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Globe 2012 annual reportfinancial reportGLOBE TELECOM, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSGLOBE TELECOM, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears Ended December 31Notes 2012 2011 2010(In Thousand Pesos)CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax P=9,768,344 P=14,097,069 P=14,038,192Adjustments for:Depreciation and amortization 7, 8, 9 23,583,417 18,941,227 18,085,839Interest expense 22 2,086,078 2,059,660 1,981,785Foreign exchange losses (gains) - net 20, 22 (318,334) 308,650 (465,373)Impairment losses on property and equipment andintangible assets 23 259,262 128,614 63,126Cost of share-based payments 16, 18 11,502 49,338 104,788Equity in net losses of a joint venture 10 83,582 27,345 2,968Provisions for (reversals of) claims and assessments 23 56,327 (47,916) 138,760Loss (gain) on derivative instruments 20, 22 9,593 (25,495) 28,295Gain on disposal of property and equipment 7 (42,447) (319,250) (32,535)Interest income 19 (579,851) (297,388) (218,532)Dividend income – (503) (2,366)Operating income before working capital changes 34,917,473 34,921,351 33,724,947Changes in operating assets and liabilities:Increase in:Receivables (2,235,848) (1,678,456) (1,932,420)Inventories and supplies (164,986) (67,358) (185,583)Prepayments and other current assets (6,996,121) (774,230) (438,809)Increase (decrease) in:Accounts payable and accrued expenses 2,597,424 2,142,313 980,104Unearned revenues 28,761 71,393 (579,131)Other long-term liabilities (106,783) (180,080) (314,998)Cash generated from operations 28,039,920 34,434,933 31,254,110Income tax paid (3,802,665) (4,508,758) (4,105,733)Net cash flows provided by operating activities 24,237,255 29,926,175 27,148,377CASH FLOWS FROM INVESTING ACTIVITIESAdditions to:Property and equipment 7, 30 (20,124,476) (18,007,055) (17,552,246)Intangible assets 9 (152,056) (145,208) (169,329)Investment in joint ventures 10 (20,990) (79,010) –Proceeds from sale of property and equipment 70,070 180,939 113,258Decrease (increase) in:Short-term investments – – 2,784Other noncurrent assets (4,871,386) (399,878) 482,918Dividend received – 503 2,366Interest received 465,711 259,992 191,436Net cash flows used in investing activities (24,633,127) (18,189,717) (16,928,813)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from borrowings: 14Long-term 25,847,770 8,000,000 14,181,967Short-term 5,052,430 1,738,600 1,000,000Repayments of borrowings: 14Long-term (12,810,082) (11,552,501) (8,986,275)Short-term (4,694,020) – (3,000,829)Payments of dividends to stockholders: 17Common (8,605,628) (8,205,605) (10,587,865)Preferred (35,295) (45,399) (50,492)Collection of subscriptions receivable and exerciseof stock options 16,473 776 5,485Interest paid (2,573,745) (2,456,763) (2,734,000)Net cash flows provided (used) in financing activities 2,197,903 (12,520,892) (10,172,009)NET INCREASE (DECREASE) IN CASH AND CASHEQUIVALENTS 1,802,031 (784,434) 47,555NET FOREIGN EXCHANGE DIFFERENCE ON CASH ANDCASH EQUIVALENTS (201,322) 74,494 (118,496)CASH AND CASH EQUIVALENTS AT BEGINNING OFTHE YEAR 5,159,046 5,868,986 5,939,927CASH AND CASH EQUIVALENTS AT END OF YEAR 28, 30 P=6,759,755 P=5,159,046 P=5,868,986See accompanying Notes to Consolidated Financial Statements.1. Corporate InformationGlobe Telecom, Inc. (hereafter referred to as “Globe Telecom”) is a stock corporation organized under the lawsof the Philippines, and enfranchised under Republic Act (RA) No. 7229 and its related laws to render any and alltypes of domestic and international telecommunications services. Globe Telecom is one of the leadingproviders of digital wireless communications services in the Philippines under the Globe Handyphone (GHP),Touch Mobile (TM) and Tattoo brands using a fully digital network. It also offers domestic and international longdistance communication services or carrier services. Globe Telecom’s principal executive office is located at5th Floor, Globe Telecom Plaza, Pioneer Highlands, Pioneer corner Madison Streets, Mandaluyong City,Metropolitan Manila, Philippines. Globe Telecom is listed in the Philippine Stock Exchange (PSE) and has beenincluded in the PSE composite index since September 17, 2001. Major stockholders