SEC Number 1177 File Number

________________________________________________

GLOBE TELECOM, INC. (formerly GMCR, Inc.)

________________________________________________ (Company’s Full Name)

5th Floor Globe Telecom Plaza (Pioneer Highlands)

Pioneer corner Madison Sts., 1552 Mandaluyong City

_________________________________________________ (Company’s Address)

(632) 730-2000 ______________________________________

(Telephone Number)

DECEMBER 31 ______________________________________

(Fiscal Year Ending) (month & day)

SEC Form 17-A ______________________________________

Form Type

______________________________________ Amendment Designation (if applicable)

31 December 2004

______________________________________ Period Ended Date

__________________________________________________ (Secondary License Type and File Number)

2

SECURITIES AND EXCHANGE COMMISSION SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE REVISED SECURITIES

ACT AND SECTION 141 OF CORPORATION CODE OF THE PHILIPPINES 1. For the fiscal year ended December 31, 2004.

2. SEC Identification Number 1177 3. BIR Tax I.D. No. 000-768-480 4. Exact name of registrant as specified in its charter:

Globe Telecom, Inc. (formerly GMCR,Inc.) 5. Philippines 6. __________(SEC Use Only) Province, Country or other jurisdiction of Industry Classification Code: incorporation or organization 7. 5th Floor, Globe Telecom Plaza (Pioneer Highlands)

Pioneer corner Madison Sts., 1552 Mandaluyong City 1552 Address of principal office Postal Code 8. (632) 730-2000 Registrant's telephone number, including area code 9. Not Applicable Former name, former address, and former fiscal year, if changed since last report. 10. Securities registered pursuant to Sections 4 and 8 of the RSA Title of Each Class Number of Shares of Common Stock Outstanding Common Stock, P50.00 par value 139,903,867* Preferred Stock, P5.00 par value 158,515,021 * Net of treasury shares 11. Are any or all of these securities listed on the Philippine Stock Exchange. Yes [ x ] No [ ] 12. Check whether the registrant: (a) has filed all reports required to be filed by Section 11 of the Revised Securities Act (RSA)

and RSA Rule 11(a)-1 thereunder and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports);

Yes [ x ] No [ ] (b) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] 13. Aggregate market value of the voting stock held by non-affiliates of the registrant P26,708,489,775

3

Globe Telecom, Inc. TABLE OF CONTENTS

SEC FORM 17-A

PART I - BUSINESS AND GENERAL INFORMATION............................................................................ 4 Item 1. Business ........................................................................................................................................ 4 Item 2. Properties ................................................................................................................................... 32 Item 3. Legal Proceedings....................................................................................................................... 33 Item 4. Submission of Matters to a Vote of Security Holders................................................................. 34

PART II – SECURITIES OF THE REGISTRANT...................................................................................... 35

PART III – FINANCIAL INFORMATION ................................................................................................. 41 Item 7. Supplementary Schedules (See Index to Exhibits for details) ..................................................... 93 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .... 93

PART IV-MANAGEMENT AND CERTAIN SECURITY HOLDERS...................................................... 94 Item 9. Directors and Key Officers of the Registrant (including their business experience for the past five years) ................................................................................................................................................ 94 Item 10. Executive Compensation ........................................................................................................ 101 Item 11. Security Ownership of Certain Beneficial Owners and Management .................................... 103 Item 12. Certain Relationships and Related Transactions..................................................................... 105 Item 13. Exhibits and Reports on SEC Form 17-C ............................................................................... 108

PART V – CORPORATE GOVERNANCE .............................................................................................. 110

PART VI – REGISTRATION STATEMENT & PROSPECTUS PROVISIONS ..................................... 110

SIGNATURES............................................................................................................................................ 111

STATEMENT OF MANAGEMENT’S RESPONSIBILITY..................................................................... 112

INDEX TO EXHIBITS............................................................................................................................... 113

4

PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business This report contains references to Globe Telecom, Inc. (‘Globe’ or ‘Globe Telecom’ or ‘Parent’) and its wholly-owned subsidiaries - Innove Communications, Inc. and G-Xchange, Inc. (collectively referred to as ‘Group’ or ‘Globe Group’). (1) Business Development. Describe the development of the business of the registrant and

its significant subsidiaries during the past three (3) years.

(a) Form and date of organization

In 1928, Congress passed Act No. 3495 granting the Robert Dollar Company, a corporation organized and existing under the laws of the State of California, a franchise to operate wireless long distance message services in the Philippines. The Robert Dollar Company subsequently incorporated in the Philippines as Globe Wireless Limited and in 1934, Congress passed Act No. 4150 transferring the franchise and privileges of the Robert Dollar Company to Globe Wireless Limited. The Company was incorporated on 15 January 1935. Globe Wireless Limited was subsequently renamed Globe Mackay Cable and Radio Corporation. Congress, through Republic Act (‘RA’) 4630 enacted in 1965, further expanded its franchise to allow it to operate international communications systems. Shortly before the expiration of this franchise, the Batasan Pambansa in 1980 enacted Batas Pambansa 95 granting Globe Mackay Cable and Radio Corporation a new franchise. In 1991, Globe Mackay was subsequently merged with the Clavecilla Radio Corporation. Globe Mackay as the surviving company was renamed GMCR, Inc. and on 19 March 1992, the Philippine Congress passed RA 7229 approving the merger and the transfer of the franchise of Clavecilla Radio Corporation to the surviving company to be renamed GMCR, Inc. On 20 August 1998, the Philippine Securities and Exchange Commission (‘Philippine SEC’) approved the change of name to Globe Telecom, Inc. Globe Telecom, Inc. acquired Isla Communication Company, Inc., or Islacom, on 27 June 2001. As a result, the financial results of Islacom have been consolidated since 27 June 2001. Prior to 2001, Globe did not have any consolidated subsidiaries. On 21 August 2003, the Philippine SEC approved the change in name of Islacom to Innove Communications, Inc. (‘Innove’). The change in name is part of Globe’s strategy to integrate all of its wireline services under its wholly-owned subsidiary, Innove. On 23 August 2004, Globe Telecom invested in G-Xchange, Inc. (‘GXI’), a wholly-owned subsidiary, which handles the mobile payment and remittance service using Globe Telecom’s network as transport channel under the G-Cash brand. GXI started commercial operations on 16 October 2004.

5

On 3 November 2004, Globe and six other leading Asia Pacific mobile operators (‘JV partners’) signed an agreement (‘JV agreement’) to form a regional mobile alliance, Bridge Mobile Alliance (‘BMA’) which will operate through a Singapore-incorporated company, Bridge Mobile Pte. Ltd. The joint venture company, where Globe Telecom has a 14.29% interest, will look at driving commercial and other benefits for the operators and delivering regional mobile services to their subscribers.

(b) Any bankruptcy, receivership or similar proceeding.

None. (c) Any material reclassification, merger, consolidation, or purchase or sale of a significant

amount of assets not in the ordinary course of business.

1. Sale of DeTeAsia stake in Globe

Globe’s major shareholders are Ayala Corporation, (‘Ayala’), Singapore Telecom International Pte. Ltd. (‘STI’), a wholly-owned subsidiary of Singapore Telecommunications Limited, or SingTel and Asiacom Philippines, Inc., or Asiacom. Ayala and STI own 60% and 40% of the outstanding shares of Asiacom, respectively. DeTeAsia Holding GMBH (‘DTA’ or ‘DeTeAsia’), a wholly-owned subsidiary of Deutsche Telekom AG (‘DT’), was previously a major shareholder until it sold its 37.67 million common shares (24.8% of the common outstanding stock) in Globe to Ayala, STI and Globe in the third quarter of 2003. On 24 October 2003, Globe closed its purchase of twelve million common shares from DeTeAsia at a price of P680 per share or a total of P8.19 billion. On 12 November 2003, Ayala and Singtel each sold 3.75 million common shares at P=765 a share through a transaction on the Philippine Stock Exchange. Holdings, based on record and beneficial ownership, as of 31 December 2004, are as follows: Ayala had 48.9 million common shares or 35% while STI had 63.0 million common shares or 45%. As of 31 December 2004, Ayala, STI and Asiacom owned approximately 17%, 21% and 53% respectively, of our outstanding capital stock.

2. Integration of Globe Telecom and Innove Operations a. Wireless Operations

In September 2002, Globe Telecom announced the operational integration of Globe Telecom’s and Innove’s wireless networks to increase the Globe Group’s business focus and streamline its operations in order to optimize utilization of the network which will benefit subscribers. A key element of the integration involved the migration of existing wireless subscribers of Innove to the improved Touch Mobile (‘TM’) service, allowing them to enjoy superior coverage and service offerings available through the Globe Telecom-Innove integrated network.

The operational integration enabled the joint use of Innove’s 10 Mhz frequency resources by Globe Telecom and the use of certain elements of the existing Innove

6

network. The National Telecommunications Commission (‘NTC’) approved the joint use of Innove’s frequency by the Globe Group on 1 August 2002. Certain elements of the Innove network which cannot be redeployed to the Globe network were shut down in 2002 to avoid unnecessary duplication. The shut down necessitated Innove’s recognition of losses on retirement of certain property and equipment and restructuring costs in 2002. Innove completed the equipment deinstallation activities as well as pretermination of leases which involved negotiation with the lessors on 31 December 2003.

b. Wireline Operations

On 7 August 2003, the NTC approved the legal rights transfer of Globe Telecom’s wireline business authorizations, properties, assets and obligations to Innove. The NTC also approved the common usage, operations and maintenance of the network elements of both Globe Telecom and Innove to ensure smooth transfer of the service and no disruption in interconnection with other carriers while the transfer is ongoing. Pursuant to the approval granted by the NTC, the wireline business of Globe was integrated into Innove on 30 September 2003. As a result, Globe Telecom became a purely wireless company. The transfer of the wireline business of Globe Telecom to Innove is still part of the Globe Group’s operational integration activities to achieve increased focus and streamlined operations. The integrated and focused wireline operations signal the Globe Group’s commitment to innovation, customer focus and operational excellence. Effective 1 October 2003, all wireline voice and data services were consolidated under Innove. Innove remains a wholly-owned subsidiary of Globe. In March 2004, Innove filed an application to the NTC for the issuance of CPCN for LEC services, particularly integrated local telephone service with public calling stations in areas nationwide not yet covered by its existing CPCN. The application to NTC for the issuance of CPCN for LEC services remains pending.

7

(2) Business of Issuer

(a) Principal services and their markets indicating their relative contribution to sales or revenues which contribute 10% or more to sales or revenues. If the relative contribution to net income of any product or service, or group of related products or services is substantially different than its relative contribution to sales or revenues, appropriate information should be given: Net Operating Revenues by Line of Business:

Net Operating Revenues from: Year Ended 31 December (In Millions of Pesos) 2004 % 2003 % Service Revenues: Wireless 1………………….. 47,054 85% 42,594 86% Voice………………….. 27,722 50% 27,821 56% Data…………………… 19,332 35% 14,773 30% Wireline……………………. 5,687 10% 4,941 10% Voice 2………………….. 3,833 7% 3,469 7% Data 3…………………… 1,854 3% 1,472 3% Net Service Revenues………. 52,741 95% 47,535 96% Non Service Revenues……… 2,868 5% 1,943 4%

Net Operating Revenues 55,609 100% 49,478 100% _________________________________________ 1 Wireless net service revenues include: (1) monthly service fees; (2) charges for local calls in excess of the free minutes

for various Globe Handyphone postpaid plans, including currency exchange rate adjustments, or CERA net of marketing promotions credited to subscriber billings; (3) airtime fees from prepaid reload denominations (for Globe Prepaid Plus and Touch Mobile) for intra network and outbound calls usage net of (i) bonus credits (including airtime on SIM cards provided under Globe’s SIM swap program) (ii) prepaid reload discounts, recognized upon the earlier of actual usage of the airtime value or expiration of the unused value of the prepaid reload denomination which occurs between 1 and 60 days after activation depending on the prepaid value reloaded by the subscriber; (4) revenues generated from inbound international and national long distance calls and international roaming calls; and (5) revenues from value-added services such as SMS and MMS, content downloading and infotext. Revenues from (2) to (5) are net of any interconnection or settlement payouts to international and local carriers and content providers.

2 Wireline voice net service revenues consist of: (1) monthly service fees including CERA; (2) revenues from local,

international and national long distance calls made by postpaid, prepaid wireline subscribers and payphone customers, net of prepaid and payphone call card discounts less bonus credits and marketing promotions credited to subscriber billings (3) revenues from inbound local, international and national long distance calls from other carriers terminating on our network; and (4) installation charges and other one-time fees associated with the establishment of the service.

3 Wireline data net service revenues consist of revenues from: (1) international and domestic leased lines; (2) internet

services; (3) other wholesale transport services and (4) revenues from value-added services.

Wireless Business Globe offers wireless communications services, including local, national long distance, international long distance, international roaming and other value-added services through three brands, Globe Handyphone, Globe Handyphone Prepaid Plus and Touch Mobile. Globe Handypone is the postpaid brand of Globe and includes all postpaid plans such as G-Plans and the consumable G-Flex Plans, Platinum – a brand for the high-end market and GlobeSolutions for corporate and business needs. Globe Handyphone Prepaid Plus and Touch Mobile are the prepaid brands of Globe and are positioned at different segments of the market – the broad market classes for Globe Handyphone Prepaid Plus and the mass-based, blue-collar market classes for the Touch Mobile brand.

8

As of 31 December 2004, our total wireless subscribers increased by 41% to 12.5 million from 8.9 million in 2003 largely driven by growth in the prepaid segment due to a wider distribution network with the introduction of Globe’s over-the-air (‘OTA’) reloading service, SIM swap programs and increased network coverage in the provincial areas. Prepaid subscribers comprised 95% of our total wireless subscribers with Globe Handyphone Prepaid Plus subscribers accounting for 86% of all prepaid wireless subscribers. Wireless — Services and Products Voice Basic Services. Our basic wireless service includes network access throughout the Philippines. As of 1 January 2004, we implemented a flat rate of P6.50 for Globe Handyphone prepaid calls within the Globe network (no peak and off-peak charges), as well as a flat rate of P7.50 for prepaid calls to other operators, whether mobile or fixed line networks, and without domestic long distance charges. On 16 January 2005, Touch Mobile offered its new “Power Piso” call rates where calls between its subscribers are charged P1.00 per minute only starting on the 3rd minute of each call while the first two minutes are charged at the rate of P5.50 per minute. International Roaming. Our subscribers can use their mobile phones while traveling abroad using the networks of foreign operators with whom we have roaming agreements. Similarly, subscribers of these foreign networks are able to use the Globe network while in the Philippines. We had the widest roaming coverage with over 360 roaming partners as of 31 December 2004 and are the only network that enables prepaid subscribers to make and receive calls while roaming abroad. International Long Distance. Our international long distance rate is competitively priced at $0.40 per minute to all countries. Our international long distance service is the most extensive in terms of reach with over 230 destinations covered abroad. Data. We offer wireless data services on our SMS (‘Short Message Service’) platform that consists of basic SMS messaging, enhanced SMS services and m-advertising services. Data services accounted for approximately 39% of total wireless net revenues in 2004, largely driven by person-to-person SMS and international SMS. Basic SMS Messaging. We pioneered the basic SMS messaging service in the Philippines in 1994. The usage of SMS messaging in the Philippines, which is a convenient and cost-efficient alternative to voice and e-mail based communications, is significantly higher than in most other countries. In 2004, subscribers’ SMS usage averaged approximately 8 SMS messages sent per day, with our network processing over 80 million SMS messages sent per day in total owing to the increase in usage per subscriber and in the number of subscribers. Enhanced SMS Services. We offer a full range of value-added services covering the areas of information, entertainment, messaging and mobile banking. These value-added services allow subscribers to download icons and ring tones, perform mobile banking, do WAP (‘Wireless Application Protocol’) browsing, send and receive MMS (‘Multimedia Messaging Service’) pictures and video or participate in interactive TV, mobile chat and

9

play games, among others. Our premium SMS service offerings are organized under the brand myGlobe, wherein we classify information and service offerings in user-friendly, easy-to-understand content categories, largely according to areas of interest. With the introduction of GPRS (‘General Packet Radio Service’) in 2002, value-added services took on a whole new wave of innovations that expanded access, content and applications. In 2003, the myGlobe service portal was expanded into a WAP site that allowed easy access to a whole range of content via WAP. Subscribers with basic SMS handsets are able to download icons and ringtones, receive regular news and infotainment updates and perform mobile banking by sending the appropriate keywords to a quick-access number or shortcode. Subscribers with MMS/GPRS enabled handsets, on the other hand, can access more services and data content by WAP browsing, WEB browsing and sending and receiving MMS pictures and video.

In 2004, Globe made a breakthrough by launching the first live TV streaming in the market with myGlobe G-TV. This enabled subscribers with streaming-capable phones to watch local shows as they are broadcast on national television, through tie-ups with ABS-CBN and GMA. Likewise, to enable lower-end GPRS handsets to avail of streaming, Globe introduced G-Video, a downloadable player that allows basic GPRS handsets to stream canned content. Expanding its multimedia offerings, Globe also broke ground in the market with the first ever Celebrity Video Greetings, which gave subscribers an option to send video clip greetings created by top celebrities to other Globe subscribers.

M-advertising. In 2004, we provided m-advertising for a number of well-recognized consumer businesses, including Nestle, Coca-Cola, Unilever and Colgate-Palmolive. Under our m-advertising program, subscribers receive promotional messages from participating businesses and are able to collect or redeem discounted or free promotional goods linked to major film releases, sports and entertainment events. M-Commerce service. Globe launched G-Cash, the first cashless and cardless integrated payments service in the world last 16 October 2004. This service transforms our Postpaid and Prepaid subscribers’ phones into “mobile wallets.” Globe G-Cash provides a safe and easy way to send and receive cash values. With only a mobile phone and simple SMS, Filipinos can send money phone-to-phone, buy goods and services, pay for business permits, purchase prepaid load and online gaming credits, receive international remittances and soon, receive micro-financing. Currently, we have more than thirty partners with more than one thousand three hundred outlets accepting G-Cash transactions, either as remittance, G-Cash conversion or merchant payments. This service recently won Best Mobile Messaging Service under the Applications, Content and Services Category of the GSM (‘Global System for Mobile Communications’) Association Awards in Cannes, France last 15 February 2005. Wireline Business Wireline Data We are licensed to provide wireline data services nationwide through our wholly owned subsidiary Innove. Our wireline data services are offered under the brand name GlobeQUEST to the corporate market. GlobeQUEST puts focus on identified customer

10

segments which led to the development of segment-specific integrated services such as GlobeQUEST BAX (Broadband Access) for call centers and BPOs, GlobeQUEST StoreXpress for the retail industry and GlobeQUEST BiZ (Broadband Internet Zone) for the hospitality and service industries. GlobeQUEST data network services include international and domestic leased lines, frame relay, IPVPN, managed network services, remote access infrastructure and managed VPN access (IPSecure). Its portfolio of broadband internet services ranges from internet exchange connections to internet leased line services and corporate DSL variants offering different levels of QoS (quality of service). These are complemented by its Universal Access packages which allows access to dial-up, DSL and WiFi (wireless-fidelity) using a single log-in user name and password, the first in the country. Internet services comes with value-added services such as email, storage, NetDrive (web-based personal storage service), and utilities. Carrier-class facilities are also available to customers to manage networking and information technology equipment for equipment co-location, server-hosting, services and other value-added services. In addition, GlobeQUEST formalized its Channels and Premium Business Partner Programs to partner with system integrators and enable integration of applications to its range of services. This adds value to the GlobeQUEST proposition and drives development of tailor-fit end-to-end solutions relevant to particular segments in the corporate market. Wireline Voice We provide wireline voice communications services to subscribers under the Globelines brand name using an advanced fully digital wireline network. As of 31 December 2004, our wireline voice subscribers increased by 24% to 323,094 from 261,254 in 2003 due to successful subscriber acquisition programs and an improved churn rate of 1.5% in 2004 from 1.6% in 2003. As of 31 December 2004, 62% of our wireline voice subscribed lines were postpaid and 38% were prepaid. Services and Products. We offer our wireline voice subscribers basic telephone services for local, national long distance and international long distance within our service areas. We also offer our subscribers a variety of value-added services and special features, including voicemail, caller ID, call forwarding, three-way calling and call waiting. In addition, we offer our subscribers bundled dial-up internet access without having to subscribe to a separate internet service provider. Business subscribers can subscribe to the telephone services that best complement their business needs. They may choose among direct lines, trunk lines, virtual PABX service, and ISDN. They may also apply for other value-added services to enhance their connectivity. • GlobelinesBroadband. With Globelines Broadband, Globelines subscribers have access

to high-speed Internet connections in Makati and extensive areas in Marikina, Pasig, Mandaluyong and San Juan. Globelines Broadband is also in Cavite, Batangas, Cebu, Negors Occidental and Oriental, Panay, Leyte, Samar and Bohol.

11

• Globelines Prepaid. We launched Globelines Prepaid in 2001 to serve our subscribers who require the convenience and affordability of a prepaid service. Globelines Prepaid allows subscribers to budget their calls and control their phone expenses.

• Globe Payphone and Telcard. We offer public telephone service in our service areas

through Globe Payphone. The service was established to expand our services to the mass market, primarily targeting people without access to personal phones.

Globe Payphone users have the option to pay via coins or via prepaid payphone cards under the Globe Telcard brand name. Globe Telcards may be purchased from the internet, our GPS centers, leading distributors and retail outlets.

• Public Calling Offices. We offer communications services to the public through our

seven public calling offices, or PCOs, in the provinces of Mindoro Occidental, Palawan and North Cotabato. Through these PCOs, the public may place and receive telephone calls, telegrams and fax messages for set fees. In areas where demand is low, we were permitted to construct PCOs instead of installing wirelines to satisfy our roll-out requirements under our licenses.

Carrier Services We offer our Globelines, Globe Handyphone and Touch Mobile subscribers carrier services including national and international long distance services. Our carrier services business is a support group to our wireless and wireline businesses. International long distance and national long distance service revenues attributable to the wireless and wireline businesses are reported under the income statements of the respective businesses. National Long Distance Through the Globe/Innove Domestic Toll Service, Globe Handyphone, Touch Mobile and Globelines subscribers may make national long distance calls to any subscriber of a Philippine communications provider located anywhere in the country. We were granted interexchange carrier status by the NTC. As an interexchange carrier, we are allowed to haul traffic from an originating carrier passing through our transmission network and terminating to the network of another carrier, thus entitling us to IXC or hauling fee. We receive settlement payments from other local communications providers who send national long distance traffic to our network, and we pay settlement charges to local providers when we send national long distance traffic to their networks. These payments are based upon individual domestic interconnect contracts that we negotiate with the local communications providers. Our national long distance facilities consist of five domestic toll switches which were supplied by Fujitsu Ltd and Lucent Technologies. The switches use digital technology and contain a total of approximately 7,000 circuits dedicated to domestic traffic. Additional capacity can be obtained through the expansion of existing circuits and installation of additional trunks. International Long Distance We offer international long distance service between the Philippines and over 200 destinations. We generally charge our Globelines, Globe Handyphone and Touch Mobile subscribers $0.40 per minute for IDD anywhere at any time. We receive settlement

12

payments from foreign communications providers who send international traffic to our international gateway facilities. These payments are based upon individual international termination rate agreements that we negotiate with foreign communications providers. We have developed an international carrier relations team specifically dedicated to manage our relationships with foreign carriers. Globe, since 2000, charged termination rates to our networks that are within the (United States Federal Communications Commission (‘U.S. FCC’ or ‘FCC’) settlement rate benchmark for inbound international calls of $0.19 per minute for international long distance traffic originating from the United States and terminating in the Philippines and within the benchmark of the International Telecommunications Union of $0.238 for countries with teledensities like the Philippines. In 2003, we proposed termination rates of $0.12 per minute for wireline terminating traffic and $0.16 per minute for wireless terminating traffic to our major foreign correspondents all over the world. A majority of Globe’s 39 major international correspondents agreed on the new rates based on the proposed termination rates. However, certain major U.S. carriers did not agree and did not proceed with the bilateral negotiations and subsequently filed a complaint against the Philippine carriers before the U.S. FCC. The FCC issued a stop-payment order on 10 March 2003. The NTC then issued an order prohibiting Philippine carriers from accepting traffic from foreign carriers who would not pay them. On 26 January 2004 the FCC lifted the stop-payment order against Globe after it had reached interim traffic arrangements with U.S. carriers MCI WorldCom (‘MCI’) and Sprint (in November 2003) and AT&T (in January 2004). The FCC continues to review the US carriers’ position on this matter. The United States Department of Justice (‘U.S. DOJ’) is currently investigating the Philippine carriers’ conduct in the termination rate dispute with the U.S. carriers to determine if any violations of U.S. law may have been committed. On March 24, 2005, the District Court of Hawaii granted Globe’s motion to quash the subpoena duces tecum against it on the ground that US courts have no jurisdiction. This decision is not yet final and may still be appealed by the US Department of Justice. The outcome of the investigation is presently not determinable. The final outcome of these proceedings cannot be determined at this time.(See the discussion under “Item 3. Legal Proceedings”) In June 2004, the FCC issued an order denying the Petitions for Review filed by the different Philippine carriers and upholding the finding of whipsawing. In the same order, the FCC stated that the matter of lifting the International Settlements Policy (‘ISP’) over the Philippine route will be decided in the FCC's proceedings relative to its ISP Reform Order. In August 2004, the FCC, in the proceeding on the ISP Reform Order, as a pre-requisite to lifting the ISP over the Philippine route required U.S. carriers to certify that the rates they are charged by the Philippine carriers are benchmark-compliant. As of 11 October 2004, all three major U.S. carriers (AT&T, MCI and Sprint) have certified to the benchmark compliance of the Philippine route. However, the FCC has not yet lifted the ISP over the Philippine route to date. In the meantime, interim agreements remain in place and govern the relationship between the parties, and both traffic and payments continue to flow. The FCC continues to review the US carriers’ position on this matter. On 10 and 11 January 2004, the United States Department of Justice (US DOJ) served subpoenas on several Philippine telecom executives, including two Globe managers and

13

the Innove CEO, requiring them to appear before a grand jury investigation in Hawaii. The investigation is for the purpose of determining if the conduct of the Philippine carriers in relation to the termination rate disputes with U.S. carriers may have violated U.S. laws. On March 24, 2005, the District Court of Hawaii granted Globe’s motion to quash the subpoena duces tecum against it on the ground that US courts have no jurisdiction. This decision is not yet final and may still be appealed by the US Department of Justice. The outcome of the investigation is presently not determinable.

(ii) Percentage of sales or revenues and net income contributed by foreign sales (broken down into major markets such as Western Europe, Southeast Asia, etc.) for each of the last three years.

Globe operates its telecommunications services in the Philippines although it earns

minimal revenue from the roaming usage of its subscribers abroad.

(iii) Distribution methods of the products or services Wireless — Sales and Distribution We have a dedicated sales force to manage our corporate accounts and high-end customers. Business Centers. To reduce our dependency on independent dealers, we have built 82 wireless business centers, Link and Hub shops in major cities across the country. We have also increased the service offerings at our business centers, allowing customers to subscribe for wireless services, reload prepaid credits, make G-Cash transactions, purchase handsets, accessories and obtain handset repairs, try out the communications devices, ask questions about our services and pay bills. In our Hub shops, we sell state-of-the-art communications devices and high-technology communications-related products. To date, we have 5 Hub shops located in strategic areas in Makati City, San Juan and Mandaluyong City. In 2003, we upgraded the look of our business centers and introduced Link centers in Manila and North Luzon that offered both sales and after-sales services to our customers. As of 31 December 2004 we had 10 Link centers located in Metro Manila and selected cities in North and South Luzon. Independent Dealers. We utilize a number of independent dealers who have their own networks throughout the Philippines to sell our prepaid wireless services to customers. These dealers include major distributors of wireless phone handsets who usually have their own retail networks, direct sales force and sub-dealers in the Philippines. We have a dedicated sales force to manage our dealers. We compensate our dealers based on the type, volume and value of reload denominations for a period. For prepaid services, this compensation took the form of fixed discounts for prepaid airtime cards and SIM packs, and promotional airtime call cards for phone kits. On August 2002, Globe adopted a new promotional scheme for prepaid sales (covering Globe Prepaid Plus and Touch Mobile) to its dealers. Instead of providing promotional airtime call cards with the sale of a phone kit, Globe discounted its selling price to its dealers. Additionally, we also have dealers who offer prepaid reloading services to Globe and TM subscribers nationwide. In 2003, we launched our Globe AutoLoad Max service and established a distribution network of dealers and institutions to offer prepaid reloading services. As of 31 December 2004 we had over 737 thousand retailers. Our distributors,

14

dealers, resellers, alliance partners and agents no longer sell postpaid services. However, we have business centers (including Hub and Link shops nationwide, GlobeSolutions for Corporate Managed Accounts, SME for Corporate Non-Managed Accounts, Direct Sales, VIP Sales and OFW Sales teams) to handle postpaid subscriptions. We also distribute prepaid products (phonekits, SIM kits and prepaid air time cards and credits) through consumer distribution channels such as convenience stores, gas stations, drugstores, bookstores, photoshops and fastfood outlets. Wireless Handset Sales. Our subscribers can purchase handsets from any of our independent dealers, from our business centers and shops or from our direct sales force, which serves our corporate accounts and high-end subscribers. To meet the sales requirements of our business centers and direct sales force, we purchase handsets through several major distributors. We also have an existing supply arrangement with a leading handset and accessories distributor for occasional supply of handsets to our subscribers. Our independent dealers may also source handsets directly from handset manufacturers. We plan to continue developing our direct sales capabilities through retail business centers and our internal corporate sales staff. This strategy enables us to better control product pricing, ensure the quality of staffing and service and integrate store marketing with media advertising.

Wireline Data – Sales and Distribution We sell our wireline data services through our internal corporate sales team composed of account managers based in Manila, Cebu and Davao. Sales to large businesses are managed by specialized account managers who are each dedicated to managing large business customers based on identified target segments. They are the appointed SPOC (single point of contact) for any service or concern the corporate customer may have, backed up by a strong team of pre-sales engineers, segment marketing managers, and project managers. The Customer Support Group and Fault Management Control Center handles after-sales support for non-technical and technical concerns, respectively. The organization is structured to ensure responsiveness and a delightful customer experience. GlobeQUEST launched its Channels program in 2003 to develop a network of resellers to address the rest of the market. We currently have 20 performing channels managed by a Channels sales manager under the Corporate Sales team. We also launched the Premium Business Partner program to develop a network of system integrators (SI) to support our sales team and our overall value proposition. Since its launch in October 2004, this program has included the top SI’s in the country. Recently, 5 new large SI’s have signed up to be part of the program, opening up a larger network of potential resellers. Wireline Voice – Sales and Distribution Service Areas. We believe our wireline voice service areas include provinces that have the most potential to generate new subscribers. Approximately two-thirds of the inhabitants in our wireline voice service areas live in Metro Manila, the Visayas area and the fast growing provinces of Cavite and Batangas and Central Mindanao. Sales and Distribution. As of 31 December 2004, we had 36 Globelines Payments and Services (‘GPS’) centers in strategic locations in our service areas nationwide.

15

(iv) Status of any publicly announced new product or service (e.g. whether in the planning

stage, whether prototypes exist), the degree to which product design has progressed or whether further engineering is necessary. Indicate if completion of development of the product would require a material amount of the resources of the registrant, and the estimated amount;

Products or services, as enumerated below, have been offered or are currently being offered in the market at such tariffs as are approved by the NTC. The following products and services were launched during the year up to January 2005: On 28 March 2004, Globe launched its Globe Girlfriends Club. Globe Girlfriends is an exclusive club created for the Globe female subscriber, whether she is on a Globe Plan or a Prepaid subscription. Members get perks and privileges from major partners and establishments. The perks can range from special discounts, gifts with purchase and exclusive invitations to events. It is the first ever club whose members need not have a physical card. Members may enjoy all their privileges through a virtual card. This means that their membership in the club is confirmed through a text message. Also, the member must download a specific message from Globe and show this message to the participating partner establishment in order to enjoy the perks offered. On 4 April 2004, Globe Handyphone Prepaid Plus’ AutoLoad Max introduced its P=25 reload denomination and started offering the ability to load values in P=1 increments from P=25 to P=150. On the same date, Touch Mobile Family AutoLoad introduced its P=10 reload denomination with load values in P=1 increments from P=10 to P=150. The following table below shows the different load values and their corresponding expiry dates and free text allocations.

For Globe Handyphone Prepaid Plus subscribers:

For Touch Mobile subscribers:

Load Value

1ST EXPIRY

(days)

2ND EXPIRY

(days)

FREE TEXT

Load Value 1ST EXPIRY

(days)

2ND EXPIRY (days)

FREE TEXT

P10- P20 1 30 0

P21- P24 2 30 0

P25- P29 2 30 0 P25- P29 2 30 0

P30- P39 3 30 0 P30- P39 3 30 0

P40- P49 4 30 0 P40- P49 4 30 0

P50- P59 5 30 0 P50- P59 5 30 0

P60- P69 7 30 0 P60- P69 7 30 0

P70- P79 8 30 0 P70- P79 8 30 0

P80- P89 9 30 0 P80- P89 9 30 0

P90- P99 12 60 0 P90- P99 12 60 0

P100- P119 15 60 0 P100- P119 15 60 0

P120- P150 18 60 0 P120- P150 18 60 0

16

On 1 May 2004, Globe started offering its new and improved G-Plan Opti-SIM with the myFavorites or personalization feature. The new G-Plan Opti-SIM has 128K memory which gives the subscriber a 750 phonebook memory, 100 message memory, myOrganizer and a full myGlobe menu, and myFavorites. The MyOrganizer function lets subscribers schedule, track and save appointments and notes while the myFavorites utility allows them to create bookmarks of their favorite myGlobe services from the included myGlobe menu. On 1 May 2004, Globe launched its Globe Text Collect service. It is the first and only service that allows a Globe prepaid subscriber to send emergency SMS or text messages to any Globe postpaid or prepaid subscriber even without load credits. A prepaid subscriber may send a text collect message to another postpaid or prepaid subscriber who has registered your prepaid number in their Text Collect list. Additionally, the registering party (postpaid or prepaid subscriber) may add, list, delete or change members (enrolled in his Text Collect service) or check number of transactions and turn the service on or off.

On 30 May 2004, Globe launched its Text Balance Inquiry service which allows Globe prepaid subscribers to receive an automatic SMS advisory on their available account and SMS credits by calling 222 or texting ‘BAL’ to 222. Previously, prepaid subscribers could only inquire about their account balances and remaining free SMS credits by calling 222 to receive an automatic SMS advisory. With Text Balance Inquiry, Globe prepaid subscribers can now check their peso account balances and their remaining free text credits through the text advisory message, which they can keep in the phone's inbox for future reference.

On 6 June 2004, Globe launched its G-Flex Supplementary Plans, the G-Flex Plan 250 and G-Flex Plan 500. New subscribers should subscribe to an existing G-plan or G-Flex plan to be eligible for a G-Flex supplementary plan while existing subscribers should be an active subscriber to an existing G-Plan or G-Flex plan to avail of G-Flex 250 or G-Flex 500. Below are the tariff rates for the G-Flex Supplementary Plans:

G-Flex Plan 250 G-Flex Plan 500

MSF 250 500

Consumable Amt 250 500

Free SMS 75 150

Rates

GHP to GHP 6.50 6.50

GHP to non-GHP 7.50 7.50

IDD $ 0.40 $ 0.40

SMS charges after FREE

1.00 1.00

On 16 June 2004, Globe started offering its Call and Text Collect service. This new service allows prepaid subscribers to make text and voice calls to any Globe postpaid or prepaid subscriber even without load credits. A prepaid subscriber may text or call another postpaid or prepaid subscriber who has registered his prepaid number in their Call and Text Collect list. Additionally, the registering party (postpaid or prepaid

17

subscriber) may add, delete, change and list members, check number of transactions and turn the service on or off.

