Belle Corporation

March 7, 2000 PSE CIRCULAR FOR BROKERS NO. 571-00 BELLE CORPORATION UNAUDITED 1999 OPERATING RESULTS Management's Discussion and Analysis of Results of Operations The Company's net revenues for the fiscal year ended December 31, 1999 declined to P828 million from P2,115 million for the fiscal year ended December 31, 1998. 1999 revenues were mainly from new sales of real estate and membership shares, and recognition of income from prior year's sales of club shares and real estate. This decline in revenue was mainly due to: Sluggish economic conditions as during 1998 and 1st quarter of 1999, the Company did not embark on any significant new sales initiatives as a reaction to weak market conditions. Management's time was focused mainly on managing the Company's cash flows and resolving operating and legal issues associated with investments made and loans incurred in 1996-97. The Company had to refocus its strategic direction and reconfigure its products, thus setting the stage for the re-launch of sales efforts in November 1999 and for its business plan for 2000. The decline in gross profit margin to 26% (P212 million) in 1999 from 53% (P1.125 million) in 1998 was mainly because of around P180 million in cost of sales directly related to foreign exchange differences taxes and duties which were recognized during 1999. Moreover, most of the sales for the period came from the sale of the Woodlands residential units, which have lower margins compared to 1998 where we recognized income from the sale of Midlands shares, as well as the first phase of Woodlands which have substantially higher margins. Selling, General and Administrative expenses slightly increased due to re-organization expenses and various non-recurring legal audit and other professional fees that are incurred during this period. The net loss of consolidated subsidiaries of P34 million was due to wholly-owned subsidiary. Lucky Star, which only started operations in the third quarter of 1999. The Company incurred a net loss of P3,291 million,. compared to net income of P104 million in 1998. This is the first net loss reported by Belle since its transformation to a property and leisure company in 1989. Of the 1999 net loss, P904 million arose due to parent company operations. This in turn, was caused by the decline in net revenues described previously as well as the P796 million in total financial charges (P715 million in interest expenses, P2 million in other bank charges, and P79 million in foreign exchange losses from the Company's U.S Dollar loans) arising from its loans mostly incurred in 1997, which are still outstanding. cdll Belle's consolidated net loss further expanded by P2,386 million, from the net loss from parent company operations of P904 million to P3,291 million due mainly to: Equity in net losses of unconsolidated subsidiaries totaling P1,075 million mainly comprised of Belle's share in losses in APC Group Inc. and Sinophil Corporation totaling P1,053 million (P799 million due to APC and P254 million due to Sinophil). APC's net loss for 1999 of P1,397 million was primarily due to investment write-offs and loss provisions totaling P1,295 million, as follows: (i) P855 million in losses from investments in Pilipino Telephone Corp. (Piltel) made in 1997; (ii) a P346 million net loss at APC's largest investee, Philcom, which investment was made by APC in 1996; (iii) a P171 million loss provision for an investment in PICOP Resources. Inc. made in 1996; and (iv) a P23 million loss provision for an investment in First Asian industrial Equities, Inc. Sinophil incurred a 1999 net loss of P714 million, caused mainly by: (i) P281 million in goodwill amortizations attributable to its investments in Legend International Resorts (HK) Ltd. (LIR) and MagiNet Corporation. both of which were made in 1997: (ii) its 40% share of LIR's net loss, which amounted to P143 million; and (iii) its 66% share of MagiNet's net loss, which amounted to P344 million. A loss provision of P1,099 million for land development costs in the Belle Bay Plaza Projects, which is currently on hold. cdll Total assets did not significantly change. However, stockholder's equity declined by around P1.5 billion mainly due to estimated liability for project development (since we launched several projects during the year) and due to an increase in loans payable. BELLE CORPORATION and Subsidiaries Comparative Income Statement For the Years Ended December 31, 1999 and 1998 (Amounts in Thousands) Unaudited Audited 1999 1998 Net Revenues 827,555 2,115,024 Cost of Sales (615,168) (990,193) Gross Profit 212,387 1,124,831 Depreciation and Amortization (189,195) (175,554) Selling, General and Administrative Expenses (333,708) (322,656) Net Operating Income - Parent Co. (310,515) 626,621 Net Income (Loss) of Consolidated Subsidiaries (33,906) 7,886 Equity in Net Earnings of Unconsolidated Subsidiaries (1,075,233) (262,320) Non-recurring and Extraordinary Items (Note 1) (1,318,644) (154,801) Financial Charges (717,299) (708,347) Financial Income 244,320 422,493 FX Gain (Loss) (79,233) 141,662 Pre-tax Income (3,290,511) 73,194 Income Tax - (30,989) Net Income (3,290,511) 104,183 ========= ========= Note 1 - The 1998 amount is net of the P1.02 billion due to the loss on sale of Dragon Oil shares BELLE CORPORATION and Subsidiaries Balance Sheets (Amounts In Thousands) Unaudited Audited 12/31/99 12/31/98 ASSETS Cash and Cash Equivalents P199,527 P611,865 Marketable Equity Securities 625 434 Accounts Receivables 1,196,688 1,549,507 Condominium Units for Sale 533,563 520,703 Land and Developments 2,272,012 1,381,933 Project Development Costs 445,987 1,534,143 Property and Equipment-Net 1,028,385 1 024,381 Investments 13,486,154 13,727,042 Advances to Affiliates 5,225,887 4,127,056 Prepayments and Other Assets 2,678,291 3,094,209 P27,067,119 P27,571,273 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Loans Payable P7,317,500 P6,931,885 Accounts Payable and Accrued Expenses 2,352,427 2,032,142 Subscription Payable 7,399,725 7,314,625 Estimated Liability for Project Development 1,313,843 387,055 Advances from affiliates 115,528 332,137 Deferred Income 984,799 944,776 Minority Interest 360,423 360,702 Stockholders' Equity 7,222,874 9,267,951 P27,067,119 P27,571,273 ========== =========