PSE Circular for Brokers No. 486-99

March 15, 1999 PSE CIRCULAR FOR BROKERS NO. 486-99 10 March 1999 Via Facsimile Fax No. 727-5103 Money Market Operations Division Securities and Exchange Commission SEC Building, EDSA, Greenhills Mandaluyong City, Metro Manila Attention: Linda A . Daoang RE : Pilipino Telephone Corporation Dear Ms. Daoang: Reference is made to the Commission's letter dated 1 March 1999, regarding the level of Pilipino Telephone Corporation's, ("Piltel" or the "Company") debts and the article in the 23 February 1999 issue of the Manila Times . On behalf of Piltel, we advise the Commission that any prior statements made by the Company in response to queries of the Philippine Stock Exchange ("PSE") were necessarily subject to the results of the financial and operational review undertaken by management on 6 January 1999 to ascertain, among other things, the amounts and status of the Company's obligations. We are pleased to inform the Commission that Piltel expects its auditors to complete its financial report for the fiscal year ending 31 December 1998 before the end of the month, as previously disclosed to the Commission and the PSE. We undertake to promptly furnish the Commission with a copy of the Company's financial statements immediately upon their release. Funding such release, we provide the Commission with currently available financial information under the attached SEC Form 11-C. This information has been filed with the Commission and will form part of the Company's audited financial statements. As facts and circumstances are verified, information. has been duly disclosed by Piltel's management and previously made assumptions have been either confirmed or updated. On 26 February, 1999, Piltel filed a current report under SEC Form 11-C, relating to its announced P4.1 Billion loss and its indebtedness of P21.8 Billion as of 31 December 1998. A further US$280 Million (approximately P11 Billion relating to the Company's Build/Transfer Agreement with Marubeni Corporation for Piltel's fixed line network in Mindanao became due in January 1999. Piltel's priority continues to be the negotiation of various proposals with all its creditors for its business recovery and financial restructuring Piltel is currently discussing such proposals with its creditors in order to arrive at an agreement with respect to resolving its outstanding debt obligations. In the meantime, Piltel continues to operate as a going concern, without disruption of service to its many valued customers. cdt In closing, we wish to reiterate Piltel's commitment to comply with the Commission's disclosure rules. We take this opportunity to confirm that, as legal advisers to Piltel, we will provide our support, cooperation and assistance to the Commission's investigative team appointed to examine Piltel's records. As a listed corporation, Piltel takes its disclosure obligations very seriously and seeks to provide investors with accurate information on a timely basis through compliance with the regulations of the Commission and the PSE. Sincerely, ROMULO MABANTA BUENAVENTURA SAYOC & DE LOS ANGELES By: (SGD.) CYNTHIA ROXAS-DEL CASTILLO PILIPINO TELEPHONE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 1998 1997 ASSETS Current Assets Cash and cash equivalents P690,574,873 P1,558,991,704 Accounts receivable net (Notes 3 and 11) 1,835,702,459 1,654,433,309 Inventories and supplies net (Note 4) 875,264,498 1,447,860,496 Prepaid expenses and other current assets (Note 14) 851,103,571 1,418,603,084 Total Current Assets 4,252,645,401 6,079,888,593 Property, Plant and Equipment net (Notes 5 and 9) 29,612,182,567 28,518,039,629 Investments and Advances (Notes 6 and 11) 846,100,592 490,231,760 Other Assets (Note 9) 188,670,460 217,854,229 P34,899,599,020 P35,306,014,211 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses (Notes 7, 11 and 17) P3,100,905,453 P2,133,370,352 Notes payable (Note 8) 4,797,070,000 5,391,680,582 Current portion of long-term debt (Notes 1, 5 and 9) 1,233,822,205 1,138,523,890 Total Current Liabilities 9,131,797,658 8,663,574,824 Long-term Debt - net of current portion (Notes 1, 5 and 9) 16,429,626,699 16,532,544,353 Other Liabilities (Note 14) 546,495,918 439,325,516 Minority Interest 42,617,172 43,450,417 Stockholders' Equity (Note 10) 8,749,061,573 9,627,119,101 P34,899,599,020 P35,306,014,211 ============ ============ PILIPINO TELEPHONE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) Years Ended December 31 1998 1997 1996 OPERATING REVENUES (Note 11) P4,552,442,642 P4,936,843,027 P5,046,169,241 OPERATING EXPENSES Depreciation and amortization (Note 5) 2,297,44,790 1,474,893,213 1,482,238,904 Provision for doubtful accounts 835,887,016 1,447,013,441 886,351,830 Compensation and benefits (Note 12) 718,434,953 577,464,111 401,772,192 Commission and advertising 577,138,755 540,140,393 503,126,270 Rent (Note 11) 469,407,715 579,633,764 381,120,694 Provision for inventory losses 350,000,000 220,000,000 - Utilities and maintenance 336.580,611 266,181,205 159,561,055 Insurance and related security services 149,141,634 175,861,169 140,213,677 Others (Note 11) 778,689,212 450,861,689 291,568,195 6,513,024,686 5,732,048,985 4,245,952,817 NET OPERATING INCOME (LOSS) (1,960,582,044) (795,205,958) 800,216,424 OTHER INCOME (EXPENSES) Net (Note 13) (2,157,344,208) (221,237,833) 239,606,770 INCOME (LOSS) BEFORE INCOME TAX