SEC Form 17Q - 4Q 2005 1

SEC Number 1177 File Number ____

GLOBE TELECOM, INC. (Company’s Full Name)

5th Floor Globe Telecom Plaza (Pioneer Highlands) Pioneer corner Madison Streets, 1552 Mandaluyong City

(Company’s Address)

(632) 730-2000 (Telephone Numbers)

31 December 2005 (Quarter Ending)

SEC FORM 17-Q (Form Type)

SEC Form 17Q - 4Q 2005 2

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-Q

QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER

1. For the quarterly period ended 31 December 2005 2. Commission identification number: 1177 3. BIR Tax Identification No. 000-768-480-000 4. Exact name of registrant as specified in its charter: GLOBE TELECOM, INC. 5. Province, country or other jurisdic tion of incorporation or organization: PHILIPPINES 6. Industry Classification Code: (SEC Use Only) 7. Address of registrant’s principal office: 5th Floor, Globe Telecom Plaza (Pioneer Highlands) Pioneer corner Madison Streets 1552 Mandaluyong City 8. Registrant’s telephone number, including area code: (632) 730-2000 9. Former name, former address and former fiscal year, if changed since last report: Not Applicable 10. Securities registered pursuant to Sections in Securities Regula tion Code Number of shares of stock Title of each class outstanding Common Stock, P50.00 par value 131,900,430 Preferred Stock, P5.00 par value 158,515,021 11. Are any or all of the Securities listed on the Philippine Stock Exchange? Yes 12. Indicate whether the registrant:

a) Has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the SRC and SRC 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 the registrant was required to file such reports). Yes

b) Has been subject to such filing requirements for the past 90 days. Yes

SEC Form 17Q - 4Q 2005 3

PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Our unaudited consolidated financial statements include the accounts of Globe Telecom, Inc. and its wholly owned subsidiaries, Innove Communications, Inc.(“Innove”) and G-Xchange, Inc. (“GXI”), collectively referred to as the “Globe Group” in this report. The unaudited consolidated financial statements for the full year ended 31 December 2005 have been prepared in accordance with generally accepted accounting principles in the Philippines (“Philippine GAAP”) and are filed as Annex I of this report. ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”) The following is a discussion and analysis of Globe Group’s financial performance for the full year ended 31 December 2005. The prime objective of this MD&A is to help the readers understand the dynamics of our Company’s business and the key factors underlying our financial results. Hence, our MD&A is comprised of a discussion of our core business, and our analysis of the results of operations for each business segment. This section also focuses on key statistics from the consolidated financial statements and pertains to known risks and uncertainties relating to the telecommunications industry in the Philippines where we operate up to the stated reporting period. However, our MD&A should not be considered all inclusive, as it excludes unknown risks, uncertainties and changes that may occur in the general economic, political and environmental condition after the stated reporting period. Our MD&A should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes. All financial information is reported in Philippine Pesos (Php) unless otherwise stated. Any references in this MD&A to “we”, “us”, “our”, “Company” mean the Globe Group and references to “Globe” mean Globe Telecom, Inc., not including its wholly owned subsidiaries. Additional information about our Company, including annual and quarterly reports, can be found on our corporate website www.globe.com.ph.

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The following is a summary of the key sections of this MD&A:

OVERVIEW OF OUR BUSINESS........................................................................................................................................................................ 5 KEY PERFORMANCE INDICATORS ................................................................................................................................................................ 9 FINANCIAL AND OPERATIONAL RESULTS ................................................................................................................................................. 11

GROUP FINANCIAL HIGHLIGHTS......................................................................................................................................................................... 11 GROUP RESULTS OF OPERATIONS..................................................................................................................................................................... 12 GROUP OPERATING REVENUES................................................................................................................................................................. 12

GROUP OPERATING REVENUES BY SEGMENTS...................................................................................................................................... 13 OTHER GLOBE GROUP REVENUES......................................................................................................................................................... 22

GROUP OPERATING EXPENSES.................................................................................................................................................................. 24 LIQUIDITY AND CAPITAL RESOURCES ....................................................................................................................................................... 28 FOREIGN EXCHANGE AND INTEREST RATE EXPOSURE.......................................................................................................................... 31 RECENT DEVELOPMENTS ............................................................................................................................................................................. 33 OTHER MATTERS ........................................................................................................................................................................................... 35

MAJOR STOCKHOLDERS................................................................................................................................................................................... 35 BOARD OF DIRECTORS..................................................................................................................................................................................... 35 KEY OFFICERS............................................................................................................................................................................................. 35

ANNEX I............................................................................................................................................................................................................ 36

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OVERVIEW OF OUR BUSINESS Our company is a leading telecommunications company in the Philippines. We continue to grow and engage our customers through our clear commitment of “Making Great Things Possible”. The Globe Group is comprised of the following three focused companies:

• Globe provides our wireless telecommunications services; • Innove, a wholly-owned subsidiary, provides our fixed line telecommunications services and

information and communications infrastructure and services for internal applications, internet protocol-based solutions and multimedia content delivery. Innove currently offers cellular services under the TM prepaid brand. The TM brand is supported in the integrated cellular networks of Globe and Innove; and

• As part of its wireless business, Globe also provides mobile commerce services through its wholly-

owned subsidiary, G-Xchange, Inc. (GXI) which was incorporated in 2004. Wireless Business: Products and Services Our Company offers its wireless services including local, national long distance, international long distance, international roaming and other value-added services through three brands: Globe Handyphone, Globe Handyphone Prepaid and TM. Globe Handyphone is the postpaid brand of Globe. This includes all postpaid plans such as G-Plans and consumable G-Flex Plans, Platinum (for the high-end market), and GlobeSolutions (for corporate and business needs). Globe Handyphone Prepaid and TM are the prepaid brands of the Globe Group. Each brand is positioned at different market segments. Globe Handyphone Prepaid is focused on the broad market classes while TM is focused on mass-based market classes. To cater to a wide variety of our prepaid subscribers, we provide various top up facilities at each subscriber’s convenience. Our Globe Handyphone Prepaid and TM subscribers can reload airtime value or credits using various reloading channels. They can purchase Globe Prepaid Call and Text cards in P100, P300 and P500 denominations while TM Call and Text cards are available in P50, P100 and P300. They can also utilize Globe AutoloadMAX, our over-the- air (OTA) reload channel, which offers the most affordable and flexible load credits in P1 increments from P10 to P150 for our TM subscribers, and P25 to P150 for our Globe Handyphone Prepaid subscribers. Globe AutoLoadMAX is available in over 700 thousand retailers nationwide. Subscribers can also top up using bank channels like ATMs, credit cards, Internet banking and Bank of the Philippine Islands (BPI) 24 Hour Call Center, Express Phone. A consumer to consumer top up facility, Share A Load, is also available whereby our Globe Handyphone Prepaid and TM subscribers can share prepaid load credits among themselves in denominations of P1 to P150 (in P1 increment). In addition, our Globe Handyphone Postpaid subscribers can Share A Load to our prepaid subscribers in P1 to P150, P300 and P500 denominations. The newest reloading channel is G-Cash Load, where Globe Handyphone Prepaid and TM subscribers can top up their own or somebody else’s

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mobile phone by converting their G-Cash to prepaid load credits in P25 increments for P25 to P150 denominations. Moreover, G-Cash Load provides an automatic 5% G-Cash rebate on all G-Cash Load transactions. Additionally, Globe has customized services and benefits to address specific market segments, each with its own unique positioning and service offerings: Globe Gizmo Prepaid to cater to kids, GenTxt for the mainstream youth, Globe Girlfriends for females and Globe Kababayan for the Overseas Filipino Worker(OFW) and their families in the Philippines and Platinum, a service offering for the high-end/users market. Globe also provides our subscribers with mobile payment and remittance services under the G-Cash brand. G-Cash was formally launched last October 2004. This service enables our subscribers to perform international and domestic remittance transactions, pay annual business registration fees, income taxes for professionals, and utility bills, avail of micro-finance transactions, donate to charitable institutions, and buy Globe prepaid reloads.

Wireline Business: Products and Services

Innove, a wholly-owned subsidiary, provides our wireline voice communications 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. On June 17, 2005, Innove was awarded by the National Telecommunications Commission (NTC) with a nationwide franchise for our wireline business, allowing us to expand our network to bring together the whole nation. Under Globelines, we offer the following products and services to cater to a wide variety of our subscribers: Globelines provides state-of-the-art digital communications technologies to homes and small and medium enterprises. With the availability of postpaid or prepaid options, subscription to Globelines comes with standard features and value-added services such as IDD, NDD, Phone Lock, Caller ID, Call Waiting, Multi-Calling, Call Forwarding, Voice Mail and Duplex Number. Business Plus is a feature packed yet cost-effective telephone system that lets our clients enjoy big business efficiency on a small business overhead. Globelines Broadband is a high speed internet connection that keeps our subscribers online all the time and gets instant access to communication, knowledge and entertainment. Globe1 is our one-card for all communications needs. This prepaid card allows our customers to call using our Globelines landline, Globe Payphone, Globe Handyphone and TM. This versatile and convenient product is offered in denominations of P100 and P300 and is available in our Globelines Payments and Services Centers and prepaid card dealers.

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For our wireline data services, Innove’s GlobeQUEST brand offers end-to-end corporate data solutions including international and domestic data services, wholesale and corporate internet access services, data center services and segment-specific solutions customized to the needs of vertical industries. Under GlobeQUEST,we offer the following products and services to cater to a wide variety of our corporate clients: GlobeQUEST Broadband Internet offers our clients a complete range of Internet services that operate at broadband speeds over Innove’s Internet backbone which is the largest in the Philippines at more than 2.5 Gbps. These services cater to both wholesale and corporate customers, among them are:

• Burstable GIX – this flexible package allows customers to start with minimum bandwidth required and scale up to high speed level depending on the actual growth of their internet traffic. Primarily used by wholesale customers and large enterprises, this service provides the pricing flexibility that supports the ever-changing business requirements of these companies.

• Internet Direct – offers guaranteed service levels delivered over leased line facilities, especially offered to run mission-critical applications.

• Corporate DSL services – has three main variants: Basic, Pro, and Pro+. These variants differ in service level guarantees, and value-added services packaged with it.

• Universal Access services – These are subscription plans available for corporate users, which enables WiFi and dial up access through a single user account.

WIZ (Wireless Internet Zone), powered by GlobeQUEST, is Innove’s brand for its WiFi (Wireless Fidelity)-enabled network providing broadband access on 802.11b/g in strategic locations called “hotspots” such as airports, hotels, coffee shops and business lounges. WIZ has more than 200 hotspots to date, including deployment to “hotzones” such as Ayala Center Greenbelt and Glorietta malls, Ayala Center Cebu, Alabang Town Center, NCCC Mall in Davao, Supercat Terminals in the Visayas, Mactan International Airport and Davao International Airport. WIZ also provides the infrastructure and internet access to Innove’s WorldPass, Globe’s Handyphone through Wiz On (text to 2333) service, and to GlobeQUEST-owned Universal Access and DSL corporate customers. WIZ also provides international roaming service with its partners, GoRemote, iPass, T-Systems among others. GlobeQUEST Private Networks offers a variety of dedicated communications services that allow customers to run various data applications, access LANs or corporate intranets and extranets with integrated voice services on high speed, efficient and reliable connections. These include domestic and international leased lines, frame relay, IPVPN, and remote access services. International data services are offered in partnership with global network service providers. GlobeQUEST DataCentres optimizes the security of mission-critical information and applications through secure data centers operated and supported by a team of IT experts. In August 2005, GlobeQUEST took over the operations of Global Data Hub in Pasong Tamo, which brought its data centers to six (6) commercially available data centers, namely: MK1 (Valero Data Center), MK2 (Pasong Tamo), MD1 (Sheridan), MD2 (Pioneer), Cebu and Laguna DataCentres. These offer complementary services to GlobeQUEST network services, ensuring that corporate customers are given end-to-end capabilities and solutions. GlobeQUEST Corporate Voice provides a full suite of telephony services, from basic direct lines to ISDN services, 1800-, IDD and NDD access, as well, as managed voice solutions which enables companies to access advanced telecommunications technology, such as managed IP communications. With the advent of

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VOIP technology, GlobeQUEST is introducing new functionalities on their Corporate Voice portfolio which will drive the voice business. GlobeQUEST BroadBand Access is a network access solution that provides our customers ultra-high speed fiber optic network connectivity, over a fully redundant and diverse DWDM-based fiber backbone, designed for wholesale and corporate customers with huge bandwidth requirements, mission-critical applications and rapidly growing needs, which demand uninterrupted access for their business operations. This service offering ranges from high speed leased lines to Ethernet services and even Escon or fibre channel connections for disaster-recovery service connectivity. Today, these services are heavily used by service providers, call centers and BPO (Business Process Outsourcing) companies, as well, as banking and manufacturing institutions.

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KEY PERFORMANCE INDICATORS Our Company acknowledges the importance of our shareholders and is dedicated to optimize profitability and efficiently manage our use of capital resources with a view to increasing shareholder value. We constantly review and monitor our activities and key performance indicators which we believe are important to measuring whether the implementation of our operating and financial strategies, plans and programs are successful. Some of our key performance indicators are set out below. Except for Net Income, these key performance indicators are not measurements in accordance with Philippine GAAP and should not be considered as an alternative to net income or any other measure of performance which are in accordance with Philippine GAAP. GROSS AVERAGE REVENUE PER UNIT (GROSS ARPU) Gross ARPU measures the average monthly gross revenue generated for each subscriber. This is computed by dividing recurring gross service revenues for a business segment for the period by the average number of the segment’s subscribers and then dividing the quotient by the number of months in the period. NET AVERAGE REVENUE PER UNIT (NET ARPU) Net ARPU measures the average monthly net revenue generated for each subscriber. This is computed by dividing recurring net operating service revenues of the segment for the period (net of discounts and interconnection charges to external carriers) by the average number of the segment’s subscribers and then dividing the quotient by the number of months in the period. SUBSCRIBER ACQUISITION COST (SAC) SAC is computed by totaling marketing costs (including commissions and handset/SIM subsidies) for the segment divided by the gross incremental subscribers and then divided by the number of months in the period. AVERAGE MONTHLY CHURN The average monthly churn rate is computed by total disconnections (net of reconnections) for the segment divided by the average number of the segment’s subscribers, and then divided by the number of months in the period. This is a measure of the average number of customers who leave/switch/change to another type of service or to another service provider and is usually stated as a percentage. EBITDA EBITDA is defined as earnings before interest, taxes, depreciation and amortization and other income/expense. The Globe Group uses EBITDA as an operating performance benchmark and defines it as Net Operating Revenues less Cost of Sales and Operating Expenses. Globe Group’s method of calculating EBITDA may differ from other companies, hence, may not be comparable to similar measures presented by other companies.

EBITDA MARGIN EBITDA margin is calculated as EBITDA divided by total net service revenues. Total net service revenues is equal to total net operating revenues less non-service revenues. This is useful in measuring the extent to which cash operating expenses use up revenue.

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EBIT EBIT is defined as earnings before interest, other expenses and income taxes. This measure is calculated by deducting depreciation and amortization from EBITDA. Globe Group’s method of calculating EBIT may differ from other companies, hence, may not be comparable to similar measures presented by other companies. NET INCOME As presented in the unaudited consolidated financial statements for the full years ended 31 December 2005 and 2004, net income provides an indication of how well our Company is performing after all costs of the business have been factored in. See “Financial and Operational Results” below.

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FINANCIAL AND OPERATIONAL RESULTS

GROUP FINANCIAL HIGHLIGHTS For the Full Year ended 31 December 2005

• Net income for 2005 declined by 9% year-on-year. Key driving forces were soft revenues in the first half of the year offset by stronger performance in the latter half of the year, increased operating and network-related expenses, as well, as higher consolidated income tax rate of 27% for 2005, compared to 10% for 2004, due to adjustments in Innove’s deferred tax assets and after Innove’s shift into a taxable income position subject to the regular corporate tax rates in 2005. The tax holiday granted to Globe ended last March 2005.

• Capital expenditures decreased by 30% year-on-year as Globe is close to completing its aggressive

network expansion, finishing the year with 5,159 cell sites increasing coverage to 92% of all municipalities and 97% of the Philippine population.

• Free cash flow remains strong at P19.4 billion by year end from P12.1 billion in 2004 due to lower

capital investments during the year. • Basic EPS reached P76.74 in 2005 from P80.92 in 2004 while diluted EPS was P76.60 and P80.78

for 2005 and 2004, respectively. For the Quarter ended 31 December 2005

• Strong top line performance for the quarter with 8% quarter-on-quarter growth in consolidated service revenues to P14.6 billion. Normalized revenue growth from the previous quarter was 4%.

• Consolidated EBITDA margins sustained at third quarter level of 60%.

• Quarterly net income, including foreign exchange and MTM gains, improved quarter-on-quarter by

74% to P3.9 billion.

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GROUP RESULTS OF OPERATIONS The following table details the consolidated results of operations for the Globe Group for the fourth and third quarter of 2005, and the full year ended 31 December 2005 and 2004.

KEY DRIVERS (In millions of pesos)

Q4

2005

Q3 2005

QoQ

Change (%)

31 Dec 2005

31 Dec 2004

(Audited)

YoY Change

(%)

Profit & Loss Data (As restated) 1 Net Operating Revenues ………………………… 15,381 14,805 4% 58,748 55,609 6%Service Revenues

…………………………………… 14,629 13,540 8% 54,897 52,741 4% Non-Service Revenues………………………………. 752 1,265 -41% 3,851 2,868 34% Costs and Expenses ……………………………… 9,898 11,523 -14% 44,566 42,886 4% Cost of Sales…………………………………… 991 1,717 -42% 6,025 6,675 -10% Operating Expenses …………………………… 5,574 5,013 11% 20,751 16,039 29% Depreciation and Amortization……………….. 4,148 4,020 3% 15,734 14,706 7% Financing………………………………………. (370) 1,002 -136% 3,141 6,327 -50% Interest Income………………………………… (155) (137) 13% (520) (454) 15% Others - net……………………………………. (291) (92) 216% (578) (407) 42% Equity-Net Losses of An Associate & JV…….. 100% 13 0 100% EBITDA …………………………………………… 8,816 8,075 9% 31,972 32,895 -3% EBITDA Margin………………………………….. 60% 60% 58% 62% EBIT ………………………………………………. 4,668 4,054 15% 16,238 18,189 -11% Provision for Income Tax………………………... (1,609) (1,055) 53% (3,867) (1,327) 191% Net Income …………………………….................. 3,874 2,227 74% 10,315 11,396 -9%

_________________________________ 1 Prior period figures have been restated due to the adoption of various Philippine Accounting Standards (PAS) and Philippine Financial Reporting

Standards (PFRS) on 1 January 2005. (See related discussion in the attached financial statements)

GROUP OPERATING REVENUES Service Revenues For the full year 2005, the Globe Group’s total net operating revenues improved by 6% to P58,748 million from P55,609 million in 2004 while total net service revenues increased by 4% to P54,897 million in 2005 from P52,741 million in 2004. Wireless service revenues, which accounted for 88% of net service revenues in 2005, grew by 3% year-on-year to P48,481 million. Meanwhile, wireline service revenues, which accounted for the remaining 12% of net service revenues in 2005, grew by 13% year-on-year to P6,416 million. Non-Service Revenues We also registered non-service revenues of P3,851 million for the full year 2005, a 34% increase from last year’s P2,868 million due mostly to higher year-on-year handset sales contributed by subscriber acquisitions. Non-service revenues are reported net of discounts on phonekits and SIM (Subscriber Identification Module) packs. The cost related to the sale of handsets and SIM packs are shown under cost of sales. The difference between non-service revenues and cost of sales is referred to as subsidy. For the full year 2005, subsidies dropped by 43% to P2,174 million from P3,807 million in 2004. This is in line with the decline in gross subscriber additions following the end of the SIM swap activities last May 2005, and as part of an overall thrust to reduce subsidies in favor of more cost-effective subscriber acquisition and loyalty programs.

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GROUP OPERATING REVENUES BY SEGMENTS

Globe Group

For the full year ended (in millions of pesos) 31 December 2005

31 December 2004 YoY change

(%) Wireless 52,229 49,903 5% Service Revenues…………………………………………….. 48,481 47,054 3% Non-Service Revenues………………………………………. 3,748 2,849 32% Wireline 6,519 5,706 14% Service Revenues……………………………………………… 6,416 5,687 13% Non-Service Revenues……………………………………….. 103 19 442%Net Operating Revenues………………………………………. 58,748 55,609 6%

A. Wireless Business

Globe For the full year ended (in millions of pesos) 31 December

2005 31 December 2004 YoY change

(%) Service 48,481 47,054 3% Voice 1 ….…………………………………………………….. 28,945 27,630 5% Data 2..………………………………………………………… 19,536 19,424 1% Non-Service 3….………………………………………………….. 3,748 2,849 32%Wireless Net Operating Revenues…………………..…………… 52,229 49,903 5%

1 Wireless voice net service revenues include the following: a) Monthly service fees on postpaid plans & subscription fees on prepaid services; b) Charges for intra-network and outbound 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; c) Airtime fees from prepaid reload denominations (for Globe Handyphone Prepaid and TM) for intra network and outbound calls 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 net of (i) bonus credits* ii) prepaid reload discounts; and

d) Revenues generated from inbound international and national long distance calls and international roaming calls; and Revenues from (a) to (d) are net of any interconnection or settlement payouts to international and local carriers. * Included airtime on SIM cards provided under Globe’s SIM swap program which was concluded last May 2005.

2 Wireless data net service revenues consist of revenues from value-added services such as inbound and outbound SMS and MMS, content downloadin g and infotext net of any interconnection or settlement payouts to international and local carriers and content providers.

3 Wireless non-service revenues consist principally of sales of handsets, phonekits, accessories and SIM packs. Overall, the wireless business recorded a 5% year-on-year increase on its net operating revenues to reach P52,229 million for the full year ended 31 December 2005. This is mainly attributable to growth experienced in both our voice and data sectors, as well, as in our non-service revenues. These results are further driven by the following key drivers set out in the table below:

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KEY DRIVERS

Q4 2005

Q3

2005

QoQ

Change (%)

31 Dec 2005

31 Dec 2004

YoY Change

(%)

Cumulative Subscribers (or SIMs*) – Net (End of period) 12,403,575

12,409,238

- 12,403,575 12,513,973 -1%

Postpaid . ………………………………… 594,142 613,929 -3% 594,142 630,495 -6% Prepaid .…………………………………… 11,809,433 11,795,309 - 11,809,433 11,883,478 -1% Globe Handyphone Prepaid ……………… 8,699,687 9,227,769 -6% 8,699,687 10,185,154 -15% TM ………………………………………… 3,109,746 2,567,540 21% 3,109,746 1,698,324 83% Average Revenue Per Subscriber (ARPU) Gross ARPU Postpaid . ……………………………………… 2,349 2,199 7% 2,246 2,138 5% Prepaid1 Globe Handyphone Prepaid ……………… 399 351 14% 378 422 -10% TM …………………………………………… 350 281 25% 333 288 16% Net ARPU Postpaid . ………………………………… 1,722 1,588 8% 1,635 1,605 2% Prepaid Globe Handyphone Prepaid ……………. 288 255 13% 268 305 -12% TM ………………………………………… 250 182 37% 214 183 17% Subscriber Acquisition Cost (SAC) Postpaid . ………………………………… 4,303 5,462 -21% 7,026 9,886 -29% Prepaid Globe Handyphone Prepaid ……………. 205 301 -32% 248 267 -7% TM ………………………………………… 59 144 -59% 90 151 -40% Average Monthly Churn Rate (%) Postpaid . ………………………………… 2.6% 4.4% 3.1% 2.6% Prepaid Globe Handyphone Prepaid ……………. 8.2% 8.3% 7.8% 5.5% TM ……………………………………….... 6.7% 10.2% 9.5% 12.7% Wireless Data Net Service Revenues (in millions of pesos)…………………….... 4,918

4,661 6% 19,536

19,424 1%

Wireless Data as a % of Wireless Net Service Revenues…………………………….

38%

41% 40%

41%

Wireless Data Net Service Revenues includes……………………………………..

Regular SMS……………………………. 82% 83% 83% 81% International SMS………………………. 8% 8% 8% 9% Value-Added Services…………………… 10% 9% 9% 9% ______________________________________ *The word “subscriber” may be used interchangeably with the term “SIM.” 1 Revenue from a prepaid subscriber is realized upon actual usage of the airtime value (pre-loaded airtime value of SIM cards and subsequent top-ups) for voice, SMS, MMS, content downloading and infotext services net of free SMS allocation, bonus credits (included airtime on SIM cards provided under Globe’s SIM swap program which was concluded last May 2005) or the expiration of the unused value, whichever comes earlier. 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 are shown under the liabilities section of the balance sheet since the service has not yet been rendered.

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Wireless net service revenues registered a 3% year-on-year growth from P47,054 million to P48,481 million for the full year 2004 and 2005, respectively. This 3% growth was driven by a 5% increase in voice service revenues, particularly in international voice and roaming services, despite a 1% drop in wireless subscribers. Total gross subscriber additions for the full year 2005 decreased by 2% year-on-year to 11.6 million compared to 11.9 million in 2004. On the other hand, net additions contracted by 103% to a net reduction of 110,000 subscribers for the full year 2005 against 3.7 million net additions in 2004, hence, a higher churn rate of 7.9% at the consolidated level from 6.4% in 2004. The higher year-on-year consolidated churn was driven by higher terminations of non-revenue generating subscribers in the Globe Handyphone Prepaid segment. Non-revenue generating subscribers for Globe Handyphone Prepaid relates to subscribers acquired during the SIM-swapping activities that were subsequently churned out after their second expiry. In addition, there were also non-revenue generating subscribers related to “trade scooping,” where large volumes of SIMs are purchased in order to take advantage of SIM-swap activities in the market. The free SIM-swap program, which was launched in February 2004 allowed subscribers of another mobile network to switch to Globe by exchanging their active SIM cards for Globe Handyphone Prepaid or TM SIMs. This elevated level of churn involving non-revenue generating subscribers is not expected to recur as the SIM-swap program was discontinued in May 2005. Wireless data net service revenues increased by 1% to P19,536 million in 2005 from P19,424 million in 2004. To encourage brand loyalty and stimulate usage of wireless data services, Globe launched its CelebRATE! promotion last June 2005 that offered discounted call and text rates for intra-network calls and text messages. This promotion included the Globe Text NonStop offer that allows heavy SMS users the option to send unlimited intra-network text messages for P15 for 1 day, P25 for 2 days and P50 for 5 days. This offer was later supplemented with a P100 option for 10 days of unlimited text messaging. TM also launched its own Todo Text promotion which had P10 for 1 day, P25 for 3 days and P50 for 7 days denominations which has been extended to February 2006. To encourage subscribers to try the promotion, TM came up with its TM Todo Text Sampler that allows subscribers free unlimited text for 5 days for a minimum P25 load. TM subscribers were also offered a low text messaging rate of P0.75 per message sent and this promotion has been extended to 14 February 2006. Other promos launched to drive usage of wireless data services include Visibility service, which provides data access via GPRS, EDGE, WiFi and dial-up transport channels on a pay-per-use arrangement or four universal access plans, and GPRS Discounted Off-Peak Rate promotion which allows subscribers to avail of a 33% discount (P0.10 per kilobyte) on Globe’s GPRS (General Packet Radio Service) rates when used from 12 midnight to 8 am (launched in the fourth quarter of 2005). Postpaid

For the full year ended 2005, our postpaid sector comprised approximately 5% of our total subscriber base. The postpaid subscriber base reached 594,142 in 2005 which is 6% lower than the previous year. This is mainly due to the increased incidence of Globe-initiated credit-related terminations resulting in a slight increase in average monthly churn of 3.1% in 2005 from 2.6% in 2004. Based on the Company’s policy on 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. However, despite the slightly higher monthly churn rate in 2005, we posted a 30% increase in gross additions registering 191,732 subscribers from 148,015 generated in 2004 due to our aggressive subscriber acquisition campaigns and promotions. The net reductions in our postpaid sector were also 33% lesser at 36,353 compared to 54,531 subscribers in 2004.