On 25 June 2004, Globe launched its Txt Bak Mo Libre Ko messaging service that allows a postpaid/prepaid subscriber (the sender) to ensure that the receiving subscriber (the receiver) he sends a text message to will be able to text back. The receiver who replies will not be charged as the sender will shoulder the cost of the text reply. No registration is needed and the service can be used in the following variations: • From postpaid to postpaid; • From postpaid to prepaid; • From prepaid to prepaid and; • From prepaid to postpaid.

On 20 June 2004, Globe announced its Globe AutoLoad via Credit Card service. Now, credit card holders can reload prepaid credits to Globe Handyphone and Touch Mobile subscribers in P100 increments from P200 to P500. Additionally, credit card holders availing of the service may change their passwords and register a new mobile number or a new credit card. On 21 June and 24 June 2004, GlobeQuest announced the launch of its Globelines Broadband and Broadband Internet Zone (BiZ) services, respectively. Globelines Broadband internet services offers businesses a wide array of internet solutions operating at fast speeds over Innove’s advanced broadband network infrastructure. BiZ is GlobeQuest’s broadband-to-the-room internet service. This service provides secure, reliable and convenient high-speed Internet access to transient business travelers and/or tenants of high-density buildings. BiZ provides hotel, condominium and other property management companies the ability to operate, deliver and maintain business-grade broadband Internet services for their guest and tenants.

On 1 July 2004 Globe launched its BlackBerry® service for Globe Postpaid Corporate Managed Accounts. BlackBerry® is a leading wireless connectivity solution, providing access to a wide range of applications on a variety of devices around the world. With Globe’s BlackBerry® service, subscribers get an integrated phone, SMS, browser and organizer in a single handheld device. BlackBerry® subscribers can access email wirelessly with BlackBerry’s® unique ‘push’ technology, browse internet pages, view and manage email attachments in popular document formats and operate on fifty networks in over thirty countries.

On 30 March 2004, Globe launched its G-plan Opti-SIM EXCEL. The new postpaid SIM card has a 128K memory, 750 contacts phonebook memory, 100-message memory, a full myGlobe menu, a built-in organizer feature and the convenience of having two mobile phone lines in one SIM. On 13 June 2004, Globe launched its Globe Handyphone Prepaid Plus 128XL SIM card. The new SIM card has the highest memory capacity available among prepaid SIMs in the market and includes a 750 contacts phonebook memory, 100-message memory, a full myGlobe menu and a built-in organizer feature. On 9 July 2004, Globe Handyphone launched its Prepaid SIM Upgrade program where subscribers can upgrade their Globe prepaid SIMs to 128 XL or X-treme Memory SIM for P100 and P50, respectively. Subscribers who upgrade will get higher phonebook and memory capacity while retaining their previous mobile numbers.

18

To address the needs of OFWs, Globe introduced its Share A Load and AutoLoad Max services in Japan, HK and Singapore in the third quarter of 2004. With Share A Load service in Japan and Hong Kong and the Globe Kababayan – I Load You Mega services in Hong Kong and Singapore, OFWs in Japan, HK and Singapore can now send prepaid credits to families and friends in the Philippines. The Share A Load service in Japan allows persons in Japan to send prepaid credits to Globe Handyphone & Touch Mobile subscribers in the Philippines using a postpaid mobile subscription of any network provider in Japan and charging all reload transactions against an Access Plus phone card (issued by telecom companies in Japan). The Access Plus phone card is a rechargeable phone card sold in Japan that offers not only voice calls but value-added features that include ringtone downloads, credit transfer from one Access Plus card to another, access to news, job search and load transfer, which allows sending credits from a mobile phone in Japan to a mobile phone in the Philippines. Load credits are available in the following denominations: P150, P300, P500 and P1,000. Meanwhile, Share A Load service in HK is offered to SmarTone subscribers who will be able to send prepaid credits to Globe Handyphone & Touch Mobile subscribers in the Philippines while charging all reload transactions against the OFW’s SmarTone subscription. Load credits are available in the following denominations: P150, P300 and P500. Additionally, with AutoLoad Max retailers in HK and Singapore, OFWs can now purchase prepaid credits from retailers, send them directly to mobile phones of family and friends while paying in HK and Singapore dollars. Initial load denomination is P150, which will have a first and second expiry of 18 and 60 days, respectively. As of the end of 2004, AutoLoad Max reaches more Filipinos across the globe in countries such as Taiwan, Saipan, Guam and the United Kingdom on top of existing channels in Hong Kong, Singapore and Japan. On 8 October 2004, Globe launched its Ask A Load service. Globe Handyphone Prepaid subscribers with or without load credits may now request for prepaid credits from a Globe Postpaid or Prepaid subscriber. No registration is needed to perform Ask A Load transactions. Charges for Ask A Load transactions are shown in the table below.

Prepaid subscriber w/ load Prepaid subscriber w/o load

ASK-A-LOAD TRANSACTION FEE

P1.00 no charge

ASK-A-LOAD LIMIT no limit as long as balance is greater than or equal to P1.00

once a day

On 16 October 2004, Globe launched its G-Cash service – a “mobile wallet” that enables mobile commerce to Globe Handyphone and Touch Mobile subscribers. This new service allows Globe Handyphone and Touch Mobile subscribers to use their mobile phones to: (a) purchase goods and services in accredited outlets; (b) send money person to person (P2P) or exchange G-Cash for cash in accredited outlets; and (c) send and receive remittances. This new service is safe, user-friendly and can easily be

19

monitored as it is a PIN-protected mobile wallet that features a simple user interface and includes a unique trace number. The G-Cash mobile wallet can store from a minimum of P1 to a maximum of P10,000. Maximum transactions per day is P40,000. Subscribers will be charged the usual text messaging fee of P1.00 per message for G-Cash transactions. G-Cash transactions at certain authorized outlets may be subject to processing fees, which may vary per outlet but there are no transaction or processing fees for purchases and bill payment transactions. Globe Business Centers (including Hub shops and Digital Exchange outlets) and Globelines Payment and Service Centers charge a service fee of P10.00 or 1% of the transaction amount (whichever is higher) for any cash-in or cash-out transaction. As of end-2004, there were more than 200,000 registered users of G-Cash and Globe’s partners expanded to more than 30 establishments, including some of the more popular retail chains in the country such as Jollibee, ShoeMart, Fully Booked, Ortigas Home Depot, Shakey’s and Westin Philippine Plaza. The Bureau of Internal Revenue has also connected with Globe to enable payment of annual business license fees and the Rural Bank Association of the Philippines is laying the groundwork for testing G-Cash as a vehicle for micro-finance delivery. In December 2004, Innove launched its “No NDD charges for Globelines to Globelines calls nationwide” program. As part of its program, effective 5 January 2005, Globelines postpaid subscribers would no longer be charged National Direct Dialing (NDD) charges for calls made from their Globelines postpaid phones to any other Globelines postpaid phone nationwide. However, on 4 January 2005, Innove suspended the implementation of the program after receiving a cease-and-desist order (CDO) from the NTC in view of complaints by the Private Telephone Companies of the Philippines (PAPTELCO) and PT&T for alleged predatory pricing. Innove has replied to the complaint of PAPTELCO and PT&T and continues to work with the NTC to discuss the program. On 11 January 2005, Globe filed a complaint against several telecom companies seeking to enjoin various carriers’ unlimited call pricing schemes that Globe claims constitute predatory pricing. On 14 January 2005, the NTC temporarily lifted the CDO and directed Innove to offer its toll-free NDD services for a period not exceeding 30 days upon receipt of the memo from NTC pending a review and resolution of all price and rate reduction schemes. The “No NDD charges for Globelines to Globelines calls nationwide” promo was allowed in due course and will run from 21 March to 19 April 2005.

On 6 January 2005, Globe Kababayan launched its “Quick Remit and Load Card” service that enables Overseas Filipino Workers (OFW) to remit cash and reload credits to Globe Handyphone and Touch Mobile phones. The “Quick Remit and Load Card” service allows OFWs to do away with queuing at overseas remittance centers and making over-the-counter payments of cable fees. This service compliments G-Cash’s international remittance service. Additionally, OFWs need not wait for days-off to remit money or reload credits to Globe Handyphone and Touch Mobile phones as the service can be availed anytime and anywhere. The “Quick Remit and Load Card” service will be manufactured and distributed internationally by Paysetter, Inc. and will be available in P1,200, P3,200 and P5,200 denominations. On 16 January 2005, Touch Mobile offered its new “Power Piso” call rates where Touch Mobile to Touch Mobile calls will be charged P1.00 per minute only starting on the 3rd minute of each call. The 1st two (2) minutes will be charged the current P5.50 per minute rate. The “Power Piso” campaign is part of Touch Mobile’s new

20

repositioning to “TM, Ang Bagong Touch Mobile” that is focused on giving more peso value to its mass consumers by making its services more affordable. Additionally, starting 16 January 2005, Touch Mobile subscribers can access selected Value Added Services (VAS) content for only P1 per download. This will be a permanent service available to Touch Mobile subscribers. Initial VAS content will include daily job openings, jokes and tips. Other VAS services will be offered at the regular rate of P2.50 per download. On 30 January 2005, Globe launched its MyGlobe Tracker service which allows Globe Handyphone postpaid and prepaid subscribers to track the location of friends, family and celebrities through their mobile phones using location-based technologies and applications that act on or react to geographic triggers. These services provide a general location or vicinity of a subscriber. Currently, five types of services are available to Globe subscribers on MyGlobe Tracker: (a) myFriend Tracker – Subscribers can locate friends and get information on their

location; (b) myFamily Tracker - Parents can get information on the location of their children; (c) myChat Tracker – Subscribers can get a list of chatters in their area; (d) Celebrity Tracker – Subscribers can get alerts from celebrities in their area; (e) Nginig Tracker – Subscribers can get information on paranormal readings within

their area. This is based on the ABS-CBN show “NGINIG”. Registration for the above services is currently free while location requests range from P5 (SMS) and P10 (MMS).

(v) Competition. Describe the industry in which the registrant is selling or expects to sell

its products or services, and where applicable, any recognized trends within that industry. Describe the part of the industry and the geographic area in which the business competes or will compete. Identify the principal method of competition (price, service, warranty or product performance). Name the principal competitors that the registrant has or expects to have in its area of competition. Indicate the relative size and financial and market strengths of the registrant’s competitors. State why the registrant believes that it can effectively compete with other companies in its area of competition.

Wireless Market The Philippine wireless market has experienced rapid growth in recent years. Accordingly, the number of wireless subscribers increased from 1.7 million as of 31 December 1998 to approximately 32.9 million as of 31 December 2004. Over the past years, the great majority of cellular growth has taken place specifically within the digital GSM segment. Wireless subscriber growth in the Philippines has been driven by the unique demographics and topography of the Philippines. Over 50% of the population in the Philippines is below the age of 25. The Philippines comprises more than 7,100 islands, which favors the provision of voice communication through wireless rather than wireline communication systems. With mass market appeal, the increasing affordability of wireless handsets and wireless services, and the wide coverage of wireless networks, the growth of wireless subscribers in the Philippines has been

21

substantial. The popularity of wireless communication has also been driven in part by the continued growth of the prepaid service as it permits customers who would not otherwise meet the credit standards for postpaid service or who have different needs to avail of wireless services. To the wireless operators, prepaid accounts do not pose any credit risk. Wireless data services, primarily SMS or text messaging, have further contributed to the popularity of wireless communication in the Philippines. SMS usage in the Philippines is significantly higher than in most other countries. In addition, in order to attract new subscribers, mobile service providers in the Philippines provide a certain number of monthly free SMS messages upon subscription to certain postpaid plans or based on prepaid reload denomination. This has further increased the popularity of SMS messaging. Seven wireless operators, including us, in the Philippines have been granted licenses to provide nationwide service. Wireless operators are free to choose the network technology that they wish to deploy. Communications service providers in the Philippines have not made any third generation (‘3G’) wireless technology service commercially available. During the past year, Congress has awarded a cellular service franchise to Connectivity Unlimited Resources Enterprises, Inc. (‘CURE’) and the latter has likewise applied to the NTC for a provisional authority (‘PA’) to offer 3G mobile communications services. Another company, Multimedia Telephony, Inc. has a pending application for Universal Mobile Telephone System (‘UMTS’) service. In 2004, the NTC released a draft memorandum circular outlining its guidelines on 3G. To date, discussions on the guidelines are taking place between the NTC and the communications service providers. The table below sets forth the technology deployed, the date of commercial launch and the reported number of subscribers as of the most recent date available for each wireless operator: Wireless Operators

Year of Commercial

Launch

Subscribers

Wireless System

Wireless

Technology

GSM Operating Spectrum

Globe 1994 10,815,649 1 Digital GSM 20MHz Innove* 1993 1,698,324 1 Digital GSM 10MHz Smart** 1994 14,595,782 2 Digital ETACS/GSM 15MHz Piltel** 1991 4,612,450 2 Analog/Digital AMPS/CDMA 11MHz Bayantel Not

applicable Not

applicable Digital GSM 10MHz

Extelcom 1991 No data available

Analog AMPS 10MHz

Digitel 2003 1,150,000 3 Digital GSM 10MHz * Wholly-owned subsidiary of Globe Telecom, Inc. ** Affiliate of PLDT. ___________________________ Sources: (1) Globe disclosures for the year ended 31 December 2004. (2) Disclosures of PLDT as of 31 December, 2004. SMART decommissioned its analog network last 31 December 2002. (3) Based on our estimates and publicly available information.

Since 2000, the wireless communications industry has experienced consolidation. PLDT completed its acquisition of Smart in March 2000 and Globe acquired Innove in June 2001. Currently, Smart and Globe are the two leading wireless operators in the Philippines in terms of subscribers and revenues. Digitel began its network in 2000 and formally launched its wireless service under the brand name Sun Cellular in February

22

2003. Additionally, NEXTEL, although licensed for wireless trunked radio services, has also begun to offer call service connectivity to wireless and wireline users. Industry developments, of which Globe has been a major driver, have brought down the prices of handsets and SIM packs and made the service affordable to the larger masses of our population, market configurations have drastically changed, and huge potentials for mass distribution have opened up the industry. In 2004, Globe’s subscriber base came under pressure from a competitive “Free SIM swap offer” that started in 2003. To counter this challenge, Globe launched its own “Free SIM swap offer” in February 2004 that resulted in a significant number of net additions to its subscriber base up to the end of the third quarter of 2004. In July 2004, competition likewise mounted an aggressive promotional campaign aimed at acquiring postpaid subscribers to which Globe responded with its “Most Explosive Deal Ever” program that offered free and discounted phones for new postpaid subscriptions. During the third quarter of 2004, Digitel’s Sun Cellular launched a Call and Text Unlimited service that allowed it to attract a number of postpaid and prepaid subscribers with its all day unlimited call and text messaging services. To adapt to this changing profile and compete in the wireless market, we intend to launch more innovative services targeted at distinct customer segments by capitalizing on our “value-transfer” concept to allow subscribers to sustain their mobile service with the help of family and friends. G-Cash will build on the success of these over-the-air services as it expands the use of mobile phones beyond communications to mobile commerce. Additionally, we will continue to make new and existing services pervasive and accessible both locally and to more Filipinos worldwide through our AutoLoad Max and Globe Kababayan channels, respectively. To support our local distribution initiatives, we will continue to build our network to penetrate deeper into the mass markets and expand our presence in untapped markets. Regionally, we aim to enable the creation and seamless delivery of mobile services to more subscribers across the Asia-Pacific by exploring commercial applications and offerings joint undertakings with the six members of the Bridge Mobile Alliance. Wireline Voice Market There are ten major wireline operators in the Philippines with licenses to provide local and domestic long distance service. PLDT is the dominant provider with 2.2 million lines in service as of 31 December 2004. The Philippine wireline voice market has experienced modest growth in recent years with the number of lines in service increasing from 2.9 million in 1999 to approximately 3.5 million in 2004. The modest increase in lines of service or subscribed lines is a result of the wide availability and affordability of wireless services. Each operator (other than PLDT, which is authorized to provide nationwide wireline services) has been granted service areas in which they must install the required number of wirelines and provide service. The NTC has created 15 such service areas in the Philippines and in order to promote network construction, it has been the government policy to allow only one or two major operators (in addition to PLDT) in each service area. On 5 March 2004, Innove filed an application with the NTC for the expansion of its fixed line business. The application is currently pending.

23

Rates for local exchange and domestic long distance services have been deregulated and operators are allowed to have metered as well as flat monthly fee tariff plans for the services provided. In 30 September 2003, Globe completed the transfer of its wireline voice and data services to Innove. With the transfer, Globe has integrated its wireline networks and operations into Innove. With the transfer, wireline products and services will be housed in a single company. It will be Globe’s wholly-owned subsidiary that is dedicated to the wireline business and will compete with other operators in the wireline voice, private data network and internet business by offering a focused and cost-effective approach to delivering integrated voice and data solutions to meet the communications needs of its clients. To better address the needs of its customers, seize and grow specific market segment opportunities and build market leadership, Innove reorganized its business into five segments – consumer, small and medium business, enterprise, wholesale and channels – under two groups. The first group, Residential and Business, under the Globelines brand, handles consumers and the small and medium enterprises (‘SME’). The second group, Corporate, under the GlobeQuest brand, is in charge of large enterprises, wholesalers, resellers and channel partners. Wireline Data Market The wireline data service business is a growing segment of the wireline industry. As the Philippine economy grows, businesses are increasingly utilizing new networking technologies and the internet for critical business needs such as sales and marketing, inter-company communications, database management and data storage. The potential of corporate data is becoming more visible as it serves the promising IT Enabled Service (ITES) industry which includes call centers and Business Process Outsourcing (BPO) companies. In 2003, Globe captured close to 50% of this segment. We expect to compete aggressively in this segment as industry developments expect more growth. Other industry segments are also realizing the need for connectivity and IT-enablement which is expected to drive bandwidth demand. The demand for being more mobile and connected to the office entails innovating integrated mobility solutions to address access requirements. In addition, the prices of bandwidth, which in the past couple of years have seen steep declines, are showing signs of stabilizing. We have been able to capitalize on dropping prices, leading to the associated increase in customer growth. We expect the wireline data business to grow significantly as the demand for data and internet services increases. International Long Distance Market International long distance providers in the Philippines generate revenues from both inbound and outbound international call traffic. Pricing is based on international settlement rates. International long distance traffic has been increasing at a rapid rate in the Philippines in recent years. There are eleven licensed international long distance operators, nine of which directly compete with us for customers. PLDT is the dominant provider of international long distance services.

24

In the past, settlement rates for international long distance traffic were generally based on the concept of accounting rates. For several years now, commercial negotiations for these settlement rates are settled using a termination rate system where the termination rate is determined by the terminating carrier (e.g. Philippines) in negotiation with the originating foreign correspondent. In December 1996, the U.S. FCC proposed a global reduction of international settlement rates. Prior to 2001, the accounting rate for all carriers on route from the U.S. to the Philippines was $0.46 per minute. In 2001, the accounting rate was reduced to $0.38 per minute. Thus, current U.S. FCC benchmark settlement rate (originating and terminating share, respectively) is $0.19 per minute.

On 7 February 2003, U.S. carriers, AT&T and MCI, filed a complaint before the U.S. FCC seeking stop payment order on settlement to the Philippine carriers on the ground that Philippine carriers were whipsawing AT&T and MCI into agreeing to increase termination rates to the Philippines. Whipsawing occurs when a foreign monopoly supplier uses its market power to negotiate a more favorable agreement from one U.S. carrier and extract the same terms from other U.S. carriers. On 10 March 2003, the U.S. FCC ordered all U.S. facilities-based carriers to withhold payments of settlement rates to us and five other Philippine carriers until such time as the U.S. FCC issues a public notice stating otherwise. On 12 March 2003, the NTC issued an order directing all Philippine carriers not to accept traffic on direct circuits with U.S. facilities-based carriers who do not pay for services rendered and to take all necessary steps to collect payments for services rendered. However, interim commercial arrangements were concluded with U.S. facilities-based carriers that led to the lifting of the stop-payment order of the U.S. FCC last 26 January 2004. Based on the U.S. FCC order of January 2004, U.S. facilities-based carriers are now required to resume payments for termination services. The FCC continues to review the US carriers’ position on this matter. (See Item 3: “Legal Proceedings.”)

(vi) Sources and availability of raw materials and the names of principal suppliers; If the registrant is or is expected to be dependent upon one or a limited number of suppliers for essential raw materials, energy or other items, describe. Describe any major existing supply contracts.

Globe works with both local and foreign suppliers and contractors. Equipment and technology required to render telecommunications services are mainly sourced from foreign countries. Globe’s principal suppliers are: For wireless - Nokia Oy (Finland); Ericsson Radio Systems AB (Sweden), Ericsson (Sweden), Siemens Corporation (Germany), Alcatel (France), Microwave Networks Inc(US) ., Fujitsu Ltd. (Japan), ECI Telecoms (Israel), Enavis (Israel), NERA (Norway), NEC Corp. (Japan), ASCOM, Benning (Germany), SEC Cellyte (US), Hawker Batteries, JNB Batteries, Rohas-Euco (Malaysia), Transmast, Andrews Corporation, Allen Telecom Group (Micom), Kathrein, Cellwave, Huber & Suhner, CMG (Netherlands), Comverse Technologies; Harris Radio Corporation (US/Canada), Cisco Systems (Philippines.); Communications Solutions, Inc., Investors Quality Services, Inc. (USA), Lucent Technologies (USA), Mitsubishi Corporation (Japan and Philippines), Sumitomo Corporation (Japan), Tomen Corporation (Japan and Philippines), and Tyco Electronics (Philippines).

25

SIM cards and call cards are sourced from Axalto International Ltd. (France), Gemplus Technologies Asia Pte Ltd (France), Banner Plastic Cards (Philippines), and Orga Card Systems Pte Ltd (Germany). For wireline - Tomen (Japan), Fujitsu Ltd. (Japan), Tomen Telecom Phils., Sumitomo Corporation (Japan), Mitsubishi (Japan), Lucent Technologies (USA), NEC (Japan), NESIC (Phils.), Alcatel (Italy), Nokia Telecommunications Oy (Finland), Nokia Telecommunications (Phils.), Ericsson Telecommunications (Philippines.), Mitsubishi Corp. (Japan & Phils.), Melcom Corp. (Philippines.), Comsys Phils, Inc., Cisco Systems (Philippines.), Datacraft Comm (Phils.), Worldlink Comm. (Philippines.), IECI (Philippines.), Filipinas Wincomm Corp.(Philippines), RAD Far East Ltd. (Hongkong), Cisco (USA), RAD (Israel), SR (Canada), DMC (USA), Motorola (US), MCI WorldComm (US), Teleglobe (Canada), Cable and Wireless (UK), AT&T Global (US), British Telecom (UK), and Singapore Telecom (Singapore), Comverse Technologies (USA), Lityan (Philippines) and Banner Plastic Cards (Philippines). Major supply contract – The Capital Expenditures Program includes various phases, each phase supplied/serviced by various local and international companies who will provide equipment and services that will involve planning, design, construction and commissioning of various equipment and systems for Globe. In 2004, we incurred cash capital expenditures of P20,283.5 million compared to P17,452.3 million in 2003. For our Phase 10 network rollout program, we added 1,156 new cell sites that brought our total cell site count to 3,736 at the end of 2004.

(vii) Disclose how dependent the business is upon a single customer or a few customers, the loss of any or more of which would have a material adverse effect on the registrant and its subsidiaries taken as a whole. Identify any customers that account for, or based upon existing orders will account for, twenty percent (20%) or more of the registrant’s sales; Describe any major existing sales contracts.

Globe has a wide subscriber base. On a consolidated basis, as of 31 December 2004, it had 12,513,973 wireless subscribers and 323,094 wireline subscribers. No single customer and contract accounted for more than 20% of Globe’s total sales in 2004.

(viii) Transactions with and/or dependence on related parties

Globe Telecom and Innove, in their regular conduct of business, enter into transactions with their principal shareholders, Ayala and STI, and certain related parties. These transactions, which are accounted for at market prices normally charged to unaffiliated customers for similar goods and services, include the following:

Globe Telecom (a) Globe Telecom has interconnection agreements with ST and Deutsche Telecom

AG (DT). Transactions with DT in 2004, 2003 and 2002 were not material. Effective 20 October 2003, De Te Asia Holding GMBH (DTA), a wholly-owned subsidiary of DT, divested its shareholdings in Globe Telecom and is no longer a related party.

The net traffic receivable (included in “Receivables in the consolidated balance sheet”) and the interconnection toll income (included in “Net operating revenues in

26

the consolidated statements of income”) earned as of and for the years ended December 31 follow:

2004 2003 2002 (In Thousand Pesos) Net traffic receivable P=31,212 P=548,395 P=736,665 Interconnection toll income 1,083,859 2,239,630 1,437,494

(b) Globe Telecom and STI have a technical assistance agreement whereby STI will

provide consultancy and advisory services, including those with respect to the construction and operation of Globe Telecom’s networks and communication services, equipment procurement and personnel services. In addition, Globe Telecom has software development, supply, license and support arrangements, lease of cable facilities, maintenance and restoration costs and other transactions with STI.

The details of fees (included in “Operating expenses” in the consolidated statements of income) incurred under these agreements are as follows: 2004 2003 2002 (In Thousand Pesos) Lease of cable facilities, maintenance

and restoration costs and other transactions P=137,111 P=54,026 P=50,679

Technical assistance fee 44,360 78,095 63,420 Software development, supply, license

and support fee 40,409 56,316 98,860

The net outstanding balances due to STI (included in “Accounts payable and accrued expenses in the consolidated balance sheets”) arising from these transactions are as follows:

2004 2003 2002 (In Thousand Pesos) Lease of cable facilities, maintenance

and restoration costs and other transactions P=62,675 P=14,193 P=–

Software development, supply, license and support fee 21,322 13,756 19,503

Technical assistance fee 8,899 16,895 64,018

(c) In 2001, Globe Telecom signed a cable equipment supply agreement with C2C, a related party of ST. The aggregate cost of equipment purchased under this agreement amounted to P=2,815.11 million which were included in “Property and equipment” account in the consolidated balance sheets.

In March 2002, Globe Telecom entered into an equipment lease agreement for the same equipment obtained from C2C with GB21 (Hong Kong) Limited (GB21). Subsequently, GB21, in consideration of C2C’s agreement to assume all payment obligations pursuant to the lease agreement, assigned all its rights, obligations and interest in the equipment lease agreement to C2C. As a result of the said assignment of receivables and payables by GB21 and C2C under the two agreements, the remaining liability of Globe Telecom to C2C for the cable supply

27

agreement amounted to P=2,262.28 million, P=2,430.36 million and P=2,518.48 million as of 31 December 2004, 2003 and 2002, respectively, which were included in “Other long-term liabilities” in the consolidated balance sheets.

Globe Telecom entered into agreements with C2C for the purchase of IRUs in the C2C and Japan-US Cable Networks. The cost of capacity purchased from C2C amounted to P=1,133.79 million. This was part of property and equipment transferred to Innove on 30 June 2004. In July 2002, Globe Telecom received advance service fees from C2C amounting to U.S.$1.60 million, which will be offset against its share in the operations and maintenance costs of the cable landing facilities of Globe Telecom pursuant to a landing party agreement entered into by both parties in August 2000. Also, in January 2003, Globe Telecom received advance lease payments from C2C for its cable landing station facilities amounting to U.S.$4.11 million. The parties have agreed on a lease amortization schedule and application of a portion of the advance service fees for C2C’s share in the 2002 operations and maintenance costs of the cable landing facilities. Accordingly, Globe Telecom recognized lease income amounting to P=16.32 million and P=51.00 million in 2004 and 2003, respectively, and service fees amounting to P=43.76 million and P=42.33 million in 2004 and 2003, respectively. The current and noncurrent portions of the said advances shown as part of “Other long-term liabilities” account in the consolidated balance sheets follow:

2004 2003 2002 (In Thousand Pesos)

Current P=17,760 P=59,483 P=– Non-current 146,449 161,970 85,206 P=164,209 P=221,453 P=85,206

(d) Globe Telecom reimburses Ayala for certain operating expenses. The net

outstanding liabilities to Ayala related to these transactions as of 31 December 2004, 2003 and 2002 were not material.

Innove Innove and DT entered into a Technical Assistance Agreement (the Agreement) whereby DT will provide technical advisory services for a fee. DT subsequently assigned all its rights, title, interests, duties and obligations in the Agreement to Consultancy by Technicus Corporation with the conformity of Innove. On 12 August 2002, the Agreement was extended from 31 December 2002 to 31 December 2003, with no other changes in the original provisions. Technical fees charged to operations amounted to P=0.64 million and P=9.90 million in 2003 and 2002, respectively. The outstanding balances of P=2.90 million and P=4.98 million as of 31 December 2003 and 2002, respectively, are included in “Accounts payable and accrued expenses” account in the consolidated balance sheets.

28

The summary of consolidated outstanding balances resulting from transactions with related parties follows: 2004 2003 2002* (In Thousand Pesos) Traffic settlements receivable

(included in Receivables) P=57,222 P=569,891 P=801,145 Other current assets 946 1,118 732 Traffic settlements payable (included

in Accounts payable & accrued expenses) 26,010 21,496 65,420

Accounts payable (included in Accounts payable and accrued expenses) 122,959 45,962 97,329

Other long-term liabilities 2,426,491 2,651,816 2,603,683 _________________________________________ * Includes balances of transactions with DT.

(ix) Summarize the principal terms and expiration dates of all patents, trademarks,

copyrights, licenses, franchises, concessions, royalty agreements held; Indicate the extent to which the registrant’s operations depend, or are expected to depend, on the foregoing and what steps are undertaken to secure these rights;

The tables below summarize each major license that we currently hold:

Service Type of

License Date Issued or Last Extended

Expiration Date Action Being Taken

Globe Wireless CPCN (1) July 22, 2002 December 24, 2030 No action

required Local Exchange Carrier

CPCN (1) July 22, 2002 December 24, 2030 No action required

International Long Distance

CPCN (1) July 22, 2002 December 24, 2030 No action required

Interexchange Carrier

CPCN (1) February 14, 2003 December 24, 2030 No action required

VSAT CPCN (1) February 6, 1996 February 6, 2021 No action required

Innove Type of

License Date Issued or Last Extended

Expiration Date Action Being Taken

Wireless CPCN (1) July 22, 2002 April 10, 2017 No action required

Local Wireline CPCN (1) July 22, 2002 April 10, 2017 No action required

International Long Distance

CPCN (1) July 22, 2002 April 10, 2017 No action required

Interexchange Carrier

CPCN (1) April 30, 2004 April 10, 2017 No action required

(1) Certificate of Public Convenience and Necessity. The term of a CPCN is co-terminus with the franchise term.

In July 2002, the NTC issued CPCNs to Globe and Innove. The CPCNs allow us to operate our respective services for a term that will be predicated upon and co-terminus with our congressional franchise under RA 7229 and RA 7372 for Globe and Innove, respectively. We were granted our permanent licenses after having demonstrated our

29

legal, financial and technical capabilities in operating and maintaining wireless telecommunications systems, local exchange carrier services and international gateway facilities. Additionally, Globe and Innove exceeded the 80% minimum roll-out compliance requirement for coverage of all provincial capitals, including all chartered cities within a period of seven years.

We have applied with the Intellectual Property Office, the independent regulatory agency responsible for registration of patents, trademarks and technology transfers in the Philippines, for registration of our brand names, including, Globe Handyphone, Touch Mobile, Globelines, Globe Link and GlobeQuest for the wireless and wireline services we offer. We received a certificate of registration for Globe Handyphone, which is valid for 20 years from 13 December 1999, the date of registration.

(x) Need for any governmental approval or principal products or services. If governmental

approval is necessary and the registrant has not yet received that approval, discuss the status of the approval within the government approval process.

Please refer to Table in Item (ix) above.

(xi) Effect of existing or probable governmental regulations on the business;

The Globe Group is regulated by the NTC under the provisions of the Public Service Act (CA 146), Executive Order (EO) 59, EO 109, and RA 7925. Under these laws:

(a) Globe is required to secure a CPCN/PA from the NTC for those services it offers

which are deemed regulated services, as well as for those rates which are still deemed regulated, under RA 7925.

(b) Globe is required to observe the provisions of EO 59 on interconnection of

public telecommunications networks.

(c) Under EO 109, Globe was required to observe (and has complied with) an obligation to rollout 700,000 fixed lines as a condition to the grant of its provisional authorities for the cellular and international gateway services.

(d) Globe remains under the supervision of the NTC for other matters stated in CA

146 and pays annual supervision fees and permit fees to the NTC.

In 2000, the NTC issued NTC Memorandum Circular No. 13-6-2000 proposing new requirements for wireless operators, including the following: • to provide subscribers with their bills within a specified period; • to extend the expiry date of prepaid cards from two months to two years; • to provide prepaid subscriber balance updates every time they make phone

calls; • to bill on a per pulse basis using units of six seconds instead of the previous per

minute basis; and • not to bill calls directed to recorded voice messages.

We, together with other cellular operators, sought and obtained a preliminary injunction against the implementation of NTC Memorandum Circular No. 13-6-

30

2000 from the RTC of Quezon City. The NTC appealed the issuance of the injunction to the Court of Appeals. On 25 October 2001, we received a copy of the decision of the Court of Appeals ordering the dismissal of the case before the RTC for lack of jurisdiction, but without prejudice to the wireless companies’ seeking relief before the NTC, which the Court of Appeals claims had jurisdiction over the matter. On 22 February 2002, we filed a Petition for Review with the Supreme Court to annul and reverse the decision of the Court of Appeals. The Supreme Court, on 2 September 2003, overturned the CA’s earlier dismissal of the petitions filed by SMART and Globe. In its 13-page decision, the SC said that the Quezon City trial court could hear and decide the case, contrary to NTC’s argument. The SC has also since denied the NTC’s motion for reconsideration. We are currently awaiting resumption of the proceedings before the RTC of Quezon City. In the event, however, that Globe is not eventually sustained in its position and NTC Memorandum Circular No. 13-6-2000 is implemented in its current form the Company would probably incur additional costs for carrying and maintaining prepaid subscribers in its network.

(xii) Indicate the amount spent on research and development activities, and its percentage

to revenues during each of the last three fiscal years;

Globe did not incur research and development costs in 2002, 2003 and 2004.

(xiii) Costs and effects of compliance with environmental laws

The Globe Group complies with the Environmental Impact System (‘EIS’) of the Department of Environment and Natural Resources (‘DENR’) and pays nominal filing fees required for the submission of applications for Environmental Clearance Certificates (‘ECC’) or Certificates of Non-Coverage (‘CNC’) for its cellsites and certain other facilities. The Globe Group pays nominal filing fees and miscellaneous expenses incurred in the preparation of applications and environmental impact studies in relation to such applications. The Globe Group does not consider these amounts material.

(xiv) State the number of the registrant’s present employees and number of employees it

anticipates to have within the ensuing twelve (12) months. Indicate the number by type of employee (i.e. clerical, operations, administrative, etc.) whether or not any of them are subject to collective bargaining agreements (CBA) and the expiration dates of any CBA. If the registrant’s employees are on strike, or have been in the past three (3) years, or are threatening to strike, describe the dispute. Indicate any supplemental benefits or incentive arrangements the registrant has or will have with its employees.

