual usage of theairtime value of the prepaid card or (b) expiration of the unused value of the prepaid card,


which occurs two months after activation, but excluding any usage of call cards originallyprovided without cash proceeds (promotional airtime call cards prior to 01 August 2002); (3)revenues generated from international and national long distance calls and internationalroaming calls, net of any interconnection fees (including interconnection fees on promotionalairtime call cards prior to 01 August 2002) to other carriers and transfer pricing charges tothe carrier services group; (4) revenues from value-added services, mainly text messaging;and (5) proceeds from the sale of handsets, Subscriber Identification Module (SIM) cards,one-time registration fees for new subscriptions and other phone accessories. Interconnectionfees (including interconnection fees on promotional airtime call cards prior to 01 August2002) to other carriers and transfer pricing charges to the carrier services group are deductedfrom operating revenues.

The related costs incurred in connection with the acquisition of subscribers are charged tooperations under operating costs and expenses. Subscriber acquisition cost consists mainly ofcommissions provided to dealers excluding promotional prepaid call cards (prior to 01August 2002), handset subsidies and marketing expenses. Handset subsidy is the differencebetween proceeds from sales of handsets, SIM cards, other phone accessories (recorded aspart of non-service revenues) and the corresponding cost of sales, which is classified underoperating costs and expenses.

Effective 01 August 2002, Globe introduced a new promotional scheme for prepaid sales(covering Globe Prepaid Plus and Touch Mobile) to its dealers. Instead of providingpromotional prepaid call cards with the sale of a phone kit, Globe discounted its selling priceto dealers. This resulted in higher handset subsidies and subsequently, higher subscriberacquisition costs. The new scheme had a corresponding increase in average revenue persubscriber (ARPU) since all call card usage was henceforth recognized as revenue.

Wireless Services - Postpaid

Globe offers postpaid services through Globe Handyphone. The Company registered 518,900postpaid subscribers as of 31 December 2002 compared to 466,659 (inclusive of 8,184Islacom postpaid subscribers) subscribers in 2001. Globe offers postpaid services throughGlobe Handyphone. Net postpaid Handyphone additions totaled 60,425 in 2002 compared to106,566 in 2001.

The net ARPU per Globe postpaid wireless subscriber increased by 2% to P=1,648 for theyear 2002 from P=1,616 in 2001. The increase in net postpaid ARPU for 2002 was driven bycontinued subscriber usage of data services. Net ARPU is computed by dividing recurringwireless postpaid net operating service revenues for the period (net of discounts andinterconnection charges to external carriers but including internal payouts) by the averagenumber of postpaid wireless subscribers and then dividing the quotient by the number ofmonths in the period. Internal payouts refer to the net revenue share of the carrier servicesgroup in the traffic generated by postpaid subscribers. Net operating revenues used in thecalculation of ARPU are fully-loaded to reflect internal payouts generated by postpaidsubscribers. However, in reporting by segment, net operating revenues used are not fullyloaded.

Globe’s postpaid ARPU on a gross basis amounted to P=2,159 for 2002 from P=2,030 in 2001.Gross ARPU is computed by dividing recurring wireless postpaid gross service revenues forthe period by the average number of postpaid wireless subscribers and then dividing thequotient by the number of months in the period. Postpaid wireless gross service revenues


used in the computation of gross ARPU are fully-loaded by adding back the revenue share ofthe carrier services group and interconnection charges paid to other carriers in connectionwith the traffic generated by postpaid subscribers.

Globe’s postpaid acquisition cost per subscriber reached P=3,396 for the year of 2002compared to P=3,513 in 2001. In 2002, handset subsidies accounted for 75% of acquisitioncosts while commissions and advertising/promotional expenses amounted to 8% and 17%respectively. In 2001, handset subsidies accounted for 53% of acquisition costs, whilecommissions and advertising comprised the balance of 31% and 16%, respectively.

The average monthly churn rate for Globe’s postpaid subscribers is defined as totaldisconnections net of reconnections divided by the average postpaid subscribers, divided bythe number of months in the period. Globe’s postpaid churn rate averaged 2.4% per monthin 2002, higher than the 1.8% per month reported in 2001, mainly due to company-initiateddisconnections. For postpaid subscribers, permanent disconnections are made after a series ofcollection steps following non-payment. Such permanent disconnections generally occurwithin 90 days.

In line with the operational integration of the wireless networks of Globe and Islacom in2002, postpaid and prepaid subscribers of the former Islacom brand have been migrated toTouch Mobile as of 31 December 2002.

Wireless Services - Prepaid

Consolidated prepaid subscribers totaled 6,053,285 as of 31 December 2002 compared to4,121,471 subscribers, or a 47% increase from the same period last year. Globe offersprepaid services through Globe Prepaid Plus brand, while Islacom offers its prepaid servicesthrough its Touch Mobile brand.

Globe Prepaid Plus registered 5,200,500 prepaid subscribers as of 31 December 2002, 30%higher than the 4,008,001 prepaid subscribers in 2001. Net prepaid additions for 2002 totaled1,192,499 subscribers compared to 1,796,449 in 2001.

Islacom’s Touch Mobile totaled 852,785 subscribers as of 31 December 2002 compared to95,862 subscribers in 2001. Touch Mobile was launched on 12 September 2001.

A prepaid subscriber becomes active when the subscriber purchases a SIM card and turns iton for the first time. When a prepaid subscriber loads airtime value into Globe’s system, thesubscriber has two months to use the value before the card expires. When the airtime value isused up or the card’s value expires, whichever comes first and the subscriber does not reload,the subscriber retains the use of the wireless number to receive incoming calls for anotherfour months. However, if the subscriber still does not reload value within that time, thesubscriber loses the wireless number and the account will be permanently disconnected. Atthat point, the subscriber is then considered part of churn. Globe’s prepaid subscribers canreload airtime value, which can be purchased from Globe centers and dealers, or purchasedelectronically from designated merchants and automated teller machines. These prepaid cardsare sold in denominations of P=300, P=500 and P=1,000. The P=300 denominated prepaid cardwas introduced in the market in January 2002 while the distribution of the P=250 prepaid cardwas discontinued effective May 2002 although this denomination is still available throughelectronic channels. Touch Mobile call cards are sold in denominations of P=300 and P=500.


Prior to 01 August 2002, revenues from prepaid cards were recorded net of the related valueof call cards given as promotional items to dealers. While subscriber usage of promotionalcall cards was not included in revenues, payments to other carriers arising from the usage ofpromotional call cards were recorded as part of total interconnection fees to other carriers.

Revenues from sale of prepaid cards are initially recognized by Globe and Islacom asdeferred revenues and are shown as part of accounts payable and accrued expenses in thebalance sheet since service has not yet been rendered. Revenue is recognized upon actualusage of the airtime value of the prepaid card or expiration of the unused value of the prepaidcard, whichever comes earlier.

The net ARPU for Globe Prepaid Plus increased by 7% to P=476 in 2002 from P=444 in 2001,due to higher data usage. Net ARPU is computed by dividing recurring wireless prepaid netoperating service revenues for the period (net of discounts and interconnection charges toexternal carriers but including internal payouts) by the average number of prepaid wirelesssubscribers and then dividing the quotient by the number of months in the period. Internalpayouts refer to the net revenue share of the Carrier services group in the traffic generated byprepaid subscribers. Net operating revenues used in the calculation of ARPU are fully-loadedto reflect internal payouts generated by prepaid subscribers. However, in reporting bysegment, net operating revenues used are not fully loaded.

Globe’s prepaid gross ARPU was P=576 for 2002 compared to P=547 in 2001. Gross ARPU iscomputed by dividing recurring wireless prepaid gross service revenues for the period by theaverage number of prepaid wireless subscribers and then dividing the quotient by the numberof months in the period. Prepaid wireless gross service revenues used in the computation ofgross ARPU are fully-loaded by adding back the revenue share of the Carrier services groupand interconnection charges paid to other carriers in connection with the traffic generated byprepaid subscribers.

The net ARPU for Touch Mobile was P=293, while gross ARPU was P=371, for 2002. TouchMobile was launched on 12 September 2001.

Acquisition cost for Globe Prepaid Plus dropped from P=433 in 2001 to P=225 in 2002. For2002, commissions contributed 16%, handset subsidy 16% and advertising costs comprisingthe balance of 68%. In 2001, commissions accounted for 21%, advertising costs 12% andhandset subsidy 67%.

Acquisition cost per Touch Mobile subscriber was at P=277 in 2002. Of the total acquisitioncost for the year, handset subsidy accounted for 25%, commissions 5% and advertising costs70%.

The actual average monthly churn rate for Globe Prepaid Plus subscribers increased slightlyto 2.3% in 2002 from 2.1% in 2001. The average monthly churn rate for Touch Mobileregistered at 2.7% in 2002.


Wireline Services-Voice

Wireline communication service revenues consist of: (1) monthly service fees includingCERA; (2) installation charges and other one-time fees associated with the establishment ofthe service; (3) revenues from international and national long distance calls made by thepostpaid and prepaid wireline subscribers and payphone customers; (4) payphone revenuesfrom local, national and international calls, and (5) revenues from value-added services.Interconnection fees to other carriers and transfer pricing paid to Carrier services group areexcluded from net service revenues.

Globe provides wireline voice communication services, including local, national longdistance, international long distance and other value-added services, under the brand nameGlobelines. Globe provides wireline voice services in nine specific geographic areas in thePhilippines, including NCR-C, Region 4-B, Region 12, Region 6, Region 7 and Region 8.

As of 31 December 2002, total wireline voice subscribers declined to 223,249 from 227,999in 2001. Globe accounted for 135,859 subscribers (including postpaid and prepaidsubscribers) representing a 12% decrease from 154,893 subscribers in 2001 due mainly to thesignificant increase in total disconnected lines. Business users accounted for 29% of the totalsubscriber base in 2002 versus 27% in 2001. Globe’s net wireline voice ARPU (fully-loaded)for 2002 was at P=1,172 compared to P=1,104 in 2001.

Net ARPU is computed by dividing recurring wireline voice net operating service revenuesfor the period (net of discounts and interconnection charges to external carriers but includinginternal payouts) by the average number of wireline voice subscribers and then dividing thequotient by the number of months in the period. Internal payouts refer to the net revenueshare of the carrier services group in the traffic generated by wireline voice subscribers. Netoperating revenues used in the calculation of ARPU are fully-loaded to reflect internalpayouts generated by wireline voice subscribers. However, in reporting by segment, netoperating revenues used are not fully loaded.

The average monthly churn rate for Globe’s wireline voice subscribers was 2.8% in 2002compared to 2.1% in 2001, mainly due to company-initiated disconnections. Globe andIslacom both offer their prepaid landline services under the brand, Globelines Prepaid.

Islacom’s wireline voice subscribers increased to 87,390 as of 31 December 2002, 15% ofwhich were business subscribers. Last year, Islacom had 73,106 wireline voice subscribers,of which 17% and 83% accounted for business and residential subscribers, respectively.Islacom’s net wireline voice ARPU reached P=878 for 2002 from P=859 in 2001. The averagemonthly churn rate for 2002 was 2.1% compared to 6.3% in 2001.

Wireline Services – Data

Globe offers nationwide wireline data, consisting of international and domestic leased lines,Internet, telex, and other wholesale transport services, through the GlobeQuest brand.Wireline data net operating revenues which consist of billings for these services net of theshare of other carriers for the telex and other services increased by 9% to P=1,084 million in2002 from P=994 million in 2001. The increase was due mainly to higher growth ininternational and domestic lease line businesses.


For the Group, the combined wireline voice and wireline data net ARPU(fully loaded) perwireline voice subscriber in 2002 increased by 9% to P=1,963 from P=1,808 for the sameperiod in 2001. Net wireline ARPU is computed by dividing recurring wireline (voice anddata) net operating service revenues for the period (net of discounts and interconnectioncharges to external carriers but including internal payouts) by the average number of wirelinevoice subscribers and then dividing the quotient by the number of months in the period.Internal payouts refer to the net revenue share of the carrier services group in the trafficgenerated by wireline voice subscribers. Net operating revenues used in the calculation ofARPU are fully-loaded to reflect internal payouts generated by wireline voice subscribers.However, in reporting by segment, net operating revenues used are not fully loaded.

Carrier Services (International and National Long Distance and Inter-Exchange Services)

Globe and Islacom both offer international and national long distance services and inter-exchange carrier services (IXC). International Long Distance (ILD) services are offeredbetween the Philippines and over 200 countries. This service generates revenues for theCompany from both inbound and outbound international call traffic with pricing based onagreed international transit and termination rates for inbound traffic revenues and NTC-approved ILD rates for outbound traffic revenues. Globe and Islacom also operate as IXCs.Globe uses its Nationwide Digital Transmission Network (NDTN), while Islacom uses itsown backbone transmission network for hauling national and international interconnectiontraffic among wireless and wireline operators in the Philippines.

Carrier Services – ILD

ILD revenues of Carrier services are mainly composed of: (1) settlements based on agreedinternational transit and termination rates from foreign telecommunications carriers forincoming international calls, net of any transfer price payable to the wireline and wirelessbusinesses or other domestic carriers for inbound traffic terminating to the Group or othercarriers, respectively; and (2) transfer price revenues from wireless and wireline customersfor outgoing international calls, net of amounts payable to foreign telecommunicationscarriers.

In 2002, Carrier services posted consolidated ILD revenues of P=2,528 million, an increase of107% from P=1,222 million in 2001, due to significant improvements in call volumes. On aGroup basis, including contributions from the wireless and wireline services, consolidatedILD revenues stood at P=10,742 million for 2002, translating to 25% of the Group’s netservice revenues for the period compared to P=6,668 million and 22% in 2001.

Carrier Services - IXC inclusive of NLD

Both Globe and Islacom operate as IXCs. Globe uses its NDTN, while Islacom uses its ownbackbone transmission network for hauling national and international interconnection trafficamong wireline and wireless operators in the Philippines. On a consolidated basis, Carrierservices posted IXC service revenues for 2002 of P=2,119 million, a 39% increase from P=1,519 million for the same period last year.

The Group offers National Long Distance (NLD) services. Revenues from NLD services aregenerated from calls outside of a specific local area but within the Philippines.

In 2002, the Group’s NLD call volume increased to 534 million minutes from 525 millionminutes for the same period last year. Outbound NLD call volume decreased by 14% to 257


million minutes in 2002, compared to 299 million minutes in 2001 due to a shift towardscellular-to-cellular calls. Inbound NLD call volume increased by 23% to 277 million minutescompared to 226 million minutes in 2001.

The Group’s consolidated NLD revenues from wireless and wireline services stood at P=2,666million for 2002, an increase of 5% from P=2,548 million for the same period last year.Consolidated NLD revenues for 2002 translate to 6% of the Group’s net revenues for theperiod.

Costs and ExpensesGlobe (Group)

For the year ended 31 December (In million pesos) 2002 2001

Cost of Sales ............................................................................................... 6,679 8,559Staff Costs ................................................................................................... 1,582 1,306Marketing .................................................................................................. 2,048 1,549Administration ............................................................................................ 3,144 2,277Repairs and Maintenance ............................................................................ 1,397 1,069Services ....................................................................................................... 1,020 847Others ......................................................................................................... 23 577Corporate Costs .......................................................................................... 2,169 1,964

Total Operating Cost and Expenses ........................................................ 18,062 18,148 Depreciation and Amortization .................................................................. 10,992 6,199 Provision for Doubtful Accounts ............................................................... 452 1,295 Other Provisions ......................................................................................... 597 150

Total Costs and Expenses ....................................................................... 30,103 25,792

For the year of 2002, the Group registered consolidated costs and expenses of P=30,103million, which includes total operating cost and expenses of P=18,062 million. Compared to2001, total costs and expenses for the year 2002 increased by 17% from P=25,792 million toP=30,103 million. Cost of Sales decreased by 22% in 2002, compared to 2001, due to lowervolume of handsets sold and volume rebates on purchases. From P=577 million in 2001, otherexpenses declined to P=23 million in 2002.

Of the total costs and expenses, operating costs for 2002 accounted for 60% compared to70% in 2001. As a percentage of consolidated net operating service revenues, total costs andexpenses accounted for 71% compared to 86% in 2001. The Group’s year 2002 operatingcosts and expenses is net of reversals of various accruals for marketing, maintenance,services and other expenses which were confirmed to be no longer necessary because theexpenses failed to materialize or have been adjusted to a lower amount through renegotiation.

Depreciation and amortization on a consolidated basis amounted to P=10,992 million in 2002compared to the P=6,199 million for the same period in 2001. As a percentage of net operatingservice revenues, the Group’s depreciation and amortization was 26% in 2002 compared to21% in 2001. The increase reflected additional depreciation charges related to varioustelecommunications equipment placed in service during the year and the impact of thechange in the estimated useful lives of certain fixed assets implemented in July 2002. Thechange increased the depreciation expense for the year ended 31 December 2002 byapproximately P=1,148 million. Depreciation is computed using the straight-line method overthe estimated useful life of the assets. The weighted estimated useful life of all assets is 9.7years as of 31 December 2002.

The Group’s consolidated provision for doubtful accounts, which consist of provisions fortrade receivables from subscribers, net traffic settlement accounts and other non-trade


receivables totaled P=452 million in 2002, translating to 1% of consolidated net servicerevenues versus P=1,295 million in 2001 which comprised 4% of consolidated net servicerevenues.

Provisions for trade receivables, on the other hand, amounted to P=446 million. NetReceivable Days was at 50 compared to 55 for the same period in 2001. Globe and Islacommaintain an allowance for doubtful accounts at a level considered adequate to provide forpotential uncollectibility of its receivables. For subscriber receivables, allowance iscalculated using the policy of providing full allowance for receivables from permanentlydisconnected subscribers. Permanent disconnections are made after a series of collectionsteps following non-payment for both wireless and wireline subscribers. Such permanentdisconnections, generally occur within 60 days (from statement date) for consumer accountsand 150 days (from statement date) for business accounts of both services. Full allowance isprovided for wireline residential and business subscribers with outstanding receivables thatare past due by 90 and 150 days from statement dates, respectively. For traffic settlementreceivables, a policy of providing full allowance is adopted for net international and nationaltraffic settlement accounts that are not settled within 10 months from transaction date andafter a review of the status of settlement with other carriers. Additional provisions are madefor accounts specifically identified to be doubtful of collection.

Inventories and supplies are stated at the lower of cost or net realizable value, with costdetermined using the moving-average method. An allowance for market decline is providedequivalent to the difference between the cost and the net realizable value of inventories.When inventories are sold, the related allowance is reversed in the same period, with theappropriate sales (revenues) and cost of sales (expenses) recognition. An allowance is alsoprovided for obsolescence and possible losses. Full obsolescence allowance is provided whenthe inventory is not moving for more than a year. A 50% allowance is provided for slowmoving items. For 2002, the Group recorded recovery of allowances for inventory losses,obsolescence and market decline of P=20 million compared to the P=18 million in 2001. TheGroup also recognized provisions for possible losses on property and equipment and otherprobable losses of P=616 million for 2002 compared to P=168 million in 2001.

Consolidated EBITDA in 2002 was P=26,704 million compared to P=15,811 million in 2001.Consolidated EBITDA is defined as consolidated earnings before interest, taxes, depreciationand amortization. Consolidated EBITDA margin for the period was 63%. Excluding non-recurring adjustments, year-to-date EBITDA was P=24,759 million with EBITDA margin at59%. EBITDA margin is computed on the basis of net service revenues.