SEC Form 17Q - 4Q 2005 16

Our postpaid segment contributed an average net ARPU of P1,635, an increase of 2% from last year’s average of P1,605 while gross ARPU increased by 5% to P2,246 from P2,138. The slight increase in both gross and net ARPU was due to a richer subscriber mix , as well, as higher voice usage resulting from usage and tariff promotions launched in the second half of 2005. Given the intense price competition, Globe started a number of value promotions during the second and third quarters of 2005 which addressed key segments and specific consumer needs. For heavy voice users within our network, we offered Globe CelebRATE! Call (P10 for a 3-minute call). For IDD users, we introduced Budget IDD rates at US$0.20, starting on the first minute, for IDD calls to selected destinations. (See related discussion in “Other Globe Group Revenues – International Long Distance Services” section) Additionally, on 17 December 2005, Globe led the market with its launch of the 10 centavos/second call promo, which allowed intra-network calls on a per-second charging basis aimed at increasing voice usage among its subscribers. Due to the positive response from our subscribers, this promo has been extended through 14 February 2006.

As a result of our deliberate shift to a more focused approach in targeting consumer segments, acquisition subsidies were reduced, resulting in a 29% drop in SAC to P7,026 in 2005 from P9,886 in 2004. Handset subsidies merely comprised 86% of total SAC compared to 95% in 2004.

Prepaid

For the full year 2005, our prepaid segment made up 95% of our total subscriber base. 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. The first expiry periods of reloads vary depending on the denominations, ranging from 1 day for P10 to 60 days for P300 to P1,000 reloads. The second expiry is 120 days from the date of the first expiry. The first expiry is reset based on the longest expiry period among current and previous reloads. Under this policy, subscribers are included in the subscriber count until churned.

Acknowledging the changing dynamics of the industry and the introduction of the SIM-swap program, Globe updated its policy in recognizing a subscriber in its total count based on the subscriber intent to use the service. Starting the third quarter of 2004, a SIM-swapper was only considered a subscriber upon making the first reload. Non-SIM swap subscribers or regular subscribers are recognized upon activation and use of a new SIM. Accordingly, subscribers not considered in the subscriber count were not considered as part of churn. However, the nationwide SIM-swap program has since been discontinued beginning May 2005. Overall, our consolidated prepaid subscribers decreased by 1% to 11.8 million in 2005 from 11.9 million in 2004, as Globe culled out the non-revenue generating subscribers related to its SIM swap program starting May 2005. Net incremental prepaid subscriber base fell by 74,075 in 2005 compared to the 3,708,621 incremental prepaid subscribers generated in 2004. However, gross prepaid additions remained strong driven mostly by 57% year-on-year growth in gross additions from the TM brand from 2.6 million in 2004 to 4.1 million in 2005. Globe Handyphone Prepaid likewise added 7.3 million subscribers in 2005 but registered a 19% decrease compared to the 9.1 million new subscribers in 2004. The current subscriber counts and churn rates for our prepaid segment have been heavily influenced by the SIM-swap program. The succeeding sections discuss Globe Handyphone Prepaid and TM in more detail.

SEC Form 17Q - 4Q 2005 17

Globe Handyphone Prepaid

The Globe Handyphone Prepaid subscriber base totaled 8.7 million by the end of 2005 which is 15% lower than the 10.2 million subscribers in 2004. Due to stiff competition and the termination of the free SIM-swap program, gross additions for 2005 decreased by 19% to 7.3 million subscribers from 9.1 million in 2004 The average monthly churn rate also reached 7.8% in 2005 compared to 5.5% for the previous year mainly due to the termination of non-revenue generating subscribers, which were mainly SIM-swappers and “trade scoopers” who were subsequently churned out after their second expiry.

Of the total full year disconnections of 8.8 million, approximately 58% or 5.1 million of the terminated subscribers were related to SIM swap activities or non-revenue generating subscribers. During the fourth quarter, 51% of Globe Handyphone Prepaid churn was contributed by the expiry of these non-revenue generating SIMs. Of the 51%, 31% came from disconnections related to previous SIM-swap offers while the remaining 69% came from trade scooping activities. Another 4% was related to the immediate disconnection of ISR SIMs captured in our fraud monitoring system. As such, only 45% of the total churn for the quarter related to “normal churn.” Normal monthly churn rate for Globe Handyphone Prepaid was at 3.7%. Based on the Company’s churn policy, the last of the non-revenue SIMs were churned during the fourth quarter of 2005, after the lapse of their second expiry period. Gross and net ARPUs for Globe Handyphone Prepaid decreased by 10% and 12% respectively, despite higher voice and data usage during the last quarter of 2005, due to flat revenues in the earlier quarters as a result of competition and price-discounting promotions launched during the year. The increased traffic volume during the fourth quarter can be attributed to the Text NonStop offer, P10 for a 3 minute call, Budget IDD Rates and the 10 centavos/second call promotions, as well as traditional heavy usage with the year-end holidays. SAC dropped by 7% to P248 in 2005 from P267 the previous year due to lower gross subscriber acquisitions and SIM pack subsidies. In 2005, handset subsidies comprised 40% of total SAC while advertising and promotions contributed 57% and commissions made up the balance of 3% compared to 63%, 35% and 2%, respectively, in 2004. TM

2005 was a banner year for TM as it posted gains on all key operating metrics – gross and net acquisitions, churn rates, ARPUs, and SACs. Cumulative TM subscribers reached 3.1 million by the end of 2005 after a 57% increase in gross additions and an outstanding 618% improvement in net additions compared to 2004. The relaunch of TM in January 2005, supported by competit ive value promotions resulted in significant acquisitions for the brand. The average monthly churn rate for TM registered at an improved rate of 9.5% for the full year 2005 against the 12.7% in 2004. TM’s churn in 2005 was affected by Globe-initiated terminations of TM SIMs found engaging in International Simple Resale (ISR) activities which are illegal in the Philippines. For the full year 2005, terminations due to ISR activities accounted for 29% of total year-to-date churn. Excluding terminations due to ISR activities, the average monthly churn rate for the full year 2005 would only be at 6.7%. Because of early detection of this illegal usage and the immediate SIM disconnection,

SEC Form 17Q - 4Q 2005 18

the impact to the Company’s financial performance has been minimized. (See related discussion in ILD section) Gross and net TM ARPU in 2005 improved by 16% and 17% year-on-year compared to 2004. The increased ARPU was driven by higher voice and data usage by TM subscribers on account of the Todo Tawag 15/15 (P15 for a 15 minute call), 10 centavos/second call and Todo Text promotions. SAC dropped by 40% to P90 in 2005 from P151 the previous year due to higher gross subscriber acquisitions despite increased SIM pack subsidies. In 2005, handset subsidies comprised 38% of total SAC while advertising and promotions contributed 60% and commissions made up the balance of 2% compared to 77%, 20% and 3%, respectively, in 2004.

G-Cash With G-Cash celebrating its first year anniversary, it continues to grow and establish presence in the mobile commerce industry. From G-Cash’s initial thrust towards money-transfers, purchase of goods and services from retail outlets, and sending and receiving domestic and international remittances, the service, over a span of one year, created a whole new series of creative possibilities in the field of mobile commerce. Today, G-Cash allows Globe and TM subscribers to pay for the following using their mobile phone’s text messaging service: • utility bills • interest and amortization of loans • insurance premiums • donations to various institutions and organizations • sales commissions • school tuition fees • micro tax payments (for annual business registration) As of 31 December 2005, there were over 1.2 million registered users of G-Cash generating an average of almost P3 million in total daily transactions from over 500 partner establishments with over 4,500 outlets nationwide including more than 200 international partner outlets in 14 countries.

SEC Form 17Q - 4Q 2005 19

B. Wireline Business In order to meet focused customer demands and grow specific market segment opportunities, Innove organized its businesses into two main groups – Residential & Business and Corporate. The Residential & Business group, which operates under the Globelines brand, handles the consumer and the small and medium business (SME) segments. On the other hand, the Corporate group, which operates under the GlobeQUEST brand, is in charge of enterprises, wholesalers, resellers and our channel partners. As Innove is adopting “customer-centric” market approach, which allows it to develop products based on specific business requirements and to better serve the varied needs of its customers, it reorganized itself into four (4) focused groups to cover the fixed line and wireless business segments – Residential, SME Business group and two (2) new segments under the Enterprise Business Group or EBG. The EBG was developed in response to the corporate customers’ changing needs and preferences for integrated mobile and fixed line communications solutions. The EBG will consist of EBG Globe Solutions, which is the corporate wireless business group of Globe, and EBG GlobeQUEST, the corporate wireline group of Innove. For the full year 2005, our wireline business recorded a double -digit growth of 14% in total wireline net operating revenues. As shown in the table below, the overall 14% growth is attributable to growth experienced in both our voice and data segments, as well, as in our non-service revenues. Our voice segment grew by 11% year-on-year to register P4.4 billion in net service revenues in 2005 while our data segment posted a 16% year-on-year growth in net service revenues to reach P2.0 billion at the end of the year. Innove 31 December 31 December YoY change For the full year ended (in millions of pesos) 2005 2004 (%) Service 6,416 5,687 13% Voice 1 ……………………………………………………. 4,396 3,945 11% Data 2…………………………………………………….. 2,020 1,742 16% Non-Service Revenues3…………………………………………… 103 19 442%Wireline Net Operating Revenues...…………………………… 6,519 5,706 14%

____________________________________________ 1 Wireline voice net service revenues consist of the following:

a) Monthly service fees including CERA; b) Revenues from local, international and national long distance calls made by postpaid, prepaid wireline subscribers and payphone customers,

net of (i) prepaid and payphone call card discounts (ii) bonus credits and (iii) marketing promotions credited to subscriber billings; c) Revenues from inbound local, international and national long distance calls from other carriers terminating on our network; and d) Installation charges and other one-time fees associated with the establishment of the service. Revenues from (a) and (b) are net of any interconnection or settlement payments to domestic and international carriers.

2 Wireline data net service revenues consist of revenues from: a) International and domestic leased lines; b) Internet services c) Other wholesale transport services and d) Revenues from value-added services.

3 Wireline non-service revenues consist principally of sales of handsets and accessories.

SEC Form 17Q - 4Q 2005 20

Wireline Voice Innove

For the full year ended (in millions of pesos) 31 December 2005

31 December 2004 YoY change (%)

Voice Net Service Revenues ………………………………………................. 4,396 3,945 11% Net Non Service Revenues …………………………………….............. 12 19 -37%Total Voice Operating Revenues………………………………………….. 4,408 3,964 11% The 11% year-on-year growth in our wireline voice segment is mainly attributable to the 11% growth in net service revenues. The key drivers behind this double -digit growth in our voice segment are as follows:

KEY DRIVERS

Q4 2005

Q3 2005

QoQ

Change (%)

31 Dec 2005

31 Dec 2004

YoY Change

(%)

Cumulative Voice Subscribers - Net (End of period)……………................... 362,143

361,998

- 362,143 323,094 12%

Consumer Broadband Subscribers – Net (End of period) 1 ………………….. 22,479

18,255

23% 22,479 7,780 189%

Average Revenue Per Subscriber (ARPU) Gross ARPU……………………………. 1,182 1,193 -1% 1,233 1,272 -3% Net ARPU………………………………. 1,048 1,056 -1% 1,087 1,112 -2% Average Monthly Churn Rate ..…………. 2.2% 1.6% 1.7% 1.5% _________________________________ 1 Broadband subscriptions by existing fixed line subscribers.

As of 31 December 2005, Innove increased its total wireline voice subscribers by 12% to 362,143 from 323,094 in 2004. For 2005 and 2004, 62% of total subscribers were postpaid while 38% were prepaid while business/residential mix was 18:82 for both years. With our growing broadband business, consumer broadband subscribers registered a remarkable year-on-year increase of 189% to 22,479 by the end of 2005. This is attributable to the various marketing promotions and services launched during the third and fourth quarters of 2005 such as the GLBB PC Bundle Promo and the Broadband Sales Blitzes. Traffic volume also increased by 36% year-on-year to 777 million minutes in 2005 from 571 million minutes in 2004 generated from both the postpaid and prepaid segments, due to the increased subscriber base, as well, as the success of promotions launched to increase both domestic and international usage. The increase in subscribers, as well, as the higher traffic volume have contributed to the 11% increase in total net service revenues in 2005. However, due to a drop in collection rates, net and gross ARPUs have registered marginal decreases as shown in the table. Churn rates for 2005 have also slightly increased year-on-year to 1.7% from 1.5%, driven mostly by higher disconnections in the postpaid service due to company-initiated clean up of delinquent accounts.

SEC Form 17Q - 4Q 2005 21

Wireline Data Innove

For the full year ended (in millions of pesos) 31 December 2005

31 December 2004 YoY change

(%) Data International …..…………………………………………………. 679 670 1% Domestic …… ………………………………………………….. 770 644 20% Others 1 …………………………………………………………. 571 428 33% Net Non Service Revenues………………………………………. 92 0 - Total Data Operating Revenues………………………………………….. 2,112 1,742 21% ____________________________________________________________________________________________

1 Includes revenues from value-added services and corporate internet services.

On the wireline data front, total operating revenues grew by a remarkable 21% to P2,112 million at year end from P1,742 million in 2004. This strong revenue growth was driven mostly by DL (Domestic Lease Lines), IPL (International Private Lease Lines) and corporate internet services in terms of better bandwidth and circuit indicators.

SEC Form 17Q - 4Q 2005 22

OTHER GLOBE GROUP REVENUES

International Long Distance (ILD) Services Globe Group

For the full year ended 31 December 2005

31 December 2004

YoY change (%)

Total ILD Revenues (in millions of pesos) ………………………. 13,526 12,622 7% Total ILD Revenues as a percentage of net service revenues…….. 25% 24% Total ILD Minutes (in million minutes) 1…………………………. 1,469 1,271 16% Inbound………………………………………………………… 1,251 1,082 16% Outbound.……………………………………………………… 218 189 15% ILD Inbound / Outbound Ratio (x) …………………………… 5.7 5.7

________________________________________________________________________________________________

1 ILD minutes originating from and terminating to Globe and Innove networks. On a consolidated basis, ILD revenues from the Wireless and Wireline services increased by 7% to P=13,526 million in 2005 compared to P=12,622 million in 2004. The increase was mostly driven by higher traffic during the second half of 2005 due to the strong holiday demand and encouraged by various IDD promotions from the wireless (Globe Budget IDD) and wireline (Globelines Lowest IDD Rates) groups. Both Globe and Innove offer ILD services which covers international calls 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. On 1 June 2005, Globe started its IDD CelebRATE! promo aimed at heavy IDD users among its wireless postpaid subscribers. For selected destinations, the promo offered an IDD rate of US$0.20 per minute after the first 4 minutes, with the first 4 minutes to be charged the prevailing rate of US$0.40 per minute. This promotion subsequently included Globe Handyphone prepaid subscribers and ended on 27 September 2005. On 28 September 2005, the Globe Budget IDD promotion was launched to all wireless subscribers, with a flat rate offering of US$0.20 per minute, starting on the first minute, for IDD calls to 10 destinations namely, US, Canada, China, Malaysia, Hong Kong, Singapore, Thailand, South Korea, Taiwan and Australia. Due to the positive response to this promo, this was subsequently extended to the fourth quarter of 2005 up to February 2006 and now include two additional IDD destinations, United Kingdom and Kuwait. On 14 September 2005, Globelines launched its Lowest IDD rates promotion for its Globelines subscribers, Globe1 card users and Globelines Broadband subscribers. Globelines postpaid subscribers were charged US$0.20 per minute for IDD calls to selected countries while , starting November 2005, Globe1 card users could make IDD calls for P4.50 per minute to 10 destinations from Globelines postpaid and prepaid lines including payphones nationwide. To ensure that the company fully benefits from the increased ILD volume, we continue to actively monitor ISR operations passing through our networks. An ISR operation is a method of terminating inbound international calls without passing through the normal International Gateway Facility (IGF). ISR operations involve routing inbound international calls through pr ivate 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. If

SEC Form 17Q - 4Q 2005 23

ISR operations are unchecked, Globe will not be able to realize the full inbound international revenue and instead earn only 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. To reduce ISR activities, Globe initiated increased detection and blocking procedures including closer coordination of detected ISR lines with other industry players. The Company also implemented arrangements with international carriers to reduce arbitrage opportunities for ISR operators. The Company further tightened its fraud and risk evaluation process for corporate and individual accounts and is implementing legal, commercial and technical solutions to the ISR concern, such as the immediate termination of SIMs detected as being used for ISR operations and the suspension of AutoLoad Max retailers identified as having significant loading transactions to ISR SIMs. The Company has also coordinated with the NTC and other government agencies in addressing this concern. Because of these ongoing efforts, ISR losses have significantly decreased compared to last year. Interconnection Domestically, the Globe Group pays interconnection charges to other carriers for calls originating from its network terminating to other carriers’ networks, and hauling charges for calls that pass through Globe’s network terminating in another network. Internationally, the Globe Group also incurs payouts for outbound international calls. These charges are based on a negotiated price per minute. The interconnection expenses paid as a percentage of gross service revenues for the full year 2005 registered at 19% from 20% for the same period in 2004. The Globe Group also collects termination fees from local and foreign carriers whose calls terminate in Globe Group’s network. 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).

SEC Form 17Q - 4Q 2005 24

GROUP OPERATING EXPENSES For the full year 2005, the Globe Group’s operating expenses increased by 29% to P=20,751 million from P=16,039 million in 2004 as Globe continued its marketing promotions and shouldered increased network operating costs related to its aggressive expansion in the past year. Of the total operating expenses of P20,751 million in 2005, network support or network-related expenses accounted for 43%, marketing contributed 23%, business support added 29% and corporate-related expenses made up the remaining balance of 5%. Globe Group

For the full year ended (in millions of pesos) 31 December 2005

31 December 2004

(As restated) 1 YoY change

(%)

Cost of sales………………………………………………………….. 6,025 6,675 -10% Selling, Advertising and Promotions ……………………………….. 4,697 3,753 25% Staff Costs ……………………………………………………………. 3,519 2,874 22% Utilities, Supplies & Other Administrative Expenses………………… 1,982 1,715 16% Rent……………………………………………………………………. 1,840 1,420 30% Repairs and Maintenance……………………………………………… 1,877 1,325 42% Provisions (Reversal of Allowance) for: Doubtful Accounts ………………………………………………. 616 1,052 -41% Inventory Losses, Obsolescence and Market Decline …………… 80 72 11% Losses on Property and Equipment and Other Probable losses …. 179 (489) -137% Losses on retirement of property and equipment……………………… 734 - 100% Services and Others…………………………………………………….. Professional Fees & Other Contracted Services………………….. 1,496 1,295 16% Insurance and Security Services………………………………….. 1,478 1,035 43% Taxes and Licenses……………………………………………….. 832 616 35% Others ……………………………………………………………. 1,421 1,371 4% Operating Expenses…………………………………………………. 20,751 16,039 29% Depreciation and Amortization ……………….……………………. 15,734 14,706 7% Financing…………………………………………………………….. 3,141 6,327 -50% Equity in Net Losses of An Associate & Joint Venture…………… 13 - 100% Interest Income……………………………………………………… (520) (454) 15% Others – net………………………………………………………….. (578) (407) 42% Costs and Expenses………………………………………………….. 44,566 42,886 4% 1 Prior years’ figures were restated as a result of various PAS adoptions.

Selling, Advertising and Promotions Selling, Advertising and Promotions expenses increased by 25% to P4,697 million in 2005. This is mostly due to increased marketing and promotional activities related to the acquisition and implementation of usage and loyalty campaigns for subscribers, including promotion activities related to the re-launch of the TM brand. Staff Costs

Globe Group

For the full year ended 31 December 2005

31 December 2004

YoY change (%)

No. of Regular Employees ………………………………………………. 4,987 4,956 1% Staff costs grew by 22% to P3,519 million on account of increases in overtime costs and merit adjustments and the full-year impact of employees hired in 2004 (a total of 770 employees were hired in 2004).

SEC Form 17Q - 4Q 2005 25

Utilities, Supplies and Other Administrative Expenses Utilities, Supplies and Other Administrative expenses registered a 16% year-on-year increase to P1,982 million mainly due to higher power and utilities charges to support the Globe Group’s expanded network facilities in 2005. Rent Expenses Rent expenses increased by 30% to P=1,840 million in 2005 due to increases in charges for cell sites, warehouse and interconnection facilities in support of the Globe Group’s continued network expansion. Repairs and Maintenance Expenses Repairs and Maintenance expenses likewise increased by 42% to P1,877 million in 2005 due to additional technical service agreements necessary for the repair and maintenance of the Globe Group’s expanded network facilities and equipment. Losses on Retirement of Property and Equipment Losses on retirement of property and equipment on certain fixed assets of P734 million was recognized as a result of impairment reviews and reconciliation exercise undertaken based on recent count activity. (Please refer to the notes in the attached unaudited consolidated financial statements). Provisions Provisions for doubtful accounts for trade receivables decreased by 44% to P563 million for the full year 2005 compared to P1,011 million in 2004 due to credit handling and system improvements made to address subscriber delinquency issues. Provisions for doubtful accounts for traffic receivables registered at P54 million in 2005 compared to P42 million in 2004. As a result, total provisions for doubtful accounts, including provisions for non-trade accounts, amounted to P=616 million for the full year 2005 against P=1,052 million in 2004.

Globe Group

For the full year ended 31 December 2005

31 December 2004

YoY change (%)

Net Receivable Days ………………………………………………… 60 52 15% Net subscriber receivable days was 60 for 2005 compared to 52 for 2004. The 15% year-on-year increase was due to higher receivables from the wireline business. On inventories and supplies, Globe recognized provisions for inventory losses, obsolescence and market decline of P=80 million in 2005 compared to P=72 million in 2004. The Globe Group also recognized net provisions for losses on property and equipment and other probable losses amounting to P179 million for the full year 2005 compared to P489 million net reversal in 2004. Net reversal of provision in 2004 resulted mainly from favorable developments that led to the non-realization of charges previously provided for.

SEC Form 17Q - 4Q 2005 26

Services and Others Services and Others increased by 21% to P5,227 million as a result of increased marketing and network-related expenses in 2005. The Professional fees and Other Contracted Services expenses also increased by 16% to P1,496 million due to the higher charges on contracted services incurred by the marketing and distribution groups for various subscriber acquisition activities (including related freight, courier and clerical services and consultancy fees). Taxes and licenses increased by 35% to P832 million due to higher NTC spectrum and supervision fees and real property taxes related to the increased number of microwave radio facilities and cellsites. Meanwhile, Insurance and Security Services expenses increased by 43% to P1,478 million brought about by higher insurance premiums and security costs due to the larger number of cellsites and network facilities. Therefore, with the minimal 6% growth in operating revenues and the 29% year-on-year increase in total operating expenses, consolidated EBITDA for the full year 2005 decreased by 3% to P=31,972 million compared to P=32,895 million in 2004, translating to an EBITDA margin of 58% compared to 62% from last year. Depreciation and Amortization Depreciation and amortization on a consolidated basis increased by 7% to P=15,734 million in 2005 compared to P=14,706 million in 2004. This increase reflected the additional depreciation charges related to various telecommunications equipment placed in service during the period as total cellsites increased by 1,423 base stations to 5,159 in 2005. Depreciation is computed using the straight-line method over the estimated useful life (EUL) of the assets, where the weighted EUL of all depreciable assets is set at 9.76 years. Therefore, as a result of the overall increase in depreciation and amortization charges, consolidated EBIT or earnings before interest, other expenses (income) and taxes decreased by 11% year-on-year to P=16,238 million in 2005 compared to P=18,189 million in 2004. Other Income Statement Items Details of Consolidated Other (Income)/Expenses for the full year 2005 and 2004 are as follows: Globe Group

For the full year ended (in millions of pesos) 31 December 2005

31 December 2004

(as restated) 1 YoY change

(%) Financing Costs – net Interest Expense ……………………………………………… 4,658 4,369 7% Loss on derivative instruments – net………………………… 104 - 100% Swap costs and other financing costs…………………………. 682 1,744 -61% Foreign Exchange loss(gain) – net……………………………. (2,303) 214 1,176% 3,141 6,327 -50% Interest Income ………………………………………………….. (520) (454) 15% Equity in Net Loss of an associate and joint venture…………….. 13 0 100% Others – net (578) (407) 42% Total Other (Income) /Expenses………………………………… 2,056 5,466 -62% ______________________________________________________________________

1 Prior years’ figures were restated as a result of various PAS adoptions. Globe registered a 61% decrease in swap costs and other financing charges to P682 million in 2005 from

SEC Form 17Q - 4Q 2005 27

P1,744 million in 2004. Total swap costs accruing on long term currency and interest rate swap contracts amounted to P678 million in 2005, a 56% decrease from the P1,056 million in 2004. Swap costs and other financing costs for 2004 also included bond redemption costs of 2009 Senior Notes amounting to P693 million. (See related discussion in Foreign Exchange and Interest Rate Exposure section). For the full year 2005, the Globe Group registered net foreign exchange gains of P2,303 million compared to a net foreign exchange loss of P214 million last year due to the Globe Group being in a net dollar liabilit ies position and the appreciation of the peso against the US$ from P56.341 to P53.062 at the end of 2005. Also in 2005, the Globe Group adopted PAS 21 which prohibits capitalization of forex gains and losses. (See related discussion on page 28 under Foreign Exchange and Interest Rate Exposure section) Loss on derivatives instrument arose from the mark-to-market valuation of Globe Group’s various financial instruments. (See related discussion in Foreign Exchange and Interest Rate Exposure section) The consolidated provision for current and deferred income tax for the Globe Group increased by 191% to P3,867 million in 2005 from P1,327 million in 2004, mainly as a result of the expiry of the income tax holiday incentive of Globe on 31 March 2005 and Innove’s shift to a taxable income position subject to the regular corporate tax rates in 2005. As a result, our consolidated effective income tax rate was 27% for 2005 compared to 10% in 2004. Our deferred tax assets and liabilities as of 31 December 2005 were computed using the tax rate of 30% to 35% as per Republic Act (RA) 9337 which became effective on 01 November 2005. Therefore, resulting from the movements in our total operating revenues vis-à-vis our total operating expenses including depreciation and amortization and other income statement items, the Globe Group’s consolidated net income decreased by 9% year-on-year to P=10,315 million in 2005 from P=11,396 million in 2004. Excluding foreign exchange and mark-to-market gains and losses, net income after tax would have been P=8,552 million, down 25% from comparable 2004 level of P=11,573 million. Accordingly, consolidated basic earnings per common share were P76.74 and P80.92 (as restated) and consolidated diluted earnings per common share were P76.60 and P80.78 (as restated) for the full year 2005 and 2004, respectively.

SEC Form 17Q - 4Q 2005 28

LIQUIDITY AND CAPITAL RESOURCES Globe Group

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

2005

31 December 2004

(as restated) 1 YoY change

(%) Balance Sheet Data Total Assets ……………………………………………………………… 125,102 129,704 -4% Total Debt ………………………………………………………………. 49,693 52,218 -5% Total Stockholders’ Equity ……………………………………………… 51,619 54,507 -5% Financial Ratios (x) Current Ratio……………………………………………………….......... 0.90 0.87 Total Debt to EBITDA …………………………………………………. 1.55 1.59 Interest Cover (Gross) ………………………………………………….. 6.79 7.40 Debt to Equity (Gross) …………………………………………………. 0.96 0.96 Debt to Equity (Net) 2…………………………………………………… 0.73 0.70 Total Debt to Total Capitalization (Book) ……………………………… 0.49 0.49 Total Debt to Total Capitalization (Market) ...………………………….. 0.34 0.28

1 Prior figures were restated as a result of various PAS adoptions. 2 Net debt is calculated by subtracting cash, cash equivalents and short term investments from total debt. Globe Group’s consolidated assets as of 31 December 2005 amounted to P=125,102 million compared to P=129,704 million as of 31 December 2004. As of 31 December 2005 and 2004, current ratio on a consolidated basis was 0.90:1. Consolidated cash, cash equivalents and short term investments was at P=12,165 million at the end of 2005, 15% lower than the P14,303 million in 2004 due to dividend payments and the buyback of shares in March 2005. Gross debt to equity ratio as of 31 December 2005 was 0.96:1 on a consolidated basis and remains well within the 2:1 debt to equity limit dictated by certain debt covenants. Net debt to equity ratio was at 0.73:1 as of 31 December 2005. 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 not exceeding 3:1; • Debt service coverage1 exceeding 1.3 times (except for refinancing of the 2009 bond which the

lenders consented to exclude from the computation); • Secured debt ratio2 not exceeding 0.2 times.

