SEC Number 1177

File Number ____

GLOBE TELECOM, INC. (Company’s Full Name)

27th Floor The Globe Tower

32nd Street corner 7th Avenue, Bonifacio Global City, Taguig (Company’s Address)

(632) 797-2000 (Telephone Numbers)

30 June 2017 (Quarter Ending)

SEC FORM 17-Q (Form Type)

SEC Form 17Q – 2Q 2017 3

GLOBE TELECOM, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE SIX MONTHS ENDED

30 JUNE 2017

SEC Form 17Q – 2Q 2017 4

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Our unaudited condensed consolidated financial statements include the accounts of Globe Telecom,

Inc. and its subsidiaries such as, Innove Communications, Inc. (herein referred to as “Innove”), GTI

Business Holdings, Inc. (GTI) and its subsidiaries, Kickstart Ventures, Inc. (Kickstart) and its

subsidiary, Asticom Technology, Inc. (Asticom), Globe Capital Venture Holdings Inc.(GCVHI) and

its subsidiaries, and Bayan Telecommunications, Inc. (Bayan) and its subsidiaries, and TaoDharma

Inc. (Tao).

The unaudited condensed consolidated financial statements for the six months ended June 30, 2017

(filed as Annex 1 of this report) have been prepared in accordance with Philippine Accounting

Standard 34, Interim Financial Reporting and hence do not include all of the information required in

the December 31, 2017 annual audited financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of Globe Group’s financial performance for the six months

ended 30 June 2017. The prime objective of this MD&A is to help the readers understand the

dynamics of the Company’s business and the key factors underlying its financial results. Hence,

Globe’s MD&A is comprised of a discussion of its core business, and analysis of the results of

operations for each business segment. This section also focuses on key statistics from the unaudited

consolidated financial statements and pertains to known risks and uncertainties relating to the

telecommunications industry in the Philippines where we operate up to the stated reporting period.

However, Globe’s MD&A should not be considered all inclusive, as it excludes unknown risks,

uncertainties and changes that may occur in the general economic, political and environmental

condition after the stated reporting period. The Globe Group has adopted an expanded corporate

governance approach in managing its business risks. An Enterprise Risk Management Policy was

developed to systematically view the risks and to manage these risks in the context of the normal

business processes such as strategic planning, business planning, operational and support processes.

The Company’s MD&A should be read in conjunction with its unaudited consolidated financial

statements and the accompanying notes. All financial information is reported in Philippine Pesos

(Php) unless otherwise stated.

Any references in this MD&A to “we”, “us”, “our”, “Company” means the Globe Group and

references to “Globe” mean Globe Telecom, Inc., not including its wholly-owned subsidiaries.

Additional information about the Company, including annual and quarterly reports, can be found on

our corporate website www.globe.com.ph

SEC Form 17Q – 2Q 2015 5

The following is a summary of the key sections of this MD&A:

OVERVIEW OF OUR BUSINESS................................................................................. 6

FINANCIAL AND OPERATIONAL RESULTS ........................................................ 16

GROUP FINANCIAL SUMMARY .......................................................................... 16

GROUP OPERATING REVENUES ........................................................................ 18

GROUP OPERATING EXPENSES......................................................................... 31

LIQUIDITY AND CAPITAL RESOURCES .......................................................... 35

FINANCIAL RISK MANAGEMENT ...................................................................... 40

LEGAL, REGULATORY AND CORPORATE DEVELOPMENTS ....................... 43

OTHER RELEVANT INFORMATION......................................................................48

SEC Form 17Q – 2Q 2017 6

OVERVIEW OF OUR BUSINESS

Globe Telecom, Inc. is a major provider of telecommunications services in the Philippines, supported

by over 7,100 employees and 1.2 million amax retailers, distributors, and business partners

nationwide. The Company operates one of the largest and most technologically-advanced mobile,

fixed line and broadband networks in the country, providing reliable, superior communications

services to individual customers, small and medium-sized businesses, and corporate and enterprise

clients. Globe currently has 59.7 million mobile subscribers (including fully mobile broadband), 1.2

million home broadband customers, and over 1.3 million landline subscribers.

Globe is one of the largest and most profitable companies in the country, and has been consistently

recognized both locally and internationally for its corporate governance practices. It is listed on the

Philippine Stock Exchange under the ticker symbol GLO and had a market capitalization of US$5.4

billion as of the end of June 2017.

The Company's principal shareholders are Ayala Corporation and Singapore Telecom, both industry

leaders in their respective countries. Aside from providing financial support, this partnership has

created various synergies and has enabled the sharing of best practices in the areas of purchasing,

technical operations, and marketing, among others.

Globe is committed to being a responsible corporate citizen. Globe Bridging Communities (or Globe

BridgeCom) is the company's umbrella corporate social responsibility program, which leads and

supports various initiatives that promote the quality education, active citizenship to protect the

environment, social entrepreneurship and responsive governance through the innovative and

Communications Technology, resulting in enabled, empowered and enriched lives for its employees

and partner communities. Since its inception in 2003, Globe BridgeCom has made a positive impact

on the lives of thousands of public elementary and high school students, teachers, community leaders,

and micro-entrepreneurs throughout the country. For its efforts, Globe BridgeCom has been

recognized and conferred several awards and citations by various Philippine and international

organizations.

The Globe Group is composed of the following companies:

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

Innove Communications Inc. (Innove), a wholly-owned subsidiary, provides fixed line

telecommunications and broadband services, high-speed internet and private data networks

for enterprise clients, services for internal applications, internet protocol-based solutions and

multimedia content delivery;

GTI Business Holdings, Inc. (GTI) is a wholly-owned subsidiary with authority to provide

VOIP services. Its wholly-owned subsidiaries are: GTI Corporation (GTIC US), Globe

Telecom HK Limited (GTHK), Globetel Singapore Pte. Ltd. (GTSG) and Globetel European

Limited (GTEU). GTEU‘s wholly owned subsidiaries are UK Globetel Limited (UKGT),

Globe Mobile’ Italy S.r.l. (GMI) and Globetel Internacional European España, S.L. (GIEE).

On June 2, 2016, the Board of Directors of GTEU has decided to cease the operations of

SEC Form 17Q – 2Q 2017 7

UKGT, GMI and GIEE effective July 31, 2016. As of reporting date, completion of

regulatory requirements is still in process.

Kickstart Ventures, Inc. (Kickstart), a wholly-owned subsidiary, is a pioneering business

incubator designed to provide aspiring technopreneurs with funds and facilities, mentorship

and market access needed to build new businesses. Kickstart’s subsidiary is Flipside

Publishing Services, Inc. (FPSI) which was consolidated in February 2014. In July 2016,

FPSI has ceased operations. As of reporting date, completion of regulatory requirements is

still in process.

Asticom Technology, Inc. a wholly-owned subsidiary is a provider of shared services, a

system integrator and an information technology services provider to domestic and

international markets; and

Globe Capital Venture Holdings, lnc. (GCVHI), a wholly-owned subsidiary incorporated on

June 29, 2015. On July 8, 2015 and October 13, 2015, GCVHI incorporated its wholly

owned subsidiaries, Globe Fintech Innovations, Inc. (GFI) and Adspark Holdings, Inc.

(AHI), respectively. GCVHI, GFI and AHI were incorporated to act as holding companies for

Globe Telecom’s non-core businesses. GCVHI was consolidated starting July 2015. On

September 1, 2015, Yondu and GCVHI entered into a Deed of Assignment to assign the

former’s 50% interest in Global Telehealth, Inc. (“GTHI”) to GCVHI. On December 28,

2015, AHI incorporated its wholly-owned subsidiary, Adspark Inc. (AI), to operate as an

advertising company. On January 29, 2016, Adspark Inc. acquired 70% of the shares of

Socialytics Inc. Socialytics Inc. is a social media marketing firm founded in 2013. On August

5, 2016, GFI incorporated its wholly-owned subsidiary, Fuse Lending, Inc. (Fuse), to operate

as a lending company. On February 7, 2017, ownership of GXI was transferred to GFI.

Bayan Telecommunications, Inc. (Bayan), is a provider of data and communications services

such as dedicated domestic and international leased lines, frame relay services, Internet

access, and other managed data services like Digital Subscriber Lines (DSL). BTI’s

subsidiaries are: Radio Communications of the Philippines, Inc. (RCPI), Telecoms

Infrastructure Corp. of the Philippines (Telicphil), Sky Internet, Incorporated (Sky Internet),

GlobeTel Japan (formerly BTI Global Communications Japan, Inc.), BTI Global

Communications Ltd. (BTI - UK), and NDTN Land, Inc. (NLI). In July 2016, BTI - UK has

ceased operations. The formal notice on the final dissolution of BTI-UK effective March 14,

2017 has been received from Companies House in UK. On April 8, 2016, RCPI sold its

100% interest in Alarmnet, Inc. (Alarmnet) to a third party. A Deed of Assignment was

executed on March 31, 2016, assigning the receivables of RCPI from Alarmnet to the buyer.

TaoDharma (Tao) was established to operate and maintain retail stores in strategic locations

within the Philippines that will sell telecommunications or internet-related services, and

devices, gadgets and accessories. On November 4, 2016, the Board of Directors (BOD) of

Globe Telecom approved the increase in stake in Tao from 25% to 67% resulting to Globe

Telecom’s gaining a controlling interest in Tao.

The Company is a grantee of various authorizations and licenses from the National

Telecommunications Commission (NTC) as follows: (1) license to offer and operate facsimile, other

SEC Form 17Q – 2Q 2017 8

traditional voice and data services and domestic line service using Very Small Aperture Terminal

(VSAT) technology; (2) license for inter-exchange services; and (3) Certificate of Public

Convenience and Necessity (CPCN) for: (a) international digital gateway facility (IGF) in Metro

Manila, (b) nationwide digital cellular mobile telephone system under the GSM standard (CMTS-

GSM), (c) nationwide local exchange carrier (LEC) services, and (d) international cable landing

stations located in Nasugbu, Batangas and Ballesteros, Cagayan.

Globe is organized along three key customer facing units (CFUs) tasked to focus on the integrated

mobile and fixed line needs of specific market segments. The Company has a Consumer CFU with

dedicated marketing and sales groups to address the needs of retail customers, and a Business CFU

(Globe Business) focused on the needs of big and small businesses. Globe Business provides end-to-

end mobile and fixed line solutions and is equipped with its own technical and customer relationship

teams to serve the requirements of its client base. Lastly, Globe has an International Business Group

to serve the voice and roaming needs of overseas Filipinos, whether transient or permanent. It is

tasked to grow the Company's international revenues by leveraging on Globe's product portfolio and

developing and capitalizing on regional and global opportunities.

Business Segments

Mobile Business

Globe provides digital mobile communication and internet-on-the-go services nationwide using a

fully digital network based on the Global System for Mobile Communication (GSM), 3G, HSPA+,

and LTE technologies. It provides voice, SMS, data and value-added services to its mobile

subscribers through three major brands: Globe Postpaid, Globe Prepaid and TM (including fully

mobile, internet-on-the-go service).

Postpaid

Globe Postpaid is the leading brand in the postpaid market, with various plan offerings. Over the

years, these plans have evolved in order to cater to the changing needs, lifestyles and demands of its

customers.

In 2016, the Company introduced another game changing service by allowing prepaid customers to

use their mobile numbers even as they move to a postpaid plan - the Globe MyStarter plan. The all-

in-one budget friendly Globe myStarter plan is available at Plan 300 and Plan 500, designed for

customers who are new on postpaid and wants a simple and seamless transition from prepaid to

postpaid. The myStarter plans takes away any worries of going over the spending limit because of its

guaranteed fixed bill every month. Should one go over the plan’s limit, it can easily be topped-up

with prepaid load when needed. To enjoy their digital lifestyle more, the myStarter Plans are

bundled with more data power. Plan 500 comes with unlimited calls and texts to Globe and TM, 300

texts to other networks and 200 MB of data. Plan 300, on the other hand, has 300 texts to all

networks, 300 minutes to Globe and TM, and 200 MB worth of data. Both plans also provide free

access to Facebook, Viber, and 1 GB of data for Spotify Basic.

In addition, myLifestyle No Lock-up Plan was also made availabe for customers who want a new line

without the contract. All myLifestyle No Lock-up Plans comes with unlimited calls to Globe/TM,

SEC Form 17Q – 2Q 2017 9

unlimited texts to all networks, and free Facebook. Moreover, the new myShare Plan 999 was

created for customers who are looking for an economical postpaid plan fit for the needs of their

family. The plan comes with 6 GB mobile data for data sharing, unlimited calls and texts for each of

the three mobile numbers, and three free smartphones for only Php999 per month.

In 2017, the Company introduced “ThePLAN,” which provides for larger than life data allowances,

affordable call and text offers, and more flexibility to mix and match different services to fit the

subscriber’s needs. Customers can also partner the plan with a device (which comes with 24 months'

contract) or more consumable amount when the customer opts to avail the SIM-only version. With

“ThePLAN,” customers can customize their plan according to their needs by mixing the different

promo packs (Call and Text Packs; Surf Packs and Lifestyle Packs)1. Surf Packs still have roll over

capability which means that any unused data allowance will carry over to the next bill cycle.

Subscribers can get as many packs as they want within their MRF (monthly recurring fee)

commitment. The anti-bill shock cap of Php 1,500 still applies for ThePLAN and this covers usage

from the personal GoSurf data allowance (note that this doesn't include the AddSurf allowance).

Prepaid

Globe Prepaid and TM are the prepaid brands of Globe. Globe Prepaid is focused on the mainstream

market while TM caters to the value-conscious segment of the market. Each brand is positioned at

different market segments to address the needs of the subscribers by offering affordable innovative

products and services.

Globe Prepaid’s GoSAKTO is a self-service menu that provides its subscribers easy access to avail of

the latest promos and services of Globe by simply dialing *143# or through the GoSakto mobile app

(available on Android and iOS). This menu also allows the subscribers to build their own promos

(call, text and surf promos) that are best suited for their needs and lifestyle. Globe Prepaid customers

can personalize their call, text and surfing needs for 1 day, 2 days, 3 days, 7 days, 15 days or even for

30 days. They can also select the type and number of call minutes and texts they need and adjust data

allocation (in MBs) of mobile surfing the way they want it.

Globe Prepaid and TM subscribers can reload airtime value or credits using various reloading

channels including prepaid call and text cards, bank channels such as ATMs, credit cards, and

through internet banking. Subscribers can also top-up via AutoLoad Max retailers nationwide, all at

affordable denominations and increments. A consumer-to-consumer top-up facility, Share-A-Load, is

also available to enable subscribers to share prepaid load credits via SMS.

GCash

Globe also provides its subscribers with mobile payment and remittance services under the GCash

brand. GCash transforms a mobile phone into a virtual wallet, enabling secure, fast, and convenient

way to transfer money at a cost of a text message. This service enables our subscribers to perform

mobile banking and mobile commerce transactions, international and domestic remittance

transactions, pay fees, utility bills, income taxes, avail of micro-finance transactions, donate to

charitable institutions, and buy prepaid reloads. A wide network of local and international

1 Please see http://www.globe.com.ph/postpaid for more details on the different promo packs.

SEC Form 17Q – 2Q 2017 10

partnerships has been established over the years including government agencies, utility companies,

cooperatives, insurance companies, remittance companies and commercial establishments, in order to

make GCash an accepted mode of payment for various products and services. In 2015, GCash

unveiled its very own GCash MasterCard that is ideal for those who do not yet own a credit card or a

debit card. The GCash MasterCard is a reloadable prepaid card that one can easily use to swipe and

pay just like any other credit card. Linked to one’s GCash account, it can be used to shop and pay

across 33 million MasterCard-enabled establishments worldwide. In 2015, the Company launched

the GCash beep Mastercard, the first value-added card to be beep ready, allowing cardholders to load

and pay for their MRT and LRT trips easily. Globe GCash Beep Mastercard is not only a reloadable

contactless tap and go card for LRT and MRT passengers but is also accepted as a payment option in

popular online shopping sites and in establishments worldwide that recognize the Mastercard brand.

At the same time, because it has a GCash account, it can be used to buy prepaid Globe/TM phone

load, send money to any Globe/TM user for free, receive remittance, and even withdraw cash from

any automated teller machine (ATM). The GCash Beep Mastercard allows balance and transaction

monitoring to ensure that everything is properly recorded.

Loyatly & Rewards Program

The Globe Rewards Program is the Company’s way of granting special treats to its active customers

for their continued loyal use of Globe's products and services. Awesome rewards await its loyal

customers in exchange for the points earned -- more rewards points mean more wonderful perks.

Subscribers can:

1) Earn Points from Prepaid reloads or monthly Postpaid usage

2) Redeem Rewards in the form of mobile promos, bill rebates, gadgets and gift certificates, and

more or use the earned points as cash at partner stores. Subscribers have the option to

redeem rewards instantly, or accumulate points to avail of higher value rewards. Redeemed

points in the form of telecom services is netted out against revenues whereas points redeemed

in the form of non-telco services such as gift certificates and other products are reflected as

marketing expense. At the end of each period, Globe estimates and records the amount of

probable future liability for unredeemed points.

3) Enjoy Perks through special discounts, exclusive treats, and more wonderful surprises

Mobile Voice

Globe’s voice services include local, national and international long distance call services. It has one

of the most extensive local calling options designed for multiple calling profiles. In addition to its

standard, pay-per-use rates, subscribers can choose from bulk and unlimited voice offerings for all-

day, and in several denominations to suit different budgets.

Globe keeps Filipinos connected wherever they may be in the world, through its tie-up with 751

roaming partners in 236 calling destinations worldwide. Globe also offers roaming coverage on-

board selected shipping lines and airlines, via satellite. Globe also provides an extensive range of

international call and text services to allow OFWs (Overseas Filipino Workers) to stay connected

with their friends and families in the Philippines. This includes prepaid reloadable call cards and

electronic PINs available in popular OFW destinations worldwide.

SEC Form 17Q – 2Q 2017 11

Mobile SMS

Globe’s Mobile SMS service includes local and international SMS offerings. Globe also offers

various bucket and unlimited SMS packages to cater to the different needs and lifestyles of its

postpaid and prepaid subscribers.

Mobile Data

Globe’s Mobile Data services allow subscribers to access the internet using their internet-capable

handsets, devices or laptops with USB modems. Data access can be made using various technologies

including LTE, HSPA+, 3G with HSDPA, EDGE and GPRS. The Company spearheaded the shift

from unlimited time-based data plans to volume-based consumable plans, geared towards improving

the mobile data experience of its subscribers and ensures the most appropriate pricing of data. Globe

and TM subscribers can choose from a variety of GoSurf consumable data plans, ranging from P15

for 40 MB to P2,499 for 20 GB per month.

Globe’s Nomadic (internet-on-the-go service) is for consumers who require a fully mobile internet,

which allows subscribers to access the internet using LTE, HSPA+, 3G with HSDPA, EDGE, GPRS

or Wi-Fi using a plug-and-play USB modem/mobile Wifi. This service is available in both postpaid

and prepaid packages.

Globe’s Value-Added Services offers a full range of downloadable content covering multiple topics

including news, information, and entertainment through its web portal. Subscribers can purchase or

download music, movie pictures and wallpapers, games, mobile advertising, applications or watch

clips of popular TV shows and documentaries as well as participate in interactive TV, do mobile chat,

and play games, among others. Additionally, Globe subscribers can send and receive Multimedia

Messaging Service (MMS) pictures and video, or do local and international 3G video calling.

Fixed Line and Home Broadband Business

Globe offers a full range of fixed line communications services, wired and wireless broadband access,

and end-to-end connectivity solutions customized for consumers, SMEs (Small & Medium

Enterprises), large corporations and businesses.

Fixed Line Voice

Globe’s fixed line voice services include local, national and international long distance calling

services in postpaid and prepaid packages through its Globelines brand. Subscribers get to enjoy toll-

free rates for national long distance calls with other Globelines subscribers nationwide. Additionally,

postpaid fixed line voice consumers enjoy free unlimited dial-up internet from their Globelines

subscriptions. Low-MSF (monthly service fee) fixed line voice services bundled with internet plans

are available nationwide and can be customized with value-added services including multi-calling,

call waiting and forwarding, special numbers and voice mail. For corporate and enterprise customers,

Globe offers voice solutions that include regular and premium conferencing, enhanced voice mail, IP-

PBX solutions and domestic or international toll free services. With the Company’s cutting-edge

Next Generation Network (NGN), Globe Business Voice solutions offer enterprises a bevy of fully-

managed traditional and IP-based voice packages that can be customized to their needs.

SEC Form 17Q – 2Q 2017 12

Corporate Data

Corporate data services include end-to-end data solutions customized according to the needs of

businesses. Globe’s product offerings include international and domestic leased line services,

wholesale and corporate internet access, data center services and other connectivity solutions tailored

to the needs of specific industries.

Globe’s international data services provide corporate and enterprise customers with the most diverse

international connectivity solutions. Globe’s extensive data network allow customers to manage their

own virtual private networks, subscribe to wholesale internet access via managed international

private leased lines, run various applications, and access other networks with integrated voice

services over high-speed, redundant and reliable connections. In addition to bandwidth access from

multiple international submarine cable operators, Globe also has two international cable landing

stations situated in different locales to ensure redundancy and network resiliency.

The Company’s domestic data services include data center solutions such as business continuity and

data recovery services, 24x7 monitoring and management, dedicated server hosting, maintenance for

application-hosting, managed space and carrier-class facilities for co-location requirements and

dedicated hardware from leading partner vendors for off-site deployment.

Other corporate data services include premium-grade access solutions combining voice, broadband

and video offerings designed to address specific connectivity requirements. These include Broadband

Internet Zones (BIZ) for broadband-to-room internet access for hotels, and Internet Exchange (GiX)

services for bandwidth-on-demand access packages based on average usage.

Globe Business also offers Cloud Solutions that allows an organization's infrastructure to match the

elasticity of the business climate and increase its business agility. The new cloud capabilities were

the first large-scale, private and public-ready, next generation cloud in Asia. Globe offers Software-

as-a-Service or SaaS, which include a suite of business applications that leverage on the power of

cloud to help enterprises improve their business operations such as: Globe Mail, Google Apps for

Work; Office; Canvas Mobile Forms; Google Drive for Work ; PayrollCloud application; Document

Cloud; and Globe HealthCloud. Moreover, the Company offers Infrastructure Services that provide

consulting, managed services, and integrated solutions to establish agile and flexible IT

environments. This enables customers through a strategy covering assessment through design,

implementation, management and optimization to reach a true end-to-end solution. These are:

Backup-as-a-Service platform which is the most advanced backup and restoration software that

enables continuous data protection, local off-site storage and managed services to industries,

enterprises as well as small and medium businesses; Disaster-Recovery-as-a-Service platform to

address the infrastructure replacements to improve uptime of applications and data in instances of

natural or man-made disasters. Furthermore, Infrastructure-as-a-Service is also offered to corporate

clients such as: Virtual Private Cloud which allows them to acquire processing power without the

high cost of purchasing dedicated servers; and Dedicated-Private-Cloud which reduces the

complexity of cloud computing by leveraging pre-configured and fully-tested components. Globe

M2M Solutions on the other hand, allow machines to do the work for the company from keeping track

of moving assets (Fleet Management), to monitoring fixed equipment (Fixed Asset Management), to

enhancing Security and Surveillance.

SEC Form 17Q – 2Q 2017 13

Home Broadband

Globe offers wired and fixed wireless broadband services, across various technologies and

connectivity speeds for its residential and business customers. Globe Home Broadband consists of

wired or DSL broadband packages bundled with voice, or broadband data-only services which are

available with download speeds ranging from 1 Mbps up to 15 Mbps. Globe also expanded its Long

Term Evolution (LTE) footprint through LTE @Home offerings, bringing latest internet technology

to households and allowing subscribers to surf the internet at ultrafast speeds to watch high-definition

videos, downloading and uploading large files, seamless music streaming, and voice-over-internet-

protocol (VOIP) calling with clear quality. This LTE service is backed by the largest 4G network in

the country deployed by Globe.

With the new broadband plans, customers get exclusive access to a portfolio of entertainment content

which allows them to watch movies and basketball games, as well as stream music at the comfort of

their homes. As an online entertainment service provider, HOOQ boasts of an extensive content

library with thousands of movies, television episodes and shows available for users to watch,

including titles from partners Sony Pictures and Warner Bros. Entertainment. With Spotify, the

world's most popular music streaming service, customers get the best music experience with access to

over 20 million songs. On the other hand, the NBA League Pass allows customers to watch

basketball games along with highlights, stats and other features. Likewise, with Walt Disney

partnership, Globe customers will now have access to an array of Disney content offerings (whose

brands include Disney, Pixar, Marvel, Star Wars and global leader in short-form video, Maker

Studios) including long- and short-form programming, interactive content and games, theatrical

releases and retail promotions. In 2016, Globe welcomed the arrival of internet television network

Netflix in the Philippines with its roster of home broadband plans, which come with free access to

Chromecast, allowing customers to enjoy Netflix from any mobile device to a bigger screen. With a

Globe Home Broadband Plan starting at Plan 1299, customers can enjoy Netflix with Google

Chromecast for a more inclusive entertainment experience at home. Globe Platinum Broadband

customers can also avail of Chromecast for free starting at Plan 2499 to Plan 9499. In 2017, Globe At

Home continues to evolve the digital lifestyle and give its customers a better connected experience

with its new and improved Globe At Home GoBIG plans. The new GoBIG plans now have bigger

data allocations at affordable rates alongside fast and reliable speeds. Access to free content apps also

remain a major part of the broadband bundle, made even better with the addition of 100GB data for

free YouTube.

SEC Form 17Q – 2Q 2017 14

KEY PERFORMANCE INDICATORS

Globe is committed to efficiently managing the Company’s resources and enhancing shareholder

value. The Company regularly reviews its performance against its operating and financial plans and

strategies, and use key performance indicators to monitor its progress.

Some of its key performance indicators are set out below. Except for Net Income, these key

performance indicators are not measurements in accordance with Philippine Financial Reporting

Standards (PFRS) and should not be considered as an alternative to net income or any other measure

of performance which are in accordance with PFRS.

AVERAGE REVENUE PER UNIT (ARPU)

ARPU measures the average monthly gross revenue generated for each subscriber. This is computed

by dividing recurring gross service revenues (gross of interconnect charges) for a business segment

for the period by the average number of the segment’s subscribers and then dividing the quotient by

the number of months in the period.

SUBSCRIBER ACQUISITION COST (SAC)

SAC is computed by the total marketing costs (including commissions and handset/SIM subsidies2)

related to the acquisition programs for the segment for the period divided by the gross incremental

subscribers.

AVERAGE MONTHLY CHURN RATE

The average monthly churn rate is computed by dividing total disconnections (net of reconnections)

for the segment by the average number of the segment’s subscribers, and then divided by the number

of months in the period. This is a measure of the average number of customers who leave, switch, or

change to another type of service or to another service provider and is usually stated as a percentage.

EBITDA

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

revenues less subsidy2, operating expenses and other income and expenses

3. This measure provides

useful information regarding a company’s ability to generate cash flows, incur and service debt,

finance capital expenditures and working capital changes. As the Company’s method of calculating

EBITDA may differ from other companies, it may not be comparable to similarly titled measures

presented by other companies.

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

gadgets 3 Operating expenses do not include any property and equipment-related gains and losses,equity share in net

earnings(losses) of associates and joint ventures and financing costs

SEC Form 17Q – 2Q 2017 15

EBITDA MARGIN

EBITDA margin is calculated as EBITDA divided by total service revenues. Total service revenue is

equal to total gross operating revenue less non-service revenue. This is useful in measuring the extent

to which subsidies and operating expenses (excluding property and equipment-related gains and

losses and financing costs), use up revenue.

EBIT and EBIT MARGIN EBIT is defined as earnings before interest, property and equipment-related gains and losses and

income taxes. This measure is calculated by deducting depreciation and amortization from EBITDA.

The Globe Group’s method of calculating EBIT may differ from other companies and, hence, may

not be comparable to similar measures presented by other companies. EBIT margin is calculated as

EBIT divided by total service revenues.

NET INCOME As presented in the unaudited condensed consolidated financial statements for applicable periods, net

income provides an indication of how well the Company performed after all costs of the business

have been factored in.

CORE NET INCOME Core net income is defined as net income after tax (NIAT) but excluding foreign exchange and mark-

to-market gains (losses), and non-recurring items.

SEC Form 17Q – 2Q 2017 16

FINANCIAL AND OPERATIONAL RESULTS

GROUP FINANCIAL SUMMARY

Globe Group

Quarter on Quarter Year on Year

Results of Operations (Php Mn) Q2 Q1 QoQ 30 Jun 30 Jun YoY

2017 2017 Change 2017 2016 Change

(%) (%)

Operating Revenues 33,622 32,926 2% 66,548 63,211 5%

Service Revenues* 31,779 31,122 2% 62,901 59,872 5%

Mobile** 24,520 23,799 3% 48,319 45,927 5%

Home Broadband*** 3,882 3,844 1% 7,726 7,149 8%

Corporate Data 2,481 2,541 -2% 5,022 4,863 3%

Fixed line Voice 896 938 -4% 1,834 1,933 -5%

Non-Service Revenues 1,843 1,804 2% 3,647 3,339 9%

Costs and Expenses 19,679 19,610 - 39,289 37,613 4%

Cost of Sales 3,086 3,231 -4% 6,317 6,568 -4%

Operating Expenses* 16,593 16,379 1% 32,972 31,045 6%

EBITDA 13,943 13,316 5% 27,259 25,598 6%

EBITDA Margin 44% 43% 43% 43%

Depreciation 6,630 6,437 3% 13,067 11,458 14%

EBIT 7,313 6,879 6% 14,192 14,140 -

EBIT Margin 23% 22% 23% 24%

Non-Operating Charges 1,157 1,320 -12% 2,477 1,353 83%

Net Income After Tax (NIAT) 4,327 3,761 15% 8,088 8,974 -10%

Normalized Net Income After Tax

4,488 4,167 8% 8,655 8,997 -4%

Core Net Income 4,293 3,681 17% 7,974 8,837 -10%

* Beginning 2017, revenues from premium content services (where Globe is acting as principal to the contract)

will be reported gross of the licensors' fees. Revenues for similar services reported in 2016 have also been

restated for purposes of comparison. Licensors' fees will be reflected as part of maintenance expense. **Mobile business includes mobile and fully mobile broadband ***Home Broadband includes fixed wireless and wired broadband. ****Normalized Net Income After Tax excludes the impact of the SMC transaction

On a consolidated view, Globe closed the first half of 2017 with a new record-level gross service

revenues of P62.9 billion, 5% higher than the P59.9 billion reported a year ago. The robust

revenue performance was driven by the strong contribution of data-related products and services.

Mobile revenues posted a 5% increase year-on-year with improvements coming from the prepaid

brands due to the sustained growth in mobile data and higher top-ups. Home broadband and

corporate data business segments delivered solid performances growing by 8% and 3%,

respectively against the same period last year. This was due to the rising demand for faster

internet connectivity and managed service solutions translating to robust subscriber and circuit

base expansion year-on-year. However, fixed line voice revenues declined year-on-year. On a

sequential basis, Globe’s gross consolidated service revenues reached a new record at P31.8

billion, up 2% from the strong first quarter of 2017. The improvement from mobile and home

SEC Form 17Q – 2Q 2017 17

broadband revenues were partially offset by the decline in corporate data and fixed line voice

revenues.

Globe’s operating expenses and subsidy for the first six months of the year stood at P35.6 billion,

4% higher from the P34.3 billion posted in the same period last year. This was mainly driven by

higher maintenance, provisions, staff costs, leases, services and utilities but partly offset by lower

subsidies, interconnection fees and marketing expenses. However, compared to the previous

quarter, Globe’s operating expenses and subsidy were flat.

Depreciation expenses as of end-June 2017 increased to P13.1 billion or 14% from P11.5 billion

a year ago. The increase in depreciation expenses resulted from the depreciation costs of

incremental asset builds related to Globe’s 2016 and 2017 capital expenditure programs.

Likewise, the second quarter depreciation charges grew by 3% against the prior quarter.

Overall, Globe’s total cost and expenses including depreciation charges for the first six months of

the year, rose to P48.7 billion or 7% higher than the P45.7 billion reported in the same period of

2016. Similarly compared to the first quarter, the increase is only 1%.

Consolidated EBITDA for the first semester of 2017 hit a new record high at P27.3 billion, up a

strong 6% from the P25.6 billion reported in same period of 2016. The sustained growth in

EBITDA was driven by robust top-line growth which mitigated the 4% increase in operating

expenses. This resulted to a 43% EBITDA margin, steady vis-a-vis the first half of 2016. On a

quarterly basis, this quarter’s EBITDA margin of 44% was up compared to the 42% reported in

the second quarter of 2016.

Globe’s consolidated net income as of end-June of 2017 reached P8.1 billion, lower than the P9.0

billion net income reported in the same period last year due to higher interest expense and

depreciation expenses, coupled with Globe’s share in equity losses and spectrum amortization

related to the SMC telco asset acquisition. On the other hand, this quarter’s net income was

higher by 15% due to strong EBITDA and lower SMC telco asset purchase related charges. On a

normalized basis (excluding the impact of the SMC transaction), net income would have declined

by 4% at P8.7 billion year-on-year and increased by 8% quarter-on-quarter.

