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Globe 2012 annual report
financial report
Cellular equipment and others 3-10
Buildings 20
Leasehold improvements
5 years or lease term,
whichever is shorter
Investments in cable systems 15
Office equipment 3-5
Transportation equipment 3-5
The EUL of investment property is twenty (20) years.
Intangible assets comprising 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 equipment
where it is assigned. Customer contracts acquired during business combination are amortized over five (5)
years.
In 2012, 2011 and 2010, the Globe Group changed the EUL of certain wireless and wireline
telecommunications equipment and licenses resulting from new information affecting the expected
utilization of these assets. The net effect of the change in EUL resulted in higher depreciation of
P=4,245.30 million, P=243.04 million, and P=119.03 million in 2012, 2011 and 2010, respectively.
As of December 31, 2012, 2011 and 2010, the aggregate carrying value of property and equipment,
investment property and intangible assets amounted to P=104,889.20 million, P=102,723.81 million, and
P=104,972.70 million, respectively (see Notes 7, 8 and 9).
3.2.6 Asset impairment
3.2.6.1 Impairment of nonfinancial assets other than goodwill
The Globe Group assesses impairment of assets (property and equipment, investment property,
intangible assets and investments in joint ventures) whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The factors that the Globe
Group considers important which could trigger an impairment review include the following:
significant underperformance relative to expected historical or projected future operating results;
significant changes in the manner of use of the acquired assets or the strategy for the overall
business; and,
significant negative industry or economic trends.
An impairment loss is recognized whenever the carrying amount of an asset or investment exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s net selling price and value in
use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length
transaction, while value in use is the present value of estimated future cash flows expected to arise
from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable
amounts are estimated for individual assets or investments or, if it is not possible, for the CGU to which
the asset belongs.
For impairment loss on specific assets or investments, the recoverable amount represents the net
selling price.
For the Globe Group, the CGU is the combined mobile and wireline asset groups of Globe Telecom
and Innove. This asset grouping is predicated upon the requirement contained in Executive Order
(EO) No.109 and Republic Act (RA) No.7925 requiring licensees of Cellular Mobile Telephone System
(CMTS) and International Digital Gateway Facility (IGF) services to provide 400,000 and 300,000 LEC
lines, respectively, as a condition for the grant of such licenses.
In determining the present value of estimated future cash flows expected to be generated from the
continued use of the assets or holding of an investment, the Globe Group is required to make
estimates and assumptions that can materially affect the consolidated financial statements.
The aggregate carrying value of property and equipment, investment property, intangible assets,
and investments in joint ventures amounted to P=105,072.39 million, P=102,972.81 million, and
P=105,169.71 million as of December 31, 2012, 2011 and 2010, respectively (see Notes 7, 8, 9 and 10).
3.2.6.2 Impairment of goodwill
The Globe Group’s impairment test for goodwill is based on value in use calculations that use a
discounted cash flow model. The cash flows are derived from the budget for the next five years and do
not include restructuring activities that the Group is not yet committed to or significant future
investments that will enhance the asset base of the CGU being tested. The recoverable amount is
most sensitive to the discount rate used for the discounted cash flow model as well, as the expected
future cash inflows and the growth rate used for extrapolation purposes. As of December 31, 2012,
2011 and 2010, the carrying value of goodwill amounted to P=327.13 million (see Note 9).
Goodwill acquired through business combination with EGG Group was allocated to the mobile content
and applications development services business CGU, which is part of the “Others” reporting segment
(see Note 29).
The recoverable amount of the CGU, which exceeds the carrying amount of the related goodwill by
P=962.34 million, P=461.88 million, and P=165.30 million as of December 31, 2012, 2011 and 2010,
respectively, has been determined based on value in use calculations using cash flow projections from
financial budgets covering a five-year period. The pretax discount rate applied to cash flow projections
was 11% in 2012 and 2011 and 12% in 2010, and cash flows beyond the five-year period are
extrapolated using a 3% long-term growth rate in 2012, 2011 and 2010.
3.2.7 Deferred income tax assets
The carrying amounts of deferred income tax assets are reviewed at each reporting date and reduced to
the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of
the deferred income tax assets to be utilized (see Note 24).
As of December 31, 2012 and 2011, Innove, GXI and EGG Group has net deferred income tax assets
amounting to P=765.59 million and P=765.67 million, respectively, while as of December 31, 2010, Innove and
EGG Group has net deferred income tax assets amounting to P=670.59 million.
As of December 31, 2012, 2011 and 2010, Globe Telecom has net deferred income tax liabilities amounting
to P=2,473.12 million, P=3,929.41 million, and P=4,620.49 million, respectively (see Note 24). Globe Telecom
and Innove have no unrecognized deferred income tax assets as of December 31, 2012, 2011 and 2010.
As of December 31, 2012 and 2011, GXI recognized deferred income tax assets from NOLCO amounting
to P=15.01 million and P=1.01 million, respectively (see Note 24).
As of December 31, 2010, Innove and EGG Group’s recognized deferred income tax assets from NOLCO
amounted to P=13.50 million and MCIT amounted to P=0.95 million (see Note 24).
3.2.8 Financial assets and financial liabilities
Globe Group carries certain financial assets and liabilities at fair value, which requires extensive use of
accounting estimates and judgment. While significant components of fair value measurement were
determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates), the amount of
changes in fair value would differ if the Globe Group utilized different valuation methodologies. Any
changes in fair value of these financial assets and financial liabilities would affect the consolidated
statements of comprehensive income and consolidated statements of changes in equity.
Financial assets comprising AFS investments and derivative assets carried at fair values as of
December 31, 2012, 2011 and 2010, amounted to P=141.87 million, P=109.09 million, and P=121.77 million,
respectively, and financial liabilities comprising of derivative liabilities carried at fair values as of
December 31, 2012, 2011 and 2010, amounted to P=240.65 million, P=266.62 million, and P=245.87 million,
respectively (see Note 28.11).
3.2.9 Pension and other employee benefits
The determination of the obligation and cost of pension is dependent on the selection of certain
assumptions used in calculating such amounts. Those assumptions include, among others, discount rates,
expected returns on plan assets and salary rates increase (see Note 18). In accordance with PAS 19,
actual results that differ from the Globe Group’s assumptions, subject to the 10% corridor test, are
accumulated and amortized over future periods and therefore, generally affect the recognized expense and
recorded obligation in such future periods.
As of December 31, 2012, 2011 and 2010, Globe Group has unrecognized net actuarial losses of
P=1,512.30 million, P=1,215.69 million, and P=781.01 million, respectively (see Note 18.2). As of the same
dates, net pension asset amounted to P=671.08 million, P=872.10 million and P=950.52 million, respectively.
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