1 Debt service coverage ratio is defined as the ratio of EBITDA to required debt service, where debt service includes subordinated debt but excludes shareholder loans. 2 Secured debt ratio is defined as the ratio of the total amount for the period of all present consolidated obligations for payment, whether actual or contingent and as defined in the loan agreement to the total amount of consolidated debt. Consolidated Net Cash Flows

Globe Group

For the full year ended (in millions of pesos) 31 December 2005

31 December 2004

(as restated) YoY change

(%) Net Cash from Operating Activities ……………………………………. 28,841 26,927 7%

SEC Form 17Q - 4Q 2005 29

Consolidated net cash flow from operations (excluding capex) amounted to P=28,841 million for the period ended 31 December 2005, a 6% increase from P=26,927 million in 2004.

Globe Group

For the full year ended (in millions of pesos) 31 December 2005

31 December 2004

YoY change (%)

Capital Expenditures (Cash) ………………………………. ………… 15,950 20,283 -21%Increase (Decrease) in Liabilities related to Acquisition of PPE ………. (1,164) 936 -224%Total Capital Expenditures1 ………………………………………….…. 14,786 21,219 -30%

Total Capital Expenditures / Service Revenues (%)………………… 27% 40%

1 Consolidated capital expenditures include property and equipment, acquired as of report date regardless of whether payment has been made or not, but excludes capitalized costs during the period. (See related discussion in Liquidity and Capital Resources Section)

Consolidated net cash used in investing activities amounted to P=15,832 million for the full year 2005, a 10% decrease from the P=17,679 million in 2004. Consolidated capital expenditures amounted to P=14,786 million in 2005, a decrease of 30% from the previous year. For 2006, Globe has earmarked approximately US$200 million for capital expenditures to expand its wireless network, and upgrade the necessary facilities for 3G and increase capacity for areas where traffic is expected to surge. The 2006 capital expenditure program will be funded through internally-generated cash and debt financing. Consolidated net cash used in financing activities for the full year 2005 amounted to P=15,680 million, an 80% increase compared to P=8,707 million in 2004 due to Globe’s reacquisition of its common shares via a tender offer and higher dividend payments in 2005. Consolidated total debt as of 31 December 2005 amounted to P=49,693 million, a 5% decrease from the P=52,218 million in 2004 as Globe prepaid US$41 million of its long term loans in addition to US$161 million of maturing loans in 2005. Loan repayments of Globe for the full year 2005 amounted to P=12,527 million (US$236 million) compared to the P=18,874 million (US$335 million) paid in 2004. As of 31 December 2005, gross debt dropped to P=50 billion, 65% of which are denominated in US$. Of the 65%, 29% has been swapped to pesos. As a result, the amount of US$ debt swapped into pesos and peso-denominated debt accounts for approximately 53% of consolidated loans as of 31 December 2005. Below is the schedule of debt maturities for Globe for the years stated below based on total outstanding debt as of 31 December 2005:

Year Due Principal (US$ millions) 2006 ……………………………………………………………………………………………… 148 2007 ……………………………………………………………………………………………… 130 2008………………………………………………………………………………………………. 95 2009………………………………………………………………………………………………. 148 2010 through 2012 ………………………………………………………………………………. 415 Total 936

Stockholders’ equity was P=51,619 million as of 31 December 2005 resulting in a 5% decline from the P=54,507 million in 2004. As a result of the adoption of new accounting standards, the Globe Group took a one-time charge to its beginning retained earnings amounting to P2,672 million representing the net of tax effect of various changes in accounting standards discussed in the attached notes to the financial statements. A substantial portion of this one-time charge is due to the adoption of PAS 21 which no longer allows the capitalization of foreign exchange differentials related to the acquisition of property and equipment.

SEC Form 17Q - 4Q 2005 30

On 1 February 2005, the Board of Directors (BOD) of Globe Telecom approved an offer to purchase one share for every fifteen shares of the outstanding common stock of Globe from all shareholders of record as of 10 February 2005, at a price of P950 per share. The approval allowed Globe to purchase up to 9 million shares representing 6.7% of its outstanding common shares. Each shareholder was 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. On 3 February 2005, Globe commenced the tender offer which expired on 3 March 2005 after a one-day extension. Also, 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. On 8 March 2005, Globe announced that it had accepted 8 million common shares that were tendered by the stockholders. The accepted shares represented 86% of shares eligible for tender. The value of the tendered shares totaled P7.66 billion which were eventually crossed at the exchange on 15 March 2005 and payment made on 16 March 2005. (Please refer to page 33 for the shareholder structure as of 31 December 2005) As of 31 December 2005, Globe’s capital stock consists of:

1. Preferred stock Series “A” at a par value of P5 per share of which 158 million shares 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 in 2001; and (g) Preferences as to dividend in the event of liquidation.

For the year ended 31 December 2005, dividends to preferred shareholders amounted to P68 million.

2. Common shares at par value of P=50 per share of which 152 million shares have been issued and 132

million are outstanding out of a total authorized of 200 million shares. In the last annual stockholders meeting on 4 April 2005, Globe’s stockholders authorized the cancellation of its treasury shares and the reduction in the authorized capital stock of the Company. On October 28, 2005, the Securities and Exchange Commission approved the reduction in capital stock. After the reduction, total authorized common shares are now 179,934,373, of which 131,900,430 are outstanding.

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 with payment made on 15 March 2005. On 2 August 2005, the Board of Directors declared the second semi-annual cash dividend for 2005 amounting to P20 per common share outstanding as of record date 19 August 2005, and payment was made on 14 September 2005. This is consistent with our cash dividend policy of distributing 50% of prior year’s net income and represents an increase of 11% over the previous year. On 7 February 2006, the BOD approved the declaration of first semi-annual cash dividends in 2006 of P20 per share to common stockholders of record as of 21 February 2006 payable on 15 March 2006.

SEC Form 17Q - 4Q 2005 31

Consolidated Return on Average Equity (ROE) for the year ended 31 December 2005 stood at 19% compared to 22% for the same period last year. On 1 July 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 agreement provides for an exercise price of P840.75 per share. 50% of the options become exercisable from 1 July 2006 to 30 June 2014, while the remaining 50% become exercisable from 1 July 2007 to 30 June 2014. As of 31 December 2005, outstanding stock options granted to key executives and senior management personnel totaled 1,281,350. 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. FOREIGN EXCHANGE AND INTEREST RATE EXPOSURE Starting 1 January 2005, the Globe Group adopted PAS 21, The Effects of Changes in Foreign Exchange Rates, which eliminates the capitalization of foreign exchange differentials related to the acquisition of property and equipment. Previously, the foreign currency-denominated liabilities used to finance the acquisition and installation of Globe and Innove’s property and equipment were capitalized. These foreign exchange differentials were added to or deducted from the cost of the appropriate property and equipment accounts. The adoption of PAS 21 decreased our beginning retained earnings by P2,444 million. (Please see related discussion in the attached unaudited consolidated financial statements) The Philippine Peso closed at P=53.062 as of 31 December 2005 from P=56.341 as of the same date last year. The foreign exchange differentials arising from revaluation of foreign currency-denominated accounts are charged/credited to against current operations. Globe Group’s net foreign exchange gains/(loss) credited/(charged) to against current operations amounted to P2,303 million gain and P214 million loss for the full year 2005 and 2004, respectively. To mitigate foreign exchange risk, the Globe Group enters into short-term foreign currency forwards and long-term foreign currency swap contracts. Short-term forward contracts are used to manage our foreign exchange exposure related to foreign currency-denominated monetary assets and liabilities. For certain long term foreign currency denominated loans, we enter into long term foreign currency and interest rate swap contracts to manage its foreign exchange and interest rate exposures. As of 31 December 2005, our Company had US$175 million in outstanding foreign currency swap agreements, some of which have option features. We also sold covered currency options with total notional amount of US$28 million with maturities ranging from March 2006 to March 2007. Interest rate swaps are used to manage our interest rate risk in a cost-efficient manner. As of 31 December 2005, our Company had US$56 million in notional amount of US$ 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. We also have 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. Our Company 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.

SEC Form 17Q - 4Q 2005 32

The Group also has embedded forwards and options in certain financial and non-financial contracts with total notional amount of US$13 million. Globe’s 2012 Senior Notes also contain embedded call options which give us the right to prepay the Notes at a certain call price per year. Gains on derivative instruments represent the net mark-to-market (MTM) gains(losses) on derivative instruments. Beginning 2005, MTM values have to be booked as required by PAS 39. The estimated unrealized mark-to-market gain on the outstanding derivatives(including embedded derivatives) of the Globe Group amounted to P817 million based on valuation as of 31 December 2005 while losses on derivative instruments reflected in the consolidated income statements amounted to P104 million for the year ended 31 December 2005. (See related discussion under Results of Operations) Consolidated foreign currency-linked revenues were 27% and 26% of total net revenues for the periods ended 31 December 2005 and 2004, respectively. 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 our Group 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.

SEC Form 17Q - 4Q 2005 33

RECENT DEVELOPMENTS 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 (‘NTC’) 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 NTC Memorandum Circular (‘MC’) 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 (‘SC’) to annul and reverse the decision of the Court of Appeals. The Supreme Court (‘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 resumption of the proceedings before the RTC of Quezon City. On 12 October 2005, Globe introduced its MyGlobe QuikVoice service which simplifies the sending of voice messages via MMS. Subscribers can download the software for free from the myGlobe WAP site. Once the software is downloaded and installed on compatible handset models, the subscriber needs a few keystrokes to send voice messages. The software is also capable of replaying recorded messages on various formats. On 11 November 2005, Globe initiated its GPRS Discounted Off-Peak Rates promotion for its postpaid and prepaid subscribers that featured a 33% discount on GPRS rates for WAP and Web browsing during off-peak hours (12 midnight to 8 AM). During the promotion, off-peak browsing was charged at P0.10 per kilobyte (kb) from the current rate of P0.15 per kb. The promotion ended last 12 December 2005. On 12 November 2005, Globe started its Citibank Charge a Load service for subscribers who are Citibank NA Philippine branch credit card customers to allow them to charge prepaid reload credits to their credit card accounts. Once enrolled to the service, a subscriber can reload his or another subscriber’s account. On 23 November 2005, Globe offered its G-Cash School Payment Assistant service that allows subscribers to use their G-Cash to pay school tuition and miscellaneous fees. The subscriber simply has to send instructions, via SMS, to pay the G-Cash school partner and subsequently receive a request to encode the G-Cash PIN to process and complete the transaction. On 25 November 2005, Globelines Broadband launched its GLBB PC Bundle promotion which offered an P850 / month amortization rate for a personal computer (PC) with a monthly service fee (MSF) of P1,495 to access the Express Unlimited broadband offer of Globelines. Different packages were offered for residential and SME customers with P850 / month PC amortization and MSF rates starting at P1,495 to P8,800 for the “Taipan” SME packaage. Promo expired last 31 December 2005. On 1 December 2005, Innove launched its WorldPass Prepaid service that allows users to access the internet at reduced rates via dial-up using any landline or WiFi using his preferred access device or broadband connection via Globelines Broadband kiosks. WorldPass Prepaid vouchers can be purchased in Globelines centers, retail outlets and online at myAyala.com and are available in P20, P50 and P100 denominations. On 6 December 2005, Globe signed an Amendment and Restatement Agreement with Norddeutsche Landesbank Gironzentrale. The Amendment and Restatement Agreement reduces the interest rate margin on the outstanding US$100 million debt of Globe.

SEC Form 17Q - 4Q 2005 34

On 17 December 2005, Globe introduced its 10 centavos per second promotional rate for its postpaid and prepaid subscribers applicable for intra-network calls. Subscribers can avail of the promotional rate by dialing 232 plus the 10 digit Globe number without need for registration. This promotional rate subsequently included TM subscribers and has been extended to 14 February 2006. On 18 December 2005, TM unveiled a new promotional rate for TM-to-TM text, P0.75 per message sent. The free text allocation needs to be consumed first before a subscriber is charged with the new promotional rate. This promotion has been extended to 14 February 2006. On 21 December 2005, Globe signed a P1.615 billion syndicated term loan facility with Citicorp Capital Philippines, Inc. as arranger and First Metro Investment Corp. as co-arranger. The lenders of the facility include Citibank N.A., Development Bank of the Philippines and Land Bank of the Philippines. The facility is a 5-year term loan with floating rate of interest. The proceeds of the loan were used to prepay and refinance a portion of an existing US$ debt of Globe. On 28 December 2005, the National Telecommunications Commission (NTC) approved Globe Telecom’s application for third generation (3G) radio frequency spectra to support the upgrade of its CMTS network to be able to provide 3G services. Globe Telecom has been assigned the 10-Megahertz (MHz) of the 3G radio frequency spectrum. Effective 1 February 2006, the value added tax (VAT) rate has been increased from 10% to 12% as published in Revenue Memorandum Circular No. 7-2006. As a VAT-registered telecommunications services provider, Globe Telecom is mandated by law to charge VAT on its services at the increased rate effective 1 February 2006. VAT, being a sales tax, is usually passed on to the buyer of the taxable goods or services. For Globe Handyphone, Globe will not pass on the 2% increase to its subscribers, but will absorb the additional VAT, except for the VAT on the 15% surcharge on roaming charges of foreign-service providers. For consumer and SME customers, Innove will not pass on the 2% additional VAT, except for corporate customers.

SEC Form 17Q - 4Q 2005 35

OTHER MATTERS MAJOR STOCKHOLDERS The following are the major stockholders of Globe Telecom as of 31 December 2005: Stockholders Common % of Common Preferred % of Preferred Total % of Total Ayala Corp* 45,640,787 35% - - 45,640,787 16% ST 58,833,614 44% - - 58,833,614 20% Asiacom 158,515,021 100% 158,515,021 55% Public 27,426,029 21% - - 27,426,029 9%

Total 131,900,430 100% 158,515,021 100% 290,415,451 100% * Ayala Corporation’s holdings are based on records of the stock transfer agent as of 31 December 2005.

BOARD OF DIRECTORS As of 31 December 2005, the Board of Directors of the Globe Group are as follows: Jaime Augusto Zobel de Ayala II Chairman Delfin L. Lazaro Co-Vice Chairman Lim Chuan Poh Co-Vice Chairman Gerardo C. Ablaza, Jr. Director Romeo L. Bernardo Director Jeann Low* Director Fernando Zobel de Ayala Director Dr. Roberto F. de Ocampo Director Xavier P. Loinaz Director Guillermo D. Luchangco Director Jesus P. Tambunting Director

* Replaced Lucas Chow effective 30 June 2005.Resigned effective 07 February 2006 and replaced by Koh Kah Sek on the same day. KEY OFFICERS As of 31 December 2005, the key officers of the Globe Group are as follows:

Name Position Gerardo C. Ablaza, Jr. President and Chief Executive Officer Ferdinand M. de la Cruz Head – Consumer Business Rebecca V. Eclipse Head – Strategic Execution Center Rodell A. Garcia Chief Information Officer Gil B. Genio Chief Executive Officer - Innove Delfin C. Gonzalez, Jr. Chief Financial Officer Rodolfo A. Salalima Head - Corporate Affairs and Regulatory Matters Renato O. Marzan Corporate Secretary

Consultants Position

Andrew Buay Chief Operating Adviser Robert L. Wiggins Chief Technical Adviser

SEC Form 17Q - 4Q 2005 36

SIGNATURES

Pursuant to the requirement of the Securities Regulation Code, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Registrant GLOBE TELECOM, INC.

EDITH C. SANTIAGO 8 February 2006 Vice President – Financial Control

DELFIN C. GONZALEZ, JR. 8 February 2006 Chief Financial Officer & Authorized Representative

GLOBE TELECOM, INC. AND SUBSIDIARIES Unaudited Consolidated Financial Statements December 31, 2005, 2004 and 2003

GLOBE TELECOM, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS December 31

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) ASSETS Current Assets Cash and cash equivalents (Notes 25 and 27) P=10,910,961 P=13,581,842 P=13,041,048 Short-term investments (Note 25) 1,253,759 720,831 1,962,889 Receivables - net (Notes 3, 5, 16 and 25) 6,764,130 5,457,913 7,760,694 Inventories and supplies (Note 6) 1,372,459 1,136,885 616,741 Prepayments and other current assets (Notes 7, 16 and 25) 1,232,525 1,083,408 1,602,192 Total Current Assets 21,533,834 21,980,879 24,983,564 Noncurrent Assets Property and equipment - net

(Notes 3, 8, 15, 16 and 22) 98,554,670 101,643,592 95,069,687 Investment property - net (Notes 2, 3 and 9) 259,538 261,516 270,988 Intangible assets - net (Notes 3 and 10) 1,100,727 944,265 604,951 Deferred income tax - net (Notes 3 and 21) 1,163,943 2,413,253 1,759,412 Investments in associates, joint venture

and others - net (Notes 3, 11 and 25) 76,897 91,925 727,726 Other noncurrent assets (Notes 12, 18, 22 and 25) 2,412,781 2,368,498 3,008,349 Total Noncurrent Assets 103,568,556 107,723,049 101,441,113 P=125,102,390 P=129,703,928 P=126,424,677 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable and accrued expenses

(Notes 13, 16, 22 and 25) P=14,527,681 P=14,101,992 P=14,408,336 Unearned revenues 1,301,684 1,732,747 2,376,906 Current portion of: Long-term debt (Notes 14 and 25) 7,858,150 9,018,650 9,022,535 Other long-term liabilities (Notes 15, 16, 22 and 25) 269,737 292,589 325,373 Total Current Liabilities 23,957,252 25,145,978 26,133,150 Noncurrent Liabilities Deferred income tax - net (Notes 3 and 21) 4,432,867 3,474,732 1,874,082 Long-term debt - net of current portion (Notes 14 and 25) 41,835,238 43,199,301 47,109,200 Other long-term liabilities - net of current portion

(Notes 15, 16, 22 and 25) 3,258,223 3,377,015 3,237,478 Total Noncurrent Liabilities 49,526,328 50,051,048 52,220,760 Total Liabilities 73,483,580 75,197,026 78,353,910 Stockholders’ Equity (Note 17) Paid-up capital 33,315,408 39,435,577 39,418,022 Cumulative translation adjustment (Notes 2 and 25) (235,892) – – Cost of share-based payments (Note 2) 312,644 193,096 59,091 Retained earnings (Note 2) 18,226,650 23,070,999 16,786,424 Treasury stock - common – (8,192,770) (8,192,770) Total Stockholders’ Equity 51,618,810 54,506,902 48,070,767

P=125,102,390 P=129,703,928 P=126,424,677 See accompanying Notes to Unaudited Consolidated Financial Statements.

GLOBE TELECOM, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos, Except Per Share Figures)

NET OPERATING REVENUES (Notes 3 and 16) Service revenues P=54,896,813 P=52,741,358 P=47,534,537 Nonservice revenues 3,850,788 2,867,622 1,943,398 58,747,601 55,608,980 49,477,935

COSTS AND EXPENSES Operating (Notes 16, 18, 19 and 22) 19,142,262 15,403,963 13,998,568 Depreciation and amortization (Notes 3, 8, 9, 10 and 26) 15,733,959 14,705,825 11,588,748 Cost of sales 6,024,711 6,675,198 6,213,683 Financing costs (Notes 14, 20 and 25) 3,140,593 6,326,879 6,739,026 Interest income (519,648) (454,038) (756,840) Losses on retirement of property and equipment (Note 8) 733,819 – 177,733 Provisions (reversal of provision) for: Doubtful accounts (Note 3) 615,729 1,052,222 940,751 Property and equipment and other

probable losses (Notes 3, 8 and 13) 179,259 (489,163) 246,846 Inventory losses, obsolescence and market decline 80,049 72,388 15,241 Impairment of investments in shares of

stocks (Note 11) – – 906,683 Equity in net losses of an associate and

joint venture (Note 11) 13,334 62 3,941 Others - net (577,476) (407,290) (773,082) 44,566,591 42,886,046 39,301,298

INCOME BEFORE INCOME TAX 14,181,010 12,722,934 10,176,637

PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 21)

Current 1,747,249 379,928 758,271 Deferred 2,119,253 946,764 (534,270) 3,866,502 1,326,692 224,001

NET INCOME P=10,314,508 P=11,396,242 P=9,952,636

Earnings Per Share (Notes 2 and 24) Basic P=76.74 P=80.92 P=66.16 Diluted P=76.60 P=80.78 P=66.04 Cash dividends declared per common share (Note 17) P=40.00 P=36.00 P=14.00 See accompanying Notes to Unaudited Consolidated Financial Statements.

GLOBE TELECOM, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Capital Stock*

Additional Paid-in

Capital - Common

Cost of Share-Based

Payments

Treasury Stock -

Common

Cumulative Translation Adjustment

Retained Earnings Total

For The Year Ended December 31, 2005 (In Thousand Pesos) As of January 1, 2005,

as previously reported P=8,323,023 P=31,111,790 P=– (P=8,192,770) P=– P=25,774,446 P=57,016,489 Effect of changes in accounting

policies (Note 2) – 764 193,096 – – (2,703,447) (2,509,587) Cumulative effect of change in

accounting policy for financial instruments as of January 1, 2005 (Notes 2 and 2 5) – – – – (151,008) 31,290 (119,718)

As of January 1, 2005, as restated 8,323,023 31,112,554 193,096 (8,192,770) (151,008) 23,102,289 54,387,184

Changes in fair value of cash flow hedges (429,336) – (429,336)

Transferred to income and expense for the year 237,619 – 237,619

Tax effect of items taken directly to or transferred from equity 114,167 – 114,167

Changes in fair value of available-for-sale equity investments (7,334) – (7,334)

Net income recognized directly in equity (84,884) – (84,884)

Net income for the year – 10,314,508 10,314,508

Total recognized income for the year (84,884) 10,314,508 10,229,624 Acquisition of treasury shares for the

year (Note 1 7) – – – (7,675,658) – – (7,675,658) Retirement of treasury shares (Note 17) (1,003,283) (5,179,349) – 15,868,428 (9,685,796) Dividends on (Note 1 7): Common stock – – – – – (5,436,017) (5,436,017) Preferred s tock – – – – – (68,334) (68,334) Cost of share-based payments (Note 18) – – 161,731 – – – 161,731 Collections of subscriptions

receivable - net of refunds 10,968 – – – – – 10,968 Exercise of stock options 3,033 48,462 (42,183) – – – 9,312

As of December 31, 2005 P=7,333,741 P=25,981,667 P=312,644 P=– (P=235,892) P=18,226,650 P=51,618,810

For the Year Ended December 31, 2004 (In Thousand Pesos) As of January 1, 2004,

as previously reported P=8,307,828 P=31,110,194 P=– (P=8,192,770) P=– P=19,628,747 P=50,853,999 Effect of changes in accounting

policies (Note 2) – – 59,091 – – (2,842,323) (2,783,232)

As of January 1, 2004, as restated 8,307,828 31,110,194 59,091 (8,192,770) – 16,786,424 48,070,767 Net income for the year, as restated – – – – – 11,396,242 11,396,242 Dividends on (Note 1 7): Common stock – – – – – (5,036,539) (5,036,539) Preferred stock – – – – – (75,128) (75,128) Cost of share-based payments (Note 18) – – 134,769 – – – 134,769 Exercise of stock options – 2,147 (764) – – – 1,383 Stock option purchase price – 213 – – – – 213 Collections of subscription

receivable - net of refunds 15,195 – – – – – 15,195

As of December 31, 2004, as restated P=8,323,023 P=31,112,554 P=193,096 (P=8,192,770) P=– P=23,070,999 P=54,506,902

(Forward)

- 2 -

Capital Stock*

Additional Paid-in

Capital - Common

Cost of Share-Based

Payment

Treasury Stock -

Common

Cumulative Translation Adjustment

Retained Earnings Total

For The Year Ended December 31, 2003 (In Thousand Pesos) As of January 1, 2003,

as previously reported P=8,267,828 P=31,109,975 P=– P=– P=– P=11,478,127 P=50,855,930 Effect of changes in accounting

policies (Note 2) – – – – – (2,449,706) (2,449,706)

As of January 1, 2003, as restated 8,267,828 31,109,975 – – – 9,028,421 48,406,224 Net income for the year, as restated – – – – – 9,952,636 9,952,636 Acquisition of treasury shares – – – (8,192,770) – – (8,192,770) Dividends on: Common stock (2,126,676) (2,126,676) Preferred stock – – – – – (67,957) (67,957) Cost of share-based payments (Note

18) – – 59,091 – – – 59,091 Stock option purchase price – 219 – – – – 219 Collections of subscription

receivable - net of refunds 40,000 – – – – – 40,000

As of December 31, 2003, as restated P=8,307,828 P=31,110,194 P=59,091 (P=8,192,770) P=– P=16,786,424 P=48,070,767

*Net of subscriptions receivable of P=53.86 million, P=64.82 million and P=80.02 million as of December 31, 2005, 2004 and 2003, respectively .

See accompanying Notes to Unaudited Consolidated Financial Statements.

GLOBE TELECOM, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=14,181,010 P=12,722,934 P=10,176,637 Adjustments for: Depreciation and amortization (Notes 8, 9 and 10) 15,732,204 14,541,584 11,503,891 Interest expense (Note 20) 4,657,748 4,368,716 4,088,209 Provisions (reversal of provisions) for: Doubtful accounts 615,729 1,052,222 940,751 Property and equipment and other probable losses 179,259 (489,163) 246,846 Inventory losses, obsolescence and market

decline 80,049 72,388 15,241 Impairment of investments in shares of stock – – 906,683

Loss on retirement of property and equipment (Note 8) 733,819 – 177,733 Interest income (519,648) (454,038) (756,840) Loss on derivative instruments - net (Notes 20 and 25) 264,435 – – Cost of share-based payments (Note 16) 161,731 134,769 59,091 Loss (gain) on disposal of property and

equipment (Note 8) (28,398) 17,777 67,206 Equity in net losses of an associate and

joint venture (Note 11) 13,334 62 3,941 Amortization of deferred charges and others 1,755 164,241 84,857

Dividend income (105) (350) (307) Operating income before working capital changes 36,072,922 32,131,142 27,513,939 Changes in operating assets and liabilities: Decrease (increase) in: Receivables (2,408,508) 5,576,463 (6,039,520) Inventories and supplies (313,470) (627,693) (228,276) Prepayments and other current assets (624,734) (24,877) 496,535 Increase (decrease) in: Accounts payable and accrued expenses 1,967,465 (4,687,223) 5,377,392 Unearned revenues (431,063) (644,159) 263,225 Other long-term liabilities (25,373) 56,675 251,866 Cash generated from operations 34,237,239 31,780,328 27,635,161 Interest paid (4,646,042) (4,727,341) (4,588,050) Income taxes paid (750,342) (125,702) (905,019) Net cash flows provided by operating activities 28,840,855 26,927,285 22,142,092

CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment and intangible

assets (Notes 8 and 10) (15,949,875) (20,283,533) (17,452,338) Proceeds from sale of property and equipment (Note 8) 183,434 27,370 51,983 Decrease (increase) in: Short-term investments (545,554) 1,941,537 2,102,649 Other noncurrent assets (12,524) 173,924 (260,368) Interest received 492,828 461,051 779,321

Dividends received 105 350 307 Net cash flows used in investing activities (15,831,586) (17,679,301) (14,778,446) (Forward)

- 2 - Years Ended December 31

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from: Long-term borrowings (Note 14) P=9,992,181 P=15,194,743 P=7,498,290 Short-term borrowings 21,000 60,000 – Repayments of: Long-term borrowings (Note 14) (12,505,808) (18,814,228) (10,390,104) Short-term borrowings (21,000) (60,000) (6,639) Purchase of treasury stock - common (Note 17) (7,675,658) – (8,192,770) Payments of dividends to (Note 17): Common shareholders (5,436,017) (5,036,539) (2,126,676) Preferred shareholders (75,128) (67,957) (108,072) Collection of subscription receivable and exercise of stock

options - net of related expenses 20,280 16,791 40,219 Net cash flows used in financing activities (15,680,150) (8,707,190) (13,285,752)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,670,881) 540,794 (5,922,106)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,581,842 13,041,048 18,963,154

CASH AND CASH EQUIVALENTS AT END OF YEAR P=10,910,961 P=13,581,842 P=13,041,048

See accompanying Notes to Unaudited Consolidated Financial Statements.