Globe’s core net income, which excludes the impact of non-recurring charges, foreign exchange

gains and mark-to-market charges, stood at P8.0 billion, or lower by 10% year-on-year.

Compared to prior quarter, core net income was up a strong 17% driven by the robust EBITDA

growth netted out by the 3% increase in depreciation.

Globe spent around P27.5 billion in capital expenditures as of end-June of 2017 to support the

growing subscriber base and its demand for data. 87% of the total capital expenditures for the

period was spent for data-related initiatives. To date, Globe has a total of 37,009 base stations,

with over 22,800 base stations for 4G4, to support the service requirements of its customers.

4 Includes HSPA+, WiMax and LTE

SEC Form 17Q – 2Q 2017 18

GROUP OPERATING REVENUES

Operating Revenues By Businesses (Php Mn)

Globe Group

Quarter on Quarter Year on Year

Q2

Q1

QoQ

30 Jun

30 Jun

YoY

2017 2017 Change

2017 2016 Change

(%) (%)

Mobile1 26,308 25,541 3% 51,849 49,007 6%

Service Revenues* 24,520 23,799 3% 48,319 45,927 5%

Non-Service Revenues 1,788 1,742 3% 3,530 3,080 15%

Fixed Line and Broadband2 7,314 7,385 -1% 14,699 14,204 3%

Service Revenues* 7,259 7,323 -1% 14,582 13,945 5%

Non-Service Revenues 55 62 -11% 117 259 -55%

Total Operating Revenues 33,622 32,926 2% 66,548 63,211 5% * Beginning 2017, revenues from premium content services (where Globe is acting as principal to the contract)

will be reported gross of the licensors' fees. Revenues for similar services reported in 2016 have also been

restated for purposes of comparison.Licensors' fees will be reflected as part of maintenance expense.

1 Mobile business includes mobile and fully mobile broadband

2Home Broadband includes fixed wireless and wired broadband; Fixed line and Home Broadband

includes corporate data, fixed line voice and home broadband.

The Globe Group closed the first semester of the year with total operating revenues of P66.5 billion,

up 5% from the P63.2 billion recorded in the same period last year. This was driven by the strong

service revenue growth, which was up 5% year-on-year to reach P62.9 billion in the first half of 2017

from P59.9 billion in the same period of 2016. On a quarterly basis, total operating revenues grew by

2%.

Mobile service revenues, which accounted for 77% of Globe’s consolidated service revenues during

the first six months of 2017, rose to P48.3 billion, up by 5% from last year’s level of P45.9 billion.

The growth in mobile service revenues was driven by the sustained revenue performance of mobile

data (+13%) and higher SMS revenues (+4%), offsets by voice, which declined by 3%. Compared

to prior quarter, mobile service revenue increased by 3%.

Home broadband and fixed line businesses comprised 23% of consolidated service revenues, which

grew by 5% year-on-year from the P13.9 billion in the first half of last year to P14.6 billion this year.

The sustained growth in home broadband and corporate data was bouyed by the subscriber/circuit

base expansion given the growing demand for faster and seamless internet connectivity. However,

this quarter performance showed a slight decline by 1% as the increase in home broadband was offset

by the decline in corporated data and fixed line voice.

Mobile non-service revenues increased year-on-year by 15% while fixed line and broadband non-

service revenues declined from P259 million last year to P117 million this period.

SEC Form 17Q – 2Q 2017 19

MOBILE BUSINESS

Globe Group

Mobile Service Revenues (Php Mn)

Quarter on Quarter Year on Year

Q2 Q1 QoQ 30 Jun 30 Jun YoY

2017 2017 Change 2017 2016 Change

(%) (%)

Service

Mobile Voice1 8,322 7,901 5% 16,223 16,652 -3%

Mobile SMS2 5,860 5,930 -1% 11,790 11,340 4%

Mobile Data3 10,338 9,968 4% 20,306 17,935 13%

Mobile Service Revenues

24,520 23,799 3% 48,319 45,927 5%

1

Mobile Voice service revenues include the following:

a) Prorated monthly service fees on consumable minutes of postpaid plans;

b) Subscription fees on unlimited and bucket voice promotions including the expiration of the unused value

of denomination loaded;

c) Charges for intra-network and outbound calls in excess of the consumable minutes for various Globe

Postpaid plans, including currency exchange rate adjustments, or CERA, net of loyalty discounts credited

to subscriber billings; and

d) Airtime fees for intra network and outbound calls recognized upon the earlier of actual usage of the

airtime value or expiration of the unused value of the prepaid reload denomination (for Globe Prepaid

and TM) which occurs between 3 and 120 days after activation depending on the prepaid value reloaded

by the subscriber net of (i) bonus credits and (ii) prepaid reload discounts; and revenues generated from

inbound international and national long distance calls and international roaming calls; and

e) Mobile service revenues of GTI.

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

2 Mobile SMS net service revenues consist of revenues from value-added services such as inbound and

outbound SMS and MMS, and infotext, subscription fees on unlimited and bucket prepaid SMS services net

of any interconnection or settlement payouts to international and local carriers and content providers.

3 Mobile Data service revenues consist of revenues from mobile internet browsing and content downloading,

mobile commerce services, other add-on value added services (VAS), and service revenues of GXI and

Yondu, net of any interconnection or settlement payouts to international and local carriers and content

providers, except where Globe is acting as principal to the contract where revenues are presented at gross

billed to subscriber and settlement pay-out are classified as part of costs and expenses. Beginning 2017,

revenues from premium content services (where Globe is acting as principal to the contract) will be reported

gross of the licensors' fees. Revenues for similar services reported in 2016 have also been restated for

purposes of comparison.

Mobile Voice

Mobile voice revenues, which accounted for 34% of total mobile service revenues posted a decline of

3% year-on-year from the P16.7 billion reported last year. Against the previous quarter however,

mobile voice revenues increased by 5%.

SEC Form 17Q – 2Q 2017 20

The Company continues to provide attractive and affordable bulk voice offers such as Tawag 236*5

for

20-minute consumable calls for only P20 for Globe Postpaid and Globe Prepaid subscribers by

simply replacing the 0 at the start of the number with 236 (dial 236 + 10-digit Globe number). Super

Sakto Calls* on the other hand, provides for calls to Globe and TM numbers for only P0.15 per

second by just replacing the zero at the beginning of the Globe or TM number with 232 (dial 232 +

10-digit Globe number) for the special rate to apply. Super Sakto Calls is available all day and night,

from Monday to Sunday, to Globe Postpaid and Prepaid subscribers. Likewise, GoCall100 provides

Globe Prepaid subscribers 500 minutes of on-net calls to Globe/TM for only P100 for 7 days.

Meanwhile, TM subscribers may choose UnliTawag15 which gives its subscribers unlimited calls to

all Globe and TM subscribers for as low as P15 valid for 1 day. Through the Extend all-you-can

promo, TM subscribers can extend for another 24 hours their favorite TM promo for only P5 up to

365 times by simply texting “EXTEND” to 8888 before their current promo expires.

Meanwhile, for Filipinos who wish to stay connected with their loved ones abroad, Globe continues

to offer its pioneering per-second charging for international voice calls, IDD Sakto Calls for both

Globe Postpaid and Globe Prepaid subscribers. Globe Prepaid’s GoTipIDD service remains to be

the lowest per-minute IDD rates in the market (Go tipIDD30 for as low as Php2.50 per minute valid

for three (3) days; Go tipIDD50 valid for seven (7) days; Go tipIDD100 valid for 15 days). Also, TM

customers may opt to subscribe to TM TipIDD30 which offer four (4) minutes of international calls to

Saudi, UAE, Kuwait, Bahrain, Italy, UK, Australia and Japan for only P30 a day. In addition, Globe

also provides unlimited calls to 49 countries for as low as Php99 to select destinations worldwide

with Globe’s Unli IDD. Unli IDD99 provides for 1 day unlimited calls to three (3) unique

international numbers for only Php99; Unli IDD499 for unlimited calls to 5 unique international

numbers for 7 days and Unli IDD 999 for unlimited calls to 10 unique international numbers for 30

days. In addition, Globe also provides a bucket IDD service to popular and selected overseas

destinations with Go IDD. Globe Prepaid customers can make IDD calls for as low as P1.50 per

minute to U.S. Mainland, Canada, China, Hawaii, Hong Kong, Singapore, and Thailand for only

P200, valid for 30 day. Meanwhile for TM subscribers, GoCallIDD30 provides for a P5 per minute

rate for calls to the Middle East and Europe and as low as P2.50 per minute for calls to North

America and Asia for only P30 valid for 7 days.

In addition, Filipinos or OFWs abroad can likewise spend more talk time with their loved ones in the

Philippines with Globe Duo International. It is a subscription service that assigns a virtual

international number to a registered Globe Prepaid, Postpaid or TM mobile number. This service

allows their friends and family members from abroad to call that virtual number, giving them a ‘local'

calling experience, which is more affordable compared to the standard IDD call rates to the

Philippines. DUO International number is designed to receive incoming calls only. This service is

currently available in 24 countries including USA, Canada, UK, Japan, Korea, Spain, Malaysia,

Australia, Hong Kong, New Zealand, Israel, Norway, Sweden, Denmark, South Africa, Portugal,

Finland, Italy, Greece, Netherlands, Switzerland, Austria, Ireland and Belgium. Promo packages

from 7-days up to 180-days subscription are available for all Globe Postpaid/Prepaid and TM

subscribers in the Philippines. Filipinos abroad may also avail of the promo by registering the Globe

Postpaid/Prepaid or TM mobile numbers of their family members in the Philippines via website:

duo.globe.com.ph. In addition, subscription to any Globe Duo-USA variant of all U.S. based

customers from March 1, 2017 to February 28, 2018 entitles them to join the “Globe Duo Fly PAL

for Free raffle promo”. One round trip ticket will be given away quarterly. Four lucky winners may

5*

With at least Php7.50 load requirement

SEC Form 17Q – 2Q 2017 21

choose from any of the following routes : New York (JFK) – Manila – New York; San Francisco

(SFO) – Manila – San Francisco; Los Angeles (LAX) – Manila – Los Angeles; Hawaii (HNL) –

Manila – Hawaii.

The Company also provides its subscribers with the best possible mix of voice, SMS, and mobile

browsing services through its combo packages. For Globe Prepaid, subscribers have the choice to

avail of GoUnli offers, which provides unlimited SMS to all networks as well as unlimited on-net

calls, and unlimited use of Facebook or Go AllNet promos, which provides unlimited SMS to all

networks, plus calls to Globe/TM and calls to all networks and consumable mobile browsing. The

GoUnli25, provides unlimited texts and calls to Globe/TM, unlimited Facebook plus a choice of one

free app (Twitter, Instagram, Google, Yahoo, Viber, Foursquare, WeChat) for P25/day. The

GoUNLI30, likewise gives its subscriber unlimited calls to Globe/TM and unlimited allnet texts, plus

free unlimited chat with the best chat apps for only P30. GoUnli20 was likewise introduced to the

market which offers unlimited calls to Globe and TM, 20 texts to all networks, and 15MB of mobile

data, good for 1 day. Globe Prepaid subscribers may also opt to subscribe to GoUnli50, which offers

unli calls to Globe/TM, unli all-net texts, and 50MB of surfing for 3 days for only P50. Meanwhile,

Go All-Net promotions include GoAllNet25 which gives its subscribers unlimited texts to all

networks, 75 mins of calls to Globe/TM, 5 mins of calls to all networks and 5MB Facebook for P50

good for 1 day. Also available are GoAllNet70, GoAllNet200, GoAllNet300, and GoAllNet500 for

all-net offers valid for 3, 7, 15 and 30 days, respectively. Globe customers can also subscribe to

SuperAllTxtPlus20 which provides 250 local texts to All networks, plus 10 minutes voice calls

(Globe/TM) for one day. In addition, Globe Prepaid subscribers also have the option to subscribe to

SuperUnli AllTxt25, which allows unlimited SMS to all networks, 10 minutes of calls to Globe or TM

numbers, and 1 hour of mobile internet for only P25/day. Also availalbe is GoTXT19Plus, whereby

subscribers can send unlimited texts to all networks, make 20 minutes of calls to Globe/TM, and surf

up to 15MB for only P19 valid for 1 day. For TM on the other hand, subscribers can choose from a

wide array of promo offers which will best fit their budget and lifestyle. TM subscribers may avail of

ComboAll10 which provides for unlimited calls & texts to TM/Globe plus 50 texts to all networks for

only P10 a day or may opt to subscribe to longer validity period -- ComboAll15 valid for 2 days for

P15 and ComboAll20 valid for 3 days P20. CU10 was likewise introduced to the market which offers

unli calls to TM/Globe plus 100 all-net texts for 2 days for only P10. Combo15 which provides for

unlimited all-network texts plus 60 minutes calls TM/Globe valid for 3 days for only P15 or choose

to subscribe to Combo20 valid for 4 days for P20. Through the Extend all-you-can promo all TM

subscribers have the option to extend all TM call and text promos up to 365 times by simply texting

“EXTEND” to 8888 before their current promo expires. In the first quarter of 2017, Globe introduced

All-Net call promos. Globe Prepaid customers may avail of GoCall50 which gives 50 minutes of

calls to any network valid for three (3) days. TM customers may add P5 to any existing calls and text

promo for 5 minutes of calls to any network, good for one (1) day. Meanwhile, Postpaid customers

with Plan 2499 and up may choose to avail of a P299 tack-on that will give them 300-minute calls to

all networks. In the first quarter of 2017, Globe launched the all-net call promos for as low as

₱1/minute as a result of lowered voice interconnect access charges across telcos. Under the

company’s latest all-net promos, postpaid customers with Plan 2499 and up may choose to avail of a

₱299 tack-on that will give them 300-minute calls to all networks. On the other hand, Globe Prepaid

subscribers may avail of GoCall50 which gives 50 minutes of calls to all networks, good for 3 days;

TM customers may add ₱5 to any existing call and text promo for 5 minutes of calls to any network,

good for 1 day.

SEC Form 17Q – 2Q 2017 22

Mobile SMS

Mobile SMS, which accounted for 24% of total mobile service revenues, closed the first semester of

the year at P11.8 billion, 4% higher than the P11.3 billion recorded in the same period of 2016. On a

sequential basis, mobile SMS revenues slightly declined by 1%.

Globe showcases a comprehensive line up of mobile SMS value offers ranging from unlimited and

bucket text services. Globe continues to provide its prepaid subscribers with all-day unlimited on-net

SMS with UnliTxt promos: UnliTxt20 valid for 1 day for P20; UnliTxt40 valid for 2 days for P40 and

UnliTxt80 valid for 5 days for P80. GoUnlitxt49 was also made available in the market which offers

its subscribers unlimited on-net texts to Globe/TM for only P49 valid for 7 days. For budget concious

customers, SuliTxt15 provides its subscribers with 100 text messages to Globe/TM for one day.

With the use of the GoSakto, Globe Prepaid subscribers can create a promo exactly how they want it

based on their lifestyle and budget. Also customers can get to create a prepaid gadget bundle and

upgrade to a smartphone almost for free.

With TM’s continued dedication of giving its subscribers wonderful and value-for-money offers, TM

customers can get to choose from wide array of promo offers ranging from bucket or unlimited SMS.

With SuliTxt5, TM subscribers can send 25 texts to TM/Globe, valid for 1 day for only P5.

UnliAllNet10 which provides its subscribers with unlimited texts to all networks for P10 a day or

subscribe to Txt10 for unlimited text to TM/Globe, valid for 2 days. Also available is AstigTxt30

which gives TM subscribers 5 days of unlimited text to TM/Globe for P30. Dagdagtxt was likewise

introduced to the market which provides additional 100 all-network texts as an add-on to an UnliCall

promo for only P5 a day. Moreover, TM subscribers can also enjoy unlimited 1 day text to

TM/Globe as on add-on to their UnliTawag15 subscription for just minimal price of P5.

Meanwhile, for Filipinos who wish to send messages to their family and friends abroad, Globe

continues to offer iTxtAll30, for 100 SMS to over 40 countries and all networks in the Philippines for

only Php30 a day. Also available is Unli iSMS USA299 for unlimited texts to the US Mainland* valid

for 30 days and Unli IDD and iSMS USA599 for unlimited calls and texts to the US Mainland* valid

for 30 days. (

*Excluding Alaska, Guam, Hawaii, American Samoa, Northern Mariana Islands, Puerto Rico and U.S. Virgin

Islands).

Mobile Data

Mobile Browsing, Internet-on-the-Go and Other Data

Globe’s mobile data contributed about 42% of total mobile revenues for first half of 2017 versus 39%

a year ago. Mobile data service revenues reached P20.3 billion as of end-June 2017, or 13% higher

than the P18.0 billion reported in the same period last year. This was due to the steady rise in

smartphone penetration, which is now at 67%, and growing data usage, which saw mobile data traffic

growth of 85% from 151 petabytes (PB) in 2016 to 280 petabytes (PB) this year. On a quarterly

basis, mobile data revenues grew by 4% from the P10.0 billion reported in the first quarter.

Despite the double digit growth, the Company believes the reported increase in mobile data revenues

is not representative of the true growth of the business, due to the application of certain accounting

standards on bundled promotions. In particular, the Free Facebook offer, which we began to bundle

in our lower denominated prepaid promos in 2015 and subsequently ended in June 2016 for TM and

SEC Form 17Q – 2Q 2017 23

May 2017 for Globe Prepaid, mutes the performance of the mobile data business due to the change in

the assignment of revenues in the different periods. The Free Facebook offer was an initiative that

allowed Globe to transform its customers’ behavior and successfully allowed the Company to

increase its mobile data traffic and improve its yields leading to the revenue levels we see today. It is

for this reason that the Company believes it is appropriate to provide a normalized view to show the

true impact of the initiative and provide a more accurate picture of the momentum of the Mobile Data

business. On a normalized basis, adjusting for the impact of the Free Facebook promotion, mobile

data revenues would have increased by 24% against the same period last year.

Over the years, Globe has pioneered efforts in introducing product and services that cater to the

customer’s digital preferences, enabling Globe to be the preferred brand for Filipinos’ digital lifestyle

choices. This was done through collaborative partnerships with global giants in the world of content.

The Company partnered with internet giant Google to provide free access to Google mobile services

and to provide its subscribers the ability to charge purchases of applications to their postpaid bill or

prepaid load, bypassing the need for credit cards and enhancing the convenience for Globe and TM

customers. Likewise, the Company was able to tailor-make lifestyle packages for all its subscribers

to meet their social networking needs and crowd-sourced content (via Facebook and Wattpad),

chatting and digital communication (Viber), music (Spotify), sports (NBA) and media (HOOQ and

Walt Disney). Piso Video was also made available to provide Globe and TM subscribers’ access to

videos on their cellphones for as low as P1 per video. Moreover, Globe continues its drive to position

the Philippines as the Digital Capital of the World as it expanded its line-up of content partners with

its new international partnerships with Netflix, Disney, Sports Illustrated, Astro, Turner and Smule.

Globe’s mobile browsing services include the consumable mobile internet plan “GoSurf”which gives

its subscribers bulk megabytes of mobile data consumable per kilobyte for as low as P10/day. Globe

Postpaid, Prepaid and TM subscribers can choose from a variety of GoSurf consumable data plans

ranging from P10 for 40 MB for a day to P2,499 for 20 GB per month. With every GoSurf data plan,

subscribers can get free access to Spotify6. Subscribers who register to GoSurf99 and below get free

music streaming on Spotify Basic, while those who register to GoSurf299 and above get free music

streaming on Spotify Premium or HOOQ7 with free access to YouTube and Dailymotion. All GoSurf

plans are automatically bundled with the “Globe No Bill Shock Guarantee”, so subscribers who

exceed their monthly MB allocations will never pay more than P1,500 for GoSurf plans 99 to 999 and

P3,000 for GoSurf plans 1799 and 2499. In addition, game bundles were likewise introduced to the

market which give Globe Prepaid customers all-day access to their favorite mobile games and live

the thrill of fighting clans, summoning spells, assembling a team of super heroes with Clash Royal,

Clash of Clans, Candy Crush and more for a minimum cost of P15/day for 100MB data allocation to

a maximum of P99 for 30 days for 300MB data allocation. In the second quarter of 2017, Globe

introduced yet another game-changing offer that will transform the way people enjoy and consume

video content on mobile with the launch of GoWatch. Get as much as 2GB for video streaming per

day starting only at P29 as an add-on to any GoSurf promo starting with GoSurf50. GoWatch allows

its users to watch hours of content without worrying about using up their data allowance through a

separate data allocation dedicated for streaming on popular platforms: Netflix, YouTube, Tribe,

HOOQ, NBA, Cartoon Network, and Disney Channel Apps. For bigger data options and longer

6 Spotify is a music streaming service that you can listen to anywhere and anytime. You can also create and

share your playlists to your friends and better yet follow your favorite artists and listen to their playlists as

well. 7 HOOQ is an online video-on-demand service that provides access to over 10,000 foreign and local movies

and TV shows that can be watched on PCs, tablets, and smartphones connected to the Internet

SEC Form 17Q – 2Q 2017 24

validity, Globe customers may also avail GoWatch99 to get 2.5GB for three days at P99 or

GoWatch399 for 10GB valid for 30 days at P399, as an add-on to GoSurf299 and up.

Furthermore, the “Share-A-Promo” allows its users to share GoSurf promos to their relatives and

friends. The promo can be sent to any mobile phone, tablet, or Tattoo mobile Wi-Fi. Share-A-Promo

is open to all Globe (Postpaid, Prepaid, Tattoo, and TM) subscribers. Likewise TM, introduced Net2

which gives TM subscribers an option to add mobile internet on top of any TM promo subscription

for just a minimal fee of P2. Net2 gives its users 20MB for Youtube streaming or 10MB for CoC,

Google, Twitter, Instagram, or WeChat for one whole day. TM subscribers may also opt to subscribe

for P5 for 20MB for Youtube streaming, CoC, Google, Twitter valid for two (2) days. TM customers

can also have free access to JOFOM as long as they are registered to any TM promos. JOFOM is a

blue collar mobile app launched by jobstreet giving access to more than 5,000 local jobs for high-

school and vocational course graduates. JOFOM can be downloaded via internet.org and Google Play

or via the website (www.jofom.com).

Meanwhile, unlimited chat offers (UnliChat25 valid for 1 day and UnliChat299 valid for 30 days),

GMESSAGE, Viber, FB Messenger, KakaoTalk, WeChat, WhatsApp, and LINE even without a WiFi

connection are also available for Globe Prepaid subscribers. Globe Prepaid or TM customers may

also opt to avail of site bundles to enjoy 24-hour unlimited access to various websites of their choice

for only P20 per day. In addtion to these, the Company introduced the ChatPlus, an all-in-one bundle

that not only gives customers access to their favorite messaging apps but to a generous amount of

IDD minutes to the US Mainland and Canada for as low as P25 per day. Customers can enjoy free

access to messaging apps (such as Facebook Messenger, Viber, WhatsApp, Google Messenger,

Kakao Talk, WeChat, and LINE) plus 15 IDD minutes for calls from the Philippines to the US

Mainland and Canada. For those opting for a longer subscription and more free IDD minutes, there is

also the ChatPlus 299, valid for 30 days with 60 IDD minutes. Likewise, the Company continued to

offer Globe Prepaid Roam Surf, a flat rate offer for unlimited data roaming service to its prepaid

customers. This offer allowed prepaid customers to access the internet abroad for an entire 24-hour

cycle, making their data connectivity experience more seamless and worry-free. Roam Surf for Globe

Prepaid is available in three variants, P599 for 24 hours, P1797 for 3 full days and P2995 for 5 full

days.

In the second quarter of 2017, Globe continues to rollout more GoWiFi8 hotspots, as part of the

network’s goal to elevate the state of internet connectivity in the country. This developed as Globe

partnered with the Department of Information and Communications Technology (DICT) for the

EDSA WiFi project which aims to provide high-speed internet connectivity throughout the 24-

kilometer stretch of EDSA. DICT is targeting to reach over 13,000 public places across 145 cities

and 1,489 municipalities nationwide. GoWiFi has expanded to 1,000 more new locations and 10,000

access points in the Philippines to give more customers access to fast and reliable hotspots in high-

traffic locations. Aside from MRT-3, it is also available in other major transportation hubs such as

select stations of the Light Rail Transit (LRT) system and key airports around the country as well as

in top tourist destinations like Boracay and Lio, El Nido, Palawan. The service is also available in

hospitals (St. Luke’s Medical Center, The Medical City, Davao Doctors Hospital, Cardinal Santos

Hospital, and Philippine General Hospital); local government units (in Makati, Quezon City,

Valenzuela, Las Piñas, Mandaluyong, Marikina, Caloocan, and Batangas); and some of the schools

and universities (Far Eastern University and Bulacan State University). GoWiFi may also be accessed

in major malls (Ayala Malls, Megaworld Lifestyle Malls, Robinsons Malls, and Gaisano Malls);

8 GoWiFi is Globe Telecom’s premium public WiFi service

SEC Form 17Q – 2Q 2017 25

convenience stores (7-Eleven, Ministop, Family Mart, and AlfaMart); coffee chains (Starbucks, The

Coffee Bean and Tea Leaf, Seattle’s Best Coffee, and UCC); and restaurants (KFC, Burger King,

Kenny Rogers Roasters, and Wendy’s). New GoWiFi users who are Globe, TM, or other telco

customers may also avail the free trial promo that will give them access to GoWiFi Auto for 3 days.

This special trial is valid until August 31, 2017.

The key drivers for the mobile business are as follows:

Globe Group

Quarter on Quarter Year on Year

Q2 Q1 QoQ 30 Jun 30 Jun YoY

2017 2017 Change 2017 2016 Change

(%) (%)

Cumulative Subscribers (or SIMs) 59,722,092 58,580,260 2% 59,722,092 61,311,448 -3%

Globe Postpaid 2,460,671 2,467,069 - 2,460,671 2,521,218 -2%

Prepaid* 57,261,421 56,113,191 2% 57,261,421 58,790,230 -3%

Globe Prepaid 27,696,014 26,678,674 4% 27,696,014 27,381,884 1%

TM 29,565,407 29,434,517 - 29,565,407 31,408,346 -6%

Net Subscriber (or SIM) Additions 1,141,832 (4,218,598) -127% (3,076,766) 5,128,770 -160%

Globe Postpaid (6,398) (22,650) -72% (29,048) (75,809) -62%

Prepaid* 1,148,230 (4,195,948) -127% (3,047,718) 5,204,579 -159%

Globe Prepaid 1,017,340 (1,755,119) -158% (737,779) 1,466,788 -150%

TM 130,890 (2,440,829) -105% (2,309,939) 3,737,791 -162%

Average Revenue Per Subscriber (ARPU)

ARPU 1

Globe Postpaid 1,177 1,158 2% 1,165 1,114 5%

Prepaid*

Globe Prepaid 119 111 7% 113 110 3%

TM 68 64 6% 65 63 3%

Subscriber Acquisition Cost (SAC)

Globe Postpaid 9,377 8,533 10% 8,949 7,257 23%

Prepaid*

Globe Prepaid 24 42 -43% 33 13 154%

TM 11 6 83% 8 11 -27%

Average Monthly Churn Rate (%)

Globe Postpaid 2.5% 2.8% 2.7% 3.7%

Prepaid*

Globe Prepaid 6.8% 10.0% 8.2% 6.5%

TM 7.5% 10.5% 8.9% 6.0% 1ARPU is computed by dividing recurring gross service revenues (gross of interconnect expenses) segment by the

average number of the segment’s subscribers and then dividing the quotient by the number of months in the period. * Beginning 1Q17, Globe to report prepaid subscribers which exclude those who do not reload within 90 days of

the second expiry period versus the previous cut-off of 120 days.

SEC Form 17Q – 2Q 2017 26

Globe closed the first six months of the year with a total mobile subscriber base of 59.7 million, down

3% from 61.3 million subscribers reported in the same period last year due to the elevated level of

prepaid churn rates caused by the change in the basis for reporting subscribers beginning first quarter

of 2017. This period showed a net reduction of 3.1 million in subscribers versus the 5.1 million net

incremental subscribers in the same period of 2016.

The succeeding sections cover the key segments and brands of the mobile business – Globe Postpaid,

Globe Prepaid and TM including fully-mobile broadband subscribers.

Globe Postpaid

As of the end of June 2017, Globe Postpaid had 2.5 million subscribers, down by 2% from the same

period last year. Globe Postpaid’s gross acquisitions for the first semester of 2017 stood at 366,673

or 25% lower than the new acquisitions in the first half of 2016. Total net reduction in postpaid

subscribers as of end-June this year resulted from the declining acquisitions despite the improvement

in churn from 3.7% last year to only 2.7% this period.

The latest iPhone 7/iPhone 7Plus RED edition in 128GB and 256GB variants was also made available

via Globe's “ThePLAN” during the first half of the year, for as low as Plan 599 a month to as high as

Plan 2999. Customers who will buy this special edition will be given an unprecedented way to

contribute to the Global fund and bring the world a step closer to an AIDS-free generation. For every

purchase of this iPhone 7 and iPhone 7 Plus RED edition, part of the proceeds goes to the Global

Fund in fighting spread of AIDS.

Globe Postpaid ARPU registered at P1,165, which increased by 5% from a year ago due to the

continued retention efforts for quality subscribers. On a sequential basis, Globe Postpaid ARPU

likewise increased by 2% quarter-on-quarter.

Globe Postpaid subscriber acquisition cost (SAC) was up year-on-year by 23% to reach P8,949 this

period from P7,257 in the same period last year. On a quarterly basis, Globe Postpaid SAC increased

by 10% from last quarter. Globe Postpaid SAC, either on a year-to-date basis or on a quarterly basis,

remained recoverable well within the 24-month contract period.

Prepaid

Globe’s prepaid segment, which includes the Globe Prepaid and TM brands, accounts for 96% of its

total mobile subscriber base. As of the first half of 2017, cumulative prepaid subscribers stood at

about 57.3 million, 3% lower than last year’s level of 58.8 million.

The succeeding sections discuss the performance of the Globe Prepaid and TM brands in more detail.

a. Globe Prepaid

Globe Prepaid gross acquisitions grew by 10% year-on-year reaching 13.0 million acquisitions from

the 11.9 million gross additions in the same period in 2016. The year-on-year increase in gross

additions was driven by the brand’s continued acquisition efforts, the strong take-up of data bundles

and other value-for-money promotions. Due to the shift in subscriber recognition excluding those

who do not reload within 90 days of the second expiry period which started in the first quarter of

SEC Form 17Q – 2Q 2017 27

2017, churn rate for the first six months of the year further increased to 8.2% from 6.5% a year ago.

This resulted to a net reduction of 738 thousand subscribers as compared to last year’s net addition

1.5 million subs. Total cumulative Globe Prepaid subscribers reached 27.7 million as of the end June

2017, up 1% year-on-year.

Globe Prepaid ARPU was up year-on-year to reach P113 this period from P110 in the first half of

2016 and higher by 7% compared to the P111 reported last quarter as the dilutive impact of marginal

subscribers were diminished.

Globe Prepaid SAC likewise was up year-on-year at P33 in the first six months of 2017 from P13 a

year ago. On a sequential basis, Globe Prepaid SAC was down from P42 reported in the previous

quarter to only P24 this quarter.

b. TM

TM’s gross acquisitions as of end-June 2017, stood at 14.0 million or 3% lower than previous year’s

14.4 million gross additions. TM churn for the first half of 2017 remained at elevated level at 8.9%,

higher than same period last year’s 6.0%, mainly due to the change in the basis for reporting

subscribers (as stated above). This resulted to a net reduction of 2.3 million subscribers as compared

to the 3.7 million net incremental subscribers in the same period of 2016. However, compared to the

previous quarter, churn level improved from 10.5% to 7.5% this quarter. TM cumulative subscriber

base stood at 29.6 million subscribers at the end of June 2017, down 6% from the 31.4 million

subscribers a year ago.

TM ARPU likewise followed the same trajectory as Globe Prepaid, ending the first half of the year

with an ARPU of P65 pesos, up by 3% against the first half of 2016. Compared to previous quarter,

TM ARPU was P4 higher than the P64 posted in the first quarter.

TM SAC was down year-on-year at P8 against the P11 reported in the same period last year. On a

quarterly basis on the other hand, TM SAC was higher by P5 from the reported P6 last quarter.

SEC Form 17Q – 2Q 2017 28

FIXED LINE AND HOME BROADBAND BUSINESS

Globe Group

Quarter on Quarter Year on Year

Q2 Q1 QoQ 30 Jun 30 Jun YoY Service Revenues (Php Mn)

2017 2017 Change

(%) 2017 2016

Change (%)

Service

Home Broadband1 3,882 3,844 1% 7,726 7,149 8%

Corporate Data2 2,481 2,541 -2% 5,022 4,863 3%

Fixed line Voice3 896 938 -4% 1,834 1,933 -5%

Fixed Line & Home Broadband Service Revenues

7,259 7,323 -1% 14,582 13,945 5%

1 Home Broadband service revenues consist of the following:

a) Monthly service fees of wired, fixed wireless, bundled voice and data subscriptions;

b) Browsing revenues from all postpaid and prepaid wired, fixed wireless broadband packages in excess

of allocated free browsing minutes and expiration of unused value of prepaid load credits;

c) Value-added services such as games; and

d) Installation charges and other one-time fees associated with the service.

e) Beginning 2017, revenues from premium content services (where Globe is acting as principal to the

contract) will be reported gross of the licensors' fees. Revenues for similar services reported in 2016

have also been restated for purposes of comparison. Licensors' fees will be reflected as part of

maintenance expense.

