SWIFT FOODS, INC . Record date and Work Program for1:8 Preemptive Rights Offering

June 25, 1998 PSE CIRCULAR FOR BROKERS NO. 1433-98 SUBJECT : SWIFT FOODS, INC . Record date and Work Program for 1:8 Preemptive Rights Offering Further to Company Notice No. 426-98, please be informed that the record date of the 1:8 preemptive rights offering of SWIFT FOODS, INC . (the "Company") has been set on July 15, 1998. The details are as follows: aisadc Terms of the Offering Ratio without Green Shoe Option: one (1) preferred share for every eight (8) common shares held Ratio with Green Shoe Option one and a half preferred shares (1.5) for every eight (8) common shares held Offer Shares without Green Shoe Option 100,327,687 preferred shares Offer Shares with Green Shoe Option 150,491,531 preferred shares Offer Price P10.00 per share Record Date July 15, 1998 Ex-Date July 9, 1998 Offer Period August 3 to 7, 1998 Mechanics of the Green Shoe Option Subscribers who wish to avail of their entitlement to the Greenshoe shares should indicate their subscription to said shares in the appropriate space provided in the Subscription Agreement. At the end of the Offer Period, the Receiving Agent shall tally all subscribed entitlements and additional subscriptions to the offer shares. Should the total of 100,327,687 offer shares be fully subscribed, the Receiving Agent shall then tally all subscriptions to the Greenshoe shares. The allocation of the Greenshoe shares is conditional upon whether there is sufficient demand above and beyond the total number of offer shares to merit additional allocation, as determined by the Issuer. The Receiving Agent shall then award the Greenshoe shares to the extent of total subscription. Additional Shares in Excess of Entitlement The shareholders of record may subscribe to additional shares in excess of their entitlement provided that the allocation of additional shares is conditional upon the availability of said shares arising from the failure of the other stockholders to fully exercise their preemptive rights. Eligible Investors Stockholders owning Swift Foods, Inc. common shares as of the record date shall be entitled to subscribe to the preferred shares in the same proportion as their ownership in the common shares. Payment terms The purchase price shall be paid in full in Philippine Currency upon the submission of a duly executed application form and signature card. Issue Manager and Underwriter All Asia Capital and Trust Corporation Stock Transfer Agent Securities Transfer Services, Inc. Features of the Preferred Shares Conversion Ratio ten (10) common shares for every one (1) convertible preferred share held Conversion Exercise Period The Conversion Period shall commence from the beginning of the 3rd year from the end of the Offer Period up to the end of the 5th year. Term 5 years Dividend Rate 16% for the first year 16% for the second year 16% for the third year 15% for the fourth year 15% for the fifth year The dividend coupon rates shall be computed based on offer price of P10.00 per share. Dividends are payable quarterly in arrears in cash, to commence at the end of the first quarter from the date of the closing of the Offer Period. Dividends on the preferred shares shall be cumulative from Issue Date. Accrued but unpaid dividends shall accrue at the aforementioned dividend rate until fully paid. Non-Participating The Shareholders shall not be entitled to receive any other or further dividends or earnings of any kind whatsoever, aside from the dividends stipulated above. Non-Voting The Shareholders shall have no right to vote at any regular or special meeting of the Company's' stockholders except in those cases specifically provided by law. Put Option Any Shareholder of the offer Shares shall have the option to put the Offer Shares to the Company on any date commencing two (2) years after the end of the Offer Period. Shareholders wishing to exercise this option must serve a Notice of Exercise upon the Company. Upon the exercise of the Shareholders of such right, the Company shall redeem the Offer Shares specified in the relevant Notice of Exercise within twenty (20) trading days from the receipt of such notice, at the Offer Price plus any cumulative dividends, computed up to the latest Dividend Payment Date. Mandatory Conversion The Company shall cause the conversion of all unconverted Offer Shares at the end of the 5th year from the end of the Offer Period. The net proceeds from the offering will be used to retire outstanding short-term debts of the Company. The short term