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Globe 2012 annual report
financial report
28.4 Derivative Instruments Accounted for as Hedges
The following sections discuss in detail the derivative instruments accounted for as cash flow hedges.
Interest Rate Swaps
As of December 31, 2012, 2011 and 2010, the Globe Group has USD26.00 million, USD15.00 million, and
USD57.00 million, respectively, in notional amount of USD interest rate swap that have been designated as
cash flow hedge of interest rate risk from USD loans. The interest rate swap effectively fixed the
benchmark rate of the hedged USD loan at 0.67% over the duration of the agreement, which involves
quarterly payment intervals up to April 2014.
The Globe Group also has PHP interest rate swap contracts with a total notional amount of
P=1,437.50 million, P=6,637.50 million, and P=5,000.00 million as of December 31, 2012, 2011 and 2010,
respectively, which have been designated as cash flow hedges of interest rate risk from PHP loans. These
interest rate swaps effectively fixed the benchmark rate of the hedged PHP loans at 3.90% to 3.93% over
the duration of the swaps, with quarterly payment intervals up to July 2014.
As of December 31, 2012, 2011 and 2010, the fair value of the outstanding swap amounted to
P=31.81 million, P=224.89 million, and P=163.45 million losses, respectively, of which P=121.20 million,
P=153.07 million, and P=114.41 million (net of tax), respectively, is reported as “Other reserves” in the equity
section of the consolidated statements of financial position (see Note 17.5).
Accumulated swap cost for the years ended December 31, 2012, 2011 and 2010 amounted to
P=35.46 million, P=213.66 million, and P=58.98 million, respectively.
Nondeliverable Forwards
The Globe Group entered into short-term nondeliverable currency forward contracts hedge the changes in
the cash flows of USD revenues related to changes in foreign currency exchange rates. These currency
forward contracts have a notional amount of USD35.00 million as of December 31, 2010. There were no
outstanding non-deliverable forward as of December 31, 2012 and 2011.
The fair value of the outstanding short-term nondeliverable currency forwards as of December 31, 2010
amounted to a loss of P=2.03 million of which P=1.42 million (net of tax) is reported in the equity section of the
consolidated statements of financial position.
Hedging gains on derivatives intended to manage foreign currency fluctuations on dollar based revenues
for the years ended December 31, 2012, 2011 and 2010 amounted to P=21.29 million, P=28.27 million, and
P=75.56 million, respectively. These hedging gains are reflected under “Service revenues” in the
consolidated statements of comprehensive income.
28.5 Other Derivative Instruments not Designated as Hedges
The Globe Group enters into certain derivatives as economic hedges of certain underlying exposures. Such
derivatives, which include embedded and freestanding currency forwards, embedded call options, and certain
currency and interest rate swaps with option combination or structured provisions, are not designated as
accounting hedges. The gains or losses on these instruments are accounted for directly in profit or loss in the
consolidated statements of comprehensive income. This section consists of freestanding derivatives and
embedded derivatives found in both financial and nonfinancial contracts.
28.6 Freestanding Derivatives
Freestanding derivatives that are not designated as hedges consist of currency forwards and interest rate swaps
entered into by the Globe Group. Fair value changes on these instruments are accounted for directly in profit or
loss in the consolidated statements of comprehensive income.
Nondeliverable Forwards
As of December 31, 2012 and 2011, the Globe Group has no outstanding nondeliverable currency forward
contracts not designated as hedges.
Interest Rate Swaps
The Globe Group has outstanding interest rate swap contracts, which swap certain floating USDdenominated
loans into fixed rate with semi-annual payment interval up to July 2013. The swaps have
outstanding notional amount of USD19.17 million, USD27.08 million, and USD6.67 million as of
December 31, 2012, 2011 and 2010, respectively
The Globe Group also has an outstanding PHP interest rate swap contract which swaps a floating PHP
loan into fixed rate of 4.92% and involves quarterly payment intervals up to September 2015. Outstanding
notional as of December 31, 2012 amounts to P=4,750.00 million. There were no outstanding PHP interest
rate swap not designated as hedge as of December 31, 2011 and 2010.
The fair values on the interest rate swaps as of December 31, 2012, 2011 and 2010 amounted to P=183.43
million net loss, P=4.69 million net gain, and P=11.53 million net gain, respectively.
Principal Only Currency Swaps
As of December 31, 2012, the Globe Group has no outstanding foreign principal only swap contract. The
notional amount of the swap amounted to USD2.50 million as of December 31, 2011 and 2010. The fair
value losses of the principal only currency swap as of December 31, 2011 and 2010 amounted to P=31.61
million and P=35.52 million, respectively.
28.7 Embedded Derivatives
The Globe Group has instituted a process to identify any derivatives embedded in its financial or nonfinancial
contracts. Based on PAS 39, the Globe Group assesses whether these derivatives are required to be bifurcated
or are exempted based on the qualifications provided by the said standard. The Globe Group’s embedded
derivatives include embedded currency derivatives noted in non-financial contracts.
Embedded Currency Forwards
As of December 31, 2012, 2011 and 2010, the total outstanding notional amount of currency forwards
embedded in nonfinancial contracts amounted to USD12.29 million, USD10.58 million and USD14.65
million, respectively. The nonfinancial contracts consist mainly of foreign currency-denominated purchase
orders with various expected delivery dates and unbilled leaselines receivables and payables denominated
in foreign currency with domestic counterparties. The net fair value losses of the embedded currency
forwards as of December 31, 2012, 2011 and 2010 amounted to P=24.99 million, P=5.04 million, and
P=36.51 million, respectively.
Embedded Currency Options
As of December 31, 2012, the Globe Group does not have an outstanding currency option embedded in
non-financial contracts.
28.8 Fair Value Changes on Derivatives
The net movements in fair value changes of all derivative instruments are as follows:
December 31
2012 2011 2010
(In Thousand Pesos)
At beginning of year (P=256,851) (P=225,977) (P=56,151)
Net changes in fair value of derivatives:
Designated as cash flow hedges (555) (239,094) (116,679)
Not designated as cash flow hedges (190,444) 28,261 (27,631)
(447,850) (436,810) (200,461)
Less fair value of settled instruments (207,617) (179,959) 25,516
At end of year (P=240,233) (P=256,851) (P=225,977)
28.9 Hedge Effectiveness Results
As of December 31, 2012, 2011 and 2010, the effective fair value changes on the Globe Group’s cash flow
hedges that were deferred in equity amounted to P=121.20 million, P=153.07 million, and P=115.83 million losses,
net of tax, respectively. Total ineffectiveness for the years ended December 31, 2012, 2011 and 2010 is
immaterial.
The distinction of the results of hedge accounting into “Effective” or “Ineffective” represent designations based
on PAS 39 and are not necessarily reflective of the economic effectiveness of the instruments.
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