2 Corporate data (previously called Fixed line data) service revenues consist of the following:

a) Monthly service fees from international and domestic leased lines;

b) Other wholesale transport services;

c) Revenues from value-added services; and

d) One-time connection charges associated with the establishment of service.

3 Fixed line voice service revenues consist of the following:

a) Monthly service fees;

b) Revenues from local, international and national long distance calls made by postpaid, prepaid fixed

line voice subscribers and payphone customers, as well as broadband customers who have subscribed

to data packages bundled with a voice service. Revenues are net of prepaid and payphone call card

discounts;

c) Revenues from inbound local, international and national long distance calls from other carriers

terminating on Globe’s network;

d) Revenues from additional landline features such as caller ID, call waiting, call forwarding, multi-

calling, voice mail, duplex and hotline numbers and other value-added features;

e) Installation charges and other one-time fees associated with the establishment of the service; and

f) Revenues from DUO and SUPERDUO (Fixed line portion) service consisting of monthly service fees

for postpaid and subscription fees for prepaid.

SEC Form 17Q – 2Q 2017 29

Home Broadband

Globe Group

Quarter on Quarter Year on Year

Q2 Q1 QoQ 30 Jun 30 Jun YoY

2017 2017 Change

(%) 2017 2016

Change (%)

Cumulative Home Broadband Subscribers

Fixed Wireless 599,045 568,625 5% 599,045 491,606 22%

Wired 630,528 622,636 1% 630,528 645,002 -2%

Total (end of period) 1,229,573 1,191,261 3% 1,229,573 1,136,608 8%

Globe Group’s fixed line and home broadband revenues posted a 5% improvement year-on-year to

reach P14.6 billion this period from P13.9 billion reported in the same period last year. The growth

was driven by solid contributions of both the home broadband (+8%) and corporate data (+3%)

segments. On a sequential basis, fixed line and home broadband revenues was slightly down by 1%

versus last quarter.

Globe home broadband posted P7.7 billion of revenues as of end-June 2017, 8% higher than the P7.1

billion reported a year ago due mainly to subscriber base growth (+8%) year-on-year. The robust

revenue growth was complimented by the various competitive home broadband products bundles

with exclusive access to entertainment contents boosted by the newest Go Big plans launched this

period. Home broadband’s subscriber base now reached 1.2 million customers for the six months

period just ended versus the 1.1 million posted in the same period of 2016. On a quarterly basis,

Globe home broadband revenues improved by 1% from P3.8 billion recorded in the prior quarter.

In the second quarter of 2017, the Company launched its new and improved Globe At Home GoBIG

plans. The new GoBIG plans have bigger data allocations at affordable rates alongside fast and

reliable speeds. Access to free content apps also remain a major part of the broadband bundle, which

was made even better with the addition of 100GB data for free YouTube. For Plan 1299, customers

can enjoy 300GB of data allocation per month, with speeds of up 5Mbps. Those who want to stream

more can avail of Plan 1599, which has a data allowance of 400GB and speeds of up to 10Mbps; or

Plan 1899, which has 500GB of data and speeds of up to 50Mbps. On top of the free YouTube

access, customers can also enjoy free 6 months of access to Netflix and Disney Channel apps for

award-winning original content and children’s shows, and a two-month subscription to HOOQ for a

diverse selection of local and foreign titles.

Corporate data

On a consolidated basis, Globe’s corporate data likewise delivered consistent growth at P5.0 billion

revenues as of the first semeter of 2017, up 3% against the same period of 2016. This was mainly

driven by the broader circuit base and increased usage, as demand for corporate connectivity,

domestic and international leased line services, managed service solutions and cloud-based services

continued to rise. However, Globe’s total fixed line voice revenues declined year-on-year by 5%. On

a sequential basis, Globe’s corporate data declined by 2% from P2.5 billion last quarter mainly

coming from lower domestic and international lease lines.

SEC Form 17Q – 2Q 2017 30

During the second quarter of the year, Globe also launched its newly operationalized Advanced

Security Operations Center (ASOC) powered by Trustwave. It is a state-of- the-art facility that

houses the infrastructure and teams that deliver services such as customer service platform

management, threat detection, threat hunting, and incident response for both Globe’s network and the

network of its customers. It is linked to Trustwave’s global network of nine federated ASOCs and is

supported by a worldwide team of more than 1,600 security-minded professionals. This primarily

aims to provide businesses, specifically those in the IT-BPM industry, with a roster of Managed

Security Services that will ensure coverage in areas such as Vulnerability Assessment, Network

Security, Application Security and Content Security, Endpoint Security and Access Control, and

Security Management. These solutions help enable Philippine enterprises to fight cybercrime, protect

data, and reduce security risks.

Fixed line Voice

Globe Group

Quarter n Quarter Year on Year

Q2 Q1 QoQ 30 Jun 30 Jun YoY

2017 2016

Change (%)

2017 2016 Change

(%)

Cumulative Voice Subscribers – Net (End of period)

1,316,597 1,302,018 1% 1,316,597 1,209,967 9%

Globe Group includes DUO and SuperDUO subscribers

Globe’s total fixed line voice revenues declined year-on-year and quarter-on-quarter by 5% and 4%,

respectively.

OTHER GLOBE GROUP REVENUES

International Long Distance (ILD) Services

Both Globe and Innove offer ILD voice services which cover international call services between the

Philippines to 236 destinations with roaming partners. This service generates revenues from both

inbound and outbound international call traffic, with pricing based on agreed international

termination rates for inbound traffic revenues and NTC-approved ILD rates for outbound traffic

revenues.

Globe’s ILD voice revenues from the mobile and fixed line businesses declined year-on-year by 12%

from P4.6 billion last year to P4.1 billion this period. This is attributed to the migration of

international traffic through alternative channels that make use of internet-based applications (Viber,

Skype, Line, Yahoo, etc.). On a sequential basis, ILD revenues on the other hand showed

improvement by 3% from P2.0 billion reported in the first quarter.

Meanwhile, Globe sustained its promotion on OFW SIM packs and the discounted call rate offers

such as IDD Sakto Calls (per-second IDD), TipIDD card, and IDD Tingi – the first bulk IDD service

which can be purchased via registration and through AMAX retailers nationwide.

SEC Form 17Q – 2Q 2017 31

GROUP OPERATING EXPENSES

For the first half of the year, Globe Group’s total costs and expenses, including depreciation charges,

amounted to ₱48.7 billion, up by 7% from last year’s ₱45.7 billion, due to increases across all

expense line items except for subsidy/recontracting, interconnect costs and marketing expenses, to

support customer base expansion and the growing Globe network infrastructure. Compared to the

previous quarter, Globe’s total operating costs, including depreciation charges, slightly increased by

1% from P=24.2 billion in the previous quarter.

Globe Group

Quarter on Quarter Year on Year

(Php Mn) Q2 Q1 QoQ 30 Jun 30 Jun YoY

2017 2017 Change

(%) 2017 2016

Change (%)

Cost of Sales 3,086 3,231 -4% 6,317 6,568 -4%

Less: Non-service Revenues 1,843 1,804 2% 3,647 3,339 9%

Subsidy 1,243 1,427 -13% 2,670 3,229 -17%

Interconnect 2,117 2,057 3% 4,174 4,757 -12%

Selling, Advertising and Promotions

1,059 1,165 -9% 2,224 2,478 -10%

Re-contracting 898 879 2% 1,777 1,786 -1%

Staff Costs 2,947 2,999 -2% 5,946 5,119 16%

Utilities, Supplies & Other Administrative Expenses

1,227 1,182 4% 2,409 2,300 5%

Rent 1,677 1,527 10% 3,204 2,828 13%

Repairs and Maintenance* 1,823 1,802 1% 3,625 2,981 22%

Provisions 1,051 899 17% 1,950 1,650 18%

Services and Others 3,793 3,870 -2% 7,663 7,146 7%

Operating Expenses 16,593 16,379 1% 32,972 31,045 6%

Depreciation and Amortization 6,630 6,437 3% 13,067 11,458 14%

Costs and Expenses 24,466 24,243 1% 48,709 45,732 7% * Beginning 2017, revenues from premium content services (where Globe is acting as principal to the contract)

will be reported gross of the licensors' fees. Revenues for similar services reported in 2016 have also been

restated for purposes of comparison. Licensors' fees will be reflected as part of maintenance expense.

Interconnect

Globe group’s interconnect charges decreased year-on-year by 12% mainly on the impact of the

change of interconnection rate to ₱2.50 coupled with lower inter-network traffic usages of domestic

promo offers, outbound regular streams and outbound roaming. However, on a sequential basis,

interconnect cost increased by 3% bulk coming from Mobile mainly on roaming payout due to higher

data consumption on unli data roaming offers.

Subsidy

Subsidy for the period declined year-on-year and quarter-on-quarter by 17% and 13%, respectively,

following continued slow-down in Postpaid acquisitions and higher number of subscribers availing of

SEC Form 17Q – 2Q 2017 32

line-only plans.

Marketing

Total selling, advertising and promotions, which account for 6% of total operating expenses and

subsidy, declined by 10% year-on-year to only P=2.2 billion this period from P=2.5 billion a year ago

due mainly to lower ads & promo. On a quarterly basis, marketing costs likewise declined by 9%.

Re-contracting

Globe’s recontracting costs posted a slight decrease of 1% for the period, mainly on lower volume of

subscribers renewing their contracts. However, compared to prior quarter, recontracting cost

increased by 2%.

Staff Costs

Globe group’s staff costs for the first half of 2017 grew 16% year-on-year from P=5.1 billion in the

same period of 2016 to P=5.9 billion this period due to higher variable incentive pay related to 2016

payout and higher accrual for corporate incentives this year. Higher basic pay and related benefits

following increase in headcount of 240 (1H 2017 average monthly headcount of 7,185 vs. last year’s

6,945) also contributed to the increase in staff costs. On a quarterly basis, staff costs declined by 2%

against the previous quarter.

Utilities, Supplies and Other Administrative Expenses

Globe group’s total utilities, supplies and other administrative expenses were higher year-on-year at

P=2.4 billion this period from P=2.3 billion a year ago, largely from increase in city franchise, real

property tax, NTC spectrum users' fees as well as higher electricity charges from new sites built and

corporate offices. On a sequential basis, total utilities, supplies and other administrative expenses,

likewise grew by 4%.

Rent

Rent expenses, accounting for 9% of operating expenses and subsidy, grew to P=3.2 billion, a 13%

increase year-on-year from P=2.8 billion in the first half of 2016. Similarly, rent expense increased in

the second quarter by 10% from the P=1.5 billion reported in the previous quarter. This was largely

due to increased number of leased cell sites, co-location, international interconnect, joint pole, service

vehicle and corporate offices.

Repairs and Maintenance

Repairs and maintenance charges for the period stood at P=3.6 billion, 22% higher against the P=3.0

billion recorded in the same period last year. Increased spend was mostly from higher

hardware/software, communication equipment and subscriber line maintenance, as partly offset by

lower international cable facilities and outside plant maintenance. On a sequential basis, repairs and

maintenance slightly grew by 1%.

SEC Form 17Q – 2Q 2017 33

Provisions

This account includes provisions related to trade, non-trade and traffic receivables and inventory

obsolescence. Globe group’s provisions increased by 18% year-on-year from P=1.7 billion as of end-

June 2016 to P=1.9 billion this period. The increase was mostly from provisions for probables losses

and inventory losses coupled with increased trade provisions following higher trade receivables.

Despite the increase in total provisions, the ratio of provision for doubtful accounts as a percentage to

postpaid revenues showed improvement from 4.93% as of the first half of 2016 to only 4.84% this

period. On a sequential basis, provisions likewise increased by 17%.

Services and Others

Globe group’s services and other expenses which accounted for 21% of total operating expenses and

subsidy grew by 7% year-on-year to P=7.7 billion in the first half of the year from P=7.1 billion last

year largely from other contracted services on higher accruals for various services. Compared to

prior quarter, services and others declined by 2% mainly on lower professional/advisory services fees

coupled with lower other contracted services.

Depreciation and Amortization

Depreciation expenses in the first half of the year stood at P13.1 billion, up 14% from the same

period last year and 3% higher compared to the P6.4 billion reported in the first quarter of 2017. The

increase was attributed to the depreciation costs of incremental asset builds related to Globe’s 2016

and 2017 capital expenditure programs.

SEC Form 17Q – 2Q 2017 34

OTHER INCOME STATEMENT ITEMS

Other income statement items include net financing costs, net foreign exchange gain (loss), interest

income and net property and equipment related income (charges) as shown below:

Globe Group

Quarter on Quarter Year on Year

(Php Mn) Q2 Q1 QoQ 30 Jun 30 Jun YoY

2017 2017 Change

(%) 2017 2016

Change (%)

Financing Costs

Interest Expense (1,235) (1,121) 10% (2,356) (1,493) 58%

Loss on derivative instruments - - - - (27) -100%

Swap costs and other financing costs

(36) (35) 3% (71) (92) -23%

Foreign Exchange Loss (net) - (11) -100% - - -

(1,271) (1,167) 9% (2,427) (1,612) 51%

Other Income

Gain on derivative instruments 39 75 -48% 114 - -

Foreign Exchange gain (net) 21 - - 10 172 -94%

Interest Income 31 32 -3% 63 88 -28%

Others – net 23 (260) -109% (237) (1) 236%

Total Income (Other Expenses) (1,157) (1,320) -12% (2,477) (1,353) 83%

Globe’s non-operating charges as of end-June 2017, reported a significant increase from the P=1.4

billion in the same period of 2016 to P=2.5 billion this period owing to this year’s share in net losses of

joint venture and spectrum amortization, higher interest expenses and lower net forex gains.

On a quarterly basis however, non-operating expenses declined by 12%. The decline stems from

lower equity in net loss related to the SMC transaction due to reduced losses in the joint venture and

reversals of previous accruals for spectrum amortization amounting to about P=109 million. The

reversal was due to the finalization of the Purchase Price Allocation which resulted to lower spectrum

amortization charges than previously provisioned.

(See related discussion on derivative instruments and swap costs in the Foreign Exchange and Interest Rate Exposure

section)

SEC Form 17Q – 2Q 2017 35

LIQUIDITY AND CAPITAL RESOURCES

Globe Group

30 Jun 31 Dec YoY

2017 2016 Change

(%)

Balance Sheet Data (Php Mn)

Total Assets 263,948 249,863 6%

Total Debt 123,578 105,729 17%

Total Stockholders’ Equity 65,245 63,476 3%

Financial Ratios (x)

Total Debt to EBITDA (gross)

2.44 2.15

Total Debt to EBITDA (net) 2.25 1.97

Debt Service Coverage 7.15 4.18

Interest Cover (Gross) 9.45 12.50

Total Debt to Equity (Gross) 1.89 1.67

Total Debt to Equity (Net) 1 1.75 1.53

Total Debt to Total Capitalization (Book) 0.65 0.62

Total Debt to Total Capitalization (Market) 0.30 0.33

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

Globe’s balance sheet and cash flows remain strong with ample liquidity and gearing comfortably

within bank covenants.

Globe Group’s consolidated assets as of 30 June 2017 amounted to P263.9 billion compared to

P249.9 billion as of December 31, 2016. Consolidated cash, cash equivalents and short term

investments (including investments in assets available for sale and held to maturity investments) was

at P9.5 billion as of end June of 2017 compared to P8.6 billion as of end December 2016.

Globe ended the first half of the year with gross debt to equity ratio on a consolidated basis at 1.89:1

and is still within the 2.5:1 debt to equity limit dictated by Globe’s debt covenants. Meanwhile net

debt to equity ratio was at 1.75:1 as of end June 2017 and 1.53:1 as of end December 2016.

Globe’s current ratio stood at 0.64:1 as of 30 June 2017 and 31 December 2016, which are at par with

industry standards. While Globe’s average current ratio was below the SEC’s minimum of 1:1, Globe

believes it has more than sufficient cash flows from operations to meet its debt maturities, currently

and prospectively.

The financial tests under Globe’s loan agreements include compliance with the following ratios:

Total debt* to equity not exceeding 2.5:1;

Total debt to EBITDA not exceeding 3:1;

Total Debt service coverage1 exceeding 1.3 times; and

Secured debt ratio2 not exceeding 0.2 times.

*Composed of notes payable, long term debt and net derivative liabilities

1 Debt service coverage ratio is defined as the ratio of EBITDA to required debt service, where debt service includes subordinated debt but

excludes shareholder loans.

2 Secured debt ratio is defined as the ratio of the total amount for the period of all present consolidated obligations for payment, whether actual or contingent which are secured by Permitted Security Interest as defined in the loan agreement to the total amount of consolidated

debt.

SEC Form 17Q – 2Q 2017 36

As of 30 June 2017, Globe is well within the ratios prescribed under its loan agreements.

Consolidated Net Cash Flows

Globe Group

30 Jun 30 Jun YoY

(Php Mn) 2017 2016 Change

(%)

Net Cash from Operating Activities 31,243 19,654 59%

Net Cash from Investing Activities (39,348) (30,082) 31%

Net Cash from Financing Activities 8,936 8,223 9%

Net cash flows provided by operating activities for the first half of the year was at P31.2 billion, up

59% from the previous year.

Meanwhile, net cash used in investing activities amounting to P39.3 billion, was 31% higher from the

same period last year. Consolidated cash capital expenditures as of end-June 2017 amounted to P=27.5

billion, up 62% from last year’s P=17.0 billion.

Globe Group

30 Jun 30 Jun YoY

(Php Mn) 2017 2016 Change

(%)

Capital Expenditures (Cash)1 27,517 17,004 62%

Increase (decrease) in Liabilities related to Acquisition of PPE 2,423 (1,563) -255%

Total Capital Expenditures2 29,940 15,441 94%

Total Capital Expenditures / Service Revenues (%) 48% 26% 1 Cash capital expenditures-property & equipment and intangibles as of report date

2 Consolidated capital expenditures include property and equipment, intangibles and capitalized borrowing costs acquired as of report date

regardless of whether payment has been made or not.

Consolidated net cash from financing activities amounted to P8.9 billion, up 9% than last year due

mainly to additional borrowings. Consolidated total debt, also increased by 40% from P=88.1 billion

at the end of June 2016 to P=123.6 billion at the end of June this year.

74% of US$ consolidated loans have been effectively converted to PHP via US$188Mln in currency

hedges. After swaps, effectively 3% of total debt is in USD.

Below is the schedule of debt maturities for Globe for the years stated below based on total

outstanding debt as of June 30, 2017:

Year Due Principal

(US$ Mn)

2017.................................................................... 131.5

2018 .................................................................... 163.4

2019 .................................................................... 328.3

2020 through 2031 ................................................ 1,836.7

Total 2,459.9

* Principal amount before debt issuance costs.

SEC Form 17Q – 2Q 2017 37

Globe Telecom’s unsecured term loans and corporate notes, which consist of fixed and floating rate

notes and dollar and peso-denominated term loans, bear interest at stipulated and prevailing market

rates. Corporate notes were fully paid in May 2016. Globe Group also has secured debt amounting to

USD3.41 million as of June 30, 2017 arising from its acquisition of BTI.

On March 22, 2013, Globe Telecom signed a USD120 million 7-year term loan with floating interest

rate with Metrobank as lender to finance Globe Telecom’s capital expenditures.

On July 29, 2013, Globe Telecom signed a USD40 million 3-year term loan with floating interest rate

with Mizuho Bank Ltd. as lender to prepay and refinance certain debts. The loan was fully paid in

July 2016.

On December 4, 2013, Globe Telecom signed a ₱7,000 million 7-year term loan credit facility with

fixed interest rate with Land Bank of the Philippines as lender. The proceeds of the loan were used to

partially finance Globe Telecom’s general financing and corporate requirements for capital

expenditures.

On March 9, 2015, Globe Telecom signed a ₱7,000 million 7-year term loan with fixed interest rate

with Philippine National Bank. The proceeds of the loan were used to partially finance the capital

expenditures and general corporate requirements.

On October 1, 2015, Globe Telecom signed a USD45 million 7-year term loan with floating interest

rate and a ₱5,000.00 million 10-year term loan with fixed interest rate with Metrobank. The proceeds

of the loans were used to finance the capital expenditures and/or reimburse capital expenditures.

On March 14, 2016, Globe Telecom signed a ₱7,000 million 10-year term loan with fixed interest

rate with Land Bank of the Philippines as lender. The proceeds of the loan were used to partially

finance the general financing and corporate requirements for capital expenditures.

On September 2, 2016, Globe Telecom signed a ₱20,000 million term loan with tenors of 12 and 15

years at a fixed interest rate, with Metrobank as lender. The proceeds of the loan were used to

partially finance the acquisition of VTI, BAHC and BHC.

On September 29, 2016, Globe Telecom signed a ₱7,000 million 10-year term loan with fixed interest

rate with Unionbank as lender. The proceeds of the loan were used to finance capital expenditures.

On November 28, 2016, Globe Telecom signed a ₱5,000 million 15-year term loan with fixed interest

rate with Unionbank as lender. The proceeds of the loan were used to partially finance the acquisition

of VTI, BAHC and BHC.

On February 20, 2017 Globe Telecom signed a ₱7,000 million 8-year term loan with fixed interest

rate with BDO as lender. The proceeds of loan will be used to finance Globe's capital expenditures

and/or general corporate funding requirements.

On February 28, 2017 Globe Telecom signed a ₱7,000 million 6-year term loan with fixed interest

rate with Development Bank of the Philippines as lender. The proceeds of loan will be used to

partially finance Globe's general financing and corporate requirements for capital expenditures,

refinancing and investments.

SEC Form 17Q – 2Q 2017 38

On April 21, 2017 Globe Telecom signed a ₱8,000 million 10-year term loan with fixed interest rate

with BDO as lender. The proceeds of loan will be used to finance Globe's capital expenditures and/or

general corporate funding requirements.

As of June 30, 2017 and 2016, and December 31, 2016, the Globe Group has available uncommitted

short-term credit facilities of USD94.90 million and ₱32,045 million, USD104.40 million and ₱11,445

million, and USD80.40 million and ₱13,445 million, respectively. As of June 30, 2017 and 2016, and

December 31, 2016, the Globe Group has available committed short-term credit facilities of ₱3,000

million, ₱3,000 million, and ₱1,200 million, respectively.

Outstanding short term loans as of June 30, 2017 and 2016, and December 31, 2016 amounted to

₱1,200 million, ₱12,900 million and ₱4,500 million, respectively from various local and foreign

banks.

These short-term loans have maturities ranging from 1 to 3 months and bear interest ranging from

2.4% to 3.25%

Stockholders’ equity as of the first half of 2017 was higher by 3% from P63,476 million to P65,245

million this period. Globe’s capital stock consists of the following:

Voting Preferred Stock

Voting Preferred stock at a par value of P5 per share of which 158.5 million shares are

outstanding out of a total authorized of 160 million shares.

The dividends for voting preferred stock are declared upon the sole discretion of the Globe

Telecom’s BOD.

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

Non-Voting Preferred Stock

Non-Voting Preferred stock at a par value of P50 per share of which 20 million shares are issued

out of a total authorized of 40 million shares.

Common Stock

Common stock at par value of P50 per share of which 132.9 million are issued and outstanding

out of a total authorized of 149 million shares.

Cash Dividends

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

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

dividend payout rate is reviewed annually by the Board of Directors, taking into account the

company’s operating results, cash flows, debt covenants, capital expenditure levels and liquidity.

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

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

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

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

decommissioned as part of the Company’s network and IT transformation programs which were

SEC Form 17Q – 2Q 2017 39

ongoing during the time. As currently defined, core net income excludes all foreign exchange, mark-

to-market gains and losses, as well as non-recurring items.

On August 6, 2013, the Board of Directors approved the proposed change in the frequency of the cash

dividend distribution from semi-annual to quarterly. On December 10, 2013, the BOD approved to

defer the implementation of the quarterly dividend payout to the second semester of 2014.

The Board of Directors of Globe approved in separate approvals the declaration of two quarterly

distributions of cash dividends of P22.75 per common share paid each last 8 March 2017 and 7 June

2017. Each cash dividend payment total about P3.0 billion, bringing total distribution by the end of

June 2017 to P6.0 billion.

On May 9, 2017, the Board of Directors of Globe approved the declaration of the second semi-annual

cash dividend for holders of its non-voting preferred shares on record as of August 10, 2017. The

amount of the cash dividend shall be at a fixed rate of 5.2006% per annum calculated in respect of

each share by reference to the offer price of ₱500.00 per share on a 30/360 day basis for the six-month

dividend period. Total amount of the cash dividend will be paid on August 22, 2017.

Return on Average Equity (ROE)

Consolidated Return on Average Equity (ROE) registered at 25.1% as of end-June 2017, compared to

29.5% in the same period in 2016 using annualized net income and based on average equity balances

for the year ended. Using annualized core net income, which excludes the effects of non-recurring

expenses on net income, return on average equity for the first half this year was at 24.8% compared to

29.0% in 2016.

Earnings Per Share (EPS)

Accordingly, consolidated basic earnings per common share were P58.75 and P65.34, while

consolidated diluted earnings per common share were P58.70 and P65.28 as of end-June 2017 and

2016, respectively.

SEC Form 17Q – 2Q 2017 40

FINANCIAL RISK MANAGEMENT

FOREIGN EXCHANGE EXPOSURE

Foreign exchange risks are managed such that USD inflows from operations (transaction exposures)

are balanced or offset by the net USD liability position of the company (translation exposures).

Globe Group’s objective is to maintain a position which results in, as close as possible, a neutral

effect to the P&L relative to movements in the foreign exchange market.

Transaction exposures

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

revenues1 were at 10% and 12% of total gross service revenues for the periods ended 30 June 2017

and 2016, respectively. In contrast, Globe’s foreign-currency linked expenses were at 13% and 15%

of total operating expenses for the same periods ended, respectively.

The US$ flows are as follows:

June 30, 2017

US$ and US$ Linked Revenues ₱6.6 billion

US$ Operating Expenses ₱3.8 billion

US$ Net Interest Expense ₱0.1 billion

Due to these net US$ inflows, an appreciation of the Peso has a negative impact on Globe’s Peso

EBITDA. Globe occasionally enters into forward contracts to hedge against a peso appreciation.

There were no outstanding forward USD sale contracts as of June 30, 2017.

Includes the following revenues:

(1) billed in foreign currency and settled in foreign currency, and

(2) billed in Pesos at rates linked to a foreign currency tariff and settled in Pesos

Translation Exposures

Globe’s foreign exchange translation exposures results primarily from movements of the Philippine

Peso (Php) against the U.S. Dollars (USD) with respect to USD-denominated financial assets, USD-

denominated financial liabilities and certain USD-denominated revenues. Majority of revenues are

generated in Php, while substantially all of capital expenditures are in USD. In addition, 10% of debt

as of June 30, 2017 are denominated in USD before taking into account any swap and hedges.

Information on Globe’s foreign currency-denominated monetary assets and liabilities as of June 30,

2017 are as follows:

June 30, 2017

US$ Assets US$154 million

US$ Liabilities US$700 million

SEC Form 17Q – 2Q 2017 41

Net US$ Liability Position US$546 million

As of end-June 2017, the Globe Group posted a total of ₱10.5 million net foreign exchange gain.

The Globe Group‘s foreign exchange risk management policy is to maintain a hedged financial

position, after taking into account expected USD flows from operations and financing transactions.

Globe Telecom enters into short-term foreign currency forwards and long-term foreign currency swap

contracts in order to achieve this target.

Globe entered into cross currency swaps amounting to US$125 million in 2013, and US$40 million in

2014 and US$35 million in 2015 to hedge the FX and interest rate risk on some of its USD loans.

The US$75 million and US$40 million have matured in March 2016 and July 2016, respectively.

The MTM of the outstanding swap contracts stood at a gain of P652 million as of end-June 2017.

Globe entered into principal only swaps amounting to US$45 million in 4Q 2015, US$35 million in

1Q 2016 and US$25 million in 1Q 2017 to hedge the foreign exchange risks on its US$ loans. Partial

principal payments had been made on April 2016 and April 2017 amounting to US$1.2 million each.

The MTM of the swap contracts stood at a gain of ₱183 million as of end-June 2017.

Globe has US$15 Mln forward USD purchase contracts which remain outstanding as of end-June

2017. The mark-to-market of the outstanding forward USD purchase contracts stood at a gain of ₱15

million as of end-June 2017.

INTEREST RATE EXPOSURE

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

meant to achieve a balance between cost and volatility. Globe’s policy is to maintain between 44-

88% of its peso debt in fixed rate, and between 31-62% of its US$ debt in fixed rate.

As of end-June 2017, Globe has a total of US$63 million in US$ interest swaps and US$85 million in

cross currency swaps that were entered in to contracts to achieve these targets. The US$ swaps fixed

some of the Company’s outstanding floating rate debts with quarterly and semi-annual payment

intervals up to October 2022 and April 2020, respectively.

As of end-June 2017, 87% (excluding short-term debt) of peso debt is fixed, while 60% of USD debt

is fixed after swaps.

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

gain of ₱1.8 million as of end-June 2017.

SEC Form 17Q – 2Q 2017 42

CREDIT EXPOSURES FROM FINANCIAL INSTRUMENTS

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

are reviewed quarterly.

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

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

linked to the mortgage market in the US). Globe’s excess cash is invested in short term bank

deposits.

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

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

Furthermore, the Globe Group does not have instruments in its portfolio which became inactive in the

market nor does the company have any structured notes which require use of judgment for valuation

purposes.

VALUATION OF DERIVATIVE TRANSACTIONS

The company uses valuation techniques that are commonly used by market participants and that have

been demonstrated to provide reliable estimates of prices obtained in actual market transactions. The

company uses readily observable market yield curves to discount future receipts and payments on the

transactions. The net present value of receipts and payments are translated into Peso using the

foreign exchange rate at time of valuation to arrive at the mark to market value. For derivative

instruments with optionality, the company relies on valuation reports of its counterparty banks, which

are the company’s best estimates of the close-out value of the transactions.

Gains (losses) on derivative instruments represent the net mark-to-market (MTM) gains (losses) on

derivative instruments. As of June 30, 2017, the MTM value of the derivatives of the Globe Group

amounted to a gain of P840 million while net gain on derivative instruments arising from changes in

MTM reflected in the consolidated income statements amounted to P114 million net gain.

To measure riskiness, the Company provides a sensitivity analysis of its profit and loss from financial

instruments resulting from movements in foreign exchange and interest rates. The interest rate

sensitivity estimates the changes to the following P&L items, given an indicated movement in interest

rates: (1) interest income, (2) interest expense, (3) mark-to-market of derivative instruments. The

foreign exchange sensitivity estimates the P&L impact of a change in the USD/PHP rate as it

specifically pertains to the revaluation of the net unhedged liability position of the company, and

foreign exchange derivatives.

SEC Form 17Q – 2Q 2017 43

LEGAL, REGULATORY AND CORPORATE DEVELOPMENTS

A. On October 10, 2011, the NTC issued Memorandum Circular No. 02-10-2011 titled

Interconnection Charge for Short Messaging Service requiring all public telecommunication

entities to reduce their interconnection charge to each other from ₱0.35 to ₱0.15 per text, which

Globe Telecom complied as early as November 2011. On December 11, 2011,

the NTC One Stop Public Assistance Center (OSPAC) filed a complaint against Globe Telecom,

Smart and Digitel alleging violation of the said MC No. 02-10-2011 and asking for the reduction

of SMS off-net retail price from P1.00 to P0.80 per text. Globe Telecom filed its response

maintaining the position that the reduction of the SMS interconnection charges does not

automatically translate to a reduction in the SMS retail charge per text.

On November 20, 2012, the NTC rendered a decision directing Globe Telecom to:

1. Reduce its regular SMS retail rate from P1.00 to not more than ₱0.80;

2. Refund/reimburse its subscribers the excess charge of ₱0.20; and

3. Pay a fine of ₱200.00 per day from December 1, 2011 until date of compliance.

On May 7, 2014, NTC denied the Motion for Reconsideration (MR) filed by Globe Telecom last

December 5, 2012 in relation to the November 20, 2012 decision. Globe Telecom’s assessment

is that Globe Telecom is in compliance with the NTC Memorandum Circular

No. 02-10-2011. On June 9, 2014, Globe Telecom filed petition for review of the NTC decision

and resolution with the Court of Appeals (CA).

The CA granted the petition in a resolution dated September 3, 2014 by issuing a 60-day

temporary restraining order on the implementation of Memorandum Circular 02-10-2011 by the

NTC. On October 15, 2014, Globe Telecom posted a surety bond to compensate for possible

damages as directed by the CA.