GLOBE TELECOM, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information Globe Telecom, Inc. (hereafter referred to as “Globe Telecom” or the “Parent Company”) is a

stock corporation organized under the laws of the Philippines, and enfranchised under Republic Act (RA) No. 7229 and its related laws to render any and all types of domestic and international telecommunications services. Globe Telecom is one of the leading providers of digital wireless communications services in the Philippines using a full digital network based on the Global System for Mobile Communication (GSM) technology. It also offers domestic and international long distance communication services or carrier services. Globe Telecom’s principal executive offices are located at 5th Floor, Globe Telecom Plaza, Pioneer Highlands, Pioneer corner Madison Streets, Mandaluyong City, Metropolitan Manila, Philippines. Globe Telecom is listed in the Philippine Stock Exchange (PSE) and has been included in the PSE composite index since September 17, 2001.

Globe Telecom owns 100% of Innove Communications, Inc. (“Innove”). Innove is a stock corporation organized under the laws of the Philippines and enfranchised under RA No. 7372 and its related laws to render any and all types of domestic and international telecommunications services. Innove is one of the providers of digital wireless communication services in the Philippines. Innove currently offers cellular service under the Touch Mobile (TM) prepaid cellular brand. The TM brand is supported in the integrated cellular networks of Globe Telecom and Innove. It also offers a broad range of wireline voice communication services, as well as domestic and international long distance communication services or carrier services. Innove’s principal executive office is located at 18th Floor, Innove IT Plaza corner Samar and Panay Roads, Cebu Business Park, Cebu City, Philippines.

Globe Telecom is a grantee of various authorizations and licenses from the National Telecommunications Commission (NTC) as follows: (1) license to offer and operate telex, facsimile, other traditional voice and data services and domestic line service using Very Small Aperture Terminal (VSAT) technology; (2) license for inter-exchange services; and (3) Certificate of Public Convenience and Necessity (CPCN) for: (a) international digital gateway facility (IGF) in Metro Manila , (b) nationwide digital cellular mobile telephone system under the GSM standard (CMTS-GSM), and (c) local exchange carrier (LEC) services in Makati and surrounding areas in Metro Manila, Batangas, Cavite, Mindoro, Palawan and certain areas in Mindanao. On August 7, 2003, the NTC granted Globe Telecom’s application to transfer its wireline business, assets, obligations and subscribers to Innove. With the transfer of Globe Telecom’s wireline voice and data services to Innove on September 30, 2003, Innove now holds the following: (a) the authorizations and licenses from the NTC issued to Globe Telecom to offer and operate telex, facsimile, and other traditional voice and data services and domestic leased line service using VSAT technology; and (b) the CPCN previously issued to Globe Telecom on July 23, 2002 to offer LEC services in Makati and surrounding areas in Metro Manila, Batangas, Cavite, Mindoro, Palawan and certain areas in Mindanao.

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On July 23, 2002, the NTC also issued the CPCN for Innove’s IGF, CMTS and LEC services which is valid and renewable after 25 years. On June 17, 2005, NTC issued a provisional authority to Innove to establish, install telephone, operate and maintain LEC service, particularly integrated local telephone service with public payphone facilities and public calling stations in all regions, provinces, cities and municipalities across the nation that are not yet covered by its existing CPCN and to charge therefore monthly rates at par with the approved rates of the LEC operators in the area, subject to certain conditions.

On December 28, 2005, NTC approved Globe Telecom’s application for third generation (3G) radio frequency spectra to support the upgrade of its CMTS network to be able to provide 3G services. Globe Telecom has been assigned the 10-Megahertz (MHz) of 3G radio frequency spectrum. On August 23, 2004, Globe Telecom invested in G-Xchange, Inc. (GXI), a wholly-owned subsidiary, with the primary purpose of developing, designing, administering, managing and operating software applications and systems, including systems designed for the operations of bills, payment and money remittance, payment and delivery facilities through various telecommunications systems operated by telecommunications carriers in the Philippines and throughout the world and to supply software and hardware facilities for such purposes. GXI handles the mobile payment and remittance service using Globe Telecom’s network as transport channel under the G-Cash brand. The service, which is integrated into the cellular services of Globe Telecom and Innove, enables easy and convenient person-to-person fund transfers via short messaging services (SMS) and allows Globe Telecom and Innove subscribers to easily and conveniently put cash into and get cash out of the G-Cash system. GXI started commercial operations on October 16, 2004. GXI is a stock corporation organized under the laws of the Philippines. GXI is registered with the Bangko Sentral ng Pilipinas as a remittance agent. GXI’s principal executive office is located at 6th Floor, Globe Telecom Plaza, Pioneer Highlands, Pioneer corner Madison Streets, Mandaluyong City, Metropolitan Manila, Philippines.

2. Summary of Significant Accounting Policies

Basis of Financial Statement Preparation The accompanying consolidated financial statements of Globe Telecom and its wholly-owned subsidiaries, Innove and GXI collectively referred to as the “Globe Group”, have been prepared in accordance with generally accepted accounting principles in the Philippines (Philippine GAAP), as set forth in Philippine Financial Reporting Standards (PFRS). These are the Globe Group’s first annual consolidated financial statements prepared in accordance with PFRS. The consolidated financial statements of the Globe Group have been prepared under the historical cost convention method, except for derivative financial instruments and available -for-sale financial assets that are measured at fair value. The carrying values of recognized assets and liabilities that are hedged are adjusted to record changes in the fair values attributable to the risks that are being hedged.

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The Globe Group applied PFRS 1, First-time Adoption of PFRS, in preparing the consolidated financial statements, with January 1, 2003 as the date of transition. The Globe Group applied the accounting policies set forth below to all the years presented, except those relating to the classification and measurement of financial instruments. An explanation of how the transition to PFRS has affected the reported financial position, financial performance and cash flows of the Globe Group is provided below.

Explanation of Transition to PFRS As stated above, these are the Globe Group’s first annual consolidated financial statements in accordance with PFRS. The transition to PFRS resulted in certain changes to the Globe Group’s previous accounting policies. The comparative figures for 2004 and 2003 were restated to reflect the changes in accounting policies discussed below resulting from transition to PFRS, except those relating to financial instruments. The Globe Group has made use of the exemption available under PFRS 1, and as allowed by the Securities and Exchange Commission (SEC), to apply Philippine Accounting Standards (PAS) 32, Financial Instruments: Disclosure and Presentation and PAS 39, Financial Instruments: Recognition and Measurement, to financial instruments outstanding as of January 1, 2005. The cumulative effect of adopting PAS 39 was charged to the January 1, 2005 retained earnings. The policies applied to financial instruments beginning January 1, 2005 and prior to January 1, 2005 are disclosed separately.

New Accounting Standards

• PFRS 1, First Time Adoption of PFRS, requires an entity to comply with each PFRS effective at the reporting date for its first PFRS financial statements. The Globe Group has adopted PFRS for these financial statements as of and for the year ended December 31, 2005 and has also restated the comparative amounts for the years ended December 31, 2004 and 2003 except for the following courses of action that have been taken as allowed under PFRS 1:

Share-based payment transactions The Globe Group has applied PFRS 2, Share-based Payment, only to equity-settled awards granted after November 7, 2002 that had not vested on or before January 1, 2005 similar to the transitional provisions under PFRS 2 for equity-settled transactions.

Post retirement benefits - Defined benefit schemes The Globe Group has chosen not to recognize using the “corridor approach” cumulative actuarial gains or losses that resulted from the measurement of such schemes in accordance with PAS 19, Employee Benefits, at the date of transition. Instead, the Globe Group has elected to recognize all cumulative actuarial gains and losses at the date of transition to PFRS.

• PFRS 2, Share-based Payment, 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 November 7, 2002 in the statements of income. Prior to January 1, 2005, the Globe Group did

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not recognize any expense for share options granted but disclosed required information for such options. The adoption of PFRS 2 decreased net income by P=254.08 million, P=63.56 million and P=30.75 million in 2005, 2004 and 2003, respectively. Retained earnings decreased by P=94.31 million and P=30.75 million as of January 1, 2005 and 2004, respectively. Additional paid-in capital increased by P=0.76 million as of January 1, 2005. Cost of share-based payments presented in the stockholders’ equity section of the consolidated balance sheets increased by P=193.10 million and P=59.09 million as of January 1, 2005 and 2004, respectively.

• PFRS 5, Noncurrent 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 noncurrent 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) noncurrent assets (or disposal groups) while classified as held for sale . Any gain or loss on the remeasurement of a noncurrent asset (or disposal group) classified as held for sale shall be included in the profit or loss from continuing operations.

As of December 31, 2005, 2004 and 2003, the Globe Group has no qualifying noncurrent assets that are held for sale.

• 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 an entity’s obligations and costs; (b) an entity to determine the present value of defined benefit obligations and the fair value of any plan assets with sufficient regularity; and (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 10% of the fair value of the plan assets, but also permits the immediate recognition of these actuarial gains and losses.

The adoption of PAS 19 has decreased net income by P=21.78 million and P=18.12 million in 2004 and 2003, respectively, and increased retained earnings by P=92.89 million, P=114.67 million and P=132.79 million as of January 1, 2005, 2004 and 2003, respectively. Pension cost and accrual of short-term benefits amounted to P=258.32 million in 2005.

• 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. The adoption of PAS 21 decreased retained earnings by P=2,443.53 million, P=2,739.20 million and P=2,463.50 million as of January 1, 2005, 2004 and 2003, respectively, and increased net income by P=295.67 million and decreased by P=275.69 million in 2004 and 2003, respectively.

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• 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 entity, types of risks associated with both recognized and unrecognized financial instruments (market risk, foreign exchange risk, price risk, credit risk, liquidity risk and cash flow risk), fair value information of both recognized and unrecognized financial assets and financia l liabilities, and the entity’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.

The standard also requires presentation of financial assets and financial liabilities on a net basis when, and only when, an entity: (a) currently has a legally enforceable right to set off the recognized amounts; and (b) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously (see Notes 5 and 13).

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

and reporting standards for the recognition and measurement of the entity’s financial assets and financial liabilities. PAS 39 requires a financial asset or a financial liability to be recognized initially at cost including related transaction costs. Subsequent to initial recognition, an entity should measure financial assets at their fair values, except for loans and receivables and held-to-maturity investments, which are measured at amortized cost using the effective interest rate method. Financial liabilities are subsequently measured at amortized cost, except for liabilities designated as at fair value through profit and loss and derivatives, which are subsequently measured at fair value.

PAS 39 also establishes the accounting and reporting standards requiring that every derivative instrument (including certain derivatives embedded in other contracts) be recorded in the balance sheets as either an asset or liability measured at its fair value. PAS 39 requires that changes in the derivative’s fair value be recognized currently in the statements of income unless specific hedges allow a derivative’s gains and losses to offset related results on the hedged item in the statements of income, or deferred in the stockholders’ equity as “Cumulative translation adjustment”. PAS 39 requires that an entity must formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment.

Derivatives that are not designated and do not qualify as hedges are adjusted to fair value through income.

The Globe Group has adopted the hedge accounting treatment of PAS 39 for certain derivative instruments.

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As allowed by the SEC, the adoption of PAS 39 did not result in the restatement of prior year financial statements. The cumulative effect of adopting this accounting standard was charged to the January 1, 2005 retained earnings.

The adoption of PAS 39 decreased net income by P=148.29 million in 2005 and increased translation adjustment (presented as a reduction in the stockholders’ equity) by P=84.88 million in 2005. Retained earnings increased byP=31.29 million while cumulative translation adjustment decreased by P=151.01 million, as of January 1, 2005.

• 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, an entity 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 Globe Group adopted the cost model for investment property.

The adoption of PAS 40 resulted in reclassification of the carrying value of the portion of a building being leased to third parties amounting to P=261.52 million, P=270.99 million and P=281.41 million as of January 1, 2005, 2004 and 2003, respectively, from property and equipment to investment property (see Note 9).

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 year; and (c) requires measurement of an item of property, plant and equipment acquired in exchange for a nonmonetary asset or a combination of monetary and nonmonetary assets at fair value, unless the exchange transaction lacks commercial substance. Under the previous version of the standard, an entity measured such an acquired asset at fair value unless the exchanged assets were similar. The adoption of PAS 16 decreased net income by P=104.13 million, P=71.45 million and P=68.05 million in 2005, 2004 and 2003, respectively. Retained earnings decreased by P=258.50 million, P=187.05 million and P=118.99 million as of January 1, 2005, 2004 and 2003, respectively.

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The adoption of the following revised accounting standards did not have a material effect on the Globe Group’s financial statements. Additional disclosures required by the revised accounting standards were included in the Globe Group’s financial statements.

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

entity assesses how to present fairly the effects of transactions and other events; (b) provides the base criteria for classifying liabilities as current or noncurrent; (c) prohibits the presentation of income from operating activities and extraordinary items as separate line items in the statements of income; and (d) specifies the disclosures about key sources of estimation, uncertainty and judgments management has made in the process of applying a company’s accounting policies (see Note 3).

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

use of the last in, first out formula. Moreover, the revised accounting 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 inventories.

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

the concept of fundamental errors 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 omissions or misstatements; and (d) describes how to apply the concept of materiality when applying accounting policies and correcting errors.

• 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 on the classification of a lease of land

and buildings and prohibits expensing of initial direct costs in the financial statements of 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 total compensation of key management personnel by benefit type (see Note 16).

• 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 investments in

associates 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 the separate financial statements of a venturer. Interests in joint ventures are accounted for either at cost or in accordance with PAS 39 in the separate financial statements. Equity method of accounting is no longer allowed in the separate financial statements.

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• 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. This 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 accounting standard requires that an 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.

The increasing (decreasing) effects of transition to PFRS follow:

December 31, 2004

Noncurrent

Assets Current

LiabilitiesNoncurrent

Liabilities Equity*

January 1, 2004

Retained Earnings Net Income

(In Thousand Pesos) PFRS 2 - Share-based Payment P=10,795 P=– (P=88,760) P=193,860 (P=30,746) (P=63,559)PAS 16 - Property, Plant and Equipment 418,057 – 676,556 – (187,048) (71,451)PAS 19 - Employee Benefits 279,304 40,049 146,365 – 114,669 (21,779)PAS 21 - The Effects of Changes in Foreign Exchange Rates (3,674,015) – (1,230,482) – (2,739,198) 295,665 (P=2,965,859) P=40,049 (P=496,321) P=193,860(P=2,842,323) P=138,876

December 31, 2003

Noncurrent

AssetsCurrent

LiabilitiesNoncurrent

Liabilities Equity*

January 1,2003

RetainedEarnings

Net Income

(In Thousand Pesos) PFRS 2 - Share-based Payment P=3,094 P=– (P=25,251) P=59,091 P=– (P=30,746) PAS 16 - Property, Plant and Equipment 266,580 – 453,628 – (118,994) (68,054) PAS 19 - Employee Benefits 239,213 (6,076) 130,620 – 132,793 (18,124) PAS 21 - The Effects of Changes in

Foreign Exchange Rates (4,431,116) – (1,691,918) – (2,463,505) (275,693)

(P=

3,922,229) (P=6,076) (P=1,132,921) P=59,091 (P=2,449,706) (P=392,617)

*Represents effect on additional paid-in capital-common and cost of share-based payments.

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The reconciliation of the increasing (decreasing) effects of transition to PFRS as they apply to stockholders’ equity as of January 1, 2005, 2004 and 2003 and the net income and earnings per share in 2004 and 2003 are set out below:

Stockholders’ equity

2005 2004 2003 (In Thousand Pesos) As previously reported P=57,016,489 P=50,853,999 P=50,855,930 PFRS 2 - Share-based Payment 99,555 28,345 – PAS 16 - Property, Plant and Equipment (258,499) (187,048) (118,994) PAS 19 - Employee Benefits 92,890 114,669 132,793 PAS 21 - The Effects of Changes in Foreign Exchange Rates (2,443,533) (2,739,198) (2,463,505) PAS 39 - Financial Instruments (119,718) – – As restated P=54,387,184 P=48,070,767 P=48,406,224

Net income

2004 2003 (In Thousand Pesos) As previously reported P=11,257,366 P=10,345,253 PFRS 2 - Share-based Payment (63,559) (30,746) PAS 16 - Property, Plant and Equipment (71,451) (68,054) PAS 19 - Employee Benefits (21,779) (18,124) PAS 21 - The Effects of Changes in Foreign Exchange Rates 295,665 (275,693) As restated P=11,396,242 P=9,952,636

Basic earnings per share

2004 2003 As previously reported P=79.93 P=68.79 PFRS 2 - Share-based Payment (0.45) (0.21) PAS 16 - Property, Plant and Equipment (0.51) (0.46) PAS 19 - Employee Benefits (0.16) (0.12) PAS 21 - The Effects of Changes in Foreign Exchange Rates 2.11 (1.84) As restated P=80.92 P=66.16

Basis of Consolidation The accompanying consolidated financial statements include the accounts of Globe Telecom, Innove and GXI. Innove’s and GXI’s principal activities are wireless and wireline services, and software management for telecom applications, respectively.

Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All significant intercompany balances and transactions, including intercompany profits and unrealized profits and losses, were eliminated during consolidation in accordance with the accounting policy on consolidation.

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Revenue Recognition The Globe Group provides wireless services and wireline voice and data communication services.

Wireless and wireline voice services are provided under postpaid and prepaid arrangements while wireline data services are all under postpaid arrangement.

Revenue is recognized when the delivery of the products or services has occurred and the collectibility is reasonably assured. Revenue is stated at amounts invoiced and accrued to customers, taking into consideration the bill cycle cut-off (for postpaid subscribers), and charged against preloaded airtime value (for prepaid subscribers), and excludes value added tax (VAT) and overseas communication tax.

Revenues principally consist of: (1) airtime and toll fees for local, domestic and international long distance calls in excess of free call allocation, less (a) bonus airtime credits, airtime on free Subscribers’ Identification Module (SIM) for SIM swap transactions and marketing promotions credited to subscriber billings, (b) prepaid reload discounts, and (c) interconnection fees; (2) revenues from value added services such as SMS in excess of free SMS allocation and multimedia messaging services (MMS), content downloading and infotext services, net of interconnection fees and payout to content providers; (3) inbound revenues from other carriers which terminate their calls to Globe Group’s network; (4) revenues from international roaming services; (5) usage of broadband and internet services in excess of fixed monthly service fees; (6) fixed monthly service fees (for postpaid wireless and wireline voice and data subscribers and wireless prepaid subscription fees for discounted promotional calls and SMS); (7) proceeds from sale of handsets, phonekits, and other phone accessories; and (8) one-time registration fees (for postpaid wireless subscribers), one-time service connection fees (for wireline voice and data subscribers), and one-time activation or upfront fees for the excess of the selling price of SIM packs over the preloaded airtime (for prepaid subscribers).

Postpaid service arrangements include fixed monthly charges, which are recognized over the

subscription period on a pro-rata basis. Telecommunication services provided to postpaid subscribers are billed throughout the month according to the bill cycles of subscribers. As a result of bill cycle cut-off, monthly service revenues earned but not yet billed at end of the month are estimated and accrued. These estimates are based on actual usage less estimated free usage using historical ratio of free over billable usage.

Proceeds from the sale of prepaid cards and airtime value through over-the-air reloading services

are deferred and shown as “Unearned revenues” in the consolidated balance sheets. Revenue is recognized upon actual charging of subscription fees for promotional discounted calls or SMS services and the actual usage of the airtime value for voice, SMS, MMS and content downloading, and net of free service allocation and bonus reload, or upon expiration of the unused value, whichever comes earlier.

Inbound revenues and outbound charges are accrued based on actual volume of traffic monitored

by the Group’s network and in the traffic settlement system and the agreed termination rates and on revenue sharing agreement with other foreign and local carriers and content providers. Prompt

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payment discounts on settlement of inbound revenues are recorded when incurred upon settlement of accounts. Inbound revenues represent settlements recognized from telecommunications providers that sent traffic to the Globe Group’s network, while outbound charges represent

settlements to telecommunications providers for traffic originating from the Globe Group’s network and settlements to service providers for value added contents downloaded by subscribers. Adjustments are made to the accrued amount for discrepancies between the traffic volume per Globe Group’s records and per records of the other carriers and content providers as these are determined and/or are mutually agreed by the parties. Uncollected inbound revenues are shown as traffic settlements receivable under “Receivables”, while unpaid outbound charges are shown as traffic settlements payable under “Accounts payable and accrued expenses” in the consolidated balance sheets, unless a right of offset exists. Proceeds from sale of handsets, phonekits, SIM packs, and other phone accessories are recognized upon delivery of the item to customers. The related costs of handsets, phonekits, SIM packs and accessories sold to customers are presented as “Cost of sales” in the consolidated statements of income. Lease income from operating lease is recognized on a straight-line basis over the lease term.

Interest income is recognized as it accrues. Subscriber Acquisition and Retention Costs The related costs incurred in connection with the acquisition of subscribers are charged against

current operations. Subscriber acquisition costs primarily include commissions, handset and phonekit subsidies and marketing expenses. Handset and phonekit subsidies represent the difference between the book value of handsets, accessories and SIM cards (included in “Cost of sales” account), and the corresponding selling price to a subscriber (included in “Nonservice revenues” under Net operating revenues). Retention costs for existing postpaid subscribers are in the form of free handsets and bill credits. Free handsets are charged against current operations and included in selling, advertising and promotion expenses under “Operating costs and expenses”. Bill credits are deducted from operating revenues upon application against qualifying subscriber bills.

Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid

investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of placements and that are subject to an insignificant risk of changes in value.

Receivables Receivables are recognized and carried at billable amounts less an allowance for doubtful

accounts. Penalties, termination fees and surcharges on past due accounts of postpaid subscribers are recognized as revenues upon collection. An allowance for doubtful accounts is maintained at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts. A review of the age and status of receivables, designed to identify accounts to be provided with allowance, is performed regularly.

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Customers

Full allowance is provided for receivables from permanently disconnected wireless and wireline subscribers. Permanent disconnections are made after a series of collection steps following nonpayment by postpaid subscribers. Such permanent disconnections generally occur within a predetermined period from statement date. Except for specific individual and corporate wireless subscribers subjected to specific evaluation and special credit management handling, full allowance is generally provided for active individual and corporate wireless subscribers with outstanding receivables that are past due by 90 and 120 days, respectively, and those with temporary disconnected status that are subject for termination within the succeeding month. Full allowance is also provided for active residential and business wireline voice subscribers with outstanding receivables that are past due by 90 and 150 days, respectively. Full allowance is likewise provided for receivables from wireline data corporate accounts that are past due by 150 days.

Traffic Settlements

Full allowance is generally provided for the net receivable from international and national traffic carriers and roaming partners which are not settled within 10 months and 6 months, respectively, from transaction date and after review of the status of settlement with other carriers.

Additional provisions are made for accounts specifically identified to be doubtful of collection regardless of age of the account.

Inventories and Supplies 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 nonmoving items for more than one year and 50% for slow-moving items. Cost is determined using the moving average method.

Supplies of SIM packs and telephone handsets are consumed upon activation of the wireless and wireline services.

Property and Equipment

Property and equipment, except land, are carried at cost less accumulated depreciation, amortization and accumulated provision for impairment losses, if any. Land is stated at cost less any accumulated provision for impairment losses. The cost of an item of property and equipment includes its purchase price and any cost attributable in bringing the asset to its intended location and working condition. Cost also includes: (a) interest and other financing charges on borrowed funds used to finance the acquisition of property and equipment to the extent incurred during the period of installation and construction; and (b) asset retirement obligation (ARO) specifically for property and equipment installed/constructed on leased properties.

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Subsequent costs are capitalized as part of property and equipment only when it is probable that future economic benefits associated with the item will flow to the Globe Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged against current operations as incurred.

Effective January 1, 2005, foreign exchange differentials arising from the acquisition of property and equipment are charged against current operations and no longer capitalized. The comparative 2004 and 2003 financial statements were restated to reflect this change in accounting policy. Assets under construction are transferred to the related property and equipment account when the construction or installation and related activities necessary to prepare the property and equipment for their intended use are completed, and the property and equipment are ready for service.

Depreciation and amortization of property and equipment commences once the property and

equipment are available for use and is computed using the straight-line method over the estimated useful lives (EUL) of the assets regardless of utilization.

Leasehold improvements are amortized over the shorter of their EUL or the corresponding lease

terms. The EUL of property and equipment are reviewed annually based on expected asset utilization as

anchored on business plans and strategies that also consider expected future technological developments and market behavior to ensure that the period of depreciation and amortization is consistent with the expected pattern of economic benefits from items of property and equipment.

The EUL of property and equipment of the Globe Group are as follows:

Years Telecommunications equipment: Tower 15 Switch 10 and 15 Outside plant 10-20 Distribution dropwires 5 Cellular facilities and others 3-10 Buildings 20 Leasehold improvements 5 years or lease term whichever is shorter Investments in cable systems 15 Furniture, fixtures and equipment 3-5 Transportation and work equipment 2-5

When property and equipment is retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and accumulated provision for impairment losses, if any, are removed from the accounts and any resulting gain or loss is credited to or charged against current operations.

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Asset Retirement Obligations The Globe Group is legally required under various contracts to restore leased property to its original condition and to bear the cost of dismantling and deinstallation at the end of the contract period. The Globe Group recognizes the fair value of the liability for these obligations and capitalizes the present value of these costs as part of the balance of the related property and equipment accounts, which are depreciated on a straight-line basis over the useful life of the related property and equipment or the contract period, whichever is shorter. Investment Property Investment property is initially measured at cost including transaction costs. Investment property is derecognized when it has either been disposed of or permanently withdrawn from use and no future benefit is expected from its disposal. Any gain or loss on the derecognition of an investment property is recognized in the consolidated statement of income in the year of derecognition.

Transfers are made to investment property when, and only when, there is a change in use, evidenced by the end of owner-occupation, commencement of an operating lease to another party or by the end of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sell.

Depreciation of investment property is computed using the straight-line method over its useful life, regardless of utilization. The EUL of the investment property is 15 years.

Intangible Assets Intangible assets acquired separately are capitalized at cost. Subsequently, intangible assets are measured at cost less accumulated amortization and provisions for impairment losses, if any. The useful lives of intangible assets with finite life are assessed at the individual asset level. Intangible assets with finite life are amortized over their useful life. Periods and method of amortization for intangible assets with finite useful lives are reviewed annually or earlier where an indicator of impairment exists.

Costs incurred to acquire computer software (not an integral part of its related hardware) and bring it to its intended use are capitalized as part of the intangible assets. These costs are amortized over the EUL of the related computer software ranging from 3 to 5 years. Costs directly associated with the development of identifiable computer software that generate expected future benefits to the Globe Group are recognized as intangible assets. All other costs of developing and maintaining computer software programs are recognized as expense when incurred.

A gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized in the consolidated statements of income when the asset is derecognized.

Debt Issuance Costs

Prior to January 1, 2005, issuance, underwriting and other related expenses incurred in connection with the issuance of debt instruments are deferred and amortized over the terms of the instruments

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using the straight-line method and unamortized debt issuance costs are shown under “Other noncurrent assets” account in the consolidated balance sheets.

Effective January 1, 2005, debt issuance costs were amortized using the effective interest method and unamortized debt issuance costs are netted against the related carrying value of the debt instrument in the consolidated balance sheets. The adoption of the effective interest rate method was accounted for retroactively, and the cumulative effect of change was charged against the January 1, 2005 retained earnings.

When the related instrument is retired, the related unamortized debt issuance costs at the date of retirement are charged against current operations.

Investments in Associates, Joint Ventures and Others Investments are accounted for under the equity method. An associate is an entity in which the Globe Group has a significant influence and which is neither a subsidiary nor a joint venture (JV). A JV is an entity not being a subsidiary nor an associate in which the Globe Group exercises joint control together with one or more venturers.