On a consolidated basis, we increased our headcount to 4,956 in 2004 from 4,186 in 2003, 20.5% of which are covered by the 2001-2005 Collective Bargaining Agreement (‘CBA’) concluded in 2001. Certain non-supervisory employees of Globe are represented by a labor union. In January 2003, Globe began its wireline staff rationalization program in line with the wireline group’s efforts to ensure business viability, driven by the business’ financial state and the landline market’s maturation. These efforts were hinged on ensuring competitiveness and efficiency of services rendered to customers. The Globe Telecom Workers Union (‘GTWU’) decided to file a notice of strike in February 2003 with the

31

National Conciliation Mediation Board under the Department of Labor and Employment against our management. Following a series of conciliatory talks between management and GTWU, where issues were discussed and resolved, the strike was averted. We entered into a collective bargaining agreement with the union in January 2001, which will expire in 2005. Philippine law provides for a renegotiation of the economic and non-economic provisions of the CBA after a three-year period, which ended last 31 December 2003. In January 2004, the renegotiations commenced between Globe Telecom and the GTWU. Following a series of discussions and negotiations, an agreement was reached over the economic and non-economic provisions of the CBA last 29 April 2004, which concluded the 2004-2005 CBA negotiations. Provisions in the CBA took effect January 1, 2004 and will end December 31, 2005. Breakdown of employees by main category of activity for 2004 and 2003 are as follows: We continue to develop strategic initiatives to explore new ways to realize operating efficiencies that will enable us to fully focus on our strategic business units. This is to ensure that our number of employees in 2005 is maintained at manageable levels. We believe that these initiatives will enhance shareholder value, improve corporate agility, and stimulate improvements in operational efficiency and effectiveness for better customer service.

(xv) Discuss the major risk/s involved in each of the businesses of the company and

subsidiaries. Include a disclosure of the procedures being undertaken to identify, assess and manage such risks.

The Company has a formal “Enterprise Wide Risk Management “program that identifies and assesses corporate risks, recommends specific action to address such risks and monitors implementation of the specific actions. (For a listing of the different risk factors, please refer to additional disclosures in the MD&A section.)

(b) Additional Requirements as to Certain Issues or Issuers of Debt and Securities:

(i) Debt Issues The Company has, in a transaction exempt under the Philippine Securities Regulation Code, issued a 13% $220 million bond due 2009 and a 9.75% $300 million bond due 2012. In February 2004, we issued P3 billion worth of Philippine SEC registered bonds. In the third quarter of 2004, Globe exercised its option to redeem US$143

Employee Type 2004 2003 Rank & File CBU 3,079 2,659 Supervisory 1,244 1,019

Managerial 461

361

Executives 172

147

Total 4,956 4,186

32

million of its 2009 Senior Notes, the remaining balance of its original US$220 million issue and incurred P693 million in bond redemption costs in 2004.

(ii) Investment in Company Securities: Not Applicable

Item 2. Properties

We lease space for most of our 82 wireless centers, 36 GPS centers and 3,736 cell sites throughout the Philippines. As of 31 December 2004, we had the following major telecommunications equipment - 22 Mobile Switching Centers (‘MSC’) providing a 9 million subscriber capacity, 12 Home Location Registers (‘HLR’) with a capacity of 20.4 million subscribers, 4 Short Messaging Service Centers (‘SMSC’) that are capable of handling 3,500 SMS Message Originating (‘MO’) transactions per second, 1 Multimedia Messaging Service Center (‘MMSC’) with 2 multimedia messages per second capacity and a Wireless Application Protocol (‘WAP’) Gateway - with a 450 Transactions Per Second (TPS) capacity.

We intend to lease additional space for cell sites and centers as we continue to expand our wireless network. Globe's business centers and cell sites in strategic locations all over the country are generally in good condition and are covered by specific lease agreements with various lease payments, expiration periods and renewal options. Globe intends to acquire additional business centers and cell sites in the next 12 months whose lease payments, expiration periods and renewal options are undeterminable at this time. In 1998, Globe purchased several floors of Pioneer Highlands Towers 1 and 2 to serve as its corporate headquarters which was renamed Globe Telecom Plaza. Globe Telecom Plaza is located at Pioneer Corner Madison Streets, Mandaluyong City. In November 2002, we completed construction of our Makati Host Exchange along Valero St., Makati City. We also lease additional office space in Ermita for our host exchange. The infrastructure for Globelines fixed telephone service now includes over 23 telephone switching exchanges in locations including Makati, Mandaluyong, Batangas, Cavite, Marikina, Cebu, Bohol, Negros Oriental, Negros Occidental, Panay, Samar, Leyte and Iligan in addition to 52 remote switching units (RSU/RDLU). Globe and Innove, together have also installed more than 1.5 million fixed lines. For our international and domestic long distance telephony business, we have 13 toll switching systems in our Ermita, Mandaluyong, Cavite, Batangas, Cebu, Mandaue, Tagbilaran, Tacloban, Dumaguete, Bacolod, Roxas, Iloilo and Iligan host exchanges. We operate three international gateway facilities. Two international gateway switches are located in Metro Manila while the third is in Cebu. We have also invested in several submarine cable systems, in which we either own or lease a share of the systems’ total capacity. We have a national transmission network that includes a microwave Synchronous Digital Hierarchy (‘SDH’) backbone that stretches from the northern part of Luzon to the southern part of Mindanao, supplemented by leased fiber optic networks in urban areas. Globe also established, operates and maintains a Fiber Optic Backbone Network (‘FOBN’) linking the Luzon, Visayas and Mindanao island groups to complement its microwave facilities and offer flexibility for future telecommunications technology including broadband, GPRS, 3G and broadband data transmission.

33

We have a cable landing station, located in Nasugbu, Batangas to land the C2C cable network, a 17,000 kilometer long submarine cable network linking the Philippines to Hong Kong, Taiwan, China, Korea, Japan and Singapore. The C2C cable network is one of the largest networks in the Asia-Pacific region in terms of design capacity. This will enable us to lower our transmission cost for carrier services by enhancing our capacity. Globe has separately purchased capacity in the C2C cable network. For 2005, we have earmarked approximately P17 billion for our capital expenditures that will be spent primarily on expanding our wireless network and enhancing the necessary transmission facilities in areas where traffic is expected to surge. We have allocated 85% of our 2005 capital expenditures for our wireless business while the remaining 15% will be allotted for our wireline business. We do not anticipate new long-term financing for 2005 as funding for our 2005 requirements will be drawn from existing credit facilities and cash flow from operations. Item 3. Legal Proceedings I. Civil Case No.Q-00-42221, Regional Trial Court of Quezon City ISLA COMMUNICATION CO., INC. et. al vs. NATIONAL TELECOMMUNICATIONS COMMISSION (NTC), et. al. Globe is an intervenor in and Innove is a party to Civil Case No. Q-00-42221 entitled "Isla Communications Co., Inc. et. al., versus National Telecommunications Commission et. al.," before the RTC of Quezon City by virtue of which Globe and Innove, together with other cellular operators, sought and obtained a preliminary injunction against the implementation of NTC Memorandum Circular No. 13-6-2000 from the RTC of Quezon City. NTC MC 13-6-2000 prescribed new billing requirements for cellular service providers. The NTC appealed the issuance of the injunction to the Court of Appeals. On 25 October 2001, we received a copy of the decision of the Court of Appeals ordering the dismissal of the case before the RTC for lack of jurisdiction, but without prejudice to the wireless companies’ seeking relief before the NTC, which the Court of Appeals claims had jurisdiction over the matter. On 22 February 2002, we filed a Petition for Review with the Supreme Court to annul and reverse the decision of the Court of Appeals. The Supreme Court, on 2 September 2003, overturned the CA’s earlier dismissal of the petitions filed by SMART and Globe. In its 13-page decision, the SC said that the Quezon City trial court could hear and decide the case, contrary to NTC’s argument. The SC has also since denied the NTC’s motion for reconsideration. We are currently awaiting resumption of the proceedings before the RTC of Quezon City. II. RECENT DEVELOPMENTS WITH U.S. CARRIERS On 7 February 2003, AT&T and MCI filed a petition before the United States Federal Communications Commission (US FCC) seeking a stop-payment order on settlements to the Philippine carriers on the ground that Philippine carriers were “whipsawing” AT&T and MCI/WorldCom (MCI) into agreeing to an increase in termination rates to the Philippines. Whipsawing occurs when a foreign monopoly supplier uses its market power to negotiate a more favorable agreement from one US carrier and extract the same terms from other US carriers. On 10 March 2003 the Chief International Bureau of the US FCC issued an order suspending all settlement payments of U.S. facilities-based carriers to a number of Philippine carriers, including Globe Telecom, until such time as the US FCC issues a Public Notice stating otherwise. This Order had the effect of preventing U.S. facilities-based carriers such as AT&T from paying the affected Philippine carriers for switched voice services, whether rendered before or after the date

34

of the Order. In response, the NTC issued an Order last 12 March 2003 ordering Philippine carriers not to accept traffic from US carriers who do not pay for services rendered and to take all steps necessary to collect payment for services rendered. In November 2003, Globe announced the conclusion of interim commercial arrangements with MCI and Sprint. On 9 January 2004, Globe reached an interim termination rate agreement with AT&T for US-Philippine traffic. On 26 January 2004 the US FCC lifted its stop-payment order against Globe following confirmation by US carriers that service with Globe had been normalized. U.S. carriers are now required to resume payments for termination services. Globe has started receiving various payments from these carriers after the lifting of the stop payment order. In June 2004, the FCC issued an order denying the Petitions for Review filed by the different Philippine carriers and upholding the finding of whipsawing. In the same order, the FCC stated that the matter of lifting the International Settlements Policy (ISP) over the Philippine route will be decided in the FCC's proceedings relative to its ISP Reform Order. Pursuant to the ISP Reform Order, countries whose rates are at or below benchmark will be dropped from the coverage of the ISP unless serious concerns are raised on the route. In August 2004, the FCC, as a pre-requisite to lifting the ISP over the Philippine route required US carriers to certify that the rates they are charged by the Philippine carriers are benchmark-compliant. As of 11 October 2004, all three major US carriers (AT&T, MCI and Sprint) have certified to the benchmark compliance of the Philippine route. However, the FCC has not yet lifted the ISP over the Philippine route and the FCC continues to review the US carriers’ position in this matter. In the meantime, interim agreements remain in place and govern the relationship between the parties and both traffic and payments continue to flow. Globe continues to consider its options in responding to the latest order of the U.S. FCC. On 10 and 11 January 2004, the United States Department of Justice (US DOJ) served subpoenas on several Philippine telecom executives, including two Globe managers and the Innove CEO, requiring them to appear before a grand jury investigation in Hawaii. The investigation is for the purpose of determining if the conduct of the Philippine carriers in relation to the termination rate disputes with U.S. carriers may have violated U.S. laws. On 24 March 2005, the District Court of Hawaii granted Globe’s motion to quash the subpoena duces tecum against it on the ground that US courts have no jurisdiction. This decision is not yet final and may still be appealed by the US Department of Justice. The outcome of the investigation is presently not determinable. Item 4. Submission of Matters to a Vote of Security Holders None.

35

PART II – SECURITIES OF THE REGISTRANT

(A) Market Price and Dividends on Registrants Common Equity & Related Stockholder Matters

(1) Market Information

a. Identify the principal market or markets where the registrant’s common equity is

traded. State if there is no public trading market.

i. Principal Market where common equity is traded – Philippine Stock Exchange ii. Principal Market for registrant’s common equity – Philippine Stock Exchange iii. High and Low sales prices for each quarter within the last two fiscal years

COMMON SHARES Price Per Share (PHP)

Calendar Period High Low 2003: First Quarter 580.00 445.00 Second Quarter 655.00 530.00 Third Quarter 740.00 615.00 Fourth Quarter 865.00 695.00 2004: First Quarter 1,005.00 775.00 Second Quarter 955.00 785.00 Third Quarter 1,095.00 785.00 Fourth Quarter 1,175.00 885.00

b. Price Information as of latest practicable trading date: P875 per common share as of

28 March 2005.

(2) Holders

There are approximately 4,983 holders of common equity and four holders of common equity and preferred equity securities, respectively, as of 31 December 2004. The following are the top 20 holders of the common and preferred equity securities of the Company:

Common Equity Security

Stockholder Name No. of Common Shares

Percentage (of Common Shares)

1. Singapore Telecom Int’l. Pte. Ltd. 63,036,015 45.06% 2. Ayala Corporation 49,020,186 35.04% 3. PCD Nominee Corp. (Non-Filipino) 16,963,650 12.12% 4. PCD Nominee Corp. (Filipino) 9,319,006 6.66% 5. Globe ESOWN-Trust Account 109,911 0.08% 6. Globe ESOP-Trust Account 68,440 0.05% 7. Insular Life Employees Ret. Fund 59,371 0.04% 8. Edan Corporation 34,735 0.02% 9. Benjamin C. Liao 30,130 0.02% 10. Paulino Lim 25,000 0.02% 11. The First National Co., Inc. 21,001 0.02%

36

12. Insular & HIH General Insurance Co., Inc. 18,173 0.01% 13. Nancy Saw 17,500 0.01% 14. GTESOP2000-002 16,250 0.01% 15. Pua Yok Bing 15,327 0.01% 16. GTESOP98091 12,500 0.01% 17. Eddie L. Hao 10,250 0.01% 18. GTESOP98053 10,000 0.01% 19. GTESOP98054 10,000 0.01% 20. GTESOP98055 10,000 0.01%

Preferred Equity Security

Stockholder Name No. of Common Shares

Percentage (of Preferred Shares)

1. Asiacom Philippines, Inc. 158,051,018 100.00% 2. Romeo L. Bernardo 1 * 0.00% 3. Guillermo D. Luchangco 1 * 0.00% 4. Jesus P. Tambunting 1 * 0.00%

* Nominee shares

(3) Dividends

STOCK DIVIDEND (Per Share) PERCENT DECLARATION DATE RECORD DATE PAYMENT DATE

25% January 29, 2002 April 30, 2002 June 17, 2002 On 25 April 2002, Globe Telecom’s share price was adjusted to P=640.00 per share to reflect the 25% stock dividend. On payment date, Globe’s outstanding number of common shares will also be adjusted to reflect the increase.

CASH DIVIDENDS (Per Share)

PESO AMOUNT

DECLARATION DATE RECORD DATE PAYMENT DATE

14.00 April 1, 2003 April 21, 2003 May 6, 2003 18.00 January 29, 2004 February 18, 2004 March 15, 2004 18.00 August 2, 2004 August 20, 2004 September 15, 2004 20.00 February 1, 2005 February 18, 2005 March 15, 2005

Dividends declared by the Company on its shares of stocks are payable in cash or in additional shares of stock. The payment of dividends in the future will depend upon the earnings, cash flow and financial condition of the Company and other factors. Cash dividends are subject to approval by the Company's Board of Directors (‘BOD’) but no stockholder approval is required. Property dividends which may come in the form of additional shares of stock are subject to approval by both the BOD and the Company's stockholders.

On 29 January 2004, the BOD approved a new dividend policy to declare cash dividends to its common shareholders on a regular basis as may be determined by the BOD from time to time. The BOD had set out a dividend payout rate of approximately 50% of prior year’s net income payable semi-annually in March and September of each year. This will be reviewed annually taking into account Globe Telecom’s operating results, cash flows, debt covenants, capital expenditure levels and liquidity.

37

The BOD also declared the first semi-annual cash dividend in 2004 of P=18 per share payable to common stockholders of record as of 18 February 2004 and subsequently paid dividends amounting to P=2,518.27 million on 15 March 2004. The second semi-annual cash dividend of P=2,518.27 million or P=18 per share payable to common stockholders of record as of 20 August 2004 was declared on 2 August 2004 and paid on 15 September 2004.

On 1 February 2005, the BOD declared the first semi-annual cash dividend in 2005 of P20 per common share with a record date of 18 February 2005 and payment was made on 15 March 2005. This cash dividend declaration is consistent with the Company’s dividend policy of paying out approximately 50% of prior year’s net income payable semi-annually in March and in September of each year.

(4) Recent Sales of Unregistered or Exempt Securities, including recent issuance of

securities constituting an Exempt transaction

a. Securities Sold - For the past three years, the Company sold Corporate Notes as follows:

Date of Sale Amount Sold (in Mn Php)

March 2002 350.00 June 2002 2,000.00 February 2004 3,000.00

b. Underwriters and Other Purchasers - HSBC, Standard Chartered Bank and Insular

Investments and Trust Corporation acted as arrangers/underwriters for the sale of the aforesaid Corporate Notes.

c. Consideration - The aforesaid Corporate Notes were sold for cash at an offering/sale

price of 100% face value or at par. The underwriting discounts ranges from 60 bps – 75 bps of the loan amount.

d. In February 2004, Globe issued P3 billion worth of Philippine SEC-registered bonds.

The bond was offered to the public at face value through the Joint Lead Underwriters namely Citicorp Capital Philippines, Inc. and First Metro Investment Corporation.

(B) Description of Registrants Securities.

(1) Common or Preferred Stock:

i. Common Shares

Common shares at a par value of P=50 per share of which 151.9 million shares have been issued and 139.9 million are outstanding out of a total authorized of 200 million shares.

On 1 February 2005, the BOD of Globe Telecom approved an offer to purchase one share for every fifteen shares of the outstanding common stock of Globe (par value P50) from all shareholders of record as of 10 February 2005, at a price of P950 per share. The approval allows Globe to purchase up to 9,326,924 shares representing 6.67% of its outstanding common shares. Each shareholder is entitled to tender a proportionate number of shares owned at the 1:15 ratio, referred to as the Tender Ratio, for purchase by Globe upon and subject to the terms and conditions of the

38

tender offer. Assuming all shareholders participate in the tender offer to the full extent, the total purchase price will be about P8.86 billion. Tendering shareholders will be eligible to receive the cash dividends declared on 1 February 2005 for their tendered shares. On 1 February 2005, the Company filed with the Securities and Exchange Commission the tender offer report (SEC Form 19-1) with a copy of the letter to the shareholders, the terms and conditions of the tender offer and the tender form. The tender offer report was also sent to the stockholders and was made available at the PSE and its member brokers starting 3 February 2005. On 3 February 2005, Globe commenced the tender offer which expired on 3 March 2005 after a one-day extension. On 1 February 2005, the BOD approved the retirement of the purchased shares and the existing 12 million treasury shares acquired in 2003 from DeTeAsia (as discussed in item ii – Treasury Shares). On 8 March 2005, Globe announced that it had accepted 8,064,094 common shares that were tendered by the stockholders. The accepted shares represent 86% of shares eligible for tender. The value of the tendered shares totaled P7.66 billion. The accepted shares were eventually crossed at the exchange on 15 March 2005.

ii. Treasury Shares

In October 2003, DTA sold its 24.8% equity ownership in Globe Telecom as follows: (1) 10.04 million shares to Ayala; (2) 15.64 million shares to STI; and (3) 12 million shares to Globe Telecom. The acquisition by Globe Telecom of its own common shares of stock decreased (1) the outstanding shares of stock by 12 million shares and (2) the stockholders’ equity by P=8.19 billion, representing the total consideration for the 12 million shares at P=680 per share and incidental costs associated with the acquisition.

At the Annual Stockholders’ Meeting held last 04 April 2005, the Company’s stockholders approved the cancellation of the 20,065,627 Treasury Shares consisting of the 12 million shares acquired from Deutsche Telekom and the 8,064,094 shares acquired from the share buyback, and the amendment of the Articles of Incorporation of the Company to accordingly reduce the authorized capital stock of the Corporation from P11,250,000,000 to P10,246,718,650.

iii. Preferred Shares

On 5 March 2001, Globe Telecom’s BOD approved the creation of new 20 million series “B” preferred shares with a par value of P=50 per share by further increasing the authorized capital stock from P=11.25 billion to P=12.25 billion and the amendment to Article Seven of the Amended Articles of Incorporation to reflect the changes thereof. The BOD also approved the issuance of new 16 million common shares in one or more offerings (other than rights issues) or private placements and, for this purpose, to further amend Article Seven of the Amended Articles of Incorporation to exclude such new issues of common shares from the pre-emptive rights of the existing shareholders. On 2 April 2001, the stockholders approved the above proposals to issue series “B” preferred shares, to issue the 16 million new common

39

shares, and to exclude the shares from the shareholders’ pre-emptive rights. The proposal for the creation of series “B” preferred shares had been put on hold and there were no developments as of 1 February 2005, leading to its authorization and issuance.

Preferred stock-series “A” has the following features: (a) Convertible to one common share after 10 years from issue date at not less than

the prevailing market price of the common stock less the par value of the preferred shares;

(b) Cumulative and non-participating; (c) Floating rate dividend (set at MART 1 plus 2% average for a 12-month period); (d) Issued at P=5 par; (e) With voting rights; (f) Globe Telecom has the right to redeem the preferred shares at par plus accrued

dividends at any time after 5 years from date of issuance; and (g) Preferences as to dividend in the event of liquidation. Preferred “A” shares were listed on 29 June 2001 with the PSE.

On 15 December 2004, the BOD approved the declaration of cash dividends to preferred shareholders as of record date 31 December 2004 amounting to P=75.13 million which remains outstanding as of 31 December 2004, and was included in “Accounts payable and accrued expenses” account in the consolidated balance sheets. The 2003 dividends payable to convertible preferred shareholders amounting to P=67.96 million was paid on 28 September 2004.

(2) Stock Options

Globe Telecom has various stock-based compensation plans. The number of shares allocated under the plans shall not exceed the aggregate equivalent of 6% of the authorized capital stock or up to 12.00 million common shares. The Employees Stock Ownership Plan (ESOWN) for all regular employees (granted in 1998 and 1999) and the Executive Stock Option Plan 1 (ESOP1) for key senior executives (granted in 1998 and 2000) provide for an initial subscription price for shares subject of each option granted equivalent to 85% of the initial offer price. Any subsequent subscription for the ESOP1 shall be for a price equivalent to 85% of the average closing price for the month prior to the month of eligibility. The qualified officers and employees shall pay for the shares subscribed under the ESOP1 and ESOWN through installments over a maximum period of ten years and five years, respectively. The shares of stock have a holding period of five years and the employees must remain with Globe Telecom or its affiliates over such period. The plans also provide restrictions on sale or assignment of shares for five years from date of subscription. Exercised shares under ESOP1 totaled 1,712,133 shares with a weighted average exercise price of P=196.75 a share. On 4 April 2003, Globe Telecom granted additional stock options to key executives and senior management personnel of the Globe Group under the Executive Stock Option Plan 2 (ESOP2). It required the grantees to pay a nonrefundable option purchase price of P=1,000 until 30 June 2003, which is the closing date for the acceptance of the offer. As of 31 December 2004, a total of 672,200 stock options were granted to key executives

40

and senior management personnel. ESOP2 provides for an exercise price of P=547, which is the average quoted market price of the last 20 trading days preceding 4 April 2003. Fifty percent of the options become exercisable from 4 April 2005 to 4 April 2013, while the remaining fifty percent become exercisable from 4 April 2006 to 4 April 2013. In order to avail of the privilege, the grantees must remain with Globe Telecom or its affiliates from grant date up to the beginning of the exercise period of the corresponding shares. On 1 July 2004, Globe Telecom granted additional stock options to key executives and senior management personnel of the Globe Group under the ESOP2. The grantees were given until 30 September 2004 to accept the offer. As of 31 December 2004, a total of 803,800 stock options were granted to key executives and senior management personnel. The agreement provides for an exercise price of P=840.75 per share. Fifty percent of the options become exercisable from 1 July 2006 to 30 June 2014, while the remaining fifty percent become exercisable from 1 July 2007 to 30 June 2014. In order to avail of the privilege, the grantees must remain with Globe Telecom or its affiliates from grant date up to the beginning of the exercise period of the corresponding shares. A summary of Globe telecom’s stock option activity and related information for the years ended 31 December follows:

2004 2003 2002

Number

of Shares

Weighted Average

Exercise Price

Numberof Shares

Weighted Average

Exercise Price

Number of Shares

Weighted Average

Exercise Price

Outstanding, January 1 (ESOP1, ESOP2 and ESOWN) 643,782 P=546.51 4,582 P=477.51 4,582 P=477.51

Granted (ESOP2) 836,800 829.17 639,200 547.00 – – Exercised (ESOP2) (2,700) 547.00 – – – – Expired/forfeited/cancelled

(ESOP 1, ESOP2 and ESOWN) (27,282) 535.32 – – – –

Outstanding, December 31 1,450,600 P=709.77 643,782 P=546.51 4,582 P=477.51

Exercisable, December 31 (ESOP1 and ESOWN) – – 4,582 P=477.51 4,582 P=477.51

41

PART III – FINANCIAL INFORMATION

(1) Year Ended 31 December 2004 Compared with Year Ended 31 December 2003 FINANCIAL AND OPERATIONAL HIGHLIGHTS (In Million Pesos unless otherwise stated)

Globe Consolidated

As of and for the full year ended 31 December 2004 2003 YoY change

(%) Profit & Loss Data Net Operating Revenues ………………………………………… 55,609 49,478 12%

Service Revenues …………………………………………… 52,741 47,535 11% Non-Service Revenues ……………………………………… 2,868 1,943 48%

Costs and Expenses ……………………………………………… 38,466 33,786 14% EBITDA1 ………………………………………………………… 33,040 27,853 19% EBIT2 ……………………………………………………………. 17,143 15,692 9% Net Income ………………………………………….…………… 11,257 10,345 9% Balance Sheet Data Total Assets 3……………………………………………………. 138,125 140,130 -1% Total Debt ………………………………………………………. 52,218 56,132 -7% Total Stockholders’ Equity ……………………………………… 57,016 50,854 12% Financial Ratios (x) Total Debt to EBITDA ………………………………………….. 1.58 2.02 Interest Cover (Gross) …………………………………………… 7.68 6.18 Debt to Equity (Gross) …………………………………………… 0.92 1.10 Debt to Equity (Net) 4……………………………………………. 0.66 0.81 Total Debt to Total Capitalization (Book) ……………………… 0.48 0.52 Total Debt to Total Capitalization (Market) ...…………………… 0.28 0.32 Other Data Net Cash from Operating Activities ……………………………… 27,294 23,290 17% Capital Expenditures 5……………………………………………… 21,219 15,814 34% Net Receivable Days ………………………………………………. 52 48 8% Peso/Dollar Exchange Rate (In pesos) …………………………… 56.34 55.59 1% No. of Regular Employees ………………………………………… 4,956 4,186 18%

_________________________________________________ 1 EBITDA is defined as Earnings Before Interest, Taxes, Depreciation, Amortization and Other Income/Expense. EBITDA is

calculated by deducting costs and expenses (excluding Depreciation and Amortization) from net operating revenues. 2 EBIT is defined as earnings before interest, other expenses and income taxes. EBIT is calculated by deducting costs and expenses

(including depreciation and amortization) from net operating revenues.

3 Prior period figures have been restated due to the adoption of SFAS 12/IAS 12 (Income Taxes) for comparative purposes only. 4 Net debt is calculated by subtracting cash, cash equivalents and short term investments from total debt. 5 Consolidated Capital Expenditures include property and equipment acquired as of report date regardless of whether payment has

been made or not. (See related discussion in Liquidity and Capital Resources Section)

Globe Group’s wireless service revenues accounted for 89% of the Company’s net operating service revenues of P52,741 million for the full year of 2004 while the remaining 11% was contributed by the wireline business. In 2004, the Globe Group’s (Globe, Innove Communications, Inc. and G-Xchange, Inc.) net service revenues increased by 11% during the year from P47,535 million in 2003 while net operating revenues registered a 12% improvement from P49,478 million in 2003.

42

The Globe Group reports operating revenues on a net basis, which consist of gross operating revenues (service and non-service) less domestic interconnection charges, settlement payouts to international carriers and content providers, revenue share due to foreign administrations for circuits provided to service local customers of wireline data, prepaid reload discounts, bonus credits (including airtime on SIM cards provided under Globe’s SIM swap program) and marketing promotions credited to subscriber billings. Gross operating service revenues for the Wireless and Wireline businesses include monthly service fees, applicable installation charges, airtime fees from local, national and international long distance, and international roaming services. Gross operating revenues also include data revenues from value-added services which include Short Messaging Service (SMS) or text messaging, Multi-Media Messaging Service (MMS), content downloading, infotext services, broadband and internet services. In the third quarter of 2004, Globe invested in G-Xchange, Inc. (GXI) – a wholly-owned subsidiary, handling money transfer, cash management and related services under Globe’s G-Cash service. Revenues from the new subsidiary are still minimal for 2004 as GXI started commercial operations only last 16 October 2004. Domestically, the Globe Group pays interconnection charges to other carriers for calls originating from its network terminating to other companies’ networks and hauling charges for calls that pass through Globe’s network terminating in another network. Internationally, the Globe Group also incurs payouts in connection with outbound international calls. These charges are based on a negotiated price per minute. The interconnection expenses paid as a percentage of gross service revenues remained at the 20% level for the years 2003 and 2004. The Globe Group also collects termination fees from local and foreign carriers whose calls terminate in Globe Group’s network. As part of domestic interconnection agreements concluded in 2002, effective 01 January 2004, domestic calls terminating to wireless networks are charged a termination rate of P4.00 per minute (from P4.50 per minute in 2003) while calls terminating to wireline voice networks are charged a termination rate of P3.00 per minute (from P2.50 per minute in 2003). Non-service revenues include proceeds from the sale of handsets, phonekits and accessories, upfront fees/activation fees representing the excess of the selling price of SIM packs over the preloaded airtime and transaction fees for cash-in/out of G-Cash. We registered non-service revenues of P2,868 million for the full year of 2004 compared to P1,943 million for the same period last year due mainly to higher SIM and phonekit sales. Non-service revenues are reported net of discounts on phonekits. The cost related to the sale of handsets and SIM packs are shown under cost of sales. Proceeds from the sale of prepaid cards, airtime value through electronic load services such as ATM and airtime value through over-the-air (OTA) reloading are treated as deferred or unearned revenues shown under the liabilities section of the balance sheet since the service has not yet been rendered. Revenue is realized upon actual usage of the airtime value for voice, SMS, MMS, content downloading and infotext services net of free SMS, bonus credits or the expiration of the unused value, whichever comes earlier. Related revenue on preloaded airtime value of SIM packs

43

sold is also recognized upon usage. However, preloaded airtime value on SIM cards provided under Globe’s SIM swap program are not included as part of revenue. On 30 September 2003, Globe’s wireline voice and data businesses were transferred to Innove (previously named Isla Communications Co., Inc.). Starting 1 October 2003, all of the financial results of the wireline voice and data businesses are presented under Innove.(See related discussion in Wireline Services Section) KEY PERFORMANCE INDICATORS Net Operating Revenues by Line of Business The table below shows the net operating revenues for each of the Globe Group’s businesses for the periods indicated:

Globe Consolidated For the year ended 31 December (in millions of pesos) 2004 2003 YoY change (%) Net Operating Revenues from: Service Revenues: Wireless 1…………………………………………… 47,054 42,594 10% Voice……………………………………………… 27,722 27,821 - Data ……………………………………………… 19,332 14,773 31% Wireline ……………………………………………… 5,687 4,941 15% Voice 2 …………………………………………… 3,833 3,469 10% Data 3…………………………………………… 1,854 1,472 26% Net Service Revenues……………………………………

52,741 47,535

11% Non-Service Revenues…………………………………… 2,868 1,943 48% Net Operating Revenues 55,609 49,478 12%

___________________________________________ 1 Wireless net service revenues include: (1) monthly service fees; (2) charges for local calls in excess of the free minutes for

various Globe Handyphone postpaid plans, including currency exchange rate adjustments, or CERA net of marketing promotions credited to subscriber billings; (3) airtime fees from prepaid reload denominations (for Globe Prepaid Plus and Touch Mobile) for intra network and outbound calls usage net of (i) bonus credits (including airtime on SIM cards provided under Globe’s SIM swap program) (ii) prepaid reload discounts, recognized upon the earlier of actual usage of the airtime value or expiration of the unused value of the prepaid reload denomination which occurs between 1 and 60 days after activation depending on the prepaid value reloaded by the subscriber; (4) revenues generated from inbound international and national long distance calls and international roaming calls; and (5) revenues from value-added services such as SMS and MMS, content downloading and infotext. Revenues from (2) to (5) are net of any interconnection or settlement payouts to international and local carriers and content providers.

2 Wireline voice net service revenues consist of: (1) monthly service fees including CERA; (2) revenues from local,

international and national long distance calls made by postpaid, prepaid wireline subscribers and payphone customers, net of prepaid and payphone call card discounts less bonus credits and marketing promotions credited to subscriber billings (3) revenues from inbound local, international and national long distance calls from other carriers terminating on our network; and (4) installation charges and other one-time fees associated with the establishment of the service.

3 Wireline data net service revenues consist of revenues from: (1) international and domestic leased lines; (2) internet services;

(3) other wholesale transport services and (4) revenues from value-added services.

44

Wireless Services Globe Consolidated As of and for the year ended 31 December (in millions of pesos)

2004 2003 YoY change(%)

Wireless Net Revenues…………………..……………… 49,903 44,465 12% Service .……………………………………………………. 47,054 42,593 10% Voice ….……………………………………………….. 27,722 27,820 - Data ..…………………………………………………… 19,332 14,773 31% Data as a % of Wireless Net Service Revenues ..…… 41% 35% Data as a % of Total Wireless Net Revenues ..……… 39% 33% Non-Service ….…………………………………………… 2,849 1,871 52% Subscribers – Net (End of period)………………………… 12,513,973 8,859,883 41% Postpaid . ………………………………………………… 630,495 685,026 -8% Prepaid .…………………………………………………… 11,883,478 8,174,857 45% Globe Prepaid Plus ……………………………………… 10,185,154 6,673,013 53% Touch Mobile ………………………………………….. 1,698,324 1,501,844 13% __________________________________________________________________________________

Wireless Services Wireless net service revenues grew by 10% for the full year of 2004 to P47,054 million driven by a consolidated 41% increase in total subscribers and their corresponding usage of voice and data services for the year ended 31 December 2004. Gross subscriber additions for all brands for 2004 increased by 97% year on year to 11.9 million compared to 6.0 million in 2003 while net additions grew by 60% to 3.7 million for the full year of 2004 against 2.3 million for the same period in 2003. Gross and net subscriber additions were generated mainly by year on year growth in the prepaid segment due to a wider distribution network with the introduction of Globe’s OTA reload service, SIM swap programs (See related discussion in Wireless Services-Prepaid Section) and increased network coverage in the provincial areas.

The Globe Group offers its wireless services through three brands, Globe Handyphone, Globe Handyphone Prepaid Plus and Touch Mobile. The postpaid brand of Globe, Globe Handyphone, includes all postpaid plans such as G-Plans and consumable G-Flex Plans, Platinum - a brand for the high-end market and GlobeSolutions for corporate and business needs. Globe Handyphone Prepaid Plus and Touch Mobile are the prepaid brands of Globe and Innove, respectively – each positioned at different segments of the market – the broad market classes for Globe Handyphone Prepaid Plus and mass-based market classes for Touch Mobile. To spur increased usage of its wireless data services and building on its value-transfer platform, the Globe Group launched the following innovations in the fourth quarter of 2004:

• On 16 October 2004, Globe introduced a breakthrough in mobile commerce by offering its G-Cash service. G-Cash allows Globe Handyphone, Globe Handyphone Prepaid Plus and Touch Mobile subscribers to buy goods and services from accredited partner establishments, exchange stored value for cash in designated outlets, send and receive G-Cash person to person and even permits subscribers and non-subscribers to send domestic and international remittances through financial institutions that have been

45

trusted over the years. In the two and a half months since it was launched, the number of G-Cash subscribers has already reached more than 200,000. G-Cash expands Globe Group’s market reach by creating business opportunities for merchants, trade partners and entrepreneurs and giving consumers a secure and convenient mobile payment option. As of 31 December 2004, G-Cash had more than 30 partner establishments spanning different industries including international and domestic remittance companies, merchant partners in food and food delivery, transportation, drugstores, bookstores and other retailers, government agencies (BIR, Philippine Sports Commission), banking Associations and Partners (RBAP & Landbank), charitable institutions (Red Cross, UNICEF) and e-commerce companies.