On June 27, 2016, the CA rendered a decision reversing the NTC’s abovementioned decision

and resolution requiring telecommunications companies to cut their SMS rates and return the

excess amount paid by subscribers. The CA said that the NTC order was baseless as there is no

showing that the reduction in the SMS rate is mandated under MC

No. 02-10-2011; there is no showing, either that the present P1.00 per text rate is unreasonable

and unjust, as this was not mandated under the memorandum. Moreover, under the NTC’s own

MC No. 02-05-2008, SMS is a value added service (VAS) whose rates are deregulated.

Thereafter, the NTC and the intervenors filed their respective motions for reconsideration

dated July 26, 2016 and September 14, 2016, which motions remain pending with the

appellate court.

Globe Telecom believes that it did not violate NTC MC No. 02-10-2011 when it did not reduce

its SMS retail rate from Php 1.00 to Php 0.80 per text, and hence, would not be obligated to

refund its subscribers. However, if it is ultimately decided by the Supreme Court (in case an

appeal is taken thereto by the NTC from the adverse resolution of the CA) that Globe Telecom is

not compliant with said circular, Globe may be contingently liable to refund to its subscribers the

₱0.20 difference (between ₱1.00 and ₱0.80 per text) reckoned from November 20, 2012 until

said decision by the SC becomes final and executory. Management does not have an estimate of

SEC Form 17Q – 2Q 2017 44

the potential claims currently.

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

(Guidelines on Unit of Billing of Mobile Voice Service). The MC provides that the maximum

unit of billing for the CMTS whether postpaid or prepaid shall be six (6) seconds per pulse. The

rate for the first two (2) pulses, or equivalent if lower period per pulse is used, may be higher than

the succeeding pulses to recover the cost of the call set-up. Subscribers may still opt to be billed

on a one (1) minute per pulse basis or to subscribe to unlimited service offerings or any service

offerings if they actively and knowingly enroll in the scheme.

On December 28, 2010, the Court of Appeals (CA) rendered its decision declaring null and void

and reversing the decisions of the NTC in the rates applications cases for having been issued in

violation of Globe Telecom and the other carrier’s constitutional and statutory right to due

process. However, while the decision is in Globe Telecom’s favor, there is a provision in the

decision that NTC did not violate the right of petitioners to due process when it declared via

circular that the per pulse billing scheme shall be the default.

Last January 21, 2011, Globe Telecom and two other telecom carriers, filed their respective

Motions for Partial Reconsideration (MR) on the pronouncement that “the Per Pulse Billing

Scheme shall be the default”. The petitioners and the NTC filed their respective Motion for

Reconsideration, which were all denied by the CA on January 19, 2012.

On March 12, 2012, Globe and Innove elevated to the Supreme Court the questioned portions of

the Decision and Resolution of the CA dated December 28, 2010 and its Resolution dated

January 19, 2012. The other service providers, as well as the NTC, filed their own petitions for

review. The adverse parties have filed their comments on each other’s’ petitions, as well as their

replies to each other’s’ comments. The case is now submitted for resolution.

C. On 22 May 2006, Innove received a copy of the Complaint of Subic Telecom Company

(Subictel), Inc., a subsidiary of PLDT, seeking an injunction to stop the Subic Bay Metropolitan

Authority and Innove from taking any actions to implement the Certificate of Public Convenience

and Necessity granted by SBMA to Innove. Subictel claimed that the grant of a CPCN allowing

Innove to offer certain telecommunications services within the Subic Bay Freeport Zone would

violate the Joint Venture Agreement (JVA) between PLDT and SBMA.

The Supreme Court ordered the reinstatement of the case and has forwarded it to the RTC

Olongapo for trial.

On 13 July 2016, the RTC in Olongapo rendered its decision dismissing Subictel’s complaint, as

nothing in the JVA cited by Subictel supports its claim of exclusivity. Moreover, the

Constitution clearly provides that no franchise or authorization for the operation of a public

utility shall be exclusive in character. Subictel did not move for a reconsideration of the RTC’s

decision. On October 19, 2016, Innove received a copy of Subictel’s Petition for Review to the

Supreme Court dated September 13, 2016 assailing the trial court’s decision. In a Resolution

dated April 25, 2017, received by Globe on July 3, 2017, the Supreme Court denied the Petition

for failure of the petitioner to sufficiently show that the RTC committed any reversible error in

the challenged decision as to warrant the exercise of the Court’s discretionary appeallate

jurisdiction.

SEC Form 17Q – 2Q 2017 45

D. (1) PLDT and its affiliate, Bonifacio Communications Corporation (BCC) and Innove and Globe

Telecom are in litigation over the right of Innove to render services and build

telecommunications infrastructure in the Bonifacio Global City (BGC). In the case filed by

Innove before the NTC against BCC, PLDT and the Fort Bonifacio Development Corporation

(FBDC), the NTC has issued a Cease and Desist Order preventing BCC from performing further

acts to interfere with Innove’s installations in the BGC.

On 21 January 2011, BCC and PLDT filed with the CA a Petition for Certiorari and Prohibition

against the NTC, et al. seeking to annul the Order of the NTC dated October 28, 2008 directing

BCC, PLDT and FBDC to comply with the provisions of NTC MC 05-05-02 and to cease and

desist from performing further acts that will prevent Innove from implementing and providing

telecommunications services in the Fort Bonifacio Global City pursuant to the authorization

granted by the NTC.

On April 25, 2011, Innove filed its comment on the Petition.

On August 16, 2011, the CA ruled that the petition against Innove and the NTC lacked merit,

holding that neither BCC nor PLDT could claim the exclusive right to install telecommunications

infrastructure and providing telecommunications services within the BGC. Thus, the CA denied

the petition and dismissed the case. PLDT and BCC filed their motions for reconsideration

thereto, which the CA denied.

On July 6, 2012, PLDT and BCC assailed the CA’s rulings via a petition for review on certiorari

with the Supreme Court. Innove and Globe filed their comment on said petition on January 14,

2013, to which said petitioners filed their reply on May 21, 2013. The case remains pending with

the Supreme Court.

(2) In a case filed by PLDT against the NTC in Branch 96 of the Regional Trial Court (RTC) of

Quezon City, where PLDT sought to obtain an injunction to prevent the NTC from hearing the

case filed by Innove, the RTC denied the prayer for a preliminary injunction and the case has

been set for further hearings. PLDT has filed a Motion for Reconsideration and Globe Telecom

has intervened in this case. In a resolution dated October 28, 2008, the RTC QC denied BCC‘s

motion for the issuance of a temporary restraining order (TRO) on the ground that the NTC has

primary administrative jurisdiction over the case. On October 14, 2013, the RTC issued an order

dismissing the case. On November 12, 2013, PLDT elevated the case to the CA. On July 25,

2016, the CA granted PLDT’s petition, holding that the trial court had jurisdiction, since the

issues raised by PLDT were supposedly purely legal in character. On August 17, 2016, the NTC

through the Office of the Solicitor General (OSG) moved for a reconsideration of the CA’s

decision. On 10 January 2017, the CA issued a resolution denying NTC’s motion for

reconsideration.

(3) In a case filed by BCC against FBDC, Globe Telecom and Innove, before the Regional Trial

Court of Pasig, which case sought to enjoin Innove from making any further installations in the

BGC and claimed damages from all the parties for the breach of the exclusivity of BCC in the

area, the court did not issue a Temporary Restraining Order and has instead scheduled several

hearings on the case. The defendants filed their respective motions to dismiss the complaint on

the grounds of forum shopping and lack of jurisdiction, among others. On 30 March 2012, the

RTC of Pasig, as prayed for, dismissed the complaint on the aforesaid grounds.

SEC Form 17Q – 2Q 2017 46

The motion for reconsideration filed by BCC on July 20, 2012 remains pending with the trial

court.

(4) On 11 November 2008, Bonifacio Communications Corp. (BCC) filed a criminal complaint

against the officers of Innove Communications Inc., the Fort Bonifacio Development Corporation

(FBDC) and Innove contractor Avecs Corporation for malicious mischief and theft arising out of

Innove’s disconnection of BCC‘s duct at the Net Square buildings. The accused officers filed

their counter affidavits. On October 26, 2016, the Office of the City Prosecutor issued a

resolution dismissing the criminal complaint for lack of merit, holding that: First, NTC M. C. No.

05-05-2002 declared Bonifacio Global City a free zone, an IT-Hub Area so as to maintain a

viable, efficient, reliable and universal telecommunications infrastructure. Any service provider is

welcome to operate and interconnect with others. Second, BCC's claimed exclusivity is not

absolute, as even BCC had agreed to sell to FBDC one duct bank for lease to other carriers

including Innove. Third, the alleged destruction of BCC's property was not fuelled by hate,

revenge or mere pleasure of destruction but the unfortunate and unintended result of Innove's

installation of telecommunications infrastructure in the building. Fourth, intent to gain was not

manifest, it being improbable that a large telecommunications company would steal unused duct

bank runs. And, fifth, the situation proscribed in P.D. No. 401 is the pilferage of

telecommunications services through illegal connection of telephone lines or stealing of

telephone meters, neither of which was committed in this case.

E. In a letter filed by Philippine Competition Commission (PCC) dated June 7, 2016 addressed to

Globe Telecom, PLDT, SMC and VTI regarding the Joint Notice filed by Globe Telecom, PLDT

and SMC on May 30, 2016 disclosing the acquisition by Globe Telecom and PLDT of the entire

issued and outstanding shares of VTI, the PCC claims that the Notice was deficient in form and

substance and concludes that the acquisition cannot be claimed to be deemed approved.

On June 10, 2016, Globe Telecom formally responded to the letter reiterating that the Notice,

which sets forth the salient terms and conditions of the transaction, was filed pursuant to and in

accordance with Memorandum Circular No. l6-002 (MC No. l6-002) issued by the PCC. MC No.

16-002 provides that before the implementing rules and regulations for Republic Act No. 10667

(the Philippine Competition Act of 2015) come into full force and effect, upon filing with the

PCC of a notice in which the salient terms and conditions of an acquisition are set forth, the

transaction is deemed approved by the PCC and as such, it may no longer be challenged. Further,

Globe Telecom clarified in its letter that the supposed deficiency in form and substance of the

Notice is not a ground to prevent the transaction from being deemed approved. The only

exception to the rule that a transaction is deemed approved is when a notice contains false

material information. In this regard, Globe Telecom stated that the Notice does not contain any

false information.

On June 17, 2016, Globe Telecom received a copy of the second letter issued by PCC stating that

notwithstanding the position of Globe Telecom, it was ruling that the transaction was still subject

for review.

On July 12, 2016, Globe Telecom asked the CA to stop the government's anti-trust body from

reviewing the acquisition of SMC's telecommunications business. Globe Telecom maintains the

position that the deal was approved after Globe Telecom notified the PCC of the transaction and

SEC Form 17Q – 2Q 2017 47

that the anti-trust body violated its own rules by insisting on a review. On the same day, Globe

Telecom filed a Petition for Mandamus, Certiorari and Prohibition against the PCC. On July 25,

2016, the CA, through its 6th Division issued a resolution denying Globe Telecom’s application

for temporary restraining order (TRO) and injunction against PCC’s review of the transaction. In

the same resolution, however, the CA required the PCC to comment on Globe Telecom's petition

for certiorari and mandamus within 10 days from receipt thereof. The PCC filed said comment

on August 8, 2016. In said comment, the PCC prayed that the ₱70 billion deal between PLDT-

Globe Telecom and San Miguel be declared void for PLDT and Globe Telecom’s alleged failure

to comply with the requirements of the Philippine Competition Act of 2015. The PCC also

prayed that the CA direct Globe Telecom to: cease and desist from further implementing its co-

acquisition of the San Miguel telecommunications assets; undo all acts consummated pursuant to

said acquisition; and pay the appropriate administrative penalties that may be imposed by the

PCC under the Philippine Competition Act for the illegal consummation of the subject

acquisition. The case remains pending with the CA.

Meanwhile, PLDT filed a similar petition with the CA, which was raffled off to its 12th Division.

On August 26, 2016, PLDT secured a TRO from said court. Thereafter, Globe Telecom’s petition

was consolidated with that of PLDT, before the 12th Division. The consolidation effectively

extended the benefit of PLDT’s TRO to Globe Telecom. The parties were required to submit

their respective Memoranda, after which, the case shall be deemed submitted for resolution.

On February 17, 2017, the CA issued a Resolution denying PCC’s Motion for Reconsideration

dated September 14, 2016 for lack of merit. In the same Resolution, the Court granted PLDT’s

Urgent Motion for the Issuance of a Gag Order and ordered the PCC to remove the offending

publication from its website and also to obey the sub judice rule and refrain from making any

further public pronouncements regarding the transaction while the case remains pending. The

Court also reminded the other parties, PLDT and Globe, to likewise observe the sub judice rule.

For this purpose, the Court issued its gag order admonishing all the parties “to refrain, cease and

desist from issuing public comments and statements that would violate the sub judice rule and

subject them to indirect contempt of court. The parties were also required to comment within ten

days from receipt of the Resolution, on the Motion for Leave to Intervene, and Admit the

Petition-in Intervention dated February 7, 2017 filed by Citizenwatch, a non-stock and non-profit

association.

On April 18, 2017, PCC has filed a petition before the Supreme Court to lift the CA’s order that

has since prevented the former on any review of the sale of San Miguel Corp.’s

telecommunications unit to industry giants PLDT Inc. and Globe Telecom. On April 25, 2017,

Globe filed before the Supreme Courta Motion for Intervention with Motion to Dismiss the

petition filed by PCC.

As of June 30, 2017, the Supreme Court did not issue any TRO on the PCC’s petition to lift the

injunction issued by the CA. Hence, the PCC remains barred from reviewing the SMC deal.

On July 26, 2017, Globe received the Supreme Court’s en banc Resolution granting Globe’s

Extremely Urgent Motion to Intervene. In the same Resolution, the Supreme Court treated as

Comment, Globe’s Motion to Dismiss with Opposition Ad Cautelam to PCC’s Application for

the Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining Order.

SEC Form 17Q – 2Q 2017 48

Other Developments

On February 17, 2017, Globe Telecom’s BOD approved the signing of an agreement among

Alipay Singapore Holdings PTE. LTD. (Alipay), Ayala Corporation (Ayala), Globe Telecom,

GCVHI and GFI, wherein both Alipay and Ayala will invest in the unissued common shares of

GFI subject to the fulfillment of certain conditions including the approval of the Philippine

Competition Commission (PCC), which remains pending as of June 30, 2017.

Details on these transactions have been extensively discussed in the disclosures filed with the SEC and PSE

and maybe accessed from the PSE and Company websites.

OTHER RELEVANT INFORMATION:

1. Any events that will trigger direct or contingent financial obligation that is material to the

company, including any default or acceleration of an obligation:

Contingencies

a) On October 10, 2011, the NTC issued Memorandum Circular No. 02-10-2011 titled

Interconnection Charge for Short Messaging Service requiring all public telecommunication

entities to reduce their interconnection charge to each other from ₱0.35 to ₱0.15 per text, which

Globe Telecom complied as early as November 2011. On December 11, 2011, the NTC One

Stop Public Assistance Center (OSPAC) filed a complaint against Globe Telecom, Smart and

Digitel alleging violation of the said MC No. 02-10-2011 and asking for the reduction of SMS

off-net retail price from P1.00 to P0.80 per text. Globe Telecom filed its response maintaining the

position that the reduction of the SMS interconnection charges does not automatically translate to

a reduction in the SMS retail charge per text.

On November 20, 2012, the NTC rendered a decision directing Globe Telecom to:

1. Reduce its regular SMS retail rate from P1.00 to not more than ₱0.80;

2. Refund/reimburse its subscribers the excess charge of ₱0.20; and

3. Pay a fine of ₱200.00 per day from December 1, 2011 until date of compliance.

On May 7, 2014, NTC denied the Motion for Reconsideration (MR) filed by Globe Telecom last

December 5, 2012 in relation to the November 20, 2012 decision. Globe Telecom’s assessment is

that Globe Telecom is in compliance with the NTC Memorandum Circular No. 02-10-2011. On

June 9, 2014, Globe Telecom filed petition for review of the NTC decision and resolution with the

Court of Appeals (CA).

The CA granted the petition in a resolution dated September 3, 2014 by issuing a 60-day

temporary restraining order on the implementation of Memorandum Circular 02-10-2011 by the

NTC. On October 15, 2014, Globe Telecom posted a surety bond to compensate for possible

damages as directed by the CA.

On June 27, 2016, the CA rendered a decision reversing the NTC’s abovementioned decision and

resolution requiring telecommunications companies to cut their SMS rates and return the excess

amount paid by subscribers. The CA said that the NTC order was baseless as there is no showing

that the reduction in the SMS rate is mandated under MC

SEC Form 17Q – 2Q 2017 49

No. 02-10-2011; there is no showing, either that the present P1.00 per text rate is unreasonable

and unjust, as this was not mandated under the memorandum. Moreover, under the NTC’s own

MC No. 02-05-2008, SMS is a value added service (VAS) whose rates are deregulated.

Thereafter, the NTC and the intervenors filed their respective motions for reconsideration

dated July 26, 2016 and September 14, 2016, which motions remain pending with the

appellate court.

Globe Telecom believes that it did not violate NTC MC No. 02-10-2011 when it did not reduce

its SMS retail rate from Php 1.00 to Php 0.80 per text, and hence, would not be obligated to

refund its subscribers. However, if it is ultimately decided by the Supreme Court (in case an

appeal is taken thereto by the NTC from the adverse resolution of the CA) that Globe Telecom is

not compliant with said circular, Globe may be contingently liable to refund to its subscribers the

₱0.20 difference (between ₱1.00 and ₱0.80 per text) reckoned from November 20, 2012 until said

decision by the SC becomes final and executory. Management does not have an estimate of the

potential claims currently.

b) On 22 May 2006, Innove received a copy of the Complaint of Subic Telecom Company

(Subictel), Inc., a subsidiary of PLDT, seeking an injunction to stop the Subic Bay

Metropolitan Authority and Innove from taking any actions to implement the Certificate of

Public Convenience and Necessity granted by SBMA to Innove. Subictel claimed that the

grant of a CPCN allowing Innove to offer certain telecommunications services within the

Subic Bay Freeport Zone would violate the Joint Venture Agreement (JVA) between PLDT

and SBMA.

The Supreme Court ordered the reinstatement of the case and has forwarded it to the RTC

Olongapo for trial.

On 13 July 2016, the RTC in Olongapo rendered its decision dismissing Subictel’s

complaint, as nothing in the JVA cited by Subictel supports its claim of exclusivity.

Moreover, the Constitution clearly provides that no franchise or authorization for the

operation of a public utility shall be exclusive in character. Subictel did not move for a

reconsideration of the RTC’s decision. On October 19, 2016, Innove received a copy of

Subictel’s Petition for Review to the Supreme Court dated September 13, 2016 assailing the

trial court’s decision. In a Resolution dated April 25, 2017, received by Globe on July 3,

2017, the Supreme Court denied the Petition for failure of the petitioner to sufficiently show

that the RTC committed any reversible error in the challenged decision as to warrant the

exercise of the Court’s discretionary appeallate jurisdiction.

c) (1) PLDT and its affiliate, Bonifacio Communications Corporation (BCC) and Innove and

Globe Telecom are in litigation over the right of Innove to render services and build

telecommunications infrastructure in the Bonifacio Global City (BGC). In the case filed by

Innove before the NTC against BCC, PLDT and the Fort Bonifacio Development

Corporation (FBDC), the NTC has issued a Cease and Desist Order preventing BCC from

performing further acts to interfere with Innove’s installations in the BGC.

On 21 January 2011, BCC and PLDT filed with the CA a Petition for Certiorari and

Prohibition against the NTC, et al. seeking to annul the Order of the NTC dated October 28,

SEC Form 17Q – 2Q 2017 50

2008 directing BCC, PLDT and FBDC to comply with the provisions of NTC MC 05-05-02

and to cease and desist from performing further acts that will prevent Innove from

implementing and providing telecommunications services in the Fort Bonifacio Global City

pursuant to the authorization granted by the NTC.

On April 25, 2011, Innove filed its comment on the Petition.

On August 16, 2011, the CA ruled that the petition against Innove and the NTC lacked merit,

holding that neither BCC nor PLDT could claim the exclusive right to install

telecommunications infrastructure and providing telecommunications services within the

BGC. Thus, the CA denied the petition and dismissed the case. PLDT and BCC filed their

motions for reconsideration thereto, which the CA denied.

On July 6, 2012, PLDT and BCC assailed the CA’s rulings via a petition for review on

certiorari with the Supreme Court. Innove and Globe filed their comment on said petition on

January 14, 2013, to which said petitioners filed their reply on May 21, 2013. The case

remains pending with the Supreme Court.

(2) In a case filed by PLDT against the NTC in Branch 96 of the Regional Trial Court (RTC)

of Quezon City, where PLDT sought to obtain an injunction to prevent the NTC from hearing

the case filed by Innove, the RTC denied the prayer for a preliminary injunction and the case

has been set for further hearings. PLDT has filed a Motion for Reconsideration and Globe

Telecom has intervened in this case. In a resolution dated October 28, 2008, the RTC QC

denied BCC‘s motion for the issuance of a temporary restraining order (TRO) on the ground

that the NTC has primary administrative jurisdiction over the case. On October 14, 2013, the

RTC issued an order dismissing the case. On November 12, 2013, PLDT elevated the case to

the CA. On July 25, 2016, the CA granted PLDT’s petition, holding that the trial court had

jurisdiction, since the issues raised by PLDT were supposedly purely legal in character. On

August 17, 2016, the NTC through the Office of the Solicitor General (OSG) moved for a

reconsideration of the CA’s decision. On 10 January 2017, the CA issued a resolution

denying NTC’s motion for reconsideration.

(3) In a case filed by BCC against FBDC, Globe Telecom and Innove, before the Regional

Trial Court of Pasig, which case sought to enjoin Innove from making any further

installations in the BGC and claimed damages from all the parties for the breach of the

exclusivity of BCC in the area, the court did not issue a Temporary Restraining Order and

has instead scheduled several hearings on the case. The defendants filed their respective

motions to dismiss the complaint on the grounds of forum shopping and lack of jurisdiction,

among others. On 30 March 2012, the RTC of Pasig, as prayed for, dismissed the complaint

on the aforesaid grounds.

The motion for reconsideration filed by BCC on July 20, 2012 remains pending with the trial

court.

(4) On 11 November 2008, Bonifacio Communications Corp. (BCC) filed a criminal

complaint against the officers of Innove Communications Inc., the Fort Bonifacio

Development Corporation (FBDC) and Innove contractor Avecs Corporation for malicious

mischief and theft arising out of Innove’s disconnection of BCC‘s duct at the Net Square

SEC Form 17Q – 2Q 2017 51

buildings. The accused officers filed their counter affidavits. On October 26, 2016, the Office

of the City Prosecutor issued a resolution dismissing the criminal complaint for lack of merit,

holding that: First, NTC M. C. No. 05-05-2002 declared Bonifacio Global City a free zone,

an IT-Hub Area so as to maintain a viable, efficient, reliable and universal

telecommunications infrastructure. Any service provider is welcome to operate and

interconnect with others. Second, BCC's claimed exclusivity is not absolute, as even BCC

had agreed to sell to FBDC one duct bank for lease to other carriers including Innove. Third,

the alleged destruction of BCC's property was not fuelled by hate, revenge or mere pleasure

of destruction but the unfortunate and unintended result of Innove's installation of

telecommunications infrastructure in the building. Fourth, intent to gain was not manifest, it

being improbable that a large telecommunications company would steal unused duct bank

runs. And, fifth, the situation proscribed in P.D. No. 401 is the pilferage of

telecommunications services through illegal connection of telephone lines or stealing of

telephone meters, neither of which was committed in this case.

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

(Guidelines on Unit of Billing of Mobile Voice Service). The MC provides that the

maximum unit of billing for the CMTS whether postpaid or prepaid shall be six (6) seconds

per pulse. The rate for the first two (2) pulses, or equivalent if lower period per pulse is used,

may be higher than the succeeding pulses to recover the cost of the call set-up. Subscribers

may still opt to be billed on a one (1) minute per pulse basis or to subscribe to unlimited

service offerings or any service offerings if they actively and knowingly enroll in the scheme.

On December 28, 2010, the Court of Appeals (CA) rendered its decision declaring null and

void and reversing the decisions of the NTC in the rates applications cases for having been

issued in violation of Globe Telecom and the other carrier’s constitutional and statutory right

to due process. However, while the decision is in Globe Telecom’s favor, there is a provision

in the decision that NTC did not violate the right of petitioners to due process when it

declared via circular that the per pulse billing scheme shall be the default.

Last January 21, 2011, Globe Telecom and two other telecom carriers, filed their respective

Motions for Partial Reconsideration (MR) on the pronouncement that “the Per Pulse Billing

Scheme shall be the default”. The petitioners and the NTC filed their respective Motion for

Reconsideration, which were all denied by the CA on January 19, 2012.

On March 12, 2012, Globe and Innove elevated to the Supreme Court the questioned portions

of the Decision and Resolution of the CA dated December 28, 2010 and its Resolution dated

January 19, 2012. The other service providers, as well as the NTC, filed their own petitions

for review. The adverse parties have filed their comments on each other’s’ petitions, as well

as their replies to each other’s’ comments. The case is now submitted for resolution.

e) In a letter filed by Philippine Competition Commission (PCC) dated June 7, 2016 addressed

to Globe Telecom, PLDT, SMC and VTI regarding the Joint Notice filed by Globe Telecom,

PLDT and SMC on May 30, 2016 disclosing the acquisition by Globe Telecom and PLDT of

the entire issued and outstanding shares of VTI, the PCC claims that the Notice was deficient

in form and substance and concludes that the acquisition cannot be claimed to be deemed

approved.

SEC Form 17Q – 2Q 2017 52

On June 10, 2016, Globe Telecom formally responded to the letter reiterating that the Notice,

which sets forth the salient terms and conditions of the transaction, was filed pursuant to and

in accordance with Memorandum Circular No. l6-002 (MC No. l6-002) issued by the PCC.

MC No. 16-002 provides that before the implementing rules and regulations for Republic Act

No. 10667 (the Philippine Competition Act of 2015) come into full force and effect, upon

filing with the PCC of a notice in which the salient terms and conditions of an acquisition are

set forth, the transaction is deemed approved by the PCC and as such, it may no longer be

challenged. Further, Globe Telecom clarified in its letter that the supposed deficiency in form

and substance of the Notice is not a ground to prevent the transaction from being deemed

approved. The only exception to the rule that a transaction is deemed approved is when a

notice contains false material information. In this regard, Globe Telecom stated that the

Notice does not contain any false information.

On June 17, 2016, Globe Telecom received a copy of the second letter issued by PCC stating

that notwithstanding the position of Globe Telecom, it was ruling that the transaction was

still subject for review.

On July 12, 2016, Globe Telecom asked the CA to stop the government's anti-trust body from

reviewing the acquisition of SMC's telecommunications business. Globe Telecom maintains

the position that the deal was approved after Globe Telecom notified the PCC of the

transaction and that the anti-trust body violated its own rules by insisting on a review. On the

same day, Globe Telecom filed a Petition for Mandamus, Certiorari and Prohibition against

the PCC. On July 25, 2016, the CA, through its 6th Division issued a resolution denying

Globe Telecom’s application for temporary restraining order (TRO) and injunction against

PCC’s review of the transaction. In the same resolution, however, the CA required the PCC

to comment on Globe Telecom's petition for certiorari and mandamus within 10 days from

receipt thereof. The PCC filed said comment on August 8, 2016. In said comment, the PCC

prayed that the ₱70 billion deal between PLDT-Globe Telecom and San Miguel be declared

void for PLDT and Globe Telecom’s alleged failure to comply with the requirements of the

Philippine Competition Act of 2015. The PCC also prayed that the CA direct Globe Telecom

to: cease and desist from further implementing its co-acquisition of the San Miguel

telecommunications assets; undo all acts consummated pursuant to said acquisition; and pay

the appropriate administrative penalties that may be imposed by the PCC under the

Philippine Competition Act for the illegal consummation of the subject acquisition. The case

remains pending with the CA.

Meanwhile, PLDT filed a similar petition with the CA, which was raffled off to its 12th

Division. On August 26, 2016, PLDT secured a TRO from said court. Thereafter, Globe

Telecom’s petition was consolidated with that of PLDT, before the 12th Division. The

consolidation effectively extended the benefit of PLDT’s TRO to Globe Telecom. The parties

were required to submit their respective Memoranda, after which, the case shall be deemed

submitted for resolution.

On February 17, 2017, the CA issued a Resolution denying PCC’s Motion for

Reconsideration dated September 14, 2016 for lack of merit. In the same Resolution, the

Court granted PLDT’s Urgent Motion for the Issuance of a Gag Order and ordered the PCC

to remove the offending publication from its website and also to obey the sub judice rule and

refrain from making any further public pronouncements regarding the transaction while the

SEC Form 17Q – 2Q 2017 53

case remains pending. The Court also reminded the other parties, PLDT and Globe, to

likewise observe the sub judice rule. For this purpose, the Court issued its gag order

admonishing all the parties “to refrain, cease and desist from issuing public comments and

statements that would violate the sub judice rule and subject them to indirect contempt of

court. The parties were also required to comment within ten days from receipt of the

Resolution, on the Motion for Leave to Intervene, and Admit the Petition-in Intervention

dated February 7, 2017 filed by Citizenwatch, a non-stock and non-profit association.

On April 18, 2017, PCC has filed a petition before the Supreme Court to lift the CA’s order

that has since prevented the former on any review of the sale of San Miguel Corp.’s

telecommunications unit to industry giants PLDT Inc. and Globe Telecom. On April 25,

2017, Globe filed before the Supreme Courta Motion for Intervention with Motion to Dismiss

the petition filed by PCC.

As of June 30, 2017, the Supreme Court did not issue any TRO on the PCC’s petition to lift

the injunction issued by the CA. Hence, the PCC remains barred from reviewing the SMC

deal.

On July 26, 2017, Globe received the Supreme Court’s en banc Resolution granting Globe’s

Extremely Urgent Motion to Intervene. In the same Resolution, the Supreme Court treated as

Comment, Globe’s Motion to Dismiss with Opposition Ad Cautelam to PCC’s Application

for the Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining Order.

The Globe Group is contingently liable for various claims arising in the ordinary conduct of

business and certain tax assessments which are either pending decision by the courts or are being

contested, the outcome of which are not presently determinable. In the opinion of management

and legal counsel, the possibility of outflow of economic resources to settle the contingent

liability is remote.

2. Description of material commitments and general purpose of such commitments. Material

off-balance sheet transactions, arrangements, obligations and other relationships with

unconsolidated entities or other persons created during the period:

For details on material commitments and arrangements, see Notes 12 in the attached Notes to the

Financial Statements.

3. Any significant elements of income or loss that did not arise from the registrant's

continuing operations:

Not applicable.

4. Seasonal aspects that have a material effect on the fs

No seasonal aspects that have a material effect on the financial statements.