Under the equity method, the investments in associates and JV are carried in the consolidated balance sheets at cost plus post-acquisition changes in the Globe Group’s share of net assets of the associates and JV, less any accumulated impairment in value. The consolidated statements of income reflect the share of the results of operations of the associates and JV. Where there has been a change recognized directly in the associates’ equity, the Globe Group recognizes its share of any changes and discloses this, when applicable , in the consolidated statements of changes in equity.

Other investments include shares of stock where the Globe Group’s ownership interest is less than 20% or where control is likely to be temporary. These are initially recognized at cost, being the fair value of the consideration given and including acquisition charges associated with the investments. Gains or losses on these investments are recognized directly in equity, through the statement of changes in stockholders’ equity. When the investment is derecognized, the cumulative gain or loss previously recognized in equity is recognized in the consolidated statements of income. When there is objective evidence that the investment is impaired, the cumulative loss that had been recognized directly in equity is removed from equity and recognized in the consolidated statements on income even though the investment has not been derecognized. Impairment of Assets An assessment is made at the balance sheet date to determine whether there is any indication that the asset may be impaired, or whether there is any indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may have decreased. If any such indication exists and when the carrying value of an assets exceeds its estimated recoverable amount, the asset or cash generating unit to which the asset belongs is written down to its recoverable amount. The recoverable amount of an asset is the greater of its net selling price and value in use. An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged against operations in the year in which it arises. A previously recognized impairment loss is reversed only if there has been a change in estimate used to determine the recoverable amount of an asset, however, not to an amount higher

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than the carrying amount that would have been determined (net of any accumulated depreciation and amortization for property and equipment) had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is credited to current operations.

For the Globe Group, the cash-generating unit for purposes of impairment assessment of property and equipment is the combined wireless and wireline asset groups of Globe Telecom and Innove. This asset grouping is predicated upon the requirement contained in Executive Order (EO) No. 109 and RA No. 7925 requiring licensees of CMTS and IGF services to provide 400,000 and 300,000 LEC lines, respectively, as a condition for the grant of such licenses. Treasury Stock Treasury stock is recorded at cost and is presented as a deduction from equity. When the shares are retired, the capital stock account is reduced by its par value. The excess of cost over par value upon retirement is debited to the following accounts in the order given: (a) additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were issued, and (b) retained earnings. Income Taxes

Deferred income tax is provided using the balance sheet liability method on all temporary differences, with certain exceptions, at balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, with certain exceptions. Deferred income tax assets are recognized for all deductible temporary differences and carryforward benefit of unused tax credits from excess minimum corporate income tax (MCIT) over regular corporate income tax and net operating loss carryover (NOLCO) to the extent that it is probable that taxable income will be available against which the deductible temporary differences and the carryforward benefit of unused MCIT and NOLCO can be used.

Deferred income tax is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of transaction, affects neither the accounting profit nor taxable profit or loss. Deferred income tax liabilities are not provided on nontaxable temporary differences associated with investment in a domestic associate.

The carrying amounts of deferred income tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized.

Deferred income tax assets and liabilities are measured at the tax rate that is expected to apply in the year when the asset is realized or the liability is settled based on tax rates (and tax laws) that have been enacted or substantially enacted as of balance sheet date.

Provisions

A provision is recognized only when the Globe Group has: (a) a present obligation (legal or constructive) as a result of a past event; (b) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a

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reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

Share-based Payment Transactions Certain employees (including directors) of the Globe Group receive remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’) (see Note 18). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. In valuing equity-settled transactions, vesting conditions, including performance conditions, other than market conditions (conditions linked to share prices), shall not be taken into account when estimating the fair value of the shares or share options at the measurement date. Instead, vesting conditions are taken into account in estimating the number of equity instruments that will vest.

The cost of equity-settled transactions is recognized in the consolidated statements of income, together with a corresponding increase in equity, over the period in which the service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the management of the Globe Group at that date, based on the best available estimate of the number of equity instruments, will ultimately vest.

No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum, an expense is recognized as if the terms had not been modified. In addition, an expense is recognized for any increase in the value of the transaction as a result of the modification, measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (see Note 24). Pension Cost Pension cost is actuarially determined using the projected unit credit method. This method reflects services rendered by employees up to the date of valuation and incorporates assumptions

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concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes to underlying assumptions occur. Pension cost includes current service cost, interest cost, expected return on any plan assets, actuarial gains and losses, past service cost and the effect of any curtailment or settlement.

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The net pension asset recognized by the Globe Group in respect of the defined benefit pension plan is the lower of: (a) the fair value of the plan assets less the present value of the defined benefit obligation at the balance sheet date, together with adjustments for unrecognized actuarial gains or losses and past service costs that shall be recognized in later periods; or (b) the total of any cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The defined benefit obligation is calculated annually by independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using risk-free interest rates of government bonds that have terms to maturity approximating the terms of the related pension liabilities.

In accordance with PFRS 1, the effect of change in accounting policy includes all cumulative

actuarial gains and losses at the date of transition to PFRS. In subsequent periods, portion of actuarial gains and losses is recognized as income or expense if the cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the greater of the 10% of the present value of defined benefit obligation or 10% of the fair value of plan assets. These gains and losses are recognized over the expected average remaining working lives of the employees participating in the plans.

Borrowing Costs 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 property and equipment. The capitalization of borrowing costs as part of the cost of an item of property and equipment: (a) commences when the expenditures and borrowing costs being incurred during the installation and related activities necessary to prepare the item of property and equipment 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 item of property and equipment for its intended use are completed. These costs are amortized using the straight-line method over the EUL of the related property and equipment.

Other borrowing costs are recognized as expense in the period in which these are incurred.

Premiums on long-term debt are included in “Long-term debt” account in the consolidated balance sheets and are amortized using the effective interest rate method.

Leases Finance leases, which transfer to the Globe Group substantially all the risks and benefits incidental

to ownership of the leased item, are capitalized at the inception of the lease at the lower of the value of the leased property and the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against current operations.

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Capitalized leased assets are depreciated over the shorter of the EUL of the assets or the corresponding lease terms.

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Leases where the lessor retains substantia lly all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease collection or payment is recognized in the consolidated statements of income on a straight-line basis over the lease terms.

Advertising Expenses Advertising expenses are charged against current operations as incurred.

Foreign Currency Transactions

The functional and presentation currency of the Globe Group is the Philippine Peso. Transactions denominated in foreign currencies are recorded in Philippine Peso based on the exchange rates prevailing at the transaction dates. Foreign currency-denominated monetary assets and liabilities are translated to Philippine Peso at exchange rate prevailing at the balance sheet date. Foreign exchange differentials between rate at transaction date, and rate at settlement date or balance sheet date of foreign currency-denominated monetary assets or liabilities are credited to or charged against current operations.

Financial Instruments

Accounting Policies Effective January 1, 2005 Financial instruments are recognized initially at cost, which is the fair value of the consideration given (in the case of an asset) or received (in the case of a liability). The fair values of the consideration given or received are determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rates of interest for similar instruments with similar maturities. The initial measurement of financial instruments, except for those designated at fair value through profit or loss, includes transaction costs.

Financial instruments are recognized in the consolidated balance sheets when the Globe Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognized either when the Globe Group has transferred substantially all the risks and rewards of ownership or when it has neither transferred nor retained substantially all the risks and rewards of ownership but it no longer has control over the financial assets. Financial liabilities are derecognized when the obligation is extinguished.

The subsequent measurement bases for financial instruments depend on classification. Financial instruments that are classified as held-to-maturity, loans and receivables, and financial liabilities other than liabilities measured at fair value through profit and loss are measured at amortized cost using the effective interest rate method. Investments are classified as held-to-maturity when those are nonderivatives with fixed or determinable payments and fixed maturity that the Globe Group has positive intention and ability to hold to maturity. Investments to be held for an undefined period are not included in this classification. Amortized cost is calculated by taking into account any discount, premium and transaction costs on acquisition, over the year to maturity. Amortizations of discounts, premiums and transaction costs are taken directly to the consolidated statements of income. For investments carried at amortized cost, gains and losses are recognized in income when the investments are derecognized or impaired, as well as through the amortization process.

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Changes in the fair value of financial assets and liabilities measured at fair value of: (a) all derivatives (except those eligible for hedge accounting); (b) other items that are held for trading; and (c) any item designated as held “at fair value through profit and loss” at origination, are taken directly to the consolidated statements of income. Changes in the fair value of investments classified as available-for-sale securities are recognized in equity, except for the foreign exchange fluctuations on available-for-sale debt securities and the interest component which is taken directly to the consolidated statements of income based on the asset’s effective yield. These changes in fair values are recognized in equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated statements of income.

Financial assets and liabilities include financial instruments which may be a non-derivative instrument, such as receivables, payables and equity securities, or a derivative instrument, such as financial options, forwards and swaps.

The Globe Group enters into short-term deliverable and non-deliverable currency forward contracts to manage its exchange exposure related to short-term foreign currency-denominated monetary assets and liabilities. The Globe Group also enters into structured currency forward contracts where call options are sold in combination with such currency forward contracts.

The Globe Group enters into deliverable prepaid forward contracts that entitle the Globe Group to a discount on the contracted forward rate. Such contracts contain embedded currency derivatives that are bifurcated and marked-to-market through earnings, with the host debt instrument being accreted to its face value.

The Globe Group enters into short-term interest rate swap contracts to manage its interest rate exposures on certain short-term floating rate peso investments. The parent company also enters into long-term currency and interest rate swap contracts to manage its foreign currency and interest rate exposures arising from its long-term loan. Such swap contracts are sometimes entered into in combination with options. The Globe Group also sells currency options as cost subsidy for outstanding currency swap contracts. Swap costs occurring on long-term swaps are charged against current operations.

Derivative financial instruments are recognized in the consolidated balance sheets at cost and subsequently re-measured to their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedge of an identified risk and qualifies for hedge accounting treatment. The objective of hedge accounting is to match the impact of the hedged item and the hedging instrument in the consolidated statements of income. To qualify for hedge accounting, the hedging relationship must comply with strict requirements such as the designation of the derivative of an identified risk exposure, hedge documentation, probability of occurrence of the forecasted transaction in a cash flow hedge, assessment and measurement of hedge effectiveness, and reliability of the measurement bases of the derivative instruments.

Upon inception of the hedge, the Globe Group documents the relationship between the hedging instrument and the hedged item, its risk management objective and strategy for undertaking various

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hedge transactions, and the details of the hedging instrument and the hedged item. The Globe Group also documents its hedge effectiveness assessment methodology, both at the hedge inception and on an ongoing basis, as to whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Hedge effectiveness is likewise measured, with any ineffectiveness being reported immediately in the consolidated statements of income. The Globe Group designates derivatives which qualify as accounting hedges as either: (a) a hedge of the fair value of a recognized fixed rate asset, liability or firm commitment (fair value hedge); or (b) a hedge of the cash flow variability of recognized floating rate asset and liability or forecasted transaction (cash flow hedge).

Fair Value Hedges Fair value hedges are hedges of the exposure to variability in the fair value of recognized assets, liabilities or firm commitments. The gain or loss on a derivative instrument designated and qualifying as a fair value hedge as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized currently in the consolidated statements of income in the same accounting period. Hedge effectiveness is determined based on the hedge ratio of the fair value changes of the hedging instrument and the underlying hedged item. When the hedge ceases to be highly effective, hedge accounting is discontinued.

As of December 31, 2005, there were no derivatives designated and accounted for as fair value hedges.

Cash Flow Hedges The Globe Group designates as cash flow hedges the following derivatives: (a) certain floating-to-fixed cross currency swaps as cash flow hedges of both the currency and interest rate risks of the floating rate foreign currency-denominated obligations; (b) certain principal only swaps and fixed-to-fixed cross currency swaps as cash flow hedges of the currency risk of certain fixed rate foreign currency denominated obligations; and, (c) interest rate swap as cash flow hedge of the interest rate risk of a floating rate foreign currency-denominated obligation.

A cash flow hedge is a hedge of the exposure to variability in future cash flows related to a recognized asset, liability or a forecasted transaction. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are recognized in “Cumulative translation adjustments,” which is a component of stockholders’ equity. Any hedge ineffectiveness is immediately recognized in the consolidated statements of income.

Where the forecasted transaction or firm commitment result in the recognition of an asset or liability, the gains and losses previously included in “Cumulative translation adjustments” are included in the initial measurement of the asset or liability. Otherwise, amounts recorded in equity are transferred to the consolidated statements of income in the same period in which the forecasted transaction affects the consolidated statements of income.

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Hedge accounting is discontinued prospectively when the hedge ceases to be highly effective. When hedge accounting is discontinued, the cumulative gain or loss on the hedging instrument that has been reported in “Cumulative translation adjustments” is retained in the stockholders’ equity until the hedged transaction impacts earnings. When the forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in “Cumulative translation adjustments” is recognized immediately in the consolidated statements of income.

Other Derivative Instruments Not Accounted for as Hedges Certain freestanding derivative instruments that provide economic hedges under Globe Group’s policies either do not qualify for hedge accounting or are not designated as accounting hedges. Changes in the fair values of derivative instruments not designated as hedges are recognized immediately in the consolidated statements of income.

For derivatives embedded in financial and non-financial contracts that are not designated or do not qualify as hedges, changes in the fair values of such transactions are recognized in the consolidated statements of income.

Accounting Policies Prior to January 1, 2005 Translation gains or losses on currency forward and swap contracts are computed by multiplying the notional amounts by the difference between the exchange spot rates prevailing at the balance sheet date and the exchange spot rates at the contract inception date (or the last reporting date). The resulting translation gains or losses on the currency forward and swap contracts are offset against the translation losses or gains on the underlying foreign currency-denominated monetary assets and liabilities. The related revaluation amounts on the translation of currency forward and currency swap contracts are included in “Other noncurrent assets” account in the consolidated balance sheets, including the carrying amounts of forward premiums or discounts which are amortized over the term of the related contracts. Swap costs accruing on long-term currency and interest rate swap contracts that are currently due to or from the swap counterparties are charged against current operations.

The mark-to-market gains or losses on these contracts as well as the other types of derivative

contracts are not considered in the determination of consolidated net income but are disclosed in the related notes to the consolidated financial statements.

Earnings Per Share (EPS)

Basic EPS is computed by dividing earnings applicable to common stock by the weighted average number of common shares outstanding, after giving retroactive effect for any stock dividends, stock splits or reverse stock splits during the year.

Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding during the year, after giving retroactive effect for any stock dividends, stock splits or reverse stock splits during the year, and adjusted for the effect of dilutive options and dilutive convertible preferred shares. Outstanding stock options will have a dilutive effect under the treasury stock method only when the average market price of the underlying common share during the period exceeds the exercise price of the option. If the required dividends to be declared on convertible preferred shares divided by the number of equivalent common shares, assuming such

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shares are converted, would decrease the basic EPS, then such convertible preferred shares would be deemed dilutive. Where the effect of the assumed conversion of the preferred shares and the exercise of all outstanding options have anti-dilutive effect, basic and diluted EPS are stated at the same amount.

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Segment Reporting The Globe Group’s major operating business units are the basis upon which the Globe Group reports its primary segment information. In 2005, the Globe Group started monitoring its wireline voice and data businesses as one major converged service with similar risks and returns. The Globe Group’s business segments consist of: (1) wireless communication services and (2) wireline communication services. The Globe Group generally accounts for inter-segment revenues and expenses at agreed transfer prices.

Contingencies Contingent liabilities are not recognized in the consolidated financial statements. These are

disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed when an inflow of economic benefits is probable.

Subsequent Events

Any post year-end event up to the date of approval of the Board of Directors (BOD) of the consolidated financial statements that provides additional information about the Globe Group’s position at balance sheet date (adjusting event) is reflected in the consolidated financial statements. Any post year-end event that is not an adjusting event is disclosed in the notes to the consolidated financial statements when material.

3. Management’s Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with Philippine GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates.

PAS 1, Presentation of Financial Statements, which was adopted by the Globe Group effective January 1, 2005, requires disclosures about key sources of estimation, uncertainty and judgments management has made in the process of applying accounting policies. The following presents a summary of these significant estimates and judgments: Estimated allowance for doubtful accounts The Globe Group maintains allowances for doubtful accounts at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Group’s relationship with the customer, the customer’s payment behavior and known market factors. The Globe Group reviews the age and status of receivables, and identifies accounts that are to be provided with allowances on a continuous basis.

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The amount and timing of recorded expenses for any period would differ if the Globe Group made different judgments or utilized different estimates. An increase in allowance for doubtful accounts would increase the recorded operating expenses and decrease current assets.

Provision for doubtful accounts amounted to P=615.73 million, P=1,052.22 million and P=940.75 million in 2005, 2004 and 2003, respectively. Receivables, net of allowance for doubtful accounts, amounted to P=6,764.13 million, P=5,457.91 million and P=7,760.69 million as of December 31, 2005, 2004 and 2003, respectively (see Note 5). Estimating asset retirement obligations The Globe Group is legally required under various contracts to restore leased property to its original condition and to bear the costs of dismantling and deinstallation at the end of the contract period. These costs are accrued based on in-house an estimate, which incorporates estimates on amount of asset retirement costs, third party margins and interest rates. The Globe Group recognizes the fair value of the liability for these obligations and capitalizes the present value of these costs as part of the balance of the related property and equipment accounts, which are being depreciated on a straight-line basis over the useful life of the related asset. The market risk premium was excluded from the estimate of the fair value of the ARO because a reasonable and reliable estimate of the market risk premium is not obtainable . Since a market risk premium is unavailable, fair value is assumed to be the present value of the obligations. The fair value and present value of dismantling costs is computed based on an average credit adjusted risk free rate of 14.62%. Assumptions used to compute ARO are reviewed and updated annually. The amount and timing of recorded expenses for any period would differ if different judgments were made or different estimates were utilized. An increase in ARO would increase recorded operating expenses and increase noncurrent liabilities. As of December 31, 2005, 2004 and 2003, ARO has a carrying value of P=907.05 million, P=769.80 million and P=519.31 million, respectively (see Note 15). Estimated useful lives of property and equipment, intangible assets and investment property Globe Group reviews annually the estimated useful lives of property and equipment, intangible assets and investment property based on expected asset utilization as anchored on business plans and strategies that also consider expected future technological developments and market behavior. It is possible that future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property and equipment, intangible assets and investment property would increase the recorded depreciation and amortization expense and decrease noncurrent assets. As of December 31, 2005, 2004 and 2003, property and equipment, intangible assets and investment property amounted to P=99,914.94 million, P=102,849.37 million and P=95,945.63 million, respectively (see Notes 8, 9 and 10).

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Asset impairment Globe Group assesses impairment on assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . The factors that Globe Group considers important which could trigger an impairment review include the following:

• significant underperformance relative to expected historical or projected future operating

results; • significant changes in the manner of use of the acquired assets or the strategy for overall

business; and • significant negative industry or economic trends.

An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs.

In determining the present value of estimated future cash flows expected to be generated from the continued use of the assets, Globe Group is required to make estimates and assumptions that can materially affect the consolidated financial statements.

The carrying value of property and equipment, investment property, intangible assets and investment in subsidiaries, associates, joint ventures and others amounted to P=99,991.83 million, P=102,941.30 million and P=96,673.35 million as of December 31, 2005, 2004 and 2003, respectively, (see Notes 8, 9, 10 and 11).

Deferred income tax assets Globe Group reviews the carrying amounts of deferred income tax assets at each balance sheet date and reduces deferred income tax assets to the extent that it is no longer probable that sufficient income will be available to allow all or part of the deferred income tax assets to be utilized. However, there is no assurance that Globe Group will generate sufficient taxable profit to allow all or part of its deferred income tax assets to be utilized. As of December 31, 2005, 2004 and 2003, Innove has net deferred income tax assets of P=1,163.94 million, P=2,413.25 million and P=1,759.41 million, respectively, while Globe Telecom has net deferred income tax liabilities of P=4,432.87 million, P=3,474.73 million and P=1,874.08 million, respectively. Globe Telecom and Innove has no unrecognized deferred income tax assets as of December 31, 2005. GXI has not recognized deferred income tax assets on its net operating loss carry over.

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Financial assets and liabilities Globe Group carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgment. While significant components of fair value measurement were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates), the amount of changes in fair value would differ if the Globe Group utilized a different valuation methodology. Any changes in fair value of these financial assets and liabilities would affect profit and loss and equity. Financial assets and liabilities carried at fair value as of December 31, 2005 amounted to P=1,548.89 million and P=731.75 million, respectively (see Note 25). Pension and other employee benefits The determination of the obligation and cost of pension and other employee benefits is dependent on the selection of certain assumptions used in calculating such amounts. Those assumptions include, among others, discount rates, expected returns on plan assets and salary increase rates and price, and projected dividend yields, risk free interest rate and volatility rate, for the retirement of pension and cost of share-based payments, respectively (see Note 18). In accordance Philippine GAAP, actual results that differ from the Globe Group’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While the Globe Group believes that the assumptions are reasonable and appropriate, significant differences between actual experiences and assumptions may materially affect the cost of employee benefits and related obligations.

As of December 31, 2005 and 2004, Globe Telecom recognized unrecognized actuarial gains of P=35.39 million and P=31.42 million, respectively, while unrecognized actuarial losses for 2003 amounted to P=75.33 million. Innove’s unrecognized actuarial gains amounted to P=118.20 million, P=74.04 million and P=17.17 million as of December 31, 2005, 2004 and 2003, respectively. (see Note 18).

The Globe Group also estimates other employee benefits obligation and expense, including the cost of paid leaves based on historical leave availments of employees, subject to the Globe Group’s policy. These estimates may vary depending on the future changes in salaries and actual experiences during the year.

The accrued balance of other employee benefits as of December 31, 2005 amounted to P=199.67 million.

Contingencies Globe Telecom and Innove are currently involved in various legal proceedings. The estimate of the probable costs for the resolution of these claims has been developed in consultation with outside counsel handling the companies’ defense in these matters and is based upon an analysis of potential results. Globe Telecom and Innove currently do not believe that these proceedings will have a material adverse affect on the consolidated financial position. It is possible, however, that

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future results of operations could be materially affected by changes in the estimates or in the effectiveness of the strategies relating to these proceedings (see Notes 13 and 23).

4. Integration of Wireline Business On August 7, 2003, the NTC approved the legal rights transfer of Globe Telecom’s wireline business authorizations, properties, assets and obligations to Innove. In September 2003, pursuant to the approval granted by the NTC, Globe Telecom’s wireline voice and data assets and liabilities were transferred to Innove and the wireline business of Globe Group was integrated into Innove. On June 30, 2004 and November 30, 2005, Globe Telecom transferred additional wireline assets and certain investments in cable systems to Innove. On a consolidated basis, the transfers had no impact on net revenues, EBITDA [earnings before interest, income tax, depreciation and amortization and other income (expense)] and net income. Innove remains a wholly-owned subsidiary of Globe Telecom. The transfer of the wireline business of Globe Telecom to Innove is 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.

5. Receivables This account consists of receivables from:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Customers P=8,022,307 P=7,988,865 P=7,109,926 Traffic settlements receivables - net

(Notes 16 and 25) 3,120,374 2,315,050 4,514,080 Others (Note 16) 305,076 242,789 197,687 11,447,757 10,546,704 11,821,693 Less allowance for doubtful

accounts (Note 3): Customers 4,468,009 4,787,070 3,879,846 Traffic settlements and others 215,618 301,721 181,153 4,683,627 5,088,791 4,060,999 P=6,764,130 P=5,457,913 P=7,760,694

Traffic settlements receivables are presented net of traffic settlements payables of P=1,979.29 million, P=1,196.82 million and P=5,040.98 million as of December 31, 2005, 2004 and 2003, respectively.

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6. Inventories and Supplies This account consists of:

2005 2004 2003 (In Thousand Pesos) At cost: Call cards P=10,601 P=6,116 P=49,367 Wireline telephone sets – 69,767 35,326 10,601 75,883 84,693 At NRV: Handsets and accessories 840,244 393,803 308,805 SIM packs, spare parts and supplies 469,335 667,199 223,243 Wireline telephone sets 52,279 – – 1,361,858 1,061,002 532,048 P=1,372,459 P=1,136,885 P=616,741

7. Prepayments and Other Current Assets This account consists of:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Prepayments P=297,109 P=331,591 P=365,101 Input VAT - net 286,784 312,566 746,648 Derivative assets (Notes 2 and 25) 117,056 – – Other current assets (Note 25) 531,576 439,251 490,443 P=1,232,525 P=1,083,408 P=1,602,192

As of December 31, 2005 and 2004, Globe Telecom reported a net output VAT amounting to P=69.32 million and P=150.38 million, net of input VAT of P=207.07 million and P=224.74 million, respectively, included in “Accounts payable and accrued expenses” account in the consolidated balance sheets (see Note 13).

Innove’s net input VAT as of December 31, 2005 and 2004 is presented net of output VAT of P=102.65 million and P=172.98 million, respectively. Input VAT as of December 31, 2003 is presented net of output VAT of P=1,250.80 million.

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8. Property and Equipment The rollforward analysis of this account follows:

Telecommunications

Equipment

Buildings and

Leasehold

Improvements

Investments in

Cable Systems

Furniture,

Fixtures and

Equipment

Transportation

and Work

Equipment Land

Assets Under

Construction Total

(In Thousand Pesos)

Cost

At January 1, 2005, as restated P=117,423,719 P=15,688,934 P=10,145,675 P=3,436,886 P=1,191,320 P=928,222 P=4,142,164 P=152,956,920

Additions (Note 15) 1,616,476 108,003 33,350 440,860 222,410 36 12,529,070 14,950,205

Retirements/disposals (3,549,702) (19,819) (2,581) (446,965) (85,182) (30,344) – (4,134,593)

Reclassifications/adjustments* 9,338,435 3,155,754 (1,113,905) 642,608 4,153 – (13,795,500) (1,768,455)

At December 31, 2005 124,828,928 18,932,872 9,062,539 4,073,389 1,332,701 897,914 2,875,734 162,004,077

Accumulated depreciation

and amortization

At January 1, 2005, as restated 42,953,548 3,791,378 1,625,452 2,182,047 760,902 – – 51,313,327

Depreciation and amortization 12,107,710 1,583,301 618,345 811,762 193,734 – – 15,314,852

Retirements/disposals (2,526,563) (7,952) (961) (413,845) (64,752) – – (3,014,073)

Reclassifications/adjustments* (4,598) (11,132) (182,009) 28,258 4,782 – – (164,699)

At December 31, 2005 52,530,097 5,355,595 2,060,827 2,608,222 894,666 – – 63,449,407

Net book value as of December 31,

2005 P=72,298,831 P=13,577,277 P=7,001,712 P=1,465,167 P=438,035 P=897,914 P=2,875,734 P=98,554,670

Net book value as of December 31,

2004, as restated P=74,470,171 P=11,897,556 P=8,520,223 P=1,254,838 P=430,418 P=928,222 P=4,142,164 P=101,643,592

Net book value as of December 31,

2003, as restated P=72,014,245 P=8,798,102 P=9,131,458 P=764,736 P=324,028 P=927,857 P=3,109,261 P=95,069,687

* Adjustment on Investments in Cable System includes PAS 39 adjustment (see Note 1 6).

The carrying values of property and equipment held under finance leases where Globe Group is the lessee are as follows (see Note 22c):

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Furniture, fixtures and equipment P=138,978 P=166,417 P=180,103 Transportation and work equipment 3,850 4,400 4,400 142,828 170,817 184,503 Less accumulated depreciation 136,481 147,902 148,028 Net book value P=6,347 P=22,915 P=36,475

Investments in cable systems include the cost of Globe Group’s ownership share in the capacity of certain cable systems under a joint venture or a consortium or private cable set-up and indefeasible rights of use (IRUs) of circuits in various cable systems. It also includes the cost of cable landing station and transmission facilities where Globe Group is the landing party (see Note 16). In 2004, as a result of periodic review of the EUL and depreciation and amortization methods of items of property and equipment, management came to the conclusion that there has been a significant change in the expected pattern of economic benefits from certain telecommunications equipment and investments in cable systems. Globe Group revised the EUL of certain switch equipment from 15 to 10 years and investments in cable systems from 20 to 15 years.