Consolidated earnings before interest and taxes (EBIT) of the Group in 2002 was at P=15,712million compared to P=9,611 million in 2001.


Details of consolidated Other Income/(Expenses) for the year ended 31 December 2002 and2001 are as follows:

Globe (Group)For the year ended 31 December (In million pesos) 2002 2001

Interest Income .................................................................................. 459 406Interest Expense ................................................................................ (4,315) (3,411)Capitalized Interest Expense ............................................................. 515 592Net Interest Income/(Expense) ........................................................... (3,341) (2,413)

Equity in net earnings of investee companies .................................. 1 3

Losses on retirement of property and equipment ............................ (2,197) - Provision for restructuring costs on network integration ............... (202) - Others – net ..................................................................................... (877) (404) Sub-Total ........................................................................................ (3,275) (401)

Total Other Income/(Expenses).......................................................... (6,616) (2,814)

The Group posted total net interest expenses of P=3,341 million and P=2,413 million in 2002and 2001 respectively while consolidated capitalized interest expense in 2002 amounted toP=515 million from P=592 million in 2001. (Please refer to the section on the Results ofOperational Integration of Wireless Networks for related discussion on provision for losseson retirement of property and equipment and other restructuring costs.)

Interest and other related financing charges on borrowed funds used to finance theacquisition of property and equipment to the extent incurred during the period of installationare capitalized as part of the cost of the property. The capitalization of these borrowing costs,as part of the cost of the property, (a) commences when the expenditures and borrowing costsbeing incurred during the installation and related activities necessary to prepare the propertyfor its intended use are in progress; and (b) ceases when substantially all the activitiesnecessary to prepare the property for its intended use are complete. These costs are amortizedusing the straight-line method over the estimated useful lives of the related property.

Consolidated income before tax amounted to P=9,095 million in 2002 compared to P=6,797million in 2001. For the year ended 2002, consolidated provision for current and deferredincome tax amounted to P=2,251 million or an effective income tax rate of 18% of net incomebefore share in Islacom’s net loss before tax compared to P=2,492 and 31% in 2001,respectively. The decrease in effective tax rate in 2002 is due to the availment of the three-year income tax holiday on the Company’s income from its Phase VIII expansion programregistered with the Board of Investments effective 01 April 2002. Of the P=2,251 million,provision for current income tax amounted to P=1,253 million and the balance of P=998 millionrepresents deferred income taxes to recognize the tax consequence attributed to thedifferences between the financial reporting bases of assets and liabilities and their related taxbases.

Consolidated net income after tax amounted to P=6,845 million for 2002, 59% higher than theP=4,305 million in 2001. Accordingly, basic and diluted earnings per common share is P=44.64for 2002. In 2001, it was P=37.08 and P=36.98, respectively after retroactive adjustment for the25% stock dividend approved by the Board of Directors on 29 January 2002. The increase inearnings per share was due to improved operating results in 2002. Basic earnings per share(EPS) is computed by dividing earnings applicable to common stock by the weighted averagenumber of common shares outstanding during the period including fully-paid but unissuedshares as of the end of the period after giving retroactive effect for any stock dividends, stock


splits or reverse stock splits during the period. Diluted EPS is computed assuming that thestock options, rights and warrants are exercised and qualified convertible preferred shares areconverted.

Results of Operational Integration of Wireless Network

Last 26 September 2002, Globe announced the operational integration of the Globe andIslacom wireless networks. The integration is expected to expand the coverage and serviceofferings for Islacom subscribers, realize savings in capital and operating expenses fromcombined operations and increase operational efficiency for Globe and Islacom. Keyelements of the operational integration involved the migration of existing Islacom subscribersto the Touch Mobile brand; joint use of Islacom’s 10 Mhz frequency resources; integration ofIslacom’s network into Globe’s and the shutdown of certain elements of the Islacom networkwhich cannot be redeployed in the Globe network.

The operational integration allows the use of certain elements of the existing Islacomnetwork in the Globe network. However, certain elements of the Islacom network had to beshut down to avoid unnecessary duplication and significant upgrade cost. Globe and Islacomanticipate reductions of around P=1,500 million in its capital expenditure program and aboutP=600 million in annual cash operating expenses. The integration of Islacom’s network toGlobe resulted in Islacom’s recognition of losses on retirement of Islacom CMTS assets ofP=2,202 million and a provision for restructuring costs on network integration of P=202million. Other non-recurring adjustments, amounting to P=1,904 million (net of income tax),allowed Globe to partly offset the effect of the write-off, so that the net impact of all thesenon-recurring adjustments is a reduction in 2002 net income of about P=503 million. The othernon-recurring adjustments consist of reversals of various expense accruals such as marketing,service and maintenance fees, which were confirmed to be no longer necessary because theexpense failed to materialize or have been adjusted to a lower amount through renegotiationsand rebates from suppliers. Despite the adjustments, consolidated net income after tax for2002 reached P=6,845 million. Taking out the P=503 million net impact of non-recurring items,recurring net income for 2002 would have been P=7,348 million.

Foreign Exchange Exposure

The Philippine Peso closed at P=53.25 on 31 December 2002 from P=51.69 at 31 December2001. As a result of the translation of the foreign currency-denominated assets and liabilities,the Group reported net foreign currency revaluation losses amounting to P=960 million for theyear ended 31 December 2002.

The foreign exchange differentials arising from the restatement of foreign-currencydenominated accounts other than those relating to the liabilities/borrowed funds attributed tofinancing the capital projects and those covered by swap agreements are charged or creditedto current operations which amounted to a gain of P=57 million. Globe’s foreign exchangedifferentials arising from the restatement of foreign currency denominatedliabilities/borrowed funds covered by swap agreements amounted to P=553 million loss for theyear ended 31 December 2002. This loss is offset by the translation gains from the relatedcurrency swaps also amounting to P=553 million.

The consolidated foreign exchange differentials attributed to the restatement of foreigncurrency denominated liabilities used to finance the acquisition and installation of Globe andIslacom’s property consisted of foreign exchange losses amounting to P=464 million for the


year ended 31 December 2002. These foreign exchange differentials are added to or deductedfrom the cost of the appropriate property and equipment accounts. As of 31 December 2002,the Group’s net cumulative capitalized foreign exchange losses amounted to P=4,976 millionnet of accumulated depreciation of P=1,526 million.

Upon business combination with Islacom in 2001, Globe recorded the new cost basis forIslacom’s assets and liabilities arising from the allocation of the purchase price over the fairvalue of Islacom’s net assets. The balance of foreign exchange losses amounting to P=3,895million capitalized by Islacom as part of property and equipment prior to the businesscombination and other fair market value adjustment amounting to P=434 million formed partof Globe’s new cost basis of Islacom property and equipment as of 30 June 2001. As of 31December 2002, the net book value of the capitalized foreign exchange losses and other fairvalue adjustment forming part of the new cost basis of Islacom’s property and equipmentamounted to P=2,876 million and P=296 million respectively.

To mitigate foreign exchange risk, Globe enters into short-term foreign currency forwardsand long-term foreign currency swap contracts. Short-term forward contracts are used tomanage the company’s foreign exchange exposure related to foreign currency-denominatedmonetary assets and liabilities. For certain long term foreign currency-denominated loans,Globe enters into long term foreign currency swap contracts to manage the company’sforeign exchange and interest rate exposures.

As of 31 December 2002, Globe has US$391 million in outstanding foreign currency swapagreements, some of which have option features.

Globe also has an outstanding interest rate swap agreement, under which it effectively swapsa portion of a floating rate U.S. dollar-denominated loan into fixed, with semi-annualpayment intervals up to March 2007. The swap has an outstanding notional amount of US$41million as of 31 December 2002.

Islacom has investments in U.S. Dollar Notes (US$ Notes) issued by various financialinstitutions with maturities ranging from six to seven months totalling US$75 million. Theinterest rates of the US$ Notes are based on LIBOR plus spread payable either every threemonths or on specified dates. An early redemption feature is provided in the US$ Notes,which are triggered by specified credit events of the reference entity, which is the Republicof the Philippines (ROP). The credit events include: failure to pay, obligation acceleration,repudiation/moratorium and restructuring of the ROP’s reference obligations as defined inthe agreements. If a credit event occurs during the applicable period, Issuer shall redeem theUS$ Notes through delivery of the ROP reference obligations or its cash settlement amount,depending on specified criteria. The early redemption feature triggered by specified creditevents is a credit derivative of the ROP reference obligations.

Islacom has a short-term US$6 million investment, covered by a forward US$ sell contractwith the same counterparty at a contracted forward rate of P=53.8935 maturing in January2003.

For disclosure purposes, the estimated unrealized mark-to-market gain on the outstandingderivatives of Globe amounted to US$9.7 million (P=518 million) and the mark-to-marketgain on the outstanding currency forward contract of Islacom amounted to P=2.4 million basedon mark-to-market valuation as of 31 December 2002 provided by counterparty banks. The


mark-to-market values of the credit derivative on the US$ Notes of Islacom are not currentlydeterminable.

The amount of US$ debt swapped into pesos and peso-denominated debt accounts forapproximately 47% of consolidated loans as of 31 December 2002.

Consolidated foreign currency linked revenues were 27% of total net revenues for the year2002 versus 24% for the same period in 2001. Foreign currency linked revenues includethose that are: (1) billed in foreign currency and settled in foreign currency, or (2) billed inPesos at rates linked to a foreign currency tariff and settled in Pesos, (3) wireline monthlyservice fees and the corresponding application of the Foreign Currency Adjustment or CERAmechanism, under which Globe has the ability to pass the effects of local currencydepreciation to its subscribers.

Liquidity and Capital Resources

Consolidated assets as of 31 December 2002 amounted to P=141,046 million compared to P=118,628 million in 2001.

As of 31 December 2002, current ratio on a consolidated basis was 1.26:1. Consolidatedcash level was at P=18,963 million at the end of the period, due to increased operating cashflow and timing of disbursements from its US$200 million bond proceeds raised in April2002. Debt to equity ratio of 1.15:1 on a consolidated basis remains well within the 2:1 debtto equity limit dictated by certain debt covenants.

Consolidated cash flow from operations amounted to P=23,016 million for the period ended31 December 2002 compared to P=10,156 million in 2001 consistent with the increase in theCompany’s EBITDA.

Consolidated cash used in investing activities amounted to P=22,670 million for 2002compared to P=23,510 million in 2001. The bulk of investing activities involved the purchaseof equipment or services from foreign suppliers in connection with the development of thewireless, wireline and carrier services. Consolidated capital expenditures in 2002 amountedto P=20,478 million, including P=2,560 million in non-cash liabilities related to the acquisitionof property and equipment pertaining to the portion of projects which have been completedor are being completed but have not yet been paid or are covered with supplier financing.

Consolidated cash provided by financing activities for 2002 amounted to P=10,865 millioncompared to P=18,107 million in 2001. Consolidated total debt as of 31 December 2002amounted to P=58,581 million of which 87% is long-term debt. Loan repayments of the Groupfor 2002 amounted to P=10,098 million. The average annual principal repayment of existingconsolidated debt for the next three years is US$140 million.

Stockholders’ equity was P=51,098 million as of 31 December 2002. As of 31 December2002, there were 151.9 million common shares and 158.5 million preferred shares issued andoutstanding.

Preferred stock “Series A” has the following features:(a) Convertible to one common share after 10 years from issue date at the prevailing

market price of the common stock less the par value of the preferred shares;(b) Cumulative and non-participating;(c) Floating rate dividend (set at MART 1 plus 2% average for a 12-month period);


(d) Issued at P=5 par;(e) Voting rights;(f) Globe has the right to redeem the preferred shares at par plus accrued dividends at

any time after 5 years from date of issuance; and(g) Preferences as to dividend in the event of liquidation.

For the year ended 31 December 2002 and 2001, Globe declared P=64 million and P=47 millionin dividends payable to preferred shareholders, respectively. On 27 December 2002, Globemade a partial payment of dividends amounting to P=3 million to its preferred shareholder.

Consolidated Return on Average Equity (ROE) in 2002 stood at 14%.

Corporate Developments (2002)

On 01 October 2002, a meeting of all remaining Holders of PDRs was held to discuss theproposed manner of disposition of the Globe common shares underlying the PDRs, whichexpired last 15 July 2002 in accordance with Sec. 5(c) of the PDR Instrument. At themeeting, 99.84% of the remaining holders of the PDRs voted to amend the PDR instrumentto allow Globe Telecom Holdings, Inc. (GTHI) to fulfill its remaining obligations to the PDRholders in relation to the Globe common shares underlying the PDRs in any of the followingways:

� By selling the underlying common shares in the open market, in a transaction over thePhilippine Stock Exchange (PSE) and remitting the cash proceeds to the PDR holder;

� By conveying the underlying common shares to the PDR holder, in a transaction over thePSE;

� By conveying the underlying common chares to the PDR holder, in an over-the-countertransaction.

In accordance with the terms of the instrument, all costs for the foregoing shall be for theaccount of the PDR holders. Holders were given thirty (30) days to notify GTHI of theirselected option. Failure, by the holder to notify GTHI, allows GTHI to sell the underlyingcommon shares in the open market and remit the cash proceeds to the holders, net of allrelated expenses.

As of November 2002, PDR holders notified GTHI of their chosen option, as allowed, basedon the 01 October 2002 meeting. Subsequently, GTHI has acted on the chosen options of thePDR holders by advising BPI Securities Corporation to implement the specific instructionsof the PDR holders.

On 26 December 2002, GTHI filed with the SEC a Request for the Revocation of its permitto sell PDRs.

Globe is an intervenor in and Islacom is a party to Civil Case No. Q-00-42221 entitled "IslaCommunications Co., Inc. et. al., versus National Telecommunications Commission et. al.,"before the Regional Trial Court of Quezon City by virtue of which Globe and Islacom,together with other cellular operators, sought and obtained a preliminary injunction againstthe implementation of NTC Memorandum Circular No. 13-6-2000. The NTC appealed theissuance of the injunction to the Court of Appeals (CA). On October 25, 2001, Globe andIslacom received a copy of the decision of the CA ordering the dismissal of the case beforethe Regional Trial Court for lack of jurisdiction, but without prejudice to the cellular


companies' seeking relief before the NTC which the CA claims had jurisdiction over thematter. On 07 November 2001, the Companies filed a Motion for Reconsideration. Globeand Islacom received a copy of the decision on 15 February 2002. On 22 February 2002, theCompany filed a Petition for Review with the Supreme Court seeking to revise the decisionof the CA. In its Comment dated 17 June 2002, the NTC sought the dismissal of the Petitionfor Review. Globe and Islacom submitted on 23 July 2002, their Reply to the NTC’sComment. The Supreme Court, in its resolution dated 9 December 2002, denied the Petitionfor Review, a copy of which was received by Globe and Islacom on 26 December 2002. On10 October 2002, Globe and Islacom filed a Motion for Reconsideration (with Motion toConsolidate) of the Supreme Court’s resolution. In said Motion, Globe and Islacom soughtthe following: (1) the Petition be consolidated with the another Petition entitled “SmartCommunications, Inc. et. al vs. NTC”, G.R. No. 151908, likewise pending with the SupremeCourt since the two Petitions originated from the same RTC Civil Case and the same Courtof Appeals case; (2) the Supreme Court resolution dated 09 December 2002 be reconsidered;and (3) Globe and Islacom’s Petition in the Supreme Court be given due course.Notwithstanding the foregoing, the decision of the CA is still not immediately final andexecutory and cannot be implemented as Globe and Islacom still have a number of remediesavailable to them. In the event, however, that Globe and Islacom are not eventuallysustained in their position and NTC Memorandum Circular No. 13-6-2000 is implemented inits current form, the companies would probably incur additional costs for carrying andmaintaining prepaid subscribers in its network.

On 03 January 2003, Globe and Islacom signed an agreement with PLDT, Smart and Piltelto amend their existing interconnection agreements. The material provisions of theamendments to the interconnection agreements are: (a) Effective 01 January 2003, metered calls terminating to an LEC network will be chargeda termination rate of P=2.50 per minute, an increase from the previous termination rate of P=2.00 per minute. Effective 01 January 2004, this termination rate will further increase toP=3.00 per minute. (b) Effective 01 January 2004, calls terminating to a CMTS network will be charged atermination rate of P=4.00 per minute, a decrease from the previous termination rate of P=4.50per minute. (c) Effective 01 February 2003, calls passing through an IGF terminating to an LEC networkwill be charged a termination rate of US$0.12 per minute, an increase from the previoustermination rate of US$0.08 per minute. (d) Effective 01 February 2003, calls passing through an IGF terminating to a CMTSnetwork will be charged a termination rate of US$0.16 per minute, an increase from theprevious termination rate of US$0.12 per minute. On various dates in January 2003, Globe and Islacom signed an agreement with BayanTelecommunications, Inc., and Globe signed agreements with Digital TelecommunicationsPhilippines, Inc. and Bell Telecom, Inc., to amend their existing interconnection agreements. The material provisions of the amendments to the interconnection agreements are covered in(a) through (d) above, except that in the case of (a) for metered calls terminating to an LECnetwork, the termination rate of P=2.50 per minute will be effective 01 February 2003.


On 16 January 2003, Globe Telecom announced that it was suspending its prepaidinternational roaming service in the Kingdom of Saudi Arabia effective January 31, 2003 onthe request of Saudi Telecom. International roaming in Kingdom of Saudi Arabia willcontinue to be available for Globe postpaid subscribers. Saudi Telecom's request to bar theservice was due to its current review of prepaid service in general and was not specific to theCompany. Globe started offering international roaming service to its postpaid and prepaidsubscribers in 1995 and 2002, respectively and has over 200 roaming partners to date.International roaming allows its customers to send and receive calls and text messages whenabroad while keeping their existing cellular phone numbers.


(2) 2001

Operating Revenues

GroupFor the Year Ended 31 December (In Million Pesos) 2001 2000

Wireless Net Revenues 29,058 15,694 Non-Service ….…………………………………… 5,454 3,252 Service ….………………………………………… 23,604 12,442

Wireline Net Revenues 3,604 2,847 Voice ……………………………………………… 2,610 2,053 Data ……………………………………………… 994 794

Carrier Net Revenues ………………………………… 2,741 1,536

Total Net Operating Revenues ……………………… 35,403 20,077

Globe registered consolidated net operating revenues of P=35,403 million for year 2001. Thebreakdown of consolidated service revenues and non-service is P=29,938 million and P=5,465million, respectively. Of the total consolidated net operating revenues, consolidated wirelessservices accounted for 82% or P=29,058 million, wireline voice services 7% or P=2,610million, wireline data 3% or P=994 million and carrier services 8% or P=2,741 million.

Net operating revenues include the value of all telecommunications services provided whichare recognized when earned and stated net of the share of other telecommunications carriersunder existing correspondence or interconnection agreements.

Wireless Services

Globe provides nationwide wireless communications services under the brand name GlobeHandyphone using its GSM network, while Islacom provides wireless GSM services underthe Islacom and Touch Mobile brands. Touch Mobile was launched on 12 September 2001.

