PSE Circular for Brokers No. 2050-98

September 3, 1998 PSE CIRCULAR FOR BROKERS NO. 2050-98 September 2, 1998 Philippine Stock Exchange 4/F Philippine Stock Exchange Center PSE Center, Exchange Road, Ortigas Center Pasig City Attention: Disclosure Department Listing and Disclosure Group Gentlemen : Further to our disclosure letter dated December 9, 1997 to the Philippine Stock Exchange in regard to our Company's equity infusion into Pilipino Telephone Corporation ("Piltel"), we enclose a copy of the report we intend to submit to the United States Securities and Exchange Commission and Philippine Securities and Exchange Commission in connection with the increase in the Company's equity ownership in Piltel from 38.4% to 50.1%. LLjur Very truly yours, PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (SGD.) ENRIQUE D. PEREZ Secretary PHILIPPINE LONG DISTANCE TELEPHONE COMPANY General Office P.O. Box 2148 Makati City, Philippines On July 30, 1998, Philippine Long Distance Telephone Company ("PLDT") increased its equity ownership in Pilipino Telephone Corporation ("Piltel") from 38.4% to 50.1% upon approval by the Philippine Securities and Exchange Commission of Piltel's increase in its authorized capital stock. For financial reporting purposes, the transaction is accounted for as a purchase. Under the purchase method of accounting, the difference between the net asset value of Piltel and the cost of the investment, which represents the negative goodwill, would be allocated proportionately against 50.1% of Piltel's noncurrent assets. The financial statements of Piltel as of July 30, 1998 are not available to date, and the estimated fair values of Piltel's net assets have not been determined yet. Accordingly, any preliminary estimate of the difference between the purchase price and the net asset value of Piltel assuming the purchase had been made on January 1, 1998 is shown as a reduction of Piltel's property, plant and equipment. Prior to July 30, 1998, PLDT has accounted for its minority investment in Piltel using "one-line" consolidation, under which it adjusts the cost of its investment in the balance sheet by recognizing its share in the net earnings or losses of Piltel in the income statement. Effective July 30, 1998, PLDT will account for its investment in Piltel using "full-line" consolidation, under which it will consolidate all balance sheet data at any balance sheet date and will consolidate all income statement items for the relevant period, with proper recognition for proportionate minority interests held by others. The following unaudited pro forma financial information as of and for the six months ended June 30, 1998 is being provided to present a summary o the consolidated financial position and results of operations of PLDT assuming that the acquisition had occurred as of January 1, 1998. This pro forma data is for informational purposes only and is not indicative of future consolidated results of operations of PLDT. llcd PRO FORMA CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 PLDT Piltel Historical Historical Pro Forma Consolidated Consolidated Consolidated (In Millions of Philippine Pesos) Assets Current Assets 43,823.8 7,427.1 50,139.1 Property, Plant and Equipment-net 164,082.2 30,079.2 192,500.2 Other Noncurrent Assets 9,489.5 752.4 4,746.8 Total Assets 217,395.5 38,258.7 247,386.1 ======= ======= ======= Liabilities and Stockholders' Equity Current Liabilities 38,038.9 8,746.0 45,422.8 Long-term Debt-net of current portion 108,652.3 17,140.6 125,792.9 Other Noncurrent Liabilities 9,964.9 583.4 15,466.6 Preferred Stock Subject to Mandatory Redemption 350.0 350.0 Stockholders' Equity 60,389.4 11,788.7 60,353.8 Total Liabilities and Stockholders' Equity 217,395.5 38,258.7 247,386.1 ======= ====== ======= PRO FORMA CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 PLDT Piltel Historical Historical Pro Forma Consolidated Consolidated Consolidated (In Millions of Philippine Pesos) Operating Revenues 23,463.7 2,358.4 25,656.5 Operating Expenses 12,974.8 2,072.3 14,881.3 Net Operating Income 10,488.9 286.1 10,775.2 Other Expenses-net 3,328.7 389.9 3,700.5 Income Before Income Tax and Minority Interest in Net loss (Income) of Consolidated Subsidiaries 7,160.2 (103.8) 7,074.7 Provision for Income Tax 2,499.2 0.1 2,499.3 Income before Minority Interest in Net loss (Income) of Consolidated Subsidiaries 4,661.0 (103.9) 4,575.4 Minority interest in Net Loss (Income) of Consolidated Subsidiaries 195.6 (3.4) 245.6 Net Income (Loss) 4,856.6 (107.3) 4,821.0