SEC Form 17Q – 2Q 2017 54

MAJOR STOCKHOLDERS

The following are the major stockholders of Globe Telecom as of 30 June 2017:

Stockholders Common Shares

% of Common

Voting Preferred

Shares

% of Voting Preferred Shares

Non-Voting Preferred Shares

% of Non-Voting

Preferred Shares

Total Outstanding

Shares1

% of Total Outstanding

Shares

Ayala Corp. 41,164,276 30.97% - - 41,164,276 13.22%

SingTel 62,646,487 47.13% - - 62,646,487 20.12%

Asiacom - - 158,515,016 100.00% 158,515,016 50.90%

Public* 29,103,766 21.90% 5 - 20,000,000 100.00% 49,103,771 15.77%

Total 132,914,529 100.00% 158,515,021 100.00% 20,000,000 100.00% 311,429,550 100.00% *Includes shares held by Directors/Officers/ESOP; Ms. Saw and Messrs. Pacis, Mendoza and Cu directly hold one (1) preferred share

each; Mr. Bernardo indirectly holds one (1) preferred share. 1Total shares includes common shares, voting preferred shares, and non-voting preferred shares

BOARD OF DIRECTORS (BOD)

The members of the Board of Directors of the Globe Group are:

Name Position

Jaime Augusto Zobel de Ayala Chairman

Lang Tao Yih, Arthur Co-Vice Chairman

Fernando Zobel de Ayala Co-Vice Chairman

Romeo L. Bernardo Director

Ernest L. Cu Director, President and CEO

Delfin L Lazaro Director

Rex Ma. A. Mendoza* Director

Saw Phaik Hwa* Director

Manuel A. Pacis* Director

Samba Natarajan Director

Jose Teodoro K. Limcaoco Director * Independent Director

Key Officers – Globe

Name Position

Ernest L. Cu1 President and Chief Executive Officer

Alberto M. de Larrazabal Chief Commercial Officer

Gil B. Genio Chief Technology and Information Officer & Chief Strategy Officer

Rosemarie Maniego-Eala Chief Finance Officer, Treasurer and Chief Risk Officer

Vicente Froilan M. Castelo General Counsel

Marisalve Ciocson-Co Senior Vice President - Law and Compliance, Chief Compliance 0fficer and Assistant Corporate Secretary

Rebecca V. Eclipse Chief Customer Experience Officer

Carmina J. Herbosa Chief Audit Executive

Renato M. Jiao Chief Human Resources Officer

Maria Aurora Sy-Manalang Chief Information Officer

Bernard P. Llamzon EVP for Channel Management

Solomon M. Hermosura Corporate Secretary 1Member, Board of Directors

Consultants

Name Position

Robert Tan Chief Technical Advisor

Globe Telecom, Inc. and Subsidiaries Interim Condensed Consolidated Financial Statements June 30, 2017 and 2016

GLOBE TELECOM, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL

POSITION

June 30 December 31

Notes

2017

(Unaudited)

2016

(Unaudited)

2016

(Audited)

(In Thousand Pesos)

ASSETS

Current Assets

Cash and cash equivalents ₱9,516,554 ₱9,523,733 ₱8,632,852

Receivables – net 14 27,363,171 22,824,995 26,944,645

Inventories and supplies – net 3,679,474 3,840,353 4,579,954

Derivative assets 14 39,862 97,477 68,311

Prepayments and other current assets 5 10,689,860 10,849,758 12,796,892

51,288,921 47,136,316 53,022,654

Noncurrent Assets

Property and equipment – net 3 156,962,159 132,656,885 142,251,981

Intangible assets and goodwill – net 4 15,751,790 13,280,603 14,833,220

Investments in joint ventures 6 34,134,328 36,615,968 34,181,452

Deferred income tax assets – net 2,621,061 1,773,440 2,622,703

Derivative assets 14 912,355 487,164 755,137

Other noncurrent assets 2,277,792 3,027,487 2,195,963

212,659,485 187,841,547 196,840,456

Total Assets ₱263,948,406 ₱234,977,863 ₱249,863,110

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable and accrued expenses 7 ₱ 56,924,410 ₱68,661,651 ₱59,137,686

Notes payable 8 1,200,000 12,900,000 4,500,000

Current portion of long-term debt 8 12,699,504 7,243,301 5,830,319

Unearned revenues 5,006,722 4,704,106 5,090,421

Provisions 1,850,271 1,408,538 6,631,612

Income tax payable 1,765,788 1,274,291 1,105,931

Derivative liabilities-current 14 99,076 108,416 105,928

79,545,771 96,300,303 82,401,897

Noncurrent Liabilities

Long-term debt – net of current portion 8 109,678,790 67,992,861 95,398,272

Derivative liabilities 14 13,356 35,710 -

Deferred income tax liabilities – net 2,400,101 1,357,174 1,916,923

Other long-term liabilities 7,065,794 6,924,214 6,669,716

119,158,041 76,309,959 103,984,911

Total Liabilities 198,703,812 172,610,262 186,386,808

Equity

Attributable to equity holders of the Parent

Paid-up capital 44,755,330 44,505,373 44,505,703

Cost of share-based payments 317,501 430,382 584,586

Other reserves 9 (1,059,253) (1,225,055) (1,072,925)

Retained earnings 9 21,205,170 18,633,811 19,422,402

Equity attributable to equity holders of the Parent 65,218,748 62,344,511 63,439,766

Non-controlling interest 25,846 23,090 36,536

Total Equity 65,244,594 62,367,601 63,476,302

Total Liabilities and Equity ₱ 263,948,406 ₱234,977,863 ₱249,863,110

See accompanying Notes to Interim Condensed Consolidated Financial Statements.

GLOBE TELECOM, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE

INCOME

Three-Month Period

Ended

June 30

Six-Month Period

Ended

June 30

Notes 2017

(Unaudited)

2016

(Unaudited) 2017

(Unaudited)

2016

(Unaudited)

(In Thousand Pesos)

REVENUES Service revenues ₱31,778,623 ₱29,867,633 ₱62,900,564 ₱59,871,903

Nonservice revenues 1,842,554 1,659,699 3,646,652 3,339,002

33,621,177 31,527,332 66,547,216 63,210,905

INCOME

Interest income 5 30,597 37,087 62,631 88,309

Gain on disposal of property and equipment - net 21,532 45,623 28,255 64,253

Equity in net gains (losses) of a joint venture 3,030 (34,823) (239,341) (72,473)

Other income - net 352,140 74,959 525,993 395,868

407,299 122,846 377,538 475,957

COSTS AND EXPENSES

General, selling and administrative 10 13,700,881 12,621,233 27,257,946 24,881,660

Depreciation and amortization 6,629,850 5,243,736 13,066,592 11,458,422

Interconnect costs 2,117,495 2,480,514 4,174,290 4,757,302

Cost of sales 3,085,536 3,110,996 6,316,738 6,567,842

Financing costs 10 1,270,993 829,719 2,427,461 1,584,947

Impairment losses 10 1,067,191 851,835 1,966,555 1,649,874

27,871,946 25,138,033 55,209,582 50,900,047

INCOME BEFORE INCOME TAX 6,156,530 6,512,145 11,715,172 12,786,815

PROVISION FOR (BENEFIT FROM)

INCOME TAX

Current 1,678,182 1,179,724 3,123,037 2,901,916

Deferred 150,834 692,720 503,907 910,545

1,829,016 1,872,444 3,626,944 3,812,461

NET INCOME 4,327,514 4,639,701 8,088,228 8,974,354

OTHER COMPREHENSIVE INCOME (LOSS) 9

Items to be reclassified to profit or loss in

subsequent periods:

Transactions on cash flow hedges - net 10,574 (27,026) 9,883 (21,890)

Changes in fair value of available-for-sale investment in equity securities 6,229 2,010 27,105 8,053

Exchange differences arising from translations of

foreign investments (13,973) 1,750 (23,316) (4,811)

2,830 (23,266) 13,672 (18,648)

Items that will be not reclassified into profit or loss

in subsequent periods:

Remeasurement losses on defined benefit plans - 709 - 5,106

2,830 (22,557) 13,672 (13,542)

TOTAL COMPREHENSIVE INCOME ₱ 4,330,344 ₱4,617,144 ₱8,101,900 ₱8,960,812

(Forward)

Three-Month Period

Ended

June 30

Six-Month Period

Ended

June 30

Notes 2017

(Unaudited)

2016

(Unaudited) 2017

(Unaudited)

2016

(Unaudited)

Total net income attributable to:

Equity holders of the Parent ₱ 4,315,842 4,616,111 ₱8,086,884 ₱8,956,389

Noncontrolling Interest 11,672 23,590 1,344 17,965

₱ 4,327,514 ₱4,639,701 ₱8,088,228 ₱8,974,354

Total comprehensive income (loss) attributable to:

Equity holders of the Parent ₱ 4,318,672 ₱4,593,554 ₱8,100,556 ₱8,942,847

Noncontrolling interest 11,672 23,590 1,344 17,965

₱ 4,330,344 ₱4,617,144 ₱8,101,900 ₱8,960,812

Earnings Per Share 13

Basic ₱31.44 ₱33.73 ₱58.75 ₱65.34

Diluted ₱31.40 ₱33.67 ₱58.70 ₱65.28

Cash dividends declared per common share 9 ₱22.75 ₱22.00 ₱45.50 ₱44.00

GLOBE TELECOM, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Six-Month Period Ended June 30, 2017 (Unaudited)

Attributable to Equity Holders of the Parent

Notes Capital

Stock

Additional

Paid-in

Capital

Cost of

Share-Based

Payments

Other

Reserves

(Note 9)

Retained

Earnings Subtotal

Non-controlling

Interest Total

(Unaudited and In Thousand Pesos)

As of January 1, 2017 ₱8,430,504 ₱36,075,199 ₱584,586 (₱1,072,925) ₱19,422,402 ₱63,439,766 ₱36,536 ₱63,476,302

Total comprehensive income for

the period 9

- - - 13,672 8,086,884 8,100,556 1,344 8,101,900

Dividends on:

Common stock 9 - - - - (6,044,086) (6,044,086) - (6,044,086)

Preferred stock – non-voting - - - - (260,030) (260,030) - (260,030)

Cost of share-based payments - - (23,683) - - (23,683) - (23,683)

Issue of shares under share-based

compensation plans

7,000 224,298 (231,298) - - - - -

Exercise of stock options 798 17,531 (12,104) - - 6,225 - 6,225

Non-controlling interest adjustment

arising from business combination - - - - - - (12,034) (12,034)

As of June 30, 2017 ₱8,438,302 ₱36,317,028 ₱317,501 (₱1,059,253) ₱ 21,205,170 ₱ 65,218,748 ₱ 25,846 ₱ 65,244,594

For the Six-Month Period Ended June 30, 2016 (Unaudited)

Attributable to Equity Holders of the Parent

Notes Capital

Stock

Additional Paid-in

Capital

Cost of Share-Based

Payments

Other Reserves

(Note 9) Retained Earnings Subtotal

Non-controlling Interest Total

(In Thousand Pesos)

As of January 1, 2016 ₱8,429,713 ₱36,057,263 ₱338,008 (₱1,211,513) ₱15,778,557 ₱59,392,028 ₱5,754 ₱59,397,782

Total comprehensive income for the period

- - - (13,542) 8,956,389 8,942,847 17,965 8,960,812

Dividends on: 9 - - -

Common stock - - - - (5,841,105) (5,841,105) - (5,841,105) Preferred stock – non-voting - - - - (260,030) (260,030) - (260,030)

Cost of share-based payments - - 105,990 - - 105,990 - 105,990

Exercise of stock options 781 17,616 (13,616) - - 4,781 - 4,781 Noncontrolling interest arising from a

business combination

- - - - - - (629) (629)

As of June 30, 2016 . ₱8,430,494 ₱36,074,879 ₱430,382 (₱1,225,055) ₱18,633,811 ₱62,344,511 ₱23,090 ₱62,367,601

For the Year Ended December 31, 2016 (Audited)

Attributable to Equity Holders of the Parent

Notes Capital

Stock

Additional

Paid-in Capital

Cost of

Share-Based Payments

Other

Reserves (Note 9)

Retained Earnings Subtotal

Non-controlling Interest Total

(In Thousand Pesos)

As of January 1, 2016 ₱8,429,713 ₱36,057,263 ₱338,008 (₱1,211,513) ₱15,778,557 ₱59,392,028 ₱5,754 ₱59,397,782

Total comprehensive income for the year

9 - - - 138,588 15,878,415 16,017,003 10,084 16,027,087

Dividends on: 9

Common stock - - - - (11,682,483) (11,682,483) - (11,682,483)

Preferred stock – voting - - - - (32,027) (32,027) - (32,027)

Preferred stock - non-voting - - - - (520,060) (520,060) - (520,060)

Cost of share-based payments - - 260,269 - - 260,269 - 260,269

Non-controlling interest arising from a

business combination

- - - - - - 20,698 20,698

Exercise of stock options 791 17,936 (13,691) - - 5,036 - 5,036

As of December 31, 2016 ₱8,430,504 ₱36,075,199 ₱584,586 (₱1,072,925) ₱19,422,402 ₱63,439,766 ₱36,536 ₱63,476,302

See accompanying Notes to Interim Condensed Consolidated Financial Statements.

GLOBE TELECOM, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six-Month Period Ended June 30

Notes 2017

Unaudited

2016

Unaudited

(In Thousand Pesos)

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax ₱11,715,172 ₱12,786,815

Adjustments for:

Depreciation and amortization 3, 4 13,066,592 11,458,422

Interest expense 10 2,356,233 1,493,142

Provisions and impairment losses 10 1,966,555 1,649,874

Pension expense 309,469 291,892

Equity in net losses of joint ventures 239,341 72,473

Loss on previously held AFS investment 9,103 -

Foreign exchange gains - net 10 (10,454) (219,663)

Cost of share-based payments (23,683) 105,990

Gain on disposal of property and equipment - net (28,255) (64,253)

Interest income (62,631) (88,309)

Loss/(Gain) on derivative instruments - net (108,144) 72,741

Gain on previously held associate - (8,791)

Operating income before working capital changes 29,429,298 27,550,333

Changes in operating assets and liabilities:

Decrease (increase) in:

Receivables (1,788,596) (2,576,162)

Inventories and supplies 747,941 563,935

Prepayments and other current assets 2,016,989 (2,830,753)

Other noncurrent assets (27,924) 286,106

Increase (decrease) in:

Accounts payable and accrued expenses 3,210,954 (833,135)

Unearned revenues (83,700) (234,127)

Other long-term liabilities 80,723 657,569

Net cash generated from operations 33,585,685 22,583,766

Income taxes paid (2,342,894) (2,929,980)

Net cash flows provided by operating activities 31,242,791 19,653,786

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to:

Property and equipment 3 (27,407,736) (16,976,964)

Intangible assets 4 (109,603) (26,835)

Investments and advances 6 (12,015,258) (13,466,292)

Interest received 66,552 91,638

Dividends received 20,000 90,000

Proceeds from sale of property and equipment 28,203 111,645

Proceeds from sale of subsidiary, net of cash disposed - (4,780)

Proceeds from loans receivables 70,000 100,000

Net cash flows used in investing activities (39,347,842) (30,081,588) (Forward)

Six-Month Period Ended June 30

Notes 2017

Unaudited

2016

Unaudited

(In Thousand Pesos)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from borrowings: 8

Long-term 21,500,000 9,000,000

Short-term 2,400,000 13,900,000

Repayments of borrowings: 8 Long-term (461,925) (5,921,622)

Short-term (5,700,000) (1,000,000)

Payments of dividends to stockholders: 9 Common (6,044,086) (5,841,105)

Preferred - non-voting (260,030) (260,030)

Exercise of stock options 6,225 4,781

Interest paid (2,504,279) (1,659,351)

Net cash flows provided by financing activities 8,935,905 8,222,673

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS 830,854 (2,205,129)

NET FOREIGN EXCHANGE DIFFERENCE 52,848 (85,517)

CASH AND CASH EQUIVALENTS

AT BEGINNING OF THE PERIOD

8,632,852 11,814,379

CASH AND CASH EQUIVALENTS

AT END OF THE PERIOD

₱9,516,554 ₱9,523,733

See accompanying Notes to Interim Condensed Consolidated Financial Statements.

-9-

GLOBE TELECOM, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

1. Basis of Financial Statement Preparation

The interim condensed consolidated financial statements of Globe Telecom, Inc. and

Subsidiaries (the “Globe Group”) as of and for the six-month ended June 30, 2017 and 2016

were authorized for issue in accordance with a resolution of the Board of Directors (BOD)

on August 07, 2017.

Globe Telecom, Inc. (herein referred to as “Globe Telecom” or “Globe”) is a company

incorporated and domiciled in the Philippines whose shares are publicly traded. The

principal activities of Globe and its subsidiaries are described in Note 15.

The interim condensed consolidated financial statements have been prepared in accordance

with the Philippine Accounting Standard (PAS) 34, Interim Financial Reporting.

Accordingly, the interim condensed consolidated financial statements do not include all of

the information required in the annual audited financial statements, and should be read in

conjunction with the Globe Group‟s annual financial statements as of and for the year

ended December 31, 2016.

The preparation of the financial statements in compliance with the Philippine Financial

Reporting Standards (PFRS) requires management to make estimates and assumptions that

affect the amounts reported in the financial statements and accompanying notes.

The estimates and assumptions used in the accompanying interim condensed consolidated

financial statements are consistent with those followed in the preparation of the Globe

Group‟s consolidated financial statements as of and for the year ended December 31, 2016,

and are based upon management‟s evaluation of relevant facts and circumstances as of the

date of the interim condensed consolidated financial statements. Actual results could differ

from such estimates.

The interim condensed consolidated financial statements as of and for the period ended

June 30, 2017 include the accounts of Globe Telecom and its subsidiaries such as, Innove

Communications, Inc. (herein referred to as “Innove”), GTI Business Holdings, Inc. (herein

referred to as “GTI”) and its subsidiaries, Kickstart Ventures, Inc. (herein referred to as

“Kickstart”) and its subsidiary, Asticom Technology, Inc. (herein referred to as “Asticom”),

Globe Capital Venture Holdings, Inc. (herein referred to as “GCVHI”) and its subsidiaries,

Bayan Telecommunications, Inc. (herein referred to as “BTI”) and its subsidiaries, and

TaoDharma, Inc. (Tao) collectively referred to as the “Globe Group”.

On February 7, 2017, ownership of G-Xchange, Inc. (GXI) was transferred to Globe Fintech

Innovations, Inc. (GFI/Mynt), Globe Telecom‟s wholly owned subsidiary pursuant to the

BOD approval through its Executive Committee made last February 6, 2017. GXI provides

mobile commerce services under GCash brand, while GFI/Mynt is a holding company for

Globe‟s financial technology business. As of June 30, 2017, GXI is part of GCVHI

subsidiaries under the Globe Group.

-10-

GTI‟s wholly-owned subsidiaries are GTI Corporation (GTIC US), Globe Telecom HK

Limited (GTHK), Globetel Singapore Pte. Ltd. (GTSG) and Globetel European Limited

(GTEU). GTEU„s wholly owned subsidiaries are UK Globetel Limited (UKGT), Globe

Mobile‟ Italy S.r.l. (GMI) and Globetel Internacional European España, S.L. (GIEE). On

June 2, 2016, the Board of Directors of GTEU has decided to cease the operations of

UKGT, GMI and GIEE effective July 31, 2016. As of reporting date, completion of

regulatory requirements is still in process.

Kickstart‟s subsidiary is Flipside Publishing Services, Inc. (FPSI) which was consolidated in

February 2014. In July 2016, FPSI has ceased operations. As of reporting date, completion of

regulatory requirements is still in process.

Globe Telecom owns 100% of GCVHI. GCVHI was incorporated on June 29, 2015. On

July 8, 2015 and October 13, 2015, GCVHI incorporated its wholly owned subsidiaries,

Globe Fintech Innovations, Inc. (GFI) and Adspark Holdings, Inc. (AHI), respectively.

GCVHI, GFI and AHI were incorporated to act as holding companies for Globe Telecom‟s

non-core businesses. GCVHI was consolidated starting July 2015. On December 28, 2015,

AHI incorporated its wholly-owned subsidiary, Adspark Inc. (AI), to operate as an

advertising company. On January 29, 2016, Adspark Inc. acquired 70% of the shares of

Socialytics Inc. for a total amount of ₱3.01 million. Socialytics Inc. is a social media

marketing firm founded in 2013. On August 5, 2016, GFI incorporated its wholly-owned

subsidiary, Fuse Lending, Inc. (Fuse), to operate as a lending company. On February 7, 2017,

ownership of GXI was transferred to GFI.

On February 17, 2017, Globe Telecom‟s BOD approved the signing of an agreement among

Alipay Singapore Holdings PTE. LTD. (Alipay), Ayala Corporation (Ayala), Globe Telecom,

GCVHI and GFI, wherein both Alipay and Ayala will invest in the unissued common shares

of GFI subject to the fulfillment of certain conditions including the approval of the Philippine

Competition Commission (PCC), which remains pending as of June 30, 2017.

On September 1, 2015, Yondu and GCVHI entered into a Deed of Assignment to assign the

former‟s 50% interest in Global Telehealth, Inc. (“GTHI”) to GCVHI for a total consideration

of ₱15 million, as disclosed in Note 6. On September 15, 2015, Globe Telecom sold its

controlling interest in Yondu for a total consideration of ₱670 million and has ceased to

consolidate the latter‟s net assets and liabilities as of that date in its interim condensed

consolidated financial statements. Following this transaction and Yondu‟s issuance of

additional shares to a third party, Globe Telecom‟s ownership in Yondu was reduced from

100% to 49% and Globe Telecom started to account for such investment using the equity

method effective on September 15, 2015.

On July 2, 2015, the National Telecommunications Commission (NTC) approved the

conversion of BTI‟s Tranche A convertible portion of the debt to equity, and resulted to

Globe Telecom‟s gaining a controlling interest in BTI. BTI was consolidated starting

July 2015.

BTI‟s subsidiaries are: Radio Communications of the Philippines, Inc. (RCPI), Telecoms

Infrastructure Corp. of the Philippines (Telicphil), Sky Internet, Incorporated (Sky Internet),

GlobeTel Japan (formerly BTI Global Communications Japan, Inc.), BTI Global

Communications Ltd. (BTI - UK), and NDTN Land, Inc. (NLI). In July 2016, BTI - UK has

ceased operations. The formal notice on the final dissolution of BTI-UK effective

March 14, 2017 has been received from Companies House in UK. On May 30, 2017, the

Management Committee with at least sixty-seven percent voting majority of the total

voting interest approved the termination of the Agreement on the Construction, Operation

and Maintenance of the National Digital Transmission Network dated November 28, 1996,

as well as the dissolution of Telicphil and NDTN Land, Inc.

-11-

On April 8, 2016, RCPI sold its 100% interest in Alarmnet, Inc. (Alarmnet) to a third party

amounting to ₱0.5 million. A Deed of Assignment was executed on March 31, 2016,

assigning the receivables of RCPI from Alarmnet to the buyer amounting to ₱42.31 million.

In March 2013, Globe Telecom entered into a Shareholders‟ Agreement with four other

entities to incorporate Tao. Globe Telecom subscribed to 25% preferred shares of Tao

amounting to ₱55.00 million which has been fully paid up as of August 2013. Tao was

established to operate and maintain retail stores in strategic locations within the Philippines

that will sell telecommunications or internet-related services, and devices, gadgets and

accessories. On November 4, 2016, the Board of Directors (BOD) of Globe Telecom

approved the increase in stake in Tao from 25% to 67% resulting to Globe Telecom‟s gaining

a controlling interest in Tao in exchange for a total consideration of ₱207.34 million. The

transaction was accounted for as an acquisition of a subsidiary.

The accompanying interim condensed consolidated financial statements have been prepared

under the historical cost convention method, except for derivative financial instruments and

available-for-sale (AFS) investments that are measured at fair value, certain financial

instruments carried at amortized cost, inventories which are carried at net realizable value,

and accrued pension which is measured as the excess of the present value of the defined

benefit obligation over the fair value of the plan assets.

The interim condensed consolidated financial statements are presented in Philippine Peso (₱),

the Globe Group‟s functional currency, and rounded to the nearest thousands except when

otherwise indicated.

2. Accounting Policies

2.1 Changes in Accounting Policies

The accounting policies adopted in the preparation of the interim condensed consolidated

financial statements are consistent with those followed in the preparation of the Globe

Group‟s consolidated financial statements effective as at and for the year ended December

31, 2016, except for the adoption of following new and amended standards effective as of

January 1, 2017.

The nature and impact of each new standard and amendment is described below:

Amendment to PAS 7 - Disclosure Initiative

The amendment clarifies that entities shall provide disclosures that enable users of financial

statements to evaluate changes in liabilities arising from financing activities.

The amendment is effective for annual reporting periods beginning on or after

January 1, 2017. Earlier application is permitted.

The amendments have no significant impact on the Globe Group‟s condensed consolidated

financial statements.

Amendments to PAS 12 - Recognition of Deferred Tax Assets for Unrealized Losses

The amendments clarify the following aspects:

• Unrealized losses on debt instruments measured at fair value and measured at cost for tax

purposes give rise to a deductible temporary difference regardless of whether the debt

instrument's holder expects to recover the carrying amount of the debt instrument by sale

or by use.

-12-

• The carrying amount of an asset does not limit the estimation of probable future taxable

profits.

• Estimates for future taxable profits exclude tax deductions resulting from the reversal of

deductible temporary differences.

• An entity assesses a deferred tax asset in combination with other deferred tax assets.

Where tax law restricts the utilization of tax losses, an entity would assess a deferred tax

asset in combination with other deferred tax assets of the same type.

The amendments are effective for annual reporting periods beginning on or after

January 1, 2017. Earlier application is permitted.

The amendments have no impact on the Globe Group‟s condensed consolidated financial

statements.

2.2 Future Changes in Accounting Policies

The Globe Group will adopt the following new standards and amendment to standards

enumerated below when these become effective. Except as otherwise indicated, the Globe

Group does not expect the adoption of these new standards and amendment to standards to

have significant impact on the condensed consolidated financial statements.

PFRS 9 - Financial Instruments (2014)

This standard consists of the following three phases:

Phase 1: Classification and measurement of financial assets and financial liabilities

With respect to the classification and measurement under this standard, all recognized

financial assets that are currently within the scope of PAS 39 will be subsequently measured

at either amortized cost or fair value. Specifically:

• A debt instrument that (i) is held within a business model whose objective is to collect the

contractual cash flows and (ii) has contractual cash flows that are solely payments of

principal and interest on the principal amount outstanding must be measured at amortized

cost (net of any write done for impairment), unless the asset is designated at fair value

through profit or loss (FVTPL) under the fair value option.

• A debt instrument that (i) is held within a business model whose objective is achieved

both by collecting contractual cash flows and selling financial assets and (ii) has

contractual terms that give rise on specified dates to cash flows that are solely payments of

principal and interest on the principal amount outstanding, must be measured at fair value

through other comprehensive income (FVTOCI), unless the asset is designated at FVTPL

under the fair value option.

• All other debt instruments must be measured at FVTPL.

• All equity investments are to be measured in the statement of financial position at fair

value, with gains and losses recognized in profit or loss except that if an equity investment

is not held for trading, an irrevocable election can be made at initial recognition to

measure the investment at FVTOCI, with dividend income recognized in profit or loss.

This standard also contains requirements for the classification and measurement of financial

liabilities and derecognition requirements. One major change from PAS 39 relates to the

presentation of changes in the fair value of a financial liability designated as at FVTPL

attributable to changes in the credit risk for the liability. Under this standard, such changes

are presented in other comprehensive income, unless the presentation of the effect of the

change in the liability credit risk in other comprehensive income would create or enlarge an

-13-

accounting mismatch in profit or loss. Changes in fair value attributable to a financial

liability‟s credit risk are not subsequently reclassified to profit or loss. Under PAS 39, the

entire amount of the change in the fair value of the financial liability designated as FVTPL is

presented in profit or loss.

Phase 2: Impairment methodology

The impairment model under this standard reflects expected credit losses, as opposed to

incurred credit losses under PAS 39. Under the impairment approach of this standard, it is no

longer necessary for a credit event to have occurred before credit losses are recognized.

Instead, an entity always accounts for expected credit losses and changes in those expected

credit losses. The amount of expected credit losses should be updated at each reporting date

to reflect changes in credit risk since initial recognition.

Phase 3: Hedge accounting

The general hedge accounting requirements for this standard retain the three types of hedge

accounting mechanism in PAS 39. However, greater flexibility has been introduced to the

types of transactions eligible for hedge accounting, specifically broadening the types of

instruments that qualify as hedging instruments and the types of risk components of non-

financial items that are eligible for hedge accounting. In addition, the effectiveness test has

been overhauled and replaced with the principle of economic relationships. Retrospective

assessment of hedge effectiveness is no longer required. Far more disclosure requirements

about an entity‟s risk management activities have been introduced.

The standard is effective for annual reporting periods beginning on or after January 1, 2018.

Earlier application is permitted.

The adoption of the standard will result in recognition of equity securities recognized as

available for sale financial assets to be measured at fair value with fair value changes taken to

profit or loss, unless management will take the irrevocable option to take fair value changes

to other comprehensive income. Financial instruments designated as fair value hedge and/or

cash flow hedge and debt securities will continue to be measured at fair value and amortized

cost, respectively, as at the end of the reporting period.

The management is still evaluating the impact of PFRS 9 on the Globe Group condensed

consolidated financial position as of the reporting period.

PFRS 16 - Leases

This standard specifies how a PFRS reporter will recognize, measure, present and disclose

leases. It provides a single lessee accounting model, requiring lessees to recognize assets and

liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a

low value. Lessors continue to classify leases as operating or finance, with PFRS 16‟s

approach to lessor accounting substantially unchanged from its predecessor, PAS 17.

The standard is effective for annual reporting periods beginning on or after January 1, 2019.

Earlier application is not permitted, until IFRS 15, Revenue from Contracts with Customers,

is adopted.

The management is still evaluating the impact of PFRS 16 on the Globe Group condensed

consolidated financial liabilities as of the reporting period.

-14-

Amendments to PFRS 2 - Classification and Measurement of Share-based Payment

Transactions

The amendments to PFRS 2 includes:

a. Accounting for cash-settled share-based payment transactions that contain a performance

condition. The amendment added guidance that introduces accounting requirements for

cash-settled share-based payments that follows the same approach as used for equity-

settled share-based payments.

b. Classification of share-based payment transactions with net settlement features. The

amendment has introduced an exception into IFRS 2 so that a share-based payment where

the entity settles the share-based payment arrangement net is classified as equity-settled

in its entirety provided the share-based payment would have been classified as equity-

settled had it not included the net settlement feature.

c. Accounting for modifications of share-based payment transactions from cash-settled to

equity-settled. The amendment has introduced the following clarifications:

• On modifications, the original liability recognized in respect of the cash-settled share-

based payment is derecognized and the equity-settled share-based payment is

recognized at the modification date fair value to the extent services have been

rendered up to the modification date.

• Any difference between the carrying amount of the liability as at the modification date

and the amount recognized in equity at the same date would be recognized in profit

and loss immediately.

The amendments are effective for annual periods beginning on or after January 1, 2018 with

earlier application permitted.

The management is still evaluating the impact of PFRS 2 on the Globe Group‟s condensed

consolidated financial assets and liabilities as of the reporting period.

New Accounting Standards Effective After the Reporting Period Ended June 30, 2017 -

Adopted by Financial Reporting Standards Council (FRSC) but pending publication in

the Official Gazette by the Board of Accountancy

The Company will adopt the following once they become effective.

Amendments to PFRS 4 - Applying PFRS 9 ‘Financial Instruments’ with PFRS 4

‘Insurance Contracts’

The amendments provide two options for entities that issue insurance contracts within the

scope of PFRS 4:

• an option that permits entities to reclassify, from profit or loss to other comprehensive

income, some of the income or expenses arising from designated financial assets; this is

the so-called overlay approach; and

• an optional temporary exemption from applying PFRS 9 for entities whose predominant

activity is issuing contracts within the scope of PFRS 4; this is the so-called deferral

approach.

The application of both approaches is optional and an entity is permitted to stop applying

them before the new insurance contracts standard is applied.

An entity applies the deferral approach for annual periods beginning on or after

January 1, 2018.

-15-

The management is still evaluating the impact of PFRS 4 on the Globe Group‟s condensed

consolidated financial assets and liabilities as of the reporting period.

Annual Improvements to PFRSs 2014-2016 Cycle

The annual improvements address the following issues:

Amendments to PFRS 1 - First-time Adoption of International Financial Reporting

Standards

The amendments include the deletion of short-term exemptions stated in the appendix of

PFRS 1, because they have now served their intended purpose. The amendments are

effective for annual periods beginning on or after January 1, 2018 with earlier application

permitted.

The amendments have no impact on the Globe Group's condensed consolidated financial

statements.

Amendments to PFRS 12 - Disclosure of Interests in Other Entities

The amendments clarify the scope of the standard by specifying that the disclosure

requirements in the standard, except for those disclosures needed in the summarized

financial for subsidiaries, joint ventures and associates, apply to an entity‟s interests that

are classified as held for sale, as held for distribution or as discontinued operations in

accordance with PFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Once adopted in the Philippines, the amendments will be applied for annual periods

beginning on or after January 1, 2017 with earlier application permitted.

The amendments have no impact on the Globe Group's condensed consolidated financial

statements.

Amendments to PAS 28- Investments in Associates and Joint Ventures

The amendments clarify that the election to measure at fair value through profit or loss an

investment in an associate or a joint venture that is held by an entity that is a venture

capital organization, or other qualifying entity, is available for each investment in an

associate or joint venture on an investment-by-investment basis, upon initial recognition.

The amendments are effective for annual periods beginning on or after January 1, 2018

with earlier application permitted.

The management is still evaluating the impact of PAS 28 on the Globe Group‟s

condensed consolidated financial statements as of the reporting period.

Amendments to PAS 40 - Investment Property - Transfers of Investment Property

The amendments in Transfers of Investment Property (Amendments to IAS 40) are:

• Stating that an entity shall transfer a property to, or from, investment property when, and

only when, there is evidence of a change in use. A change of use occurs if property

meets, or ceases to meet, the definition of investment property. A change in

management‟s intentions for the use of a property by itself does not constitute evidence

of a change in use.

• The list of evidence in paragraph 57(a) - (d) was designated as non-exhaustive list of

examples instead of the previous exhaustive list

-16-

The amendments are effective for periods beginning on or after January 1, 2018. Earlier

application is permitted.

The management is still evaluating the impact of PAS 40 on the Globe Group‟s condensed

consolidated financial statements as of the reporting period.

Philippine Interpretations IFRIC 22 - Foreign Currency Transactions and Advance

Consideration

The Interpretation covers foreign currency transactions when an entity recognizes a

non-monetary asset or non-monetary liability arising from the payment or receipt of advance

consideration before the entity recognizes the related asset, expense or income. It does not

apply when an entity measures the related asset, expense or income on initial recognition at

the fair value of the consideration received or paid at a date other than the date of initial

recognition of the non-monetary asset or non-monetary liability.

The Interpretation is effective for periods beginning on or after January 1, 2018. Earlier

application is permitted.