• In 2004, Globe AutoLoad Max and Share-A-Load continued to contribute significantly to

total OTA reloading transactions. For the month of December 2004, these top-up options accounted for 90% of total reload transactions and 62% of total reload value while total Globe AutoLoad Max retailers reached 737 thousand retailers by the end of the year. Additionally, to address the needs of Overseas Filipino Workers (OFWs) and their families in the Philippines, Globe launched its Globe Kababayan cross-border reload services in Hong Kong, Singapore and Japan during the 3rd quarter of 2004. OFWs in these countries, along with Taiwan, Saipan, Guam, the United States and the United Kingdom can now send prepaid credits to their relatives who are on the Globe Prepaid or Touch Mobile service through the launch of Share-A-Load and Globe AutoLoad Max facilities.

Wireless Services - Postpaid Globe offers postpaid services through its brand Globe Handyphone. Globe’s postpaid subscriber base registered at 630,495 as of 31 December 2004, compared to 685,026 posted in the same period last year due to company-initiated terminations. Gross additions for the full year of 2004 registered at 148,015 subscribers, compared to 361,127 for the same period in 2003. Terminations exceeded additions resulting in a decline of 54,531 from the postpaid subscriber base for the full year of 2004 against net additions of 166,126 for the same period in 2003. Net ARPU per Globe postpaid wireless subscriber for the full year of 2004 reached P=1,605 from P=1,637 for the same period in 2003. Net ARPU is computed by dividing recurring wireless postpaid net operating service revenues for the period (net of interconnection charges to external carriers and discounts) by the average number of postpaid wireless subscribers and then dividing the quotient by the number of months in the period. Globe’s postpaid ARPU on a gross basis averaged P=2,138 for the full year of 2004 from P=2,173 in the same period in 2003. Gross ARPU is computed by dividing recurring wireless postpaid gross service revenues for the period by the average number of postpaid wireless subscribers and then dividing the quotient by the number of months in the period. Globe’s postpaid acquisition cost per subscriber of P=9,886 for the full year of 2004 is higher compared to P=9,834 for the same period last year. For the full year of 2004, handset and Subscriber Identification Module (SIM) subsidies accounted for 95% of acquisition cost while advertising/promotional expenses made up the balance of 5%. In 2003, handset and SIM subsidies accounted for 94% of total acquisition cost while advertising expenses made up the balance.

46

The average monthly churn rate for Globe’s postpaid subscribers is defined as total disconnections net of reconnections divided by the average postpaid subscribers, divided by the number of months in the period. Globe’s postpaid churn rate averaged 2.6% per month for the full year of 2004 compared to 2.7% for the same period in 2003. For postpaid subscribers, permanent disconnections are made after a series of collection steps following non-payment. Such permanent disconnections generally occur within a predetermined number of days from statement date. Wireless Services - Prepaid Consolidated prepaid subscribers grew by 45% to 11,883,478 as of 31 December 2004 from 8,174,857 for the same period in 2003. Globe offers prepaid services through its Globe Handyphone Prepaid Plus brand, while Innove offers prepaid services through its Touch Mobile brand. In February 2004, Globe launched a nationwide Free SIM Swap program that allowed subscribers of another mobile network to switch to Globe by exchanging their active non-Globe and non-Touch Mobile SIM cards for Globe Handyphone Prepaid Plus or Touch Mobile SIMs. Prior to the third quarter of 2004, a prepaid subscriber was recognized upon the activation and use of a new SIM card. The subscriber was provided with 60 days (first expiry) to utilize the preloaded airtime value. If the subscriber did not reload prepaid credits within the first expiry period, the subscriber retained the use of the wireless number, but was entitled only to receive incoming voice calls and text messages for another 120 days (second expiry), except for the first reload of SIM-swappers that was required within only 30 days from the first expiry. However, if the subscriber did not reload prepaid credits within the second expiry period, the account would be permanently disconnected and considered part of churn. For reloads, expiry periods varied depending on the denominations ranging from P10 to P1,000, from 1 to 60 days for the first expiry, and from 30 to 120 days for the second expiry. The first expiry was reset based on the longest expiry period among current and previous reloads. The second expiry, on the other hand, would be reset based on the remainder of the initial 120-day period after the first expiry or the longest expiry period among current and previous reloads, whichever was longer. Under this policy, subscribers are included in the subscriber count until churned. Acknowledging the changing dynamics of the industry, Globe updated its policy of including new subscribers in its total count only when they are capable of generating outgoing service revenue. Thus, a SIM-swapper is included in the subscriber count only upon the first reload. Subscribers not considered in the subscriber count is accordingly not considered as part of churn. Starting third quarter of 2004, reports for subsequent periods reflect subscriber figures as defined above.

47

Globe Prepaid Plus Globe Prepaid Plus’ subscriber base for the full year of 2004 grew by 53% to 10,185,154 from 6,673,013 from the same period in 2003. Gross additions for the full year of 2004 were 123% higher at 9,069,132 compared to 4,061,127 in 2003 while net additions likewise improved by 139% to 3,512,141 against the 1,472,513 compared to the same period in 2003. The average monthly churn rate for Globe Prepaid Plus subscribers reached 5.5% for the full year of 2004, higher than the 3.3% posted for the full year of 2003. The increased churn rate resulted from rotational churn due to competitive free SIM Swap activities. However, lower denomination call cards and OTA reload values, Libre Load promotions and new services deployed from Globe’s value-transfer platform (see Related section below) contributed to a reduced churn rate for the year from 5.8% for the second and third quarters of 2004. Globe Prepaid Plus subscribers can reload airtime value or credits, which can be purchased from Globe’s centers and dealers, or purchased electronically from designated merchants, automated teller machines, and reloading facilities. Subscribers can purchase prepaid call and text cards in denominations ranging from P100 to P1,000. In addition to AutoLoad Max, Globe’s OTA reloading service that allows Globe Prepaid Plus subscribers to load values for as low as P25 and any amount in P1 increments up to P150, postpaid and prepaid subscribers may also avail of Globe’s Share-A-Load service and send prepaid load credits in P1 increments, via SMS, in denominations ranging from P1 to P1,500 (depending on the subscribers’ postpaid plan). Building on its value transfer platform, Globe allowed prepaid subscribers to place voice calls or send SMS messages after registering through Globe’s Call and Text Collect service even when a prepaid subscriber has run out of load credits or use Globe’s Text Bak Mo Libre Ko messaging service that ensures a sending subscriber that the receiving subscriber he sends a text message to will be able to text back. The receiver who replies will not be charged as the sender will shoulder the cost of the text reply. Additionally, with Globe’s Ask-A-Load service, prepaid subscribers with or without load credits may now request for prepaid credits from a Globe Postpaid or another Globe prepaid subscriber which can also be scheduled daily, weekly or monthly. Ask-A-Load and Text Bak Mo Libre Ko services do not require registration to activate and use the service. The net ARPU for Globe Prepaid Plus registered a year-on-year decrease of 22% to P=305 for the full year of 2004 from P=389 for the same period in 2003 due mainly to lower voice and data revenues on a per subscriber basis. Net ARPU is computed by dividing recurring wireless prepaid net operating service revenues for the period (net of discounts and interconnection charges to external carriers) by the average number of prepaid wireless subscribers and then dividing the quotient by the number of months in the period. Globe’s prepaid gross ARPU averaged P=422 for the full year of 2004 compared to P=512 in 2003. Gross ARPU is computed by dividing recurring wireless prepaid gross service revenues for the period by the average number of prepaid wireless subscribers and then dividing the quotient by the number of months in the period. Acquisition cost for Globe Prepaid Plus decreased by 8% to P=267 for the full year of 2004 from P=291 for the same period in 2003. For the full year of 2004, commissions contributed only 1% with handset and SIM subsidies accounting for 64% and advertising costs comprising the balance of 35%. In 2003, commissions also contributed 1%, handset and SIM subsidies accounted for 58%, while advertising costs comprised the remaining 41%.

48

Touch Mobile Innove’s Touch Mobile subscribers increased by 13% to 1,698,324 subscribers as of 31 December 2004 compared to 1,501,844 subscribers for the same period last year. Gross additions for the full year of 2004 increased by 79% to 2,642,239 from 1,591,279 for the same period in 2003 while net additions went down by 70% to 196,480 from 649,059 for the same period in 2003. The net ARPU for Touch Mobile for the full year of 2004 was P=183 or 16% lower than the P=218 registered for the same period in 2003. Gross ARPU was likewise lower at P=288 for the full year of 2004 compared to P=296 for the same period in 2003. Acquisition cost per Touch Mobile subscriber decreased by 18% at P=151 for the full year of 2004 compared to P=185 for the same period last year. Of the total acquisition cost for the full year of 2004, handset and SIM subsidies accounted for 77%, commissions totalled 3% and advertising costs made up the balance of 20%. In 2003, handset and SIM subsidies accounted for 46%, while commissions and advertising costs made up the remaining 54%. The average monthly churn rate for Touch Mobile registered at 12.7 % for the full year of 2004 against 6.7% for the same period last year. The increase in churn rate was mainly due to the rotational churn resulting from competitive free SIM swap activities and the termination of Touch Mobile SIMs found engaging in International Simple Resale or ISR activities. (See related item in ILD Section) Wireline Services On 26 May 2003, Globe and Islacom filed a joint application with the National Telecommunications Commission (NTC) for authority to sell and transfer Globe’s wireline voice and wireline data services to Innove. On 21 August 2003, the Securities and Exchange Commission (SEC) approved the change in name of Globe’s wholly-owned subsidiary, Islacom to Innove Communications, Inc (Innove). This is part of Globe’s strategy to integrate all of its wireline services under Innove. On 7 August 2003, the NTC approved the legal transfer of Globe’s wireline business authorizations, properties, assets and obligations to Innove. The NTC also approved the common usage, operations and maintenance of the network elements of both Globe and Innove to ensure the smooth transfer of its services and prevent disruptions in interconnection with other carriers during the transition. Pursuant to the approval granted by the NTC, the wireline business of Globe was integrated into Innove on 30 September 2003. Effective 1 October 2003, all wireline voice and data services were consolidated under Innove. Innove remains a wholly-owned subsidiary of Globe.

49

Wireline Services – Voice Innove 1 As of and for the year ended 31 December(in millions of pesos)

2004 2003 YoY change(%)

Wireline Voice Net Service Revenues ……………………… 3,833 3,469 10% Wireline Voice Net Non Service Revenues 19 72 -74% Subscribers – Net (End of period) ….……………………… 323,094 261,254 24% Monthly churn rate (%)..……………………………………… 1.5 1.6 _______________________________________________ 1

January to September 2003 revenues for wireline voice services offered in Luzon and Mindanao were recognized under Globe but reflected in the above table as Innove to be comparable.

Innove provides wireline voice communication services, including local, national long distance, international long distance and other value-added services, through its postpaid, prepaid and payphone lines, under the brand name Globelines. Innove provides wireline voice services in nine specific geographic areas in the Philippines, including parts of Metro Manila, the Calabarzon region and Central Mindanao and Visayas. On 5 March 2004, Innove filed an application with the NTC for the expansion of its fixed line business. The application is currently pending. As of 31 December 2004, Innove had total wireline voice subscribed lines of 323,094 of which 62% were postpaid and 38% were prepaid. Total wireline voice subscribers grew by 24% from the 261,254 subscribed lines registered for the same period in 2003.

Innove’s net wireline voice ARPU for the full year of 2004 was at P1,112 compared to P1,164 for the same period in 2003. Net ARPU is computed by dividing recurring wireline voice net operating service revenues for all areas for the period (net of discounts and interconnection charges to external carriers) by the average number of wireline voice subscribers and then dividing the quotient by the number of months in the period. The average monthly churn rate for Globelines was 1.5% for the full year of 2004 compared to 1.6% for the same period in 2003. Innove offers its prepaid landline services under the brand, Globelines Prepaid. Wireline Services – Data

Innove

As of and for the year ended 31 December (In millions of Pesos) 2004 2003 1 YoY change (%)

International Lease…………………………………… 670 555 21% Domestic Lease ……………………………………… 663 544 22% Internet ……………………………………………… 384 308 25% Others 2……………………………………………… 137 65 111% Net Operating Revenues …………………………… 1,854 1,472 26%

___________________________________________________________________

1 Effective 01 October 2003, all wireline voice and wireline data services were consolidated under Innove. January to September 2003 revenues from wireline data services were reported under Globe but reflected in above table as Innove to be comparable.

2 Includes revenues from value-added services of wireline voice business such as DSL/Net Express previously included in wireline voice service revenues.

Innove’s GlobeQuest brand offers wireline data services, including international and domestic lease lines, internet, data center support services and wholesale transport services. Businesses and individuals can subscribe to GlobeQuest’s Private Networks for their international and domestic

50

lease line requirements. Internet users can apply for Broadband Internet or Broadband Access for commercial turnkey internet business solutions to access Innove’s advanced broadband network infrastructure or high-speed fiber optic network. Additionally, GlobeQuest DataCenters provides businesses with advanced infrastructure and technology to support data hosting applications. Wireline data net operating revenues, which principally consist of billings for these services increased by 26% to P=1,854 million for the full year of 2004 from P=1,472 million for the same period in 2003. The higher growth was mainly due to international and domestic lease businesses. International Long Distance Services (ILD) Globe and Innove both offer ILD services. ILD services are offered between the Philippines and over 200 countries. 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 Consolidated For the year ended 31 December 2004 2003 YoY change (%) Total ILD Minutes (in million minutes) 1……………… 1,271 1,435 -11% Inbound…………………………………………………

1,082 1,242 -13%

Outbound.………………………………………………

189 193 -2%

ILD Inbound / Outbound Ratio (x) ………………… 5.7 6.4

________________________________________________________________________________________________

1 ILD minutes originating from and terminating to Globe and Innove networks.

On a consolidated basis, including contributions from the Wireless and Wireline services, ILD revenues decreased slightly to P=12,622 million for the full year of 2004, translating to 24% of consolidated net service revenues for the full year of 2004 compared to P=13,142 million and 28% respectively, for the same period in 2003. Inbound ILD volume and correspondingly, ILD revenues have continued to suffer from the effects of International Simple Resale or ISR operations. ISR operations are a method of terminating inbound international calls without passing through the normal IGF. ISR operations involve routing inbound international calls through private leased lines or IP data lines, and then terminated to the called party through a local cellular or fixed line number. As the ISR operators terminate an inbound IDD call as a local call, they are able to offer lower rates to foreign carriers than current termination rates. As a result, Globe is not able to realize the full inbound international revenue and instead earns only from charges from local or national calls or access charges from other carriers and normal domestic termination charges for local or NDD calls which are lower than international termination rates. ISR operations are illegal in the country. To reduce ISR activities, the Globe Group has implemented increased detection and blocking procedures including closer coordination of detected ISR lines with other industry players. The Globe Group has also tightened its fraud and risk evaluation process for corporate and individual accounts and has started to implement legal, commercial and technical solutions to the ISR concern such as charging higher rates for Touch Mobile numbers detected as being used for ISR operations. The Globe Group has also coordinated with the NTC and other government agencies in addressing this concern.

51

National Long Distance Services (NLD) Globe and Innove both offer NLD services. Revenues from NLD services are generated from calls outside of a specific local area but within the Philippines.

Globe Consolidated

For the year ended 31 December 2004 2003 YoY change (%)

Total NLD Minutes (in million minutes)…………… 428 473 -10% Inbound…..……………………………………… 208 240 -13% Outbound..……………………………………… 220 233 -6%

Consolidated NLD revenues, from wireless and wireline services stood at P=1,537 million for the full year of 2004, or a 24% decrease from P=2,030 million for the same period in 2003. Consolidated NLD revenues for the full year of 2004 amounted to 3% of consolidated net service revenues for the period compared to 4% for the full year of 2003. (See related item on Wireline Voice NLD in Recent Developments Section) Both Globe and Innove offer Interexchange Carrier Services (IXC). Globe uses its Microwave Facilities called National Transmission Network (NTN) and the Nationwide Digital Transmission Network (NDTN or the Telicphil Facilities), while Innove uses its own backbone transmission network for hauling national and international interconnection traffic among wireless and wireline operators in the Philippines. Globe also has a Fiber Optic Backbone Network (FOBN) which supports its wireless, wireline voice and data, ILD, and NLD requirements. It is a combination of submarine and land fiber systems with an estimated fiber optic length of 1,300 kilometers. The FOBN carries traffic for both Globe and Innove offered services. Results of Operations

Globe Consolidated

For the year ended 31 December (in millions of pesos) 2004 2003 YoY change (%) Cost of sales…………………………………………… 6,675 6,214 7% Services and Others…………………………………… 4,307 3,388 27% Selling, Advertising and Promotions ………………… 3,753 3,119 20% Staff Costs ……………………………………………. 2,729 2,471 10% Utilities, Supplies & Other Administrative Expenses… 1,715 1,546 11% Rent…………………………………………………… 1,420 1,604 -11% Repairs and Maintenance………………………... …… 1,325 1,779 -26% Entertainment, Amusement & Representation ……… 10 10 - Provisions (Reversal of Allowance) for: Doubtful Accounts……………………………… 1,052 941 12% Inventory Losses, Obsolescence and Market Decline 73 15 387% Losses on Property and Equipment ……………… 12 304 -96% Other Probable Losses…………………………… (501) 234 -314% Operating Costs and Expenses 1……………………… 22,570 21,625 4% Depreciation and Amortization ……………….… 15,896 12,161 31% Total Costs and Expenses…………………………… 38,466 33,786 14% ________________________________________________________________ 1 Operating costs and expenses now include provisions (reversals of allowance).

For the full year of 2004, the Company’s operating costs and expenses increased by 4% to P=22,570 million from P=21,625 million in 2003. In 2004 total costs and expenses registered a 14% increase to P=38,466 million compared to P=33,786 million for the same period in 2003.

52

Cost of sales increased by 7% to P=6,675 million due to higher sales of phonekits and SIM packs. Services and Others increased by 27% to P4,307 million for the full year of 2004 due mainly to higher professional and legal fees, contracted services for various marketing activities and administrative projects compared to the same period in 2003. Selling, Advertising and Promotions expenses increased by 20% to P3,753 million for 2004 due mostly to increased marketing and promotional activities for launching of new products and services. Staff costs grew by 10% to P2,729 million due mostly to higher headcount which grew by 770 personnel or 18% from 4,186 to 4,956 in 2004 and overtime charges during the period. Utilities, supplies and other administrative expenses also increased by 11% to P1,715 million due mainly to higher electricity and fuel charges coming from an expanded network in 2004 and consumption of supplies. Rent expenses decreased by 11% to P=1,420 million due to cost savings resulting from lower negotiated lease payments and deactivations of certain cable systems and circuits being leased. Repairs and maintenance expenses were lower by 26% year on year to P1,325 million on account of adjustments made on previous charges as the Company was able to negotiate lower maintenance costs for various facilities and equipment. Provisions for trade receivables decreased by 13% to P1,011 million for the full year of 2004 compared to P1,165 million in 2003 due to higher provisions made in 2003 for postpaid subscriber accounts. Provision for doubtful accounts for traffic receivables reached P42 million compared to a net reversal of allowance in the same period in 2003 amounting to P236 million due to subsequent settlement of traffic receivables previously provided with allowance. Net reversal of provisions for other receivables totaled P0.5 million for the full year of 2004 compared to P11.5 million provisions in 2003. As a result, provisions for doubtful accounts amounted to P=1,052 million for the full year of 2004 against P=941 million for the same period in 2003. Net subscriber receivable days was 52 for the full year of 2004 compared to 48 for the same period last year due to higher receivables from the wireline business. Globe maintains an allowance for doubtful accounts at a level considered adequate to provide for potential uncollectible receivables. For subscriber receivables, an allowance is calculated using the policy of providing full allowance for receivables from permanently disconnected subscribers. Permanent disconnections are made after a series of collection steps following non-payment by wireless and wireline subscribers. Such permanent disconnections generally occur within a predetermined period from statement date. Full allowance is generally also provided for individual and business wireless subscribers with outstanding receivables that are past due by 90 and 120 days, respectively and those on temporary disconnected status that are subject for termination within the succeeding month. For wireline residential and business subscribers, full allowance is provided for outstanding receivables that are past due by 90 and 150 days, respectively. For traffic settlement receivables, a policy of providing full allowance is adopted for net international and national traffic settlement accounts and roaming accounts that are not settled

53

within ten months and six months, respectively from transaction date and after a review of the status of settlement with other carriers. Additional provisions are made for accounts specifically identified to be doubtful of collection. For the period ended 31 December 2004, Globe recognized provisions for inventory losses, obsolescence and market decline of P=73 million compared to P=15 million for the same period in 2003. Provision for inventory losses in 2004 increased by 387% due to provisions for market decline on handsets as inventory level increased as a consequence of intensive subscriber acquisition promos. Inventories and supplies are stated at the lower of cost or net realizable value (NRV). NRV for handsets and accessories is the selling price in the ordinary course of business less direct costs to sell while NRV for SIM packs, call cards, spare parts and supplies, and wireline telephone sets consists of the related replacement costs. In determining the NRV, the Globe Group considers any adjustment necessary for obsolescence, which is provided 100% for non-moving items for more than one year and 50% for slow-moving items. Cost is determined using the moving average method. Supplies of SIM packs/SIM cards and telephone handsets are consumed upon activation of the wireless and wireline services. An allowance for market decline is provided equivalent to the excess of the cost over the net realizable value of inventories. When inventories are sold, the related allowance is reversed in the same period, with the appropriate sales (revenues) and cost of sales (expenses) recognition. An allowance is also provided for obsolescence and probable losses. Full obsolescence allowance is provided when the inventory is non-moving for more than a year. A 50% allowance is provided for slow-moving items.

Provisions for other probable losses relates to pending regulatory claims and assessments. The Globe Group recognized net reversal of provision for other probable losses amounting to P501 million for the year ended 31 December 2004 resulting mainly from recent favorable developments that called for a reassessment of existing provisions. The information usually required by SFAS 37/IAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be expected to prejudice the outcome of these claims and assessments. As of 1 February 2005, the remaining pending regulatory claims and assessments are still being resolved.

Depreciation and amortization on a consolidated basis increased by 31% to P=15,896 million for the full year of 2004 compared to the P=12,161 million for the same period in 2003. The increase reflected additional depreciation charges related to various telecommunications equipment placed in service during the period and a change in the Estimated Useful Life (EUL) of certain equipment arising from a regular review conducted to assess the reasonableness of EUL assumed for all equipment versus the expected pattern of economic benefits. Globe revised the remaining useful lives of certain switch equipment from 15 to 10 years and certain investments in cable systems from 20 to 15 years. In addition, Globe accelerated the remaining EUL of certain telecommunications equipment, which are specifically identified to be useful for specific periods shorter than the previous EUL. These changes have been accounted for as a change in accounting estimates. These changes increased depreciation expense for the year ended 31 December 2004 by about P2,047 million before related income taxes. Depreciation is computed using the straight-line method over the estimated useful life of the assets. The weighted EUL of all assets, as of 31 December 2004, is 9.39 years.

54

Depreciation and amortization also includes full amortization of remaining bond issuance cost of P100 million related to 2009 Senior Notes redeemed in August 2004. (See Related discussion under Liquidity and Capital Resources Section) Consolidated EBITDA for the full year of 2004 increased by 19% to P=33,040 million compared to P=27,853 million for the same period in 2003. Consolidated EBITDA is defined as consolidated earnings before interest, taxes, depreciation and amortization and other income/expenses. Consolidated EBITDA margin for the period ended 31 December 2004 was 63% compared to 59% for the same period in 2003. EBITDA margin is computed on the basis of net service revenues. Details of Consolidated Other Income/(Expenses) for the year ended 31 December 2004 and 2003 are as follows: Globe Consolidated

For the year ended 31 December (In millions of Pesos) 2004 2003 YoY change (%) Interest Income ……………………………………… 454 757 -40% Interest Expense …………………………………… (4,379) (4,506) -3% Capitalized Interest Expense ……………………… 78 482 -84% Net Interest Expense……………………………… (3,847) (3,267) 18% Equity in Net Loss of Investee Company………… - (4) - Swap Costs and Other Financing Charges…………… (1,750) (1,818) -4% Provision for Impairment in Value of Investments…… - (907) - Reversal of provision for restructuring cost on network

integration

-

113

- Others – net ………………………………………… 504 1,048 -52% Sub-Total …………………………………… (1,246) (1,568) -21% Total Other Expenses……………………………… (5,093) (4,835) 5% Globe Group posted an 18% increase in total net interest expense of P=3,847 million in 2004 from P=3,267 million for the same period in 2003. Interest and other related financing charges on borrowed funds used to finance the acquisition of property and equipment to the extent incurred during the period of installation are capitalized as part of the cost of the property. The capitalization of these borrowing costs, as part of the cost of the property: (a) commences when the expenditures and borrowing costs being incurred during the installation and related activities necessary to prepare the property for its intended use are in progress; (b) is suspended during extended periods in which active development is interrupted; and (c) ceases when substantially all the activities necessary to prepare the property for its intended use are complete. These costs are amortized using the straight-line method over the estimated useful lives of the related property. Globe also registered a 25% decrease in swap costs to P1,056 million accruing on the long term currency and interest rate swap contracts for the year ended 31 December 2004 compared to P=1,408 million for the same period last year. (See related discussion in Foreign Exchange Exposure section). Others-net decreased by 52% to P504 million for 2004 from P1,048 million in 2003 due to a higher net foreign exchange gain in 2003 and favorable resolution of previous charges. In 2003, Innove recognized full provision for its 4.25% equity investment in C2C Holdings Pte. Ltd. (C2C Holdings) amounting to P=895 million. The provision was made following the assessment by C2C Holdings of the estimated future cash flows expected from the continuing use of the cable network assets of C2C Pte. Ltd. (C2C) until the end of its economic useful life and

55

after considering the increased potential risk to the restructuring of C2C’s debt. This considered an independent market study commissioned to revalidate the bandwidth market potential and its effect on C2C Holdings. Consolidated earnings before interest, other expenses (income) and taxes (EBIT) grew by 9% to P=17,143 million for the full year of 2004 compared to P=15,692 million for the same period in 2003. For the period ended 31 December 2004, Globe’s provision for current and deferred income tax amounted to P1,506 million after adjustments pertaining to current tax of prior periods, including that on incentives availed by Globe from its Income Tax Holiday (ITH). Globe’s incentives from ITH are due to expire on 31 March 2005. Globe’s effective income tax rate was 18% before equity in Innove’s net income. Innove’s provision for current and deferred income tax registered a net benefit of P713 million due largely to the reinstatement of tax benefits on the remaining balance of previously unrecognized deferred tax assets deemed recoverable from future taxable income. Globe’s consolidated provision for current and deferred income tax amounted to P793 million in 2004 from P513 million in 2003. Consolidated net income increased by 9% year-on-year to P=11,257 million from the P=10,345 million posted for the same period in 2003. Accordingly, consolidated basic and diluted earnings per common share were P=79.93 and P=79.80, respectively, for 2004. For the full year of 2003, basic and diluted earnings per share were at P=68.79 and P=68.65, respectively. The increase in earnings per share for 2004 was due to improved operating results for the period plus the accretion resulting from Globe’s buyback of 12 million shares in October 2003. (See related discussion in Capital Resources Section) Basic earnings per share (EPS) is computed by dividing earnings applicable to common stock by the weighted average number of common shares outstanding during the period including fully-paid but unissued shares, if any, as of the end of the period after giving retroactive effect for any stock dividends, stock splits or reverse stock splits during the period. Diluted EPS is computed assuming that the stock options are exercised and qualified convertible preferred shares are converted. Foreign Exchange Exposure The Philippine Peso closed at P=56.34 as of 31 December 2004 from P=55.59 as of the same date last year. As a result of the translation of these foreign currency-denominated assets and liabilities, Globe Group’s reported net foreign currency revaluation gain amounted to P301 million compared to P1,234 million loss for the periods ended 31 December 2004 and 2003, respectively. The foreign exchange differentials arising from remeasurement of foreign currency-denominated accounts (other than those relating to the liabilities/borrowed funds attributed to financing capital projects and those covered by swap agreements) are charged/credited to current operations. Globe Group’s net foreign exchange gains credited to current operations amounted to P90 million and P304 million for the year ended 31 December 2004 and 2003, respectively. The consolidated foreign exchange differentials attributed to the remeasurement of foreign currency-denominated liabilities used to finance the acquisition and installation of Globe and Innove’s property and equipment consisted of net foreign exchange losses amounting to P305

56

million and P1,107 million for the year ended 31 December 2004 and 2003, respectively. These foreign exchange differentials were added to or deducted from the cost of the appropriate property and equipment accounts. Globe’s foreign exchange differentials arising from remeasurement of foreign currency-denominated liabilities/borrowed funds covered by currency swap contracts amounted to P515 million gain and P431 million loss for the year ended 31 December 2004 and 2003, respectively. These gains (losses) were offset by the translation losses (gains) from the related currency swaps. SFAS 21/IAS 21, The Effects of Changes in Foreign Exchange Rates, provides certain restrictions in allowing the capitalization of foreign exchange differentials. SFAS 21/IAS 21 will become effective for financial statements covering periods beginning on or after January 1, 2005. Accordingly, Globe Group under these standards, will no longer be able to capitalize foreign exchange differentials effective 1 January 2005. On such date, any remaining balance of the capitalized foreign exchange differentials, net of income tax effect, will be adjusted retroactively against retained earnings and comparative consolidated financial statements will be restated. As of 31 December 2004, the net cumulative foreign exchange losses included in property and equipment amounted to P=4,538 million, net of accumulated depreciation of P=3,376 million. To mitigate foreign exchange risk, Globe enters into short-term foreign currency forwards and long-term foreign currency swap contracts. Short-term forward contracts are used to manage Globe’s foreign exchange exposure related to foreign currency-denominated monetary assets and liabilities. For certain long term foreign currency denominated loans, Globe enters into long term foreign currency and interest rate swap contracts to manage its foreign exchange and interest rate exposures. As of 31 December 2004, Globe had US$236 million in outstanding foreign currency swap agreements, some of which have option features. Globe Telecom also sold currency options with total notional amount of US$16 million maturing on 30 March 2005 and 30 September 2005. Globe also has outstanding interest rate swaps. As of 31 December 2004, Globe has US$88.7 million in notional amount of US$ swaps under which it effectively swapped some of its floating rate US$ denominated loans into fixed rate, with semi-annual payment intervals up to August 2007. Globe also has US$5 million in notional amount of US$ swaps under which it effectively swapped 9.75% fixed coupon of its 2012 Senior Notes to a floating rate based on LIBOR, subject to a cap. The performance of the swap is linked to the 10 year and 30 year US$ Constant Maturity Swap Rates. Globe also has a fixed to floating interest rate swap contract with a notional amount of P1 billion, in which it effectively swaps a fixed rate Philippine peso denominated bond into floating rate with quarterly payment intervals up to February 2009. Total swap costs accruing on the above long term currency and interest rate swap contracts amounted to P1,056 million in 2004. As of 31 December 2004, Globe had investments in US Dollar Linked Peso Notes (DLPN) with a face value totaling P=150 million maturing on 5 December 2005. The Notes are issued by the Republic of the Philippines (ROP), denominated in Philippine Pesos, with coupon payments and redemption amounts adjusted for the appreciation or depreciation of the US dollar to the Philippine peso exchange rate. As such, the instrument behaves similarly to a US-dollar asset. Globe had US$2.9 million outstanding non-deliverable currency forward contracts to fix the Philippine peso cash flows from coupon and redemption of the DLPNs.

57

For disclosure purposes, the estimated unrealized mark-to-market gain on the outstanding derivatives of Globe amounted to US$8.6 million based on the mark-to-market valuation as of 31 December 2004 provided by counterparty banks. Such unrealized mark-to-market gain is not included in the determination of net income. Consolidated foreign currency linked revenues were 26% of total net revenues for the period ended 31 December 2004 versus 30% in 2003. Foreign currency linked revenues include those that are: (1) billed in foreign currency and settled in foreign currency, or (2) billed in Pesos at rates linked to a foreign currency tariff and settled in Pesos, or (3) wireline monthly service fees and the corresponding application of the Currency Exchange Rate Adjustment or CERA mechanism, under which Globe has the ability to pass the effects of local currency depreciation to its subscribers. These revenues serve as a natural hedge to our foreign exchange exposure. Liquidity and Capital Resources Consolidated assets as of 31 December 2004 amounted to P=138,125 million compared to P=140,130 million in 2003. As of 31 December 2004, current ratio on a consolidated basis was 0.90:1 compared to 0.97:1 for the same period in 2003. Consolidated cash, cash equivalents and short term investments was at P=14,303 million at the end of 2004 compared to P15,004 million for the same period in 2003. Gross debt to equity ratio was 0.92:1 on a consolidated basis and remains well within the 2:1 debt to equity limit dictated by certain debt covenants while net debt to equity ratio was 0.66:1 at the end of 2004. The financial tests under Globe’s loan agreements include compliance with the following ratios:

• Total debt to equity not exceeding 2:1; • Total debt to EBITDA of 3:1; • Debt service coverage exceeding 1.3 times (except for refinancing of the 2009 bond

which the lenders consented to exclude from the computation); • Secured debt ratio not exceeding 0.2 times.

Consolidated net cash flow from operations amounted to P=27,294 million for the period ended 31 December 2004 from P=23,290 million in 2003.

Globe Consolidated

As of and for the year ended 31 December (in millions of pesos)

2004 2003 YoY change

Capital Expenditures (Cash) ………………………………. 20,283 17,452 16% Increase (Decrease) in Liabilities related to Acquisition of

PPE

936

(1,638)

-157% Total Capital Expenditures ………………………………… 21,219 15,814 34%

Total Capital Expenditures / Service Revenues (%)… 40% 33%

Consolidated net cash used in investing activities amounted to P=17,679 million for the full year of 2004 compared to P=14,778 million for the same period in 2003. Consolidated capital expenditures for the full year of 2004 amounted to P=21,219 million. For 2005, the Globe Group has earmarked around P17 billion for capital expenditures that will be spent primarily on expanding its wireless network and enhancing the necessary transmission facilities in areas where

58

traffic is expected to surge. The 2005 capital expenditures program will be funded through internally-generated cash and debt financing. Consolidated net cash used in financing activities for the full year of 2004 amounted to P=9,074 million compared to P=14,433 million for the same period in 2003. Consolidated total debt as of 31 December 2004 amounted to P=52,218 million. Loan repayments of Globe for the full year of 2004 amounted to P=18,874 million (US$335 million). In February 2004, Globe issued P=3.0 billion worth of Philippine SEC registered bonds. This completed Globe’s refinancing requirement for its 2009 bonds. As of 30 June 2004, Globe had redeemed US$77 million of its 2009 Senior Notes. On 2 August 2004, Globe Telecom exercised its call option on the 2009 Senior Notes. The Company redeemed the remaining balance of US$143 million at 106.5%. Bond redemption costs of P693 million were incurred on the 2009 Senior Notes redeemed in August 2004. US$88 million worth of swaps and forwards used to hedge the Senior Notes also matured. Consequently, previously deferred debt issuance costs of P=100 million related to the notes were fully amortized upon redemption and included in depreciation and amortization expenses. During the year, Globe secured the following term loan facilities with various institutions to finance its capital expenditure requirements. ! In April 2004, Globe signed a US$100 million term loan facility with Norddeutsche

Landesbank Girozentrale (Singapore branch) as Lender. The facility is a 5-year term loan with floating rate of interest over US$ LIBOR.