Wireless net operating revenues include: (1) fixed monthly charges including currencyexchange rate adjustments (CERA), plus charges for local calls in excess of the free minutesfor various Globe Handyphone and Islacom postpaid plans; (2) airtime fees from the prepaidcard service (Globe Prepaid Plus, Islacom Prepaid and Touch Mobile) recognized upon theearlier of (a) actual usage of the airtime value of the prepaid card or (b) expiration of theunused value of the prepaid card, which occurs two months after activation, but excludingany usage of call cards originally provided without cash proceeds (promotional airtime callcards); (3) revenues generated from international and national long distance calls andinternational roaming calls, net of any interconnection fees (including interconnection feesor promotional airtime call cards) to other carriers and transfer pricing charges to thecarrier services group; (4) revenues from value-added services, mainly text messaging; (5)one-time registration fees for new subscriptions; and (6) proceeds from the sale of handsets,SIM cards and other phone accessories.

The related costs incurred in connection with the acquisition of subscribers are charged tooperations under operating costs and expenses. The average subscriber acquisition cost (netof the value of free airtime call cards given as promotional items to dealers) is higher than theone-time registration fee collected from subscribers in all cases. One-time registration fees


are essentially reimbursements of the cost of connecting a customer which is generally lowerthan the actual subscriber acquisition cost consisting mainly of commission paid to dealers,handset subsidies and marketing expenses. The corresponding acquisition costs of thehandsets sold are recorded under operating cost and expenses in the income statement duringthe period they were incurred. Handset subsidy is the difference between proceeds fromsales of handsets, SIM cards, other phone accessories (recorded as part of non-servicerevenues) and cost of sales which is classified under operating costs and expenses.


On a consolidated basis, the Group registered 466,659 postpaid subscribers as of 31December 2001. Globe offers postpaid services through Globe Handyphone, while Islacomcontinues to offer postpaid services under the Islacom brand.

For the year 2001, Globe Handyphone accounted for 458,475 subscribers, an increase of30% from 351,909 for the same period last year. Net postpaid additions for the year 2001averaged at 8,881 subscribers per month, compared to 11,249 registered in the same periodlast year.

The net average monthly operating revenue (ARPU) per Globe postpaid wireless subscriberdeclined by 5% to P=1,616 in the year 2001, from P=1,693 in the year 2000. The decline in netpostpaid ARPU was mainly due to the drop in National Long Distance (NLD) usage, sinceNLD calls between cell phone users are classified as local calls regardless of location.Globe’s postpaid ARPU on a gross basis amounted to P=2,030 in the year 2001 from P=2,230for the same period in 2000.

The acquisition cost per postpaid subscriber increased by 9% to P=3,513 in the year 2001 from P=3,237 in the year 2000, due to the increase in commissions and handset subsidies. InDecember of 2001, Globe launched its 2nd ‘Globevolution’ (a nationwide promotion) for theyear during which discounted handsets were offered and registration fees were waived. Forthe year 2001, handset subsidies accounted for 53% of acquisition costs, commissions 31%and advertising expenses 16%. For the same period in 2000, handset subsidies accounted for47% of acquisition costs while commissions and advertising expenses accounted for 29%and 24%, respectively.

The average monthly churn rate for Globe’s postpaid subscribers is defined as totaldisconnections net of reconnections divided by the average postpaid subscribers, divided bythe number of months in the period. Postpaid churn rate averaged 1.8% per month in year2001, higher than the 1.3% reported for year 2000, mainly due to company-initiateddisconnections. For postpaid subscribers, permanent disconnections are made after a series ofcollection steps following non-payment. Such permanent disconnections generally occurwithin 90 days.

Islacom continues to service 8,184 postpaid subscribers, as of 31 December 2001. Adeliberate marketing slowdown for this brand was consciously made in line with the activesubscriber clean-up efforts in 2000. Average monthly churn rate for wireless postpaidservices stood at 7% in year 2001.



Consolidated prepaid subscribers totaled 4,121,471 as of 31 December 2001. The Groupoffers prepaid services through Globe Prepaid Plus, while Islacom offers its prepaid servicesthrough the Islacom brand and Touch Mobile.

For year 2001, Globe registered 4,008,001 prepaid subscribers, up by 81% from 2,211,552for year 2000. Globe’s net prepaid additions averaged at 149,704 per month in year 2001,compared to 126,013 per month in year 2000.

A prepaid subscriber becomes active when the subscriber purchases a SIM card and turns iton for the first time. When a prepaid subscriber loads airtime value into Globe’s system, thesubscriber has two months to use the value before the card expires. When the airtime valueis used up and the subscriber does not reload or the card expires, whichever comes earlier,the subscriber retains use of the wireless number to receive incoming calls for another fourmonths. However, if the subscriber still does not reload value within that time, thesubscriber loses the wireless number and the account will be permanently disconnected. Atthat point, the subscriber is then considered part of churn. Globe’s prepaid subscribers canreload airtime value by purchasing prepaid cards, which are sold in denominations of P=250,P=300, P=500 and P=1,000. The P=300 denominated prepaid card was introduced in the marketin January 2002 while the distribution of the P=250 prepaid card will be discontinued effectiveMay 2002. Touch Mobile call cards are sold in denominations of P=300 and P=500.

Revenues from prepaid cards are recorded net of the related value of free airtime call cardsgiven as promotional items to dealers. While subscriber usage of free airtime call cards arenot included in revenues, any payments to other carriers arising from the usage of freeairtime call cards are recorded as part of total interconnection fees to other carriers. On aconsolidated basis, the percentage of free call cards to total cards issued for the year ended of31 December 2001 was 15%.

Revenues from sale of prepaid cards are initially recognized by Globe and Islacom asdeferred revenues and are shown as part of accounts payable and accrued expenses in thebalance sheet since service has not yet been rendered. Revenue is recognized upon actualusage of the airtime value of the prepaid card or expiration of the unused value of the prepaidcard, whichever comes earlier.

The net ARPU for Globe Prepaid Plus was P=444 for year 2001, up from P=411 reported inyear 2000. Net prepaid ARPU improved due to increased data usage per subscriber duringthe period. Globe’s prepaid gross ARPU was P=547 for year 2001 from P=489 for year 2000.

Globe’s acquisition cost per Prepaid Plus subscriber increased to P=433 for year 2001 from P=385 for the same period in 2000 due mainly to the increase in handset subsidies and cashcommissions. Of the total acquisition cost for the period, handset subsidies accounted for67%, commissions 21% and advertising costs 12%. Of the total wireless prepaid acquisitioncost in year 2000, handset subsidies accounted for 51%, commissions 29% and advertisingcosts 20%.

The cost of free call cards given out as promotional items to dealers are excluded from thecomputation of total acquisition cost consistent with the non-recognition of thecorresponding revenue related to the usage of free airtime call cards. The corresponding


interconnection payments due to other carriers generated by the subscriber usage of the freeairtime call cards, however, are recognized as incurred.

The actual average monthly churn rate for Prepaid Plus subscribers in 2001 rose to 2.1%from 1.1% during the same period last year.

As of 31 December 2001, Islacom had a total of 113,470 prepaid subscribers, from 77,217 asof 31 December 2000. Of this number, Touch Mobile contributed 95,862 from the time thatit was launched on 12 September 2001.

Given that Touch Mobile has not yet been in the market for at least six months any ARPU,acquisition cost and churn rate figures would not provide any meaningful metric at this point.

Average monthly churn rate for Islacom prepaid subscribers (excluding Touch Mobile) foryear 2001 was at 11.5% as a result of additional subscriber clean-up efforts undertaken at thestart of the year.

Wireline Services – Voice

Wireline communication service revenues consist of: (1) monthly service fees includingCERA; (2) installation charges and other one-time fees associated with the establishment ofthe service; (3) revenues from international and national long distance calls made by thepostpaid and prepaid wireline subscribers and payphone customers, net of interconnectionfees to other carriers and transfer pricing paid to carrier services group; (4) payphonerevenues from local, national and international calls; and (5) revenues from value-addedservices.

Globe provides wireline voice communication services, including local, national longdistance, international long distance and other value-added services, under the brand nameGlobelines. Globe provides wireline voice services in three specific geographic areas in thePhilippines, including parts of Metropolitan Manila, the Calabarzon region and CentralMindanao. Meanwhile, Islacom, also started offering Globelines in November 2001 (takingover from the former IslaPhone brand) in specific areas in the Visayas.

For the year ended 2001, Globe accounted for 154,893 wireline voice subscribers (including7,876 prepaid wireline subscribers), representing a 2% decrease from 157,582 subscribers forthe same period in 2000. During the period, business subscribers were 29% of totalsubscribers from 27% as of 31 December 2000 consistent with Globe’s thrust of focusing onbusiness subscribers. During the period, the average churn rate was at 2.1% compared to thechurn in the year ended 2000 of 1.6%, mainly due to company-initiated disconnections.Globe’s disconnection policy is to permanently terminate subscribers with unsettled bills 60days for residential subscribers and 155 days for business subscribers from statement date.Full allowance is made for accounts of residential and business subscribers that are 90 and150 days past due, respectively. In the 2nd half of 2001, Globe and Islacom launched theirprepaid landline services under the brand name Globelines Prepaid.

Islacom’s wireline voice subscribers for 2001 increased to 73,106, 17% of which werebusiness subscribers, and 83% residential subscribers. Islacom had 64,114 wireline voicesubscribers as of the same period last year. Islacom’s wireline voice ARPU during 2001stood at P=859. The average monthly churn rate in 2001 was 6.3%, reflecting activesubscriber clean-up efforts.



Globe offers nationwide wireline data, consisting of international and domestic leased lines,internet, telex, and other wholesale transport services, through a variety of brands. Wirelinedata net operating revenues consist of billings for these services net of the share of othercarriers for the telex service. Wireline data net operating revenues increased by 26% toP=1,000 million in 2001 from P=794 million for the same period in 2000, mainly reflectingincreased growth in the number of active leased line customers and increases in internetservice revenues.

For Globe, the combined wireline voice and wireline data, fully-loaded ARPU per wirelinesubscriber for 2001 increased by 5% to P=1,808 from P=1,726 for the same period in 2000,because of the increased proportion of business subscribers to residential customers. ARPUper wireline subscriber is calculated based on fully-loaded net operating revenues (combinedvoice and data, net of the share of other carriers) less one-time installation revenues, dividedby the average number of wireline voice subscribers for the period, divided by the number ofmonths in the period. Wireline net revenues used in the computation of ARPU are fully-loaded by adding back the net revenue share of the carrier services group in the ILD andNLD traffic generated by wireline voice subscribers.

Carrier Services (International and National Long Distance and Inter-ExchangeServices)

Globe and Islacom both offer international and national long distance services and inter-exchange carrier services (IXC). International long distance (ILD) services are offeredbetween the Philippines and over 200 countries. This service generates revenues for theCompany from both inbound and outbound international call traffic with pricing based onagreed international settlement rates for inbound traffic revenues and NTC-approved ILDrates for outbound traffic revenues. Globe and Islacom also operate as inter-exchange carriers(IXC). Globe uses its Nationwide Digital Transmission Network (NDTN), while Islacomuses its own backbone transmission network, for hauling national and internationalinterconnection traffic among wireline and wireless operators in the Philippines.

Carrier Services – ILD

ILD revenues of carrier services are mainly composed of: (1) settlements based on agreedinternational settlement rates from foreign telecommunications carriers for incominginternational calls, net of any transfer price payable to the wireline and wireless businesses orother domestic carriers for inbound traffic terminating to the Group or other carriers,respectively; and (2) transfer price revenues from wireless and wireline customers foroutgoing international calls, net of amounts payable to foreign telecommunications carriers.

For 2001, the carrier services group posted ILD revenues of P=1,222 million, an increase of89% from P=647 million for the same period last year due to the expansion of subscriber base.On a Group basis, counting contributions from the wireless and wireline services,consolidated ILD revenues stood at P=6,668 million for 2001, translating to 19% of theGroup’s net revenues for the period.


Carrier Services - Inter-Exchange (IXC) inclusive of NLD

Both Globe and Islacom operate as Inter-Exchange Carriers (IXCs). Globe uses itsNationwide Digital Transmission Network (NDTN), while Islacom uses its own backbonetransmission network, for hauling national and international interconnection traffic amongwireline and wireless operators in the Philippines. On a consolidated basis, the carrierservices group posted IXC service revenues for 2001 of P=1,519 million, an increase of 70%from P=889 for the same period last year. The increase is attributable to the substantial growthin subscribers.

The Group offers national long distance (NLD) services. Revenues from NLD services aregenerated from calls outside of a specific local area but within the Philippines.

In 2001, the Group’s NLD call volume was steady at 525 million minutes from 524 millionminutes for the same period last year. Outbound NLD call volume increased by 14% to 299million minutes in 2001, compared to 261 million minutes for the same period last year.Inbound ILD call volume decreased by 15% to 226 million minutes compared to 264 millionminutes for the same period last year.

On a Group basis, counting contributions from the wireless and wireline services,consolidated NLD revenues stood at P=2,548 million for 2001, an increase of 26% from P=2,017 million for the same period last year due mainly to the increase in subscribers.

Costs and ExpensesGroup

For the Year ended 31 December (In Million Pesos) 2001 2000

Total Costs and Expenses ………… 25,792 15,466 Operating ………………………………………… 18,148 10,943

Cost of Sales ……………………………………… 8,559 4,984Staff Costs ………………………………………… 1,969 1,434Marketing ………………………………………… 1,717 1,028Administration …………………………………… 2,500 1,466Repairs and Maintenance ………………………… 1,114 516Services and Others……………………………… 2,289 1,515

Depreciation and Amortization …………………… 6,199 3,343Provision for Doubtful Accounts ……………… 1,295 1,085Other Provisions (Recoveries) ………………… 150 95

For 2001, the Group registered consolidated costs and expenses of P=25,792 million.

Of the consolidated costs and expenses, operating costs accounted for 70%. As a percentageof consolidated net revenues, operating costs and expenses accounted for 51%.

Depreciation and amortization on a consolidated basis amounted to P=6,199 million during2001. Globe registered P=5,094 million depreciation expense in 2001, up by 52% fromP=3,343 million for the same period in 2000. The increase reflected additional depreciationexpenses related to various telecommunications equipment placed in service. As apercentage of net operating revenues, depreciation and amortization was at 15% in 2001,from 17% in the same period in 2000, primarily due to the significant increase in netoperating revenues. Depreciation is computed using the straight-line method over theestimated useful life of the assets (ranging from 3-20 years depending on the type of asset,regardless of utilization). For Islacom, depreciation and amortization expense declined by


8.7% to P=2,085 million in 2001 from P=2,284 million for the same period last year. However,consolidated balances only include Islacom’s depreciation and amortization figures for thesix months ended 31 December 2001 which amounted to P=1,105 million. Islacom’sdepreciation expense in 2000 included various adjustments which arose from the clean-up offixed asset accounts and the alignment of Islacom’s depreciation policy with Globe.

The Group’s provision for doubtful accounts which consist of provisions for tradereceivables from subscribers, net traffic settlement accounts and other non-trade receivablesstood at P=1,295 million for 2001, translating to 4% of consolidated net revenues. Globe’sprovisions increased to P=1,265 million in 2001, or 4% of net revenues.

Of the consolidated provision for doubtful accounts, provision for bad debts from trafficsettlement receivables for 2001 increased to P=327 million. The increase is due to the take-upof provisions for traffic settlement receivables from primarily other local carriers based onthe Group’s bad debt provisioning policy.

Consolidated provision for bad debts arising from subscriber receivables, on the other hand,amounted to P=916 million in 2001. Consolidated net subscriber days receivable stood at 55days as of 31 December 2001. Globe and Isla maintain an allowance for doubtful accounts ata level considered adequate to provide for potential uncollectibility of its receivables. Forsubscriber receivables, allowance is calculated using the policy of providing full allowancefor receivables from permanently disconnected subscribers. Permanent disconnections aremade after a series of collection steps following non-payment by wireless subscribers. Suchpermanent disconnections, generally occur within 90 days. Full allowance is provided forwireline residential and business subscribers with outstanding receivables that are past dueby 90 and 150 days, respectively. For traffic settlement receivables, a policy of providing fullallowance is adopted for net international and national traffic settlement accounts which arenot settled within 10 months from transaction date and after a review of the status ofsettlement with other carriers. Additional provisions are made for accounts specificallyidentified to be doubtful of collection.

Inventories and supplies are stated at the lower of cost or net realizable value, with costdetermined using the moving-average method. An allowance for market decline is providedequivalent to the difference between the cost and the net realizable value of inventories.When inventories are sold, the related allowance is reversed in the same period, with theappropriate sales (revenues) and cost of sales (expenses) recognition. An allowance is alsoprovided for obsolescence and possible losses. Full obsolescence allowance is providedwhen the inventory is not moving for more than a year. A 50% allowance is provided forslow moving items. For 2001, the Group recognized recovery of inventory losses,obsolescence and market decline of P=18 million.

Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA),before other income (expense) posted in 2001 were P=15,811 million. Consolidated EBITDAmargin for the period was 53% compared to 54% for Globe only. EBITDA margin wascomputed on the basis of net service revenues.

Consolidated earnings before interest and taxes (EBIT) of the Group in 2001 was P=9,611million. Consolidated net interest expense was P=2,413 million for 2001, translating to 7% ofconsolidated net operating revenues.


Interest and other related financing charges on borrowed funds used to finance theacquisition of property and equipment to the extent incurred during the period of installationare capitalized as part of the cost of the property. The capitalization of these borrowingcosts, as part of the cost of the property, (a) commences when the expenditures andborrowing costs being incurred during the installation and related activities necessary toprepare the property for its intended use are in progress; and (b) ceases when substantially allthe activities necessary to prepare the property for its intended use are complete. These costsare amortized using the straight line method over the estimated useful lives of the relatedproperty.

Consolidated capitalized interest during 2001 amounted to P=592 million (Islacom did nothave any capitalized interest expense during the period).

The Group posted net other expenses of P=401 million in 2001, mainly composed of swapcosts amounting to P=646 million partially offset by foreign exchange gains of P=298 millionarising from further devaluation of the peso as the Group maintains a net foreign currencyasset position after deducting foreign currency loans foreign exchange losses on which aremainly being capitalized. (Please refer to Foreign Exchange Exposure Section for a moredetailed discussion).

Consolidated income before tax amounted to P=6,797 million in 2001. For the same period,consolidated provision for current and deferred income tax amounted to P=2,492 million or31% of net income before share in Islacom net loss and before tax. Of the P=2,492 million,provision for current income tax for 2001 amounted to P=1,191 million, or 15% of incomebefore share in Islacom net loss and before tax. The Group also provided for P=1,301 milliondeferred income tax for 2001 to recognize the tax consequence attributed to the differencesbetween the financial reporting bases of assets and liabilities and their related tax bases.

Consolidated net income after tax amounted to P=4,305 million in 2001, higher than the P=1,549 million last year. Accordingly, basic and diluted earnings per common share in 2001were P=46.35 and P=46.19, respectively. For the same period in 2000, Globe’s, basic anddiluted earnings per common share were P=22.68 and P=20.34, respectively. Basic earnings pershare (EPS) is computed by dividing net income applicable to common stock by theweighted average number of common shares outstanding during the year including fully paidbut unissued shares as of the end of the year after giving retroactive effect for any stock splitsor reverse stock splits during the year. Diluted EPS is computed assuming that the stockoptions, rights and warrants were exercised. Earnings per share data for the year 2000 wererestated to reflect the 1:50 reverse stock split which took effect on 24 August 2000.Consolidated net income for 2001 showed growth of 178%, even after the take-up of Globe’sshare in Islacom’s net loss for the second half of P=1,199 million.