loans will mature this year. The interest rates range from 17.5% to 24.5%. LLphil Attached is a copy of the Company's 1997 (actual) and 1998 (forecasted) comparative financial statements. For your information and guidance. (SGD.) REYNOLD P. ONG Vice President, Listings and Disclosure Group SWIFT FOODS, INC. COMPARATIVE BALANCE SHEET FORECASTED AUDITED CY 1998 & 1997 1998 1997 In '000 Pesos ASSETS Cash & Cash Equivalents 270,460 221,469 Accounts Receivable 1,545,736 1,457,314 Inventories 2,320,041 2,646,007 Other Current Assets 494,809 185,817 Total Current Assets 4,631,046 6,510,607 Property, Plant & Equipment-Net 735,432 766,479 Other Assets 402,832 113,820 ======== ======== TOTAL ASSETS 5,769,310 5,390,906 LIABILITIES STOCKHOLDERS EQUITY Loans Payable 0 1,464,365 Accounts Payable & Accrued Expenses 1,574,747 1,066,086 Acceptances Payable 433,862 860,181 Income Tax Payable 69,570 - Current Portion of Longterm Debt 44,000 44,130 TOTAL CURRENT LIABILITIES 2,122,179 3,434,762 Long-term liabilities 176,000 177,622 TOTAL LIABILITIES 2,298,179 3,612,384 Capital Stock-Common 802,622 802,622 Capital Stock-Preferred 150,000 - Capital in excess of par value 2,244,143 866,895 Total 3,196,765 1,669,517 Net Income 287,861 - Retained Earnings, Appropriated - Retained Earnings, Unappropriated 109,005 109,005 Preferred Stock-Cash Dividend (122,500) Total Retained Earnings 274,366 109,005 TOTAL STOCKHOLDERS EQUITY 3,471,131 1,778,522 ======== ======== TOTAL LIAB. & STOCKHOLDER'S EQUITY 5,769,310 5,390,906 Certified true & correct: (SGD.) ERNESTO D. MANANSALA SVP-Chief Financial Officer SWIFT FOODS, INC. COMPARATIVE INCOME STATEMENT FORECASTED AUDITED CY 1998 & 1997 1998 1997 In '000 Pesos NET SALES 10,386,705 7,600,407 COST OF SALES 9,119,689 6,779,670 GROSS PROFIT 1,267,017 820,737 LESS: OPERATING EXPENSES SELLING EXPENSES 474,447 467,919 MARKETING EXPENSES 66,766 83,261 GEN & ADM EXPENSES 280,092 203,808 TOTAL OPERATING EXPENSES 821,305 754,998 INCOME FROM OPERATION 445,712 65,749 OTHER INCOME (EXPENSE) 103,663 9,573 INCOME BEF FINANCING CHARGES 549,375 75,322 FINANCING INCOME (CHARGES) (191,944) (222,043) INCOME BEFORE INCOME TAX 357,431 (146,721) PROVISION FOR INCOME TAX 69,570 (39,621) ======= ======= NET INCOME AFTER TAX 287,861 (107,100) RETAINED EARNINGS, BEG. 109,005 216,105 Preferred Stock Dividends (122,500) - ======= ======= RETAINED EARNINGS, END 274,366 109,005 Certified true & correct: (SGD.) ERNESTO D. MANANSALA SVP-Chief Financial Officer SWIFT FOODS, INC. COMPARATIVE CASH FLOW FORECASTED AUDITED CY 1998 & 1997 1998 1997 In '000 Pesos Cash Flows from Operating Activities 287,861 (107,100) Net Income (Loss) Adj. to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities: Depreciation 236,843 153,993 Unrealized foreign exchange loss - 123,270 Provision for Doubtful Accounts - 2,791 Benefit from deferred income tax - (39,621) Decrease (Increase) in Assets: Accounts Receivable (88,422) 245,755 Inventories 325,966 (521,376) Other Current Assets (308,992) 34,772 Increase (Decrease) in Liabilities: Accounts Payable & Accrued Expenses 508,661 (318,009) Income Tax Payable 69,570 - Current Portion of LTL (130) - Net cash Provided (Used) Operating Expenses 1,031,357 (425,525) Cash Flows from Investing Activities (Increase)/Decrease in: Property, Plant & Equipment (178,548) (253,665) Other Assets (289,012) (15,866) Net Cash Provided (Used) Investing Activities (467,560) (269,531) Cash Flows from Financing Activities Proceeds (Payment) of: Loans Payable (1,464,365) 224,114 Acceptances Payable (426,319) 181,807 Longterm Liabilities (1,622) 177,622 Capital Stocks Issuance (Preferred) 1,500,000 - Dividends/Interest on Preferred (122,500) - Net Cash Provided (Used)-Financing Activities (514,806) 583,543 Net Increase(Decrease) in Cash & Cash Equivalents 48,991 (111,513) Cash & Cash Equivalents at Beg. of Period 221,469 332,982 Cash & Cash Equivalents at End of Period 270,460 221,469 Certified true & correct: (SGD.) ERNESTO D. MANANSALA SVP-Chief Financial Officer SWIFT FOODS, INC . SUMMARY OF SIGNIFICANT ASSUMPTIONS CY 1998 GENERAL ASSUMPTIONS The following general assumptions have been adopted in the preparation of the financial projections: 1. There will be no material change in the existing political, legal, fiscal, and economic conditions in the areas in which the company carry on business which will have material impact in the financial results. 2. There will be no material changes in the projected interest rate or in the projected foreign exchange rate; changes, if any, will be absorbed by corresponding increases in sales prices. Projected rates are: cdll P to $ Rate Interest 1998 P40 to $1 17% 3. There will be no material change in the bases or rates of taxation. 