AND MINORITY INTEREST IN NET INCOME OF A CONSOLIDATED SUBSIDIARY (4,117,926,252) (1,016,443,791) 1,039,823,194 INCOME TAX BENEFIT (PROVISION) (Note 14) (2,386,002) 401,285,007 (323,967,464) INCOME (LOSS) BEFORE MINORITY INTEREST IN NET INCOME OF A CONSOLIDATED SUBSIDIARY (4,120,312,254) (615,158,784) 715,855,730 MINORITY INTEREST IN NET INCOME OF A CONSOLIDATED SUBSIDIARY (764,487) (5,667,740) (5,387,122) NET INCOME (LOSS) (P4,121,076,741) (P620,826,524) P710,468,608 EARNINGS (LOSS) PER COMMON SHARE (Note 15) Basic (P2.15) (P0.56) P0.63 Diluted - - P0.59 =========== =========== ========== PILIPINO TELEPHONE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (P4,121,076,741) (P620,826,524) P710,468,608 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,297,744,790 1,474,893, 213 1,482,238,904 Provision for (benefit from): Doubtful accounts 835,887,016 1,447,013,441 886,351,830 Inventory losses 350,000,000 220,000,000 - Deferred income tax 2,386,002 (428,814,881) 187,418,387 Writedown of property, plant and equipment 782,462,000 - - Reversal of net profit on sale of land in 1996 301,624,105 - - Write-off of: Prepaid commissions 301,155,329 - - Carrying value of demolished building 125,308,120 - - Amortization of debt issuance costs 24,894,275 25,434,412 8,732,997 Minority interest in net income of a consolidated subsidiary 764,487 5,667,740 5,387,122 Equity in net earnings of an unconsolidated subsidiary - (15,872,370) (1,997,652) Gain on sale of land - - (319,624,105) Changes in operating assets and liabilities: Decrease (increase) in: Accounts receivable (1,397,156,166) 190,436,669 (2,411,343,018) Inventories and supplies 222,595,998 (576,636.540) (481,217,191) Prepaid expenses and other current assets 336,875,465 (389,281,318) (497,597,562) Increase (decrease) in: Accounts payable and accrued expenses 820,755,166 (556,553,437) 840,705,439 Income tax payable - (11,.482,384) (173,650,852) Net cash provided by operating activities 884,219,846 763,978,021 235,872,907 CASH FLOWS FROM INVESTING ACTIVITIES Reductions (additions) to: Property, plant and equipment (3,128,757,258) (7,051,323,590) (7,313,140,060) Investments and advances (355,868,832) (40,865,608) (281,739,087) Other assets 4,289,494 376,882,733 566,500,351 Proceeds from sale of land - - 134,400,000 Net cash used in investing activities (3,480,336,596) (6,715,306,465) (6,893,978,796) CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from: Notes payable 171,678,000 5,082,100,809 170,333,000 Long-term debt 200,000,000 1,546,627,867 8,797,111,377 Stock subscriptions 3,293,217,965 958,007,910 142,536,800 Payments of: Long-term debt (1,175,296,221) (734,828,207) (395,630,394) Notes payable (725,355,212) (574,031,000) (1,396,433,649) Cash dividends on preferred stock (48,569,144) (53,835,431) (52,715,516) Increase (decrease) in other liabilities 15,251,871 83,692,936 (220,326) Acquisition of treasury stock (1,629,608) (32,057,154) (2,271,924) Increase (decrease) in minority interest (1,597,732) (50,517) 1,517 Redemption of preferred stock - - (P1,500) Net cash provided by financing activities 1,727,699,919 6,275,627,213 7,262,709,385 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (868,416,831) 324,298,769 604,603,496 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,558,991,704 1,234,692,935 630,089,439 CASH AND CASH EQUIVALENTS AT END OF YEAR P690,574,873 P1,558,991,704 P1,234,692,935 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: 1. Cash paid during the year for: a. Interest (net of amount capitalized) P943,110,179 P452,618,279 P248,510,249 b. Income taxes - - 300,729,818 ========== ========== ========== PILIPINO TELEPHONE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended December 31 1998 1997 1996 PREFERRED STOCK (Note 10) Class I Balance at beginning of year P14,436,540 P14,505,820 P14,507,320 Converted to common stock - (69,280) - Redeemed - - (1,500) Balance at end of year 14,436,540 14,436,540 14,505,820 Class II Balance at beginning of year 450,000,000 450,000,000 200,000,000 Issued - - 250,000,000 Balance at end of year 450,000,000 450,000,000 450,000,000 COMMON STOCK (Note 10) Balance at beginning of year 1,575,926,351 1,032,950,233 1,032,323,393 Subscribed (Note 10) 370,400,000 542,837,558 626,840 Converted from preferred stock - 138,560 - Balance at end of year 1,946,326,351 1,575,926,351 1,032,950,233 CAPITAL IN EXCESS OF PAR VALUE Balance at beginning of year 12,168,211,610 5,818,333,214 5,806,423,254 Subscribed (Note 10) 1,886,757,965 6,349,878,396 11,909,960 Balance at end of year 14,054,969,575 12,168,211,610 5,818,333,214 SUBSCRIPTIONS RECEIVABLE (Note 10) (4,898,648,044) (5,934,708,044) - PAID-UP CAPITAL 11,567,084,422 8,273,866,457 7,315,789,267 RETAINED EARNINGS (DEFICIT) Appropriated for plant expansion and dividends on future conversions (Note 10) 410,459,180 410,459,180 410,528,460 Unappropriated: Balance at beginning of year 977,122,542 1,656,734,433 1,411,438,434 Net income (loss) (4,121,076,741) (620,826,524) 710,468,608 Cash dividends on preferred stock (48,569,144) (58,785,367) (54,644,149) Appropriation for plant expansion and dividends on future conversions (Note 10) - - (410,528,460) Balance at end of year (3,192,523,343) 977,122,542 1,656,734,433 TREASURY SHARES at cost (Note 10) (35,958,686) (34,329,078) (2,271,924) P8,749,061,573 P9,627,119,101 P9,380,780,236 =========== =========== ===========