The Philippine Peso closed at P=51.69 on 31 December 2001 from P=49.99 at 31 December2000. As a result of the translation of foreign currency denominated assets and liabilities,Globe reported net foreign exchange revaluation losses of P=458 million in 2001. A total ofP=822 million in revaluation losses were attributed to foreign currency denominated liabilitiesthat financed capital projects, and were therefore recorded as additions to the carrying valueof the appropriate property accounts. Total revaluation gains amounted to P=364 million, ofwhich P=226 million was credited to operations and P=138 million covered by hedge contractswas deferred.


As of 31 December 2001, the Group’s capitalized foreign exchange revaluation lossesamounted to P=6,038 million from August 1997, which is being amortized over the remaininglife of the related property account. Of the P=6,038 million, a total of P=972 million has beenamortized as of 31 December 2001.

To mitigate foreign exchange risk, Globe enters into short-term and long-term derivativecontracts. Short-term forward contracts are used to hedge short-term assets and/or liabilities,as well as committed US$ transactions. As of 31 December 2001, Globe had no outstandingshort-term forward contracts.

Cross currency swaps are primarily used to hedge selected long-term US$ debt. As of 31December 2001, Globe had US$244 million in outstanding cross currency swap contractswith various foreign banks, under which it effectively converts its US$ debt into PhilippinePeso with quarterly or semi-annual payment intervals up to March 2007. The aggregatemark-to-market value of these cross currency swaps was estimated at US$9 million as of 31December 2001. The amount of US$ debt swapped into Pesos and peso-denominated debtaccounts for approximately 40% of Globe’s loans.

Foreign currency linked revenues were 23% of Globe’s total net revenues for 2001 versus22% for the same period in 2000. Foreign currency linked revenues include those that are:(1) billed in foreign currency and settled in foreign currency, or (2) billed in Pesos at rateslinked to a foreign currency tariff and settled in Pesos, (3) wireline monthly service fees andthe corresponding application of the Foreign Currency Adjustment (FCA) or CurrencyExchange Rate Adjustment (CERA) mechanism, under which Globe has the ability to passthe effects of local currency depreciation to its subscribers.


Consolidated assets as of 31 December 2001 amounted to P=118,628 million.

As of 31 December 2001, current ratio on a consolidated basis was 0.87:1. Debt to equityratio also increased to 1.07:1 on a consolidated basis from the 1.02:1 level on a Globe stand-alone basis. The debt to equity ratio of Globe is well within the 2:1 debt to net worth limitdictated by certain debt covenants.

Consolidated cash flow from operations amounted to P=10,776 million for the year ended 31December 2001.

Consolidated cash used in investing activities amounted to P=23,890 million for the period.The bulk of investing activities involved the purchase of equipment or services from foreignsuppliers in connection with the development of the wireless, wireline and carrier services.Consolidated capital expenditures in 2001 amounted to P=29,805 million, which includes P=3,713 million in non-cash investing activities (pertaining to the portion of projects whichhave been completed but have not yet been paid or are covered with financing).

Consolidated cash provided by financing activities amounted to P=17,867 million.Consolidated gross debt as of 31 December 2001 amounted to P=47,114 million with P=45,211million attributable to Globe only. Of the consolidated gross debt balance as of 31 December2001, P=9,668 million or 21% is short-term debt (including current portion of long-term debt)and P=37,446 million or 79% is long-term debt. Loan repayments of the Group during 2001


amounted to P=13,536 million. Globe’s US$220 million senior notes will mature in 2009. Theaverage principal repayment of existing consolidated debt for the next three years is US$128million. Debt used in computing these financial ratios excludes non-interest bearing debt.

Stockholders’ equity was P=44,228 million as of 31 December 2001. Globe’s authorizedcapital stock increased from P=5 billion consisting of 100 million single class of commonshares at par value of P=50 per share to P=11.25 billion consisting of 200 million commonshares at par value of P=50 per share and 250 million preferred shares (“Series A”) at parvalue of P=5 per share. As of 31 December 2001, there were 121.1 million common sharessubscribed, of which 118.6 million were issued and 158.5 million preferred shares (“SeriesA”).

Preferred stock “Series A” has the following features:

a) Convertible to one common share after 10 years from issue date at the prevailingmarket price of the common stock less the par value of the preferred shares;

b) Cumulative and non-participating;c) Floating rate dividend (set at MART 1 plus 2% average for a 12-month period);d) Issued at par;e) Voting rights;f) Globe has the right to redeem the preferred shares at par plus accrued dividends at

any time after 5 years from date of issuance; andg) Preferences as to dividend in the event of liquidation.

On December 15, 2001, Globe’s BOD approved the declaration of dividends amounting to P=47.07 million payable to preferred “A” shareholders. Preferred “A” shares were listed onJune 29, 2001 with the PSE.

AC, STI and DTA pledged equity infusion of $155 million to Islacom in accordance withthe Agreement to Subscribe (Agreement). Under this Agreement, the equity funding shallbe provided to Globe Telecom specifically as a pass-through equity, for Globe Telecom toinvest in Islacom to fund the latter’s capital and operating requirements. In accordance withsuch Agreement, Globe Telecom received P=7,907.25 million in 2001 which was recorded asDeposits on Subscriptions. These were applied to the conversion of 10,273,534 warrants atan exercise price of P=164.50 and the balance to the subscription of an additional 8,855,476common shares. As of December 31, 2001, Globe Telecom has infused a total of P=6,894.96million to Islacom.

On December 19, 2001, the SEC issued its Resolution No. 733 confirming that the proposedissuance of 8,855,476 common shares to AC, STI and DTA is exempt from the registrationrequirements of the Securities Regulation Code.

On January 10, 2002, Globe Telecom filed an application to list the 8,855,476 commonshares with the PSE. The application remains pending.

Consolidated Return on average Equity (ROE) in 2001 stood at 9.7%. Globe plans tocontinue its aggressive expansion pace with significant investments in telecommunicationsequipment. The majority of the capital expenditures will be spent for wirelesstelecommunications equipment, such as the purchase of switches, base stations, radioequipment, transmission links and various computer platforms to provide more value-addedservices for Globe’s subscribers.


Corporate Developments (2001)

On 10 July 2001, Globe and Islacom signed separate amendments to their existinginterconnection agreements with the Philippine Long Distance Telephone Co. (PLDT) andSmart Communications Co, Inc. (Smart) to put in place revised termination charges forvarious services.

The material provisions of the amendments to the interconnection agreements covered thefollowing aspects:

a) Revised Termination Charges for LEC to CMTS.

Under the previous revenue sharing scheme, PLDT paid Globe P=8.50 per minute plus apercentage of NLD revenue for calls from PLDT to Globe CMTS. Under theamendments signed, PLDT will pay Globe and Islacom CMTS an access charge of P=6.50per minute for calls terminating to Globe and Islacom CMTS networks, inclusive of anyNLD charges. The revised access charge scheme is effective 1 July 2001. The rate of P=6.50 will be further reduced to P=4.50 by 1 January 2002.

b) Revised Termination Charges for CMTS to LEC.

Under the amendments signed, Globe and Islacom CMTS will pay PLDT P=2.00 perminute for calls originating from Globe and Islacom CMTS networks and terminating toPLDT. Smart CMTS will also pay Globe and Islacom LEC P=2.00 for calls originatingfrom Smart CMTS and terminating to Globe and Islacom LEC.

All access and termination charges stated above are exclusive of VAT.

c) Revised Termination Charges for International Calls for IGF to LEC.

Under the amendments signed, PLDT and Smart on the one hand and Globe and Islacomon the other hand agreed to pay each other an access charge of US$0.08 per minute forcalls passing through their respective IGF and terminating to other’s LEC subscribers.This is a reduction from the previous access charge of US$0.095 and took effect on 1July 2001.

d) Revised Termination Charges for IGF to CMTS.

Under the amendments signed, PLDT and Smart IGF will pay Globe and IslacomUS$0.12 for calls passing through the PLDT and Smart IGF and terminating to Globeand Islacom CMTS. Globe and Islacom will pay Smart CMTS US$0.12 for calls passingthrough Globe and Islacom IGF and terminating to Smart CMTS. These new rates willbe effective 1 October 2001. The existing rate of US$0.095 will remain effective untilthe new rates come into effect.

e) Transit Traffic Arrangements with PAPTELCOs.

PLDT and Globe signed a separate agreement by virtue of which PLDT will act as transitfacility provider between Globe and provincial landline companies who are members ofthe Philippine Association of Private Telephone Companies (PAPTELCO).


PAPTELCOs will pay Globe CMTS P=4.00 per minute for calls originating fromPAPTELCO and terminating to Globe CMTS through PLDT. Globe will payPAPTELCOs P=2.75 per minute for calls originating from Globe CMTS and terminatingto PAPTELCOs.

Globe will also pay PAPTELCO P=1.00 for calls originating from Globe LEC andterminating to PAPTELCOs. PAPTELCO will pay Globe P=1.00 for calls originatingfrom PAPTELCO and terminating to Globe LEC. Hauling charges to PLDT apply.

The transit arrangements are without prejudice to Globe and PAPTELCOs coming into adirect interconnection arrangement at a future date.

On 26 November 2001, Standard & Poors (S&P) upgraded Globe Telecom’s long-termcorporate credit and senior unsecured ratings to ‘double-B’ from ‘double-b-minus’ (outlookstable). As stated in their press release, the ratings on Globe reflect its continued strongoperations and improving financial performance, following the recently completedacquisition of cellular operator, Islacom. According to the release, the post-acquisitionconsolidated entity should strengthen the company’s competitive position in the Philippinesby increasing bandwidth capacity for future subscriber growth and by realizing economies ofscale in network build-out, and other cost savings. This was the second credit rating upgradefrom S&P for 2001.

On 28 November 2001, Globe issued a Notice to Warrant holders to remind them that thedeadline for exercise of their right to subscribe to Common Shares is on January 28, 2002.

In November 2001, Globe inaugurated the GT Nasugbu Cable Landing station. This willhouse the transmission equipment that will connect the Philippines to a 17,000 kilometerlong cable network linking countries of the Asia Pacific.

In the November 2001 issue of the Asian Business magazine, Globe ranked 31st in its Asia’sMost Admired Companies Survey 2001 (AMAC). In the subcategory AMAC by Country,the company ranked 7th in the Philippines and in the AMAC by Attribute subcategory, alsoachieved the following ranks:

¾ 4th for Growth Potential¾ 8th for Contribution to Society¾ 7th for Online/Internet Strategy¾ 3rd for Telecoms/Media

Last November 2001, Globe signed credit facilities worth $33 million with SocieteGenerale/GIEK. Proceeds from the facilities will be used to finance the supply oftelecommunications equipment and related services.

On 12 December 2001, Globe inaugurated two new buildings in Cebu: the Globe Isla Plazain the Cebu Business Park and the Globe Telecom IT Plaza in Lahug, a technical center andtelepark that will house the latest in computer and communications systems and applications.

In addition, Globe is an intervenor in and Islacom is a party to Civil Case No. Q-00-42221entitled “Isla Communications Co., Inc. et. al., versus National TelecommunicationsCommission et. al.,” before the Regional Trial Court of Quezon City by virtue of which


Globe and Islacom, together with other cellular operators, sought and obtained a preliminaryinjunction against the implementation of NTC Memorandum Circular No. 13-6-2000. NTCMemorandum Circular No. 13-6-2000 sought, among others, to extend the expiration ofprepaid call cards to two (2) years. The National Telecommunications Commission appealedthe grant of the injunction to the Court of Appeals (CA). On October 25, 2001, Globe andIslacom received a copy of the decision of the Court of Appeals (CA) ordering the dismissalof the case before the Regional Trial Court for lack of jurisdiction, but without prejudice tothe cellular companies’ seeking relief before the National Telecommunications Commissionwhich the CA claims had jurisdiction over the matter. On 7 November 2001, Globe andIslacom filed a Motion for Reconsideration. The Companies received a copy of the decision15 February 2002. On 22 Februrary 2002, the Company filed a Petition for Review with theSupreme Court seeking to revise the decision of the CA. The decision of the CA is still notimmediately final and executory and cannot be implemented as Globe and Islacom still havea number of remedies available to them. In the event, however, that Globe and Islacom arenot eventually sustained in their position and NTC Memorandum Circular No. 13-6-2000 isimplemented in its current form, the companies would probably incur additional costs forcarrying and maintaining prepaid subscribers in its network.

In the 27 December 2001-3 January 2002 issue of the Far Eastern Economic Review, GlobeTelecom was included in their survey of Asia’s Leading Companies. Specifically, Globe wasranked 6th and 2nd in the “Company Leaders” and “Innovative in Responding to CustomerNeeds” categories in the Philippines, respectively.

On 29 January 2002, Globe disclosed that its Board of Directors approved the declaration ofa 25% stock dividend for 2002. All common stockholders as of record date will be entitled toreceive the dividends. The declaration of a 25% stock dividend will be subject toshareholders’ ratification at the Company’s Annual Stockholder’s Meeting scheduled onApril 11. The proposed record date is April 30, 2002 and payment date will be 30 days fromapproval by the Securities and Exchange Commission and the Philippine Stock Exchange.

Finally, Globe Telecom’s application for a Certificate of Public Convenience and Necessity(CPCN) was renewed for our wireless business last February 11, 2002.


(3) 2000

Operating RevenuesGlobe

For the Year Ended 31 December (In Million Pesos) 2000 1999

Wireless Net Revenues 15,694 6,369 Non-Service ….…………………………………… 3,252 1,032 Service ….………………………………………… 12,442 5,337

Wireline Net Revenues 2,847 2,353 Voice ……………………………………………… 2,053 1,794 Data ……………………………………………… 794 559

Carrier Net Revenues ………………………………… 1,536 715

Total Net Operating Revenues ……………………… 20,077 9,437

Globe Telecom (Globe) had total net operating revenues of P=20,077.2 million for year 2000,an increase of 112.8% or P=10,640.4 million from P=9,436.8 million in 1999. Net operatingrevenues include the value of all telecommunications services provided which are recognizedwhen earned and stated net of the share of other telecommunications carriers, under existingcorrespondent or interconnection agreements.

From January 2000, Globe changed its internal revenue sharing method with respect toallocating outgoing international revenues among the wireless, wireline and carrier servicesgroups, from an access charging method to a transfer pricing method. In the discussionbelow, revenues for 1999 have been translated to reflect the transfer pricing method tofacilitate comparison with revenues for 2000.

In 2000, the revenue contribution by Globe’s wireless and wireline business segmentsreached 78.2% and 14.2% of total net operating revenues, respectively, while carrier servicescontributed 7.6% of total net operating revenues. The corresponding contributions by eachbusiness segment in 1999 were 67.5% by wireless, 24.9% by wireline, and 7.6% by carrierservices. Total interconnection charges or payouts to other carriers declined to 21.0% ofgross service revenues in 2000, from 31.8% in 1999, due to the growth in traffic maintainedwithin Globe’s internal network and the growth in other service revenues which do notinvolve interconnection payments to other carriers.

Wireless Services

Globe provides nationwide wireless communications services under the brand name GlobeHandyphone using its GSM network. Wireless net operating revenues include: (1) fixedmonthly charges, plus charges for local calls in excess of the free minutes for various GlobeHandyphone postpaid plans; (2) airtime fees from the prepaid card service (prepaid card)recognized upon the earlier of (a) actual usage of the airtime value of the prepaid card or (b)expiration of the unused value of the prepaid card, which occurs two months after activation,but excluding any usage of call cards originally provided by Globe without cash proceeds(free airtime call cards); (3) revenues generated from international and national long distancecalls and international roaming calls, net of any interconnection fees to other carriersand transfer pricing charges to the carrier services group; (4) revenues from value-added services such as text messaging; (5) one-time registration fees for new subscriptions;and (6) proceeds from sale of handsets, SIM cards and other phone accessories.


One-time registration fees received from certain wireless subscribers are included under netoperating revenues. The related costs incurred in connection with the acquisition ofsubscribers are also charged to operations under operating costs and expenses. The averagesubscriber acquisition cost (net of the value of free airtime call cards given as commissions todealers) is higher than the one time registration fee collected from subscribers in all cases.The registration fees are essentially a reimbursement of the cost of connecting a customer.

Revenues from prepaid cards are recorded net of the related value of free airtime call cardsgiven as commissions to dealers. The corresponding commission expense paid to dealers isalso recorded net of commissions paid in the form of free airtime call cards. The value of freeairtime call cards is not considered an expense. While subscriber usage of free airtime callcards is not included in revenues, any payments to other carriers arising from usage of freeairtime call cards are recorded as part of total interconnection fees to other carriers.Revenues from the sale of prepaid cards are also recorded net of cash discounts on theprepaid cards sold to the dealers.

Sales proceeds from discounted handsets are recorded under operating revenues while thecorresponding acquisition costs of the handsets are recorded under operating cost andexpenses in the income statement during the period incurred.

Wireless net operating revenues increased by P=9,325.2 million or 146.4% to P=15,694.5million in 2000 from P=6,369.3 million in 1999. The increase in wireless net operatingrevenues reflected strong subscriber growth in this business. Wireless serviceinterconnection charges and payouts to other carriers declined to 12.1% of gross wirelessrevenues in 2000, from 14.9% in 1999, primarily due to the growth in call traffic originatingand terminating among Globe’s subscribers. Revenues from wireless data services, 96.2% ofwhich are from our Short Message Service (SMS), increased by 494.3% to P=2,656.3 millionin 2000, from P=447.0 million in 1999. Revenues from wireless data services accounted for16.9% of wireless net revenues in 2000, an increase from 7.0% in 1999.

On 04 September 2000, Globe announced its voluntary decision to offer its a rebate packageworth approximately P=300 million, as a gesture of goodwill for their continued loyalty toGlobe despite the occurrence of a software glitch in Globe's Pre-Paid Intelligent Networksystem in July 2000. As the rebates were credited to subscribers beginning 15 October 2000,the effect of the rebate is fully reflected in the fourth quarter results of 2000 on an after-taxand one-off basis. Beginning 15 October 2000, Globe credited to the account of prepaidsubscribers a one-time rebate of free airtime valued at P=125. Postpaid subscribers weregiven a one-time 50% discount on their monthly service fee, which was reflected in theirOctober or November statements.


Postpaid subscribers increased by 62.2% to 351,909 as of 31 December 2000, from 216,920as of 31 December 1999. There was an average of 11,249 new postpaid subscribers permonth in 2000. The percentage of high-end postpaid subscribers was 24.6% as of 31December 2000, compared to 35.8% for the same period in 1999. High-end subscribers arethose enrolled under the Business, Executive and CEO postpaid plans.

The average monthly net operating revenue (ARPU) per postpaid wireless subscriberdeclined by 4.5% to P=1,693 in 2000, from P=1,773 in 1999. Globe's 25% effective reduction


in wireless tariffs implemented at the start of the year contributed to the decline in net ARPU.Also, International Long Distance (ILD) rates for wireless subscribers were further reducedin June 2000 to US$0.40 per minute (inclusive of the 10% overseas communication tax),regardless of time and destination, from a peak / off-peak rate of US$0.70 / US$0.50.Average monthly net operating revenue (ARPU) per postpaid subscriber is calculated basedon fully-loaded net operating revenue (excluding one-time registration fees and proceedsfrom handset sales) divided by the average number of subscribers for the period, divided bythe number of months in the period. The average number of subscribers is defined as thestraight average of the beginning and ending subscribers during the period. Wireless netrevenues used in the computation of ARPU are fully-loaded by adding back the net revenueshare of carrier services group in the ILD and NLD traffic generated by postpaid wirelesssubscribers.