! In June 2004, Globe signed a 5-year P=2 billion term loan facility with Metropolitan Bank and

Trust Company (Metrobank) as Lender. The facility is a 5-year term loan with a floating rate of interest over MART.

! In July 2004, Globe raised US$100 million senior unsecured notes due 2012 which was

consolidated to form a single series with Globe’s US$200 million 9.75% notes due 2012 issued on April 4, 2002. Additionally, Globe signed a 5-year P=5 billion fixed term loan facility with various lenders under the DBP-JBIC program. The facility is a 5-year term loan with a fixed rate of interest.

As of 31 December 2004, gross debt reached P52,218 million, 77% of which are denominated in US$. Of the 77%, 33% have been swapped to peso debt. As a result, the amount of US$ debt swapped into pesos and peso-denominated debt accounts for approximately 48.5% of consolidated loans as of 31 December 2004. Below is the schedule of debt maturities for Globe for the years stated below based on total debt as of 31 December 2004: Year Due Principal (US$ millions) 2005 ……………………………………………………………………… 161 2006 ……………………………………………………………………… 170 2007 ……………………………………………………………………… 128 2008……………………………………………………………………… 53 2009 through 2012 ………………………………………………………. 415 Total 927

59

Stockholders’ equity was P=57,016 million as of 31 December 2004. On 16 October 2003, Globe approved the purchase of 12 million common shares from DeTeAsia Holdings GmbH (DeTeAsia) at P680 per share for a total of P8.19 billion. This purchase was equivalent to 7.9% of Globe’s total outstanding common shares. DeTeAsia’s offer to sell all or part of its 37.7 million shares had earlier been accepted by Ayala Corporation (Ayala) and Singapore Telecom International Pte. Ltd (STI), a wholly-owned subsidiary of Singapore Telecommunications, Ltd. (ST). Ayala and STI then gave Globe an option to participate in the transaction by buying back a portion of the shares of DeTeAsia. Globe closed its purchase of common shares from DeTeAsia last 24 October 2003. With Globe’s decision to participate, the DeTeAsia’s Globe common shares were sold as follows: Ayala at 10.04 million shares, STI with 15.64 million shares and Globe with 12 million shares. On 12 November 2003, Ayala and ST each sold 3.75 million common shares at P=765 a share through a transaction on the Philippine Stock Exchange. After the transaction, both Ayala (including shares owned by a subsidiary where it has full voting power) and ST each owned 40% of Globe’s outstanding common shares. Subsequently, the Company’s free float increased from 14.5% to 20%. As of 31 December 2004, Globe’s capital stock consists of:

1. Preferred stock Series “A” at a par value of P5 per share of which 158.5 million are outstanding out of a total authorized of 250 million shares.

Preferred stock “Series A” has the following features: (a) Convertible to one common share after 10 years from issue date at a price which

shall not be less than the prevailing market price of the common stock less the par value of the preferred shares;

(b) Cumulative and non-participating; (c) Floating rate dividend (set at MART 1 plus 2% average for a 12-month period); (d) Issued at P=5 par; (e) Voting rights; (f) Globe has the right to redeem the preferred shares at par plus accrued dividends

at any time after 5 years from date of issuance; and (g) Preferences as to dividend in the event of liquidation.

On 15 December 2004 the Board of Directors (BOD) approved the declaration of cash dividends to preferred shareholders as of record date 31 December 2004 amounting to P75 million which remains outstanding as of 31 December 2004 and was included under “Accounts payable and accrued expenses” account in the consolidated balance sheets. The 2003 dividends payable to convertible preferred shareholders amounting to P=68 million was paid on 28 September 2004.

2. Common shares at a par value of P=50 per share of which 151.9 million shares have

been issued and 139.9 million are outstanding out of a total authorized of 200 million shares. The 12 million shares acquired from DeTeAsia are considered treasury shares.

On 29 January 2004, the BOD approved a new dividend policy to declare cash dividends to its common shareholders on a regular basis as may be determined by the BOD from time to time. The BOD had set out a dividend payout rate of approximately 50% of prior year’s net income payable semi-annually in March and

60

September of each year. This will be reviewed annually taking into account Globe Telecom’s operating results, cash flows, debt covenants, capital expenditure levels and liquidity. The BOD also declared the first semi-annual cash dividend in 2004 of P=18 per share payable to common stockholders of record as of 18 February 2004 and a total of P=2.52 billion dividends was paid on 15 March 2004. Additionally, the BOD on 2 August 2004 approved the declaration of the second semi-annual cash dividends for 2004. A total of P2.52 billion in dividends were paid on 15 September 2004 with record date on 20 August 2004. (Please refer to Recent Developments Section for 2005 Cash Dividend)

Consolidated Return on Average Equity (ROE) for the period ended 31 December 2004 stood at 21%. On July 1, 2004, Globe Telecom granted additional stock options to key executives and senior management personnel of the Globe Group under the Executive Stock Option Plan 2. It required the grantees to pay a nonrefundable option purchase price of P1,000. The grantees were given until September 30, 2004 to accept the offer. As of 31 December 2004, a total of 803,800 stock options were granted to key executives and senior management personnel. The agreement provides for an exercise price of P840.75 per share. Fifty percent of the options become exercisable from July 1, 2006 to June 30, 2014, while the remaining Fifty percent become exercisable from July 1, 2007 to June 30, 2014. In order to avail of the privilege, the grantees must remain with Globe Telecom or its affiliates from grant date up to the beginning of the exercise period of the corresponding shares. At the Annual Stockholders’ Meeting held last 04 April 2005, the Company’s stockholders approved the cancellation of the 20,065,627 Treasury Shares consisting of the 12 million shares acquired from Deutsche Telekom and the 8,064,094 shares acquired from the share buyback, and the amendment of the Articles of Incorporation of the Company to accordingly reduce the authorized capital stock of the Corporation from P11,250,000,000 to P10,246,718,650. Recent Developments Globe is an intervenor in and Innove (formerly Isla Communications Co., Inc.) is a party to Civil Case No. Q-00-42221 entitled "Isla Communications Co., Inc. et. al., versus National Telecommunications Commission et. al.," before the Regional Trial Court (RTC) of Quezon City by virtue of which Globe and Innove, together with other cellular operators, sought and obtained a preliminary injunction against the implementation of National Telecommunications Commission (NTC) Memorandum Circular No. 13-6-2000. NTC Memorandum Circular 13-6-2000 sought, among others, to extend the expiration period of prepaid cards to two years. The NTC appealed the issuance of the injunction to the Court of Appeals (CA). On 25 October 2001, Globe and Innove received a copy of the decision of the CA ordering the dismissal of the case before the RTC for lack of jurisdiction, but without prejudice to the cellular companies' seeking relief before the NTC which the CA claims had jurisdiction over the matter. Globe subsequently filed a Petition for Review with the Supreme Court (SC) seeking to reverse the decision of the CA. After initially denying the petition, the SC on 2 September 2003, overturned the CA’s earlier dismissal of the petitions filed by SMART and Globe. In its 13-page decision, the SC said that the Quezon City trial court could hear and decide the case, contrary to NTC’s argument. The SC has also since denied the NTC’s motion for reconsideration. We are awaiting resumption of the proceedings before the RTC of Quezon City. In the event, however, that Globe is not eventually sustained in its position and NTC Memorandum Circular No. 13-6-2000 is

61

implemented in its current form the Company would probably incur additional costs for carrying and maintaining prepaid subscribers in its network. On 7 February 2003, AT&T and MCI filed a petition before the United States Federal Communications Commission (‘U.S. FCC’) seeking a stop-payment order on settlements to the Philippine carriers on the ground that Philippine carriers were “whipsawing” AT&T and MCI/WorldCom (MCI) into agreeing to an increase in termination rates to the Philippines. Whipsawing occurs when a foreign monopoly supplier uses its market power to negotiate a more favorable agreement from one US carrier and extract the same terms from other US carriers. On 10 March 2003 the Chief International Bureau of the U.S. FCC issued an order suspending all settlement payments of U.S. facilities-based carriers to a number of Philippine carriers, including Globe Telecom, until such time as the U.S. FCC issues a Public Notice stating otherwise. This Order had the effect of preventing U.S. facilities-based carriers such as AT&T from paying the affected Philippine carriers for switched voice services, whether rendered before or after the date of the Order. In response, the NTC issued an Order last 12 March 2003 ordering Philippine carriers not to accept traffic from US carriers who do not pay for services rendered and to take all steps necessary to collect payment for services rendered. • On November 2003, Globe announced the conclusion of interim commercial arrangements

with MCI and Sprint. On 9 January 2004, Globe reached an interim termination rate agreement with AT&T for US-Philippine traffic. On 26 January 2004 the US FCC lifted its stop-payment order against Globe following confirmation by US carriers that service with Globe had been normalized. U.S. carriers are now required to resume payments for termination services. Globe has started receiving various payments from these carriers after the lifting of the stop payment order. On June 2004, the FCC issued an order denying the Petitions for Review filed by the different Philippine carriers and upholding the finding of whipsawing. In the same order, the U.S. FCC stated that the matter of lifting the International Settlements Policy (ISP) over the Philippine route will be decided on in the U.S. FCC's proceedings relative to its ISP Reform Order. Pursuant to the ISP Reform Order, countries whose rates are at or below benchmark will be dropped from the coverage of the ISP unless serious concerns are raised on the route. In August 2004, the U.S. FCC, as a pre-requisite to lifting the ISP over the Philippine route required US carriers to certify that the rates they are charged by the Philippine carriers are benchmark-compliant. As of 11 October 2004, all three major US carriers (AT&T, MCI and Sprint) have certified to the benchmark compliance of the Philippine route. However, the U.S. FCC has not yet lifted the ISP over the Philippine route to date. The US FCC continues to review the position of the US carriers in this matter.

• On 10 and 11 January 2004, the United States Department of Justice (US DOJ) served

subpoenas on several Philippine telecom executives, including two Globe managers and the Innove CEO, requiring them to appear before a grand jury investigation in Hawaii. The investigation is for the purpose of determining if the conduct of the Philippine carriers in relation to the termination rate disputes with U.S. carriers may have violated U.S. laws. On March 24, 2005, the District Court of Hawaii granted Globe’s motion to quash the subpoena duces tecum against it on the ground that US courts have no jurisdiction. This decision is not yet final and may still be appealed by the US Department of Justice. The outcome of the investigation is presently not determinable.

On 29 October 2004, the Singapore Exchange Securities Trading Limited advised Globe that its US$300 million 9.75% Notes due 2012 (“Notes”) had been listed and quoted on the Singapore

62

exchange. The legal listing on the Singapore exchange signifies that the Notes are listed in a register kept by the Singapore exchange but are not included on the main board of the Singapore exchange or SGX. Trades in the Notes would not be made through the Singapore exchange but would be conducted on a direct bilateral basis between trading houses and settled via international clearing houses. Last 22 July 2004, Globe successfully raised US$100 million in the international capital markets through the re-opening of its US$200 Million Senior Notes due 2012 which are also listed in Luxembourg. (See Liquidity and Capital Resources Section) On 3 November 2004, Globe Telecom announced that it signed an agreement with six other leading Asia Pacific mobile operators to form a regional mobile alliance, Bridge Mobile Alliance, which will operate through a Singaporean-incorporated company, Bridge Mobile Pte. Ltd. (‘Bridge Mobile’). The joint venture company will look at driving commercial and other benefits for the operators and delivering regional mobile services to their subscribers. The seven operators are Bharti (India), Globe Telecom (Philippines), Maxis (Malaysia) Optus (Australia), Singtel (Singapore) Taiwan Cellular Corporation (Taiwan) and Telkomsel (Indonesia). On 9 November 2004, Moody’s Investor Service (Moody’s) placed on review for possible downgrade the Ba2 foreign currency senior implied and senior unsecured bond ratings of Globe. This rating action follows Moody’s decision to place the Philippines’ Ba2 foreign currency sovereign ceiling under review for possible downgrade. At the same time, Moody’s affirmed the Ba1 local currency senior implied and senior unsecured issuer ratings of Globe. The outlook for these ratings remains positive. On 10 November 2004, Ayala Corporation (Ayala) announced that it sold 7 million common shares, equivalent to 5% of the common shares in Globe to SingTel. Substantially all of these shares (6,287,565) are part of the block Ayala acquired from Deutsche Telecom (DT) last October 2003. After the sale, Ayala’s common shareholdings decreased from 40% to 35%. Ayala intends to use the sale proceeds to pay down part of its debt at the parent level and further strengthen its financial position. On 22 November 2004, the Philippine Rating Services Corporation (PhilRatings) announced that it has maintained its PRS Aaa rating for Globe’s outstanding P3.0 billion bonds. A rating of PRS Aaa is defined as: “Smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secured. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.” On December 2004, Innove launched its “No NDD charges for Globelines to Globelines calls nationwide” program. As part of its program, effective 5 January 2005, Globelines postpaid subscribers would no longer be charged National Direct Dialing (NDD) charges for calls made from their Globelines postpaid phones to any other Globelines postpaid phone nationwide. However, on 4 January 2005, Innove suspended the implementation of the program after receiving a cease-and-desist order (CDO) from the NTC in view of complaints by the Private Telephone Companies of the Philippines (PAPTELCO) and PT&T for alleged predatory pricing. Innove has replied to the complaint of PAPTELCO and PT&T and continues to work with the NTC to discuss the program. On 11 January 2005, Globe filed a complaint against several telecom companies seeking to enjoin various carriers’ unlimited call pricing schemes that Globe claims constitute predatory pricing. On 14 January 2005, the NTC temporarily lifted the CDO and directed Innove to offer its toll-free NDD services for a period not exceeding 30 days upon receipt of the memo from NTC pending a review and resolution of all price and rate reduction schemes.

63

On 15 December 2004, the Board of Directors of Globe Telecom Holdings, Inc. (GTHI), an associate of Globe Telecom, having completed and concluded its only activity related to the Philippine Deposit Receipts, approved the dissolution of GTHI. On 6 January 2005, Globe Kababayan launched its “Quick Remit and Load Card” service that enables Overseas Filipino Workers (OFW) to remit cash and reload credits to Globe Handyphone and Touch Mobile phones. The Quick Remit and Load Card service allows OFWs to do away with queuing at overseas remittance centers and making over-the-counter payments of cable fees. This service complements G-Cash’s international remittance service. Additionally, OFWs need not wait for days-off to remit money or reload credits to Globe Handyphone and Touch Mobile phones as the service can be availed anytime and anywhere. The Quick Remit and Load Card service will be manufactured and distributed internationally by Paysetter, Inc. and will be available in P1,200, P3,200 and P5,200 denominations. On 16 January 2005, Touch Mobile offered its new “Power Piso” call rates where Touch Mobile to Touch Mobile calls will be charged P1.00 per minute only starting on the 3rd minute of each call. The 1st two (2) minutes will be charged the current P5.50 per minute rate. The “Power Piso” campaign is part of Touch Mobile’s new repositioning to “TM, Ang Bagong Touch Mobile” that is focused on giving more peso value to its mass consumers by making its services more affordable. Additionally, starting 16 January 2005, Touch Mobile subscribers can access selected Value Added Services (VAS) content for only P1 per download. This will be a permanent service available to Touch Mobile subscribers. Initial VAS content will include daily job openings, jokes and tips. Other VAS services will be offered at the regular rate of P2.50 per download. On 30 January 2005, Globe launched its “MyGlobe Tracker” service which allows Globe Handyphone postpaid and prepaid subscribers to track the location of friends, family and celebrities through their mobile phones using location-based technologies and applications that act on or react to geographic triggers. These services provide a general location or vicinity of a subscriber. Currently, five types of services are available to Globe subscribers on “MyGlobe Tracker:”

(a) myFriend Tracker – Subscribers can locate friends and get information on their location; (b) myFamily Tracker - Parents can get information on the location of their children; (c) myChat Tracker – Subscribers can get a list of chatters in their area; (d) Celebrity Tracker – Subscribers can get alerts from celebrities in their area; (e) Nginig Tracker – Subscribers can get information on paranormal readings within their

area. This is based on the ABS-CBN show “NGINIG”. Registration for the above services is currently free while location requests range from P5 (SMS) and P10 (MMS). On 1 February 2005, the Board of Directors declared the first semi-annual cash dividend in 2005 of P20 per common share with a record date of 18 February 2005 and payment date of 15 March 2005. This cash dividend declaration is consistent with the Company’s dividend policy of paying out approximately 50% of prior year’s net income payable semi-annually in March and in September of each year.

On 1 February 2005, the Board of Directors approved an offer to purchase one share for every fifteen shares of the outstanding common stock of Globe (par value P50) from all shareholders of

64

record as of 10 February 2005, at a price of P950 per share. The approval allows Globe to purchase up to 9,326,924 shares representing 6.67% of its outstanding common shares. Each shareholder is entitled to tender a proportionate number of shares owned at the 1:15 ratio, referred to as the Tender Ratio, for purchase by Globe upon and subject to the terms and conditions of the tender offer. Assuming all shareholders participate in the tender offer to the full extent, the total purchase price will be about P8.86 billion. Tendering shareholders will be eligible to receive the cash dividends declared on 1 February 2005 for their tendered shares. Globe commenced the tender offer on 3 February 2005 and ended the offer on 3 March 2005. On February 15, 2005, the Company crossed on the Philippine stock exchange the 8.064 million shares acquired under the buyback program. On 1 February 2005, the Board of Directors approved the retirement of the purchased shares and the existing 12 million treasury shares acquired in 2003 from DeTeAsia. At the Annual Stockholders’ Meeting held last 04 April 2005, the company’s stockholders approved the cancellation of the 20,065,627 Treasury Shares consisting of the 12 million shares acquired from Deutsche Telekom and the 8,064,094 shares acquired from the share buyback, and the amendment of the Articles of Incorporation of the Company to accordingly reduce the authorized capital stock of the Corporation from P11,250,000,000 to P10,246,718,650. Annex to Management’s Discussion and Analysis (MD&A) section

1. All material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons created during the reporting period; Events that will trigger direct or contingent financial obligations that are material to the Company including any default or acceleration of an obligation.

Adoption of New Accounting Standards The Globe Group adopted the following Statements of Financial Accounting Standards (SFAS), which became effective for financial statements covering the period beginning January 1, 2004. These standards adopted their corresponding International Accounting Standards (IAS). • SFAS 12/IAS 12, Income Taxes, prescribes the accounting treatment for current and

deferred income taxes. The standard requires the use of a balance sheet liability method in accounting for deferred income taxes. The adoption of the new standard has no significant impact on the Globe Group’s results of operations. For presentation purposes, the deferred income tax assets and deferred income tax liabilities previously classified as current assets and current liabilities, respectively, in the consolidated balance sheets are now reclassified as noncurrent assets and noncurrent liabilities upon adoption of the new standard. The net deferred income tax assets and deferred income tax liabilities are presented on a net basis by entity. Also, deferred tax assets on temporary deductible differences previously covered with valuation allowance are no longer recognized as deferred tax assets. Additional disclosures required by the new standard were included in the consolidated financial statements, including the deductible temporary differences with no deferred income tax assets recognized in the consolidated financial statements.

• SFAS 17/IAS 17, Leases, prescribes the accounting policies and disclosures to apply to

finance and operating leases. Finance leases are those that transfer to the lessee

65

substantially all the risks and benefits incidental to ownership of the leased item. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. The adoption of the standard resulted in the recognition of lease payments under operating leases as an expense or income on a straight line basis over the lease term. Previously, lease payments under operating leases are recognized as an expense based on terms of the lease arrangements. The adoption of the new standard resulted in a net decrease in consolidated net income by about P117.37 million or a reduction in basic earnings per share of P0.84 for the year ended December 31, 2004. The effect was accounted for prospectively because the impact of adoption on the prior year financial statements is not material. Additional disclosures required by the new standard were included in the condensed consolidated financial statements.

New and Revised Accounting Standards to be Effective in 2005 The Accounting Standards Council (ASC) approved the issuance of new and revised accounting standards which are based on revised IAS and new International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The new standards are effective for annual periods beginning on or after 1 January 2005. The ASC has re-named the standards that it issues to correspond better to the issuances of IASB. Philippine Accounting Standards (PAS) correspond to adopted IAS while Philippine Financial Reporting Standards (PFRS) correspond to the adopted IFRS. Previously, standards issued by the ASC were designated as SFAS. The Globe Group will adopt beginning 1 January 2005 the following new and revised accounting standards that are relevant to the Globe Group: New Accounting Standards • PAS 19, Employee Benefits, prescribes the accounting and disclosures by employers for

employee benefits (including short-term employee benefits, post-employment benefits, other long-term employee benefits and termination benefits). For post-employment benefits classified as defined benefit plans, the standard requires (a) the use of the projected unit credit method to measure a company’s obligations and costs; (b) a company to determine the present value of defined benefit obligations and the fair value if any plan assets with sufficient regularity; (c) the recognition of a specific portion of net cumulative actuarial gains and losses when the net cumulative amount exceeds 10% of the greater of the present value of the defined benefit obligation or the fair value of the plan assets, but also permits the immediate recognition of these actuarial gains and losses.

The Globe Group is in the process of having its actuarial valuation updated to determine the impact of adopting PAS 19. The difference between the transitional liability and the recorded liability will be adjusted against 2005 beginning retained earnings.

• PAS 21, The Effects of Changes in Foreign Exchange Rates, eliminates the capitalization of

foreign exchange differentials related to the acquisition of property and equipment. Effective 1 January 2005, any undepreciated balance of the capitalized foreign exchange differentials, net of deferred income tax, will be adjusted retroactively to beginning retained earnings, and prior years’ consolidated financial statements presented will be restated.

66

As of 31 December 2004, the net cumulative foreign exchange losses included in property and equipment amounted to P4,538.30 million, net of accumulated depreciation of P3,376.17 million. The adoption of PAS 21 is estimated to decrease the 2005 beginning retained earnings by P2,416.59 million, net of deferred income tax.

• PAS 32, Financial Instruments: Disclosure and Presentation, covers the disclosure and

presentation of all financial instruments. The standard requires more comprehensive disclosures about a company’s financial instruments, whether recognized or unrecognized in the financial statements. New disclosure requirements include terms and conditions of financial instruments used by the company, types of risks associated with both recognized and unrecognized financial instruments (foreign exchange risk, price risk, credit risk, liquidity risk, and cash flow risk), fair value information of both recognized and unrecognized financial assets and financial liabilities, and the company’s financial risk management policies and objectives. The standard also requires financial instruments to be classified as debt or equity in accordance with their substance and not their legal form.

• PAS 39, Financial Instruments: Recognition and Measurement, establishes the accounting

and reporting standards for recognizing and measuring a company’s financial assets and financial liabilities. The standard requires a financial asset or financial liability to be recognized initially at fair value. Subsequent to initial recognition, the company should continue to measure financial assets at their fair values, except for loans and receivables and held-to-maturity investments, which are to be measured at cost or amortized cost using the effective interest rate method. Financial liabilities are subsequently measured at cost or amortized cost, except for liabilities classified as “at fair value through profit and loss” and derivatives, which are subsequently to be measured at fair value.

PAS 39 also covers the accounting for derivative instruments. This standard has expanded the definition of a derivative instrument to include derivatives (and derivative-like provisions) embedded in non-derivative contracts. Under the standard, every derivative instrument is recorded in the balance sheet as either an asset or liability measured at its fair value. Derivatives that do not qualify as hedges are adjusted to fair value through income. If a derivative is designated and qualify as a hedge, depending on the nature of the hedging relationship, changes in the fair value of the derivative are either offset against the changes in fair value of the hedged assets, liabilities, and firm commitments through earnings, or recognized in stockholders’ equity until the hedged item is recognized in earnings. A company must formally document, designate and assess the hedge effectiveness of derivative transactions that receive hedge accounting treatment.

The Globe Group has formed an implementation team that is currently assessing the operational and financial statement impact of PAS 32 and PAS 39. Among the implementation activities include the following:

a. review of all financial and non-financial contracts to identify and bifurcate (where

required) embedded derivatives; b. classification and measurement of financial assets and financial liabilities; c. evaluation of financial instruments as to whether these should be classified as debt or

equity, depending on their features; d. review of existing hedge accounting treatment for qualifying hedges and compliance

with hedge accounting criteria, particularly on documentation and effectiveness testing; and,

67

e. enhancement of existing processes and systems relating to validation of mark-to-market computations, monitoring of changes in the fair value of financial instruments, monitoring of effectiveness results as these flow through the financial statements, and monitoring of the impact of bifurcated embedded derivatives.

Under PAS 39, all derivative instruments (both freestanding and embedded) as well as most financial instruments classified under the categories “Financial Instruments at Fair Value thought Profit or Loss” and “Available for Sale” categories will be measured at fair value which may add volatility in the consolidated balance sheets and consolidated statements of income. However, the quantitative impact of adopting PAS 39 will be determined only upon substantial completion of the foregoing implementation activities. The effect of adopting PAS 32 and PAS 39 in 2005 will be computed retroactively and adjusted against 2005 beginning retained earnings. Disclosure requirements, where applicable, will be included in the 2005 financial statements. Prior years’ financial statements will not be restated as allowed under SEC rules.

• PAS 40, Investment Property, establishes the accounting and reporting standards for

investment property. Investment property is property (land or a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for: (a) use in the production or supply of goods or supply of goods or services or for administrative purposes; or (b) sale in the ordinary course of business. Under this standard, Globe Group is permitted to choose either the fair value model or cost model in the subsequent measurement of a qualifying investment property. Fair value model requires an investment property to be measured at fair value with fair value changes recognized directly in the statements of income. Cost model requires an investment property to be measured at cost less any accumulated depreciation and impairment losses.

The adoption of PAS 40 is not expected to have a material effect on the consolidated financial statements. Any identified investment property will be reclassified from property and equipment and will be carried using the cost model.

• PFRS 2, Share-Based Payments, sets out the measurement principles and accounting

requirements for share-based payment transactions, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. Under this standard, the Globe Group is required to recognize the cost of share options granted after 7 November 2002 in the statements of income. The Globe Group currently does not recognize an expense from share options granted but discloses required information for such options.

Upon adoption of PFRS 2 in 2005, the estimated cost as of 31 December 2004 of share options issued to Globe Group employees amounting to P99.04 million, net of deferred income tax, will be adjusted against 2005 beginning retained earnings with a credit to additional paid in capital and prior years’ consolidated financial statements presented will be restated.

• PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, specifies the

accounting for assets held for sale and the presentation and disclosure requirements for discontinued operations. Under this standard, qualifying non-current assets or disposal groups held for sale shall be carried at fair value less cost to sell if this amount is lower than its carrying amount less accumulated impairment losses. The company shall not depreciate (or amortize) non-current assets (or disposal groups) while classified as held for

68

sale. Any gain or loss on the remeasurement of a non-current asset (or disposal group) classified as held for sale shall be included in the profit or loss from continuing operations.

As of 31 December 2004, Globe Group has no qualifying non-current assets held for sale.

Revised Accounting Standards • PAS 16, Property, Plant and Equipment, (a) provides additional guidance and clarification

on recognition and measurement of items of property, plant and equipment; (b) requires the capitalization of the costs of asset dismantling, removal or restoration as a result of either acquiring or having used the asset for purposes other than to produce inventories during the period; and (c) requires measurement of an item of property, plant and equipment acquired in exchange for a non-monetary asset(s), or a combination of monetary and non-monetary assets, at fair value unless the exchange transaction lacks commercial substance. Under the previous version of this standard, an entity measured such an acquired asset at fair value unless the exchanged assets were similar.

Upon adoption of the revised PAS 16, the estimated accumulated depreciation and accretion on the additional asset dismantling costs that will be capitalized amounting to P258.99 million, net of deferred income tax, will be adjusted against 2005 beginning retained earnings and prior years’ financial statements presented will be restated.

The adoption of the following revised accounting standards is not expected to have a material effect on the consolidated financial statements. Additional disclosures required by the revised accounting standards will be included in the consolidated financial statements.

• PAS 1, Presentation of Financial Statements, provides a framework within which an

entity assesses how to present fairly the effects of transactions and other events; provides the base criteria for classifying liabilities as current or noncurrent; prohibits the presentation of income from operating activities and extraordinary items as separate line items in the statements of income; and specifies the disclosures about key sources of estimation, uncertainty and judgments management has made in the process of applying a company’s accounting policies. It also requires changes in the presentation of minority interest in the consolidated balance sheets and statements of income.

• PAS 2, Inventories, reduces the alternatives for measurement of inventories by

disallowing the use of the last in, first out (LIFO) formula. Moreover, the revised standard does not permit foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency to be included in the cost of purchase of inventories.

• PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, (a) removes

the concept of fundamental error and the allowed alternative to retrospective application of voluntary changes in accounting policies and retrospective restatement to correct prior period errors; (b) updates the previous hierarchy of guidance to which management refers and whose applicability it considers when selecting accounting policies in the absence of standards and interpretations that specifically apply; (c) defines material omission or misstatements; and (d) describes how to apply the concept of materiality when applying accounting policies and correcting errors.

69

• PAS 10, Events After the Balance Sheet Date, provides a limited clarification of the accounting for dividends declared after the balance sheet date.

• PAS 17, Leases, provides a limited revision to clarify the classification of a lease of land

and buildings and prohibits expensing of initial direct costs in the financial statements of the lessors.

• PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope

of the standard, the definitions and disclosures for related parties. It also requires disclosure of the compensation of key management personnel by benefit type.

• PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in

accounting for investments in subsidiaries in the separate financial statements of a parent, venturer or investor. Investments in subsidiaries will be accounted for either at cost or in accordance with PAS 39 in the separate financial statements. Equity method of accounting will no longer be allowed in the separate financial statements.

• PAS 28, Investments in Associates, reduces alternatives in accounting for associates in

consolidated financial statements and in accounting for investments in the separate financial statements of an investor. Investments in associates will be accounted for either at cost or in accordance with PAS 39 in the separate financial statements. Equity method of accounting will no longer be allowed in the separate financial statements.

PAS 27 and 28 require strict compliance with adoption of uniform accounting policies and require the parent company/investor to make appropriate adjustments to the subsidiary’s/associate’s financial statements to conform them to the parent company’s/investor’s accounting policies for reporting like transactions and other events in similar circumstances.

• PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for interests in

joint ventures in consolidated financial statements and in accounting for investments in the separate financial statements of a venturer. Interests in joint ventures will be accounted for either at cost or in accordance with PAS 39 in the separate financial statements. Equity method of accounting will no longer be allowed in the separate financial statements. However, the equity method is still an allowed alternative in the consolidated financial statements.

• PAS 33, Earnings Per Share, prescribes principles for the determination and presentation

of earnings per share for entities with publicly traded shares, entities in the process of issuing ordinary shares to the public, and any entities that calculate and disclose earnings per share. The standard also provides additional guidance in computing earnings per share including the effects of mandatorily convertible instruments and contingently issuable shares, among others.

• PAS 36, Impairment of Assets, establishes frequency of impairment testing for certain

intangibles and provides additional guidance on the measurement of an asset’s value in use.

• PAS 38, Intangible Assets, provides additional clarification on the definition and

recognition of certain intangibles. Moreover, this revised standard requires that an

70

intangible asset with an indefinite useful life should not be amortized but will be tested for impairment by comparing its recoverable amount with its carrying amount annually and whenever there is an indication that the intangible asset may be impaired.

2. Causes of any material change from period to period of FS:

Balance Sheet Accounts Variance Analysis (31 Dec 2004 vs. 31 Dec 2003) a.) Short-term investment – Decreased by 63% or P1,242.1 million due to maturities

of various short-term investments. b.) Receivables – Net – Declined by 38% due mainly from net collection of traffic

receivables from various carriers and decrease in ILD revenues as a result of ISR (International Simple Resale) operations. (Please see related discussion under International Long Distance Services in FY 2004 MD&A discussion)

c.) Inventories and Supplies – Net – Level of inventory increased in 2004 by 84% or P520 million primarily for SIMs reserved for SIM swap program and purchase of handsets reserved for promotional programs.

d.) Prepayments and other current assets – Primarily due to lower input VAT generated in 2004 and net amortization of various prepayments.

e.) Deferred Charges and others – Decreased by 31% or P596.6 million due to full amortization of debt issuance cost related to 2009 Senior Notes redeemed in August 2004 of P100 million and revaluation gain on foreign currency swaps and unamortized forward premiums due to termination of U.S $88 million worth of swaps & forwards used to hedge 2009 Senior Notes redeemed in August 2004.

f.) Miscellaneous deposits and investments – Decrease is due mainly to reclassification of investment maturing on December 2005 to short-term investment.

g.) Deferred Income Tax Assets– Represent Innove’s recognition of previously unrecognized deferred tax assets as a result of management’s periodic review of the realizability of its deferred tax assets that considers sufficiency of future taxable income from which all or part of the DTA will be utilized. This was partly offset by normal deferred tax adjustments.

h.) Accounts payable and accrued expenses – Declined by 19% or 4.7 billion primarily due to net settlement to local/foreign carriers, net payment to suppliers/contractors and net reversal of provision for probable losses resulting mainly from recent favorable developments that called for a reassessment of existing provisions.

i.) Unearned revenues – Decreased by 27% or P644.2 million due to faster and higher usage of airtime brought by various new services launched during the year (such as video streaming, Text & Call Collect, G-Cash etc.).

j.) Deferred Income Tax Liabilities – Increased by 34% or P1.2 billion due to higher deferred income tax liabilities related to excess of accumulated depreciation of property and equipment for tax purposes over financial reporting and capitalized borrowing cost already claimed as deduction for tax purposes.

71

3. 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:

Our lease commitments are as follows:

(a) Operating lease commitments - Globe Group as lessee

Globe Telecom and Innove lease certain premises for some of their telecom facilities and equipment and for most of their business centers and cell sites. These operating lease arrangements are for periods ranging from one to ten years from the date of the contracts and are renewable under certain terms and conditions. The agreements generally require certain amounts of security deposit and advance rentals, which are shown as part of “Miscellaneous deposits and investments” account in the consolidated balance sheets. The consolidated rentals incurred on these leases amounted to P=1,420.07 million, P=1,604.42 million and P=2,056.73 million in 2004, 2003 and 2002, respectively.

As of 31 December 2004, the consolidated future minimum lease payments under these operating leases are as follows (in thousand pesos):

Not later than one year P=528,239 After one year but not more than five years 1,895,387 After five years 1,049,610 P=3,473,236

(b) Operating lease commitments – Globe Group as lessor

Innove entered into a lease agreement covering the lease of office space at the Innove IT Plaza to a third party. The lease has a remaining lease term of less than a year renewable under certain terms and conditions. Total lease income amounted to about P=21.22 million and P=13.19 million in 2004 and 2003, respectively. As of December 31, 2004, the future minimum lease receivables under this operating lease amounted to P=23.77 million which is due within one year.