The management is still evaluating the impact of IFRIC 22 on the Globe Group‟s condensed

consolidated financial statements as of the reporting period.

PFRS 15 - Revenue from Contracts with Customers

The standard combines, enhances, and replaces specific guidance on recognizing revenue

with a single standard. An entity will recognize revenue to depict the transfer of promised

goods or services to customers in an amount that reflects the consideration to which the entity

expects to be entitled in exchange for those goods or services.

It defines a new five-step model to recognize revenue from customer contracts.

• Identify the contract(s) with a customer

• Identify the performance obligations in the contract

• Determine the transaction price

• Allocate the transaction price to the performance obligations in the contract

• Recognize revenue when (or as) the entity satisfies a performance obligation.

Application of this guidance will depend on the facts and circumstances present in a contract

with a customer and will require the exercise of judgment.

The standard is mandatory for annual reporting periods beginning on or after

January 1, 2018. Earlier application is permitted.

The management is still evaluating the impact of PFRS 15 on the Globe Group‟s condensed

consolidated financial liabilities as of the reporting period.

PIC Q&A No. 2016-04 - Application of PFRS 15 "Revenue from Contracts with

Customers" on Sale of Residential Properties under Pre-completion Contracts

This interpretation applies to the accounting for revenue from the sale of a residential property

unit under pre-completion stage (i.e., construction is on-going or has not yet commenced) by a

real estate developer that enters into a Contract to Sell (CTS) with a buyer, and the developer has

determined that the contract is within the scope of PFRS 15 by satisfying all the criteria in

paragraph 9 of PFRS 15.

-17-

This interpretation does not deal with the accounting for other aspects of real estate sales such as

variable considerations, financing components, commissions and other contract costs, timing of

sales of completed properties, etc.

The management is still evaluating the impact of the new accounting standard on the

Globe Group‟s current revenue recognition.

3. Property and Equipment - net

The rollforward analysis of property and equipment follows:

June 30, 2017

Telecommunication

Equipment

Buildings and

Leasehold

Improvement

Investments

in Cable

System

Office

Equipment

Transportation

Equipment Land

Assets Under

Construction Total

(Unaudited and In Thousand Pesos)

Cost

At January 1 ₱223,570,596 ₱46,414,056 ₱22,926,569 ₱14,458,134 ₱2,767,427 ₱3,048,654 ₱21,441,248 ₱334,626,684

Additions 1,165,049 6,842 173,310 139,816 227,346 31,454 27,888,994 29,632,811

Retirements/disposals (9,061,293) (4,630) - (310,857) (24,585) - - (9,401,365)

Reclassifications/adjustments 21,389,146 2,711,934 119,303 409,875 (32,589) 7,314 (21,095,105) 3,509,878

At June 30 237,063,498 49,128,202 23,219,182 14,696,968 2,937,599 3,087,422 28,235,137 358,368,008

Accumulated Depreciation

and Amortization

At January 1 140,960,791 22,538,532 14,004,555 11,228,421 1,856,868 - - 190,589,167

Depreciation and amortization 8,115,212 1,091,961 560,582 832,593 173,056 - - 10,773,404

Retirements/disposals (9,056,330) (4,630) - (310,590) (24,415) - - (9,395,965)

Reclassifications/adjustments 7,719,037 (44,654) - (59,723) (17,054) 54,162 - 7,651,768

At June 30 147,738,710 23,581,209 14,565,137 11,690,701 1,988,455 54,162 - 199,618,374

Impairment Losses

At January 1 1,231,614 23,252 - 9,860 - - 520,810 1,785,536

Additions (Reversals) - - - - - - 16,403 16,403

Writeoff/adjustments - - - - - - (14,464) (14,464)

At June 30 1,231,614 23,252 - 9,860 - - 522,749 1,787,475

Net Book Value at June 30 ₱88,092,012 ₱25,523,741 ₱8,654,045 ₱2,996,407 ₱ 949,144 ₱ 3,033,260 ₱27,713,550 ₱156,962,159

June 30, 2016

Telecommunication

Equipment

Buildings and

Leasehold

Improvement

Investments

in Cable

System

Office

Equipment

Transportation

Equipment Land

Assets Under

Construction Total

(Unaudited and In Thousand Pesos)

Cost

At January 1 ₱239,521,081 ₱42,809,270 ₱22,677,742 ₱13,660,352 ₱2,698,476 ₱3,145,123 ₱13,631,840 ₱338,143,884

Additions 240,845 53,505 - 239,909 181,324 - 14,698,216 15,413,799

Retirements/disposals (592,378) (1,332) - (571,691) (125,818) (154,924) - (1,446,143)

Reclassifications/adjustments 5,637,846 438,921 160,296 128,469 (3,075) 13,345 (8,314,651) (1,938,849)

At June 30 244,807,394 43,300,364 22,838,038 13,457,039 2,750,907 3,003,544 20,015,405 350,172,691

Accumulated Depreciation

and Amortization

At January 1 161,671,467 20,616,530 12,666,242 10,415,931 1,863,952 - - 207,234,122

Depreciation and amortization 7,119,657 974,499 683,767 718,834 146,106 - - 9,642,863

Retirements/disposals (591,622) (971) - (570,659) (120,863) - - (1,284,115)

Reclassifications/adjustments 24,121 32,856 (1,067) 377 (3,591) - - 52,696

At June 30 168,223,623 21,622,914 13,348,942 10,564,483 1,885,604 - - 215,645,566

Impairment Losses

At January 1 1,318,884 23,252 - - 9,860 - 518,244 1,870,240

At June 30 1,318,884 23,252 - - 9,860 - 518,244 1,870,240

Net Book Value at June 30 ₱75,264,887 ₱21,654,198 ₱9,489,096 ₱2,892,556 ₱855,443 ₱3,003,544 ₱19,497,161 ₱132,656,885

-18-

December 31, 2016

Telecommunication

Equipment

Buildings and

Leasehold

Improvement

Investments

in Cable

System

Office

Equipment

Transportation

Equipment Land

Assets Under

Construction Total

(Audited and In Thousand Pesos)

Cost

At January 1 ₱239,521,081 ₱42,809,270 ₱22,677,742 ₱13,660,352 ₱2,698,476 ₱3,145,123 ₱13,631,840 ₱338,143,884

Additions 605,839 37,636 133,354 355,789 386,345 - 37,436,955 38,955,918

Acquired from acquisition of a

Subsidiary - 9,124 - 104,566 1,058 - - 114,748

Retirements/disposals (35,888,129) (62,642) (1,131) (748,791) (317,780) (156,822) (125) (37,175,420)

Reclassifications/adjustments 19,331,805 3,620,668 116,604 1,086,218 (672) 60,353 (29,627,422) (5,412,446)

At December 31 223,570,596 46,414,056 22,926,569 14,458,134 2,767,427 3,048,654 21,441,248 334,626,684

Accumulated Depreciation

and Amortization

At January 1 161,671,467 20,616,530 12,666,242 10,415,931 1,863,952 - - 207,234,122

Depreciation and amortization 15,213,437 1,937,047 1,332,832 1,474,311 307,368 - - 20,264,995

Acquired from acquisition of a

Subsidiary 2,817 60,625 - - 63,442

Retirements/disposals (35,885,464) (60,392) (1,131) (736,287) (311,906) - - (36,995,180)

Reclassifications/adjustments (38,649) 42,530 6,612 13,841 (2,546) - - 21,788

At December 31 140,960,791 22,538,532 14,004,555 11,228,421 1,856,868 - - 190,589,167

Impairment Losses

At January 1 1,318,884 23,252 - - 9,860 - 518,244 1,870,240

Additions 6,850 - - - - - 2,566 9,416

Writeoff/adjustments (94,120) - - - - - - (94,120)

At December 31 1,231,614 23,252 - - 9,860 520,810 1,785,536

Net Book Value at December 31 ₱81,378,191 ₱23,852,272 ₱8,922,014 ₱3,229,713 ₱900,699 ₱3,048,654 ₱20,920,438 ₱142,251,981

Assets under construction include intangible components of a network system which are

reclassified to depreciable intangible assets only when assets become available for use

(see Note 4).

Investments in cable systems include the cost of the Globe Group‟s ownership share in the

capacity of certain cable systems under a joint venture or a consortium or private cable set-up and

indefeasible rights of use (IRUs) of circuits in various cable systems. It also includes the cost of

cable landing station and transmission facilities where the Globe Group is the landing party.

The Globe Group uses its borrowed funds to finance the acquisition of property and equipment

and bring it to its intended location and working condition. Borrowing costs incurred relating to

these acquisitions are capitalized as part of the cost of property and equipment using 1.19%,

1.51% and 1.45% capitalization rates for the six-month period ended June 30, 2017 and 2016,

and for the year ended December 31, 2016, respectively. The Globe Group‟s total capitalized

borrowing costs amounted to ₱326.57 million, ₱257.14 million, and ₱532.24 million for the

six-month period ended June 30, 2017 and 2016, and for the year ended December 31, 2016,

respectively.

The carrying value of hardware infrastructure and information technology equipment held under

finance lease included under “Office and Equipment” and “Asset under Construction” amounted

to ₱349.15 million and nil, respectively, as of June 30, 2017, ₱519.35 million and nil million,

respectively, as of June 30, 2016, and ₱432.17 million and nil, respectively, as of

December 31, 2016.

Pursuant to the Amended Rehabilitation Plan (ARP) and Master Restructuring Agreement

(MRA), the remaining outstanding restructured debt of BTI to creditors other than Globe

Telecom amounting to USD3.41 million will be secured by a real estate mortgage on identified

real property assets. The processing of the real properties to be mortgaged is still ongoing as of

June 30, 2017.

-19-

4. Intangible Assets and Goodwill - net

The rollforward analysis of intangible assets and goodwill follows:

June 30, 2017

Licenses and

Application

Software

Customer

Contracts

Exclusive

Dealership

Right

Other

Intangible

Assets and

Goodwill

Total

Intangible

Assets and

Goodwill

(Unaudited and In Thousand Pesos) Cost At January 1 ₱28,070,660 ₱571,760 ₱150,324 ₱1,758,931 ₱30,551,675 Additions 307,214 - - - 307,214 Retirements/disposals (426,614) - - - (426,614) Reclassifications/adjustments (Note 3) 3,151,623 - - 14,946 3,166,569

At June 30 31,102,883 571,760 150,324 1,773,877 33,598,844

Accumulated Amortization

At January 1 15,245,462 214,410 150,324 108,260 15,718,456 Amortization 2,203,721 71,470 - 17,997 2,293,188 Retirements/disposals (229,348) - - - (229,348) Reclassifications/adjustments 92,848 - - (28,090) 64,758

At June 30 17,312,683 285,880 150,324 98,167 17,847,054

Net Book Value at June 30 ₱ 13,790,200 ₱ 285,880 ₱- ₱ 1,675,710 ₱15,751,790

June 30, 2016

Licenses and

Application

Software

Customer

Contracts

Exclusive

Dealership

Right

Other

Intangible

Assets and

Goodwill

Total

Intangible

Assets and

Goodwill

(Unaudited and In Thousand Pesos)

Cost

At January 1 ₱22,924,678 ₱571,760 ₱141,019 ₱1,644,864 ₱25,282,321 Additions 26,835 - - 26,835 Retirements/disposals (1,212) - - (1,212) Reclassifications/adjustments (Note 3) 1,974,590 - - (13,781) 1,960,809

At June 30 24,924,891 571,760 141,019 1,631,083 27,268,753

Accumulated Amortization

At January 1 12,082,383 71,470 47,001 24,542 12,225,396 Amortization 1,678,196 71,470 21,718 44,175 1,815,559 Retirements/disposals (13) - - - (13) Reclassifications/adjustments (33,158) - - (19,634) (52,792)

At June 30 13,727,408 142,940 68,719 49,083 13,988,150

Net Book Value at June 30 ₱11,197,483 ₱428,820 ₱72,300 ₱1,582,000 ₱13,280,603

-20-

December 31, 2016

Licenses and

Application

Software

Customer

Contracts

Exclusive

Dealership

Right

Other

Intangible

Assets and

Goodwill

Total

Intangible

Assets and

Goodwill

(Audited and In Thousand Pesos)

Cost

At January 1 ₱22,924,678 ₱571,760 ₱141,019 ₱1,644,864 ₱25,282,321 Additions 135,273 - - 135,273 Acquired from acquisition of a subsidiary - - - 125,457 125,457 Retirements/disposals (68,334) - - (68,334) Reclassifications/adjustments (Note 3) 5,079,043 - 9,305 (11,390) 5,076,958

At December 31 28,070,660 571,760 150,324 1,758,931 30,551,675

Accumulated Amortization

At January 1 ₱12,082,383 ₱71,470 ₱47,001 ₱24,542 ₱12,225,396 Amortization 3,290,936 142,940 96,336 49,083 3,579,295 Retirements/disposals (13) - - - (13) Reclassifications/adjustments (127,844) - 6,987 34,634 (86,223)

At December 31 15,245,462 214,410 150,324 108,259 15,718,455

Net Book Value at December 31 ₱12,825,198 ₱357,350 ₱- ₱1,650,672 ₱14,833,220

Intangible assets pertain to (1) telecommunications equipment software licenses, corporate

application software and licenses and other VAS software applications that are not integral

to the hardware or equipment; (2) exclusive dealership right in Tao as of March 31, 2016;

(3) intangible assets identified to exist during the acquisition of BTI for its customer

contracts, franchise, spectrum and goodwill; (4) goodwill arising from acquisition of

Socialytics; and (5) goodwill arising from acquisition of Tao.

Intangible assets consisting of licenses and application software are amortized over the EUL

of the related hardware or equipment ranging from three (3) to ten (10) years or life of the

telecommunications and office equipment where it is assigned while exclusive dealership

rights are amortized over the life of the dealership agreement.

The Globe Group conducts its annual impairment test of goodwill as of the end of the third

fiscal quarter of each year. The Globe Group considers the relationship between its market

capitalization and its book value, among other factors, when reviewing for indicators of

impairment.

As of June 30, 2017 and December 31, 2016, the carrying value of goodwill amounted to

₱1,283.04 million and ₱1,268.10 million, respectively. For impairment testing purposes, the

Globe Group allocated the carrying amount of goodwill to cash-generating unit (CGU) of

mobile communications services or wireless segment discussed in Note 15. The recoverable

amount of said CGU is determined based on a value in use calculation which uses cash flow

projections based on financial budgets covering a five-year period, and a pre-tax discount

rate of 9.2% per annum in 2016. Cash flows beyond the five-year period are extrapolated

using a steady growth rate of 2%.

The Globe Group has determined that the recoverable amount calculations are most sensitive

to changes in the following assumptions:

Gross Margins

Discount rates

Budgeted market share

Growth rates

-21-

No impairment loss on intangible assets was recognized in 2017 and 2016. The management

believes that any reasonably possible change in the key assumptions on which recoverable

amount is based would not cause the aggregate carrying amount to exceed the aggregate

recoverable amount of the cash-generating unit.

5. Loan Receivable

a. Bethlehem Holdings, Inc. (BHI)

As of June 30, 2017 and 2016, and December 31, 2016, loans receivable from BHI amounted

to ₱158.62 million. The outstanding balance of the loan is classified under “Prepayments and

other current assets” in the financial position as of June 30, 2017, and as of

December 31, 2016 and under “Other noncurrent assets” as of June 30, 2016.

The loan receivable from BHI amounting to ₱158.62 million is due on August 13, 2017 and

bears interest at a rate of 5% per annum.

b. Globe Group Retirement Plans (GGRP)

Loans receivable from GGRP in the interim condensed statement of financial position

amounted to ₱718.00 million, ₱868.00 million, ₱788.00 million as of June 30, 2017,

June 30, 2016, and December 31, 2016, respectively. The outstanding balance of the loan is

classified under “Prepayments and other current assets” in the financial position as of

June 30, 2017, and as of December 31, 2016 and under “Other noncurrent assets” as of

June 30, 2016. Principal remittance from GGRP amounted to ₱70.00 million for the

six-month period ended June 30, 2017.

The loan receivable from GGRP amounting to ₱718.00 million as of June 30, 2017 is due on

September 11, 2017 and bears interest at a rate of 5% per annum.

6. Investments and Advances

a. Investment in AF Payments Inc. (formerly Automated Fare Collection Services, Inc.)

On January 30, 2014, following a competitive bidding process, the Department of

Transportation and Communication awarded to AF Consortium, composed of AC

Infrastructure Holdings Corp., BPI Card Finance Corp., Globe Telecom, Inc., Meralco

Financial Services, Inc., Metro Pacific Investments Corp., and Smart Communications, Inc.

the rights to design, build and operate the ₱1.72 billion automated fare collection system.

This is a public-private partnership project intended to upgrade and consolidate the fare

collection systems of the three urban rail transit systems which presently serve Metro Manila.

On February 10, 2014, AF Consortium incorporated Automated Fare Collection Services,

Inc. (AFCS), a special purpose company, which will assume the rights and obligations of the

concessionaire. These rights and obligations include the construction and establishment of

systems, infrastructure including implementation, test, acceptance and maintenance plans,

and operate the urban transit system for a period of 10 years.

Globe Telecom increased its capital contribution by ₱160.00 million in February 2015 and

₱130.00 million in February 2016.

-22-

On March 11, 2015, AFCS changed its name from Automated Fare Collection Services, Inc.

to AF Payments Inc. (AFPI).

Globe Telecom has invested a total of ₱590.00 million as of June 30, 2017 and 2016 and

December 31, 2016 in the consortium with 20% equivalent equity interest. This is accounted

for as investment in an associate with carrying value as of June 30, 2017 and 2016, and

December 31, 2016, amounting to ₱303.50 million, ₱433.88 million, and ₱370.77 million,

respectively.

The share in total comprehensive loss from this investment for the six-month period ended

June 30, 2017 and 2016 amounted to ₱67.27 million and ₱66.31 million, respectively.

b. Investment in BPI Globe BanKO, Inc.

On July 17, 2009, Globe Telecom acquired a 40% stake in BPI Globe BanKo for

₱141.33 million, pursuant to a Shareholder Agreement with Bank of the Philippine Islands

(BPI), Ayala Corporation (AC) and PS Bank, and a Deed of Absolute Sale with BPI.

BPI Globe BanKO provides micro-financing services and retail clients through mobile and

related technology.

Globe Telecom made additional investment and advances totaling to ₱407.00 million from

year 2011 to 2014.

On August 27, 2015, Globe Telecom, AC and BPI Globe BanKO entered into an agreement

to turn over full ownership of BPI Globe BanKO to BPI, one of the majority owners of the

joint venture. On September 20, 2016, Globe Telecom disposed of its 40% interest in Globe

BanKO for a total consideration of ₱16.12 million. The carrying value of investment

amounted to ₱24.01 million as at September 20, 2016, resulting to a loss on disposal of

₱7.89 million.

As of June 30, 2016 and December 31, 2016, the carrying value of investment and advances

of Globe Telecom in BPI Globe BanKO, Inc. amounted to ₱31.68 million and nil,

respectively.

The share in total comprehensive loss from this investment for the six-month period ended

June 30, 2017 and 2016 amounted to nil and ₱21.48 million, respectively.

c. Investment in Bridge Mobile Pte. Ltd. (BMPL)

Globe Telecom and other leading Asia Pacific mobile operators signed an agreement

(JV Agreement) in 2004 to form a regional mobile alliance, which will operate through a

Singapore-incorporated company, BMPL. The joint venture (JV) company is a commercial

vehicle for the JV partners to build and establish a regional mobile infrastructure and

common service platform and deliver different regional mobile services to their subscribers.

Globe Group has a ten percent (10%) stake in BMPL. The other joint venture partners each

with equal stake in the alliance include SK Telecom, Co. Ltd., Advanced Info Service Public

Company Limited, Bharti Airtel Limited, Maxis Communications Berhad, Optus Mobile Pty.

Limited, Singapore Telecom Mobile Pte, Ltd., Taiwan Mobile Co. Ltd., PT Telekomunikasi

Selular and CSL Ltd. Under the JV Agreement, each partner shall contribute

USD4.00 million based on an agreed schedule of contribution. Globe Telecom may be called

upon to contribute on dates to be determined by the JV. On November 25, 2014, Globe

Telecom received a return of capital amounting to USD1.40 million.

As of June 30, 2017 and 2016, and December 31, 2016, the carrying value of the investment

in BMPL amounted to ₱42.66 million, ₱33.63 million, and ₱39.13 million, respectively.

The share in total comprehensive income from this investment for the six-month period ended

June 30, 2017 and 2016 amounted to ₱2.98 million and ₱1.98 million, respectively.

-23-

d. Investment in Yondu Inc. (Yondu)

Globe Telecom previously owned 100% interest in Yondu and consolidated its net assets in

the consolidated statement of financial position as of December 31, 2014. On

September 1, 2015, Yondu and GCVHI entered into a Deed of Assignment to assign the

former‟s interest in GTHI to GCVHI for a total consideration of ₱15 million.

On September 15, 2015, Globe Telecom sold its controlling interest in Yondu for a total

consideration of ₱670 million. On the same date, Yondu issued additional 5,000 common

shares from its unissued authorized capital stock to a third party which further diluted Globe

Telecom‟s ownership interest to 49%, as disclosed in Note 1. Gain on disposal of controlling

interest in subsidiary and gain on fair value of retained equity interest was recognized in the

consolidated statements of comprehensive income amounting to ₱449.15 million and

₱745.83 million, respectively, for the year ended December 31, 2015.

The fair value of retained interest in Yondu is based on the most recent market transaction.

Total assets and liabilities of Yondu as of the date of disposal of controlling interest

amounted to ₱740.70 million and ₱728.10 million, respectively, including cash and cash

equivalents of ₱75.51 million. The fair value of the Yondu shares held by Globe Telecom

amounted to ₱864.71 million as of September 15, 2015.

As of June 30, 2017 and 2016, and December 31, 2016, the carrying value of the investment

in Yondu amounted to ₱955.83 million, ₱906.32 million and ₱928.39 million, respectively.

The share in total comprehensive income from this investment for the six-month period ended

June 30, 2017 and 2016 amounted to ₱27.44 million and ₱19.33 million, respectively.

e. Investment in Global Telehealth,Inc. (GTHI)

Global Telehealth, Inc. is a joint venture between Yondu and Salud Interactiva and was

registered with the Securities and Exchange Commission on June 3, 2015. It is a stock

corporation with 50% foreign equity formed to establish, operate, manage and provide a

health hotline facility, including ancillary information technology services with intent to

operate as a domestic market enterprise. GTHI has started commercial operation in July 2015.

On September 1, 2015, Yondu assigned its interest in GTHI to GCVHI, a wholly owned

subsidiary of Globe Telecom. The investment in GTHI is accounted for using the equity

method, as disclosed in Note 1.

Total investment in GTHI amounted to ₱50.00 million as of June 30, 2017 and 2016 and

December 31, 2016. The carrying value of the investment amounted to ₱23.54 million,

₱30.79 million and ₱21.47 million as of June 30, 2017 and 2016, and December 31, 2016,

respectively.

The share in total comprehensive income/loss from this investment for the six-month period

ended June 30, 2017 and 2016 amounted to ₱2.07 million income and ₱4.14 million loss,

respectively.

f. Investment in TechGlobal Data Center, Inc. (TechGlobal)

On November 2, 2015, Innove and Techzone Philippines incorporated TechGlobal Data

Center, Inc., a Joint Venture Company, formed to install, own, operate, maintain and manage

all kinds of data centers and to provide information technology-enabled services and

computer-enabled support services. Innove and Techzone hold ownership interest of 49% and

51%, respectively. As of June 30, 2017, TechGlobal has not started commercial operations.

As of June 30, 2017 and 2016, and December 31, 2016, total investments in TechGlobal

amounted to ₱122.50 million. The carrying value of the investment amounted to

-24-

₱101.84 million, ₱120.65 million and ₱115.32 million as of June 30, 2017 and 2016, and

December 31, 2016, respectively.

The share in total comprehensive loss from this investment for the six-month period ended

June 30, 2017, and 2016 amounted to ₱13.48 million and ₱1.85 million, respectively.

g. Investment in Vega Telecom Inc. (VTI) , Bow Arken Holdings Company Inc. (BAHC),

and Brightshare Holdings Corporation (BHC)

On May 30, 2016, Globe Telecom‟s Board of Directors, through its Executive Committee,

approved the signing of a Sale and Purchase Agreement (SPA) and other related definitive

agreements for the acquisition of 50% equity interest in the telecommunications business of

San Miguel Corporation (SMC), Schutzengel Telecom, Inc. and Grace Patricia W. Vilchez-

Custodio (the “Sellers”; SMC being the major seller) through their respective subsidiaries

namely, VTI, BAHC and BHC, respectively (the Acquirees). The preceeding sentence is

hereinafter referred to as “the Transaction”.

VTI owns an equity stake in Liberty Telecom Holdings, Inc. (LIB). It also owns, directly and

indirectly, equity stakes in various enfranchised companies, including Bell

Telecommunication Philippines, Inc. (Bell Tel), Eastern Telecom Philippines, Inc. (Eastern

Telecom), Colbalt point Telecommunication, Inc. (formerly Extelcom), and Tori Spectrum

Telecom, Inc .(formerly Wi-Tribe), among others. The remaining 50% equity stake in VTI,

BAHC and BHC was acquired by Philippine Long Distance Telephone Company (PLDT)

under similar definitive agreements.

Total consideration for the Transaction amounts to ₱52,847.82 million for the purchase of the

equity interest and advances of the Acquirees, which translated to an agreed consideration of

₱26,423.91 million for Globe Telecom‟s 50% equity stakes in the Acquirees. The SPA also

provided for the assumption of total liabilities of ₱17,151.18 million by Globe and PLDT

from May 30, 2016 and a price adjustment mechanism based on the variance in the amount of

assumed liabilities from April 30, 2016 to be agreed upon by Globe, PLDT and the Sellers at

the end of the confirmatory due diligence period. Total price adjustment amounted to

P2,564.28 million resulting to adjusted total consideration of P55,412.10 million. As of June 30, 2017 and December 31, 2016, the negotiated gross amount of the assumed

liabilities was ₱10,741.91 and ₱10,782.50, respectively, which was already finalized with the

network suppliers. Globe Telecom‟s share in the negotiated assumed liabilities amounted

to ₱167.62 million and ₱5,391.25 million as of June 30, 2017 and December 31, 2016,

respectively. Acquisition-related cost amounting to ₱306.48 million and ₱298.53 million

was carried as part of the investment cost also as of June 30, 2017 and December 31, 2016,

respectively. The confirmatory due diligence is already finalized as of June 30, 2017. The

assumption of liabilities of VTI, BAHC and BHC by Globe Telecom and PLDT may give

rise to claims that may not have been contemplated and agreed upon during the period set for

confirmatory due diligence. The SPA provides for various indemnity claims expiring between

2 to 5 years from the end of the confirmatory due diligence period.

The consideration for the equity interest and advances was settled on a deferred basis based

on the following schedule: 50% was paid on May 30, 2016, 25% was paid on

December 1, 2016 and 25% was paid on May 30, 2017.

The acquisition provided Globe Telecom an access to certain frequencies assigned to Bell Tel

in the 700 Mhz, 900 Mhz, 1800 Mhz, 2300 Mhz and 2500 Mhz bands through a co-use

arrangement approved by the NTC on May 27, 2016. NTC's approval is subject to the

fulfillment of certain conditions including roll out of telecom infrastructure covering at least

90% of the cities and municipalities in three years to address the growing demand for

broadband infrastructure and internet access.

-25-

The memorandum of agreement between Globe and PLDT provides for both parties to pool

resources and share in the profits and losses of the companies on a 50%-50% basis with a

view to being financially self-sufficient and able to operate or borrow funds without recourse

to the parties. Globe has extended advances to Vega group amounting to ₱1,316.08 million

for the period June 1, 2016 to December 31, 2016 which was carried as part of investment

cost.

Of the various companies within the group, only Eastern Telecom and its subsidiary have

commercial operations generating ₱2,093.60 million, ₱955.70 million and ₱670.50 million in

revenues, EBITDA and net income for the year ended December 31, 2016, respectively.

Globe Telecom has adjusted its share in the net assets of the Acquirees to reflect losses on

fair value of assets and onerous contracts.

On June 21, 2016, Globe Telecom exercised its rights as holder of 50% equity interest of VTI

to cause VTI to propose the conduct of a tender offer on the common shares of LIB held by

minority shareholders as well as the voluntary delisting of LIB. At the completion of the

tender offer and delisting of LIB, VTI‟s ownership on LIB is at 99.1%.

The adjusted fair value of the identifiable assets and liabilities of VTI Group as the date of

acquisition were:

Assets ₱6,487,084 Liabilities (13,730,305)

Total net liabilities at fair value (7,243,221)

Intangible assets arising from the acquisition:

Frequency ₱39,420,882

Trademark 378,349

Customer contracts 297,000 40,096,231

Property and equipment appraisal increase 1,160,045

Deferred tax liabilities (12,376,883)

Non-controlling interest measured at fair value (1,415,006)

20,221,166

Purchase consideration transferred 28,122,847

Share in identifiable assets and intangible

assets (50%) (10,110,583)

Goodwill arising on the acquisition ₱18,012,264

The net assets recognized in the December 31, 2016 consolidated financial statements were

based on a provisional assessment of their fair values. In June 2017, the assessment was

completed. The management performed a review of VTI Group‟s identifiable intangible

assets and property and equipment appraisal increase and has identified certain adjustments

amounting to ₱1,651.44 million increases on frequency, ₱41.05 million decreases on

trademark, ₱363.40 million decreases on customer contracts and ₱110.08 million increase on

PPE appraisal. Adjustments related to tax of ₱407.12 million increases were made as well

after such review. As a result, there was an increase in total identifiable net assets of VTI

amounting to of ₱1,552.84 million resulting to ₱18,012.26 million of total goodwill arising

on the acquisition.

-26-

On February 28, 2017, Globe and PLDT each subscribed to 2,760,000 new preferred shares

to be issued out of the unissued portion of the existing authorized capital stock of VTI, at a

subscription price of ₱4,000 per subscribed shares (inclusive of a premium over par of ₱3,000

per subscribed share) or a total subscription price of ₱11,040 million (inclusive of a premium

over par of ₱8,280 million). Globe and PLDT‟s assigned advances from SMC which were

subsequently reclassified to deposit for future subscription of each amounting to

₱11,040 million were applied as full subscription payment for the subscribed shares.

Also, on the same date, Globe and PLDT each subscribed to 800,000 new preferred shares to

be issued out of the unissued portion of the existing authorized capital stock of VTI, at a

subscription price of ₱4,000 per subscribed share (inclusive of a premium over par of ₱3,000

per subscribed share), or a total subscription price of ₱3,200 million (inclusive of a premium

over par of ₱2,400 million). Globe and PLDT each paid ₱148 million in cash for the

subscribed shares. The remaining balance of the subscription price shall be paid by Globe and

PLDT upon call of the VTI Board of Directors.

As of June 30, 2017 and December 31, 2016, the carrying value of the investment amounted

to ₱32,706.95 million and ₱32,706.36 million, respectively. The share in total comprehensive

loss from this investment amounted to ₱191.08 million for the six-month period ended

June 30, 2017.

7. Accounts Payable and Accrued Expenses

This account consists of:

June 30 December 31

2017

(Unaudited)

2016

(Unaudited)

2016

(Audited)

(In Thousand Pesos)

Accrued project costs ₱22,488,172 ₱18,716,035 ₱21,533,633

Accounts payable 11,074,644 31,133,395 16,711,834

Accrued expenses

Repairs and maintenance 3,899,352 3,209,583 3,627,299

Services 3,885,219 3,539,971 3,539,472

Rent 2,614,131 1,866,046 2,112,170

General, selling and administrative 2,352,866 1,774,344 1,983,909

Staff costs 1,467,187 1,114,679 1,179,182

Advertising 1,192,382 1,268,971 1,821,800

Utilities 957,610 1,005,990 1,083,614

Interest 680,024 392,625 523,439

Output VAT – net

5,110,247 3,402,620 3,912,905

Traffic settlements – net 940,220 977,362 846,074

Dividends payable 262,355 260,030 262,355

₱56,924,410 ₱68,661,651

₱59,137,686

As of December 31, 2016, accounts payable includes the payable on the share purchase to SMC

amounting to ₱6,606 million (See Note 6.7).

General, selling and administrative accrued expenses include travel, professional fees, supplies,

commissions and miscellaneous, which are individually immaterial.

-27-

8. Notes Payable and Long-term Debt

Notes payable consist of short-term unsecured peso-denominated promissory notes.

As of June 30, 2017 and 2016, and December 31, 2016, the Globe Group has available

uncommitted short-term credit facilities of USD94.90 million and ₱32,045 million,

USD104.40 million and ₱11,445 million, and USD80.40 million and ₱13,445 million,

respectively. As of June 30, 2017 and 2016, and December 31, 2016, the Globe Group has

available committed short-term credit facilities of ₱3,000 million, ₱3,000 million, and

₱1,200 million, respectively.

Outstanding short term loans as of June 30, 2017 and 2016, and December 31, 2016

amounted to ₱1,200 million, ₱12,900 million and ₱4,500 million, respectively from various

local and foreign banks.