On a gross basis, Globe’s ARPU is calculated using gross postpaid subscriber revenueswithout deducting any interconnection expenses and excluding non-recurring revenues suchas proceeds from handset sales and one-time registration fees, divided by the average numberof subscribers, and then divided by the number of months in the period. Globe’s ARPU on agross basis decreased 11.3% from P=2,513 in 1999 to P=2,230 in 2000.

The acquisition cost per postpaid subscriber declined 40.2% to P=3,237 in 2000 from P=5,410in 1999, due to the drop in handset subsidy and the distribution of advertising expenses overa wider subscriber base. As of 31 December 2000, handset subsidies accounted for 46.6% ofacquisition costs, commissions 29.2% and advertising expenses 24.2%. In 1999, handsetsubsidies accounted for 36.7% of acquisition costs while commissions and advertisingexpenses accounted for 12.1% and 51.2%, respectively.

The average monthly churn rate for postpaid subscribers is defined as total disconnectionsnet of reconnections divided by the average postpaid subscribers, divided by the number ofmonths in the period. Postpaid churn rate averaged 1.3% per month in 2000, lower than the1.4% reported in 1999. For postpaid subscribers, permanent disconnections are made after aseries of collection steps following non-payment. Such permanent disconnections generallyoccur well within 90 days from statement date.


Prepaid subscribers totaled 2,211,552 as of 31 December 2000, increasing by 216.2% from699,399 as of 31 December 1999. There was an average of 126,013 new prepaid subscribersper month in 2000. Globe activates a prepaid subscriber when the subscriber purchases aSIM card and turns it on for the first time. Subscribers can reload airtime value bypurchasing prepaid cards, which are sold in denominations of P=250, P=500 and P=1,000.When a prepaid subscriber loads airtime value into Globe’s system, the subscriber has twomonths to use the value. When the airtime value is used up or expires, whichever comesearlier, the subscriber retains use of the wireless number to receive incoming calls. However,if the subscriber does not reload value even after another four months, the subscriber losesthe wireless number and the account will be permanently disconnected. At that point, thesubscriber is then considered as part of churn.

Revenues from the sales of prepaid call cards are initially recognized as deferred revenuesand are shown as part of accounts payable and accrued expenses in the balance sheet sinceservice has not yet been rendered. Deferred revenues shown in the balance sheet were568.5 million as of 31 December 2000, compared to P=154.8 million as of 31 December 1999.


Revenue is recognized upon actual usage of the airtime value of the prepaid card orexpiration of the unused value of the prepaid card, whichever comes earlier. Revenues fromprepaid cards are recorded net of the value of any free airtime call cards (given ascommissions to dealers). Total cash discounts on the prepaid cards sold to dealers increased355.1% to P=962.5 million as of 31 December 2000 from P=211.5 million as of 31 December1999.

The ARPU (net of any interconnection charges) per prepaid subscriber was P=411, a14.5% increase from P=359 in 1999. Average monthly net operating revenue per prepaidsubscriber is calculated based on fully-loaded net operating revenues (net of payouts) dividedby the average number of subscribers, divided by the number of months in the period.Wireless net revenues used in the computation of ARPU are fully-loaded by adding back thenet revenue share of carrier services group in the ILD and NLD traffic generated by prepaidwireless subscribers. Despite the drop in wireless tariffs, net prepaid ARPU increased due toincreased wireless data usage.

Gross prepaid subscriber revenues is defined as subscriber revenues before interconnectionexpenses excluding non-recurring revenues such as handset sales and free airtime call cardsgiven as commissions to dealers. Gross ARPU is gross subscriber revenues divided by theaverage number of subscribers, divided by the number of months in the period. Globe’sprepaid gross ARPU was P=489 for 2000 which is 27.0% higher than P=385 in 1999. Theincrease in gross prepaid ARPU is driven mainly by increased wireless data usage persubscriber.

The acquisition cost per prepaid subscriber increased to P=385 for the year 2000 from P=44 for1999, primarily due to the increase in commissions and handset subsidies. In 2000, handsetsubsidies accounted for 51.2% of acquisition costs, commissions 28.8% and advertising costs20.0%. Of the total acquisition cost in 1999, P=61 went to commissions, P=58 toadvertisements, while handset subsidy recorded was negative P=75 due to higher market valueof handsets and higher revenues from sales of SIM packs.

The cost of free airtime call cards given out as commissions to dealers are excluded from thecomputation of total acquisition cost consistent with the non-recognition of thecorresponding revenue related to these free airtime call cards. The correspondinginterconnection payments due to other carriers generated by the subscriber usage of thesefree airtime call cards are recognized as incurred.

The average monthly churn rate for prepaid subscribers decreased to 1.1% in 2000 from1.4% in 1999. Average monthly churn rate for prepaid subscribers is defined as permanentdisconnection of subscribers, as defined above, divided by the average of beginning andending subscribers, divided by the number of months in the relevant period.

Wireline Services – Voice

Globe provides wireline voice communication services, including local, national longdistance, international long distance and other value-added services, under the brand nameGlobelines. Globe provides wireline voice services in three specific geographic areas in thePhilippines, including parts of Metropolitan Manila, the Calabarzon region and CentralMindanao, which had a total of approximately 10.9 million inhabitants as of 1 May 2000.


Wireline communication service revenues consist of: (1) monthly service fees includingcurrency exchange rate adjusments (CERA); (2) installation charges and other one-time feesassociated with the establishment of the service; (3) revenues from international and nationallong distance calls made by wireline and payphone customers, net of interconnection fees toother carriers and transfer pricing charge to carrier services; (4) Globe’s share on payphonerevenues from local calls; and (5) revenues from value-added services.

Wireline voice net operating revenues increased by P=259.2 million or 14.5% to P=2,053.0million in 2000 from P=1,793.8 million in 1999. The rise in wireline net operating revenues isattributed to the significant increase in revenues from national long distance and payphoneservices, offsetting the drop in international long distance services (ILD) revenues, resultingfrom the continuing decline in international settlement rates. Wireline voice subscribersincreased by 12.5% to 157,582 as of 31 December 2000, from 140,130 as of 31 December1999. As of 31 December 2000 business subscribers were 27.2% of total subscribers from22.6% as of 31 December 1999. In 2000, the average churn rate was 1.6% per monthcompared to 2.7% per month in 1999. Globe’s disconnection policy is to permanentlyterminate subscribers with unsettled bills 115 days for residential subscribers and 155 daysfor business subscribers from statement date. We make full allowance for accounts ofresidential and business subscribers that are 90 and 150 days past due, respectively.

Wireline voice interconnection expenses to other carriers declined to 28.4% of gross wirelinevoice service revenues in 2000, from 34.9% in 1999, primarily due to the decline in theInternational Gateway Facility-Local Exchange Carrier access charge from US$0.17 toUS$0.125 beginning March 2000.


Globe offers nationwide wireline data, consisting of international and domestic leased lines,telex, Internet and other wholesale transport services, through a variety of brands. Wirelinedata net operating revenues consist of billings for these services net of the share of othercarriers for the telex service. Wireline data net operating revenues increased by P=235.0million or 42.1% to P=793.5 million in 2000 from P=558.5 million in 1999, mainly reflectingincreased growth in the number of active leased line customers and increases in internetservice revenues.

Revenues from international leased lines increased 28.8% to P=280.0 million in 2000 fromP=217.4 million in 1999. The number of circuits for international leased lines as of 31December 2000 increased by 26.0% to 63 circuits from 50 circuits as of 31 December 1999.The estimated monthly revenue per line for international leased lines declined 8.3% toUS$8,530 in 2000 from US$9,306 in 1999.

Revenues generated from domestic leased lines also increased 21.1% to P=275.7 million in2000 from P=227.7 million in 1999. The total number of circuits increased 59.7% to 923 asof 31 December 2000 from 578 circuits as of 31 December 1999. This translates to amonthly revenue per circuit of US$573 in 2000, 32.0% lower than US$843 posted in 1999.

Globe provides internet access to subscribers nationwide under the GlobeNet brand name.These services range from basic internet access for dial-up accounts to integrated businesssolutions for dedicated leased line subscribers such as corporate customers and internetservice providers. In 2000, revenues from internet services increased 170.4% to P=210.4million from P=77.8 million in 1999. The number of dial-up customers increased 17.2% to


654 as of 31 December 2000 from 558 as of 31 December 1999, while the number ofdedicated leased lines increased 294.3% to 485 from 123. During the year 2000, 12.7% ofinternet revenues were accounted for by dial-up accounts and 87.3% was contributed bydedicated leased line subscribers. For the same period in 1999, revenues from dial-upaccounts made up 18.5% of internet revenues, while revenues from dedicated leased linesaccounted for 81.5%. The estimated monthly revenue per internet subscriber declined 30.5%to US$805 in 2000 from US$1,159 in 1999.

Across all wireline data service revenues, ARPUs continue to decline due to competition.Globe intends to continue pricing its services competitively, while at the same timeimproving its ability to win new customers and new business through a continuing expansionof its wireline data services infrastructure and product offerings.

On a combined wireline voice and wireline data basis, ARPU per wireline subscriber duringthe period increased by 20.6% to P=1,726 from P=1,431 in 1999, because higher revenuesgenerated by wireline data. ARPU per wireline subscriber is calculated based on netoperating revenues (combined voice and data, net of any interconnection charges) less one-time installation revenues, divided by the average number of wireline voice subscribers forthe period, divided by the number of months in the period.

Carrier Services (International and National Long Distance and Inter-ExchangeServices)

Globe offers international and national long distance services and inter-exchange carrierservices (IXC). Globe offers international long distance services (ILD) between thePhilippines and over 200 countries under its brand name, Globelink. This service generatesrevenues from both inbound and outbound international call traffic with pricing based onagreed international settlement rates for inbound traffic revenues and NTC-approved ILDrates for outbound traffic revenues. Through the Globe Domestic Toll Service, Globe alsooffers national long distance services (NLD) to Globelines and Globe Handyphonesubscribers to any subscriber of a Philippine communications provider located anywhere inthe country. Globe also operates as an inter-exchange carrier (IXC), using its NationwideDigital Transmission Network (NDTN) for hauling national and international interconnectiontraffic among local exchange and Cellular Mobile Telephone System (CMTS) operators inthe Philippines.

Net operating revenues from carrier services increased by P=820.9 million or 114.8% toP=1,536.2 million in 2000, from P=715.2 million in 1999. The increase in carrier’s netoperating revenues resulted from the increase in call volumes more than offsetting thereduction in wireless tariffs implemented at the beginning of 2000.

There is continuing and increased competition among telecommunication companies in thePhilippines, resulting in continuing subscriber tariff reductions. With an expanding networkand operational scale, Globe had continually lowered subscriber tariffs in line with itsstrategy of providing the best value for customers. The effects of continued tariff reductionsare partly offset by increased traffic volumes.


Carrier Services - International Long Distance (ILD)

International long distance service revenues of the carrier services group are mainlycomposed of: (1) settlements based on agreed international settlement rates from foreigntelecommunications carriers for incoming international calls, net of any transfer pricepayable to Globe’s wireline and wireless businesses or other domestic carriers for inboundtraffic terminating to Globe’s or other carriers, respectively; (2) transfer price revenues fromwireless and wireline customers for outgoing international calls, net of amounts payable toforeign telecommunications carriers; and (3) international access charges paid to Globe bycustomers of other domestic carriers for accessing Globe’s international gateway facility.

Globe’s total international long distance call volume rose to 484.8 million minutes as of 31December 2000, a 49.4 % increase compared to the 324.5 million minutes as of 31December 1999. Outbound ILD call volume increased by 152.1 % to 96.8 million minutescompared to 38.4 million minutes as of 31 December 1999. Inbound ILD call volumeincreased by 35.6% to 388.0 million minutes in 2000, from 286.1 million minutes in 1999.The international interconnection charges and payouts of the Carrier Services Group to othercarriers declined to 57.9% of gross international long distance service revenues for 2000,from 79.1% in 1999, due to more traffic terminating to Globe’s network.

International long distance revenues in 2000 rose 43.3% to P=647.5 million from P=451.7million in 1999. However, these figures only represent the Carrier Services Group’s share ofILD revenues. On a total company basis, international long distance revenues wereP=3,149.5 million in 2000, 65.2% higher than P=1,906.3 million in 1999. ILD revenuesaccounted for 15.7% of total company net revenues in 2000, compared to 20.2% for the sameperiod last year.

Foreign currency linked revenues were 17.5% of total company revenues for 2000 versus25.6% for the same period in 1999. Foreign currency linked revenues include those that are(1) billed in foreign currency and settled in foreign currency, or (2) billed in Pesos at rateslinked to a foreign currency tariff and settled in Pesos. They include outbound and inboundinternational revenues, international roaming revenues, and certain wireline data revenues.Foreign currency linked revenues do not include revenues arising from the application of theForeign Currency Adjustment (FCA) or Currency Exchange Rate Adjustment (CERA)mechanism, under which a telecommunications company such as Globe has the ability topass the effects of local currency depreciation to its subscribers. Revenues arising from theapplication of FCA or CERA were 4.1% of total net revenues in 2000 from 6.0% in 1999.

Carrier Services - Inter-Exchange (IXC) inclusive of National Long Distance

Globe operates as an inter-exchange carrier (IXC), using its Nationwide Digital TransmissionNetwork (NDTN) for hauling national and international interconnection traffic among localexchange and CMTS operators in the Philippines.

Globe also offers national long distance services (NLD). Revenues from national longdistance services (NLD) are generated from calls outside of local service areas but within thePhilippines. These charges are billed by the carrier whose subscriber originates a call, and ifa call is carried through a backbone network of another carrier or terminates with thesubscriber of another carrier, the charges for the call are generally apportioned 30% for theoriginating entity, 40% for the backbone owner and 30% for the terminating entity, based onexisting NLD revenue-sharing agreements. The internal revenue sharing method is similar


for NLD calls made within Globe’s network. When a call is made by a Globe wireless orwireline subscriber, 30% is retained by either the wireless services group or the wirelineservices group, 40% is credited to the IXC business of the carrier services group and 30% ispaid to the called party.

In 2000, Globe’s NLD call volume increased to 524.4 million minutes, a 62.3% increasefrom 323.1 million minutes in 1999. Outbound NLD call volume increased by 25.6% to260.9 million minutes in 2000, compared to 207.8 million minutes for the same period in1999. Inbound NLD calls increased 128.5% to 263.5 million minutes in 2000, compared to115.3 million minutes in 1999. These NLD minutes include inbound and outbound callvolumes generated by the wireless and wireline services.

The carrier service group’s IXC service revenues in 2000 increased by 237.3% to P=888.7million from P=263.5 million in 1999. On a total company basis, national long distancerevenues wereP=2,017.2 million in 2000, or 10.0% of total net operating revenues. In 1999, NLD revenuesamounted to P=883.0 million and accounted for 9.4 % of total net revenues.

Costs and ExpensesGlobe

For the Year ended 31 December (In Million Pesos) 2000 1999

Total Costs and Expenses ………………………………….. 15,466 7,732Operating …………………………………………………… 10,946 5,304

Cost of Sales …………………………………………… 4,984 1,466Staff Costs ……………………………………………… 861 754Marketing ……………………………………………… 909 531Administration ………………………………………… 1,323 803Repairs and Maintenance ……………………………… 422 232Services ………………………………………………… 523 449Others .………………………………………………… 246 141

Corporate Costs ………………………………………… 1,678 928 Depreciation and Amortization …………………………… 3,343 1,950Provision for Doubtful Accounts ………………………… 1,085 436Other Provisions (Recoveries) …………………………… 92 41

Operating costs and expenses increased by P=5,641.8 million or 106.4% to P=10,946.2 millionin 2000 from P=5,304.4 million in 1999. The increase in operating expenses is mainly due tothe steep rise in cost of sales consistent with the rapid growth in subscribers and the increasein the number of handsets sold.

As a percentage of net operating revenues, the level of operating costs and expenses declinedto 54.5% in 2000 from 56.2% during 1999. Operating expenses, other than cost of sales,particularly staff and administrative costs, declined as a percentage of net operating revenues.

Depreciation and amortization increased by P=1,393.0 million or 71.4% to P=3,343.3 millionin 2000, from P=1,950.3 million last year. The increase reflected additional depreciationexpenses related to various telecommunications equipment placed in service. As a percentageof net operating revenues, depreciation and amortization declined to 16.7% in 2000, from20.7% in the same period in 1999, primarily due to the significant increase in net operatingrevenues. Depreciation is computed using the straight-line method over the estimated usefullife of the assets (ranging from 5-20 years depending on the type of asset) regardless ofutilization.


Provisions for doubtful accounts which consist of provisions for traffic settlement receivablesand subscriber receivables increased by 148.8% or P=648.9 million to P=1,085.1 million in2000 from P=436.2 million in 1999. As a percentage of net operating revenues, provision fordoubtful accounts increased to 5.4% in 2000 from 4.6% in 1999. The steep rise in provisionfor doubtful accounts is mainly due to two factors:

(a) In April 2000, the Company adopted a policy of providing full allowance forinternational and national traffic settlement accounts which are not settled 10 monthsfrom the transaction date. Additional provisions are made for accounts specificallyidentified by the company to be doubtful of collection. This resulted in an additionalP=324.2 million allowance for bad debt for traffic receivables;

(b) Globe has a 50% investment in shares of stock of Pintouch Telecom, LLC (PTL), alimited partnership organized in the United States of America with Pacific GatewayExchange (PGE), a facilities-based international carrier in the United States. On 22 May2000, PGE, in its Form 10-Q filed with the US Securities and Exchange Commission,reported that it experienced a liquidity shortage and was in default of certain provisionsof its bank credit facility, including a payment default. On 19 October 2000, the Board ofDirectors (BOD) approved a resolution to seek the dissolution of PTL and a terminationof Globe’s Limited Liability Agreement with PGE and other agreements with PGE and/or PTL. On 17 January 2001, PGE gave its consent to the dissolution of PTL. As of 31December 2000, Globe had a total of US$6.1 million (P=252.2 million) net receivablesfrom PGE. In the second quarter of 2000, Globe deemed it prudent to provide a 100%allowance for bad debt on these receivables. A 100% provision for decline in the valueof investment in PTL amounting to P=32.4 million was also booked under the non-operating income (charges) account for the year 2000.

Provisions for bad debt arising from subscriber receivables, on the other hand, amount toP=508.7 million as of 31 December 2000, an increase of 16.6% from P=436.2 million as of 31December 1999. Globe’s provisioning policy for subscriber receivables is calculated using abalance sheet approach, with full allowance for bad debt against receivables frompermanently disconnected subscribers. Specifically, for wireless subscribers, permanentdisconnections are made after a series of collection steps following non-payment. Suchpermanent disconnections for wireless subscribers generally occur within 90 days. Fullallowance for bad debt is also provided for residential and business wireline subscribers withoutstanding receivables that are 90 and 150 days past due, respectively. The balance sheetallowance for bad debt is increased by provisions and reduced by write-offs. Net subscriberdays receivable increased to 53 days as of 31 December 2000 from 50 as of 31 December1999.