4. The Company does not anticipate shortages of materials, labor disputes or significant fluctuations in raw material prices; and 5. All licenses and permits necessary for the operations granted to the Company by the Government, or otherwise, will be maintained. SPECIFIC ASSUMPTIONS AGRIBUSINESS DIVISION POULTRY OPERATION SALES Sales volume for 1998 is based on projected available chicken projection of 75 million heads as determined by the number of breeder to be set in the pipeline. Selling price is projected to increase by about 3.5% to 5% in 1998 after the industry suffered a slump in 1996 and 1997. COST OF SALES Materials and labor to be used by the Company are projected to be available when needed. 1998 cost of sales is projected based on an item by item analysis of cost elements, applying the projected production performance parameters. SELLING AND GENERAL & ADMINISTRATIVE EXPENSES The principal types of expenses within these categories are salaries and wages of non-production staff, depreciation, transportation or freight, commission, professional fees, office rentals, insurance, and share in corporate G & A expenses. These expenses were projected in 1998 on an item by-item basis using zero based budgeting taking into account actual manpower complement, current and projected salary rate increase, and the behavior of expenses to sales. Included in the general and administrative expenses is the management fee of RFM Corporation at 0.50% of Sales. Also included is the share on Feeds Division expenses, computed on the projected expenses of Feeds Division shared by Poultry based on pro-rata production of internal and commercial feeds. FINANCING CHARGES Interest expense on projected loans based on cash flow. Interest rate are assumed at 17% for 1998. OTHER INCOME This account mainly represents projected income from sale of live culls and other by-products such as chicken manure, intestines, blood, feather and others. ACCOUNTS RECEIVABLE-TRADE Amounts were projected based on customers credit term of 25 days and the desired turnover of 14x. Credit term is broken down as follows: HRI 30 days Supermarket 30 days Special Accounts 30 days Public Market 7 days Live Sales 7 days INVENTORIES Projection of inventories is generally based on ratio of inventories to cost of sales of 20% based on 1997 figures. PROPERTY, PLANT & EQUIPMENT 1998 additions to this account represent the projected major capitalizable repairs and replacements. The basis of additions is 100% of prior year's depreciation charges. ACCOUNTS PAYABLE AND ACCEPTANCES PAYABLE Generally based on suppliers' and banks credit terms of 20 days. FEED OPERATION SALES The growth of commercial feeds in the Philippine market is estimated only at 5% every year. In line with this, the Company forecasted an annual increase of 5% in sales volume over previous year. The bulk of sales for commercial feeds will come from duck layer pellets (DLP) and fish feeds products. At present, the sales mix ration of DLP and fish feeds is 55:45. However, there is a management directive to gradually shift concentration in DLP to fish feeds since it provides a higher profit margin. COST OF SALES Materials and labor to be used by the company are projected to be available when needed. Cost of sales is computed based on an item by item analysis of cost elements and other acceptable method of projecting cost of sales vis-a-vis sales projection in 1997. Average gross profit rate is maintained at 25% based on 1997 performance. SELLING AND GENERAL & ADMINISTRATIVE EXPENSES The principal types of expenses within these categories are salaries and wages, transportation, commission, freight and handling. Outside services, light and insurance. These expenses were projected in 1998 generally on an item-by-item basis using zero based budgeting, taking into account actual manpower complement, current and projected salary increases and the behavior of expenses to sales. Included in General & Administrative expenses is the management fee of RFM Corporation at 0.50% of sales. Total G & A expenses is reduced by the pro-rata share of Poultry Operation projected at 88% based on production of internal and commercial foods. Selling expenses is estimated at 3% of sales while G&A is projected to increase annually by 2.5%. FINANCING CHARGES Interest expense on projected loans based on cash flow. Interest rate are assumed at 17% for 1998. OTHER