of Globe Telecom includeAyala Corporation (AC), Singapore Telecom International Pte Ltd. (STI) and Asiacom Philippines, Inc. None ofthese companies exercise control over Globe Telecom.Globe Telecom owns 100% of Innove Communications, Inc. (Innove). Innove is a stock corporation organizedunder the laws of the Philippines and enfranchised under RA No. 7372 and its related laws to render any and alltypes of domestic and international telecommunications services. Innove holds a license to provide digitalwireless communication services in the Philippines. Innove also offers a broad range of broadband internet andwireline voice and data communication services, as well as domestic and international long distancecommunication services or carrier services. Innove also has a license to establish, install, operate and maintaina nationwide local exchange carrier (LEC) service, particularly integrated local telephone service with publicpayphone facilities and public calling stations, and to render and provide international and domestic carrier andleased line services.Globe Telecom owns 100% of G-Xchange, Inc. (GXI). GXI is a stock corporation organized under the laws ofthe Philippines and formed for the purpose of developing, designing, administering, managing and operatingsoftware applications and systems, including systems designed for the operations of bill payment and moneyremittance, payment and delivery facilities through various telecommunications systems operated bytelecommunications carriers in the Philippines and throughout the world and to supply software and hardwarefacilities for such purposes. GXI is registered with the Bangko Sentral ng Pilipinas (BSP) as a remittance agentand electronic money issuer. GXI handles the mobile payment and remittance service using Globe Telecom’snetwork as transport channel under the GCash brand. The service, which is integrated into the cellular servicesof Globe Telecom and Innove, enables easy and convenient person-to-person fund transfers via shortmessaging services (SMS) and allows Globe Telecom and Innove subscribers to easily and conveniently putcash into and get cash out of the GCash system.Globe Telecom acquired 100% of Entertainment Gateway Group Corporation (EGGC) and EGGstreme (HongKong) Limited (EHL) (collectively referred here as “EGG Group”) on June 26, 2008. EGG Group is engaged inthe development and creation of wireless products and services accessible through telephones or other forms ofcommunication devices. It also provides internet and mobile value added services, information technology andtechnical services including software development and related services. EGGC is registered with theDepartment of Transportation and Communication (DOTC) as a content provider. EHL was liquidated onFebruary 1, 2013 (see Note 31).Globe Telecom owns 100% of GTI Business Holdings, Inc. (GTI). The primary purpose of this company is toinvest, purchase, subscribe for or otherwise acquire and own, hold, sell or otherwise dispose of real andpersonal property of every kind and description, provided that GTI shall not engage in the business of an openendedinvestment company as defined in the Investment Company Act (Republic Act 2629). GTI wasincorporated on November 25, 2008. In July 2009, GTI incorporated its wholly owned subsidiary, GTICorporation (GTIC), a company organized under the General Corporation Law of the State of Delaware for thepurpose of engaging in any lawful act or activity for which corporations may be organized under the DelawareGeneral Corporation Law. GTIC has started commercial operations on April 1, 2011. In December 2011, GTIincorporated another wholly owned subsidiary, Globe Telecom HK Limited (GTIC HK), a limited companyorganized under the Companies Ordinance (Chapter 32 of the Laws of Hong Kong). GTIC HK has startedcommercial operations on August 1, 2012.On March 28, 2012, Globe Telecom incorporated Kickstart Ventures, Inc. (Kickstart), a stock corporationorganized under the laws of the Philippines and formed for the purpose of investing in individual, corporate, orstart-up businesses, and to do research, technology development and commercializing of new businessventures. Kickstart has started commercial operations on March 29, 2012.142 143