In accordance with Globe’s policy of stating its inventories at net realizable value, a total of P=91.7 million provision for inventory obsolescence and market decline was recognized asexpense as of 31 December 2000, 124.2% higher than P=40.9 million provision for inventorylosses and market decline as of the same period last year. Inventories and supplies are statedat the lower of cost or market value, with cost determined using the moving-average method.An allowance is also provided for obsolescence and possible losses. Full obsolescenceallowance is provided when the inventory is not moving for more than a year. A 50%allowance is also provided for slow moving items. An allowance for market decline is alsoprovided equivalent to the difference between the cost and the market value of inventories.When inventories are sold, the related allowance is reversed in the same period, with theappropriate sales (revenues) and cost of sales (expenses) recognition.


Earnings before interest, taxes, depreciation and amortization (EBITDA), before otherincome (expense) in 2000 increased 117.6% to P=7,954.2 million, from P=3,655.1 million in1999, due to higher revenues recorded for the period. EBITDA margin as of 31 December2000 increased slightly to 39.6% compared to 38.7% in 1999 despite the provisions made ontraffic receivables from PGE, the increase in wireless subscriber acquisitions costs on highervolume of subscribers and the impact of the rebate granted to wireless subscribers.

Net operating income in 2000 was P=4,610.9 million, 170.5% more than the P=1,704.8 millionnet operating income in 1999.

Net interest expense increased by P=1,060.8 million or 145.9% to P=1,787.8 million in 2000,from the P=727.0 million posted in 1999. This increase primarily reflected additional debtincurred to finance the expansion of our wireless networks. Interest and other relatedfinancing charges on borrowed funds used to finance the acquisition of property andequipment to the extent incurred during the period of installation are capitalized as part of thecost of the property. The capitalization of these borrowing costs, as part of the cost of theproperty, (a) commences when the expenditures and borrowing costs being incurred duringthe installation and related activities necessary to prepare the property for its intended use arein progress; and (b) ceases when substantially all the activities necessary to prepare theproperty for its intended use are complete. These costs are amortized using the straight linemethod over the estimated useful lives of the related property.

As a percentage of net operating revenues, net interest expense also increased to 8.9% from7.7% due to increased long-term debt, which includes the US$220 million 10-year seniornotes issued in August 1999. Capitalized interest in the year 2000 amounted to P=565.3million, an increase of 100.8% from P=281.5 million for the same period in 1999.

Other expense amounted to P=246.0 million in 2000 from an income of P=3.4 million last year.The increase in this amount is mainly due to foreign exchange losses and currency swapcosts incurred from the long-term currency swap contract entered by the Company during thesecond half of 1999 and 2000 to hedge its long term foreign exchange risk. (Please refer toForeign Exchange Exposure Section for a more detailed discussion). The provision for thedecline in value of the investment in PTL amounting to P=32.4 million in 2000 was alsocharged to this account. Provision for current income tax for the year 2000 amounted toP=168.17 million.

Income before tax amounted to P=2,577.1 million in 2000, an increase of 162.6% from P=981.2 million in 1999. For the year 2000, Globe’s provision for deferred income taxamounted to P=860.1 million. The Company provides for deferred income tax to recognizethe tax consequence attributed to the difference between the financial reporting bases ofassets and liabilities and their related tax bases.

Globe had no taxable income from 1996 to 1998 because of losses incurred during the start-up of its wireless and wireline businesses. However, starting in 1998 Globe had been subjectto the higher of the minimum corporate income tax (MCIT) equivalent to 2% of grossincome as defined under applicable laws or the regular corporate income tax (RCIT). MCITpayments are creditable against the Company’s RCIT liabilities within the next three years.Also, starting in 1998, Globe became entitled to Net Operating Loss Carry-Over (NOLCO)which allows Globe to offset such loss to its taxable income within three years following theyear when the NOLCO was incurred. For the year ended 31 December 2000, Globe had


fully utilized the deferred tax asset on NOLCO and MCIT paid in 1998 and 1999 due to theincrease in taxable income.

As a result of the factors discussed above, Globe achieved a 64.9% increase in net income offrom P=939.5 million in 1999 to P=1,548.8 million in 2000. Accordingly, basic and dilutedearnings per common share rose to P=22.678 and P=20.337(after reverse stock split),respectively, in 2000 compared to the P=15.463 and P=13.757, respectively, in thecomparable period in 1999. In 1998, Globe adopted Accounting Standards Council (ASC)Statement No. 29 “Earnings Per Share”. Under this accounting change, basic earnings pershare (EPS) is computed by dividing net income by the weighted average number of sharesoutstanding during the year including fully paid but unissued shares as of the end of the year.Diluted EPS is computed assuming that the stock options, rights and warrants wereexercised. Earnings per share data for 1999 were restated to effect the 1:50 reverse stocksplit which took effect on 24 August 2000.


The Philippine Peso depreciated against the US dollar as it closed at P=49.99:US$1 on 31December 2000 from P=40.29:US$1 at 31 December 1999. As a result of the conversion offoreign currency denominated assets and liabilities, the Company reported net foreignexchange revaluation losses of P=3,615.5 million in 2000. Foreign exchange losses attributedto the restatement of foreign currency denominated liabilities used to finance the acquisitionand installation of property were P=3,478.0 million, which were recorded as addition to thecarrying value of the appropriate property accounts. Total capitalized foreign exchangelosses amounted to P=5,120.1 million as of 31 December 2000. The total accumulateddepreciation on the capitalized foreign exchange losses for assets already being used inoperations was P=492.3 million. The foreign exchange differentials arising from a restatementof foreign currency denominated balance sheet accounts other than those relating to liabilitiesor borrowed funds attributed to financing capital projects were credited or charged to currentoperations. Such net foreign exchange losses charged to operations after considering thecapitalized portion of the foreign exchange loss amounted to P=137.6 million.

Foreign exchange risk is mitigated by short-term hedges of the US$ monetary assets andliabilities position, and by longer term hedges of selected US$ debt primarily by crosscurrency swaps. Starting in 1999, Globe adopted a policy of hedging up to 90% of the US$assets minus liabilities position (excluding loans in respect of which foreign exchange lossescan be capitalized) with short-term forward exchange contracts. Moreover, depending on thecompany’s foreign exchange outlook, committed US$ denominated transactions are alsohedged using forward exchange contracts. As of 31 December 2000, the Company had nooutstanding short-term forward contracts.

As of 31 December 2000, the Company had US$96.9 million in outstanding foreign currencyswap agreements with various banks, under which it effectively swaps the principal of itslong-term US$ debt into Philippine Peso debt with semi-annual payment intervals up toNovember 2006. The effective interest rates related to these outstanding agreements rangefrom 5% and 14% of notional amounts.

The aggregate mark-to-market gain on the outstanding foreign currency swap agreements asof 31 December 2000 was estimated at US$19 million such unrealized market gain is notincuded in the year 2000 earnings. Taking into account these currency swaps as of 31


December 2000, approximately 27.7% of the company’s loans were effectively denominatedin Pesos.

Exposure draft No. 37 of the Accounting Standards Council, “The Effects of Changes inForeign Exchange Rates”, proposes restrictive criteria to allow capitalization of foreignexchange differentials. Upon effectivity on January 1, 2002, the Company may no longer beable to continue to capitalize foreign exchange differentials.


Net cash flow from operating activities for the year ended 31 December 2000 increasedby 28.2% to P=4,977.6 million compared to P=3,881.8 million for 1999 as a result ofincreased net earnings and less working capital requirements.

Net cash flow used in investing activities increased to P=15,628.6 million in 2000 from P=7,206.8 million for 1999. The bulk of investing activities involved the purchase ofequipment or services from foreign suppliers in connection with the development of Globe’swireless, wireline and carrier services. Capital expenditure in 2000 amounted to P=19,207.1million, which includes P=5,072.3 million non-cash investing activities.

Net cash flow from financing activities increased by 40.5% to P=9,831.9 million during theyear 2000 from P=6,997.2 million in 1999. Total gross debt as of 31 December 2000amounted to P=28,210.5 million. Of this amount, P=19,739.4 million is long-term debt and P=6,772.0 million is short-term debt (including current portion of long-term debt). Total debtincludes trust receipts of P=1,699.1 million. Loan repayments for the year amounted toP=7,961.6 million.

Stockholders’ equity was P=19,593.5 million as of 31 December 2000. Globe’s gross debt toequity ratio has increased to 1.44:1.00 as of 31 December 2000 from 1.07:1.00 as of 31December 1999. On 16 October 2000, Globe successfully completed the listing of the GlobeTelecom Holdings, Inc. (GTHI) PDRs or Philippine Deposit Receipt, which were backed bynew Globe common shares. GTHI issued US$100 million worth of PDRs.

Total assets as of 31 December 2000 amounted to P=63,465.5 million, a 74.1% increase overP=36,462.0 million as of 31 December 1999. Total plant and equipment, net of depreciation,reached P=45,179.3 million, 75.7% higher than P=25,714.7 million as of 31 December 1999due to increased capital spending. Net Receivables increased 82.2% to P=8,155.7 million as of31 December 2000 from P=4,475.2 million as of 1999.

Return on Equity in 2000 increased to 9.4% in 2000 from 6.9% for 1999. Operating incometo assets increased to 9.2% in 2000 from 5.6% in 1999. The Company plans to continue itsaggressive expansion pace with significant investments in telecommunications equipment.The majority of the capital expenditures will be spent for wireless telecommunicationsequipment, such as the purchase of switches, base stations, radio equipment, transmissionlinks and various computer platforms to provide more value-added services for Globe’ssubscribers. From 905 cellsites as of 30 September 2000, Globe has put up an additional 263sites, bringing the total number of cellsites as of 31 December 2000 to 1,168. Globe has alsoincreased the number of its Mobile Switching Centers (MSC), which provides theinterconnectivity between mobile stations, and with other local and foreigntelecommunications operators. One MSC can accommodate anywhere from 150,000 to400,000 subscribers. From six (6) MSCs as of 31 December 1999, this has grown to 14


MSCs by end of December 2000. Likewise, network capacity has increased from 1.2 millionas of the year ended 1999 to 3.45 million subscribers as of 31 December 2000.

Other Information

Combination with Islacom

Key Events

In May 1999, Ayala Corporation (AC), a major shareholder of Globe Telecom, acquired anindirect controlling interest in Islacom, local provider of GSM cellular, fixed line, andinternational long distance services. The acquisition is part of an agreement between theGlobe’s major shareholders, AC and Singapore Telecom International (STI), and Islacom’smajor shareholder, Deutsche Telecom AG (DT), to explore a possible combination of theirrespective operations. In June 1999, the parties began conducting financial, operational andvaluation reviews of the companies.

On 05 November 1999, AC, STI and DT signed an agreement outlining the preliminarystructure of a combination between the Globe and Islacom. Under the terms of theagreement, the three parties will work together to finalize a structure and the mechanics of acombination of the two companies, and that Globe will issue new common shares to DT, andwill issue new preferred shares to Asiacom that will be 60% owned by AC, 20% by STI and20% by DT.

On 22 February 2000 Globe and its principal shareholders AC, STI and Islacom and itsprincipal shareholders Asiacom and DeTeAsia Holding GmbH (a wholly-owned subsidiaryof DT) entered into a General Agreement for a combination of the business and operations ofGlobe and Islacom.

The General Agreement contemplates that Globe will issue a package of new Globe commonand preferred shares to Islacom’s shareholders in exchange for 100% of the issued andoutstanding stock of Islacom.

The transaction highlights are described below:

• Declassification of the Class A and Class B Common Shares and creation of a singleclass of Common Shares;

• Reverse stock split by changing the par value of the Common Shares from P=1.00 pershare to P=50.00 per share;

• An increase in authorized capital stock, from P=5.0 billion to P=11.25 billion;

• Amendments to the Amended Articles of Incorporation to reflect changes to ArticleSeven thereof;

• The issuance from the increase in capital of 158,515,021 new “Series A” ConvertiblePreferred Shares at the par value of P=5.00 per share to a holding company, AsiacomPhilippines, Inc. (“Asiacom”) that will be owned 60% by AC, 20% by STI, a wholly-owned subsidiary of Singapore Telecommunications Ltd, and 20% by DeTeAsia HoldingGmbH (“DeTeAsia”), a wholly-owned subsidiary of Deutsche Telekom AG, in exchangefor Asiacom’s holdings equivalent to 60% of the issued and outstanding capital stock ofIslacom in accordance with Section 39 of the Corporation Code;


• The issuance from the increase in capital of 28,830,860 new Common Shares at the parvalue of P=50.00 per share to DeTeAsia, in exchange for 40% of the issued andoutstanding shares of Islacom in accordance with Section 39 of the Corporation Code,and;

• The issuance of additional 31,470,367 new “Series A” Convertible Preferred Shares atthe par value of P=5.00 per share to all stockholders of Globe, except AC and STI, as ofrecord date to be fixed by the Board of Directors in proportion to their respective equityholdings in the Company.

The Board of Directors of Globe obtained the approval of the combination, as well as theseproposed revisions to the Company’s capital structure during the stockholders’ meeting on24 April 2000.

As part of the changes to Globe’s capital structure, on 10 August 2000, the PhilippineSecurities and Exchange Commission approved the declassification of Class A and Class Bcommon shares, the creation of a single class of common shares, and the one for 50 reversestock split in the capital stock of Globe. The declassification and the stock split becameeffective on 24 August 2000.

On 06 February 2001 Globe received a copy of the decision of the NationalTelecommunications Commission (NTC) dated 02 February 2001 approving the share swaptransactions in the Islacom acquisition. The Securities and Exchange Commission (SEC)approval is expected approximately two (2) to three (3) months thereafter. The financialclosing of the Globe-Islacom transaction then is expected midyear, after all regulatory andcorporate approvals are obtained.

On 05 March 2001, AC, STI, DT and Asiacom signed an agreement under which, subject tothe approval of Philippine Securities and Exchange Commission (SEC) and Philippine StockExchange (PSE), DT and Asiacom will subscribe to 28,830,860 new Common and158,515,021 Series “A” Convertible Preferred Shares, respectively, of Globe in exchange for100% of the issued and outstanding capital stock of Islacom.

Other transaction approvals expected prior to the financial close of the combination in June2001 include SEC approval on the share swap transaction, BIR approvals, PSE approvals forlisting of new shares and various lender consents.

By the end of the year 2000, Globe and Islacom had substantially aligned back officeprocesses, including billing, credit, information systems, cash management and accountingpolicies and procedures. Clean-up activities have also been substantially completed withrespect to Islacom’s balance sheet which includes a clean-up of the subscriber base andplanning for recapitalization.

One of the organizational principles established is the centralization of all businesses orfunctions. Currently, Information Technology (IT), Finance, Administration and the CarrierServices are already centralized in Globe. Also, all business decisions will be made in aconsolidated basis.


Strategic Implications of the Islacom Combination

Globe and Islacom will together have access to 25 MHz of spectrum. The access toadditional spectrum gives Globe and Islacom significantly enhanced capacity for growth andallows them to venture into other wireless data applications.

The combined entity Globe also expects to realize cost savings through operating expensesynergies, estimated at US$31 million per annum. This will come primarily from theintegration of sales and marketing, administration, information technology and corporatefunctions of both companies. Other cost synergies will be driven by optimization of networkplanning, joint procurement of handsets and other equipment and reduced interconnect costs.The new entity will also be able to significantly reduce its capital expenditure requirementsprimarily through the elimination of duplicate capital spending on the cellular network andmore efficient network planning. A reduction in capital expenditure of US$125 million isestimated over the next 18 months. This capex synergy estimate is based only on the currentPhase 8 expansion program.

Globe stands to benefit from the support of Deutsche Telekom as a shareholder. DeutscheTelekom is known globally as a major wireless player and has extensive networks set up inEurope, United States and Asia.

Islacom’s Financial and Operating Highlights

Isla Communications Company, Inc. (Islacom) reported audited net operating revenues ofP=1,911.6 million for year 2000, 20.8% or P=501.1 million lower than P=2,412.7 million in1999. Net operating revenues include the value of all telecommunications services providedwhich are recognized when earned and stated net of the share of other telecommunicationscarriers, under existing correspondent or interconnection agreements.

In 2000, the revenue contribution by Islacom’s wireless and wireline business segmentsreached 20.1% and 45.8% of total net operating revenues, respectively, while carrier servicescontributed 33.4% of total net operating revenues. The remaining 0.74% was accounted forby Islacom’s paging services. The corresponding contributions by each business segment in1999 were 23.6% by wireless, 46.9% by wireline, 28.0 % by carrier services and theremaining 1.5% by paging services.

Wireless net operating revenues declined by P=186.5 million or 32.7% to P=383.8 million inyear 2000 from P=570.3 million in 1999. Total wireless subscribers decreased by 29.2% to97,198 as of 31 December 2000 from 137,375 as of 31 December 1999 as a result of adeliberate slowdown in marketing initiatives and active subscriber clean-up efforts. Thenumber of postpaid subscribers decreased by 40.9% to 19,981 in year 2000 from 33,798 in1999, while the number of prepaid subscribers dropped 25.4% to 77,217 in 2000 from103,577 in 1999. Average monthly churn rates for wireless postpaid services stood at 5.3%in 2000, lower than the 5.7% registered in 1999. For the wireless prepaid services, averagemonthly churn rate was 5.0% in 2000, higher than the 4.5% registered in 1999.

Wireless postpaid ARPU declined by 5.6% in 2000 to P=676 from P=716 in 1999. Wirelessprepaid ARPU also dropped by 16.9% in 2000 to P=108 from P=130 in 1999. The ARPUdecline is attributable to continued price competition in the industry, and lower usage. Also,the prepaid ARPU is relatively low due to unfavorable terms with Islacom’s outsource


provider for the prepaid service. In late 2000, Islacom agreed to phase out its existingprepaid outsource contract. A new prepaid platform is being implemented.

Wireline voice net operating revenues decreased by 22.6% in 2000 to P=875.8 million fromP=1,130.9 million in 1999. As a result of the clean-up efforts, the number of wireline voicesubscribers decreased by 23.3% to 122,130 in 2000 from 159,269 in 1999. ARPU perwireline subscriber increased by 7.6% in 2000, to P=494 from P=459 in 1999. Theimprovement in ARPU is the result of a better mix of subscribers and lower payouts to othercarriers.

Islacom offers international long distance services through carrier services. Net operatingrevenues from carrier services declined by 5.5% to P=637.9 million in 2000 from P=675.0million in 1999. The decline in carrier revenues is attributed to the industry trend towardssharply lower outbound IDD rates as well as higher traffic costs.

Total costs and expenses increased 23.9% to P=5,940.3 million in 2000 from P=4,793.0 millionin 1999, due mainly to non-recurring depreciation expenses incurred, increase in provisionfor bad debts related to clean-up efforts and increased staff costs due to separation paymentsmade under the Voluntary Resignation Program.

The company posted negative EBITDA in year 2000 of P=1,744.6 million from a negativeEBITDA of P=508.5 million in 1999, as revenues declined due to the slowdown in marketinginitiatives and the active clean-up of the wireless and wireline subscriber base.

Net loss in 2000 was P=6,362.5 million compared to P=2,466.4 million in 1999, an increase of158.0%. The increase resulted from non-recurring transactions during the year, amountingto P=2,523.6 million or 62.6% of EBIT. The non-recurring amount includes additionaldepreciation expenses of P=847.0 million incurred as a result of the alignment with Globe’sestimated useful life and P=864.3 million in additional provisions for bad debt arising from thechange in provisioning estimates and write-off of fixed assets. These expenses were partiallyoffset by non-recurring revenues of approximately P=467.1 million represented mainly byproceeds from settlement agreements with a supplier.