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In addition, Globe Group revised the remaining EUL of certain telecommunications equipment, which are specifically identified to be useful for specific periods shorter than the previously EUL. These changes have been accounted for as changes in accounting estimates. The changes increased depreciation expense by about P=1,618.27 million or P=11.26 reduction in basic earnings per share, before related income taxes in 2004.

As discussed in Note 2, beginning January 1, 2005, the Globe Group adopted PAS 16. It requires the capitalization of the costs of dismantling and restoration of the leased property at the end of the leased term. Additional capitalized ARO in 2005, 2004 and 2003 amounted to P=44.43 million P=182.36 million and P=70.26 million, respectively (see Notes 15 and 27). In 2005, Globe Group’s net reversal of capitalized borrowing costs amounted to P=33.95 million (net of capitalized interest of P=52.66 million) in 2005. In 2004 and 2003, capitalized borrowing costs amounted to P=203.55 million and P=621.89 million (including capitalized interest of P=77.67 million and P=481.97 million), respectively.

Losses on Property and Equipment In 2005, the Globe Group recognized losses on retirement on certain property and equipment of P=733.82 million as a result of impairment reviews and reconciliation exercise based on the recent count activity. Globe Telecom also provided for impairment of certain assets amounting to P=191.95 million net of reversals. These assets are expected to be no longer usable when Globe Telecom upgrades its network in 2006.

9. Investment Property

The rollforward analysis of this account follows:

2005 2004 2003 (In Thousand Pesos) Cost Balance at beginning of year P=290,834 P=281,821 P=281,821 Additions 17,621 9,013 – Balance at end of year 308,455 290,834 281,821 Accumulated depreciation Balance at beginning of year 29,318 10,833 412 Depreciation for the year 19,599 18,485 10,421 Balance at end of year 48,917 29,318 10,833 Net Book Value P=259,538 P=261,516 P=270,988

Investment property represents the portion of a building that is currently being held for lease to

third parties.

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Additions to investment property during the year represent new leases of office spaces to third parties.

Total lease income from investment property included under “Others - net” in the consolidated statements of income amounted to about P=29.01 million, P=20.84 million and P=13.19 million in 2005, 2004 and 2003, respectively. Total direct operating expenses related to investment property that generated rental income amounted to about P=20.09 million, P=19.01 million and P=11.09 million in 2005, 2004 and 2003, respectively. The fair value of the investment property computed using market data approach as of January 1, 2005 amounted to P=317.00 million based on the report issued by an independent appraiser dated April 5, 2005.

10. Intangible Assets

The rollforward analysis of this account follows:

2005 2004 2003 (In Thousand Pesos) Cost Balance at beginning of year P=2,265,820 P=1,807,059 P=1,617,077 Additions 595,621 477,429 152,761 Retirements/disposals (104,612) (18,668) 37,221 Balance at end of year 2,756,829 2,265,820 1,807,059 Accumulated Amortization Balance at beginning of year 1,321,555 1,202,108 1,021,187 Amortization 397,753 279,424 221,660 Retirements/disposals (63,206) (159,977) (40,739) Balance at end of year 1,656,102 1,321,555 1,202,108 Net Book Value P=1,100,727 P=944,265 P=604,951

Intangible assets pertain to software costs that are not integral to the computer hardware.

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11. Investments in Associates, Joint Venture and Others This account consists of:

2005 2004 2003 (In Thousand Pesos) Investments carried at equity: Acquisition cost: Bridge Mobile Pte. Ltd. (BMPL) P=56,332 P=56,332 P=– Globe Telecom Holdings, Inc. (GTHI) 98 98 98 Pintouch Telecom, LLC (PTL) 12,366 12,366 12,366 68,796 68,796 12,464 Accumulated equity in net earnings: Balance at beginning of year GTHI 166 229 4,170 PTL 20,049 20,049 20,049 20,215 20,278 24,219 Add equity in net losses: BMPL (13,311) – – GTHI (23) (62) (3,941) (13,334) (62) (3,941) Balance at end of year: BMPL 43,021 – – GTHI 241 264 326 PTL 32,415 32,415 32,415 75,677 32,679 32,741 Less allowance for impairment of investment in PTL 32,415 32,415 32,415 Carrying values at end of year: BMPL 43,021 56,332 – GTHI 241 265 327 43,263 56,597 327

Investments in shares of stock carried at cost: C2C Holdings, Pte. Ltd. 894,551 894,551 894,551 Others 45,766 47,460 47,345 940,317 942,011 941,896 Less allowance for impairment of investments: C2C Holdings, Pte. Ltd. 894,551 894,551 894,551 Others 12,132 12,132 12,132 906,683 906,683 906,683 Carrying values at end of period: C2C Holdings, Pte. Ltd. – – – Others 33,634 35,328 35,213 33,634 35,328 35,213 Total investments in associates and joint venture 76,897 91,925 35,540 Investments in ROP Bonds and DLPN (Note 25) – – 692,186

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P=76,897 P=91,925 P=727,726

Equity in net losses for the year is shown under “Equity in net losses of an associate and joint venture” account in the consolidated statements of income.

Investment in GTHI

GTHI is a special purpose vehicle incorporated in the Philippines, owned 32.67% each by Globe Telecom and Ayala Corporation (AC), 33% by Singapore Telecom International Pte. Ltd. (STI) [a wholly owned subsidiary of Singapore Telecom (ST)], and 1.66% by its directors and officers. On December 26, 2002, GTHI, having completed and concluded its only business activity, related to Philippine Deposit Receipts (PDR), filed with the Philippine SEC a request for the revocation of its permit to sell PDRs. On December 8, 2003, the Philippine SEC approved the revocation of the Order of Registration and Certificate of Permit to Sell Securities to the Public issued to GTHI. On December 15, 2004, the BOD of GTHI approved the dissolution of GTHI, which was subsequently approved by the Philippine SEC on December 13, 2005.

Investment in PTL PTL is a limited partnership organized in the United States (US) which Globe Telecom has a 50% ownership. On October 19, 2000, the BOD approved a resolution to seek the dissolution of PTL and the termination of Globe Telecom’s Limited Liability Agreement with Pacific Gateway Exchange (PGE) and other agreements with PGE and/or PTL. On January 17, 2001, PGE gave its consent to the dissolution of PTL. The dissolution has not been effected in order to enable PTL to file its Proof of Claim against PGE before the US Bankruptcy Court, District Court of California (San Francisco Division) to recover US$5.39 million of receivables from PGE. The Proof of Claim was filed on May 11, 2001. However, in December 27, 2002, the Official Committee of Unsecured Creditors of PGE (Committee) filed a complaint for recovery of money/property against PTL and Globe Telecom alleging that PGE made preferred transfers in favor of PTL and Globe Telecom prior to the filing of the bankruptcy proceedings. PTL and Globe Telecom filed their respective answers alleging that the payments were part of a contemporaneous exchange of new value; and/or for new value. Thereafter, PTL, Globe Telecom and Committee agreed to settle the dispute with a mutual release of claims. On December 17, 2004, the US Bankruptcy Court for the Northern District of California approved the settlement agreement among the parties. PTL has not been operating since 2000 and its status is deemed administratively cancelled as of December 31, 2005.

Investment in C2C Holdings, Pte. Ltd. (C2C Holdings) Innove has a 4.25% ownership in C2C Holdings consisting of 20 million Class A common shares at an acquisition cost of P=894.55 million. C2C Holdings is the holding company for the equity investments of all the cable landing parties in C2C Pte. Ltd. (C2C). C2C, a related party of STI, is a private cable company with a network reaching 17,000 kilometers that links China, Hong Kong, Japan, Singapore, South Korea, Taiwan, Philippines and the US.

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In 2003, Innove recognized a full provision for its equity investment in C2C Holdings amounting to P=894.55 million (or P=6.39 on a per share basis). 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 until the end of its economic useful lives 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. In October 2005, the creditors of C2C appointed receivers and in January 2006, manifested their intention to take over the management of C2C. Innove is awaiting the resolution of the matter between C2C and Singtel.

Investment in BMPL

On November 3, 2004, Globe Telecom and six other leading Asia Pacific mobile operators (JV partners) signed an Agreement (JV Agreement) to form a regional mobile alliance, which will operate through a Singapore-incorporated company, BMPL. In 2005, the JV consisted of eight partners. The joint venture company will look at driving commercial and other benefits for the operators and delivering regional mobile services to their subscribers.

BMPL will be a commercial vehicle in which the eight JV partners 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. BMPL 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 with equal stake in the alliance 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), PT Telekomunikasi Selular (Indonesia) and Hongkong CSL Ltd. (Hongkong).

Under the JV Agreement, each partner (shareholder) shall contribute US$4.00 million scheduled as

follows:

Year 1 about US$1.50 million Year 2 about US$1.30 million Year 3 about US$1.20 million

As of December 31, 2005, Globe Telecom has paid US$1 million (P=56.33 million) as initial subscription. BMPL started commercial operations in April 2005.

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12. Other Noncurrent Assets This account consists of:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Derivative assets (Notes 2 and 25) P=1,431,835 P=– P= Miscellaneous deposits (Notes 22a and 25) 342,492 251,547 218,896 Advances to suppliers and contractors 279,206 418,677 535,058 Prepaid pension (Note 18) 253,718 300,701 354,438 Revaluation of foreign currency swaps and

unamortized premium (Note 2) – 1,116,414 1,631,758 Others 105,530 281,159 268,199 P=2,412,781 P=2,368,498 P=3,008,349

13. Accounts Payable and Accrued Expenses This account consists of:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Accounts payable (Notes 7, 16 and 25) P=5,813,717 P=5,053,554 P=4,055,138 Accrued expenses (Notes 16d and 25) 4,101,400 4,084,200 4,811,964 Accrued project costs (Note 22) 2,444,114 3,454,285 3,003,053 Traffic settlements - net (Notes 3, 16 and 25) 1,544,657 1,104,861 1,461,224 Income tax payable 291,348 47,655 215,934 Provisions (Note 3) 231,455 282,309 793,066 Dividends payable (Note 17) 68,334 75,128 67,957 Derivative liabilities (Notes 2, 3 and 25) 32,656 – – P=14,527,681 P=14,101,992 P=14,408,336

Traffic settlements payables is presented net of traffic settlements receivables amounting to P=7,478.60 million, P=3,761.56 million and P=3,745.67 million as of December 31, 2005, 2004 and 2003 respectively Provisions relate to various pending regulatory claims and assessments. The information usually required by PAS 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. The provisions include those related to Globe Group’s wireless and wireline business amounting to P=114.19 million, P=165.05 million and P=675.80 million as of December 31, 2005, 2004 and 2003, respectively. The Globe Group recognized a net reversal of provision in 2005 amounting to P=50.85 million. As of February 7, 2006, the remaining pending regulatory claims and assessments are still being resolved.

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The balance of the provisions also includes Innove’s provision relating to NTC permit fees amounting to P=117.26 million, which were assessed by NTC on March 27, 1996 as required under Section 40 (g) of the Public Service Act. Innove, together with other telecommunications companies, particularly the members of the Telecommunications Operators of the Philippines, had decided not to pay the assessed permit fees. Innove has retained these provisions pending the resolution of the ongoing Supreme Court (SC) case on the matter. The expected timing of the settlement of the permit fees cannot be anticipated pending resolution of these matters.

14. Long-term Debt This account consists of:

2005 2004 2003 (In Thousand Pesos) Senior Notes 2012 P=16,386,579 P=17,387,378 P=11,117,200 2009 – – 9,705,872 Banks: Foreign 15,973,138 22,121,664 25,556,947 Local 10,137,664 5,975,162 4,772,692 Corporate notes 4,109,000 3,070,000 3,665,000 Retail bonds 2,983,743 3,000,000 – Suppliers’ credits 103,264 663,747 1,314,024 49,693,388 52,217,951 56,131,735 Less current portion 7,858,150 9,018,650 9,022,535 P=41,835,238 P=43,199,301 P=47,109,200

The maturities of long-term debt at nominal values as of December 31, 2005 follow (in thousand pesos):

Due in: 2006 P=7,806,535 2007 6,829,642 2008 4,982,030 2009 7,832,200 2010 and thereafter 21,791,258 P=49,241,665

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The interest rates and maturities of the above loans follow:

Maturities Interest Rates Senior Notes 2012 2012 9.75% 2009 2009 13.00% Banks: Foreign 2006-2011 2.17% to 12.45% in 2005

1.16% to 6.83% in 2004 1.18% to 7.35% in 2003

Local 2006-2010 7.36% to 11.73% in 2005 2.50% to 11.73% in 2004 7.56% to 12.52% in 2003

Corporate notes 2010-2012 7.36% to 16.00% in 2005 8.40% to 16.00% in 2004 7.14% to 16.00% in 2003

Retail bonds 2007-2009 7.26% to 11.70% in 2005 7.79% to 11.70% in 2004

Suppliers’ credits 2005-2006 4.39% to 6.69% in 2005 2.71% to 6.88% in 2004 1.06% to 13.96% in 2003

Unamortized debt premium and issuance costs included in the following long-term debt as of December 31, 2005 are as follows (in thousand pesos) (see Note 25):

Premium on 2012 Senior Notes (net of related debt issuance cost) P=467,979 Unamortized debt issuance costs on retail bonds (16,256)

P=451,723 The loan agreements with suppliers, banks and other financial institutions provide for certain

restrictions and requirements with respect to, among others, maintenance of financia l ratios and percentage of ownership of specific shareholders, incurrence of additional long-term indebtedness or guarantees and creation of property encumbrances.

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Senior Notes

Pertinent terms of Globe Telecom’s Senior Notes follow:

2012 Senior Notes (a) 2009 Senior Notes (b) Date of issue April 4, 2002 and July 23, 2004 August 6, 1999 Maturity April 12, 2012 August 1, 2009 Interest rate 9.75% p.a. 13% p.a. Interest payments Semi-annual in arrears on April 15 and

October 15 of each year. Interest accrues from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months

Semi-annual in arrears on February 1 and August 1 of each year. Interest accrues from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months

Eligible holders Bondholders of record on April 1 or October 1 immediately preceding each interest payment date

Bondholders of record on January 15 or July 15 immediately preceding each interest payment date

(a) On July 23, 2004, Globe Telecom issued US$100.00 million notes (the Notes) at 109% under an

indenture with the Bank of New York as Trustee. The Notes are consolidated and form a single series with the 2012 Senior Notes issued on April 4, 2002. On October 29, 2004, the US$300.00 million Senior Notes have been listed and quoted on the Singapore Stock Exchange.

(b) On August 2, 2004, Globe Telecom exercised its call option on the 2009 Senior Notes and redeemed the balance of the 2009 Senior Notes amounting to US$142.72 million at 106.5%. Prior to the exercise of the call option, Globe Telecom has redeemed US$77.28 million of the 2009 Senior Notes. US$88.00 million of swaps and forwards used to hedge the 2009 Senior Notes have also matured. Bond redemption costs (included in “Financing costs” account) incurred in 2004 and 2003 amounted to P=693.39 million and P=410.44 million, respectively.

Redemption Options The 2012 Senior Notes are redeemable in whole or in part at the option of Globe Telecom at the

redemption dates set forth below, after giving the required notice under the indenture, and, if at the time of such notice the Notes are listed on the Luxembourg Stock Exchange, by publishing a notice in the Luxembourg Wort. The 2012 Senior Notes may be redeemed at the following prices (for Senior Notes redeemed during the 12-month period commencing on each of the years below, expressed as percentages of the principal amount), plus accrued and unpaid interest and additional amounts thereon, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date):

Redemption date On or after April 15, 2007 Redemption price 2007 104.875%

2008 103.250%

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2009 101.625% 2010 and thereafter 100.000%

Consent Solicitation

On July 6, 2004, Globe Telecom solicited consents from holders of its 2012 Senior Notes to amend the indenture under which the 2012 Senior Notes were issued in April 2002. On July 20, 2004, Globe Telecom obtained the required consents from the holders of the 2012 Senior Notes. The amendments changed certain covenants and other terms in the indenture, including covenants related to the provision of the consolidated financial statements and reports, limitations on restricted payments and designation of restricted and unrestricted subsidiaries.

Covenants

The 2012 Senior Notes are unsecured obligations, equal in ranking among themselves and with all of the existing and future unsecured and unsubordinated debt, subject to Article 2244 (14) of the Civil Code of the Philippines, and senior in right of payment to all future subordinated debt. Secured debt of Globe Telecom will be effectively senior to the Senior Notes to the extent of the value of the assets securing such debt and also to the extent any such indebtedness is incurred by a restricted subsidiary. In addition, under the laws of the Philippines, in the event a borrower submits to insolvency or liquidation proceedings in which the borrower’s assets are liquidated, unsecured debt of the borrower that is evidenced by a public instrument as provided in Article 2244 (14) of the Civil Code of the Philippines will rank ahead of unsecured debt of the borrower that is not evidenced by a public instrument.

The 2012 Senior Notes provide certain restrictions, which include among others, incurrence of additional debt, certain dividend payments, and liens, repayments of certain debts, merger/consolidation and sale of assets in general.

Bank Loans and Corporate Notes

Globe Telecom’s corporate notes, which consist of fixed and floating rate notes, and peso-denominated bank loans, bear interest at stipulated and prevailing market rates. The US dollar-denominated loans extended by commercial banks bear interest based on US Dollar London Interbank Offered Rate (USD LIBOR) or Commercial Interest Reference Rate (CIRR) plus margins.

Retail Bonds In February 2004, Globe Telecom issued P=3,000.00 million retail bonds locally with fixed and

floating interest rates based on MART1 plus margins. The retail bonds have maturities ranging from 3 to 5 years. The retail bonds may be redeemed in whole, but not in part, at any time, by giving not less than 30 nor more than 60 days prior notice, at a price equal to 100% of the principal amount of the bonds, together with accrued and unpaid interest to the date fixed for redemption, if Globe Telecom will pay additional amounts due to change in tax and/or other regulations. The agreements covering the retail bonds provide restrictions with respect to, among others, maintenance of certain financial ratios, sale, transfer, assignment or disposal of assets and creation of property encumbrances.

Suppliers’ Credits Suppliers’ credits accrue interests that are either fixed or based on USD LIBOR plus margins.

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15. Other Long-term Liabilities This account consists of:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Non-interest bearing liabilities to

an affiliate (Note 16c)* P=1,235,810 P=2,262,283 P=2,430,363 ARO (Notes 2, 8 and 27) 907,053 769,795 519,309 Derivative liabilities (Notes 2 and 25) 699,090 – – Advance lease and service revenues (Note 16c) 137,925 164,209 221,453 Accrued lease obligations and others (Note 22c) 548,082 473,317 391,726 3,527,960 3,669,604 3,562,851 Less current portion 269,737 292,589 325,373 P=3,258,223 P=3,377,015 P=3,237,478

*2005 balance is net of PAS 39 adjustments with no restatement of prior years (see Note 2).

The maturities of other long-term liabilities at nominal amounts as of December 31, 2005 follow (in thousand pesos):

Due in: 2006 P=269,737 2007 100,342 2008 107,814 2009 116,237 2010 and thereafter 2,933,830 P=3,527,960

The rollforward analysis of Globe Group’s ARO follow:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Beginning of year P=769,795 P=519,309 P=384,747 Capitalized to property and equipment

during the year 44,433 182,363 70,256 Accretion expense during the year 92,825 68,123 64,306 Balance at end of year P=907,053 P=769,795 P=519,309

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16. Related Party Transactions As discussed in Note 2, Globe Group adopted PAS 24, Related Party Disclosures, effective

January 1, 2005. The information includes the additional disclosures required by the revised accounting standard.

Globe Telecom and Innove, in their regular conduct of business, enters into transactions with its principal shareholders, AC 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 STI. The related net traffic settlements receivable (included in “Receivables” in the consolidated balance sheets) and the interconnection toll income (included in “Service revenues” in the consolidated statements of income) earned as of and for the years ended December 31 follow:

2005 2004 2003 (In Thousand Pesos) Traffic settlements receivable - net P=335,766 P=31,212 P=548,395 Interconnection toll income 1,422,249 1,083,859 2,239,630

(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 costs and expenses” account in the consolidated statements of income) incurred under these agreements are as follows:

2005 2004 2003 (In Thousand Pesos) Lease of cable facilities, maintenance and restoration costs and

other transactions P=266,793 P=137,111 P=54,026 Technical assistance fee 143,450 44,360 78,095 Software development, supply, license and support 35,652 40,409 56,316

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

2005 2004 2003 (In Thousand Pesos) Lease of cable facilities, maintenance and restoration

costs and other transactions P=13,738 P=62,675 P=14,193

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Technical assistance 81,019 8,899 13,756 Software development, supply, license and

support 11,940 21,322 16,895

(c) In 2001, Globe Telecom signed a cable equipment supply agreement with C2C, a related party of STI. 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, Globe Telecom’s liability arising from the cable equipment supply agreement with C2C was effectively converted into a non-interest bearing long-term obligation. Upon adoption of PAS 39 in 2005, the non-interest bearing long-term obligation was restated to its fair value, representing the present value of future cash flows (see Note 25). The difference between the principal amount and the present value of the obligation is reported as an adjustment to the property and equipment account (see Note 8). As of December 31, 2005, the remaining liability of Globe Telecom to C2C for the cable equipment supply agreement amounted to P=1,235.81 million (inclusive of the accumulated accretion of P=486.98 million) included under “Other long-term liabilities” account in the consolidated balance sheets. The fair value of the equipment purchased amounted to P=1,453.89 million included under “Property and equipment” account 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 aggregate cost of capacity purchased from C2C amounted to P=1,133.79 million. This was part of the property and equipment transferred to Innove in June 2004. In July 2002, Globe Telecom received advance service fees from C2C amounting to US$1.60 million, which will be offset against its share in the operations and maintenance costs of the cable landing facilities of Globe Telecom. 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 US$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=15.06 million, P=16.32 million and P=51.00 million in 2005, 2004 and 2003, respectively. Globe Telecom also recognized service fees amounting to P=2.33 million, P=43.76 million and P=42.33 million in 2005, 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:

2005 2004 2003 (In Thousand Pesos) Current P=14,759 P=17,760 P=59,483

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Noncurrent 123,166 146,449 161,970 P=137,925 P=164,209 P=221,453

(d) Globe Telecom reimburses AC for certain operating expenses. The net outstanding liabilities to

AC related to these transactions as of December 31, 2005 were not material.

(e) Globe Telecom has preferred roaming service contract with BMPL. Under this contract, Globe Telecom will pay BMPL for services rendered by the latter which include, among others, coordination and facilitation of preferred roaming arrangement among JV partners, and procurement and maintenance of telecommunications equipment necessary for delivery of seamless roaming experience to customers. Globe Telecom also earns or incurs commission form BMPL for regional top-up service provided by the JV partners. As of December 31, 2005, balances related to this transaction were not material.

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

follows:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Traffic settlements receivable - net (included in

Receivables) (Note 5) P=335,766 P=31,212 P=548,395 Other current assets (Note 7) 927 946 1,118 Accounts payable (included in Accounts payable

and accrued expenses) (Note 13) 129,420 122,959 45,962 Other long-term liabilities (Note 15) 1,373,734 2,426,492 2,651,816

Globe Group’s compensation of key management personnel by benefit type follows:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Short-term employee benefits P=296,191 P=261,174 P=186,727 Share-based payments (Note 18) 161,731 134,769 59,091 Post-employment benefits 32,938 35,667 33,945 P=490,860 P=431,610 P=279,763

There are no agreements between Globe Group and any of its directors and key officers providing for benefits upon termination of employment, except for such benefits to which they may be entitled under Globe Group’s retirement plans.

17. Stockholders’ Equity Globe Telecom’s capital stock consists of:

2005 2004 2003 Shares Amount Shares Amount Shares Amount

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(In Thousand Pesos and Number of Shares, Except Per Share Figures) Preferred stock - Series “A” - P=5 per share Authorized 250,000 P=1,250,000 250,000 P=1,250,000 250,000 P=1,250,000 Issued and outstanding 158,515 792,575 158,515 792,575 158,515 792,575 Common stock - P=50 per share Authorized 179,934 8,996,719 200,000 10,000,000 200,000 10,000,000 Issued and subscribed 131,900 6,595,022 151,905 7,595,272 151,905 7,595,272 Outstanding 131,900 6,595,022 139,904 6,995,200 139,904 6,995,200

The rollforward of outstanding common shares follows:

2005 2004 2003 Shares Amount Shares Amount Shares Amount (In Thousand Pesos and Number of Shares, Except Per Share Figures) At January 1 139,904 P=6,995,200 139,904 P=6,995,200 151,905 P=7,595,272 Exercise of stock options 60 3,033 – – – – Acquisition of treasury shares (8,064) (403,211) – – (12,001) (600,072) At December 31 131,900 P=6,595,022 139,904 P=6,995,200 139,904 P=6,995,200

Treasury Shares On February 1, 2005, the BOD approved an offer to purchase one share for every fifteen shares (1:15) of the outstanding common stock of Globe Telecom from all stockholders of record as of February 10, 2005 at P=950.00 per share. The approval allowed Globe Telecom to purchase up to 9,326,924 shares representing 6.67% of Globe Telecom’s outstanding common shares. Each shareholder is entitled to tender a proportionate number of shares at the 1:15 ratio for purchase by Globe Telecom upon and subject to the terms and conditions of the tender offer. Globe Telecom also filed with the SEC the tender offer report with a copy of the letter to the shareholders, the terms and conditions of the tender offer and the tender form. Globe Telecom commenced the tender offer on February 3, 2005 and ended on March 3, 2005.

On March 15, 2005, Globe Telecom acquired 8,064,094 shares at a total cost of P=7,675.66 million, including incidental costs.

On April 4, 2005, Globe Telecom’s stockholders approved the cancellation of the 20.06 million treasury shares consisting of the 12.00 million shares acquired from Deutsche Telekom (DT) in 2003 and the 8.06 million shares acquired during the share buyback, and the amendments of the articles of incorporation of Globe Telecom to reduce accordingly the authorized capital stock of the corporation from P=11,250.00 million to P=10,246.72 million. On April 29, 2005, Globe Telecom applied for the retirement and cancellation of the existing treasury shares with the SEC, which the latter approved on October 28, 2005. Accordingly, Globe Telecom cancelled the existing treasury shares at cost. The difference between the par value and cost of treasury shares was charged to “Additional paid in capital” and “Retained earnings” accounts amounting to P=5,179.35 million and P=9,685.80 million, respectively.

Preferred Shares

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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 July 29, 2001 with the PSE. On December 13, 2005, the BOD approved the declaration of cash dividends to preferred shareholders “Series A” as of record date December 31, 2005 amounting to P=68.33 million.

On December 15, 2004, the BOD approved the declaration of cash dividends to preferred shareholders “Series A” as of record date December 31, 2004 amounting to P=75.13 million, which were paid on March 15, 2005. In 2003, the BOD approved the declaration of cash dividends to preferred shareholders “Series A” as of record date December 31, 2003 amounting to P=67.96 million, which were paid on September 28, 2004. Cash Dividends On January 29, 2004, the BOD of Globe Telecom approved a new dividend policy to declare cash dividends to its common stockholders 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 Group’s operating results, cash flows, debt covenants, capital expenditure levels and liquidity. On February 1, 2005, the BOD declared the first semi-annual cash dividend in 2005 of P=20.00 per share payable to common stockholders of record as of February 18, 2005 and subsequently paid dividends amounting to P=2,798.10 million on March 15, 2005.

On January 29, 2004, the BOD declared the first semi-annual cash dividend in 2004 of P=18 per share payable to common stockholders of record as of February 18, 2004 and subsequently paid dividends amounting to P=2,518.27 million on March 15, 2004. The second semi-annual cash dividend of P=18 per share payable to common stockholders of record as of August 20, 2004 was declared on August 2, 2004 and paid on September 15, 2004. On April 1, 2003, the BOD of Globe Telecom approved the declaration of cash dividends of P=2,126.68 million (P=14.00 per common share) to common stockholders of record as of April 21, 2003. Payment was made on May 6, 2003.

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Restrictions on Retained Earnings The retained earnings include the accumulated equity in undistributed net earnings of consolidated subsidiaries, associates and joint venture accounted for under the equity method totaling P=4,162.75 million as of December 31, 2005. This amount is not available for dividend declaration until received in the form of dividends from subsidiaries and associates. The Globe Group is also subject to loan covenants that restrict its ability to pay dividends (see Note 14).