These short-term loans have maturities ranging from 1 to 3 months and bear interest ranging

from 2.4% to 3.25%.

Long-term debt consists of:

June 30 December 31

2017

(Unaudited)

2016

(Unaudited)

2016

(Audited)

(In Thousand Pesos)

Term Loans: Peso ₱92,717,006 ₱44,435,962 ₱71,610,561

Dollar 12,736,546 13,870,545 12,715,561

Retail Bonds 16,924,742 16,929,655 16,902,469

122,378,294 75,236,162 101,228,591

Less current portion 12,699,504 7,243,301 5,830,319

₱109,678,790 ₱67,992,861 ₱95,398,272

The maturities of long-term debt at nominal values as of June 30, 2017 follow (in thousand

pesos):

Due in:

2017 (6 months) ₱5,433,467

2018 8,244,824

2019 16,560,603

2020 11,262,124

2021 and thereafter 81,398,410

₱122,899,428

-28-

Unamortized debt issuance costs excluded from the above long-term debt as of

June 30, 2017 and 2016, and December 31, 2016 amounted to ₱521.13 million,

₱329.37 million and ₱476.13 million, respectively.

The interest rates and maturities of the above loans are as follows:

Maturities Interest Rates

Term Loans:

Peso 2017-2031 2.53% to 6.00% in 2017

2.02% to 6.00% in 2016

Dollar 2017-2023 1.68% to 5.00% in 2017

1.12% to 5.00% in 2016

Retail bonds 2017-2023 4.89% to 6.00% in 2017

4.89% to 6.00% in 2016

a. Term Loans and Corporate Notes

Globe Telecom‟s unsecured term loans and corporate notes, which consist of fixed and

floating rate notes and dollar and peso-denominated term loans, bear interest at stipulated and

prevailing market rates. Corporate notes were fully paid in May 2016. Globe Group also has

secured debt amounting to USD3.41 million as of June 30, 2017 arising from its acquisition

of BTI (see Note 3).

On March 22, 2013, Globe Telecom signed a USD120 million 7-year term loan with floating

interest rate with Metrobank as lender to finance Globe Telecom‟s capital expenditures.

On July 29, 2013, Globe Telecom signed a USD40 million 3-year term loan with floating

interest rate with Mizuho Bank Ltd. as lender to prepay and refinance certain debts. The loan

was fully paid in July 2016.

On December 4, 2013, Globe Telecom signed a ₱7,000 million 7-year term loan credit

facility with fixed interest rate with Land Bank of the Philippines as lender. The proceeds of

the loan were used to partially finance Globe Telecom‟s general financing and corporate

requirements for capital expenditures.

On March 9, 2015, Globe Telecom signed a ₱7,000 million 7-year term loan with fixed

interest rate with Philippine National Bank. The proceeds of the loan were used to partially

finance the capital expenditures and general corporate requirements.

On October 1, 2015, Globe Telecom signed a USD45 million 7-year term loan with floating

interest rate and a ₱5,000.00 million 10-year term loan with fixed interest rate with

Metrobank. The proceeds of the loans were used to finance the capital expenditures and/or

reimburse capital expenditures..

On March 14, 2016, Globe Telecom signed a ₱7,000 million 10-year term loan with fixed

interest rate with Land Bank of the Philippines as lender. The proceeds of the loan were used

to partially finance the general financing and corporate requirements for capital expenditures.

On September 2, 2016, Globe Telecom signed a ₱20,000 million term loan with tenors of 12

and 15 years at a fixed interest rate, with Metrobank as lender. The proceeds of the loan were

used to partially finance the acquisition of VTI, BAHC and BHC.

On September 29, 2016, Globe Telecom signed a ₱7,000 million 10-year term loan with fixed

interest rate with Unionbank as lender. The proceeds of the loan were used to partially

finance capital expenditures.

-29-

On November 28, 2016, Globe Telecom signed a ₱5,000 million 15-year term loan with fixed

interest rate with Unionbank as lender. The proceeds of the loan were used to partially

finance the acquisition of VTI, BAHC and BHC.

On February 20, 2017 Globe Telecom signed a ₱7,000 million 8-year term loan with fixed

interest rate with BDO as lender. The proceeds of loan will be used to finance Globe's capital

expenditures and/or general corporate funding requirements.

On February 28, 2017 Globe Telecom signed a ₱7,000 million 6-year term loan with fixed

interest rate with Development Bank of the Philippines as lender. The proceeds of loan will

be used to partially finance Globe's general financing and corporate requirements for capital

expenditures, refinancing and investments.

On April 21, 2017 Globe Telecom signed a ₱8,000 million 10-year term loan with fixed

interest rate with BDO as lender. The proceeds of loan will be used to finance Globe's capital

expenditures and/or general corporate funding requirements.

The loan agreements with banks and other financial institutions provide for certain

restrictions and requirements with respect to, among others, maintenance of financial ratios

and percentage of ownership of specific shareholders, incurrence of additional long-term

indebtedness or guarantees and creation of property encumbrances.

The financial tests under Globe Group‟s loan agreements include compliance with the

following ratios:

Total debt* to equity not exceeding 2.5:1;

Total debt* to EBITDA not exceeding 3:1;

Debt service coverage exceeding 1.3 times; and

Secured debt ratio not exceeding 0.2 times.

*Composed of notes payable, long term debt and net derivative liabilities

As of June 30, 2017, the Globe Group is not in breach of any loan covenants.

b. Retail Bonds

On June 1, 2012, the Globe Group issued ₱10,000 million fixed rate bonds. The amount

comprises ₱4,500 million and ₱5,500 million fixed rate bonds due in 2017 and 2019, with

interest rate of 5.75% and 6.00%, respectively. The net proceeds of the issue were used to

partially finance the Globe Group‟s capital expenditure requirements in 2012.

The five-year and seven-year retail bonds may be redeemed in whole, but not in part only,

starting two years before maturity date and on the anniversary thereafter at a price equal to

101.00% and 100.50%, respectively, of the principal amount of the bonds and all accrued

interest to the date of the redemption.

On July 17, 2013, the Globe Group issued ₱7,000 million fixed rate bond. The amount

comprises ₱4,000 million and ₱3,000 million bonds due in 2020 and 2023, with interest rate

of 4.8875% and 5.2792%, respectively. The net proceeds of the issue were used to partially

finance the Globe Group‟s capital expenditure requirements in 2013.

The seven-year and ten-year retail bonds may be redeemed in whole, but not in part only,

starting two years for the seven-year bonds and three years for the ten-year bonds before the

maturity date and on the anniversary thereafter at a price ranging from 101.0% to 100.5%

and 102.0% to 100.5%, respectively, of the principal amount of the bonds and all accrued

interest depending on the year of redemption.

The prepayment feature is assessed as clearly and closely related to the host debt instrument,

and hence need not be separately accounted for at fair value through profit or loss.

-30-

In August 2016, the Bond Trust Indentures were amended to adjust the maximum

debt-to-equity ratio from 2:1 to 2.5:1. As of June 30, 2017, the Globe Group is not in

breach of any bond covenants.

9. Equity and Other Comprehensive Income

Globe Telecom‟s authorized capital stock consists of:

June 30, 2017 June 30, 2016 December 31, 2016

Shares Amount Shares Amount Shares Amount

(In Thousand Pesos and Number of Shares)

Voting Preferred Stock - ₱5 per

share 160,000 ₱800,000 160,000 ₱800,000 160,000 ₱800,000

Non-voting Preferred Stock -

₱50 per share 40,000 2,000,000 40,000 2,000,000 40,000 2,000,000

Common Stock - ₱50 per share 148,934 7,446,719 148,934 7,446,719 148,934 7,446,719

Globe Telecom‟s issued and subscribed capital stock consists of:

June 30, 2017 June 30, 2016 December 31, 2016

Shares Amount Shares Amount Shares Amount

(In Thousand Pesos and Number of Shares)

Voting preferred stock - ₱5 per

share 158,515 ₱792,575 158,515 ₱792,575 158,515 ₱792,575

Non-voting Preferred Stock - ₱50

per share 20,000 1,000,000 20,000 1,000,000 20,000 1,000,000

Common stock - ₱50 per share 132,915 6,645,727 132,758 6,637,919 132,759 6,637,929

Total capital stock ₱8,438,302 ₱8,430,494 ₱8,430,504

a. Preferred Stocks

Non-Voting Preferred Stock

On February 10, 2014, the BOD approved the amendment of Articles of Incorporation

(AOI) to reclassify 31 million of unissued common shares with par value of ₱50 per share

and 90 million of unissued voting preferred shares with par value of ₱5 per share into a new

class of 40 million non-voting preferred shares with par value of ₱50 per share.

On April 8, 2014, the stockholders approved the issuance, offer and listing of up to

20 million non-voting preferred shares, with an issue volume of up to ₱10 billion. The non-

voting preferred shares shall be redeemable, non-convertible, non-voting, cumulative and

may be issued in series.

On June 5, 2014, the Securities and Exchange Commission approved the amendment of

AOI to implement the foregoing reclassification of shares.

On August 8, 2014, the SEC approved the offer of non-voting perpetual preferred shares and

on August 15, 2014, the 20 million non-voting preferred shares were fully subscribed and

issued. Subsequently, the shares were listed at the Philippine Stock Exchange on

August 22, 2014.

The proceeds from the preferred stocks issuance were used to partially finance capital

expenditures.

-31-

Non-voting preferred stock has the following features:

a) Issued at ₱50 par;

b) Dividend rate to be determined by the BOD at the time of issue;

c) Redemption - at Globe Telecom„s option at such times and price(s) as may be determined

by the BOD at the time of issue, which price may not be less than the par value thereof

plus accrued dividends;

d) Eligibility of investors - Any person, partnership, association or corporation regardless of

nationality wherein at least 60% of the outstanding capital stock shall be owned by

Filipino

e) No voting rights;

f) Cumulative and non-participating;

g) No pre-emptive rights over any sale or issuance of any share in Globe Telecom‟s capital

stock; and

h) Stocks shall rank ahead of the common shares and equally with the voting preferred

shares in the event of liquidation.

Voting Preferred Stock

Voting preferred stock has the following features:

(a) Issued at ₱5 par;

(b) Dividend rate to be determined by the BOD at the time of issue;

(c) One preferred share is convertible to one common share starting at the end of the 10th

year of the issue date at a price to be determined by Globe Telecom‟s BOD at the time of

issue which shall not be less than the market price of the common share less the par value

of the preferred share;

(d) Call option - Exercisable any time by Globe Telecom starting at the end of the 5th year

from issue date at a price to be determined by the BOD at the time of issue;

(e) Eligibility of investors - Only Filipino citizens or corporations or partnerships wherein

60% of the voting stock or voting power is owned by Filipino;

(f) With voting rights;

(g) Cumulative and non-participating;

(h) Preference as to dividends and in the event of liquidation; and

(i) No preemptive right to any share issue of Globe Telecom, and subject to yield protection

in case of change in tax laws.

The dividends for preferred stocks are declared upon the sole discretion of the Globe Telecom‟s

BOD.

-32-

b. Common Stock

The rollforward of outstanding common stocks follows:

June 30, 2017 June 30, 2016 December 31, 2016

Shares Amount Shares Amount Shares Amount

(In Thousand Pesos and Number of Shares)

At beginning of year 132,759 ₱6,637,929 132,743 ₱6,637,138 132,743 ₱6,637,138

Exercise of stock options 16 798 15 781 16 791

Issue of shares under share-based

compensation plans 140 7,000 - - - -

At end of year 132,915 ₱6,645,727 132,758 ₱6,637,919 132,759 ₱6,637,929

c. Cash Dividends

Information of Globe Group‟s cash dividends follows:

Date

Per Share Amount Record Payable

(In Thousand Pesos, Except Per Share Figures)

Dividends on Voting Preferred stock:

November 4, 2016 0.20 32,027 November 18, 2016 December 2, 2016

Dividends on Non-voting Preferred stock:

May 4, 2016 13.00 260,030 August 10, 2016 August 22, 2016

December 7, 2016 13.00 260,030 January 27, 2017 February 22, 2017

May 9, 2017 13.00 260,030 August 10, 2017 August 22, 2017

Dividends on Common stock:

February 5, 2016 22.00 2,920,444 February 22, 2016 March 4, 2016

May 4, 2016 22.00 2,920,661 March 19, 2016 June 3, 2016

August 2, 2016 22.00 2,920,689 August 16, 2016 September 1, 2016

November 4, 2016 22.00 2,920,689 November 18, 2016 December 2, 2016

February 7, 2017 22.75 3,020,280 February 21, 2017 March 8, 2017

May 9, 2017 22.75 3,023,806 May 23, 2017 June 7, 2017

As of June 30, 2017, unpaid cash dividends declared related to common stock amounted to

₱2.35 million and non-voting preferred stock amounted to ₱260.03 million.

Common Stock Dividend

The dividend policy of Globe Telecom as approved by the BOD is to declare cash

dividends to its common stockholders on a regular basis as may be determined by the BOD.

On November 8, 2011, the BOD approved the current dividend policy of Globe Telecom to

distribute cash dividends at the rate of 75% to 90% of prior year‟s core net income.

On August 6, 2013, the BOD further approved the change in distribution from semi-annual

dividend payments to quarterly dividend distributions. However, on December 10, 2013,

the BOD approved to defer the implementation of the quarterly dividend payout to the

second semester of 2014.

The dividend distribution is reviewed annually and subsequently each quarter of the year,

taking into account Globe Telecom‟s operating results, cash flows, debt covenants, capital

expenditure levels and liquidity.

-33-

Preferred Stock Dividend

The dividends for preferred stock are declared upon sole discretion of the BOD.

d. Retained Earnings Available for Dividend Declaration

The total unrestricted retained earnings available for dividend declaration amounted to

₱10,417.82 million as of June 30, 2017. This amount excludes the undistributed net earnings of

consolidated subsidiaries, accumulated equity in net earnings of joint ventures accounted for

under the equity method, unrealized gains recognized on asset and liability, currency

translations, unrealized gains on fair value adjustments and deferred income tax assets. The

Globe Group is also subject to loan covenants that restrict its ability to pay dividends.

e. Other Comprehensive Income

Other Reserves

For the Six-Month Ended June 30, 2017

Cash flow

hedges AFS

Exchange differences

arising from

translations of

foreign investments

Remeasurement

losses on defined

plan Total

(Unaudited, Restated and In Thousand Pesos)

As of January 1, 2017 (₱54,208) ₱115,874 ₱38,981 (₱1,173,572)

(₱1,072,925)

Fair value changes 71,760 30,245 - - 102,005

Transferred to profit or loss (57,641) - - - (57,641)

Income tax effect (4,236) (3,140) - - (7,376)

Exchange differences - - (23,316) - (23,316)

As of June 30, 2017 (₱44,325) ₱142,979 ₱15,665 (₱1,173,572) (₱1,059,253)

For the Six-Month Ended June 30, 2016

Cash flow

hedges AFS

Exchange

differences arising

from translations

of foreign

investments

Remeasurement

losses on defined

plan Total

(Unaudited, Restated and In Thousand Pesos)

As of January 1, 2015 ₱41,357 ₱102,434 ₱15,776 (₱1,371,080) (₱1,211,513)

Fair value changes (638,887) 8,053 - - (630,834)

Remeasurement losses on defined

benefit plan - - - 5,106 5,106

Transferred to profit or loss 607,615 - - - 607,615

Income tax effect 9,382 - - - 9,382

Exchange differences - - (4,811) - (4,811)

As of June 30, 2016 ₱19,467 ₱110,487 ₱10,965 (₱1,365,974) (₱1,225,055)

-34-

For the Year Ended December 31, 2016

Cash flow

hedges AFS

Exchange

differences arising

from translations

of foreign

investments

Remeasurement

losses on defined

plan Total

(Audited and In Thousand Pesos)

As of January 1, 2015 ₱41,357 ₱102,434 ₱15,776 (₱1,371,080) (₱1,211,513)

Fair value changes (457,499) 13,440 - - (444,059)

Remeasurement losses on defined

benefit plan - - - 279,966 279,966

Transferred to profit or loss 320,977 - - - 320,977

Income tax effect 40,957 - - (82,458) (41,501)

Exchange differences - - 23,205 - 23,205

As of December 31, 2016 (₱54,208) ₱115,874 ₱38,981 (₱1,173,572) (₱1,072,925)

10. Costs and Expenses

a. General, selling and administrative expenses consist of:

Three-Month Period Ended

June 30

Six-Month Period Ended

June 30

2017 2016 2017 2016

(Unaudited and In Thousand Pesos)

Staff costs ₱2,947,063 ₱2,547,959 ₱5,945,735 ₱5,119,325 Professional and other contracted services 2,432,736 2,063,153 4,842,671 4,540,342 Selling, advertising and promotions 1,956,860 2,326,879 4,000,522 4,264,207

Repairs and maintenance 1,823,513 1,651,881 3,625,498 2,980,563

Rent 1,676,620 1,487,766 3,204,046 2,827,534

Utilities, supplies and other

administrative expenses 1,226,717 1,115,943 2,408,630 2,299,521

Taxes and licenses 739,640 417,348 1,259,935 814,150 Insurance and security services 406,914 414,146 814,890 826,177

Courier, delivery and miscellaneous

expenses 288,792 424,298 746,417 845,277

Others 202,026 171,860 409,602 364,564

₱13,700,881 ₱12,621,233 ₱27,257,946 ₱24,881,660

The “Others” account includes various items that are individually immaterial.

-35-

b. Impairment losses and others consist of:

Three-Month Period Ended

June 30

Six-Month Period Ended

June 30

2017 2016 2017 2016

(Unaudited and In Thousand Pesos)

Impairment loss on:

Receivables ₱724,141 ₱736,773 ₱1,465,360 ₱1,479,828 Property and equipment 1,122 - 16,403 - Provisions for:

Inventory obsolescence and

market decline 29,138 116,319 152,539 84,895

Other probable losses 312,790 (1,257) 332,253 85,151

₱1,067,191 ₱851,835 ₱1,966,555 ₱1,649,874

c. Financing costs consist of:

Three-Month Period Ended

June 30

Six-Month Period Ended

June 30

2017 2016 2017 2016

(Unaudited and In Thousand Pesos)

Interest expense* ₱1,235,247 ₱758,539 ₱2,356,233 ₱1,493,142

Swap and other financing costs - net 35,746 42,517 71,228 91,805

Loss on derivative instruments - net - 28,663 - -

₱1,270,993 ₱829,719 ₱2,427,461 ₱1,584,947

*This account is net of capitalized expense and inclusive of amortization of debt issuance costs.

Interest expense is incurred on the following:

Three-Month Period Ended

June 30

Six-Month Period Ended

June 30

2017 2016 2017 2016 (Unaudited and In Thousand Pesos)

Long-term debt ₱1,140,973 ₱660,482 ₱2,150,143 ₱1,291,369 Accretion expense 25,636 41,625 69,459 85,908 Amortization of debt issuance cost 32,041 22,281 62,816 47,245 Pension cost 36,457 32,471 72,838 64,941 Others 140 1,680 977 3,679

₱1,235,247 ₱758,539 ₱2,356,233 ₱1,493,142

11. Contingencies

a. On October 10, 2011, the NTC issued Memorandum Circular No. 02-10-2011 titled

Interconnection Charge for Short Messaging Service requiring all public telecommunication

entities to reduce their interconnection charge to each other from ₱0.35 to ₱0.15 per text,

which Globe Telecom complied as early as November 2011. On December 11, 2011, the

NTC One Stop Public Assistance Center (OSPAC) filed a complaint against Globe Telecom,

Smart and Digitel alleging violation of the said MC No. 02-10-2011 and asking for the

reduction of SMS off-net retail price from P1.00 to P0.80 per text. Globe Telecom filed its

response maintaining the position that the reduction of the SMS interconnection charges does

not automatically translate to a reduction in the SMS retail charge per text.

-36-

On November 20, 2012, the NTC rendered a decision directing Globe Telecom to:

1. Reduce its regular SMS retail rate from P1.00 to not more than ₱0.80;

2. Refund/reimburse its subscribers the excess charge of ₱0.20; and

3. Pay a fine of ₱200.00 per day from December 1, 2011 until date of compliance.

On May 7, 2014, NTC denied the Motion for Reconsideration (MR) filed by Globe Telecom

last December 5, 2012 in relation to the November 20, 2012 decision. Globe Telecom‟s

assessment is that Globe Telecom is in compliance with the NTC Memorandum Circular

No. 02-10-2011. On June 9, 2014, Globe Telecom filed petition for review of the NTC

decision and resolution with the Court of Appeals (CA).

The CA granted the petition in a resolution dated September 3, 2014 by issuing a 60-day

temporary restraining order on the implementation of Memorandum Circular 02-10-2011 by

the NTC. On October 15, 2014, Globe Telecom posted a surety bond to compensate for

possible damages as directed by the CA.

On June 27, 2016, the CA rendered a decision reversing the NTC‟s abovementioned decision

and resolution requiring telecommunications companies to cut their SMS rates and return the

excess amount paid by subscribers. The CA said that the NTC order was baseless as there is

no showing that the reduction in the SMS rate is mandated under MC No. 02-10-2011; there

is no showing, either that the present P1.00 per text rate is unreasonable and unjust, as this

was not mandated under the memorandum. Moreover, under the NTC‟s own

MC No. 02-05-2008, SMS is a value added service (VAS) whose rates are deregulated.

Thereafter, the NTC and the intervenors filed their respective motions for reconsideration

dated July 26, 2016 and September 14, 2016, which motions remain pending with the

appellate court.

Globe Telecom believes that it did not violate NTC MC No. 02-10-2011 when it did not

reduce its SMS retail rate from Php 1.00 to Php 0.80 per text, and hence, would not be

obligated to refund its subscribers. However, if it is ultimately decided by the Supreme Court

(in case an appeal is taken thereto by the NTC from the adverse resolution of the CA) that

Globe Telecom is not compliant with said circular, Globe may be contingently liable to

refund to its subscribers the ₱0.20 difference (between ₱1.00 and ₱0.80 per text) reckoned

from November 20, 2012 until said decision by the SC becomes final and executory.

Management does not have an estimate of the potential claims currently.

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

(Guidelines on Unit of Billing of Mobile Voice Service). The MC provides that the maximum

unit of billing for the CMTS whether postpaid or prepaid shall be six (6) seconds per pulse.

The rate for the first two (2) pulses, or equivalent if lower period per pulse is used, may be

higher than the succeeding pulses to recover the cost of the call set-up. Subscribers may still

opt to be billed on a one (1) minute per pulse basis or to subscribe to unlimited service

offerings or any service offerings if they actively and knowingly enroll in the scheme.

On December 28, 2010, the Court of Appeals (CA) rendered its decision declaring null and

void and reversing the decisions of the NTC in the rates applications cases for having been

issued in violation of Globe Telecom and the other carriers‟ constitutional and statutory right

to due process. However, while the decision is in Globe Telecom‟s favor, there is a provision

in the decision that NTC did not violate the right of petitioners to due process when it

declared via circular that the per pulse billing scheme shall be the default.

-37-

Last January 21, 2011, Globe Telecom and two other telecom carriers, filed their

respective Motions for Partial Reconsideration (MR) on the pronouncement that “the Per

Pulse Billing Scheme shall be the default”. The petitioners and the NTC filed their

respective Motion for Reconsideration, which were all denied by the CA on

January 19, 2012.

On March 12, 2012, Globe and Innove elevated to the Supreme Court the questioned

portions of the Decision and Resolution of the CA dated December 28, 2010 and its

Resolution dated January 19, 2012. The other service providers, as well as the NTC,

filed their own petitions for review. The adverse parties have filed their comments on

each other‟s petitions, as well as their replies to each other‟s comments. The case is now

submitted for resolution.

c. On May 22, 2006, Innove received a copy of the Complaint of Subic Telecom Company

(Subictel), Inc., a subsidiary of PLDT, seeking an injunction to stop the Subic Bay

Metropolitan Authority (SBMA) and Innove from taking any actions to implement the

Certificate of Public Convenience (CPCN) and Necessity granted by SBMA to Innove.

Subictel claimed that the grant of a CPCN allowing Innove to offer certain

telecommunications services within the Subic Bay Freeport Zone would violate the Joint

Venture Agreement (JVA) between PLDT and SBMA.

The Supreme Court ordered the reinstatement of the case and has forwarded it to the NTC

Olongapo for trial.

On July 13, 2016, the Regional Trial Court (RTC) in Olongapo rendered its decision

dismissing Subictel‟s complaint, as nothing in the JVA cited by Subictel supports its claim of

exclusivity. Moreover, the Constitution clearly provides that no franchise or authorization for

the operation of a public utility shall be exclusive in character. Subictel did not move for a

reconsideration of the RTC‟s decision. On October 19, 2016, Innove received a copy of

Subictel‟s Petition for Review to the Supreme Court dated September 13, 2016 assailing the

trial court‟s decision.

In a Resolution dated April 25, 2017, received by Globe on July 3, 2017, the Supreme Court

denied the petition for failure of the petitioner to sufficiently show that the RTC committed

any reversible error in the challenged decision as to warrant the exercise of the Court's

discretionary appellate jurisdiction.

d. (1) PLDT and its affiliate, Bonifacio Communications Corporation (BCC) and Innove and

Globe Telecom are in litigation over the right of Innove to render services and build

telecommunications infrastructure in the Bonifacio Global City (BGC). In the case filed by

Innove before the NTC against BCC, PLDT and the Fort Bonifacio Development

Corporation (FBDC), the NTC has issued a Cease and Desist Order preventing BCC from

performing further acts to interfere with Innove‟s installations in the BGC.

On January 21, 2011, BCC and PLDT filed with the CA a Petition for Certiorari and

Prohibition against the NTC, et al. seeking to annul the Order of the NTC dated

October 28, 2008 directing BCC, PLDT and FBDC to comply with the provisions of

NTC MC 05-05-02 and to cease and desist from performing further acts that will prevent

Innove from implementing and providing telecommunications services in the Fort

Bonifacio Global City pursuant to the authorization granted by the NTC.

On April 25, 2011, Innove Communications, filed its comment on the Petition.

On August 16, 2011, the CA ruled that the petition against Innove and the NTC lacked

merit, holding that neither BCC nor PLDT could claim the exclusive right to install

telecommunications infrastructure and providing telecommunications services within the

BGC. Thus, the CA denied the petition and dismissed the case. PLDT and BCC filed

their motions for reconsideration thereto, which the CA denied.

-38-

On July 6, 2012, PLDT and BCC assailed the CA‟s rulings via a petition for review on

certiorari with the Supreme Court. Innove and Globe filed their comment on said petition

on January 14, 2013, to which said petitioners filed their reply on May 21, 2013. The case

remains pending with the Supreme Court.

(2) In a case filed by PLDT against the NTC in Branch 96 of the RTC of Quezon City (QC),

where PLDT sought to obtain an injunction to prevent the NTC from hearing the case filed by

Innove, the RTC denied the prayer for a preliminary injunction and the case has been set for

further hearings. PLDT has filed a Motion for Reconsideration and Globe Telecom has

intervened in this case. In a resolution dated October 28, 2008, the RTC QC denied BCC„s

motion for the issuance of a temporary restraining order (TRO) on the ground that the NTC

has primary administrative jurisdiction over the case. On October 14, 2013, the RTC

issued an order dismissing the case. On November 12, 2013, PLDT elevated the case to

the CA. On July 25, 2016, the CA granted PLDT‟s petition, holding that the trial court

had jurisdiction, since the issues raised by PLDT were supposedly purely legal in

character. On August 17, 2016, the NTC through the Office of the Solicitor General

(OSG) moved for a reconsideration of the CA‟s decision. On January 10, 2017, the CA

issued a resolution denying NTC‟s motion for reconsideration.

(3) In a case filed by BCC against FBDC, Globe Telecom, and Innove before the Regional

Trial Court of Pasig, which case sought to enjoin Innove from making any further

installations in the BGC and claimed damages from all the parties for the breach of the

exclusivity of BCC in the area, the court did not issue a TRO and has instead scheduled

several hearings on the case. The defendants filed their respective motions to dismiss the

complaint on the grounds of forum shopping and lack of jurisdiction, among others. On

March 30, 2012, the RTC of Pasig, as prayed for, dismissed the complaint on the aforesaid

grounds.

The motion for reconsideration filed by BCC on July 20, 2012 remains pending with the trial

court.

(4) On November 11, 2008, BCC filed a criminal complaint against the officers of Innove,

FBDC and Innove contractor Avecs Corporation for malicious mischief and theft arising out

of Innove‟s disconnection of BCC„s duct at the Net Square buildings. The accused officers

filed their counter affidavits. On October 26, 2016, the Office of the City Prosecutor

dismissed the criminal complaint for lack of merit, holding that: First, NTC M. C. No. 05-05-

2002 declared Bonifacio Global City a free zone, an IT-Hub Area so as to maintain a viable,

efficient, reliable and universal telecommunications infrastructure. Any service provider is

welcome to operate and interconnect with others. Second, BCC's claimed exclusivity is not

absolute, as even BCC had agreed to sell to FBDC one duct bank for lease to other carriers

including Innove. Third, the alleged destruction of BCC's property was not fuelled by hate,

revenge or mere pleasure of destruction but the unfortunate and unintended result of Innove's

installation of telecommunications infrastructure in the building. Fourth, intent to gain was

not manifested, it being improbable that a large telecommunications company would steal

unused duct bank runs. And, fifth, the situation prescribed in P. D. No. 401 is the pilferage of

telecommunications services through illegal connection of telephone lines or stealing of

telephone meters, neither of which was committed in this case.

e. In a letter filed by Philippine Competition Commission (PCC) dated June 7, 2016

addressed to Globe Telecom, PLDT, SMC and VTI regarding the Joint Notice filed by

Globe Telecom, PLDT and SMC on May 30, 2016 disclosing the acquisition by Globe

Telecom and PLDT of the entire issued and outstanding shares of VTI, the PCC claims

that the Notice was deficient in form and substance and concludes that the acquisition

cannot be claimed to be deemed approved.

-39-

On June 10, 2016, Globe Telecom formally responded to the letter reiterating that the

Notice, which sets forth the salient terms and conditions of the transaction, was filed

pursuant to and in accordance with Memorandum Circular No. l6-002 (MC No. l6-002)

issued by the PCC. MC No. 16-002 provides that before the implementing rules and

regulations for Republic Act No. 10667 (the Philippine Competition Act of 2015) come

into full force and effect, upon filing with the PCC of a notice in which the salient

terms and conditions of an acquisition are set forth, the transaction is deemed approved

by the PCC and as such, it may no longer be challenged. Further, Globe Telecom

clarified in its letter that the supposed deficiency in form and substance of the Notice is

not a ground to prevent the transaction from being deemed approved. The only

exception to the rule that a transaction is deemed approved is when a notice contains

false material information. In this regard, Globe Telecom stated that the Notice does

not contain any false information.

On June 17, 2016, Globe Telecom received a copy of the second letter issued by PCC

stating that notwithstanding the position of Globe Telecom, it was ruling that the

transaction was still subject for review.

On July 12, 2016, Globe Telecom asked the CA to stop the government's anti-trust

body from reviewing the acquisition of SMC's telecommunications business. Globe

Telecom maintains the position that the deal was approved after Globe Telecom

notified the PCC of the transaction and that the anti-trust body violated its own rules by

insisting on a review. On the same day, Globe Telecom filed a Petition for Mandamus,

Certiorari and Prohibition against the PCC. On July 25, 2016, the CA, through its 6th

Division issued a resolution denying Globe Telecom‟s application for TRO and

injunction against PCC‟s review of the transaction. In the same resolution, however, the

CA required the PCC to comment on Globe Telecom's petition for certiorari and

mandamus within 10 days from receipt thereof. The PCC filed said comment on

August 8, 2016. In said comment, the PCC prayed that the ₱70 billion deal between

PLDT-Globe Telecom and San Miguel be declared void for PLDT and Globe

Telecom‟s alleged failure to comply with the requirements of the Philippine

Competition Act of 2015. The PCC also prayed that the CA direct Globe Telecom to:

cease and desist from further implementing its co-acquisition of the San Miguel

telecommunications assets; undo all acts consummated pursuant to said acquisition; and

pay the appropriate administrative penalties that may be imposed by the PCC under the

Philippine Competition Act for the illegal consummation of the subject acquisition.

The case remains pending with the CA.

Meanwhile, PLDT filed a similar petition with the CA, which was raffled off to its 12th

Division. On August 26, 2016, PLDT secured a TRO from said court. Thereafter,

Globe Telecom‟s petition was consolidated with that of PLDT, before the 12th

Division.

The consolidation effectively extended the benefit of PLDT‟s TRO to Globe Telecom.

The parties were required to submit their respective Memoranda, after which, the case

shall be deemed submitted for resolution.