Islacom ended year 2000 with P=20,282.8 million in assets, a decline of 2.0% from P=20,691.1million as of 31 December 1999. Net cash flow used in operating activities for the periodended 31 December 2000 increased 25.1% to P=3,263.4 million from P=2,607.6 million for theprevious year. Net capital expenditure inflow of P=716 milllion resulting from the sale /leaseback transaction on an office building and the settlement agreement with a supplier. In1999, total capital expenditure was P=1,161.0 million after partial payments to CMTS andLEC network equipment suppliers.

Corporate Developments (2000-2001)

On 9 November 2000, the US Securities and Exchange Commission (US SEC) declaredeffective the Exchange Offer Registration Statement filed by Globe with the US SEC inconnection with its offer to exchange all outstanding unregistered 13.0% senior notes due2009 for registered senior notes due 2009. The Exchange Offer expired on 16 February2001. At the end of the Exchange Offer, US$216,235,000 of the US$220,000,000 aggregateoutstanding principal amount of senior notes has been exchanged for registered senior notes.


For the year 2000, Globe has signed credit facilities of approximately US$416.5 million indebt financing. During the fourth quarter of 2000, Globe signed the following creditfacilities:

(a) US$8.5 million with Bayerische Landesbank Girozentrale, Singapore Branch to financethe acquisition of switches for Mandaluyong Toll and Gateway and Ermita Toll andGateway

(b) US$6.72 million Note Issuance with Tomen Corporation to finance Nasugbu-ManilaBackhaul SDH Project (Transmission Equipment)

(c) US$0.690 million Note Issuance with Tomen Corporation to finance Ermita-BatangasFiber Optic Cable Route 1 (Segments 2 & 3) Project

On 26 February 2001, Globe completed the issuance of P=1.085 billion corporate notes,arranged by HSBC Philippines. The proceeds of the facility will be used to finance theexpansion of existing facilities and related working capital.

On 05 March 2001, the Board of Directors of Globe Telecom approved the creation of new20 million “Series B” Convertible Preferred Shares with a par value of P=50.00 per share byfurther increasing the authorized capital stock from P=11,250,000,000 to P=12,250,000,000 andthe amendment to Article Seventh of the Amended Articles of Incorporation to reflect thechanges thereof. The issue price and the dividend rate will be determined by the Board ofDirectors at the time of issue. The “Series B” Preferred Shares shall have the followingfeatures:

(a) Conversion Right: Convertible to Common Shares under such terms and conditions asthe Board may determine at the time of issue.

(b) Call Option: To be determined by the Board of Directors at the time of issue.(c) Preferred Status: The Preferred Shareholders shall be given preference over holders of

common stock in the distribution of corporate assets in the event of liquidation,dissolution or winding up of the issuer, and distribution of dividends.

(d) Cumulative: The “Series B” Convertible Preferred Shares shall be entitled to paymentof current dividends as well as unpaid back dividends on the Preferred Shares before anydividends can be declared and paid to Common Shareholders.

(e) Non-participating: The Preferred Shareholders shall not be entitled to receive any otheror further dividends or earnings of any kind, beyond the dividends specified payable onthe Preferred Shares.

(f) Voting rights: The Preferred Shareholders shall have the right to vote at any regular ofspecial meeting.

(g) No Preemptive rights: The Preferred Shareholders shall have no preemptive right tosubscribe to any new shares.

(h) Eligibility of Investors: Subject to foreign ownership limitations in Globe, the “Series B”Convertible Preferred Shares may be owned by Filipinos or foreigners.

(i) Manner of offering: The Board may issue the “Series B” Convertible Preferred Shares inone or more offerings (other than rights issues) or private placements excluded from thepreemptive rights of existing shareholders.

On the same day, 05 March 2001, the Board of Directors of Globe also approved theissuance of new 16 million common shares in one or more offerings (other than rights issues)or private placements and, for this purpose, to further amend Article Seventh of the AmendedArticles of Incorporation to exclude such new issues of common shares from the preemptiverights of the existing shareholders.


The Company filed on 09 March 2001 its application with the SEC to increase in GlobeAuthorized Capital Stock from P5 billion to P11.25 billion to create additional common andpreferred shares to effect the Globe-Islacom share-swap agreement .

Item 8. Changes in and Disagreements With Accountants on Accounting and FinancialDisclosure

None.


PART III - CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Registrant

Members of the Board of Directors as of 31 December 2002Office Name Age Term of Office

Chairman Jaime Augusto Zobel de Ayala II 43 1997-2002Co-Vice Chairman Delfin L. Lazaro 57 1997-2002Co-Vice Chairman Lim Chuan Poh 48 2001-2002Co-Vice Chairman Axel Hass 60 2001-2002Director Fernando Zobel de Ayala 42 1995-2002Director Lucas Chow 49 1999-2002Director Joerg Andreas Boy 43 2002Director Gerardo C. Ablaza, Jr. 49 1997-2000Director Xavier P. Loinaz 59 2001-2002Director Romeo Bernardo1 47 2001-2002Director Guillermo Luchangco1 61 2001-2002Director Hubert Tubio 48 2001-2002Director Manuel Q. Bengson 59 2001-2002Director Rufino Luis T. Manotok 51 1999-2002Corporate Secretary Attorney Renato O. Marzan 54 1993-2002_____________________________________________

1Independent Directors

Jaime Augusto Zobel de Ayala II. Mr. Zobel, 43, has served as Chairman of the Board since1997 and has been a Director since 1989. . He also serves as Co-Vice Chairman andPresident and CEO of Ayala Corporation, Vice Chairman of Ayala Land, Inc. and Vice-Chairman of the Bank of the Philippine Islands. He also serves on the International AdvisoryCommittees of the New York Stock Exchange, J.P. Morgan Chase, Mitsubishi Corporationand Toshiba Corporation and is currently a Director of the International Youth Foundationand the World Wildlife Fund (U.S.). His other significant positions include: Co-ViceChairman and Trustee of Ayala Foundation, Inc.; Chairman of the Board of Directors ofAyala International Pte. Ltd., Integrated Microelectronics Inc. (IMI), and iAyala Company,Inc.

Delfin L. Lazaro. Mr. Lazaro, 57, has served as Director since January 1997. He is currentlyChairman of the Executive Committee of Globe. He is also a Consultant and a member of theManagement Committee of the Ayala Corporation. His other significant positions include:President of Ayala Infrastructure Ventures; Member of the Board of Directors of AyalaLand, Inc. (ALI). Also, Mr. Lazaro was formerly the President of Globe Telecom, Inc. andthe President and CEO of Benguet Corporation and Secretary of the Department of Energy ofthe Philippine government. He was named Management Man of the Year 1999 by theManagement Association of the Philippines for his contribution to the conceptualization andimplementation of the Philippine Energy Development Plan and to the passage of the lawcreating the Department of Energy. He was also cited for stabilizing the power situation thathelped the country achieve successively high growth levels up to the Asian crisis in 1997. Inaddition, Mr. Lazaro was chosen for his role in turning Globe Telecom around during adifficult economic period.


Lim Chuan Poh. Mr. Lim, 48, has served as Director since 5 March 2001, replacing Mr.Khoon. He is the Executive Vice President of the Corporate Business Group of SingaporeTelecom, serving corporate customers. In addition, the Corporate Business Group handles a100%-owned subsidiary company known as SingTel Aeradio Pte Ltd whose main focus isproviding aeronautical and land transportation communications needs and system integrationrequirements. Prior to joining Singapore Telecom in 1998, he was Deputy Secretary of theMinistry of Communications. He also served in different senior appointments in theMinistry of the Environment, the Telecommunication Authority of Singapore and theMinistry of Communications.

Axel Hass. Mr. Hass, 60, has served as a Director since 2001. He is currently the Presidentof Deutsche Telekom- ASIA. Prior to his current position, he served as Member of theExecutive Board of Siemens Nixdorf and was Head of Asia Pacific Business Operationsbased in Hong Kong.

Gerardo C. Ablaza, Jr. Mr. Ablaza, 49, has served as Director since 1998. He is currentlythe President and Chief Executive Officer of Globe. He is also a Senior Managing Directorof Ayala Corporation. He was previously Vice President and Country Business Manager forthe Philippines and Guam for its Global Consumer Banking business. Prior to this positionhe was Vice President of Citibank, N.A. Singapore for Consumer Banking. Attendant to hislast position in Citibank, N.A., Mr. Ablaza was the bank’s representative to the Board ofDirectors of CityTrust Banking Corporation and its various subsidiaries.

Fernando Zobel de Ayala. Mr. Ayala, 42, has served as Director since 1995. He is currentlyChairman of the Board of Directors of Ayala Land, Inc. (ALI), and Executive ManagingDirector for International Operations, Co-Vice Chairman of the Board of Directors andMember of the Executive Committee of Ayala Corporation. His other significant positionsinclude: Chairman of Honda Cars Makati, Inc. (HCMI), Honda Cars Cebu, Inc. (HCCI),Isuzu Automotive Dealership, Inc. (IADI), Isuzu Cebu, Inc. (ICI), Roxas Land Corporation,and Laguna Properties Holdings, Inc. (LPHI); Chairman and President of AlabangCommercial Corporation; Co-Vice Chairman and Trustee of the Ayala Foundation, Inc.;Director of the Bank of the Philippine Islands, Pure Foods Corporation, AC InternationalFinance Ltd., Ayala International Pte. Ltd., Ayala Hotels Inc. (AHI), and IntegratedMicroelectronics Inc. (IMI).

Manuel Q. Bengson. Mr. Bengson, 59, is a Senior Managing Director and Treasurer ofAyala Corporation. He is also a director of Ayala Land, Inc. and Chairman and President ofMichigan Holdings, Inc.

Romeo Bernardo. Mr. Bernardo, 48, has served as a Director since 2001. He is currently thepresident of Lazaro Bernardo Tiu and Associates Inc. He is also a Director of LighthouseCredit Technologies Corporation and PSI Technologies Holdings, Inc., as well as thePresident of the Wiliams College Alumni Association.

Lucas Chow. Mr. Chow, 49, has served as Director since 1999. He is the Chief ExecutiveOfficer of SingTel Mobile and Vice President of Consumer Marketing of SingTel. Prior tojoining SingTel, he held various positions at Hewlett-Packard over a 20-year period.

Joerg Andreas Boy. Mr. Boy, 43, is a Vice President (Finance) for Deutsche Telekom AsiaPte Ltd. Prior to joining Deutsche Telekom he served in various capacities at Siemens foralmost a decade in their offices in Germany, Australia and Indonesia.


Xavier Loinaz, Mr. Loinaz, 59, has served as a Director since 2001. He is currently a SeniorManaging Director of Ayala Corporation and current President of the Bank of the PhilippineIslands (BPI). Other positions held are: Director or Agricultural Development Bank, BPICapital Corporation, BPI Computer Systems Corporation, BPI 1851 Club, Inc. BPIInternational Finance, Ltd., BPI Investment Management, Inc., BPI Family Bank and BPIFoundation, Inc.

Guillermo Luchangco. Mr. Luchangco, 61, has served as a Director since 2001. He is alsoChairman and Chief Executive Officer of Investment & Capital Corporation of thePhilippines, Science Park of the Philippines, Inc. and the RFM-Science Park of thePhilippines, Inc. He is also a Director of Bacnotan Industrial Park Corporation and IonicsCircuits, Inc.

Rufino Luis T. Manotok. Mr. Manotok, 51, has served as Director since 1999. He iscurrently a Managing Director of Ayala Corporation and Head of its Strategic PlanningGroup. His other significant positions include: President and Director of Honda Cars Makati,Inc. (HCMI) and Isuzu Automotive Dealership, Inc. (AIDI); Director of Isuzu Cebu, Inc.(ICI), Ayala Hotels, Inc. (AHI), Enjay Hotels, Inc. (EHI), Enjay, Inc., Ayala InternationalPte. Ltd., HCMI Insurance Agency, Inc., Michigan Holdings, Inc., and Treasurer andDirector of Mandaue Primeland, Inc.

Hubert D. Tubio. Mr. Tubio,48,has served as Director since 2001. He is currently thePresident and Managing Director of Consultancy by Technicus Corporation, a subsidiary ofDetusche Telekom, AG.

Renato O. Marzan. Atty. Marzan, 54, has also served as Corporate Secretary of Globe since1993. He also serves as Managing Director of Ayala Corporation; Director of Honda CarsMakati, Inc. (HCMI) and Isuzu Automotive Dealership, Inc. (IADI); Director and CorporateSecretary of Michigan Holdings, Inc. and Cebu Insular Hotel Co. Inc.; Corporate Secretaryof PureFoods Corporation (PFC), Ayala Aviation Corporation, Davao Insular Hotel, Inc.,EDINet Philippines, Inc., Laguna Properties Holdings, Inc. (LPHI), Ayala SystemsTechnology, Inc., iAyala Company, Inc., Ayala Internet Venture Partners, Inc., Ayala Port,Inc., and Ayala Port Makati, Inc.; and Assistant Corporate Secretary of Mermac, Inc., AyalaCorporation, Ayala Land, Inc., Ayala Foundation, Inc., Ayala Hotels, Inc., LagunaTechnopark, Inc., Integrated Microelectronics, Inc. (IMI) and Electronic Assemblies, Inc.(EAI).

Key Officers:Name Position

Gerardo C. Ablaza, Jr. * President and Chief Executive OfficerRenato O. Marzan * Corporate SecretaryEmmanuel A. Aligada Head – Customer ServiceOscar L. Contreras, Jr. Head – Human Resources GroupFerdinand M. de la Cruz Head – Wireless BusinessMa. Concepcion de Castro-Alcedo Head – Globe Handyphone MarketingRodell A. Garcia Chief Information OfficerGil B. Genio Head – Wireline BusinessDelfin C. Gonzalez, Jr. Chief Financial OfficerRamon Antonio Pineda Head – Wireline VoiceRebecca V. Ramirez Head – Internal Audit


Jesus C. Romero Head – Wireline DataRodolfo A. Salalima Head - Corporate and Regulatory AffairsNicanor V. Santiago Head – New Products DevelopmentAna D. Singson Head – Touch Mobile/Corporate MarketingLizanne C. Uychaco Head – Sales & DistributionJohn W. Young Head – Carrier Services GroupEdward Ying Chief Operating AdviserRobert Wiggins Chief Technical Adviser

* Members of the Board of Directors

Emmanuel A. Aligada, Mr. Aligada, 43, is Head of Customer Service. He held the title ofVP for Citiphone Banking in Citibank, N.A. where he stayed for 8 years before joiningGlobe in 1998. He, too, was a Regional Sales Manager for PhilAm Life Insurance Co. from1982-1990. He graduated from the University of the Philippines with a degree in BSBusiness Administration.

Oscar L. Contreras. Mr. Contreras, 57, has served as Head of the Corporate Services Groupsince 1997. He is also currently a Managing Director of Ayala Corporation. He was formerlySenior Vice President of the Corporate Services Group at the Bank of the Philippine Islands.

Ferdinand M. de la Cruz. Mr. De la Cruz, 36 recently joined Globe as Head of the WirelessGroup and is a licensed Mechanical Engineer. He brings with him solid work experience inthe sales and marketing departments of multinational companies like Kraft Foods andUnilever Philippines. He was the President and General Manager of Kraft Foods Philippinesbefore joining Globe, and before that, was the Senior Vice-President for the Marketing andSales Division of Ayala Land Inc. He also served as National Sales Manager for San MiguelBrewing.

Ma. Concepcion de Castro-Alcedo. Ms. Alcedo, 38, has served as Head of GlobeHandyphone Marketing. She brings with her 17 years of experience on brand marketing. Shebegan with Procter and Gamble and prior to joining Globe, she was Vice President forMarketing of the Lopez Group of Companies.

Rodell A. Garcia, Mr. Garcia, 46, is the Chief Information Officer. Prior to joining Globe,he was Executive Vice President for the Information Technology Group of DBS BankPhilippines, Inc. He also held several management positions in Citytrust BankingCorporation.

Gil B. Genio. Mr. Genio, 43, effective 16 November 2000, was appointed Head of the FixedNetwork Group and Chief Operating Officer of Islacom. Before his appointment to Islacom,Mr. Genio was Globe’s Senior Vice President and Chief Financial Officer from 1997. He isalso currently a Managing Director of Ayala Corporation. Prior to joining Globe, he servedas Vice-President for Citibank, N.A., managing audit operations in Japan, Hong Kong andthe People’s Republic of China.

Delfin C. Gonzalez, Jr. Mr. Gonzalez, 53, joined Globe on 16 November 2000 as Head ofthe Finance Group. He worked previously with San Miguel Corporation (SMC), first with theStrategic Planning and Finance group and then as Executive Vice President, CFO andTreasurer until 1999.


Ramon Antonio Pineda. Mr. Pineda, 44, recently joined as Head of Wireline Voice. He is aMechanical Engineering graduate from the University of the Philippines and attained hisprofessional license in 1981. Before joining Globe, he was the Vice-President for ResidentialMarket and Provincial Telcos Markets in Bayantel, Inc.

Rebecca V. Ramirez. Ms. Ramirez, 39, is the Head of Internal Audit directly reporting to theOffice of the President. She is armed with seven (7) years experience in telecom financialsand auditing from Oceanic Wireless Network and Eastern Telecoms and five (5) years ofsenior computer auditing from SGV & Co.

Jesus C. Romero. Mr. Romero, 39, has served as Head of Wireline Data. He had initiallyjoined Globe as a Systems Engineer, rising through the ranks to Director for BusinessServices Sales. He took a respite from corporate employment, when in 1994 he became self-employed with his own TelPlus Inc. Within the year, however, he rejoined another companyas the Regional Sales Manager for Enterprise Network Systems at Hughes Network Systems,garnering in his 2nd year the ENS Worldwide Marketing Excellence Award; after 3 yearsmoved on to ComStream Corporation as Regional Manager for Satellite Global Access.

Rodolfo A. Salalima. Mr. Salalima, 55, is Head of Corporate and Regulatory Affairs and theAssistant Corporate Secretary. He has been employed with Globe since 1993. He is also aManaging Director of Ayala Corporation. From 1992 to 1996, he served as the first Presidentand Founding Director of the Telecommunications and Broadcast Attorneys of thePhilippines, Inc. (TELEBAP) was a Director and two-term President of the PhilippineElectronics and Telecommunications Federation and is currently the Chairman onInformation of the ASEAN Law Association of the Philippines.

Nicanor V. Santiago. Mr. Santiago, 37, has served as Head of New Products Development.He began his career in Pilipinas Shell Petroleum Corporation, joined Colgate PalmolivePhils. Inc. learning the fundamentals and discipline of brand management and worked inPiltel prior to joining Globe.

Ana D. Singson. Ms. Singson, 36, has served as Head of Touch Mobile/CorporateMarketing. Prior to joining Globe she served in various capacities in Avon Cosmetics, Inc.and Unilever.

Lizanne C. Uychaco. Ms. Uychaco, 47, joined Globe as Head of Centers Management. Priorto joining Globe, she held various management positions at Fontana Resort & Country Club,RN Development Corporations and Fontana Properties.

John W. Young. Mr. Young, 47, joined Globe as Head of the Carrier Services Group. Priorto joining Globe, he was Managing Director for DigitelOne. From 1995 to 1999, he heldvarious management positions at Digital Telecommunications Philippines, Inc.