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18. Employee Benefits

As discussed in Note 2, the Globe Group adopted PFRS 2, Share-based Payment and PAS 19, Employee Benefits on January 1, 2005. The information below includes the disclosure requirements under these new standards.

Stock Option Plans Globe Group 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. These options are settled in equity once exercised. The qualified officers and employees shall pay for the shares subscribed under the ESOWN and ESOP1 through installments over a maximum period of 5 years and 10 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. The number of exercised shares under ESOP1 totaled 1,712,133 shares with a weighted average exercise price of P=196.75 per share. The remaining stock options under ESOWN and ESOP1 expired in 2004. On April 4, 2003, Globe Telecom granted additional stock options to key executives and senior management personnel of the Globe Group under Executive Stock Option Plan 2 (ESOP2). It required the grantees to pay a nonrefundable option purchase price of P=1,000.00. As of December 31, 2005, a total of 680,200 stock options were granted to key executives and senior management personnel. ESOP2 provides for an exercise price of P=547.00 a share, which is the average quoted market price of the last 20 trading days preceding April 4, 2003. These options are settled in equity once exercised. Fifty percent of the options become exercisable from April 4, 2005 to April 4, 2013, while the remaining fifty percent become exercisable from April 4, 2006 to April 4, 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 July 1, 2004, Globe Telecom granted additional stock options to key executives and senior management personnel of the Globe Group under ESOP2. It required the grantees to pay a nonrefundable option purchase price of P=1,000.00. As of December 31, 2005, 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. These options will be settled in equity once exercised. Fifty percent of the options become exercisable from July 1, 2006 to June

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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.

The stock options granted under ESOP2 include options granted by Innove to its employees, in accordance with the same terms and conditions under which such options were extended to Globe Telecom’s employees. Under an intercompany agreement between Globe Telecom and Innove, Innove shall compensate Globe Telecom for the excess of the market price of the shares and the exercise price of the options.

A summary of Globe Group’s stock option activity and related information follows:

2005 2004 2003

Number of

Shares

Weighted Average Exercise

Price Number of

Shares

Weighted Average Exercise

Price Number of

Shares

Weighted Average Exercise

Price Outstanding, at beginning of year (ESOP1,ESOP2 and ESOWN) 1,450,600 P=709.77 643,782 P=546.51 4,582 P=477.51Granted (ESOP2) 8,000 547.00 836,800 829.17 639,200 547.00Exercised (ESOP2) (149,000) 547.00 (2,700) 547.00 – – Expired/forfeited/cancelled (ESOP1,ESOP2 and ESOWN) (28,250) 604.19 (27,282) 535.32 – – Outstanding, at end of year 1,281,350 P=730.01 1,450,600 P=709.77 643,782 P=546.51

Exercisable, at end of year (ESOP2) 172,350 P=547.00 – P=– 4,582 P=477.51

The options have a contractual term of 10 years. As of December 31, 2005, 2004 and 2003, the weighted average remaining contractual life of options outstanding is 8.03 years, 8.94 years and 9.22 years, respectively. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. The fair values of stock options granted under ESOP2 on April 4, 2003 and July 1, 2004 amounted to P=283.11 and P=357.94, respectively. The following assumptions were used to determine the fair value of the stock options at grant date:

July 1, 2004 April 4, 2003 Weighted average share price P=835.00 P=580.00 Exercise price P=840.75 P=547.00 Expected volatility 39.50% 34.64% Option life 10 years 10 years Expected dividends 4.31% 2.70% Risk-free interest rate 12.91% 11.46%

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The expected volatility measured at the standard deviation of expected share price returns was based on analysis of share prices for the past 365 days.

Cost of share-based payment in 2005, 2004 and 2003 amounted to P=161.73 million, P=134.77 million and P=59.09 million, respectively.

Pension Plans

Globe Telecom

Globe Telecom has a funded, noncontributory, defined benefit pension plan covering substantially all of its regular employees. The benefits are based on years of service and compensation on the last year of employment. Unrealized past service costs are amortized over the expected average future service years of plan members estimated to be 20 years. Based on the actuarial valuation as of July 2005 computed using the projected unit credit method, the actuarial accrued liability amounted to P=434.77 million and the fair value of the plan assets amounted to P=770.86 million as of December 31, 2005. Globe Telecom’s annual contributions to the pension plan consist of a payment covering the current service cost for the year.

The components of pension expense (included in staff costs under “Operating costs and expenses”) in the consolidated statements of income are as follows:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Current service cost P=73,591 P=75,843 P=67,552 Interest cost on benefit obligation 58,697 47,814 46,437 Expected return on plan assets (85,305) (70,053) (60,226) Net actuarial loss – 133 939 Total pension expense P=46,983 P=53,737 P=54,702

Actual return on plan assets P=56,151 P=77,229 P=89,883

The funded status and amounts recognized under “Other noncurrent assets” in the consolidated balance sheets for the pension plan of Globe Telecom are as follows:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Benefit obligation P=481,754 P=434,771 P=433,106 Plan assets (770,860) (766,890) (712,219) (289,106) (332,119) (279,113) Unrecognized net actuarial gains (losses) (Note 3) 35,388 31,418 (75,325) Asset recognized in the consolidated balance sheets (P=253,718) (P=300,701) (P=354,438)

Movements in the pension benefit asset in December 31 are as follows:

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2005 2004

(As Restated) 2003

(As Restated)

(In Thousand Pesos)

Balance at January 1 P=300,701 P=354,438 P=276,599 Contribution – – 199,558 Curtailment loss – – (67,017)Pension expense (46,983) (53,737) (54,702)Balance at December 31 P=253,718 P=300,701 P=354,438

The allocation of the fair value of plan assets of Globe Telecom as of December 31, 2005 follows:

2005 2004 2003 Investment in debt securities 84.00% 84.00% 87.00% Investment in equity securities 15.00% 13.00% 8.00% Others 1.00% 3.00% 5.00%

Innove Innove has a funded, noncontributory, defined benefit pension plan covering substantially all of its regular employees. The benefits are based on years of service and compensation on the last year of employment. Based on the actuarial valuation as of July 2005 computed using the projected unit credit method, the actuarial accrued liability amounted to P=168.85 million and the fair value of the plan assets amounted to P=251.42 million as of December 31, 2004. Innove’s annual contribution to the pension plan consists of a payment covering the current service cost for the year. The components of pension expense (included in staff costs under “Operating costs and expenses”) in the consolidated statements of income are as follows:

2005 2004

(As restated) 2003

(As restated) (In Thousand Pesos) Current service cost P=19,714 P=22,489 P=7,176 Interest cost on benefit obligation 22,510 20,938 4,814 Expected return on plan assets (27,528) (21,737) (6,085) Net actuarial loss (2,454) – – Total pension expense P=12,242 P=21,690 P=5,905

Actual return on plan assets P=24,305 P=20,711 P=1,251

The funded status and amounts recognized under “Prepayments and other current assets” in the consolidated balance sheets for the pension plan of Innove are as follows:

2005

2004 (As Restated)

2003 (As Restated)

(In Thousand Pesos)

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Benefit obligation P=167,071 P=168,851 P=189,402 Plan assets (295,581) (251,419) (208,770) (128,510) (82,568) (19,368) Unrecognized net actuarial gains (Note 3) 118,204 74,043 17,168 Asset recognized in the consolidated balance sheets (P=10,306) (P=8,525) (P=2,200)

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Movements in the pension benefit asset in December 31 are as follows:

2005 2004

(As Restated) 2003

(As Restated) Balance at January 1 P=8,525 P=2,200 (P=6,771) Contributions 14,023 28,015 14,876 Pension expense (12,242) (21,690) (5,905) Balance at December 31 P=10,306 P=8,525 P=2,200

The allocation of the fair value of plan assets of Innove as of December 31, 2005 follows:

2005 2004 2003 Investment in debt securities 89.00% 87.00% 96.00% Investment in equity securities 7.00% 9.00% 2.00% Others 4.00% 4.00% 2.00%

As of December 31, 2005, the pension plan assets of Globe Telecom and Innove include shares of stock of Globe Telecom with total fair value of P=32.44 million, and shares of stock of other related parties with total fair value of P=41.10 million.

The assumptions used to determine pension benefits of Globe Telecom and Innove in December 31 are as follows:

2005 2004 2003 Discount rate 13.75% 13.75% 10.00% Salary rate increase 8.50% 8.00% 8.00% Expected rate of return on plan assets 10.50% 10.50% 10.00%

19. Operating Costs and Expenses

This account consists of:

2005 2004

(As restated) 2003

(As restated) (In Thousand Pesos) Selling, advertising and promotions P=4,697,406 P=3,753,134 P=3,119,264 Staff costs (Note 18) 3,518,910 2,874,338 2,552,465 Utilities, supplies and other administrative expenses 1,982,396 1,714,677 1,545,426 Repairs and maintenance 1,877,425 1,325,098 1,779,154 Rent (Note 22) 1,839,999 1,420,069 1,604,418 Professional and other contracted services 1,495,634 1,295,369 793,067 Insurance and security services 1,477,739 1,034,835 702,516 Taxes and licenses 831,629 616,257 956,311 Others 1,421,124 1,370,186 945,947 P=19,142,262 P=15,403,963 P=13,998,568

Number of employees at end of year 4,987 4,956 4,186

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Revenue Regulation No. 10-2002 defines expenses to be classified as entertainment, amusement and recreation (EAR) expenses and sets a limit for the amount that is deductible for tax purposes. EAR expenses are limited to 0.5% of net sales for sellers of goods or properties or 1% of net revenue for sellers of services. For sellers of both goods or properties and services, an apportionment formula is used in determining the ceiling on such expenses. In 2005, 2004 and 2003, Globe Group recognized EAR expenses (included in others under “Operating costs and expenses”) amounting to P=14.09 million, P=9.45 million and P=10.07 million, respectively.

20. Financing Costs

This account consists of:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Interest expense - net of accretion of bond premium (Note 14) P=4,657,748 P=4,368,716 P=4,088,209 Foreign exchange loss (gain) - net (Note 25) (2,303,327) 213,995 803,058 Loss on derivative instruments - net (Note 25) 104,301 – – Swap and other financing costs ( Notes 14 and 25) 681,871 1,744,168 1,847,759 P=3,140,593 P=6,326,879 P=6,739,026

21. Income Taxes The significant components of the deferred income tax assets and liabilities of the Globe Group

represent the deferred income tax effects of the following:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Deferred income tax assets on: Allowances for: Doubtful accounts P=1,664,166 P=1,646,573 P=571,435 Property and equipment and

other probable losses 266,546 210,735 281,629 Inventory losses, obsolescence and

market decline 91,620 63,661 35,568 Impairment in value of investments in

shares of stock 9,725 10,373 10,373 Unearned revenues and advances already

subjected to income tax 518,293 1,022,142 1,166,476 Net unrealized foreign exchange losses 400,440 1,329,102 2,287,531 Excess of depreciable cost of equipment for tax

purposes 285,106 – – ARO 154,956 121,647 88,023 Accrued rent expense 70,328 36,705 –

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Deferred charges 51,868 96,010 73,520 Accrued vacation leave 47,583 9,182 7,653 Cost of share-based payments 31,370 99,554 28,345 MCIT – 255,215 42,592 NOLCO – 32 106,021 3,592,001 4,900,931 4,699,166

(Forward)

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2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Deferred income tax liabilities on: Excess of accumulated depreciation and

amortization of equipment for tax purposes (a)

over financial reporting purposes (b) - net of amortization of capitalized expenses already claimed for tax purposes 5,101,101 4,542,588 3,503,994

Capitalized borrowing costs already claimed as deduction for tax purposes 1,352,303 1,319,288 1,229,481

Gains on derivative transactions 136,650 – – Unamortized discount on non-interest bearing

liability 194,060 – – Unamortized pension cost 70,554 100,534 80,361 Gain on sale of installment 6,257 – – 6,860,925 5,962,410 4,813,836 Net deferred income tax liabilities P=3,268,924 P=1,061,479 P=114,670 (a) Sum-of-the-years digit method (b) Straight-line method

Net deferred tax assets and liabilities presented in the consolidated balance sheets on a net basis by entity are as follows:

20052004

(As Restated) 2003

(As Restated) (In Thousand Pesos) Net deferred tax assets (Innove and GXI) P=1,163,943 P=2,413,253 P=1,759,412 Net deferred tax liabilities (Globe Telecom) 4,432,867 3,474,732 1,874,082

As of December 31, 2005, deferred tax asset of GXI that has not been recognized and is available for offset against future taxable income or tax payable amounted to P=6.37 million.

As of December 31, 2005, 2004 and 2003, deferred income tax liabilities have not been recognized on the undistributed earnings (losses) of subsidiaries, associates and joint venture amounting to P=4,162.35 million, P=2,029.85 million and (P=198.04) million, respectively, since such amounts are not taxable. As of December 31, 2005, Innove’s MCIT that can be used as deduction against income tax liabilities for the next three years from the year incurred are as follows (in thousand pesos):

Year Incurred Date of Expiration MCIT 2003 2006 P=96,773 2004 2007 36,850 P=255,215

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Following are the movements in Innove’s and GXI’s NOLCO and MCIT:

2005 2004 2003 (In Thousand Pesos) NOLCO: At January 1 P=101 P=331,315 P=4,041,270 Additions 18,176 101 – Applications/expirations – (331,315) (3,709,955) At December 30 P=18,277 P=101 P=331,315

2005 2004 2003 (In Thousand Pesos) MCIT: At January 1 P=255,215 P=260,957 P=164,184 Additions – 36,850 96,773 Applications/expirations (255,215) (42,592) – At December 31 P=– P=255,215 P=260,957

The reconciliation of the provision for income tax at statutory tax rate and the provision for income tax follows:

2005 2004

(As restated) 2003

(As restated) (In Thousand Pesos) Provision at statutory income tax rate P=5,300,352 P=4,071,339 P=3,256,524 Add (deduct) tax effects of: Unearned revenues under income tax

holiday (ITH) (365,344) (98,418) 463,762 Income under ITH (254,486) (1,074,326) (1,536,559) Change in income tax rates (222,142) – – Income subjected to lower tax rates (647,536) (124,864) (206,240) Equity in net losses of an associate

and joint venture 4,334 20 1,261 Provision for impairment of

investment in shares of stock – – 286,256 Expired NOLCO – – 11,508

Changes in unrecognized deferred tax assets – (2,058,254) (2,076,376)

Additional deferred tax liability on wireline assets transferred due to different tax rates – 167,373 –

Others 51,324 443,822 23,865 Provision for income tax P=3,866,502 P=1,326,692 P=224,001

As discussed in Note 1, Globe Telecom and Innove is enfranchised under RA No. 7229 and 7372, respectively, and its related laws to render any and all types of domestic and international telecommunications services. Globe Group is entitled to certain tax and nontax incentives under its franchise and has availed of incentives for tax and duty-free importation of capital equipment for its services under its franchise.

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On July 19, 2001, the Board of Investments (BOI) approved Globe Telecom’s application as an expanding operator of telecommunications systems (Nationwide CMTS-GSM Network) and granted its Phase 8 Expansion Project a pioneer status. The BOI issued the certificate of registration on March 5, 2002 which entitled Globe Telecom to ITH for 3 years. The ITH commenced on April 1, 2002, the date when Phase 8 Expansion was placed in commercial operations. The availment of the ITH resulted in an increase of P=1.90, P=8.38, P=7.18 in the basic EPS in 2005, 2004 and 2003, respectively. The ITH expired on March 31, 2005.

On June 25, 2002, the BOI issued a Certificate of Registration to Globe Telecom and granted a pioneer status as a new operator of Infrastructure and Telecommunications Facilities (Cable Landing Station Facilities). On June 30, 2004, Globe Telecom transferred additional wireline assets and certain investments in cable systems to Innove. Included in the assets transferred are various capacities in the C2C cable network forming part of the registered project. Ownership and operation of such capacities are now transferred to Innove. In anticipation of such transfer, on June 23, 2004, Globe Telecom voluntarily surrendered its certificate of registration on the Cable Landing Station Facilities to the BOI. Effective June 23, 2004, Globe Telecom will no longer be entitled to the ITH on Cable Landing Station Facilities.

RA No. 9337 RA No. 9337 was enacted into law amending various provisions in the existing 1997 National Internal Revenue Code. On October 18, 2005, the SC has rendered its final decision declaring the validity of the RA No. 9337. Among the reforms introduced by the said RA, which became effective on November 1, 2005, are as follows: • Increase in the corporate income tax rate from 32% to 35% with a reduction thereof to 30% beginning January 1, 2009; • Grant of authority to the Philippine President to increase the 10% VAT rate to 12%, effective February 1, 2006, subject to compliance with certain economic conditions; • Revised invoicing and reporting requirements for VAT; • Expanded scope of transactions subject to VAT; and • Provide thresholds and limitations on the amounts of VAT credits that can be claimed.

22. Agreements and Commitments Lease Commitments (a) Operating lease commitments - Globe Group as lessee

Globe Telecom and Innove leases certain premises for some of telecommunications facilities and equipment and for most of its business centers and cell sites. The operating lease agreements are for periods ranging from 1 to 10 years from the date of the contracts and are renewable under certain terms and conditions. The agreements generally require certain amounts of deposit and advance rentals, which are shown as part of “Other noncurrent assets”

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account in the consolidated balance sheets. The Globe Group’s rentals incurred on these leases (included in “Operating costs and expenses’ account in the consolidated statements of income) amounted to P=1,840.00 million, P=1,420.07 million and P=1,604.42 million in 2005, 2004 and 2003, respectively.

As of December 31, 2005, the future minimum lease payments under these operating leases are as follows (in thousand pesos):

Not later than one year P=765,915 After one year but not more than five years 2,267,823 After five years 1,029,121 P=4,062,859

(b) Operating lease commitments - Globe Group as lessor

Globe Telecom and Innove have certain lease agreements on equipment and office spaces. The operating lease agreements are for periods ranging from 1 to 10 years from the date of contracts.

Globe Telecom has an equipment lease agreement with C2C for a period of 14 years. Lease income (included under “Others - net” account in the consolidated statements of income) amounted to P=194.01 million, P=200.08 million and P=196.33 million in 2005, 2004 and 2003, respectively. The future minimum lease payments receivable under this operating lease are as follows (in thousand pesos):

Within one year P=189,388 After one year but not more than five years 757,554 After five years 994,289 P=1,941,231

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=29.01 million, P=20.84 million and P=13.9 million in 2005, 2004 and 2003, respectively. As of December 31, 2005, the future minimum lease receivables under this operating lease amounted to P=50.15 million which is due within two years.

(c) Finance lease commitments - Globe Group as lessee

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

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As of December 31, 2005, 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=12,565 After one year but not more than five years 126 Total minimum lease payments 12,691 Less interest 533 Present value of minimum lease payments P=12,158 Current 12,043 Noncurrent 115 P=12,158

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

(d) Finance lease commitments - Globe Group as lessor

Innove has existing finance lease arrangements with a lessee for the Innove’s office equipment. As of December 31, 2005, the gross investment and the present value of the net minimum lease payments receivable included under “Prepayments and other current assets” account in the consolidated balance sheets are P=12.00 million and P=11.48 million, respectively. No collections were received from the lessee as of December 31, 2005.

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 its CMTS-GSM subscribers access to foreign GSM networks. The agreements provide for sharing of toll revenues derived from the mutual use of interconnection facilities.

Arrangements and Commitments with Suppliers

Globe Telecom and Innove have entered into agreements with various suppliers for the delivery, installation, or construction of its property and equipment. Under the terms of these agreements, delivery, installation or construction commences 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 is completed and the property is ready for service (see Note 2), the balance of the related purchase orders is accrued. The consolidated accrued project costs as of December 31, 2005, 2004 and 2003 included in “Accounts payable and accrued expenses” account in the consolidated balance sheets amounted to P=2,444.11 million, P=3,454.29 million and P=3,003.05 million, respectively. As of December 31, 2005, the consolidated expected future

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payments amounted to P=1,889.18 million. The settlement of these liabilities is dependent on the payment terms agreed with the suppliers and contractors. As of December 31, 2005, the Globe Group has available short-term credit facilities of US$43.00 million and P=5,050.00 million.

23. Contingencies

Globe Telecom and Innove are contingently liable for various claims arising in the ordinary conduct of business and certain tax assessments which are either pending decision by the courts or are being contested, the outcome of which are not presently determinable. In the opinion of management and legal counsel, the eventual liability under these claims, if any, will not have a material or adverse effect on the Globe Group’s financial position and results of operations.

NTC Memorandum Circular No. 13-6-2000 Globe Telecom 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 NTC, et. al.” before the Regional Trial Court (RTC) of Quezon City by virtue of which Globe Telecom 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 No. 13-6-2000 sought, among others, to extend the expiration of prepaid call cards to two years. The NTC appealed the grant of the injunction to the Court of Appeals (CA). On October 25, 2001, Globe Telecom 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. On November 7, 2001, Globe Telecom and Innove filed a Motion for Reconsideration. On January 10, 2002, the Motion was denied. Globe Telecom and Innove filed a Petition for Review by way of Certiorari to the SC on February 10, 2002. On April 16, 2002, the SC required the Solicitor General to comment on the Petition. On September 17, 2002, the NTC filed its comment. On July 23, 2002, the Globe Group filed its comment.

The SC, in its resolution dated September 9, 2002, denied the Petition for Review, a copy of which was received by Globe Telecom and Innove on September 26, 2002. On October 10, 2002, Globe Telecom and Innove filed a motion for reconsideration (with motion to consolidate) of the SC’s resolution. On February 17, 2003, the SC granted the motion for reconsideration and reinstated the petition. On April 15, 2003, Globe Group received the order of the SC requiring the Group to file the memorandum in the case. Subsequently, the SC reversed the decision of the CA and declared the RTC as having jurisdiction over the case. The SC remanded the case to the RTC for further hearing. As of February 7, 2006, Globe Telecom is still awaiting the resumption of proceedings before the RTC.

In the event, however, that Globe Telecom and Innove are not eventually sustained in their position and NTC Memorandum Circular No. 13-6-2000 is implemented in its current form, the Globe

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Group would probably incur additional costs for carrying and maintaining prepaid subscribers in their networks.

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NTC Administrative Case No. 2005-18 On February 11, 2005, Innove filed a case against Digitel Mobile Philippines, Inc. (Digitel) for predatory pricing and violation of NTC Memorandum Circular No. 07-06-2002 on service performance standards. The case has been consolidated with NTC Administrative Case No. 2005-18 entitled PILTEL vs. Digitel. A hearing was conducted on April 5, 2005 and NTC was requested to conduct a drive test measurement on Digitel’s performance which will be witnessed by NTC and signed-off by representatives of the parties involved. This is pending resolution by the NTC. During the April 26, 2005 hearing, Digitel manifested that it will no longer present evidence. On August 3, 2005, the NTC issued an order that states that carriers are free to provide whatever service quality they wanted on innovative price plans for so long as they advertised their service quality. Certain service quality improvements and minimum standards should, however, be provided over time. The order is not yet final and Innove is still considering its options to deal with the said order.

Development with US Carriers On February 7, 2003, AT&T and Worldcom (MCI) filed a petition before the US Federal Communications Commission (US FCC) seeking a stop payment order on settlement 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. On March 10, 2003, the Chief International Bureau of the US FCC issued an order suspending all settlement payments of US 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 US 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 on March 12, 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 January 26, 2004, the US FCC lifted its stop-payment order against Globe Telecom following confirmation by US carriers that service with Globe Telecom had been normalized. US carriers were required to resume payments for termination services.

In June 2004, the US 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 US FCC stated that the matter of lifting the International Settlement Policy (ISP) over the Philippine route will be decided in FCC 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 US FCC, in the proceedings on the ISP Reform Order, required US Carriers to certify that the rates charged by the Philippine Carriers are benchmark compliant. As of October 11, 2004, all three major US Carriers (AT&T, MCI and Sprint) have certified to the benchmark compliance of the Philippine route. On August 15, 2005, the US FCC released its order upholding the findings of whipsawing. Despite this, however, it ordered the lifting of the ISP on the Philippine route on the ground that the rates on

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the route were still benchmark-compliant and there was no further evidence of continuing anti-competitive conduct on the route. On January 10 and 11, 2004, the United States Department of Justice (US DOJ) served subpoenas on several Philippine telecom executives, including two Globe Telecom managers and the Chief executive officer of Innove, 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 US carriers may have violated US laws. On March 24, 2005, the District Court of Hawaii granted Globe Telecom’s motion to quash the subpoena duces tecum against it on the ground that US courts have no jurisdiction. On April 28, 2005, the US DOJ filed a notice of appeal stating its intention to appeal the ruling of the district court of Hawaii. On July 5, 2005, Globe Telecom received an advice from US DOJ that its investigation has been closed.

24. Earnings Per Share Globe Group’s earnings per share amounts were computed as follows:

2005 2004

(As Restated) 2003

(As Restated)

(In Thousand Pesos and Number of Shares, Except Per

Share Figures) Net income attributable to common shareholders for basic

earnings per share P=10,246,174 P=11,321,114 P=9,884,679

Add dividends on preferred shares 68,334 75,128 67,957 Net income attributable to common shareholders for diluted

earnings per share 10,314,508 11,396,242 9,952,636 Weighted average number of shares for basic earnings per

share 133,520 139,904 149,405 Dilutive shares arising from: Convertible preferred shares 982 872 1,227 Stock options 146 297 74 Adjusted weighted average number of common stock for

diluted earnings per share 134,648 141,073 150,706 Basic earnings per share P=76.74 P=80.92 P=66.16

Diluted earnings per share P=76.60 P=80.78 P=66.04

25. Financial Instruments

Financial Risk Management Objectives and Policies

The main purpose of the Globe Group’s financial instruments is to fund its operations and capital expenditures. The main risks arising from the use of financial instruments are liquidity risk, foreign currency risk, interest rate risk, and credit risk. Globe Telecom also enters into derivative transactions, the purpose of which is to manage the currency and interest rate risk arising from its financial instruments.

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The BOD reviews and agrees with policies for managing each of these risks. The Globe Group monitors market price risk arising from all financial instruments and regularly report financial management activities and the results of these activities to the BOD.

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The Globe Group’s risk management policies are summarized below:

Interest Rate Risk The Globe Group’s exposure to market risk for changes in interest rates relates primarily to the companies’ long-term debt obligations. Globe Telecom’s policy is to manage its interest cost using a mix of fixed and variable rate debt. The Globe Group’s policy is to keep a maximum of 75% of its borrowings at fixed rates of interest. To manage this mix in a cost-efficient manner, the Globe Group enters into interest rate swaps, in which the companies agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount.

As of December 31, 2005, after taking into account the effect of interest rate swaps, 67% of the Globe Group’s borrowings are at a fixed rate of interest.

Foreign Exchange Risk The Globe Group’s foreign exchange risk results primarily from movements of the Philippine Peso (PHP) against the United States Dollar (USD). Majority of revenues are generated in PHP, while substantially all of capital expenditures are in USD. In addition, 65% of debt as of December 31, 2005 was denominated in USD.

It is Globe Telecom’s policy to hedge its foreign currency denominated debt such that the sum of PHP debt and USD debt that has been swapped to PHP shall comprise at least 50% of total outstanding debt. Globe Telecom enters into short-term foreign currency forwards and long-term foreign currency swap contracts in order to achieve this target. As of December 31, 2005, the amount of USD debt that has been swapped to PHP and PHP-denominated loans amounted to approximately 53% of the total debt.

Credit Risk All regular applicants for postpaid service are subject to standard credit verification procedures. The Credit Management unit of Globe Group continuously provides credit notification and implements differentiated credit actions, depending on assessed risks, to minimize credit exposure. Receivable balances of postpaid subscribers are being monitored on a regular basis and appropriate actions are executed. Likewise, net receivable balances from carriers of traffic are also being monitored and subjected to appropriate actions to manage credit risk.

With respect to credit risk arising from the other financial assets of the Globe Group, which comprise cash and cash equivalents, available -for-sale financial assets and certain derivative instruments, the Globe Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Globe Group has a counterparty credit risk management policy which allocates investment limits based on counterparty credit ratings and credit risk profile.