(c) Finance lease commitments - Globe Group as lessee

Globe Telecom and Innove have entered into finance lease agreements for their various property and equipment. The said leased assets are capitalized and depreciated over their estimated useful life of three years which is also equivalent to the lease term.

As of 31 December 2004, the consolidated future minimum lease payments under finance leases and the present value of the net minimum lease payments are as follows (in thousand pesos):

Within one year P=24,890 After one year but not more than five years 14,816 Total minimum lease payments 39,706

72

Less interest 3,100 Present value of minimum lease payments 36,606

Current 22,845 Noncurrent 13,761 P=36,606

The present value of the net minimum lease payments under finance leases was included under “Other long-term liabilities” account in the consolidated balance sheets.

The carrying values of property and equipment held under finance leases where the Globe Group is the lessee are as follows:

2004 2003 2002 (In Thousand Pesos) Furniture, fixtures and equipment P=186,031 P=199,560 P=206,541 Transportation and work equipment 4,400 4,400 4,400 190,431 203,960 210,941 Less accumulated depreciation 167,062 167,188 142,778 Net book value P=23,369 P=36,772 P=68,163

Agreements and Commitments with Other Carriers Globe Telecom and Innove have existing correspondence agreements with various foreign administrations and interconnection agreements with local telecommunications companies for their various services. They also have international roaming agreements with other CMTS-GSM operators in foreign countries, which allow their CMTS-GSM subscribers access to foreign GSM networks. The agreements provide for sharing of toll revenues derived from the mutual use of interconnection facilities. With the integration of Innove’s wireless network to Globe Telecom’s network and the migration of the wireless subscribers of Innove to TM service, roaming agreements between Innove and its roaming partners have been terminated.

Agreements and Commitments with Suppliers Globe Telecom and Innove have entered into agreements with various suppliers for the delivery, installation or construction of their property and equipment. Under the terms of these agreements, delivery, installation or construction commence only when purchase orders are served. Billings are based on the progress of the project installation or construction. While the construction is in progress, project costs are accrued based on the billings received. When the installation or construction and related activities necessary to prepare the property for its intended use are complete and the property is ready for service, the balance of the related purchase orders is accrued. The consolidated accrued project costs as of December 31, 2004, 2003 and 2002 included in the “Accounts payable and accrued expenses” account in the consolidated balance sheets amounted to about P=3,454.29 million, P=3,003.05 million and P=3,805.17 million, respectively. As of December 31, 2004, the consolidated expected future payments amounted to P=6.77 billion. The settlement of these liabilities is dependent on the payment terms agreed with the suppliers and contractors. The normal repayment credit terms commence once the projects are finally accepted by Globe Telecom and Innove. As of December 31, 2004, the Globe Group has available short-term credit facilities of U.S.$32.00 million and P=5,300.00 million and undrawn committed long-term credit facilities

73

of U.S.$100.00 million and P=5,300.00 million. The said facilities may be drawn either in U.S. dollars or in Philippine pesos.

Investments in Subsidiaries, Associate and Joint Venture Investment in Bridge Mobile Alliance (BMA) On 3 November 2004, Globe Telecom and six other leading Asia Pacific mobile operators (JV partners) signed an Agreement (JV Agreement) to form a regional mobile alliance, BMA, which will operate through a Singapore-incorporated company, Bridge Mobile Pte. Ltd. (Bridge Mobile). The joint venture company will look at driving commercial and other benefits for the operators and delivering regional mobile services to their subscribers. Bridge Mobile will be a commercial vehicle in which the seven JV partners will jointly invest to build and establish a regional mobile infrastructure and common service platform. This will enable the creation and seamless delivery of regional mobile services across geographical borders, and enhance the service experience of their mobile customers when they roam from one country to another. Bridge Mobile will also develop new products and services on a regional basis and create competitive advantages and differentiation for the mobile operators in their respective markets. The other joint venture partners include Bharti Tele-Ventures Limited (India), Maxis Communications Berhad (Malaysia), Optus Mobile Pty Limited (Australia), Singapore Telecom Mobile Pte Ltd (Singapore), Taiwan Cellular Corporation (Taiwan) and PT Telekomunikasi Selular (Indonesia). Under the JV Agreement, each partner (shareholder) shall contribute U.S.$4 million scheduled as follows:

Year 1 about U.S.$1.5 million Year 2 about U.S.$1.3 million Year 3 about U.S.$1.2 million

As of 31 December 2004, the initial subscription required upon signing of the JV Agreement amounting to U.S.$1.0 million (P56.33 million) is included in “Miscellaneous deposits and investments” account in the consolidated balance sheets. Globe Telecom’s percentage of ownership in BMA is 14.29%. Investment in Globe Telecom Holdings, Inc. (GTHI) Globe had a 32.67% investment in GTHI. On 15 December 2004, the Board of Directors (BOD) of GTHI approved the dissolution of GTHI.

4. Trend Information

Risk Factors The following summary of our risk factors may contribute to increasing or decreasing our liquidity:

a. We derive most of our revenues from our wireless business and hence, are dependent on the growth of our wireless business.

b. We have a substantial amount of existing debt which could restrict our financing and operating flexibility and have other adverse consequences.

c. We may be unable to obtain sufficient financing for our capital expenditures.

74

d. The Philippine telecommunications industry is highly competitive. Competition may lead to a reduction in our revenues and an increase in our capital expenditures.

e. Rapid changes in telecommunications technology may adversely affect the economics of our existing businesses and the value of our assets and create new competition.

f. Our business and profitability depend on the reliability and performance of our network infrastructure.

g. We are controlled by two major shareholders and these shareholders have had and are expected to continue to have a significant influence on our success, but are not required to provide equity or financial support in the future. They may also engage in businesses similar to ours.

h. Limits on foreign ownership of our capital stock may restrict our access to sources of equity capital.

i. The occurrence of natural catastrophes may materially disrupt our operations. j. If new billing requirements issued by the NTC are implemented in their current

form, we could suffer significant adverse financial effects (Please see Item 3: Legal Proceedings).

k. Political instability may affect our financial results. l. Future economic downturns could affect future growth of our business. m. The decline in the value of the Peso against the U.S. dollar increases many of our

costs. n. Our business is significantly affected by the development of regulation and the

discretion of regulators. 5. Seasonal Aspects that have a material effect on the FS – None.

75

Results of Operations

(3) Year Ended 31 December 2003 Compared with Year Ended 31 December 2002 Net Operating Revenues by Line of Business Year Ended December 31 2003 2002 (1) (In Millions of Pesos) Net operating revenues from: Wireless service revenues (2) .................................................... P 42,594 P35,185 Voice service revenues.................................................... 27,821 22,611 Data service revenues...................................................... 14,773 12,574Wireline voice service revenues............................................... 3,469 3,470Wireline data service revenues ................................................ 1,472 1,104Net Service revenues(3) 47,535 39,759Non service revenues(3) 1,943 6,041 Net operating revenues ................................................. P49,478 P45,800 _________________________________________________ (1) Prior years figures’ were restated to conform to the new composition of Globe’s reportable segment. (See Note 2 of our

Consolidated Financial Statements) (2) Prior period figures have been restated as a result of reclassification of bonus credits and marketing promotions credited to

subscriber billings. (3) Effective June 2003, service revenues were restated net of prepaid call card discounts. Prepaid call card discounts were

previously deducted from non-service revenues. Prior years service and non-service revenues were restated for comparative purposes only.

Our wireless service revenues accounted for 90% of our net operating service revenues of P47,535 million in 2003 while the remaining 10% was contributed by our wireline business. Our net service revenues increased by 20% during the period from P39,759 million in 2002 to P47,535 million in 2003 while net operating revenues grew by 8% to P49,478 million. We report operating revenues on a net basis, which consist of gross operating revenues less domestic interconnection charges, international settlement payouts, call card discounts, bonus credits and marketing promotions credited to subscriber billings. Gross operating revenues consist of gross service and non-service revenues from all communications services, including interconnection revenues. Domestically, we pay interconnection charges to other carriers for calls terminating to their networks and hauling charges for calls that pass through other networks to the terminating network. These charges are based on a negotiated price per minute. Internationally, we make payouts in connection with our outbound international calls. These rates are driven by pricing pressures and trends in the international long distance market. Net service revenues for the Wireless and Wireline businesses include monthly service fees, applicable installation charges, airtime fees from local, national and international long distance, and international roaming services, and revenues from value-added services. Effective June 2003, service revenues were stated net of prepaid call card discounts to dealers for volume purchases. Prepaid call card discounts were previously deducted from non-service revenues. Non-service revenues include proceeds from the sale of handsets, phonekits, accessories, and SIM packs. The related revenue on call card sales is recognized upon usage. On 01 August 2002, Globe introduced a new promotional scheme for prepaid sales (covering Globe Prepaid Plus and Touch Mobile) to its dealers. Instead of providing promotional prepaid call cards with the sale of a phone kit, Globe discounted its selling price to its dealers. (See related discussion on Wireless Services – Prepaid section)

76

We registered non-service revenues of P1,943 million for 2003 compared to the P6,041 million in 2002 due to lower phonekit sales and higher handset subsidies for the period. Service and non-service revenues for 2002 have been restated to account for the new application of prepaid call card discounts. Non-service revenues continue to be reported net of discount on phonekits. (See related discussion in Wireless Services – Prepaid section) The interconnection expenses we paid as a percentage of gross service revenues increased to 20% for 2003 from 19% in 2002. Starting 01 January 2003, Globe redefined the role of its Carrier business from a Strategic Business Unit with Profit and Loss accountability to a Support Group to our Wireless and Wireline Voice businesses. International Long Distance (ILD) and National Long Distance (NLD) service revenues, previously reported under the Carrier business but attributable to the Wireless and Wireline Voice businesses, are now reported under the income statements of the respective businesses. The segment reporting for 2002 was restated accordingly. As part of domestic interconnection agreements concluded in 2002, effective 01 January 2004, domestic calls terminating to Globe’s CMTS network will be charged a termination rate of P4.00 per minute (from P4.50 per minute in 2003) while calls terminating to a wireline voice network will be charged a termination rate of P3.00 per minute (from P2.50 per minute in 2003). On 30 September 2003, the transfer of Globe’s wireline voice and data business to Innove became effective. In this report therefore, effective 01 October 2003, all wireline business reporting is made under Innove. (See related discussion in Wireline Services section) Wireless Services Wireless voice revenues for 2003 totaled P27,821 million compared to P22,611 million in 2002 while wireless data revenues increased by 17% to P14,773 million in 2003 on account of the 35% increase in wireless subscribers and their corresponding usage of voice and data services. Wireless Services - Postpaid

Globe offers postpaid services through its brand Globe Handyphone. Globe registered 685,026 postpaid subscribers as of 31 December 2003 compared to 518,900 subscribers in 2002. Net postpaid additions for 2003 totaled 166,126 compared to 60,425 in 2002. Despite higher net additions in 2003, the net ARPU per Globe postpaid wireless subscriber remained relatively flat at P=1,637 in 2003 compared to P=1,648 in 2002. Net ARPU is computed by dividing recurring wireless postpaid net operating service revenues for the period (net of interconnection charges to external carriers) by the average number of postpaid wireless subscribers and then dividing the quotient by the number of months in the period. Globe’s postpaid ARPU on a gross basis averaged P=2,173 for 2003 from P=2,159 in the same period in 2002. Gross ARPU is computed by dividing recurring wireless postpaid gross service revenues for the period by the average number of postpaid wireless subscribers and then dividing the quotient by the number of months in the period. Globe’s postpaid acquisition cost per subscriber rose by 190% to P=9,834 for 2003 compared to P=3,396 in 2002. For the year 2003, handset and Subscriber Identification Module (SIM) subsidies accounted for 94% of acquisition cost while commissions and advertising/promotional expenses

77

made up the balance of 6%. In 2002, handset and SIM subsidies accounted for 75%, commissions 8% and advertising expenses 17%. Handset and SIM subsidies for 2003 increased due to an aggressive campaign to acquire new postpaid subscribers.

The average monthly churn rate for Globe’s postpaid subscribers is defined as total disconnections net of reconnections divided by the average postpaid subscribers, divided by the number of months in the period. Globe’s postpaid churn rate averaged 2.7% per month for 2003, compared to the 2.4% reported in 2002. For postpaid subscribers, permanent disconnections are made after a series of collection steps following non-payment. Such permanent disconnections generally occur within 90 days from statement date. Wireless Services - Prepaid Globe Prepaid Plus

Growth in Globe Prepaid Plus’ subscriber base in 2003 reached 1,472,513 net additions compared to 1,192,499 in 2002. Globe Prepaid Plus’ subscriber base totaled 6,673,013 as of 31 December 2003 compared to 5,200,500 in 2002. The average monthly churn rate for Globe Prepaid Plus subscribers reached 3.3% for 2003 from 2.3% in 2002. The net ARPU for Globe Prepaid Plus registered a year-on-year decrease of 10% to P=389 in 2003 from P=432 in 2002 due to lower voice and data usage. Net ARPU is computed by dividing recurring wireless prepaid net operating service revenues for the period (net of discounts and interconnection charges to external carriers) by the average number of prepaid wireless subscribers and then dividing the quotient by the number of months in the period. Globe’s prepaid gross ARPU averaged P=512 for 2003 compared to P=576 in 2002. Gross ARPU is computed by dividing recurring wireless prepaid gross service revenues for the period by the average number of prepaid wireless subscribers and then dividing the quotient by the number of months in the period.

Acquisition cost for Globe Prepaid Plus increased by 29% to P=291 for 2003 from P=225 in 2002 due mainly to higher handset subsidies. For 2003, commissions contributed only 1%, with handset and SIM subsidies accounting for 58% and advertising costs comprising the balance of 41%. In 2002, commissions contributed 16%, handset and SIM subsidies accounted for 16%, while advertising costs comprised the balance of 68%. Globe Prepaid Plus subscribers can reload airtime value or credits, which can be purchased from Globe’s centers and dealers, or purchased electronically from designated merchants, automated teller machines, and reloading facilities. Prepaid cards are also sold in denominations ranging from P=100 to P=1,000. The P=100 call and text card has a 15-day expiration period after which the subscriber has another 60 days to receive incoming calls and text messages. The other denominations carry a 60-day expiry after which the subscriber has the ability to receive incoming calls and text messages for another 120 days.

In 2003, Globe began the implementation of several Churn Management initiatives:

! On June and July 2003, the Company launched its P=100 call and text card for Globe Handyphone Prepaid Plus and the P=50 and P=100 call and text cards for Touch Mobile.

78

Globe Handyphone Prepaid Plus’ P=100 call and text card has a first and second expiry of 15 and 60 days, respectively while Touch Mobile’s P=50 and P=100 call and text card carry a first expiry of 7 and 15 days, respectively. If a Touch Mobile subscriber fails to reload after the first expiry period, the subscriber will be barred from making outgoing calls. However, the Touch Mobile subscriber may continue to receive incoming text and calls for 30 and 60 days after the termination of the ability to make outgoing calls and text messages, respectively.

! To promote the introduction of new lower denominated call cards, the Company credited

P50 to the accounts of selected prepaid subscribers who were nearing their second expiry. The objective of this program was to encourage prepaid subscribers who were about to enter their second expiry period to consider keeping their outbound voice and text capabilities using the more affordable lower denominated call cards. This program was again utilized in conjunction with the introduction of several new reload channels and denomination in the second half of 2003.

! Touch Mobile launched last September 30, 2003 its electronic over-the-air (OTA)

reloading service TM Family AutoLoad that allows subscribers to purchase selected prepaid credits at a discount and share these with other Touch Mobile subscribers. Touch Mobile OTA prepaid credits are available in P=25, P=50 and P=100 denominations. Touch Mobile call cards are also sold in denominations ranging from P=50 to P=500 and can be purchased from Globe business centers and dealers, or purchased electronically from designated merchants, automated teller machines and reloading facilities.

! Last November 7, 2003, Globe launched Globe AutoLoad Max, an OTA reloading

service that allows retailers all over the country to automatically reload credits to prepaid subscribers. Globe Prepaid Plus OTA credits are available in P=50 and P=100 denominations. As of 31 December 2003, Globe had over 130,000 outlets for its OTA reloading service.

! On January 17, 2004, Globe launched its ‘Share a Load’ service for its Globe postpaid

and Globe Handyphone Prepaid and Touch Mobile subscribers. This service enables subscribers to send load credits, via SMS, between Globe postpaid to prepaid subscribers and among prepaid subscribers (for both Globe Handyphone Prepaid and Touch Mobile subscribers). Load credits are available in various denominations ranging from P5 to P500.

Touch Mobile Innove’s Touch Mobile subscribers totaled 1,501,844 subscribers as of 31 December 2003 compared to 852,785 subscribers in 2002. The net ARPU for Touch Mobile for 2003 was P=218, while gross ARPU was P=296. In 2002, Touch Mobile had a net ARPU of P=274 and a gross ARPU of P=373. Acquisition cost per Touch Mobile subscriber was at P=185 for 2003 compared to P=277 in 2002. Of the total acquisition cost during the period, handset and SIM subsidies accounted for 46%, while commissions and advertising costs made up the balance of 54%. In 2002, handset and SIM subsidies accounted for 24%, while commissions added 5% and advertising costs made up the balance of 71%.

79

The average monthly churn rate for Touch Mobile registered at 6.7% for 2003 against 2.7% in 2002. Consolidated prepaid subscribers totaled 8,174,857 as of 31 December 2003 compared to 6,053,285 in 2002 or a 35% increase from the same period last year. Globe offers prepaid services through its Globe Prepaid Plus brand, while Innove offers prepaid services through its Touch Mobile brand. A prepaid subscriber becomes active when the subscriber purchases a SIM card and uses it for the first time. When a prepaid subscriber loads airtime value into Globe’s system, the subscriber has between 5 and 60 days, depending on the reload denomination, to use the value credited before the value of the prepaid account expires. When the reload value expires and the subscriber does not reload, the subscriber retains the use of the wireless number to receive incoming text and calls ranging from 30 to 120 days depending on the reload denomination used. However, if the subscriber still does not reload value within that time, the subscriber loses the wireless number and the account will be permanently disconnected. At that point, the subscriber is then considered part of churn. Prior to 01 August 2002, revenues from prepaid cards were recorded net of the related value of call cards given as promotional items to dealers. Promotional prepaid call cards were given to dealers upon purchase of phonekits for resale to subscribers. Starting 01 August 2002, Globe discounted the selling prices of its phonekits instead of providing promotional call cards to its dealers. While subscriber usage of promotional call cards was not included in revenues, payments to other carriers arising from the usage of promotional call cards were recorded as part of total interconnection fees to other carriers. Proceeds from the sale of prepaid cards are initially recognized by Globe as unearned revenues and are shown under the liabilities section of the balance sheet since the service has not yet been rendered. Revenue is realized upon actual usage of the airtime value of the prepaid card or expiration of the unused value of the prepaid card net of free service allocation, whichever comes earlier. Prepaid call card discounts which were given to dealers for volume purchases, were shown as reductions in wireless non-service revenues. Effective June 2003, service revenues have been stated net of prepaid call card discounts to dealers for volume purchases. These were previously deducted from non-service revenues. Service and non-service revenues for 2002 have been restated for comparative purposes only. Wireline Services On 21 August 2003, the Securities and Exchange Commission (‘SEC’) approved the change in name of Globe’s 100% wholly-owned subsidiary, Islacom to Innove Communications, Inc. (‘Innove’). The change in name is part of Globe’s strategy to integrate all of its wireline services under Innove. Last 26 May 2003, Globe and Islacom filed a joint application with the NTC for authority to sell and transfer Globe’s wireline voice and wireline data services to Innove. In August 2003, the NTC approved the legal transfer of Globe’s wireline business authorizations, properties, assets and obligations to Innove. The National Telecommunications Commission (NTC) also approved the common usage, operations and maintenance of the network elements of both Globe and Innove to ensure the smooth transfer of its services and prevent disruptions in interconnection with other carriers during the transition. Pursuant to the approval granted by the NTC, the wireline business of Globe was integrated into Innove on 30 September 2003. Effective

80

01 October 2003, all wireline voice and data services were consolidated under Innove. Innove remains a wholly-owned subsidiary of Globe. Wireline Services – Voice Innove provides wireline voice communication services, including local, national long distance, international long distance and other value-added services, under the brand name Globelines. Innove provides wireline voice services in nine specific geographic areas in the Philippines, including parts of Metro Manila, the Calabarzon region and Central Mindanao and Visayas. Effective 01 October 2003, all wireline voice offerings under Globelines were consolidated under Innove.

As of 31 December 2003, Innove had total wireline voice subscribed lines of 261,254 of which 66% were postpaid and 34% were prepaid. This total represents a 17% increase from the 223,249 subscribed lines registered in the same period in 2002. Innove’s net wireline voice ARPU for 2003 was at P1,164 compared to P1,197 in 2002. Net ARPU is computed by dividing recurring wireline voice net operating service revenues for the period (net of discounts and interconnection charges to external carriers) by the average number of wireline voice subscribers and then dividing the quotient by the number of months in the period. The average monthly churn rate for Globelines was 1.6% for 2003 compared to 2.6% in 2002. Innove offers its prepaid landline services under the brand, Globelines Prepaid. Wireline Services – Data Innove offers nationwide wireline data, consisting of international and domestic leased lines, internet and other wholesale transport services, through the GlobeQuest brand. Wireline data net operating revenues, which consist of billings for these services increased by 33% to P=1,472 million for 2003 from P=1,104 million in 2002. The increase was due mainly to higher growth in the domestic lease and internet service businesses. Effective 01 October 2003, all wireline data offerings under GlobeQuest were consolidated under Innove. International Long Distance Services (ILD) Globe and Innove both offer ILD services. ILD services are offered between the Philippines and over 200 countries. This service generates revenues from both inbound and outbound international call traffic with pricing based on agreed international transit and termination rates for inbound traffic revenues and NTC-approved ILD rates for outbound traffic revenues.

On a consolidated basis, including contributions from the Wireless and Wireline services, ILD revenues stood at P=13,142 million for 2003, translating to 28% of consolidated net service revenues for 2003 compared to P=10,742 million and 27%, respectively, in 2002. National Long Distance Services (NLD) Globe and Innove both offer NLD services. Revenues from NLD services are generated from calls outside of a specific local area but within the Philippines.

81

Consolidated NLD revenues, from wireless and wireline services stood at P=2,030 million for 2003, or a decrease of 24% from P=2,666 million in 2002. Consolidated NLD revenues for 2003 amounted to 4% of consolidated net service revenues for the period compared to 7% in 2002. Both Globe and Innove offer Interexchange Carrier Services (IXC). Globe uses its Microwave Facilities called National Transmission Network (NTN) and the Nationwide Digital Transmission Network (NDTN or the Telicphil Facilities), while Innove uses its own backbone transmission network for hauling national and international interconnection traffic among wireless and wireline operators in the Philippines. Globe also has a Fiber Optic Backbone Network (FOBN) which supports its wireless, wireline voice and data, ILD, and NLD requirements. It is a combination of submarine and land fiber systems with an estimated fiber optic length of 1,300 kilometers. The Makati to Cebu portion of the FOBN, commissioned last June 2003, is now carrying live traffic while the Cebu to Iligan portion was completed last July 2003. To date, the FOBN carries traffic for both Globe and Innove offered services. Costs and Expenses Globe Consolidated

For the year ended 31 December (in millions of pesos) 2003 2002 YoY change (%) Cost of Sales……………………………………………………… 6,214 6,679 -7 Staff Costs ………………………………………………………… 2,471 2,349 5 Selling, Advertising and Promotions 1 …………………………… 3,119 2,070 51 Repairs and Maintenance………………………... ………………… 1,779 1,480 20 Services and Others……………………………………………… 3,388 2,104 61 Rent………………………………………………………………… 1,604 2,057 -22 Utilities, Supplies & Other Administrative Expenses…………… 1,546 1,277 21 Entertainment, Amusement & Representation ………………… 10 32 -69 Total Operating Costs and Expenses………. ……………… 20,131 18,048 12 Depreciation and Amortization 2 ……………….……………… 12,161 10,888 12 Provisions for Doubtful Accounts ……………………………… 941 452 108 Provisions (Recovery of Allowance) for Inventory Losses,

Obsolescence and Market Decline…………………………

15

(20)

-175 Losses on Property and Equipment and Provisions for Other Probable Losses ……………………………………………

538

616

-13

Total Costs and Expenses………………….. ……………… 33,786 29,984 13 _____________________________________________________________

1 Prior period figures have been restated as a result of reclassification of bonus credits and marketing promotions credited to subscriber billings.

2 Prior period figures have been restated as a result of the adoption of SFAS 38/IAS 38.(See related discussion at the end of the Results of Operations section and Note 8 of our Consolidated Financial Statements)

For 2003, Globe registered consolidated costs and expenses of P=33,786 million, which includes total operating costs and expenses of P=20,131 million.

Cost of Sales decreased by 7% in 2003 to P=6,214 million from P=6,679 million in 2002 due to lower handset sales in lieu of a marketing emphasis on the sale of SIM packs for 2003. Selling, Advertising and Promotions expenses increased by 51% to P=3,119 million for 2003 from P=2,070 million in 2002 due to the implementation of various marketing, acquisition and retention campaigns during the period.

Services and Other expenses increased by 61% for 2003 due to higher charges from external service consultants and wireless project expenses. Repairs and Maintenance expenses also grew 20% year-on-year due to higher operating and preventive maintenance charges. The 21% increase in Utilities, Supplies and Other

82

Administrative expenses was due to higher charges on electricity and purchases of promotional and office supplies. Meanwhile, rent expenses decreased by 22% due to cost savings as a result of the operational integration of Globe and Innove’s wireless networks. Depreciation and amortization on a consolidated basis amounted to P=12,161 million for 2003 compared to the P=10,888 million in 2002. The increase reflected additional depreciation charges related to various telecommunications equipment placed in service during the period. Depreciation is computed using the straight-line method over the estimated useful life of the assets. The weighted estimated useful life of all assets, as of 31 December 2003, is 10.7 years. In 2003 and 2002, as a result of periodic review of the estimated useful lives and depreciation methods applied to certain items of property and equipment, Globe prospectively revised the remaining useful lives of certain telecommunications equipment from an average of 3-20 years to 3-10 years in 2002, and certain equipment from 10 years to 3-5 years starting in 2003. These changes have been accounted for as change in accounting estimates. The change in the remaining useful life of certain telecommunications equipment has increased the depreciation expense by P220 million or P1.48 on a per share basis and P1,148 million or P7.55 on a per share basis for the years ended December 31, 2003 and 2002, respectively. Provisions for trade receivables amounted to P1,165 million in 2003 compared to P692 million in 2002 due to higher provisions for postpaid accounts. Recovery of provision for doubtful accounts for traffic receivables reached P236 million compared P245 million in 2002 due to improved collection prospects of receivables from a local carrier. Other non-trade provisions amounted to P=12 million in 2003. As a result, provisions for doubtful accounts amounted to P=941 million for 2003, versus P=452 million in 2002. Net subscriber receivable days for 2003 was 48 compared to 50 in 2002. Globe maintains an allowance for doubtful accounts at a level considered adequate to provide for potential uncollectibility of its receivables. For subscriber receivables, an allowance is calculated using the policy of providing full allowance for receivables from permanently disconnected subscribers. Permanent disconnections are made after a series of collection steps following non-payment by wireless and wireline subscribers. Such permanent disconnections generally occur within 90 days from statement date. Full allowance is provided for wireless individual and business subscribers with outstanding receivables that are past due by 90 and 120 days, respectively. For wireline residential and business subscribers, full allowance is provided for outstanding receivables that are past due by 90 and 150 days, respectively. For traffic settlement receivables, a policy of providing full allowance is adopted for net international and national traffic settlement accounts that are not settled within 10 months from transaction date and after a review of the status of settlement with other carriers. Additional provisions are made for accounts specifically identified to be doubtful of collection. For the year ended 31 December 2003, Globe recognized provisions for inventory losses, obsolescence and market decline of P=15 million compared to a recovery of P=20 million for the same period in 2002. Inventories and supplies are stated at the lower of cost or net realizable value, with cost determined using the moving-average method. An allowance for market decline is provided equivalent to the excess of the cost over the net realizable value of inventories. When inventories are sold, the related allowance is reversed in the same period, with the appropriate sales (revenues) and cost of sales (expenses) recognition. An allowance is also provided for obsolescence and possible losses. Full obsolescence allowance is provided when the inventory is non-moving for more than a year. A 50% allowance is provided for slow-moving items.

83

Globe recognized total losses on property and equipment and other provisions for probable losses of P=538 million for the year ended 31 December 2003 compared to P=616 million in the same period in 2002. During the second quarter of 2003, Globe Telecom recognized a provision for probable losses amounting to P=110 million related to certain cable systems which have been deactivated due to technological obsolescence. In the fourth quarter of 2003, Globe recognized losses on fixed assets amounting to P=191 million that relate mostly to certain radio and SMS equipment which are no longer useable due to regulatory and technological factors. Consolidated EBITDA for 2003 was P=27,853 million compared to P=26,704 million in 2002. Consolidated EBITDA is defined as consolidated earnings before interest, taxes, depreciation and amortization and other income/expenses. Consolidated EBITDA margin for the period ended 31 December 2003 was 59% compared to 67% in 2002. EBITDA margin is computed on the basis of net service revenues. During the first half of 2003, Innove recognized full provisions for its 4.25% equity investment in C2C Holdings Pte. Ltd. (C2C Holdings) amounting to P=895 million. The provisions were made following the assessment by C2C Holdings of the estimated future cash flows expected from the continuing use of the cable network assets of C2C Pte. Ltd. (C2C) until the end of its economic useful life and after considering the increased potential risk to the restructuring of C2C’s debt. This considered an independent market study commissioned to revalidate the bandwidth market potential and its effect on C2C Holdings. As of 31 December 2003, the carrying value in the investment in C2C Holdings has been fully provided. C2C Holdings is the holding company for the equity investments of all the cable landing parties in C2C, the company that owns the C2C cable network. Details of consolidated Other Income/(Expenses) for the period ended 31 December 2003 and 2002 are as follows: Globe Consolidated

For the year ended 31 December (In millions of Pesos) 2003 2002 YoY change (%)

Interest Income ………………………………………… 757 459 65 Interest Expense ………………………………………… (4,506) (4,315) 4 Capitalized Interest Expense …………………………… 482 515 -6 Net Interest Income/(Expense)…………………………… (3,267) (3,341) - Swap Costs and Other Financing Charges……………… (1,818) (1,300) 40 Provision for Impairment in Value of Investments……… (907) - - Losses on Shutdown of CMTS Network arising from Wireless Business Integration……………………………

-

(2,197)

-

Reversal of Provision (Provision) for Restructuring Costs On Network Integration………………………………

113

(201)

-156

Equity in Net Income (Loss) of Investee Company……… (4) 1 500 Others – net ……………………………………………… 1,048 422 148 Sub-Total ………………………………………… (1,568) (3,275) 52 Total Other Income/(Expenses)…………………………… (4,835) (6,616) 27 The Globe Group posted total net interest expense of P=3,267 million and P=3,341 million for the periods ended 31 December 2003 and 2002, respectively. The increase in swap costs and other financing charges from 2002 to 2003 were due mainly to bond redemption costs incurred in 2003 arising from the partial redemption of the 2009. As of December 31, 2003, Innove’s accrual for restructuring costs related the wireless network integration amounted to P=19 million. As of December 31, 2003, Innove has substantially completed the equipment deinstallation activities as

84

well as lease pretermination which involved negotiations with the lessors. The related costs incurred were lower than the estimated costs provided for in 2002. Accordingly, the excess provision amounting to P=113 million was reversed in 2003. Other income or Others-net increased by 148% (on a year-on-year basis) primarily from lease income and service fees from C2C landing station, Innove’s reversal of long outstanding payables and net foreign exchange gain in 2003. Interest and other related financing charges on borrowed funds used to finance the acquisition of property and equipment to the extent incurred during the period of installation are capitalized as part of the cost of the property. The capitalization of these borrowing costs, as part of the cost of the property, (a) commences when the expenditures and borrowing costs being incurred during the installation and related activities necessary to prepare the property for its intended use are in progress; (b) is suspended during extended periods in which active development is interrupted; and (c) ceases when substantially all the activities necessary to prepare the property for its intended use are complete. These costs are amortized using the straight-line method over the estimated useful lives of the related property. Consolidated earnings before interest and taxes (EBIT) amounted to P=15,692 million for 2003 compared to P=15,816 million in 2002. For the period ended 31 December 2003, Globe’s provision for current and deferred income tax amounted to P=1,470 million or an effective income tax rate of 18% of net income before its share in Innove’s net income and before Globe’s income tax compared to P=2,118 million and 18% in 2002, respectively. The lower effective tax rate compared to the 32% statutory rate is due to the income tax relief provided by the three-year Income Tax Holiday (‘ITH’) incentive on Globe’s wireless expansion program (Phase 8 expansion) registered with the Board of Investments effective 01 April 2002. Only income from the Phase 8 expansion is entitled to the ITH. The availment of the ITH resulted in a reduction in provision for income tax of P1.5 billion. Also in 2003, a portion of Innove’s 2000 Net Operating Loss Carryover (‘NOLCO’) amounting to P3.7 billion was applied as tax deductions against taxable income. The tax effect of the application of NOLCO in 2003 amounted to P1.2 billion. Of the consolidated provision of P=512 million, provision for current income tax amounted to P=758 million. The benefit of P=246 million accounts for the differences in the tax and financial reporting bases of certain assets and liabilities. This includes the impact of the reversal of Innove’s valuation allowance of P=903 million as discussed in the succeeding paragraph but excludes the impact of the reversal of net deferred tax liabilities amounting to P=366 million attached to the wireline assets and liabilities transferred to Innove. The reversal was made against the “Investment in Innove” account consistent with the treatment of the transfer as a capital transaction between related parties. At the beginning of 2003, Innove had P=3 billion in deferred income tax assets which was 100% covered by a valuation allowance. Accounting standards require full valuation if realizability of the income tax benefit is doubtful. In the third quarter of 2003, P=755 million allowance was reversed as Innove was able to sustain a taxable income position thus far in 2003 which is expected to continue in the succeeding years. In the fourth quarter of 2003, a P=148 million allowance was additionally reversed on an expectation of taxable income position in future years. Innove’s taxable position will again be assessed in 2004 to determine if all or a portion of the allowance can be reversed. Consolidated net income increased by 62% year-on-year to P=11,240 million before provisions against Innove’s C2C equity investment. Including the stated provision, net income reached P=10,345 million, 50% higher than the P=6,918 million posted in 2002.