INCOME This account mainly represents income from sale of damaged polybags, sweepings, drums, etc., which is projected to increase by an average of 10%. ACCOUNTS RECEIVABLE-TRADE Average credit term for commercial feeds is 7 days. However, big suppliers are given up to 15 days credit term. For purposes of estimating the average days in accounts receivable, a credit term of 10 days is assumed in 1998. INVENTORIES Inventories projected for 1998 is basically the result of an item-by-item costing of the required production level. It is based on the ratio of inventories to cost of goods sold, a 60 days desired inventory level and turnover of 6 times. PROPERTY, PLANT & EQUIPMENT For 1998, additions to this accounts represent the projected major capitalizable repairs and replacements. The basis of additions is 100% of prior year's depreciation charges. ACCOUNTS PAYABLE & ACCEPTANCES PAYABLE Generally based on supplier's and banks credit terms or ratio of payable balance over cost of goods sold. Accounts Payable has an improving age of 40 to 30 days while Acceptances payable has a 60-day term. The Accounts Payable has a turnover of 9-12 times while Acceptance Payable has a turnover of 7-9 times. MEAT DIVISION SALES Meat sales volume is projected to increase by 12% in 1998, while increase in selling price is estimated at 3%. COST OF SALES Cost of sales is projected based on an item-by item analysis of cost elements. Improvement of cost of sales is projected due to materials substitution and higher yield. SELLING, MARKETING & GENERAL & ADMINISTRATIVE EXPENSES Selling expense includes commission to SDD at 12.5%, distribution cost, supermarket support and merchandising & services group expenses. Marketing expense is computed at 5% of Net Sales. FINANCING CHARGES Interest on loans is computed based on 17% for 1998. OTHER INCOME This account includes projected income from sale of land. ACCOUNTS RECEIVABLE-TRADE Accounts Receivable is projected using the historical credit terms of 60-75 days. INVENTORIES Inventories are projected based on the desired inventory level as follows: FGI-Processed Meat 2 weeks FGI-Canned Meat 1 month Raw Materials 1 month PROPERTY, PLANT & EQUIPMENT The company projected to acquire new machines to improve productivity as sales volume increases. ACCOUNTS PAYABLE & ACCEPTANCES PAYABLE This is generally based on the supplier's and bank credit terms of 30 to 45 days. SALES AND DISTRIBUTION DIVISION NET SALES Processed Meat and Canned Meat sales are based on Meat Division's sales projections with an increase of 12% (based on peso value) in 1998. Non-Meat sales is projected to increase by an average of 11% (based on peso value). SALES DISCOUNTS Sales discounts include Prompt Payment, Wholesalers, Sub-Distributors, Volume and Special Discounts as follows: Prompt Payment 0.70% Wholesalers 0.25% Sub-Distributors 0.40% Volume & Special 0.15% LOSSES ON BAD STOCKS There was no provision for Warehouse Bos made for 1998. Trade Bos is estimated at 1.1% of sales in 1998. SELLING & DISTRIBUTION EXPENSES Salaries and wages is projected to increase by 5%. Major component of distribution expenses is the commission expense for SDPI with 4.5% and 4.75% for Processed Meat and Canned Meat & Non-Meat respectively. Other distribution expenses is projected to increase by 10%. GENERAL & ADMINISTRATIVE EXPENSES Provision for increase in salaries & benefits and share in corporate expenses. ACCOUNTS RECEIVABLE TRADE DSO level at year-end is set at 40 days. Two thirds(2/3) of total A/R balance for December (current month's) sales with 30 days DSO level while one third (1/3) of total A/R balance for November (previous month's) sales with 60 days DSO level. December sales projection is equivalent to two (2) months of average monthly sales INVENTORIES Inventory level is set at 70% to 80% of average monthly sales. PROPERTY, PLANT & EQUIPMENT Additional CAPEX completed in June, 1998 worth P4.5M for the Warehouse and Office Improvement projects. cdt OTHER ASSETS Major component of this account is the VAT-input for purchases of goods & services. ACCOUNTS PAYABLE & ACCRUED EXPENSES This account consist mainly of payables to truckers, manpower agencies and other suppliers which increases by 12% per year as sales increases by the same rate. Accrued expenses consist mostly of VAT-output tax. DUE TO OTHER DIV/ALLIED CO. Consists of Payables with the following credit terms: July'97-June'98 90 days credit term July'98-Dec'98 75 days CERTIFIED TRUE AND CORRECT: Noted by: (SGD.) ERNESTO D. MANANSALA SVP-Chief Financial Officer