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Liquidity Risk The Globe Group seeks to manage its liquidity profile to be able to finance capital expenditures and service maturing debts. To cover its financing requirements, the Globe Group intends to use internally generated funds and available long-term and short-term credit facilities. As of December 31, 2005, the Globe Group has available short-term credit facilities of US$43.00 million abd P=5,050.00 million.

As part of its liquidity risk management, Globe Telecom regularly evaluates its projected and actual cash flows. It also continuously assesses conditions in the financial markets for opportunities to pursue fund raising activities, in case any requirements arise. Fund raising activities may include bank loans, export credit agency facilities, and capital market issues.

Hedging Objectives and Policies The Globe Group uses a combination of natural hedges and derivative hedging to manage its foreign exchange exposure. It uses interest rate derivatives to reduce earnings volatility related to interest rate movements. It is the Globe Group’s policy to ensure that capabilities exist for active but conservative management of its foreign exchange and interest rate risks. The Globe Group does not engage in any speculative derivative transactions. Authorized derivative instruments include currency forward contracts (freestanding and embedded), currency swap contracts, interest rate swap contracts and currency option contracts (freestanding and embedded). Certain currency swaps are entered into in combination with options or contain a structured provision.

Financial Assets and Liabilities

The table below presents a comparison by category of carrying amounts and estimated fair values of all the Globe Group’s financial instruments as of December 31, 2005.

Carrying Value Fair Value (In Thousand Pesos) Financial assets: Cash and cash equivalents P=10,910,961 P=10,910,961 Receivables - net 6,764,130 6,764,130 Derivative assets (included in prepayments

and other current assets and other noncurrent assets accounts) 1,548,891 1,548,891

Investments in available-for-sale securities (included in short-term investments and investments in associates, joint venture and other accounts) 1,253,951 1,253,951

Investments in held-to-maturity securities (included in short-term investments account) 33,441 33,404

(Forward)

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Carrying Value Fair Value (In Thousand Pesos) Financial liabilities: Accounts payable and accrued expenses 14,495,025 14,495,025 Long-term debt (including current portion) 49,693,388 53,383,313 Derivative liabilities (included in accounts

payable and accrued expenses and other long-term liabilities accounts) 731,746 731,746

Other long-term debt (including current portion) 2,828,870 2,850,144

Traffic settlement receivable and payable accounts, included as part of the Receivables - net and Accounts payable and accrued expenses accounts, respectively, in the above table, are presented net of any related payable or receivable balances with the same telecommunications carriers only when there is a right of offset under the traffic settlement agreements and that the accounts are settled on a net basis.

Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:

Financial Liabilities The fair value of Globe Telecom’s outstanding Senior Notes due 2012 is based on the quoted market price of the Notes. The fair value of other fixed rate interest bearing loans is based on the discounted value of future cash flows using the applicable rates for similar types of loans. For variable rate loans, the carrying value approximates the fair value because of recent and regular repricing based on current market rates. For non-interest bearing obligations, the fair value is estimated as the present value of all future cash flows discounted using the prevailing market rate of interest for a similar instrument. The difference between the principal amount and the present value is reported as income or as an adjustment to a related non-financial asset. Interest expense is subsequently recognized for the accretion of the obligation to its face value.

Derivative Instruments The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.

The fair value of embedded foreign exchange derivatives in notes that have been purchased by Globe Telecom is calculated by reference to the current price of the note and the change in the foreign exchange rate that is linked to the note.

The fair values of interest rate swaps, currency and cross currency swap transactions are determined using valuation techniques with assumptions that are based on market conditions existing at balance sheet date. The fair value of interest rate swap transactions is the net present value of the estimated future cash flows. Currency and cross currency swap transactions are marked to market based on changes in the term structure of interest rates of each currency and the spot rate. The fair values of structured swaps transactions are determined based on quotes obtained from counterparty banks.

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Embedded currency option and forward contracts are valued using the simple option pricing model of Bloomberg. The embedded call option on the 2012 Senior Notes is also valued using Bloomberg models. Derivative Financial Instruments Globe Group’s freestanding and embedded derivative financial instruments are accounted for as hedges or transactions not designated as hedges. The table below sets out the information about Globe Group’s derivative financial instruments as and the related mark-to-market gain or loss as of December 31, 2005:

Notional

Amount Notional Amount

Derivative Asset

Derivative Liability

Derivative instruments designated as hedges:

Cash flow hedges: Currency and cross currency

swaps $91,944 P=– P=16,657 (P=431,320)

Interest rate swaps 56,163 – 57,491 – Derivative instruments not designated as hedges:

Freestanding: Currency swaps and cross currency swaps 83,061 – 19,863 (249,007) Interest rate swaps 5,000 1,000,000 69,112 (18,763) Sold currency call options 27,700 – 15,013 (2,330) Embedded: Call option on 2012 Senior Notes 300,000 – 1,268,712 – Embedded forwards 11,720 – 101,808 (30,326) Embedded options 1,080 – 235 – Net $576,667 P=1,000,000 P=1,548,891 (P=731,746)

The subsequent sections will discuss Globe Group’s derivative financial instruments according to the type of financial risk being managed and the details of derivative financial instruments that are categorized into those accounted for as hedges and those that are not designated as hedges.

Foreign exchange and interest rate risks Information on Globe Group’s foreign currency-denominated monetary assets and liabilities and their Philippine peso equivalents are as follows:

2005 2004

(As Restated) 2003

(As Restated)

US

Dollar Peso

Equivalent US

Dollar Peso

Equivalent US

Dollar Peso

Equivalent (In Thousands) Assets Cash and cash equivalents $78,901 P=4,186,627 $173,563 P=9,778,713 $141,414 P=7,860,639 Short-term investments 9,574 539,409 33,416 1,857,462

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Traffic settlements receivable 50,162 2,661,691 49,114 2,767,132 112,064 6,229,189 Other current assets 5,238 277,948 2,490 140,289 3,129 173,929 Other noncurrent assets – – – – 12,523 696,103 134,301 7,126,266 234,741 13,225,543 302,546 16,817,322

(Forward)

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2005 2004

(As Restated) 2003

(As Restated)

US

Dollar Peso

Equivalent US

Dollar Peso

Equivalent US

Dollar Peso

Equivalent (In Thousands) Liabilities Accounts payable and accrued

expenses 42,240 2,241,384

52,626

2,965,001 66,315 3,686,186 Traffic settlements payable 11,294 599,306 28,936 1,630,283 39,649 2,203,929 Long-term debt 611,487 32,446,723 713,258 40,185,669 858,022 47,694,036 Other long-term liabilities 25,889 1,373,734 48,197 2,715,467 53,185 2,956,316 690,910 36,661,147 843,017 47,496,420 1,017,171 56,540,467 Net foreign currency-

denominated liabilities $556,609 P=29,534,881

$608,276

P=34,270,877 $714,625 P=39,723,145

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The following table shows information about the Globe Telecom’s financial instruments that are exposed to interest rate risk and presented by maturity profile. The table also sets out information about the Globe Telecom’s derivative instruments as of December 31, 2005 that were entered into to manage interest and foreign exchange risks.

<1 year >1-<2 years >2-<3 years >3-<4 years >4-<5 years >5 years Total

(In USD) T otal

(in PHP) Premium and Issuance Costs

Carrying Value (In PHP) Fair Value

Liabilities: Long-term debt Fixed rate US$ notes $20,329 $18,383 $11,116 $6,140 $0 $300,000 $355,968 P=18,888,369 P=467,979 P=19,356,348P=21,870,614 Interest rate 4.81% -6.55% 4.81% -6.55% 6.44% 6.44% 10.83% Philippine peso

P=847,900 P=1,376,150 P=2,208,550 P=5,002,000 P=1,607,000 11,041,600 (16,256) 11,025,344 12,201,003

Interest rate 10.37% -10.72%

10.37% - 10.72%10.37% - 10.72%10.47% - 13.79% 13.49% - 16%

Floating rate US$ notes $91,695 $69,902 $28,254 $23,822 $22,222 $11,111 $247,006 13,106,632 - 13,106,632 13,106,632 Interest rate Libor only; Libor

+ .45% - Libor + 3.20%

Libor only; Libor + .45% - Libor +

3.20%

Libor + .6755% -Libor +1.63%

Libor +1.20% - Libor + 1.63%

Libor +1.63% Libor +1.63%

Philippine peso P=985,898 P=797,447 P=684,423 P=1,240,373 P=2,496,923 P=– P=– 6,205,064 - 6,205,064 6,205,064 Interest rate Mart 1 + 1.3%

margin;Mart 1 + 1.5%

margin;Mart 1 + 1%

margin3 mo Mart + 1%

margin3 mo Mart +

1.38% margin

Mart 1 + 1.3% margin;

Mart 1 + 1.5% margin;

Mart 1 + 1% margin

3 mo Mart + 1% margin

3 mo Mart + 1.38% margin

Mart 1 + 1.3% margin;

Mart 1 + 1.5% margin;

Mart 1 + 1% margin

Mart 1 + 1%3 mo Mart +

1.375%3 mo Mart + 1%

3 mo Mart1 + 1.75%

Mart 1 + 1% margin

P=49,241,665 P=451,723 P=49,693,388P=53,383,313(Forward)

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<1 year >1-<2 years >2-<3 years >3-<4 years >4-<5 years >5 years Total

(In USD) Derivatives: Currency Swaps: Notional amount $21,548 $13,880 $10,000 $10,000 $5,000 $80,000 $140,428 Weighted swap rate P=53.12 Pay fixed rate 4.62% - 10.25% Cross-Currency Swaps: Floating-Fixed Notional amount $13,755 $6,094 $417 – – – $20,266 Pay-fixed rate 11% - 15.23% Receive-floating rate

USD Libor

Weighted swap rate P=51.34 Floating-Floating Notional amount $10,152 $3,742 $417 – – – $14,311 Pay-floating rate Mart + 1.25% -

2.85% Receive-floating rate

USD Libor

Weighted swap rate P=51.34 Interest Rate Swaps Fixed-Floating Notional Peso – – – P=1,000,000 – – $18,846 Notional USD – – – – – $5,000 $5,000 Pay-floating rate Libor+ 4.23%-

Mart+1.375% Receive-fixed rate 9.75% - 11.7%

Floating- Fixed Notional USD $32,064 $24,098 – – – – $56,162 Pay-fixed rate USD 2.3% -

4.2% Receive-floating Rate

USD Libor

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Derivative Instruments Accounted for as Hedges The following sections discuss in detail the derivative instruments accounted for as cash flow hedges.

• Currency and Cross-Currency Swaps

As of December 31, 2005, Globe Telecom has outstanding US$20.27 million foreign currency swap agreements with certain banks, under which it effectively swaps the principal of certain USD-denominated loan exposures into fixed PHP-denominated loan exposures with semi-annual payment intervals up to 2008.

Globe Telecom also has outstanding foreign currency swap agreements with certain banks,

under which it effectively swaps the principal of US$71.68 million loans into PHP up to April 2012. Under these contracts, swap costs are payable in semi-annual intervals in PHP or USD.

The unrealized fair value after tax included under “Cumulative translation adjustment” in the stockholders’ equity section of the consolidated balance sheets amounted to P=223.15 million as of December 31, 2005.

Notional amount

Notional amount Maturities

Swap rates

(In Thousands) Floating-fixed cross-currency swaps $20,266 P=1,046,356 2006 – 2008 P=51.642 Principal-only swaps 71,678 3,875,283 2006 – 2012 54.065

• Interest Rate Swaps

As of December 31, 2005, Globe Telecom has US$56.16 million in notional amount of interest rate swap that has been designated as cash flow hedge. The interest rate swap effectively fixed the benchmark rate of the hedged loan at 2.305% to 4.205% over the duration of the agreement, which involves semi-annual payment intervals up to August 2007.

As of December 31, 2005, the fair value of the outstanding swap, net of tax, amounted to a P=57.49 million gain, net of P=0.19 million (US$0.03 million) accumulated swap income, which is also net of tax. P=5.40 million of the total fair value is reported as “Cumulative translation adjustment” in the stockholders’ equity section of the consolidated balance sheets.

Other Derivative Instruments not Designated as Hedges Globe Telecom enters into certain derivatives as economic hedges of certain underlying exposures. Such derivatives, which include embedded and freestanding currency forwards, embedded call options, and certain currency swaps with option combination or structured provisions, are not designated as accounting hedges. The gains or losses on these instruments are accounted for directly to the consolidated statements of income. This section consists of freestanding derivatives and embedded derivatives found in both financial and non-financial contracts.

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Freestanding Derivatives Freestanding derivatives consist of currency forwards and options entered into by Globe Telecom. Mark-to-market changes on these instruments are accounted for directly in the parent company statements of income.

• Non-deliverable Forwards

Globe Telecom entered into short-term non-deliverable currency forward contracts to fix the peso cash flows from coupon and redemption of certain DLPN issued by the ROP . These currency forward contracts with a notional amount of US$2.88 million, matured in December 2005. The realized gain resulting from the maturity is P=23.44 million.

• Sold Currency Options

As of December 31, 2005, Globe Telecom has sold currency options with total outstanding notional amount of US$27.70 million at an average strike price of P=58.97/US$ maturing up to March 2007. These were entered into to subsidize the cost of outstanding currency swap contracts. The mark-to-market value on these currency options as of December 31, 2005 amounted to a gain of P=12.68 million.

• Currency Swaps and Cross-Currency Swaps

Globe Telecom also has outstanding foreign currency swap agreements with certain banks, under which it swaps the principal of US$68.75 million USD-denominated loans into PHP up to April 2012. Under these contracts, swap costs are payable in semi-annual intervals in PHP or USD. Of the US$68.75 million, US$6.25 million is in combination with sold out-of-the-money USD call options with a strike price of P=62.50, while another US$20.00 million provides Globe Telecom the option to reset lower to a certain minimum the foreign exchange rate used to determine PHP equivalent amounts to be net settled by Globe Telecom upon maturity or termination. The reset option has been exercised.

Globe Telecom also entered into cross-currency swap agreements with certain banks, under which it swaps the principal and interest of certain USD-denominated loans into Philippine peso with quarterly or semi-annual payment intervals up to June 2008. As of December 31, 2005, the total outstanding notional amounts of the cross-currency swaps amounted to US$14.31 million. The net mark-to-market of the outstanding currency and cross-currency swaps as of December 31, 2005 amounted to a loss of P=229.14 million on these instruments.

• Interest Rate Swaps

Globe Telecom has an outstanding interest rate swap with a notional amount of US$5.00 million under which it effectively swapped the 9.75% coupon on its outstanding 2012 Senior Notes into a floating rate of interest based on LIBOR. The swap has a constant maturity swap (CMS) component that is intended to reduce swap costs. The interest rate on one leg of the CMS is being reset periodically subject to a cap, while the interest rate on the fixed leg of the swap is subject to a daily range accrual that is linked to the difference between the 30-year and 10-year USD swap rates.

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Globe Telecom also has an outstanding interest rate swap contract with a notional amount of P=1.00 billion, which effectively swaps a fixed rate PHP-denominated bond into floating rate, with quarterly payment intervals up to February 2009.

The mark-to-market values on the interest rate swaps as of December 31, 2005 amounted to a net mark-to-market gain of P=50.34 million.

Embedded Derivatives and Other Financial Instruments Globe Group’s embedded derivatives include embedded currency derivatives noted in both financial and non-financial contracts and embedded call options in debt instruments.

• Embedded Currency Forwards

As of December 31, 2005, the total outstanding notional amount of currency forwards embedded in non-financial contracts amounted to US$11.72 million. The non-financial contracts consist mainly of foreign-currency denominated purchase orders with various expected delivery dates. The mark-to-market gain as of December 31, 2005 on the embedded currency forwards amounted to P=71.48 million.

• Embedded Currency Options

As of December 31, 2005, the total outstanding notional amount of currency options embedded in non-financial contracts amounted to US$1.02 million. The mark-to-market gain as of December 31, 2005 on the embedded currency options amounted to P=0.23 million.

• Embedded Call Option

Globe Telecom’s 2012 Senior Notes contain embedded call options which give Globe Telecom the right to prepay the notes at a certain call price per year. As of December 31, 2005, the embedded call options have a notional amount of US$300.00 million and mark-to-market gain of P=1,268.71 million.

• Dollar-Linked Peso Notes

Globe Telecom’s investments in DLPN issued by the ROP matured in December 2005. These investments have a total face value of P=150.00 million and were purchased at a premium with weighted average price of P=104.38. The redemption amounts and interest rates of these DLPN investments are based on a pre-agreed formula, which includes a foreign exchange factor applied to the base interest rate payable semi-annually in arrears and to the redemption amounts. The DLPN investments contain embedded currency forwards that were bifurcated and marked-to-market through profit and loss. Globe Group realized a net loss of P=2.74 million.

The host peso debt instruments on the DLPN investments were accounted for at amortized cost.

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Fair Value Changes on Derivatives The net movements in fair value changes of all derivative instruments in 2005 are as follows (amounts in thousand pesos):

Balance at beginning of year P=1,266,411 Net changes in fair value: Hedge accounting derivatives (429,336) Non-hedge accounting derivatives 27,006 864,081 Less fair value of settled instruments 46,936 Balance at end of year P=817,145

Hedge Effectiveness Results As of December 31, 2005, the effective mark-to-market value changes on Globe Telecom’s cashflow hedges that were deferred in equity amounted to P=228.56 million, net of tax. Total ineffectiveness recognized immediately in the consolidated statements of income for the year then ended is immaterial.

The distinction of the results of hedge accounting into “Effective” or “Ineffective” represent designations based on PAS 39 and are not necessarily reflective of the economic effectiveness of the instruments.

26. Segment Reporting

The Globe Group’s reportable segments consist of: Wireless Communications Services - represents cellular telecommunications services that allow subscribers to make and receive local, domestic long distance and international long distance calls to and from any place within the coverage area. Revenues principally consist of one-time registration fees, fixed monthly service fees, revenues from value-added services such as text messaging, proceeds from sale of handsets and other phone accessories, upfront fees from activation of simpacks/simcards and per minute airtime and toll fees for basic services which vary based primarily on the monthly volume of calls and the network on which the call terminates.

Wireline Communications Services - represents fixed line telecommunications services, which offer subscribers, local, domestic long distance and international long distance services in addition to a number of value-added services in various service areas covered by the PA granted by the NTC (see Note 1). Revenues consist principally of fixed monthly basic fee for service and equipment, one-time fixed line service connection fee, value-added service charges, and toll fees for domestic and international long distance calls and internet subscription fees of wireline voice subscribers. Includes also a variety of telecommunications services tailored to meet the specific needs of corporate communications such as leased lines, VSAT, telex, international packet-switching services, broadband, and internet services.

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On September 30, 2003, Globe Telecom has discontinued its telex service due to declining revenues and for cost efficiency.

The segment assets and liabilities and results of operations in 2003 and 2002 have been restated to reflect the effects of the change in accounting policies.

The segment’s performance is evaluated based on earnings before income taxes and depreciation and amortization (EBITDA).

The Globe Group’s segment information in December 31 follows (in millions):

2005

Wireless Wireline

Communications Communications Services Services Corporate [1] Total

Revenues P=52,229 P=6,519 P=– P=58,748 Operating expenses (22,341) (3,495) (940) (26,776)

EBITDA [2] 29,888 3,024 (940) 31,972 Depreciation and amortization (12,062) (2,677) (995) (15,734)

EBIT 17,826 347 (1,935) 16,238 Other income (expenses) - net (2,262) 73 132 (2,057)

Income (loss) before income tax P=15,564 P=420 (P=1,803) P=14,181

Losses on retirement of certain property and equipment and results of GXI’s operations are

reported under wireless communication services.

2004 (As Restated)

Wireless Wireline Communications Communications

Services Services Corporate[1] Total

Revenues P=49,903 P=5,706 P=– P=55,609 Operating expenses (18,863) (2,885) (967) (22,715)

EBITDA[2] 31,040 2,821 (967) 32,894 Depreciation and amortization (11,470) (2,688) (548) (14,706)

EBIT 19,570 133 (1,515) 18,188 Other income (expenses) - net (5,876) 240 171 (5,465)

Income (loss) before income tax P=13,694 P=373 (P=1,344) P=12,723

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2003 (As Restated)

Wireless Wireline

Communications Communications Services Services Corporate[1] Total

Revenues P=44,465 P=5,013 P=– P=49,478 Operating expenses (18,846) (2,859) (1) (21,706)

EBITDA[2] 25,619 2,154 (1) 27,772 Depreciation and amortization (8,505) (3,069) (15) (11,589)

EBIT 17,114 (915) (16) 16,183 Other income (expenses) - net (5,881) 799 (924) (6,006)

Income (loss) before income tax P=11,233 (P=116) (P=940) P=10,177

The segment assets and liabilities as of December 31, 2005, 2004 and 2003 are as follows (in millions): 2005

Wireless Wireline Communications Communications

Services Services Corporate[1] Total Segment assets[3] 97,537 20,110 6,291 123,938 Segment liabilities[3] 65,729 2,228 1,094 69,051

2004 (As Restated)

Wireless Wireline

Communications Communications Services Services Corporate[1] Total

Segment assets [3] P=98,978 P=23,579 P=4,734 P=127,291 Segment liabilities [3] 68,895 1,654 1,173 71,722

2003 (As Restated)

Wireless Wireline

Communications Communications Services Services Corporate[1] Total

Segment assets [3] P=96,274 P=22,917 P=5,474 P=124,665 Segment liabilities [3] 73,068 2,113 1,299 76,480

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The Globe Group’s capitalized expenditures in December 31 follows (in millions):

2005

2004 (As Restated)

2003 (As Restated)

Wireless communications services P=12,907 P=19,158 P=15,829 Wireline communications services 1,267 3,235 1,210 Corporate 916 1,280 593

P=15,090 P=23,673 P=17,632

[1] Corporate represents support services that cannot be directly identified with any of the revenue generating services. [2] The term EBITDA is presented because it is generally accepted as providing useful information regarding a company’s

ability to service and incur debt . The Globe Group’s presentation of EBITDA differs from the above definition by excluding other income (expenses) . The Globe Group’s presentation of EBITDA may not be comparable to similarly titled measures presented by other companies and could be misleading because not all companies and analysts calculate EBITDA in the same manner.

[3] Segment assets and liabilities do not include deferred income taxes. 27. Notes to Consolidated Statements of Cash Flows

The principal noncash transactions in December 31 follows:

2005 2004

(As Restated) 2003

(As Restated) (In Thousand Pesos)Increase (decrease) in liabilities related to the

acquisition of property and equipment (P=1,163,860) P=935,909 (P=1,637,835) Dividends on preferred shares 68,334 75,128 67,957 Capitalized ARO 44,433 182,363 70,256

The cash and cash equivalents account consists of:

2005 2004 2003 (In Thousand Pesos) Cash on hand and in banks P=736,200 P=1,967,695 P=2,615,191 Short-term placements 10,174,761 11,614,147 10,425,857 P=10,910,961 P=13,581,842 P=13,041,048

Cash in banks earns interest at respective bank deposit rates. Short-term placements are made for

varying periods of up to three months depending on the immediate cash requirements of Globe Group and earn interest at the respective short-term placement rates.

28. Reclassification of Certain Accounts

Certain comparative figures have been reclassified to conform with the current year’s presentation (see Note 2).

29. Event After the Balance Sheet Date

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On February 7, 2006, the BOD approved the declaration of first semi-annual cash dividends in 2006 of P20 per share to common stockholders of record as of February 21, 2006 payable on March 15, 2006.

ANNEX II

Globe Telecom, Inc. and Subsidiaries Balance Sheet Accounts Variance Analysis (December 31, 2005 vs. December 31, 2004)

a) Cash and Cash Equivalents – Decreased by 20% or P2.7 billion mainly due to repurchase of common shares in March 2005.

b) Short-term Investments – Increased by P532 million due to purchase of government bonds in 2005 c) Receivables – net – Variance of 24% as compared to last year of the same period due to higher

receivable from various carriers resulting from the reduced ISR activities (please see related discussion on International Long Distance Services) and higher wireline postpaid (voice and data) subscribers.

d) Inventories and Supplies – Net – Higher acquisition of handsets and phonekits over units sold to subscribers.

e) Prepayment and other current assets – Increase of 14% is due mainly to set-up of derivative assets as a result of PAS 32/39 adoption.

f) Intangible Assets – Increased by 17% or P156 million due to acquisition of various capitalizable software licenses supporting the expanded network and subscriber base.

g) Deferred tax assets – Decreased due to realization of deferred tax asset related to prepaid capacity provisioning and MCIT and impact of various PAS adoptions.

h) Investments in Associates, Joint Venture and Others – Declined by P15 million mainly due to equity loss take up from Bridge Mobile Alliance (a joint venture).

i) Unearned Revenues – Decreased by 25% or P431 million due to higher usage of prepaid airtime load as a result of various promotional programs of Globe Handyphone and TM (such as unlimited text and lower call rate).

j) Long-term debt – Decreased by 13% due to lower borrowing as compared to last year. k) Deferred tax liabilities – Increased by 28% primarily due to higher deferred tax liabilities related

unrealized foreign exchange gain and impact of various PAS adoptions. l) Stock Options – Increase represents additional compensation expense during the year net of the

amount transferred to additional paid-in capital for the exercised portion of stock options. m) Cumulative Translation Adjustment – represents fair value changes on derivatives that qualify as cash

flow hedges and available-for-sale investments due to adoption of PAS 39 (see Note 2- Adoption of New and Revised Accounting Standards of the attached condensed financial statements).

n) Paid-up capital – Significant decrease of P6 billion pertains to retirement of 20 million treasury shares during the year.

o) Retained Earnings – Decrease of P4.8 billion due to retirement of treasury shares and declaration of dividends to common shareholders.

Aging of Accounts Receivable as of December 31, 2005

Trade Receivables (In Thousand Pesos) Current P=2,818,815 More than 90 days past due 279,540 More than 120 days past due 190,247 More than 150 days past due 169,770 More than 180 days past due 4,563,934 8,022,307

Traffic Settlement Receivables 3,120,374 Other Receivables 305,076 Total Receivables 11,447,757 Less: Allowance for doubtful accounts (4,683,627) Receivables – net P=6,764,130

Globe Telecom, Inc. and Subsidiaries Breakdown of Liabilities

12/31/2003

(As Restated)[2] 12/31/2004

(As Restated) [2]

12/31/2005 A. Accounts Payable 4,251.6 5,101.2 6,105.1 Accrued Expenses 4,831.4 4,084.2 4,101.4 Accrued Project Cost 3,003.1 3,454.3 2,444.1 Traffic Settlements 1,461.2 1,104.9 1,544.7 Provisions 793.1 282.3 231.4 Dividends Payable 67.9 75.1 68.3 Derivative Liabilities – – 32.7 14,408.3 14,102.0 14,527.7 B Unearned Revenues 2,376.9 1,732.7 1,301.7 C. Long Term Debt (LTD) Current Portion of LTD Banks 8,363.4 8,412.0 7,703.3 Suppliers 659.1 554.1 103.3

Current portion of unamortized bond premium and issuance costs – 2012 Senior Notes – 52.5 51.6

9,022.5 9,018.6 7,858.2 LTD – net of current portion Banks 21,966.2 19,684.8 18,407.5 Corporate Notes 3,665.0 3,070.0 4,109.0 Suppliers 654.9 109.6 – 26,286.1 22,864.4 22,516.5 Senior Notes

2012 Senior Notes– net of current portion of unamortized bond premium and issuance cost[1]

11,117.2

17,334.9

16,335.0

2009 Senior Notes 9,705.9 – – 20,823.1 17,334.9 16,335.0

Retail Bonds – net of unamortized debt issuance cost in December 31, 2005 of P16 million

–

3,000.0

2,983.7

E. Other long-term liabilities Current 325.4 292.6 269.7 Non-current 3,237.5 3,377.0 3,258.2 3,562.9 3,669.6 3,527.9

[1] December 31, 2004 balance includes premium but excludes unamortized debt issuance costs. December 31, 2005 balance is presented inclusive of unamortized bond premium and debt issuance cost of P 468 million

[2] Restated as a result of various PAS/PFRS adoptions except for PAS 32 and PAS 39 (see related discussion in the attached condensed financial statements)

Certified True and Correct:

EDITH C. SANTIAGO DELFIN C. GONZALEZ, JR. Vice President – Financial Control Chief Financial Officer and Authorized

Representative