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Globe 2012 annual report
financial report
whether the Globe Group has inventory risk;
whether the Globe Group has discretion in establishing prices; and,
whether the Globe Group bears the credit risk.
If the Globe Group has determined it is acting as a principal, the Group recognizes revenue on a gross
basis, with the amount remitted to the other party being accounted for as part of costs and expenses.
If the Globe Group has determined it is acting as an agent, only the net amount retained is recognized as
revenue.
The Globe Group assessed its revenue arrangements and concluded that it is acting as a principal in some
arrangements and as an agent in other arrangements.
3.1.6 Provisions and Contingencies
Globe Group is currently involved in various legal proceedings. The estimate of the probable costs for the
resolution of these claims has been developed in consultation with internal and external counsel handling
Globe Group’s defense in these matters and is based upon an analysis of potential results. Globe Group
currently does not believe that these proceedings will have a material adverse effect on the consolidated
statements of financial position and results of operations. It is possible, however, that future results of
operations could be materially affected by changes in the estimates or in the effectiveness of the strategies
relating to these proceedings (see Note 26).
3.1.7 Classification of Non-current Assets Held for Sale
The Globe Group classified certain non-current assets as held-for-sale in 2010. PFRS 5, Noncurrent
Assets Held for Sale and Discontinued Operations, requires that the sale should be expected to qualify for
recognition as a completed sale within one year from the date of classification, with certain exceptions.
Globe Group has determined that circumstances have occurred which will qualify as exception to the timing
of the recognition of the sale.
As of December 31, 2012, the Globe Group retained the classification of its non-current assets as held for
sale, including the related liabilities. Globe Group expects no changes in the terms of agreement and on
the valuation as the considerations have already been fixed, and remains to be committed to its plan to sell
the assets. Globe Group expects that the sale will be fully executed within 2013 (see Note 25.4).
3.2 Estimates
3.2.1 Revenue recognition
The Globe Group’s revenue recognition policies require management to make use of estimates and
assumptions that may affect the reported amounts of revenues and receivables.
The Group estimates the fair value of points awarded under its Loyalty programmes, which are within the
scope of Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, by applying estimation
procedures using historical data and trends. The points expected to be redeemed is estimated based on
the remaining points, the run-rate redemption by the subscribers and the points to peso conversion. As of
December 31, 2012, 2011 and 2010, the estimated liability for unredeemed points included in “Unearned
revenues” amounted to P=244.25 million, P=21.71 million, and P=121.81 million, respectively.
As a result of continuous improvements in the Globe Group’s estimation process, the Group recognized a
one-time upward adjustment (included in the “Service revenues” account of the statements of
comprehensive income) amounting to P=526.00 million in the fourth quarter of 2010, representing prepaid
load credits that have either expired or have already been used up.
3.2.2 Allowance for impairment losses on receivables
The Globe Group maintains an allowance for impairment losses at a level considered adequate to provide
for potential uncollectible receivables. The Globe Group performs a regular review of the age and status of
these accounts, designed to identify accounts with objective evidence of impairment and provide the
appropriate allowance for impairment losses. The review is accomplished using a combination of specific
and collective assessment approaches, with the impairment losses being determined for each risk grouping
identified by the Globe Group. The amount and timing of recorded expenses for any period would differ if
the Globe Group made different judgments or utilized different methodologies. An increase in allowance for
impairment losses would increase the recorded operating expenses and decrease current assets.
Impairment losses on receivables for the years ended December 31, 2012, 2011 and 2010 amounted to
P=1,377.32 million, P=1,599.97 million, and P=1,285.53 million, respectively (see Note 23). Receivables, net of
allowance for impairment losses, amounted to P=12,105.44 million, P=10,119.51 million, and
P=8,374.12 million as of December 31, 2012, 2011 and 2010, respectively (see Note 4).
3.2.3 Obsolescence and market decline
The Globe Group, in determining the NRV, considers any adjustment necessary for obsolescence which is
generally provided 100% for nonmoving items after a certain period. The Globe Group adjusts the cost of
inventory to the recoverable value at a level considered adequate to reflect market decline in the value of
the recorded inventories. The Globe Group reviews the classification of the inventories and generally
provides adjustments for recoverable values of new, actively sold and slow-moving inventories by reference
to prevailing values of the same inventories in the market.
The amount and timing of recorded expenses for any period would differ if different judgments were made
or different estimates were utilized. An increase in allowance for obsolescence and market decline would
increase recorded operating expenses and decrease current assets.
Inventory obsolescence and market decline for the years ended December 31, 2012, 2011 and 2010
amounted to P=170.68 million, P=237.92 million, and P=42.12 million, respectively (see Note 23).
Inventories and supplies, net of allowances, amounted to P=2,076.18 million, P=1,911.19 million, and
P=1,839.33 million as of December 31, 2012, 2011 and 2010, respectively (see Note 5).
3.2.4 ARO
The Globe Group is legally required under various contracts to restore leased property to its original
condition and to bear the costs of dismantling and deinstallation at the end of the contract period. These
costs are accrued based on an in-house estimate, which incorporates estimates of asset retirement costs
and interest rates. The Globe Group recognizes the present value of these obligations and capitalizes the
present value of these costs as part of the balance of the related property and equipment accounts, which
are being depreciated and amortized on a straight-line basis over the EUL of the related asset or the lease
term, whichever is shorter.
The present value of dismantling costs is computed based on an average credit-adjusted risk-free rate of
6.85%, 6.98%, and 9.27% in 2012, 2011 and 2010, respectively. Assumptions used to compute ARO are
reviewed and updated annually.
The amount and timing of recorded expenses for any period would differ if different judgments were made
or different estimates were utilized. An increase in ARO would increase recorded operating expenses and
increase noncurrent liabilities.
The Globe Group updated its assumptions on timing of settlement and estimated cash outflows arising from
ARO on its leased premises. As a result of the changes in estimates, the Globe group adjusted downward
its ARO liability (included under “Other long-term liabilities” account) by P=25.53 million, P=1.64 million, and
P=64.45 million in 2012, 2011 and 2010 against the book value of the assets on leased premises
(see Note 15).
As of December 31, 2012, 2011 and 2010, ARO amounted to P=1,594.63 million, P=1,476.60 million, and
P=1,341.53 million, respectively (see Note 15).
3.2.5 EUL of property and equipment, investment property and intangible assets
Globe Group reviews annually the EUL of these assets based on expected asset utilization as anchored on
business plans and strategies that also consider expected future technological developments and market
behavior. It is possible that future results of operations could be materially affected by changes in these
estimates brought about by changes in the factors mentioned.
A reduction in the EUL of property and equipment, investment property and intangible assets would
increase the recorded depreciation and amortization expense and decrease noncurrent assets.
The EUL of property and equipment of the Globe Group are as follows:
Years
Telecommunications equipment:
Tower 20
Switch 7 and 10
Outside plant, cellsite structures and improvements 10-20
Distribution dropwires and other wireline assets 2-10
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