Senior Consultants

Edward Ying. Mr. Ying, 44, General Manager and Country Representative of SingaporeTelecommunications Philippines, Inc., acts as chief advisor for our operations. Mr. Ying hassignified his intention to end his engagement with the Company on May 6, 2003.


Robert L. Wiggins. Mr. Wiggins, 50, recently joined as chief technical advisor. He hasapproximately 30 years of work experience in the telecommunications industry in variousmanagement capacities.

Significant Employee

All the employees are considered important assets of the Company who collectively makesignificant contributions to the Company.

Family Relationships

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

Involvement in Certain Legal Proceedings

None of the directors, officers or members of the Company’s senior management have,during the last five years, been subject to any of the following:

(a) any bankruptcy, petition filed by or against any business of which such person was ageneral 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 anycourt of competent jurisdiction, domestic or foreign, permanently or temporarilyenjoining, barring, suspending or otherwise limiting his involvement in any type ofbusiness, securities, commodities, or banking activities; and

(d) found by a domestic or foreign court of competent jurisdiction (in a civil action), theCommission or comparable foreign body, or a domestic or foreign exchange orelectronic marketplace or self regulatory organization, to have violated a securities orcommodities law, and the judgment has not been reversed, suspended or vacated.

Item 10. Executive Compensation

Article II Section 6 of the Company’s By-Laws provides:“SECTION 6. COMPENSATION OF DIRECTORS - Directors as such shall not receive anystated salary for their services, but, by resolution of the stockholders, a specific sum fixed bythe stockholders may be allowed for attendance at each regular or special meeting of theBoard; Provided, that nothing herein contained shall preclude any director from serving inany other capacity and receiving compensation therefor.”

The total annual compensation of the President and four (4) other top Officers of theCorporation is P45.8 million in 2001 and P47.2 million in 2002. The projected total annualcompensation for the current year is P51.9 million.


NAME PRINCIPAL POSITION 2003* 2002 2001Gerardo C. Ablaza President & Chief Executive OfficerOscar L. Contreras Head – Human Resources GroupDelfin C. Gonzalez, Jr. Chief Financial OfficerGil B. Genio Head – Wireline BusinessRodolfo A. Salalima Head – Corporate Affairs &

Regulatory MattersAll Officers as a Group P51.9 million 47.2 million 45.8 million

* Projected Total Annual Compensation

The total annual compensation paid to all senior personnel from Manager and up was P500.8 millionin 2001 and P660.7 million in 2002. The projected total annual compensation for the current year isP690 million.

PRINCIPAL POSITION 2003* 2002 2001All Officers** and Directors as a Group P 690 million 661 million 501 million* Projected Total Annual Compensation* Managers and


Item 11. Security Ownership of Certain Beneficial Owners and Management

1. Security Ownership of Certain Record and Beneficial Owners

Class NAME / ADDRESS NO. OF SHARESRECORD /

BENEFICIAL PERCENTAGE

Common Ayala Corporation34F Tower One, Ayala Avenue,Makati

41,132,925 (R) 13.251%

Common Singapore Telecom Int’l. Pte. Ltd.31 Exeter Road, Comcentre,Singapore 0923

44,148,996 (R) 14.222%

Common DeTeAsia Holdings GmbHFriedrich-Ebert-Allee 14053113 Bonn, Federal Republic ofGermany

37,448,920 (R) 12.064%

Common PCD Nominee-Non FilipinoG/F Makati Stock Exchange Bldg.,Makati

15,161,052 (R) 4.884%

Preferred Asiacom Philippines, Inc.34/F Tower 1Ayala Triangle, Makati City

158,515,021 (R) 51.065%

• Ayala Corporation (“AC”) holds 13.251% interest. Mermac, Inc. and theMitsubishi Group own an aggregate of 69.82% of the outstanding shares ofAyala Corporation. The Board of Directors of AC has the power to decide howthe AC shares in Globe are to be voted.

• Singapore Telecom Int’l Pte. Ltd. (“STI”) holds 14.222% interest. The Board ofDirectors of STI has the power to decide how the STI shares in Globe are to bevoted.

• DeTeAsia Holding GmbH (“DeTeAsia”) holds 12.064% interest. The Board ofDirectors of DeTeAsia has the power to decide how the DeTeAsia shares inGlobe are to be voted.

• PCD Nominee – Non Filipino holds 4.884% interest. PCD Nominee is theregistered owner of shares beneficially owned by the Custodian Banks andBrokers, who are the participants of PCD. The PCD is prohibited from votingthese shares; instead the participants have the power to decide how the PCDshares in Globe are to be voted.

• Asiacom Philippines, Inc. (“Asiacom”) holds 51.065% interest. AC, STI andDeTeAsia own 60%, 20% and 20% of the outstanding shares of Asiacom,respectively. The Board of Directors of Asiacom has the power to decide howthe Asiacom shares in Globe are to be voted


(c) Security Ownership of Management as of 31 December 2002.

Class NAME POSITIONNO. OF

SHARESRECORD /

BENEFICIAL PERCENTAGECommon Jaime Augusto Zobel de Ayala II Chairman 16,549 (R)/ (B) 0.00533116%

Common Axel Hass Co- Vice Chairman 1 (R) 0.00000032%

Common Delfin L. Lazaro Co-Vice Chairman &Chairman of ExCom

1 (R) 0.00000032%

Common Lim Chuan Poh Co- Vice Chairman 2 (R) 0.00000064%

Common Gerardo C. Ablaza, Jr. Director & President 1 (R) 0.00000032%

Preferred Romeo Bernardo Director 1 (R) 0.00000032%

Common Joerg Andreas Boy Director 1 (R) 0.00000032%

Common Lucas Chow Director 2 (R) 0.00000064%

Common Xavier P. Loinaz Director 1 (R) 0.00000032%

Preferred Guillermo Luchangco Director 1 (R) 0.00000032%

Common Rufino Luis T. Manotok Director 1 (R) 0.00000032%

Common Renato O. Marzan Director & CorporateSecretary

1 (R) 0.00000032%

Preferred Jesus P. Tambunting Director 1 (R) 0.00000032%

Preferred Hubert Tubio Director 1 (R) 0.00000032%

Common Fernando Zobel de Ayala Director 1 (R) 0.00000032%

Common Emmanuel A. Aligada Head – Customer Service 3,000 (R)/ (B) 0.00096643%

Common Oscar L. Contreras, Jr. Head – HumanResources Group

0

Common Ferdinand M. de la Cruz Head – WirelessBusiness

0

Common Ma. Concepcion de Castro-Alcedo Head – GlobeHandyphone Marketing

Common Rodell A. Garcia Head – InformationSystems

0

Common Gil B. Genio Head – WirelineBusiness

0

Common Delfin C. Gonzalez, Jr. Chief Financial Officer 0

Common Ramon Antonio Pineda Head – Wireline Voice 0 Common Rebecca V. Ramirez Head – Internal Audit 0 Common Jesus C. Romero Head – Wireline Data 2,546 (R) 0.00082018%

Common Rodolfo A. Salalima Head – Corporate Affairs& Regulatory Matters /Asst. CorporateSecretary

0

Common Nicanor V. Santiago Head – New ProductsDevelopment

0

Common Ana D. Singson Head – TouchMobile/CorporateMarketing

0

Common Lizanne C. Uychaco Head – Sales &Distribution

0

Common John W. Young Head – Carrier ServicesGroup

0

Security Ownership of all Directors and Officers 22,111 0.00712292%

None of the members of the Company’s directors and management own 2.0% or more of theoutstanding common and preferred stock of the Company.


3. Voting Trust Holders of 5% or More

There are no voting trust holders of 5% or more.

4. Changes in Control

No change of control in the Corporation has occurred since the beginning of its last fiscalyear.

As a result of the financial closing of the combination of Globe and Islacom with theexecution of the share swap transactions that made Islacom a 100% subsidiary of GlobeTelecom in June 2001, DeTeAsia became one of the major stockholders of theCorporation.

Item 12. Certain Relationships and Related Transactions

Globe Telecom(a) Globe Telecom has interconnection agreements with Singapore Telecom and DT.

Transactions with DT for the years ended December 31, 2002, 2001 and 2000 wereimmaterial. The details of interconnection toll income earned and net trafficreceivable balance due from Singapore Telecom arising from these transactions as ofand for the years ended December 31 follow:

2002 2001 2000

(In Thousand Pesos)

Interconnection toll income P=1,437,494 P=242,609 P=139,904

Net traffic receivable 736,665 213,524 298,976

(b) Globe Telecom and STI have a technical assistance agreement whereby STI willprovide consultancy and advisory services, including those with respect to theconstruction and operation of Globe Telecom’s networks and communicationservices, equipment procurement and personnel services. In addition, GlobeTelecom has software development, supply, license and support arrangements, leaseof cable facilities, maintenance and restoration costs and other transactions with STI.The details of fees incurred under these agreements are as follows:

2002 2001 2000(In Thousand Pesos)

Technical assistance fee P=63,420 P=89,620 P=84,294Software development, supply, license

and support fee 98,860 70,736 76,566Lease of cable facilities, maintenance

and restoration costs and othertransactions 50,679 48,857 47,838


The net outstanding balances due to STI arising from these transactions are asfollows:

2002 2001 2000

(In Thousand Pesos)Technical assistance P=64,018 P=50,848 P=67,077

Software development, supply, licenseand support 19,503 – –

Lease of cable facilities, maintenanceand restoration costs and othertransactions – 15,273 –

(c ) In 2001, Globe Telecom signed a cable equipment supply agreement with C2C,an affiliate of Singapore Telecom. As of December 31, 2002, the equipmentpurchased under this agreement amounted to P=2,679.34 million.

In March 2002, Globe Telecom entered into an equipment lease agreement forthe same equipment obtained from C2C with GB21 (Hong Kong) Limited(GB21). Subsequently, GB21, in consideration of C2C’s agreement to assumeall payment obligations pursuant to the lease agreement, assigned all its rights,obligations and interest in the equipment lease agreement to C2C. As a result ofthe said assignment of the receivables and payables by GB21 and C2C under thetwo agreements, the remaining liability of Globe Telecom to C2C for the cablesupply agreement amounted to P=2,518.48 million and P=2,561.05 million as ofDecember 31, 2002 and 2001, respectively.

Further in June 2002, Globe Telecom purchased capacity in the Japan - U.S.Cable Network from C2C. The cost of capacity purchased amounted to P=110.92million as of December 31, 2002.

In July 2002, Globe Telecom received advance service fees from C2Camounting to P=85.21 million which will be offset against its share in theoperations and maintenance costs of the cable landing facilities of GlobeTelecom upon finalization of the related Facilities Management ServicesAgreement pursuant to a landing party agreement entered into by both parties inAugust 2000. The said advances were shown as part of “Other long-termliabilities” in the consolidated balance sheets.

(d) Globe Telecom reimburses AC for certain operating expenses. The netoutstanding payable and transactions with AC as of and for the years endedDecember 31, 2002, 2001 and 2000 were immaterial.

Islacom(a) Islacom obtained a total of $30 million emergency loan from DT ($28.9 million

in March 1999 and $1.1 million in January 2000) which bears interest at the 6months USD LIBOR plus a margin of 2%, and was originally payable on July31, 2001. The repayment dates were extended to July 1, 2002 for the first $15million and June 30, 2003 for the second $15 million, and the interest rate basiswas changed to one year USD LIBOR. The total amount of $30 million loan hasbeen fully paid in two installments: in July 2002 for the first $15 million and inNovember 2002, for the balance.


On July 10, 1998, Islacom also obtained non-interest bearing cash advances fromDT amounting to $12.70 million for the acquisition of property and equipment.This was due and paid in September 2001.

(b) Islacom and DT entered into a Technical Assistance Agreement (Agreement)whereby DT will provide, for a fee, technical advisory services. DT subsequentlyassigned all its rights, title, interests, duties and obligations in the Agreement toConsultancy by Technicus Corporation with the conformity of Islacom. OnAugust 12, 2002, the Agreement was extended from December 31, 2002 toDecember 31, 2003, with no other changes in the original provisions. Technicalfees charged to operations amounted to P=9.90 million and P=43.40 million for theyears ended December 31, 2002 and 2001, respectively. The outstanding balanceof P=4.98 million and P=4.40 million as of December 31, 2002 and 2001,respectively.

(c) Islacom has interconnection agreements with DT and Singapore Telecom.

Interconnection toll income and the related net traffic receivable as of and for theyears ended December 31 are as follows:

Common and Preferred Stock Ownership

Ayala Corp. owns 13.251% of the total outstanding common stock of the Corporation, whileSTI and DeTeAsia own 14.222% and 12.064%, respectively, of the total outstandingcommon stock of the Corporation, as of 31 December 2002. Asiacom owns all of theoutstanding preferred stock of the Corporation.

Resignation of Officers and Directors

Mr. John Young, Head of the Carrier Services Group, has resigned from the Company. Hisresignation will become effective on 18 April 2003.

Mr. Joachim Gronau, a Member of the Board of Directors since September 2001, resignedeffective December 2002. He was replaced by Mr. Joerg Andreas Boy.

Mr. Manuel Q. Bengson, Filipino, a Member of the Board of Directors since September2001, resigned effective January 28, 2003. He was replaced by Mr. Jesus P. Tambunting.

2002 2001P= (In Thousand Pesos)

DTInterconnection tollincome 984 P=11,394Net traffic receivable 128 9,839

Singapore TelecomInterconnection tollincome P=915 P=11,466Net traffic receivable – 1,239


PART IV – EXHIBITS AND SCHEDULES

Item 13. Exhibits and Reports on SEC Form 17-C:

(a) Exhibits – Please see accompanying Index to Exhibits (page 166)(b) The company regularly files various reports on SEC Form 17-C relative to various

company events. Of these, the more significant ones are as follows:

Date Item ReportedJanuary 29, 2002 Globe disclosed that its Board of Directors approved the declaration of

a 25% stock dividend for 2002.February 15, 2002 Globe Telecom and Philippine National Bank signed a service

agreement for the provision of international frame relaycommunication links between PNB's head office and its branches inkey international cities such as Hong Kong, Singapore, Los Angeles,New York, London, Milan, Rome and Tokyo.

April 2002 Globe announced the launch of a new tariff structure for its postpaidand prepaid wireless subscribers.

June 2, 2002 Globe Handyphone recognizes its 5-millionth subscriber. A 30-year-old mother from Alegria, Cebu emerged as the 5-millionth subscriberof Globe Handyphone.

June 10, 2002 Globe Telecom receives a "Hall of Fame" award from consumer groupConsumer Union of the Philippines, in recognition of winning thegroup's "Outstanding Cellular Service Company" award five times.

June 26, 2002 Globe ties up with Palm to offer bundled packages and discountedrates for combined Globe Handyphone and Palm Pilot purchases.

July 16, 2002 Globe disclosed that it has formally launched to the public itsintegrated data and internet services solutions brand “GlobeQuest”.

July 23, 2002 Globe disclosed that the NTC has issued permanent CPCNs to Globeand Islacom to operate and maintain IGF, CMTS, IXC and LECservices.

September 26, 2002 Globe sets up dedicated Globelines Payments and Services Centers forGlobelines subscribers.

September 26, 2002 Globe and Islacom announced the operational integration of theirwireless networks.

January 3, 2003 Globe and Islacom disclosed that they have signed an agreement withPLDT, Smart and Piltel to amend their existing interconnectionagreements.

January 16, 2003 Globe announced it was suspending its prepaid international roamingservice in Kingdom of Saudi Arabia effective January 31, 2003.


SIGNATURES

Pursuant to the requirements of Section 17 of the Code and Section 141 of the Corporation Code,this report is signed on behalf of the issuer by the undersigned, thereunto duly authorized, in theCity of Mandaluyong on 28 March 2003.

By:

1. -signed- Date: 28 March 2003Gerardo C. Ablaza, Jr.President and Chief Executive Officer

2. -signed- Date: 28 March 2003Delfin C. Gonzalez, Jr.Chief Financial Officer

3. -signed- Date: 28 March 2003Atty. Rodolfo A. SalalimaHead–Corporate and Regulatory Affairs

4. -signed- Date: 28 March 2003Atty. Renato O. MarzanCorporate Secretary

SUBSCRIBED AND SWORN to before me this 28th day of March 2003, affiants exhibitingto me their Community Tax Certificates, as follows:

Names C.T. Cert No. Date of Issue Place of Issue

Gerardo C. Ablaza, Jr. 02939752 17 January 2003 Mandaluyong CityDelfin C. Gonzalez, Jr. 07202163 13 January 2003 Muntinlupa CityAtty. Rodolfo A. Salalima 02926574 10 January 2003 Mandaluyong CityAtty. Renato O. Marzan 14383356 16 January 2003 Makati City

______ (notarized)___________Notary Public


Globe Telecom, Inc. (formerly GMRC, Inc.)INDEX TO SUPPLEMENTARY SCHEDULES

FORM 11-1, Item 7

Page No

Consolidated Financial Statements

Statement of Management’s Responsibility for Financial Statements 89Report of Independent Auditors 92Balance Sheets as of December 31, 2002, 2001 and 2000 93Statements of Income and Retained Earnings for the years ended December 31, 2002, 2001 and 2000 94Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 95Notes to Financial Statements 98

Supplementary Schedules

Report of Independent Public Accountants on Supplementary Schedules 141A - Marketable Securities (Current Marketable Securities 142

and Other Short term Cash Investments)B - Amounts Receivable from Directors, Officers, Employees, and

Principal Stockholders (Other than Affiliates) 143

C - Other Long-Term Investments 160

E - Intangible/Other assets 161

F - Long Term Debt 162

G - Due to Affiliates/LT loans from RelatedCompanies

163

I - Capital Stock 164


STATEMENT OF MANAGEMENT’S RESPONSIBILITYFOR FINANCIAL STATEMENTS

The management of Globe Telecom, Inc. is responsible for all information andrepresentations contained in the financial statements for the year ended 31 December2002. The financial statements have been prepared in conformity with generallyaccepted accounting principles in the Philippines and reflect amounts that are based onthe best estimates and informed judgment of management with an appropriateconsideration to materiality.

In this regard, management maintains a system of accounting and reporting whichprovides for the necessary internal controls to ensure that transactions are properlyauthorized and recorded, assets are safeguarded against unauthorized use or dispositionand liabilities are recognized. The management likewise discloses to the company’saudit committee and to its external auditor: (i) all significant deficiencies in the designor operation of internal controls that could adversely affect its ability to record, process,and report financial data; (ii) material weaknesses in the internal controls; and (iii) anyfraud that involves management or other employees who exercise significant roles ininternal controls.

The Board of Directors reviews the financial statements before such statements areapproved and submitted to the stockholders of the company.

SGV & Co., the independent auditors appointed by the stockholders, has examined thefinancial statements of the company in accordance with generally accepted auditingstandards in the Philippines and has expressed its opinion on the fairness of presentationupon completion of such examination, in its report to the Board of Directors andstockholders.

Signed under oath by the following:

-signed-JAIME AUGUSTO ZOBEL DE AYALA IIChairman, Board of Directors

-signed-GERARDO C. ABLAZA, JR.Chief Executive Officer

-signed-DELFIN C. GONZALEZ, JR.Chief Financial Officer

globe telecom, inc. (formerly gmcr, inc.) · globe telecom, inc. (formerly gmcr, inc.) ... congress...

Documents