On February 17, 2017, the CA issued a Resolution denying PCC‟s Motion for

Reconsideration dated September 14, 2016 for lack of merit. In the same Resolution,

the Court granted PLDT‟s Urgent Motion for the Issuance of a Gag Order and ordered

the PCC to remove the offending publication from its website and also to obey the sub

judice rule and refrain from making any further public pronouncements regarding the

transaction while the case remains pending. The Court also reminded the other parties,

PLDT and Globe, to likewise observe the sub judice rule. For this purpose, the Court

issued its gag order admonishing all the parties “to refrain, cease and desist from

issuing public comments and statements that would violate the sub judice rule and

subject them to indirect contempt of court. The parties were also required to comment

-40-

within ten days from receipt of the Resolution, on the Motion for Leave to Intervene,

and Admit the Petition-in Intervention dated February 7, 2017 filed by Citizenwatch, a

non-stock and non-profit association.

On April 18, 2017, PCC filed a petition before the Supreme Court to lift the CA's order

that has prevented the review of the sale of San Miguel Corp.'s telecommunications

unit to PLDT Inc. and Globe Telecom. On April 25, 2017, Globe filed before the

Supreme Court a Motion for Intervention with Motion to Dismiss the petition filed by

the PCC.

As of June 30, 2017, the Supreme Court did not issue any TRO on the PCC's petition to

lift the injunction issued by the CA. Hence, the PCC remains barred from reviewing

the SMC deal.

On July 26, 2017, Globe received the Supreme Court's en banc Resolution granting

Globe's Extremely Urgent Motion to Intervene. In the same Resolution, the Supreme

Court treated as Comment, Globe's Motion to Dismiss with Opposition Ad Cautelam to

PCC's Application for the Issuance of a Writ of Preliminary Injunction and/or TRO.

The Globe Group is contingently liable for various claims arising in the ordinary conduct

of business and certain tax assessments which are either pending decision by the courts or

are being contested, the outcome of which are not presently determinable. In the opinion

of management and legal counsel, the possibility of outflow of economic resources to

settle the contingent liability is remote.

12. Agreements and Commitments

Arrangements and Commitments with Suppliers

The Globe Group has entered into agreements with various suppliers for the development or

construction, delivery and installation of property and equipment. Under the terms of these

agreements, advance payments and downpayments are made to suppliers upon submission of

required documentation. While the development or construction is in progress, project costs

are accrued based on the project status. Billings are based on the progress of the development

or construction and advance payments are being applied proportionately to the milestone

billings. When development or construction and installation are completed and the property

and equipment is ready for service, the value of unbilled but delivered goods or services from

the related purchase orders is accrued.

As of June 30, 2017 and 2016, and December 31, 2016, the consolidated expected future

billings on the unaccrued portion of purchase orders issued amounted to ₱53,414.61 million,

₱41,407.00 million, and ₱50,094.61 million, respectively. The settlement of these liabilities is

dependent on the payment terms and project milestones agreed with the suppliers and

contractors.

Agreements and Commitments with Other Carriers

Globe Telecom, Innove and BTI have existing international telecommunications service

agreements with various foreign administrations and interconnection agreements with local

telecommunications companies for their various services. Globe Telecom also has

international roaming agreements with other foreign operators, which allow its subscribers

access to foreign networks. The agreements provide for sharing of toll revenues derived

from the mutual use of telecommunication networks.

-41-

Southeast Asia- United States Project

Globe Telecom has joined a consortium of seven international telecommunication companies

for the construction of a new submarine cable system directly connecting Southeast Asia and

the United States. Other members of the consortium include PT Telekomunikasi Indonesia

International (Telin), Telkom USA, RAM Telecom International (RTI), Hawaiian Telcom,

and Teleguam Holdings (GTA). The 15,000-kilometer cable system would link Manado in

Indonesia, Davao in the Philippines, Piti in Guam, Oahu in Hawaii, and Los Angeles in

California, providing superior latency delivering additional 20 terabits per second (Tbps),

utilizing 100 gigabits per second (Gbps) transmission equipment. Globe Telecom and GTIC

US is spending more than USD80 million for the SEA-US undersea cable system targeted to

be completed within 2017.

On March 17, 2015, Globe Telecom provided a written guaranty to NEC Corporation (NEC)

pursuant to the supply contract of the cable system between GTIC US and NEC. Globe

Telecom unconditionally guarantees the full and punctual performance by GTIC US of its

payment obligations up to an aggregate amount of USD46.23 million, less any payments

made in accordance with the terms and conditions of the contract. A default by GTIC US to

pay any guaranteed obligation under the contract is a condition that will render the guaranty

exercisable. Total payments amounted to USD8.28 million and USD12.51 million for

six-month period ended June 31, 2017 and 2016.

Services-based Operator License granted to Globe Telecom HK Limited (GTHK)

On March 17, 2015, GTHK has applied for a services-based operator license (SBO) with

Office of the Communications Authority in Hong Kong (OFCA) which was subsequently

approved on May 7, 2015. GTHK is licensed to provide a public telecommunications service

and establish and maintain a telecommunications system.

Agreements with Huawei International, Pte. Ltd.

In 2014, Globe Telecom and Innove engaged Huawei for a period of ten (10) years to

perform the design, engineering, manufacture, assembly and delivery of certain equipment

and all its ancillary equipment and related software and documentation, and to provide

services, including subsequent training and technical support, in an end-to-end full-turn key

outcome based technical solution. Globe Telecom is spending a total of ₱1,911.46 million for

the services and USD92.32 million for the equipment.

Agreements with premium content providers

The Globe Group has entered into various content and license distribution agreements with

various developers for periods ranging from 2 to 5 years. Under the agreements, the

developers granted Globe Group the right to market, reproduce and distribute the premium

content in the form of portable music streaming, videos, movies or other forms of content to

its subscribers. The agreement also provides for Globe to provide advertising and / or

promotions support at certain agreed amounts.

In consideration of the agreements, Globe agreed to pay royalty or service fees based on its

net revenues or active subscribers.

-42-

13. Earnings Per Share

Globe Group‟s earnings per share amounts were computed as follows:

Three-Month Period Ended

June 30

Six-Month Period Ended

June 30

2017 2016 2017 2016

(Unaudited and In Thousand Pesos and Number of Shares Except per Share

Figures)

Net income attributable to common shareholders ₱4,315,842 ₱4,616,111 ₱8,086,884 ₱8,956,389

Less: Dividends on preferred shares

Non-voting preferred shares (130,015) (130,015) (260,030) (260,030)

Convertible voting preferred shares (8,832) (7,627) (21,758) (22,675)

Net income attributable to common shareholders

for basic earnings per share (a) ₱4,176,995 ₱4,478,469 ₱7,805,096 ₱8,673,684

Add dividends on preferred shares

Convertible Voting preferred shares 8,832 7,627 21,758 22,675

Net income attributable to common shareholders for

diluted earnings per share (b) 4,185,827 4,486,096 7,826,854 8,696,359

Common shares outstanding, beginning 132,761 132,756 132,759 132,743

Add exercise of stock options 102 1 104 13

Weighted average number of shares for basic

earnings per share ( c) 132,863 132,757 132,863 132,756

Dilutive shares arising from:

Convertible preferred shares 381 341 402 371

Stock options 82 153 80 99

Adjusted weighted average number of common

stock for diluted earnings per share (d) 133,326 133,251 133,345 133,226

Basic earnings per share (a/c) ₱31.44 ₱33.73 ₱58.75 ₱65.34

Diluted earnings per share (b/d) ₱31.40 ₱33.67 ₱58.70 ₱65.28

14. Capital and Risk Management and Financial Instruments

a. General

The Globe Group adopts an expanded corporate governance approach in managing its

business risks. An Enterprise Risk Management Policy was developed to systematically

view the risks and to provide a better understanding of the different risks that could

threaten the achievement of the Globe Group‟s mission, vision, strategies, and goals, and

to provide emphasis on how management and employees play a vital role in achieving the

Globe Group‟s mission of transforming and enriching lives through communications.

The policies are not intended to eliminate risk but to manage it in such a way that

opportunities to create value for the stakeholders are achieved. Globe Group risk

management takes place in the context of the normal business processes such as strategic

planning, business planning, operational and support processes.

The application of these policies is the responsibility of the BOD through the Chief

Executive Officer. The Chief Financial Officer and concurrent Chief Risk Officer

champions and oversees the entire risk management function. Risk owners have been

identified for each risk and they are responsible for coordinating and continuously

improving risk strategies, processes and measures on an enterprise-wide basis in

accordance with established business objectives.

-43-

The risks are managed through the delegation of management and financial authority and

individual accountability as documented in employment contracts, consultancy contracts,

letters of authority, letters of appointment, performance planning and evaluation forms,

key result areas, terms of reference and other policies that provide guidelines for managing

specific risks arising from the Globe Group‟s business operations and environment.

The Globe Group continues to monitor and manage its financial risk exposures according

to its BOD approved policies.

b. Categories of Financial Assets and Financial Liabilities

The table below presents the carrying value of Globe Group‟s financial instruments by

category (in thousand pesos):

June 30 December 31

2017 2016

(Unaudited)

2016 (Unaudited) (Unaudited) (Audited)

Financial assets: Financial assets at FVPL: Derivative assets designated as cash flow hedges ₱914,555 ₱582,197 ₱755,137 Derivative assets not designated as hedges 37,662 2,444 68,311 AFS investment in equity securities - net 1,039,887 635,005 794,087 Loans and receivables - net* 37,471,843 33,978,376 36,029,700

₱39,409,946 ₱35,198,022 ₱37,647,235

Financial liabilities: Financial liabilities at FVPL: Derivative liabilities designated as cash flow hedges 78,221 141,337 61,792 Derivative liabilities not designated as hedges 34,211 2,789 44,136 Financial liabilities at amortized cost** 187,568,498 153,616,745 171,535,994

₱187,680,930 ₱153,760,871 ₱171,641,922

*This consists of cash and cash equivalents, receivables, other nontrade receivables and loans receivables.

**This consists of accounts payable, accrued expenses, accrued project cost, traffic settlement-net, dividends payable, notes

payable, long-term debt (including current portion) and other long-term liabilities (including current portion).

As of June 30, 2017 and 2016, and December 31, 2016, the Globe Group has no investments

in foreign securities.

-44-

c. Aging Analysis of Accounts Receivable

As of June 30, 2017 and 2016 and December 31, 2016, the aging analysis of the Globe

Group‟s receivables is as follows:

June 30, 2017

Neither Past Past Due But Not Impaired Impaired

Due Nor

Impaired

Less than 30

days 31 to 60 days 61 to 90 days

More than 90

days

Financial

Assets Total

(Unaudited and In Thousand Pesos) Wireless receivables:

Consumer

₱800,045

₱1,345,834 ₱446,584

₱228,419 ₱7,588,135

₱2,191,961

₱12,600,978

Key corporate accounts 29,508 144,435 97,944 142,067 2,109,454 594,941 3,118,349

Other corporations and SME 76,299 138,246 68,963 33,083 1,177,836 91,759 1,586,186

905,852 1,628,515 613,491 403,569 10,875,425 2,878,661 17,305,513

Wireline receivables:

Consumer 748,134 401,829 162,989 74,501 1,136,005 3,470,098 5,993,556

Key corporate accounts 187,376 398,962 656,538 528,007 3,177,734 1,045,594 5,994,211

Other corporations and SME 144,293 99,603 66,267 39,212 200,101 730,164 1,279,640

1,079,803 900,394 885,794 641,720 4,513,840 5,245,856 13,267,407

Other trade receivables 224,934 68,746 62,935 33,534 173,330 62,129 625,608

Traffic receivables:

Foreign 1,941,716 - - - - 165,287 2,107,003

Local 149,755 16,057 2,552 5,011 4,037 13,686 191,098

2,091,471 16,057 2,552 5,011 4,037 178,973 2,298,101

Other receivables 1,706,752 - - - - 161,869 1,868,621

Total ₱6,008,812 ₱2,613,712 ₱1,564,772 ₱1,083,834 ₱15,566,632 ₱8,527,488 ₱35, 365,250

June 30, 2016

Neither Past Past Due But Not Impaired Impaired

Due Nor

Impaired

Less than 30

days 31 to 60 days 61 to 90 days

More than 90

days Financial Assets

Total

(Unaudited and In Thousand Pesos)

Wireless receivables:

Consumer ₱579,551 ₱835,964 ₱493,658 ₱260,234 ₱6,485,301 ₱3,374,021 ₱12,028,729

Key corporate accounts 23,079 91,596 178,416 159,719 1,955,712 254,496 2,663,018

Other corporations and

SME 86,718 143,844 96,680 55,668 1,572,207 420,509 2,375,626

689,348 1,071,404 768,754 475,621 10,013,220 4,049,026 17,067,373

Wireline receivables:

Consumer 868,233 489,978 250,020 148,823 223,629 4,549,729 6,530,412

Key corporate accounts 291,411 432,674 427,953 545,314 1,767,144 675,744 4,140,240

Other corporations and SME 133,819 104,618 62,950 45,361 77,455 722,589 1,146,792

1,293,463 1,027,270 740,923 739,498 2,068,228 5,948,062 11,817,444

Other trade receivables 155,676 15,674 35,344 1,344 - - 208,038

Traffic receivables:

Foreign 1,042,975 - - - - 150,280 1,193,255

Local 238,315 6,690 4,445 1,745 7,698 154,878 413,771

1,281,290 6,690 4,445 1,745 7,698 305,158 1,607,026

Other receivables 426,476 - - - - 293,983 720,459

Total ₱3,846,253 ₱2,121,038 ₱1,549,466 ₱1,218,208 ₱12,089,146 ₱10,596,229 ₱31,420,340

-45-

December 31, 2016

Neither Past Past Due But Not Impaired

Due Nor

Impaired

Less than 30

days 31 to 60 days 61 to 90 days

More than 90

days

Impaired

Financial Assets Total

(Audited and In Thousand Pesos)

Wireless receivables:

Consumer ₱ 1,151,907 ₱597,739 ₱591,809 ₱353,190 ₱7,146,334 ₱2,712,548 ₱12,553,527

Key corporate accounts 56,065 100,468 178,867 179,935 2,111,378 439,123 3,065,836

Other corporations and SME 236,945 92,940 96,655 59,518 1,291,470 362,720 2,140,248

1,444,917 791,147 867,331 592,643 10,549,182 3,514,391 17,759,611

Wireline receivables:

Consumer 734,193 319,697 176,490 109,843 1,397,681 3,634,115 6,372,019

Key corporate accounts 320,294 440,932 708,345 613,400 2,863,094 524,815 5,470,880

Other corporations and SME 129,798 94,323 84,918 50,721 172,305 645,175 1,177,240

1,184,285 854,952 969,753 773,964 4,433,080 4,804,105 13,020,139

Other trade receivables 89,031 64,998 54,479 24,335 30,209 - 263,052

Traffic receivables:

Foreign 1,525,630 - - - - 160,245 1,685,875

Local 215,356 7,500 2,314 1,116 1,122 18,267 245,675

1,740,986 7,500 2,314 1,116 1,122 178,512 1,931,550

Other receivables 1,970,288 - - - - 165,607 2,135,895

Total ₱6,429,507 ₱1,718,597 ₱1,893,877 ₱1,392,058 ₱15,013,593 ₱8,662,615 ₱35,110,247

The Globe Group‟s receivables and related allowances for impairment follow:

June 30 December 31

2017

(Unaudited)

2016

(Unaudited)

2016

(Restated)

(In Thousand Pesos)

Subscribers ₱31,198,528

1,894,597

1,868,620

34,961,745

7,450,451

551,627

8,002,078

₱26,959,667

₱29,092,855 ₱ 31,042,802 Traffic Settlements – net 2,298,101 1,607,026 1,931,550 Dealers and others 1,868,621 720,459 2,135,895

35,365,250 31,420,340 35,110,247

Less allowance for impairment

losses:

Subscribers 7,450,451 7,906,303 7,598,120 Traffic settlements and others 551,628 689,042 567,482

8,002,079 8,595,345 8,165,602

₱27,363,171 ₱22,824,995 ₱ 26,944,645

-46-

d. Fair Values of Financial Assets and Financial Liabilities

The table below presents a comparison of the carrying amounts and estimated fair values of

all the Globe Group‟s financial instruments as of:

June 30 December 31

2017 (Unaudited) 2016 (Unaudited) 2016 (Audited)

Carrying

Value

Fair

Value

Carrying

Value

Fair

Value

Carrying

Value

Fair

Value

(In Thousand Pesos)

Financial Assets

Derivative assets ₱952,217 ₱952,217 ₱584,641 ₱584,641 ₱823,448 ₱823,448

AFS investment in equity securities 1,039,887 1,039,887 635,005 635,005 794,087 794,087

₱1,992,104 ₱1,992,104 ₱1,219,646 ₱1,219,646 ₱1,617,535 ₱1,617,535

Financial Liabilities

Derivative liabilities ₱112,432 ₱112,432 ₱144,126 ₱144,126 ₱105,928 ₱105,928 Long-term debt (including current portion) 122,378,294 147,019,639 75,236,162 80,394,591 101,228,592 103,963,908

₱122,490,726 ₱147,132,071 ₱75,380,288 ₱80,538,717 ₱101,334,520 ₱104,069,836

The following discussions are methods and assumptions used to estimate the fair

value:

The fair value of AFS investments are based on quoted prices. Unquoted AFS equity

securities are carried at cost, subject to impairment.

For variable rate financial instruments that reprice every three months, the carrying

value approximates the fair value because of recent and regular repricing based on

current market rates. For variable rate financial instruments that reprice every six

months, the fair value is determined by discounting the principal amount plus the

next interest payment using the prevailing market rate for the period up to the next

repricing date. The discount rates used for USD floating loans range from 1.3023%

to 1.6953%. For noninterest bearing obligations, the fair value is estimated as the

present value of all future cash flows discounted using the prevailing market rate of

interest for a similar instrument.

The fair value of freestanding and embedded forward exchange contracts is

calculated by using the interest rate parity concept.

The fair values of interest rate swap and cross currency swap transactions are

determined using valuation techniques with inputs and assumptions that are based on

market observable data and conditions and reflect appropriate risk adjustments that

market participants would make for credit and liquidity risks existing at the end of

each reporting period. The fair value of interest rate swap transactions is the net

present value of the estimated future cash flows.

The fair values of currency and cross currency swap transactions are determined

based on changes in the term structure of interest rates of each currency and the spot

rate.

The fair values were tested to determine the impact of credit valuation adjustments.

However, the impact is immaterial given that the Globe Group deals its derivatives

with large foreign and local banks with minimal risk of default.

-47-

e. Fair Value Hierarchy

The following tables provide the fair value measurement hierarchy of the Globe Group‟s

assets and liabilities:

June 30, 2017

Fair value measurement using

Quoted

prices in

active

markets

(Level 1)

Significant

observable

inputs

(Level 2)

Significant

unobservable

inputs

(Level 3) Total

Assets measured at fair value: (Unaudited and In Thousand Pesos)

Derivative assets

Cross currency swaps ₱- ₱680,203 ₱- ₱680,203

Principal only swaps - 219,151 - 219,151

Interest rate swaps - 15,201 - 15,201

Embedded currency forwards - 22,303 - 22,303

Nondeliverable forwards - 15,359 - 15,359

AFS investment in equity securities 250,400 789,487 - 1,039,887

Liabilities measured at fair value:

Derivative liabilities

Cross currency swaps - 28,228 - 28,228

Principal only swaps - 36,637 - 36,637

Interest rate swaps - 13,356 - 13,356

Embedded currency forwards - 34,211 - 34,211

Long-term debt (including current portion) - 147,019,639 - 147,019,639

June 30, 2016

Fair value measurement using

Quoted

prices in

active

markets

(Level 1)

Significant

observable

inputs

(Level 2)

Significant

unobservable

inputs

(Level 3) Total

Assets measured at fair value: (Unaudited and In Thousand Pesos)

Derivative assets

Cross currency swaps ₱- ₱494,721 ₱- ₱494,721

Principal only swaps - 87,476 - 87,476

Embedded currency forwards - 2,444 - 2,444

Deliverable forwards - - - -

AFS investment in equity securities 222,926 412,079 - 635,005

Liabilities measured at fair value:

Derivative liabilities

Cross currency swaps - 48,345 - 48,345

Principal only swaps - 92,992 - 92,992

Embedded Currency forwards - 2,789 - 2,789

Long-term debt (including current portion) - 80,394,591 - 80,394,591

-48-

December 31, 2016

Fair value measurement using

Quoted prices

in active

markets

(Level 1)

Significant

observable

inputs

(Level 2)

Significant

unobservable

inputs

(Level 3) Total

Assets measured at fair value: (In Thousand Pesos)

Derivative assets:

Cross currency swaps ₱ - ₱612,712 ₱ - ₱612,712

Interest rate swaps - 18,548 - 18,548

Principal only swaps - 123,877 - 123,877

Embedded currency forwards - 48,947 - 48,947

Nondeliverable forwards - 19,364 - 19,364

AFS investment in equity securities 228,200 565,887 - 794,087

Liabilities measured at fair value:

Derivative liabilities:

Cross currency swaps - 31,170 - 31,170

Principal only swaps - 30,621 - 30,621

Embedded Currency forwards - 34,674 - 34,674

Deliverable forwards - 9,463 - 9,463

Long-term debt (including current portion) - 103,963,908 - 103,963,908

There were no transfers from Level 1 and Level 2 fair value measurements as of

June 30, 2017 and 2016, and December 31, 2016. The Globe Group has no financial

instruments classified under Level 3.

15. Operating Segment Information

The Globe Group‟s reportable segments consist of: (1) mobile communications services; and

(2) fixed line & broadband access, which the Globe Group operates and manages as strategic

business units and organize by products and services. The Globe Group presents its various

operating segments based on segment net income.

The mobile value added data content and application development services coming from

various revenue streams are reported under mobile communication services segment to

conform to the current presentation of internal management reports.

Intersegment transfers or transactions are entered into under the normal commercial terms

and conditions that would also be available to unrelated third parties. Segment revenue,

segment expense and segment result include transfers between business segments. Those

transfers are eliminated in consolidation.

Most of revenues are derived from operations within the Philippines, hence, the Globe

Group does not present geographical information required by PFRS 8, Operating Segments.

The Globe Group does not have a single customer that will meet the 10% reporting criteria.

The Globe Group also presents the different product types that are included in the report that

is regularly reviewed by the chief operating decision maker in assessing the operating

segments performance.

Segment assets and liabilities are not measures used by the chief operating decision maker

since the assets and liabilities are managed on a group basis.

-49-

The Globe Group‟s segment information is as follows:

June 30, 2017

Mobile

Communication

Services

Fixed Line

& Broadband Consolidated

REVENUES:

Service revenues

External customers:

Voice ₱16,222,995 ₱1,834,003 ₱18,056,998

SMS 11,790,323 - 11,790,323

Data 20,306,132 5,021,240 25,327,372

Broadband - 7,725,871 7,725,871

Nonservice revenues:

External customers 3,529,648 117,004 3,646,652

Segment revenues 51,849,098 14,698,118 66,547,216

EBITDA 22,896,872 4,362,018 27,258,890

Depreciation and amortization (6,964,433) (6,102,159) (13,066,592)

EBIT 15,932,439 (1,740,141) 14,192,298

NET INCOME (LOSS) BEFORE TAX 13,470,822 (1,755,650) 11,715,172 Provision for income tax (2,806,552) (820,392) (3,626,944)

NET INCOME (LOSS) ₱ 10,664,270 (₱2,576,042) ₱ 8,088,228

Core net income after tax ₱7,974,093

Intersegment revenues (1,146,562) (769,337) (1,915,899) Subsidy1 (2,626,649) (43,437) (2,670,086) Interest income2 49,259 13,372 62,631 Interest expense (2,347,241) (8,992) (2,356,233) Equity in net losses of joint ventures (239,341) - (239,341) Impairment losses and others (1,875,355) (91,200) (1,966,555) Capital expenditure 23,695,126 6,244,899 29,940,025 Cost of sales (6,156,297) (160,441) (6,316,738)

Operating Expenses (22,814,357) (10,157,232) (32,971,589)

Cash Flows Net cash provided by (used in):

Operating activities 21,085,737 10,157,054 31,242,791 Investing activities (33,349,678) (5,998,164) (39,347,842) Financing activities 11,972,453 (3,036,548) 8,935,905

1 Computed as non-service revenues less cost of sales

2 Net of final taxes

-50-

June 30, 2016

Mobile

Communication

Services

Fixed Line

& Broadband Consolidated

REVENUES:

Service revenues

External customers:

Voice ₱16,652,118 ₱1,933,546 ₱18,585,664

SMS 11,339,410 - 11,339,410 Data 17,934,616 4,863,367 22,797,983 Broadband - 7,148,846 7,148,846

Nonservice revenues: External customers 3,079,868 259,134 3,339,002

Segment revenues 49,006,012 14,204,893 63,210,905

EBITDA 21,736,792 3,861,093 25,597,885 Depreciation and amortization (5,230,434) (6,227,988) (11,458,422)

EBIT 16,506,358 (2,366,895) 14,139,463

NET INCOME (LOSS) BEFORE TAX 15,060,398 (2,273,583) 12,786,815 Provision for income tax (3,009,291) (803,170) (3,812,461)

NET INCOME (LOSS) ₱12,051,107 (₱3,076,753) ₱8,974,354

Core net income after tax ₱8,836,665

Intersegment revenues (1,166,014) (651,249) (1,817,263) Subsidy1 (3,109,190) (119,656) (3,228,846) Interest income2 58,022 29,404 87,426 Interest expense (1,482,001) (11,141) (1,493,142) Equity in net losses of joint ventures (72,473) - (72,473) Impairment losses and others (1,263,065) (386,809) (1,649,874) Capital expenditure 11,309,839 4,130,795 15,440,634 Cost of sales (6,189,052) (378,790) (6,567,842)

Operating Expenses (21,091,763) (9,953,214) (31,044,977)

Cash Flows Net cash provided by (used in):

Operating activities 16,981,175 2,672,611 19,653,786

Investing activities (26,933,277) (3,148,311) (30,081,588)

Financing activities 10,476,673 (2,254,000) 8,222,673

1 Computed as non-service revenues less cost of sales

2 Net of final taxes

-51-

The reconciliation of the EBITDA to income before income tax presented in the

consolidated statements of comprehensive income is shown below:

Six-Month Period Ended June 30

2017

(Unaudited)

2016

(Unaudited)

EBITDA ₱27,258,890 ₱25,597,885

Depreciation and amortization (13,066,592) (11,458,422)

Financing costs (2,427,461) (1,584,947)

Equity in net losses of joint ventures (239,341) (72,473)

Interest income 62,631 88,309

Gain on disposal of property and equipment - net 28,255 64,253

Other items 98,790 152,210

Income before income tax ₱11,715,172 ₱12,786,815

The reconciliation of CORE NIAT to NIAT is shown below:

Six-Month Period Ended June 30

2017

(Unaudited)

2016

(Unaudited)

(In Thousand Pesos)

CORE NIAT ₱7,974,093 ₱8,836,665

Mark-to-market gains (losses) 79,744 301,422

Gain on previously held associate (9,103) -

Foreign exchange losses (gains) 7,318 (199,981)

Others 36,176 36,248

NIAT ₱8,088,228 ₱8,974,354

-52-

15.1 Mobile Communications Services

This reporting segment is made up of digital cellular telecommunications services that

allow subscribers to make and receive local, domestic long distance and international long

distance calls, international roaming calls and other value added services (VAS) in any

place within the coverage areas.

15.1.1 Mobile communication voice net service revenues include the following:

a) Pro-rated monthly service fees on postpaid plans;

b) Charges for intra-network and outbound calls in excess of the consumable

minutes for various Globe Postpaid plans, including currency exchange rate

adjustments (CERA) net of loyalty discounts credited to subscriber billings;

c) Airtime fees for intra network and outbound calls recognized upon the earlier of

actual usage of the airtime value or expiration of the unused value of the prepaid

reload denomination (for Globe Prepaid and TM) which occurs between 3 and

120 days after activation depending on the prepaid value reloaded by the

subscriber net of (i) bonus credits and (ii) prepaid reload discounts;

d) Revenues generated from inbound international and national long distance calls

and international roaming calls; and

e) Mobile revenues of GTI.

15.1.2 Mobile SMS net service revenues consist of local and international revenues from

value-added services such as inbound and outbound SMS and MMS, and infotext,

subscription fees on unlimited and bucket prepaid SMS services, net of any

payouts to content providers..

15.1.3 Mobile communication data net service revenues consist of local and international

revenues from value-added services such as mobile internet browsing and content

downloading and streaming of content, applications, mobile commerce services,

other add-on VAS and service revenues of GXI and Yondu, net of payouts to

content providers.

15.1.4 Globe Telecom offers its wireless communications services to consumers,

corporate and SME clients through the following three (3) brands: Globe Postpaid,

Globe Prepaid and Touch Mobile (TM).

-53-

15.2 Wireline Communications Services

This reporting segment is made up of fixed line telecommunications services which

offer subscribers local, domestic long distance and international long distance voice

services in addition to broadband and mobile internet services and a number of VAS in

various areas covered by the Certificate of Public Convenience and Necessity (CPCN)

granted by the NTC.

15.2.1 Wireline voice net service revenues consist of the following:

a) Monthly service fees including CERA of voice-only subscriptions;

b) Revenues from local, international and national long distance calls made

by postpaid and prepaid wireline subscribers, as well as broadband

customers who have subscribed to data packages bundled with a voice

service. Revenues are net of prepaid call card discounts;

c) Revenues from inbound local, international and national long distance

calls from other carriers terminating on our network;

d) Revenues from additional landline features such as caller ID, call waiting,

call forwarding, multi-calling, voice mail, duplex and hotline numbers and

other value-added features.

e) Installation charges and other one-time fees associated with the

establishment of the service; and

f) Revenues from DUO and SUPERDUO (Fixed line portion) service

consisting of monthly service fees for postpaid and subscription fees for

prepaid.

15.2.2 Wireline data net service revenues consist of the following:

a) Monthly service fees from international and domestic leased lines.

b) Other wholesale transport services;

c) Revenues from value-added services; and

d) One-time connection charges associated with the establishment of service.

15.2.3 Broadband service revenues consist of the following:

a) Monthly service fees of wired, fixed wireless and bundled voice and date

subscriptions;

b) Browsing revenues from all postpaid and prepaid wired, fixed wireless in

excess of allocated free browsing minutes and expiration of unused value

of prepaid load credits;

c) Value-added services such as games; and

d) Installation charges and other one-time fees associated with the service.

-54-

15.2.4 The Globe Group provides wireline voice communications (local, national and

international long distance), data and broadband and data services to

consumers, corporate and SME clients in the Philippines.

Consumers - the Globe Group‟s postpaid voice service provides basic

landline services including toll-free NDD calls to other Globe landline

subscribers for a fixed monthly fee. For wired broadband, consumers can

choose between broadband services bundled with a voice line, or a

broadband data-only service. The Globe Group offers broadband packages

bundled with voice, or broadband data-only service. For subscribers who

require full mobility, Globe Broadband service come in postpaid and

prepaid packages and allow them to access the internet via LTE, 3G with

HSDPA, Enhanced Datarate for GSM Evolution (EDGE), General Packet

Radio Service (GPRS) or WiFi at hotspots located nationwide.

Corporate/SME clients - for corporate and SME enterprise clients wireline

voice communication needs, the Globe Group offers postpaid service

bundles which come with a business landline and unlimited dial-up internet

access. The Globe Group also provides a full suite of telephony services

from basic direct lines to Integrated Services Digital Network (ISDN)

services, 1-800 numbers, International Direct Dialing (IDD) and National

Direct Dialing (NDD) access as well as managed voice solutions such as

Voice Over Internet Protocol (VOIP) and managed Internet Protocol (IP)

communications. Value-priced, high speed data services, wholesale and

corporate internet access, data center services and segment-specific

solutions customized to the needs of vertical industries.

16. Note to Interim Condensed Consolidated Statements of Cash Flows

The principal noncash transactions are as follows:

For the Six-Month Period

Ended June 30

2017 2016

(Unaudited and In Thousands)

Increase (decrease) in liabilities related to

the acquisition of property and equipment and intangible assets ₱2,227,682 (₱1,822,434)

Unpaid investments and advances 173,634 21,641,772

Capitalized ARO (131,543) 2,125

-55-

17. Events after the Reporting Period

On August 7, 2017, the BOD approved the declaration of the third quarterly cash dividend of

₱22.75 per common share, payable to common stockholders of record as of August 22, 2017.

Total dividends amounting to ₱3.0 billion will be payable on September 6, 2017.

-56-

18. Schedule 1

FINANCIAL SOUNDNESS INDICATORS June 30 December 31

2017 2016

FINANCIAL RATIOS

Debt to EBITDA - gross 2.44 2.15

Debt to EBITDA - net 2.25 1.97

Debt Service Coverage Ratio 7.15 4.18

Interest Coverage Ratio 9.45 12.50

Debt to Equity (D/E Ratio) - gross 1.89 1.67

Debt to Equity (D/E Ratio) - net 1.75 1.53

Debt to Total Capitalization - book 0.65 0.62

Debt to Total Capitalization - market 0.30 0.33

Total Asset to Equity Ratio 4.05 3.94

Current Ratio 0.64 0.64

Solvency Ratio 0.11 0.23

June 30 June 30

2017 2016

PROFITABILITY MARGINS

EBITDA Margins 43% 43%

Net Profit Margin 13% 15%

Return on Equity 25% 30%