85

Accordingly, basic and diluted earnings per common share were P=68.79 and P=68.65, respectively, for 2003. In 2002, basic and diluted earnings per share were both at P=45.12. The increase in earnings per share was due to improved operating results for the year plus the accretion resulting from the company’s buyback of 12 million shares on 24 October 2003. (Please see related discussion in Capital Resources section) Basic earnings per share (EPS) is computed by dividing earnings applicable to common stock by the weighted average number of common shares outstanding during the period including fully-paid but unissued shares, if any, as of the end of the period after giving retroactive effect for any stock dividends, stock splits or reverse stock splits during the period. Diluted EPS is computed assuming that the stock options, rights and warrants are exercised and qualified convertible preferred shares are converted. Globe adopted SFAS 38/IAS 38 (as revised), “Intangible Assets” effective 01 January 2003. SFAS 38/IAS 38 prescribes the accounting and disclosure for intangible assets that are not specifically dealt with in other SFAS and expenditures on advertising, training, start-up and research, and development activities. As a result of the adoption, Globe charged its unamortized preoperating expenses as of 01 January 2003 to its beginning retained earnings. Previously, such expenses were deferred and amortized over ten years from the start of commercial operations of related business. The change in accounting policy has been accounted for retroactively and the comparative statements for 2002 have been restated in conformity with the benchmark treatment of a change in accounting policy. The change increased the net income both for the years ended 31 December 2002 and 2003 by P=74 million, net of related tax of P=31 million, representing amortization that would have been charged for these periods. Retained earnings as of 01 January 2003 have been reduced by P=242 million, net of related tax of P=105 million, consisting of unamortized preoperating expenses as of adoption date. Consequently, the change also increased basic earnings per share both for the years ended 31 December 2002 and 2003 by P=0.48 and P=0.49, net of related tax, respectively. Foreign Exchange Exposure The Philippine Peso closed at P=55.59 on 31 December 2003 from P=53.25 at 31 December 2002. As a result of the translation of these foreign currency-denominated assets and liabilities, Globe’s reported net foreign currency revaluation losses amounted to P1,234 million and P960 million for the years ended 31 December 2003 and 2002, respectively. The foreign exchange differentials arising from remeasurement of foreign currency-denominated accounts (other than those relating to the liabilities/borrowed funds attributed to financing capital projects and those covered by swap agreements) are charged to current operations. Globe Group’s foreign exchange gains credited to current operations amounted to P304 million and P57 million for the years ended December 31, 2003 and 2002, respectively. The consolidated foreign exchange differentials attributed to the remeasurement of foreign currency-denominated liabilities used to finance the acquisition and installation of Globe and Innove’s property and equipment consisted of foreign exchange losses amounting to P1,107 million and P464 million for the years ended December 31, 2003 and 2002, respectively. These foreign exchange differentials were added to or deducted from the cost of the appropriate property and equipment accounts. Globe’s foreign exchange losses arising from remeasurement of foreign currency-denominated liabilities/borrowed funds covered by currency swap contracts amounted to P431 million and P553 million for the years ended December 31, 2003 and 2002, respectively. These losses were offset by the translation gains from the related currency swaps.

86

Upon business combination with Innove in 2001, Globe recorded the new cost basis for Innove’s assets and liabilities arising from the allocation of the purchase price over the fair value of Innove’s net assets. The balance of foreign exchange losses amounting to P=3,895 million capitalized by Innove as part of property and equipment prior to the business combination and other fair market value adjustment amounting to P=434 million formed part of Globe’s new cost basis of Innove property and equipment as of 30 June 2001. As of 31 December 2003, the net book value of the capitalized foreign exchange losses and other fair value adjustment forming part of the new cost basis of Innove’s property and equipment amounted to P=2,512 million and P=232 million respectively.

SFAS 21/IAS 21, The Effects of Changes in Foreign Exchange Rates, provides certain restrictions in allowing the capitalization of foreign exchange differentials. SFAS 21/IAS 21 will become effective for financial statements covering periods beginning on or after January 1, 2005. Accordingly, Globe under these standards, will no longer be able to capitalize foreign exchange differentials effective 1 January 2005. On such date, any remaining balance of the capitalized foreign exchange differentials, net of the exchange losses that qualify as borrowing costs and income tax effect, will be adjusted retroactively against retained earnings and comparative consolidated financial statements will be restated. As of 31 December 2003, the net cumulative foreign exchange losses included in property and equipment amounted to P=5,476 million, net of accumulated depreciation of P=2,134 million. The estimated undepreciated foreign exchange losses that qualify as borrowing costs amounted to about P=614 million.

To mitigate foreign exchange risk, Globe enters into short-term foreign currency forwards and long-term foreign currency swap contracts. Short-term forward contracts are used to manage Globe Group’s foreign exchange exposure related to foreign currency-denominated monetary assets and liabilities. For certain long term foreign currency denominated loans, Globe enters into long term foreign currency swap contracts to manage its foreign exchange and interest rate exposures.

As of 31 December 2003, Globe had $341 million in outstanding foreign currency swap agreements, some of which have option features. As of 31 December 2003, Globe had outstanding $2 million short term deliverable currency forward contracts with option features. Globe also has outstanding interest rate swaps, under which it effectively swaps some of its floating rate U.S. dollar-denominated loans into fixed rate, with semi-annual payment intervals up to August 2007. The swaps had a total outstanding notional amount of $120 million as of 31 December 2003. Globe also has short-term floating to fixed interest rate swap contracts with total notional amount of P=580 million to manage its floating interest rate exposure on certain short-term peso investments. Under these contracts, Globe receives fixed interest rate and pays floating interest rate based on compounded overnight investment rate of the counterparty over a specified period of time. As of December 31, 2003, Globe had investments in US Dollar Linked Peso Notes (‘DLPN’) with face value totaling P=260 million maturing in November 2004 and December 2005. The Notes are issued by the Republic of the Philippines (ROP), denominated in Philippine Pesos, with coupon payments and redemption amounts adjusted for the appreciation or depreciation of the US dollar to the Philippine peso exchange rate. As such, the instrument behaves similarly to a US-dollar asset. Globe sold $5 million non-deliverable currency forward contracts to fix the Philippine peso cash flows from coupon and redemption of the DLPNs.

87

Globe and Innove have investments in U.S. Dollar Notes and Deposits (‘USD Notes and Deposits’) issued by a foreign financial institution with average maturities of September 2004 and June 2004 totalling $25 million. The interest rate of the USD Notes and Deposit is based on LIBOR plus spread payable semi-annually, with an early redemption feature triggered by specified credit events of the ROP. The credit events include: failure to pay, obligation acceleration, repudiation/moratorium/sovereign event and restructuring of the ROP’s reference obligations as defined in the agreements. If a credit event occurs during the applicable period, the Issuer may redeem the USD Notes and Deposit through delivery of the ROP reference obligations or its cash settlement amount, depending on specified criteria and agreed computations. For disclosure purposes, the estimated unrealized mark-to-market gain on the outstanding derivatives of Globe amounted to $16 million (P=903 million) based on the mark-to-market valuation as of 31 December 2003 provided by counterparty banks. Such unrealized mark-to-market gain or loss is not included in the determination of net income. The amount of US$ debt swapped into pesos and peso-denominated debt accounts for approximately 49% of consolidated loans as of 31 December 2003. Consolidated foreign currency linked revenues were 30% of total net revenues for the period ended December 31, 2003 versus 27% in 2002. Foreign currency linked revenues include those that are: (1) billed in foreign currency and settled in foreign currency, or (2) billed in Pesos at rates linked to a foreign currency tariff and settled in Pesos, (3) wireline monthly service fees and the corresponding application of the Currency Exchange Rate Adjustment or CERA mechanism, under which Globe has the ability to pass the effects of local currency depreciation to its subscribers. Liquidity and Capital Resources Consolidated assets as of December 31, 2003 amounted to P=140,130 million compared to P=138,220 million in 2002. As of December 31, 2003, current ratio on a consolidated basis was 0.97:1 compared to 1.26:1 in 2002. Consolidated cash, cash equivalents and short term investments was at P=15,004 million at the end of the year. Gross debt to equity ratio of 1.10:1 on a consolidated basis remains well within the 2:1 debt to equity limit dictated by certain debt covenants compared to the 1.15:1 level in 2002. The financial tests under Globe’s loan agreements include compliance with the following ratios:

• Total debt to equity not exceeding 2:1; • Total debt to EBITDA of 4:1 during the year 2002 and 3:1 thereafter; • Debt service coverage exceeding 1.3 times; and • Secured debt ratio not exceeding 0.2 times.

Consolidated cash flow from operations amounted to P=23,290 million for the period ended 31 December 2003 from P=22,982 million in 2002. Consolidated cash used in investing activities amounted to P=14,778 million for 2003 compared to P=22,636 million in 2002. Consolidated capital expenditures for 2003 amounted to P=15,814 million. With Globe’s core network in place, the focus of the network roll-out in 2004 will be to

88

enhance coverage and increase capacity in its target markets. For 2004, Globe has earmarked around $350 million for capital expenditures that will be spent primarily on expanding its wireless network and enhancing the necessary transmission facilities in areas where traffic is expected to surge. Of the $350 million budget, $260 million will be for new projects while the remainder relates to carry-over projects which we have started and have committed to in 2003 for completion in 2004. The 2004 capital expenditures program will be funded through internally-generated cash and debt financing in more or less equal proportion. Consolidated cash used in financing activities for 2003 amounted to P=14,433 million compared to P=10,865 million provided by financing activities in 2002. Consolidated total debt as of 31 December 2003 amounted to P=56,132 million. Loan repayments of Globe for 2003 amounted to P=10,397 million ($187 million). The average annual principal repayment of existing consolidated debt for the next three years is $155 million. As of 31 December 2003, Globe redeemed $45 million of the 2009 Senior Notes. Below is the schedule of debt maturities for Globe for the years stated below based on total debt as of 31 December 2003:

Year Due Principal ($ millions) 2004 …………………………………………………………… 162 2005 …………………………………………………………… 144 2006 …………………………………………………………… 158 2007 …………………………………………………………… 108 2008 through 2012 …………………………………………… 438 Total 1,010

Stockholders’ equity was P=50,854 million as of 31 December 2003. Last 16 October 2003, Globe approved the purchase of 12 million common shares from DeTeAsia at P680 per share for a total of P8.19 billion. This purchase is equivalent to 7.9% of Globe’s total outstanding common shares. DeTeAsia’s offer to sell all or part of its 37.7 million shares had earlier been accepted by Ayala and STI. Ayala and STI then gave Globe an option to participate in the transaction by buying back a portion of the shares of DeTeAsia. The proposal was evaluated and approved by the Special Committee, organized by the Board of Directors for this purpose, which was made up of three directors who are not executives of Ayala, Singtel or DT, DeTeAsia’s parent. The Special Committee approved the Company’s participation on the basis that the transaction will facilitate improved shareholder returns and result in a more optimum capital structure. Globe’s participation in the form of a buyback provided earnings per share accretion resulting from the distribution of earnings over the reduced number of outstanding shares. This buyback of shares and the related earnings per share accretion is expected to benefit all shareholders by providing support for Globe’s share price while still keeping the Company’s financial leverage at comfortable levels. On October 21, 2003, Globe disclosed to the Philippine SEC that it had signed a definitive agreement to purchase Twelve Million (12,000,000) shares of the common stock of Globe Telecom from DeTeAsia at a price of Pesos Six Hundred Eighty (P680) per share. Globe closed its purchase of common shares from DeTeAsia last October 24, 2003. With Globe’s decision to participate, the DeTeAsia shares were sold as follows: Ayala at 10.04 million shares, STI with 15.64 million shares and Globe with 12 million shares. On November 12, 2003, Ayala and Singtel each sold 3.75 million common shares at P=765 a share though a transaction on the Philippine Stock Exchange. After the transaction, both Ayala

89

(including shares owned by a subsidiary where it has full voting power) and Singtel each owned 40% of Globe. Subsequently, free float increased from 14.5% to 20%. As of December 31, 2003, Globe’s capital stock consists of:

1. Preferred stock Series “A” at a par value of P5 per share of which 158.5 million are outstanding out of a total authorized of 250 million shares. Preferred stock “Series A” has the following features: a. Convertible to one common share after 10 years from issue date at a price which

shall not be less than the prevailing market price of the common stock less the par value of the preferred shares;

b. Cumulative and non-participating; c. Floating rate dividend (set at MART 1 plus 2% average for a 12-month period); d. Issued at P=5 par; e. With Voting rights; f. Globe has the right to redeem the preferred shares at par plus accrued dividends at

any time after 5 years from date of issuance; and g. Preferences as to dividend in the event of liquidation.

In 2003 and 2002, the BOD of Globe approved the declaration of dividends amounting to P=68 million and P=64 million, respectively, payable to preferred stock “Series A” shareholders. Globe fully paid its remaining dividends payable of P=109 million as of 31 December 2002 including dividends declared in 2001 amounting to P=44 million net of P=3 million paid in 2002 to its preferred shareholders.

2. Common shares at a par value of P=50 per share of which 139.9 million are issued and

outstanding out of a total authorized of 200 million shares. The 12 million shares acquired from DeTeAsia are considered treasury shares and are treated as issued but not outstanding. Globe has no plans to reissue these shares. On 06 May 2003, Globe paid a cash dividend of P=2.13 billion or P=14 per share to all common shareholders as of record date 21 April 2003. Payment date for the cash dividend was 6 May 2003. Last 29 January 2002, the BOD of Globe approved the declaration of a 25% stock dividend for common shareholders as of record date 30 April 2002. The stock dividends declaration was approved by Globe Telecom shareholders on 11 April 2002 and approved by the Philippine SEC in June 2002. A total of 30,379,672 additional common shares were issued in June 2002 as payment for the said stock dividends. The stock dividends were issued at par out of additional-paid-in-capital.

Consolidated Return on Average Equity (ROE) for the period ended 31 December 2003 stood at 20%. Corporate Developments (2003) Globe is an intervenor in and Innove (formerly Isla Communications Co., Inc.) is a party to Civil Case No. Q-00-42221 entitled "Isla Communications Co., Inc. et. al., versus National Telecommunications Commission et. al.," before the RTC of Quezon City by virtue of which Globe and Innove, together with other cellular operators, sought and obtained a preliminary injunction against the implementation of NTC Memorandum Circular No. 13-6-2000. NTC Memorandum Circular 13-6-2000 sought, among others, to extend the expiration period of

90

prepaid cards to two years. The NTC appealed the issuance of the injunction to the Court of Appeals (‘CA’). On 25 October 2001, Globe and Innove received a copy of the decision of the CA ordering the dismissal of the case before the RTC for lack of jurisdiction, but without prejudice to the cellular companies' seeking relief before the NTC which the CA claims had jurisdiction over the matter. Globe subsequently filed a Petition for Review with the Supreme Court (‘SC’) seeking to reverse the decision of the CA. After initially denying the petition, the SC on 2 September 2003, overturned the CA’s earlier dismissal of the petitions filed by SMART and Globe. In its 13-page decision, the SC said that the Quezon City trial court could hear and decide the case, contrary to NTC’s argument. The SC has also since denied the NTC’s motion for reconsideration. We are currently awaiting the resumption of proceedings before the RTC of Quezon City. In the event, however, that Globe is not eventually sustained in its position and NTC Memorandum Circular No. 13-6-2000 is implemented in its current form the Company would probably incur additional costs for carrying and maintaining prepaid subscribers in its network. On 7 February 2003, U.S. carriers, AT&T and MCI filed a petition before the U.S. FCC seeking a stop-payment order on settlements to the Philippine carriers on the ground that Philippine carriers were “whipsawing” AT&T and MCI into agreeing to an increase in termination rates to the Philippines. Whipsawing occurs when a foreign monopoly supplier uses its market power to negotiate a more favorable agreement from one US carrier and extract the same terms from other US carriers. On 10 March 2003 the Chief International Bureau of the U.S. FCC issued an order suspending all settlement payments of U.S. facilities-based carriers to a number of Philippine carriers, including Globe Telecom, until such time as the U.S. FCC issues a Public Notice stating otherwise. This Order had the effect of preventing U.S. facilities-based carriers such as AT&T from paying the affected Philippine carriers for switched voice services, whether rendered before or after the date of the Order. In response, the Philippine NTC issued an Order last 12 March 2003 ordering Philippine carriers not to accept traffic from US carriers who do not pay for services rendered and to take all steps necessary to collect payment for services rendered. On 10 April 2003, Globe filed a Petition for Review with the US FCC seeking to lift the Order of the International Bureau. Globe in a public statement, reassured its customers of voice services that calls to and from the United States will be completed and will not be hampered by the ongoing dispute or the stop payment order issued by the U.S. FCC. Traffic to and from the U.S. passes through a number of routes aside from direct circuits with U.S. carriers. AT&T itself has admitted in its filings before the U.S. FCC that it found alternate routes for its Philippines-terminating traffic. Traffic passing through leased lines, such as those of call centers, were unaffected by the ongoing dispute which relates to termination rates for public switched voice services. On 17 October 2003, the NTC issued a Memorandum Order ordering all Philippine carriers to immediately accept terminating traffic via direct circuits from US facilities-based carriers on mutually acceptable final or interim termination rates and on terms and conditions agreed upon by the parties. In November 2003, Globe announced the conclusion of commercial arrangements with MCI and Sprint. On 9 January 2004, Globe reached an interim termination rate agreement with AT&T for US-Philippine traffic. As of 31 December 2003, Globe had net traffic settlement receivables of $7 million from US carriers. On 26 January 2004 the US FCC lifted its stop-payment order against Globe following confirmation by US carriers that service with Globe had been normalized. U.S. carriers are now required to resume payments for termination services. On 10 and 11 January 2004, the US DOJ served subpoenas on several Philippine telecommunications executives, including two Globe managers and the Innove CEO, requiring them to appear before a grand jury investigation in Hawaii. The purpose of the grand jury investigation is to determine if there were any violations of US laws arising out of the conduct of

91

Philippine carriers in relation to their termination rates dispute with US carriers. The outcome of the investigation cannot be determined at this time. On 7 January 2004, Globe announced that the Securities and Exchange Commission (SEC) had favorably considered the Company’s application to issue P2.7 billion retail bonds with five-year maturity. On 19 September 2003, Globe Telecom signed an agreement with Nordeutsche Landesbank Girozentrale, Singapore Branch, for a $50 million Term Loan Facility. The loan was arranged by Credit Lyonais, DBS and HSBC. Globe has expressed its intention to exercise its call option on its 2009 Senior Notes in August 2004. The $50 million loan facility arranged in September 2003 and the proceeds from the P3.0 billion retail bond (increased from P2.7 billion and registered with the Philippine SEC in February 2004) offering will be used to refinance the Company’s indebtedness maturing over the near term. On 12 January 2004, Singapore Telecommunications Limited (SingTel) announced that SingTel and its 59.5%-owned subsidiary C2C Pte Ltd have reached an agreement in-principle with C2C’s banking syndicate (the “Lenders”) regarding the main commercial terms and conditions of a consensual restructuring of C2C’s $650 million senior secured credit facility. The terms and conditions of the restructuring have been set out in a Memorandum of Understanding executed by the parties. Closing of the restructuring is conditional upon, inter alia, finalization of satisfactory documentation.

On 28 January 2004, Moody’s Investors Service affirmed Globe’s senior implied and senior unsecured ratings at Ba2, but changed the outlook to negative from positive. The outlook change reflects Moody’s decision to downgrade the Philippine Government’s long-term foreign currency bond rating to Ba2 with a negative outlook. On 29 January 2004, the BOD of Globe approved a new Dividend policy and declared the first semi-annual cash dividend in 2004 of P18 per common share with a record date of 18 February 2004 and payment date of 15 March 2004. The BOD adopted a policy to declare cash dividends to its common shareholders on a regular basis as may be determined by the BOD from time to time. Given the improvements in net income and cash flows of Globe’s operations over the last few years, the BOD has set a dividend payout rate of approximately 50% of prior year’s net income payable semi-annually in March and in September of each year. This will be reviewed annually taking into account the Company’s operating results, cash flows, debt covenants, capital expenditure levels and liquidity. Material Variances Affecting the Balance Sheet

a.) Cash and Cash equivalents – Decreased by 31% or P5.92 billion primarily due to purchase of 12 million treasury stocks from De TeAsia Holding GmbH for a total consideration of P8.19 billion including incidental costs associated with the acquisition offset by proceeds from matured short-term investments of P2.03 billion.

b.) Short-term investment – Termination of various investments mainly for the purchase of treasury stocks as discussed above.

c.) Net receivables – Increased by 41% partly due to increase in termination rates and volume of traffic transactions and additional postpaid subscribers during the year.

d.) Inventories and Supplies - Net – Increased by 61% due to higher handsets and accessories purchased over units sold.

e.) Deferred Income Tax Asset – Increase of 151% or P1.47 billion is brought by Innove’s reversal of allowance for deferred tax assets. The reversal of allowance of P904 million was based on management’s assessment of realizability of deferred tax assets. Such assessment was based on positive results of operations in 2003, as well as anticipation of

92

sustained profitability in foreseeable future. In addition, deferred tax assets also increased due to an incidence of higher unearned revenues and advances already subjected to income tax as a result of proposed tax regulation requiring the taxation of prepaid card sales and SIM packs at point of sale.

f.) Prepayments and Other Current Assets – Decreased by 31% due to higher output VAT balance in December 2003 offset against input VAT balance in December 2003 compared to last year.

g.) Deferred Charges and Others - net – Increased by 22% due to increase in revaluation of foreign currency swaps and unamortized forward premiums.

h.) Miscellaneous deposit and investments – Decreased primarily due to Innove’s full provision for its equity investment in C2C Holdings amounting to P896 million (as discussed in Costs and Expenses section).

i.) Accounts payable and accrued expenses – Increase is largely attributed to higher unpaid outbound charging resulting from increase in volume of outbound calls as the number of subscribers continues to grow.

j.) Unearned revenues – Increased by 12% due to higher sales of prepaid card and introduction of over-the air reloading service during the year.

k.) Long term debt – Declined due to partial redemption of 2009 Senior Notes and payments of suppliers credit.

l.) Deferred Income Tax Liability – Increased by 30% due to increase in deferred income tax liabilities related to capitalized borrowing costs already claimed as deduction for tax purposes and excess of accumulated depreciation of certain equipment for tax purposes compared to financial reporting.

Trend Information Risk Factors The following summary of our risk factors may contribute to increasing or decreasing our liquidity:

a. We derive most of our revenues from our wireless business and hence, are dependent on the growth of our wireless business.

b. We have a substantial amount of existing debt which could restrict our financing and operating flexibility and have other adverse consequences.

c. We may be unable to obtain sufficient financing for our capital expenditures. d. The Philippine telecommunications industry is highly competitive. Competition may lead

to a reduction in our revenues and an increase in our capital expenditures. e. Rapid changes in telecommunications technology may adversely affect the economics of

our existing businesses and the value of our assets and create new competition. f. Our business and profitability depend on the reliability and performance of our network

infrastructure. g. We are controlled by two major shareholders and these shareholders have had and are

expected to continue to have a significant influence on our success, but are not required to provide equity or financial support in the future. They may also engage in businesses similar to ours.

h. Limits on foreign ownership of our capital stock may restrict our access to sources of equity capital.

i. The occurrence of natural catastrophes may materially disrupt our operations. j. If new billing requirements issued by the NTC are implemented in their current form, we

could suffer significant adverse financial effects (Please see Item 3: Legal Proceedings).

93

k. Political instability may affect our financial results. l. Future economic downturns could affect future growth of our business. m. The decline in the value of the Peso against the U.S. dollar increases many of our costs. n. Our business is significantly affected by the development of regulation and the discretion

of regulators. Item 7. Supplementary Schedules (See Index to Exhibits for details) Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.

94

PART IV-MANAGEMENT AND CERTAIN SECURITY HOLDERS

Item 9. Directors and Key Officers of the Registrant (including their business experience for the past five years) Members of the Board of Directors as of 31 December 2004

Office Name Age Term of Office Chairman Jaime Augusto Zobel de Ayala II 45 1997-2004 Co-Vice Chairman Delfin L. Lazaro 59 1997-2004 Co-Vice Chairman Lim Chuan Poh 50 2001-2004 Director Fernando Zobel de Ayala 44 1995-2004 Director & President Gerardo C. Ablaza, Jr. 51 1997-2004 Director Romeo Bernardo1 50 2001-2004 Director Lucas Chow 51 1999-2004 Director Roberto F. de Ocampo 59 2003-2004 Director Xavier P. Loinaz 61 2001-2004 Director Guillermo Luchangco1 63 2001-2004 Director Jesus P. Tambunting 67 2002-2004 _____________________________________________

1Independent Directors Our Current Directors are: Jaime Augusto Zobel de Ayala II. Mr. Zobel, 45, has served as Chairman of the Board since 1997 (and has been a Director since 1989). He also serves as Co-Vice Chairman and President and CEO of Ayala Corporation, Vice Chairman of Ayala Land, Inc. and Chairman of the Bank of the Philippine Islands. He also serves on the International Advisory Committees of the New York Stock Exchange, J.P. Morgan Chase, Mitsubishi Corporation and Toshiba Corporation and is currently a Director of the International Youth Foundation and the World Wildlife Fund (U.S.). Delfin L. Lazaro. Mr. Lazaro, 59, has served as Director since January 1997. He is currently Chairman of the Executive Committee of Globe. He is also Treasurer and a member of the Management Committee of the Ayala Corporation. His other significant positions include: President of Azalea Technology Investments; Member of the Board of Directors of Ayala Land, Inc. (ALI). Also, Mr. Lazaro was formerly the President of Globe Telecom, Inc. and the President and CEO of Benguet Corporation and Secretary of the Department of Energy of the Philippine government. He was named Management Man of the Year 1999 by the Management Association of the Philippines for his contribution to the conceptualization and implementation of the Philippine Energy Development Plan and to the passage of the law creating the Department of Energy. He was also cited for stabilizing the power situation that helped the country achieve successively high growth levels up to the Asian crisis in 1997. In addition, Mr. Lazaro was chosen for his role in turning Globe Telecom around during a difficult economic period. Lim Chuan Poh. Mr. Lim, 50, has served as Director since 2001. He is the Executive Vice President of the Corporate Business Group of Singapore Telecom, serving corporate customers. In addition, the Corporate Business Group handles a 100%-owned subsidiary company known as SingTel Aeradio Pte Ltd whose main focus is providing aeronautical and land transportation communications needs and system integration requirements. Prior to joining Singapore Telecom in 1998, he was Deputy Secretary of the Ministry of Communications. He also served in

95

different senior appointments in the Ministry of the Environment, the Telecommunication Authority of Singapore and the Ministry of Communications. Gerardo C. Ablaza, Jr. Mr. Ablaza, 51, has served as Director since 1998. He is currently the President and Chief Executive Officer of Globe and Chairman of Innove Communications, Inc. He is currently a Senior Managing Director of Ayala Corporation. He is also member of the Board of Directors of BPI, BPI Family Bank and Azalea Technology Investment, Inc. Romeo L. Bernardo. Mr. Bernardo, 50, has served as Director since 2001. He is currently the president of Lazaro Bernardo Tiu and Associates Inc. He is also a Director of Lighthouse Credit Technologies Corporation and PSI Technologies Holdings, Inc., as well as the President of the Williams College Alumni Association. Lucas Chow. Mr. Chow, 51, has served as Director since 1999. He is the Chief Executive Officer of SingTel Mobile and Vice President of Consumer Marketing of SingTel. Prior to joining SingTel, he held various positions at Hewlett-Packard over a 20-year period. Roberto F. de Ocampo. Mr. de Ocampo, 59 has served as director since 2003. He is currently the President of the Asian Institute of Management. He is the Chairman and/or Board Member of several companies both in the Philippines and abroad including, among others, the Centennial Group (Washington, D.C.), ABS-CBN Broadcasting Corp., Alaska Milk Corporation, United Overseas Bank, Philamlife Savings Bank, Metrobank, Seaboard Eastern Insurance Co., House of Investments, HatchAsia.com and Salcon Power Corporation. He has also served as Secretary of the Department of Finance of the Philippine government. Xavier Loinaz. Mr. Loinaz, 61, has served as Director since 2001. He is currently a Senior Managing Director of Ayala Corporation and the former President of the Bank of the Philippine Islands (BPI). Other positions held are: Director of Agricultural Development Bank, BPI Capital Corporation, BPI Computer Systems Corporation, BPI 1851 Club, Inc. BPI International Finance, Ltd., BPI Investment Management, Inc., BPI Family Bank and BPI Foundation, Inc. Guillermo D. Luchangco. Mr. Luchangco, 63, has served as Director since 2001. He is also Chairman and Chief Executive Officer of Investment & Capital Corporation of the Philippines, Science Park of the Philippines, Inc. and the RFM-Science Park of the Philippines, Inc. He is also a Director of Bacnotan Industrial Park Corporation and Ionics Circuits, Inc. Jesus P. Tambunting, Mr. Tambunting, 67, has served as Director since 2003. He is also currently the Chairman and Chief Executive Officer of Planters Development Bank, Chairman of SME Solutions.com, Inc., Chairman of PDB Insurance Agency, Inc., Chairman of Plantersbank Properties, Inc. and President of Manila Polo Club. His other significant positions include: Vice Chairman of Micro Enterprise Bank of the Philippines, Special Adviser to the Board of Directors Association of Development Financing Institutions in Asia and the Pacific, Member of the Board of Advisers of Philippine Business for Corporate Governance, Vice Chairman of Philippine-British Business Council, Vice Chairman of Philippine Business for Social Progress and a Member of the Board of Trustees of the Carlos P. Romulo Foundation. From 1993 to 1998, Mr. Tambunting served as Ambassador Extraordinary and Plenipotentiary to the United Kingdom of Great Britain and Northern Ireland, Ambassador to the Republic of Ireland and Permanent Philippine Representative to the International Maritime Organization.

96

Fernando Zobel de Ayala. Mr. Ayala, 44, has served as Director since 1995. He is currently Chairman of the Board of Directors of Ayala Land, Inc. (ALI), and Executive Managing Director for International Operations and Co-Vice Chairman of the Board of Directors of Ayala Corporation. He is also Chairman of Manila Water Company and Co-Vice Chairman and Trustee of Ayala Foundation, Inc. His other significant positions include: Chairman of Honda Cars Makati, Inc. (HCMI), Honda Cars Cebu, Inc. (HCCI), Isuzu Automotive Dealership, Inc. (IADI), Isuzu Cebu, Inc. (ICI), and Roxas Land Corporation; Chairman and President of Alabang Commercial Corporation; Director of the Bank of the Philippine Islands, AC International Finance Ltd., Ayala International Pte. Ltd., Ayala Hotels Inc. (AHI) and Integrated Microelectronics Inc. (IMI). Key Officers: The officers of our company are appointed by the Board of Directors and their appointment as officers may be terminated at will by the Board of Directors. The table below shows the name and position of our key officers as of 31 December 2004.

Name Position Gerardo C. Ablaza, Jr. * President and Chief Executive Officer Renato O. Marzan Corporate Secretary Delfin C. Gonzalez, Jr. Chief Financial Officer Dennis R. Abella Head – Wireless Network Operations Ramon Nonato C. Aesquivel, Jr. Network Mgt. & Operations Division Head - Innove Emmanuel A. Aligada Head – Customer Service Ma. Concepcion C. Alcedo Head – Globe Handyphone Marketing Racquel R. Cagurangan Chief Administrative Officer - Innove Ma. Cecilia T. Cruzabra Head - Treasury Daniel S. David Head – Corporate Business Edna L. Dela Cruz Technical Solutions Head – Innove Ferdinand M. de la Cruz Head – Wireless Business Rizza D. Maniego-Eala Head – Financial Planning and Analysis Emmanuel Lazaro R. Estrada Head – Wireless Network Master Planning Rodell A. Garcia Chief Information Officer Gil B. Genio Chief Executive Officer - Innove Ma. Caridad D. Gonzales Head – Legal Services Ronald Luis S. Goseco Head – Logistics and Administration Support Leah Camilla R. Besa-Jimenez Head - Customer Relationship Management Teresa V. Kong Head – Wireless Network Engineering Jose Antonio T. Mapa, Jr. Marketing Division Head - Innove Cesar M. Maureal Head – Human Resources Group Jose Roberto V. Mendoza Head – M-Commerce Business Development Rita M. Nisperos Head – Corporate Marketing Patricio S. Pineda III Head – Wireless Business Planning and Strategy Ramon Antonio L. Pineda Residential & Business Group Head – Innove Rebecca V. Ramirez Head – Internal Audit Walter C. Ricarte Head – Wireless Comptrollership Jesus C. Romero Corporate Business Group Head – Innove Rodolfo A. Salalima Head - Corporate Affairs and Regulatory Matters Mary Catherine Elizabeth P. Santamaria Head – Touch Mobile Edith C. Santiago Head – Financial Control Nicanor V. Santiago III Head – New Products Development Peter C. Tan Technical Division Head - Innove Lizanne C. Uychaco Head – Sales & Distribution Vicki G. Tan-Yao Head – Handset and Cards Management * Member of the Board of Directors

97

Renato O. Marzan. Atty. Marzan, 56, has served as Corporate Secretary since 1993 and is a former Director of Globe. He also serves as Managing Director of Ayala Corporation, Director of Honda Cars Makati, Inc.; Director and Corporate Secretary of Isuzu Automotive Dealership, Inc., Michigan Holdings, Inc., and Cebu Insular Hotel Co. Inc., Corporate Secretary of LPHI, Ayala Systems Technology, Inc., iAyala Company, Inc., Ayala Internet Venture Partners, Inc., Ayala Hotels, Inc., Laguna Technopark, Inc., IMI, Community Innovations, Inc., and Roxas Land Corporation; and Assistant Corporate Secretary of Ayala Corporation, Ayala Land, Inc. and Ayala Foundation, Inc. Delfin C. Gonzalez, Jr. Mr. Gonzalez, 55, is Chief Financial Officer and joined Globe on November 16, 2000 as Head of the Finance Group. He worked previously with San Miguel Corporation, first with the Strategic Planning and Finance Group and then as Executive Vice President, CFO and Treasurer before he retired in 1999. Dennis R. Abella. Mr. Abella, 37, is the Head of Wireless Network Operations. He held several management positions in Piltel and was the Head of Carrier Relations and Corporate Sales prior to joining Globe in 1999. Mr. Abella has also worked for Eastern Telecoms as Carrier and Technical Manager before he moved to Piltel in 1997. He has been in telecommunications industry for more than 16 years and has broad experience in Carrier Business, Product Development, IT/Technical Network Management and Corporate Sales. Ramon Nonato C. Aesquivel, Jr. Mr. Aesquivel, 40, is the Head of Network Management and Operations Division in Innove. Mr. Aesquivel served in various senior positions at Bayantel’s technical and network departments and was its Director for the Network Management Division before joining Innove. Prior to Bayantel, he progressed through several positions in the Toll Traffic group of PLDT. Emmanuel A. Aligada. Mr. Aligada, 45, is Head of Customer Service. He held the title of VP for Citiphone Banking in Citibank, N.A. where he stayed for 8 years before joining Globe in 1998. He was a Regional Sales Manager for PhilAm Life Insurance Co. from 1982-1990. Ma. Concepcion C. Alcedo. Ms. Alcedo, 40, has served as Head of Globe Handyphone Marketing. She brings with her 17 years of experience on brand marketing. She began with Procter and Gamble and prior to joining Globe, she was Vice President for Marketing of the Lopez Group of Companies. Racquel R. Cagurangan. Ms. Cagurangan, 34, is the Chief Administrative Officer of Innove. She served as Senior Manager for Global Wholesale Services of CoNcert – the joint venture of AT&T and British Telecom before joining Innove. Prior to her appointment at CoNcert, she was the Manager for International Carrier Services at AT&T Communications Services Philippines, Inc. Ma. Cecilia T. Cruzabra. Ms. Cruzabra, 39, is the Head of Treasury. Prior to joining Globe, she held various senior management positions in Steniel Manufacturing Co. and was the Treasurer of the company and its subsidiaries. Daniel S. David. Mr. David, 38, is the Head of Corporate Business. Before joining Globe, he was Country Systems Sales Executive for the Enterprise Server Group. Also, he spent more than 10 years with IBM.

98

Edna L. Dela Cruz. Ms. Dela Cruz, 41, is the Technical Solutions Head of Innove. Prior to joining Globe, she served as a Senior Solution Consultant for Nokia handling the Asia-Pacific region. She has also worked for Sun Microsystems Philippines, Inc. as a Solution Architect, Technical and Engagement Manager and as a telecommunications consultant for WESERV(Fujitsu), Inc. Prior to her appointment at International Communication Corp. (ICC), she was the Telco Integrator at Bayantel, Inc. Ferdinand M. de la Cruz. Mr. de la Cruz, 38, joined Globe as Head of the Wireless Group and is a licensed Mechanical Engineer. He brings with him solid work experience in the sales and marketing departments of multinational companies like Kraft Foods and Unilever Philippines. He was the President and General Manager of Kraft Foods Philippines before joining Globe, and before that, was the Senior Vice-President for the Marketing and Sales Division of Ayala Land Inc. He also served as National Sales Manager for San Miguel Brewing. Rizza D. Maniego-Eala. Ms. Eala, 34, is the Head of Financial Planning and Analysis. Before joining Globe, she spent five years as an Equity Research Analyst, with the last two years as Deputy Research Head for NatWest Securities Hong Kong Limited’s Philippine Representative Office. Emmanuel Lazaro R. Estrada. Mr. Estrada, 44, is the Head of Wireless Network Master Planning. Before joining the Company, he spent 9 years with the National Telecommunications Commission (NTC). Rodell A. Garcia. Mr. Garcia, 48, is the Chief Information Officer. Prior to joining Globe, he was Executive Vice President for the Information Technology Group of DBS Bank Philippines, Inc. He also held several management positions in Citytrust Banking Corporation. Gil B. Genio. Mr. Genio, 44, is Chief Executive Officer of Innove and was appointed Head of the Fixed Network Group and Chief Operating Officer of Innove on November 16, 2000. Before his appointment to Innove, Mr. Genio was Globe’s Senior Vice President and Chief Financial Officer. He is also currently a Managing Director of Ayala Corporation. Prior to joining Globe, he served as Vice-President for Citibank, N.A., managing audit operations in Japan, Hong Kong and the People’s Republic of China. Ma. Caridad D. Gonzales. Ms. Gonzales, 40, is the Head of Legal Services. Prior to joining Globe, she was with the prestigious firm of Ponce Enrile, Cayetano, Reyes and Manalastas Law Offices. Ronald Luis S. Goseco. Mr. Goseco, 49, is the Head of Logistics and Administration Support. Previously, he was the Senior Vice President and CFO of Integrated Microelectronics. Leah Camilla R. Besa-Jimenez. Ms. Besa-Jimenez, 31, is the Head of Customer Relationship Management. Prior to joining Globe, she was the Director for Business Development and a Board Member of Ogilvy and Mather (Philippines), Inc. She also concurrently held the post of Business Director for OgilvyOne and Ogilvy Healthcare. Teresa V. Kong. Ms. Kong, 50, is the Head of Wireless Network Engineering. She has held various positions in the Company and was responsible for the development of major telecom network infrastructure such as the Fiber Optical Backbone Network, Microwave Radio Transmission Network, various Switching Networks for Voice and Data for domestic and international services. She was the Systems Design Engineer at Electro Systems Industry

99

Corporation, handling sound systems for major hotels and institutions, before joining Globe in 1978. Jose Antonio T. Mapa, Jr. Mr. Mapa, 37, is the Marketing Division Head of Innove. Prior to joining Globe he held several senior marketing positions in Unilever Philippines and was the Close-Up Regional Manager for Asia. He also worked for Negros Navigation Company as Vice President of the High Speed Ferry division and was General Manager of two of its subsidiaries. Cesar M. Maureal. Mr. Maureal, 49, joined Globe as Head of the Human Resources Group in April 2003. He has had over 25 years of experience in the fields of training, human resource management and organizational development gained from local and multinational companies in the Philippines, Asia and the United States. Prior to joining Globe, he was the Director for Regional Programs at the Applied Global University of the Applied Materials, Inc. in Santa Clara, California. Jose Roberto V. Mendoza. Mr. Mendoza, 44, is the Head of M-Commerce Business Development. Mr. Mendoza was the Managing Director and CEO of Lanka Bell (Private) Limited in Colombo, Sri Lanka prior to joining Globe. He has served in several senior management positions at Lucent Technologies Philippines, Bayantel and PhilCom. Mr. Mendoza was also the General Manager and Country Sales Manager for Philippine Sun Microsystems and Oracle Systems Philippines, respectively. He started his career at IBM Philippines. Rita M. Nisperos. Ms. Nisperos, 43, is the Head of Corporate Marketing Services. Before joining Globe, she had a stint of over 10 years with Johnson and Johnson as regional franchise director for the adult skin and hair care franchise for Asia Pacific. She also did marketing for Pfizer and Procter and Gamble. Patricio S. Pineda III. Mr. Pineda, 36, is the Head of Wireless Business Planning and Strategy. Prior to joining Globe, Mr. Pineda was based in the U.S. as a Principal with leading management consultancy Booz Allen Hamilton. Mr. Pineda was a strategy consultant for more than 8 years advising primarily telecommunications, technology and media & entertainment companies. He also worked at San Miguel Corporation and Citibank NA. Ramon Antonio L. Pineda. Mr. Pineda, 46, joined Globe as the Head of Wireline Voice. Before joining Globe, he was the Vice-President for Residential Market and Provincial Telcos Markets at Bayantel, Inc. Rebecca V. Ramirez. Ms. Ramirez, 42, is the Head of Internal Audit directly reporting to the Audit Committee. She has 7 years experience in telecom financials and auditing from Oceanic Wireless Network and Eastern Telecoms and 5 years of senior computer auditing from SGV & Co. Walter C. Ricarte. Mr. Ricarte, 37, is the Head of Wireless Comptrollership. He was the Assistant Controller of Digitel prior to joining Globe in 1995 and has worked for the Audit Division of SGV and Co. Jesus C. Romero. Mr. Romero, 41, is the Corporate Business Group Head for Innove. He initially joined Globe as a Systems Engineer, and has also served as Director for Business Services Sales. He took a respite from corporate employment, when in 1994 he became self-employed with his own company, TelPlus Inc. Within the year, however, he became the Regional Sales Manager for Enterprise Network Systems at Hughes Network Systems, winning in his 2nd

100

year the ENS Worldwide Marketing Excellence Award. After 3 years he moved on to ComStream Corporation as Regional Manager for Satellite Global Access. Rodolfo A. Salalima. Mr. Salalima, 57, is Head of Corporate and Regulatory Affairs and the Assistant Corporate Secretary. He has been employed with Globe since 1993. He is also a Managing Director of Ayala Corporation. From 1992 to 1996, he served as the first President and Founding Director of the Telecommunications and Broadcast Attorneys of the Philippines, Inc. and is currently a Director and the President of the Philippine Electronics and Telecommunications Federation. Mary Catherine Elizabeth P. Santamaria. Ms. Santamaria, 38, is Head of Touch Mobile under the Wireless Business Group. Ms. Santamaria’s marketing experience came from more than ten years with Kraft Foods. In seven years with Kraft Foods Philippines, she handled products including Beverages and Cheeses, and later became its Marketing Director. She also spent two years in the Kraft Foods International headquarters in New York as Director of Business Development and worked with global strategic planning. And right before joining Globe, she was General Manager for Kraft Foods Jaya (Malaysia), handling Malaysia, Singapore and Brunei. Edith C. Santiago. Ms. Santiago, 47, is the Head of Financial Control. Prior to joining Globe, she worked in two telecom companies as the VP Controller of Digitel and AVP Finance of Eastern Telecom. She began her career at SGV & Co. and later moved to the Apex Development Finance Unit of the Central Bank of the Philippines. Nicanor V. Santiago III. Mr. Santiago, 39, is the Head of New Products Development. He began his career at Pilipinas Shell Petroleum Corporation, and has also worked at Colgate Palmolive Phils. Inc. and Piltel prior to joining Globe. Peter C. Tan. Mr. Tan, 46, is the Technical Division Head for Innove. He has accumulated years of experience with the United States Navy, having worked with the Public Works Center, United States Facilities at Subic Bay, prior to joining Globe. Lizanne C. Uychaco. Ms. Uychaco, 49, is the Head of our Sales and Distribution group. She joined Globe as the Head of Centers Management. Prior to joining Globe, she held various management positions at Fontana Resort & Country Club, RN Development Corporations and Fontana Properties.

Vicki G. Tan-Yao. Ms. Yao, 30, is the Head of Handset and Cards Management. She began her career with Bayantel – ICC Telecoms. Senior Consultants Andrew Buay. Mr. Buay, 39, joined Globe as Chief Operating Adviser in 2003. He is currently the Managing Director of Singapore Telecommunications International (Philippines) and has held various executive and senior management positions within Singapore Telecom, Inc. Robert L. Wiggins. Mr. Wiggins, 52, joined Globe as Chief Technical Adviser in 2002. He has approximately 30 years of work experience in the telecommunications industry in various management capacities.

101

Family Relationships The Chairman of our Board of Directors, Jaime Augusto Zobel de Ayala II, and a Director, Fernando Zobel de Ayala, are brothers. Significant Employee

All the employees are considered important assets of the Company who collectively make significant contributions to the Company. Globe Telecom also has stock-based compensation plans to encourage employees to remain with the Company. (Please refer to Item 10-Executive Compensation section for details).

Involvement in Certain Legal Proceedings None of the directors, officers or members of the Company’s senior management have, during the last five years, been subject to any of the following: (a) any bankruptcy, petition filed by or against any business of which such person was a general

partner or executive officer either at the time of the bankruptcy or within two (2) years prior to the time;

(b) any conviction by final judgment of any offense in any pending criminal proceeding,

domestic or foreign, excluding traffic violations and other minor offenses; (c) any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court

of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, commodities, or banking activities; and

(d) found by a domestic or foreign court of competent jurisdiction (in a civil action), the

Commission or comparable foreign body, or a domestic or foreign exchange or electronic marketplace or self regulatory organization, to have violated a securities or commodities law, and the judgment has not been reversed, suspended or vacated.

Item 10. Executive Compensation

Standard Arrangements: Directors Article II Section 6 of the Company’s By-Laws provides: “SECTION 6. COMPENSATION OF DIRECTORS - Directors as such shall not receive any stated salary for their services, but, by resolution of the stockholders, a specific sum fixed by the stockholders may be allowed for attendance at each regular or special meeting of the Board; provided that nothing herein contained shall preclude any director from serving in any other capacity and receiving compensation therefor.”

Officers Annual Compensation

The total annual compensation of the President and nine (9) other top Officers of the Corporation is P89.05 million in 2003 and P105.73 million in 2004. The projected total annual compensation for the current year is P106.35 million.

102

The total annual compensation includes the basic salary, guaranteed bonuses, fixed allowances and variable pay (performance-based annual incentive).

2005* 2004 2003

Name Principal Position Basic Pay Other Variable Pay

Basic Pay Other Variable Pay

Basic Pay Other Variable Pay

Gerardo C. Ablaza, Jr. President & Chief Executive Officer

Ma. Concecpcion C. Alcedo

Head – Globe Handyphone Marketing

Ferdinand M. dela Cruz Head – Wireless Business Rodell A. Garcia Head – Information Systems Gil B. Genio Head – Wireline Business Delfin C. Gonzalez, Jr. Chief Financial Officer Cesar M. Maureal Head – Human Resources Group Rodolfo A. Salalima Head – Corporate Affairs &

Regulatory Matters

Edith C. Santiago Head – Financial Control Lizanne C. Uychaco Head – Sales & Distribution All Officers as a Group P 84.75 M P21.60 M P 77.94 M P27.79 M P 74.90 M P14.15 M * Projected Total Annual Compensation The total annual compensation paid to all senior personnel from Manager and up was P875.5 million in 2003 and P800.5 million in 2004. The projected total annual compensation for the current year is P953.8 million.

2005 * 2004 Name Basic Pay Other Variable

Pay Basic Pay Other Variable

Pay 2003

All Officers ** as a Group

P 729.4 M P 224.4 M P 659.6 M P140.9 M P 875.5 M

* Projected Total Annual Compensation ** Managers and up The Company has no other arrangement with regard to the remuneration of its existing directors and officers aside from the compensation received as herein stated. The above named executive officers are covered by a Letters of Appointment with the Company stating therein their respective job functionalities, among others. Other Arrangements: Globe Telecom has various stock-based compensation plans. The number of shares allocated under the plans shall not exceed the aggregate equivalent of 6% of the authorized capital stock or up to 12.00 million common shares. These include the following:

a) Employees Stock Ownership (‘ESOWN’) Plan for all regular employees granted in 1998 and 1999;

b) Executive Stock Option Plan 1 (‘ESOP1’) for key senior executives granted in 1998 and 2000;

c) Executive Stock Option Plan 2 (‘ESOP2’) for key executives and Senior Management granted in 2003.

For a more detailed discussion on the stock-based compensation plans, please refer to the Stock Options section under Part II Securities of the Registrant.

103

Additional Disclosures (Warrants and Options Outstanding):

• Outstanding warrants and options – Not Applicable. There were no new stock rights or warrants issued in 2004.

• Adjustments or amendments to warrants and options – Not Applicable. There were no new stock rights or warrants issued in 2004.

Item 11. Security Ownership of Certain Beneficial Owners and Management 1. Security Ownership of Certain Record and Beneficial Owners Type of Class

Name, address of Record Owner and Relationship with Issuer

Name of Beneficial Owner and Relationship with Record Owner

Citizenship No. of Shares Held

Percent of Class

Common Singapore Telecom Int’l. Pte. Ltd. (STI)1 31 Exeter Road, Comcentre, Singapore 0923

Singapore Telecom Int’l. Pte. Ltd. (STI)2

Singaporean 63,036,015 21.123%

Common Ayala Corporation3 34/F Tower One Bldg. Ayala Ave., Makati City

Ayala Corporation4 Filipino 49,020,186 16.427%

Common PCD Nominee Corporation (Non-Filipino)5 G/F Makati Stock Exchange Bldg., Ayala Ave. Makati City

Hongkong and Shanghai Banking Corporation (HSBC)6

Filipino 16,963,650 5.684%

Preferred Asiacom Philippines, Inc. 34/F Tower One Bldg. Ayala Ave., Makati City

Asiacom Philippines, Inc.7

Filipino 158,515,021 53.118%

1 Singapore Telecom Int’l. Pte. Ltd. is not related to the Company. 2 The Board of Directors of STI has the power to decide how the STI shares in Globe are to be voted. 3 The Co-Vice Chairman and Chief Executive Officer of Ayala Corporation, Mr. Jaime Augusto Zobel de

Ayala II, is the Chairman of the Board of Globe and Asiacom. 4 The Board of Directors of Ayala has the power to decide how the Ayala shares in Globe are to be voted. 5 The PCD is not related to the Company. 6 HSBC is a participant of PCD. The 15,325,549 shares beneficially owned by HSBC form part of the

16,963,650 shares registered in the name of the PCD. The clients of HSBC have the power to decide how the Company’s shares are to be voted.

7 The Board of Directors of Asiacom has the power to decide how the Asiacom shares in Globe are to be voted.

104

(c) Security Ownership of Management as of 31 December 2004.

Type of Class

Name of Beneficial Owner Amount and Nature of Beneficial Ownership

Citizenship Percentage of Ownership

Directors Common Jaime Augusto Zobel de Ayala II 102 (direct) Filipino 0.0000729% Common Delfin L. Lazaro 1 (direct) Filipino 0.0000007% Common Lim Chuan Poh 2 (direct) Singaporean 0.0000014% Common Gerardo C. Ablaza, Jr. 1 (direct) Filipino 0.0000007% Preferred Romeo L. Bernardo 1 (direct) Filipino 0.0000007% Common Lucas Chow 2 (direct) Singaporean 0.0000014% Common Roberto F. de Ocampo 1 (direct) Filipino 0.0000007% Common Xavier P. Loinaz 1 (direct) Filipino 0.0000007% Preferred Guillermo D. Luchangco 1 (direct) Filipino 0.0000007% Preferred Jesus P. Tambunting 1 (direct) Filipino 0.0000007% Common Fernando Zobel de Ayala 101 (direct) Filipino 0.0000722% CEO and Nine Most Highly Compensated Executive Officers Common Gerardo C. Ablaza, Jr. 1 (direct) Filipino 0.0000007% Common Ma. Concepcion C. Alcedo 0 Filipino n/a Common Ferdinand M. dela Cruz 0 Filipino n/a Common Rodell A. Garcia 0 Filipino n/a Common Gil B. Genio 0 Filipino n/a Common Delfin C. Gonzalez, Jr. 0 Filipino n/a Common Cesar M. Maureal 0 Filipino n/a Common Rodolfo A. Salalima 0 Filipino n/a Common Edith C. Santiago 6 (direct) Filipino 0.0000043% Common Lizanne C. Uychaco 0 Filipino n/a Other Executive Officers Common Renato O. Marzan 0 Filipino n/a Common Dennis R. Abella 0 Filipino n/a Common Ramon Nonato C. Aesquivel, Jr. 0 Filipino n/a Common Emmanuel A. Aligada 1,000 (direct) Filipino 0.0007148% Common Racquel R. Cagurangan 0 Filipino n/a Common Ma. Cecilia T. Cruzabra 0 Filipino n/a Common Daniel S. David 0 Filipino n/a Common Edna L. Dela Cruz 0 Filipino n/a Common Rizza D. Maniego-Eala 0 Filipino n/a Common Emmanuel Lazaro R. Estrada 0 Filipino n/a Common Ma. Caridad D. Gonzales 0 Filipino n/a Common Ronald Luis S. Goseco 0 Filipino n/a Common Leah Camilla R. Besa-Jimenez 0 Filipino n/a Common Teresa V. Kong 5,093 (direct) Filipino 0.0036404% Common Jose Antonio T. Mapa, Jr. 0 Filipino n/a Common Jose Roberto V. Mendoza 0 Filipino n/a Common Rita M. Nisperos 0 Filipino n/a Common Patricio S. Pineda III 0 Filipino n/a Common Ramon Antonio L. Pineda 0 Filipino n/a Common Rebecca V. Ramirez 0 Filipino n/a Common Walter C. Ricarte 0 Filipino n/a Common Jesus C. Romero 1 (direct) Filipino 0.0000007% Common Mary Catherine Elizabeth P.

Santamaria 0 Filipino n/a

Common Nicanor V. Santiago III 0 Filipino n/a Common Peter C. Tan 0 Filipino n/a Common Vicki G. Tan-Yao 0 Filipino n/a All Directors and Officers as a group 6,314 0.0045131%

105

None of the members of the Company’s directors and management own 2.0% or more of the outstanding common and preferred stock of the Company.

3. Voting Trust Holders of 5% or More

There are no voting trust holders of 5% or more.

4. Changes in Control

Our major shareholders are Ayala, STI and Asiacom. Ayala and STI own 60% and 40% of the outstanding shares of Asiacom, respectively. DeTeAsia was previously a major shareholder until it sold its 37.67 million common shares (24.8% of the common outstanding stock) in Globe Telecom to Ayala, STI and Globe in the third quarter of 2003. Ayala owns 35% of the total outstanding common stock of the Corporation, while STI owns 45% of the total outstanding common stock of the Corporation, as of 31 December 2004. Asiacom owns all of the outstanding preferred stock of the Corporation.

Item 12. Certain Relationships and Related Transactions

Globe Telecom and Innove, in their regular conduct of business, enter into transactions with their principal shareholders, Ayala and STI, and certain related parties. These transactions, which are accounted for at market prices normally charged to unaffiliated customers for similar goods and services, include the following:

Globe Telecom (a) Globe Telecom has interconnection agreements with ST and Deutsche Telecom

AG (DT). Transactions with DT in 2004, 2003 and 2002 were not material. Effective 20 October 2003, De Te Asia Holding GMBH (DTA), a wholly-owned subsidiary of DT, divested its shareholdings in Globe Telecom and is no longer a related party

The net traffic receivable (included in “Receivables in the consolidated balance sheets”) and the interconnection toll income (included in “Net operating revenues in the consolidated statements of income”) earned as of and for the years ended 31 December follow:

2004 2003 2002 (In Thousand Pesos) Net traffic receivable P=31,212 P=548,395 P=736,665 Interconnection toll income 1,083,859 2,239,630 1,437,494

(b) Globe Telecom and STI have a technical assistance agreement whereby STI will

provide consultancy and advisory services, including those with respect to the construction and operation of Globe Telecom’s networks and communication services, equipment procurement and personnel services. In addition, Globe Telecom has software development, supply, license and support arrangements, lease of cable facilities, maintenance and restoration costs and other transactions with STI.

The details of fees (included in “Operating expenses in the consolidated statements of income”) incurred under these agreements are as follows:

106

2004 2003 2002 (In Thousand Pesos) Lease of cable facilities, maintenance

and restoration costs and other transactions P=137,111 P=54,026 P=50,679

Technical assistance fee 44,360 78,095 63,420 Software development, supply, license

and support fee 40,409 56,316 98,860 The net outstanding balances due to STI (included in “Accounts payable and accrued expenses” in the consolidated balance sheets) arising from these transactions are as follows:

2004 2003 2002 (In Thousand Pesos) Lease of cable facilities, maintenance

and restoration costs and other transactions P=62,675 P=14,193 P=–

Software development, supply, license and support fee 21,322 13,756 19,503

Technical assistance fee 8,899 16,895 64,018

(c) In 2001, Globe Telecom signed a cable equipment supply agreement with C2C, a related party of ST. The aggregate cost of equipment purchased under this agreement amounted to P=2,815.11 million which were included in “Property and equipment” account in the consolidated balance sheets.

In March 2002, Globe Telecom entered into an equipment lease agreement for the same equipment obtained from C2C with GB21 (Hong Kong) Limited (GB21). Subsequently, GB21, in consideration of C2C’s agreement to assume all payment obligations pursuant to the lease agreement, assigned all its rights, obligations and interest in the equipment lease agreement to C2C. As a result of the said assignment of receivables and payables by GB21 and C2C under the two agreements, the remaining liability of Globe Telecom to C2C for the cable supply agreement amounted to P=2,262.28 million, P=2,430.36 million and P=2,518.48 million as of 31 December 2004, 2003 and 2002, respectively, which were included in “Other long-term liabilities” in the consolidated balance sheets.

Globe Telecom entered into agreements with C2C for the purchase of IRUs in the C2C and Japan-US Cable Networks. The cost of capacity purchased from C2C amounted to P=1,133.79 million. This was part of property and equipment transferred to Innove on 30 June 2004. In July 2002, Globe Telecom received advance service fees from C2C amounting to U.S.$1.60 million, which will be offset against its share in the operations and maintenance costs of the cable landing facilities of Globe Telecom pursuant to a landing party agreement entered into by both parties in August 2000. Also, in January 2003, Globe Telecom received advance lease payments from C2C for its use of a portion of Globe Telecom’s cable landing station facilities amounting to U.S.$4.11 million.

107

The parties have agreed on a lease amortization schedule and application of a portion of the advance service fees for C2C’s share in the 2002 operations and maintenance costs of the cable landing facilities. Accordingly, Globe Telecom recognized lease income amounting to P=16.32 million and P=51.00 million in 2004 and 2003, respectively, and service fees amounting to P=43.76 million and P=42.33 million in 2004 and 2003, respectively. The current and noncurrent portions of the said advances shown as part of “Other long-term liabilities” account in the consolidated balance sheets follow:

2004 2003 2002 (In Thousand Pesos)

Current P=17,760 P=59,483 P=– Non-current 146,449 161,970 85,206 P=164,209 P=221,453 P=85,206

(d) Globe Telecom reimburses Ayala for certain operating expenses. The net

outstanding liabilities to Ayala related to these transactions as of 31 December 2004, 2003 and 2002 were not material.

Innove Innove and DT entered into a Technical Assistance Agreement (the Agreement) whereby DT will provide technical advisory services for a fee. DT subsequently assigned all its rights, title, interests, duties and obligations in the Agreement to Consultancy by Technicus Corporation with the conformity of Innove. On 12 August 2002, the Agreement was extended from 31 December 2002 to 31 December 2003, with no other changes in the original provisions. Technical fees charged to operations amounted to P=0.64 million and P=9.90 million in 2003 and 2002, respectively. The outstanding balances of P=2.90 million and P=4.98 million as of 31 December 2003 and 2002, respectively, are included in “Accounts payable and accrued expenses” account in the consolidated balance sheets.

The summary of consolidated outstanding balances resulting from transactions with related parties follows:

2004 2003 2002* (In Thousand Pesos) Traffic settlements receivable (included in

Receivables) P=57,222 P=569,891 P=801,145 Other current assets 946 1,118 732 Traffic settlements payable (included in

Accounts payable & accrued exp) 26,010 21,496 65,420 Accounts payable (included in Accounts

payable and accrued expenses) 122,959 45,962 97,329 Other long-term liabilities 2,426,491 2,651,816 2,603,683 _________________________________________ * Includes balances of transactions with DT.

List all parents of the registrant showing the basis of control and as to each parent the percentage of voting securities owned or other basis of control by its immediate parent if any.

Please refer to Item 11- Security Ownership for details.

108

Item 13. Exhibits and Reports on SEC Form 17-C (a) Exhibits – Please see accompanying Index to Exhibits. (b) The company regularly files various reports on SEC Form 17-C relative to various company

events. Of these, the more significant ones are as follows: Date Item Reported 7 Jan 2004 Eight Globe Engineers Become Cisco-Certified Network Professionals 7 Jan 2004 Globe announced that the SEC had favorably considered the company’s application to issue

P2.7 billion retail bonds. 9 Jan 2004 Globe, AT&T agree on termination rates

28 Jan 2004 Moody’s Investors Service affirms Globe Telecom, Inc.’s senior implied and senior unsecured ratings

29Jan 2004 BOD of Globe approved a new dividend policy and declared the first semi-annual cash dividend in 2004 of P18 per common share.

30 Jan 2004 Globe Telecom announces its financial and operating results for full year 2003. 12 Feb 2004 Globe Telecom submits final prospectus for its P3 billion bonds to the SEC 20 Feb 2004 GlobeQuest Partners with Globe Handyphone on Broadband Internet Connectivity 22 Mar 2004 Former Finance Chief joins Globe Telecom Board 6 Apr 2004 Globe receives “Best Managed Telecom Company in RP” Award from Euromoney 22 Apr 2004 Globe announces 1st quarter 2004 results 3 May 2004 Globe Telecom announces signing of US$ 100 million term loan facility 4 May 2004 Globe Board approves exercise of call option on 2009 US$220 million bond 4 May 2004 Globe reports 52% increase in net income to P3.1 billion 11 May 2004 Globe provides the SEC with copies of clarificatory letters to editors of various publications 12 May 2004 Globe Telecom taps mass market segment 25 May 2004 Globe Telecom – GTWU-FFW sign 2004-2005 CBA 2 Jun 2004 Globe CEO Gerardo Ablaza, Jr. bags Asia Business Leader of the Year and CEO Choice of the

Year Awards 23 Jun 2004 Globe announces signing of P2.0 billion term loan facility 23 Jun 2004 Globe announces that Standard and Poor’s Rating Services raised its long term local currency

rating on Globe Telecom, Inc. 7 Jul 2004 Globelines Broadband breaks ground in the RP internet market 19 Aug 2004 Innove partners with Alcatel for its broadband network expansion

21 Jul 2004 Globe Telecom completes consent solicitation for its 9.750% Notes due 2012

22 Jul 2004 Press releases of Moody’s Investors Service and Standard and Poor’s Ratings Services on Globe Telecom, Inc.’s proposed US$100 million Senior Unsecured Notes

22 July 2004 Globe announces the commencement of international marketing with respect to a re-opening of the Company’s existing 9.75% Senior Notes due 2012 to the extent of US$100 million

28 Jul 2004 Globe announces signing of P5 billion term loan facility

2 Aug 2004 Globe posts 58% net income growth; declares P18 cash dividend

2 Sep 2004 Moody’s Investors Service revises outlook on Globe Telecom’s local and foreign currency bond ratings to positive

28 Oct 2004 Globe grows subscriber base to 11.7 million

4 Nov 2004 Globe announces that Singapore Exchange Securities Trading Limited has listed Globe’s US$300 million 9.75% Notes due 2012

4 Nov 2004 Seven leading Asia Pacific mobile operators to form region’s largest joint venture mobile company

22 Nov 2004 Globe Telecom Maintains PRS Aaa rating in latest PhilRatings review

109

26 Nov 2004 Globelines Broadband forges partnerships for wider reach 13 Dec 2004 Globelines unleashes Cebu’s Enhanced One Province One Rate

1 Feb 2005 Globe reports P11.3 billion net income for 2004, declares P20 cash dividend and approves 1:15 share buyback offer

2 Feb 2005 Globe announces Notice of Intent for Tender Offer 3 Mar 2005 Globe completes Tender Offer 15 Mar 2005 Globe crosses on the PSE the 8.064 million tendered shares accepted in the buyback

110

PART V – CORPORATE GOVERNANCE In accordance with the corporate requirements on Corporate Governance, Globe has complied with the same having conducted a self-assessment/rating of such best corporate governance practices. Globe has likewise submitted the results thereof to the SEC last July 2003. The Company adopted the Manual of Corporate Governance and full compliance with the same has been made since the adoption of the Manual, except for the following:

(i) Development of mechanisms to monitor the performance of the Board The Company currently reviews the performance of the Board as a whole and is in the process of developing a more formal mechanism to review the performance of the Board.

(ii) Written Code of Conduct to be followed by the Board, Chief Executive Officer and Staff (The Company currently has a Code of Conduct for officers and employees and rules for ethical conduct of Directors as part of its Code of Corporate Governance. The company is in the process of consolidating and finalizing a new Code of Business Ethics that integrates both documents and supplements the same. The integrated Code will then be submitted for the review of the Audit Committee.); and

(iii) Form on Full Business Interest Disclosure as part of pre-employment requirements

(The Company is currently incorporating revisions in the pre-employment form and the existing Directors’ Disclosure Form to include the penalty of perjury for false statements made in those forms).

The Company is taking further steps to enhance adherence to principles and practices of good corporate governance.

PART VI – REGISTRATION STATEMENT & PROSPECTUS PROVISIONS

Not Applicable.

111

SIGNATURES Pursuant to the requirements of Section 17 of the Code and Section 141 of the Corporation Code, this report is signed on behalf of the issuer by the undersigned, thereunto duly authorized, in the City of Mandaluyong on __ April 2005. By: 1. Date: __ April 2005 Gerardo C. Ablaza, Jr. President and Chief Executive Officer 2. Date: __ April 2005 Delfin C. Gonzalez, Jr. Chief Financial Officer 3. Date: __ April 2005 Atty. Rodolfo A. Salalima Head–Corporate and Regulatory Affairs 4. Date: __ April 2005 Atty. Renato O. Marzan Corporate Secretary

SUBSCRIBED AND SWORN to before me this ___ day of April 2005, affiants exhibiting to me their Community Tax Certificates, as follows: Names C.T. Cert No. Date of Issue Place of Issue Gerardo C. Ablaza, Jr. 14194644 21 January 2005 Mandaluyong City Delfin C. Gonzalez, Jr. 09526063 8 January 2005 Muntinlupa City Atty. Rodolfo A. Salalima 14195193 21 January 2005 Mandaluyong City Atty. Renato O. Marzan 05925500 13 January 2005 Manila City

Doc. No. : Page No. : Book No. : Series of 2005.

________________________

Notary Public

112

STATEMENT OF MANAGEMENT’S RESPONSIBILITY

FOR FINANCIAL STATEMENTS

The management of Globe Telecom, Inc. is responsible for all information and representations contained in the consolidated financial statements for the year ended 31 December 2004, 2003 and 2002. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the Philippines and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the Company’s Audit Committee and to its external auditors: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other employees who exercise significant roles in internal controls. The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the Company. SGV & Co., the independent auditors appointed by the stockholders, have audited the consolidated financial statements of the Company in accordance with auditing standards generally accepted in the Philippines and have expressed their opinion on the fairness of presentation upon completion of such audit, in their report to the Stockholders and Board of Directors.

Signed under oath by the following:

-signed- GERARDO C. ABLAZA, JR. Chief Executive Officer -signed- DELFIN C. GONZALEZ, JR.

Chief Financial Officer

113

GLOBE TELECOM, INC. INDEX TO EXHIBITS

FORM 17-A

Exhibit No.

Description of Exhibit Remarks/Attachment

Additional Disclosure on Independent Auditors √ Report of Auditors and Consolidated Financial Statements and Notes

to Consolidated Financial Statements √

Short Term Investments √ Amounts Receivable from Directors, Officers, Employees, Related

Parties and Principal Stockholders Other Than Affiliates √

Long-Term Investments in Securities (Non-current Marketable Securities, Other Long Term Investments in Stocks and Other Investments)

√

Deferred Charges and Others √ Long Term Debt √ Indebtedness to Related Parties (Other Long term Liabilities) √ Capital Stock √ Sample stock certificate √ Plan of Acquisition, Reorganization, Arrangements, Liquidation or

Succession *

Instruments Defining the Rights of Security Holders, Including Indentures

*

Voting Trust Agreement * Material Contracts * Annual Report to Security Holders or Form 17Q or Quarterly Report

to Security Holders √

Letter re: Director Resignation * Report Furnished to Security Holders * Subsidiaries to Registrant * Published Report Regarding Matters Submitted to a Vote of Security

Holders *

Consent of Experts and Independent Counsel * Power of Attorney * Additional Exhibits * Note: * The exhibits are either Not Applicable to the Company or require No Answer.

114

Additional Disclosure on Independent Auditors

In its meeting last 22 March 2004, the shareholders have appointed SyCip Gorres Velayo & Co. (SGV & Co.) as independent auditors of Globe Telecom, Inc. (Globe) and its related companies for the year ended 31 December 2004. Billings for services rendered in connection with the engagement amounted to P12.9 million, inclusive of out-of-pocket expenses, or almost the same as 2003’s P13.2 million. In addition to performing the audit of Globe and its related companies’ financial statements, SGV & Co. was also selected, in accordance with established procurement policies, to provide other services in 2004, the aggregate fees billed for which are shown below (with comparative figures for 2003):

Amounts in millions 2004 2003 Audit (1) P 12.9 P 13.2 Audit-Related (2) 2.2 1.1 Tax (3) 1.9 1.4 Others (4) 1.0 1.8 Total P 18.0 P 17.5

(1) Audit fees consisted of work related to the audit of the Company’s annual financial statement s

and reviews performed in the preparation of quarterly financial statements. (2) Audit-related fees consisted of work that generally either only the independent auditor can

reasonably be expected, or would be in the best position, to provide, such as consultation concerning financial accounting and reporting standards, assistance in the review of submissions to the Securities and Exchange Commission (SEC) and the review of documents issued in connection with securities offerings. These also include assurance and related services that are traditionally performed by the independent auditor, such as internal control and information systems reviews that are outside the scope of financial audits and reviews.

(3) Tax fees consisted of fees related to tax consultancy and advisory that are outside the scope of

financial audits and reviews, and for which management remained responsible for applying business judgment to make implementation decisions.

(4) All other fees consisted of one-time, non-recurring special projects/consulting services.

The Audit Committee has reviewed the nature of non-audit fees rendered by SGV & Co. and the corresponding fees and concluded that these are not significant to impinge on the independence of the auditors. The Audit Committee has an existing policy which prohibits the Company or any of its subsidiaries from engaging the independent auditors to provide services that may adversely impact their independence, including those expressly prohibited by SEC regulations. In addition, the Audit Committee pre-approves all audit and permitted non-audit services provided by the external auditors. It is expected that the external auditors will continue to provide certain non-audit services including tax-related services to the Company and its subsidiaries. At the Annual Stockholders’ Meeting held last 4 April 2005, SGV & Co., were reappointed as the Company’s auditors for the year 2005.