PSE Circular for Brokers No. 591-98

April 3, 1998 PSE CIRCULAR FOR BROKERS NO. 591-98 SECURITIES AND EXCHANGE COMMISSION SEC FORM 11-C CURRENT REPORT UNDER SECTION 11 OF THE REVISED SECURITIES ACT (RSA) AND RSA RULE 11(a)-1(b)(3) THEREUNDER 1. 02 April 1998 (Date of Report) 2. SEC Identification Number 3. BIR TAX Identification Number 000-489-462 4. PILIPINO TELEPHONE CORPORATION Exact name of registrant as specified in its charter 5. PHILIPPINES Province, country or other jurisdiction of incorporation 6. ___________ (SEC Use Only) Industry Classification Code 7. 9th Floor Banker's Centre 1200 6764 Ayala Avenue Postal Code Makati City Address of principal office 8. (632) 891-3888 Registrant's telephone number, including area code 9. not applicable Former name of former address, if changed since last report 10. Securities registered pursuant to Sections 4 and 8 of the RSA Title of Each Class Number of Shares of Common Stock Licensed and Amount of Debt Outstanding Common Shares 1,444,068,707 common shares 1 Long Term Commercial Papers P1,000,000,000.00 2 11. Indicate the item numbers reported herein: 9 (A) The 1997 audited Financial Statements (Annex "A") (B) Piltel will be issuing a press release stating, in summary, that Piltel declared a net loss of P620.8M for 1997 arising mainly from the lower operating revenues due to the company's reduced cellular subscriber base, a substantial bad debt provisioning expense, and a significant rise in interest expense. (Annex "B") LibLex PILIPINO TELEPHONE CORPORATION Registrant By: (SGD.) JOSEPH A. SANTIAGO Director, Legal Affairs ANNEX A PILIPINO TELEPHONE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 1997 1996 ASSETS Current Assets Cash and cash equivalents P1,558,991,704 P1,234,692,935 Accounts receivable (Note 2) Customers and agents 1,906,656,562 1,973,930,017 Others 962,017,651 1,474,956,474 Allowance for doubtful accounts (1,214,240,904) (157,003,072) 1,654,433,309 3,291,883,419 Materials and supplies net of allowance for inventory losses of P220,000,000 in 1997 1,447,860,496 1,091,223,956 Prepaid expenses and other current assets (Note 13) 1,418,603,084 581,998,926 Total Current Assets 6,079,888,593 6,199,799,236 Property, Plant and Equipment net (Notes 3 and 8) 28,518,039,629 17,403,007,706 Investments and Advances (Note 4) 490,231,760 433,493,782 Other Assets (Notes 5 and 8) 217,854,229 620,171,374 P35,306,014,211 P24,656,472,098 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued P2,133,370,352 P2,084,839,338 expenses (Notes 6, 10 and 13) Income tax payable 11,482,384 Notes payable (Note 7) 5,391,680,582 170,872,000 Current portion of long-term debt (Notes 3 and 8) 1,138,523,890 723,149,159 Total Current Liabilities 8,663,574,824 2,990,342,881 Long-term Debt net of current portion (Notes 3 and 8) 16,448,610,808 11,826,457,621 Other Liabilities (Note 13) 523,259,061 421,058,166 Minority Interest in Consolidated Subsidiary 43,450,417 37,833,194 Stockholders' Equity (Note 9) 9,627,119,101 9,380,780,236 P35,306,014,211 P24,656,472,098 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Year Ended December 31 1997 1996 1995 PREFERRED STOCK (Note 9) Class I Balance at beginning of year P14,505,820 P14,507,320 P14,507,320 Converted to common stock (69,280) - - Redeemed - (1,500) - Balance at end of year 14,436,540 14,505,820 14,507,320 Class II Balance at beginning of year 450,000,000 200,000,000 200,000,000 Issued - 250,000,000 - Balance at end of year 450,000,000 450,000,000 200,000,000 COMMON STOCK (Note 9) Balance at beginning of year 1,032,950,233 1,032,323,393 800,002,800 Subscribed 542,837,558 - - Converted from preferred stock 138,560 - - Issued - 626,840 232,320,593 Balance at end of year 1,575,926,351 1,032,950,233 1,032,323,393 CAPITAL IN EXCESS OF PAR VALUE Balance at beginning of year 5,818,333,214 5,806,423,254 1,648,492,007 Subscribed 6,349,878,396 - - Issued - 11,909,960 4,157,931,247 Balance at end of year 12,168,211,610 5,818,333,214 5,806,423,254 SUBSCRIPTIONS RECEIVABLE (5,934,708,044) - - PAID-UP CAPITAL 8,273,866,457 7,315,789,267 7,053,253,967 DEPOSIT FOR FUTURE SUBSCRIPTIONS (Note 9) - - 120,000,000 RETAINED EARNINGS Appropriated for plant expansion and dividends on future conversions (Note 9) 410,459,180 410,528,460 - Unappropriated: Balance at beginning of year 1,656,734,433 1,411,438,434 590,431,147 Net income (loss) (620,826,524) 710,468,608 822,075,133 Cash dividends on preferred stock (58,785,367) (54,644,149) (1,067,846) Appropriated for plant expansion and dividends on future conversions - (410,528,460) - Balance at end of year 977,122,542 1,656,734,433 1,411,438,434 TREASURY SHARES at cost (Note 9) (34,329,078) (2,271,924) - P9,627,119,101 P9,380,780,236 P8,584,692,401 See accompanying Notes to Consolidated Financial Statements CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31 1997 1996 1995 OPERATING REVENUES (Note 10) P4,936,843,027 P5,046,169,241 P3,903,813,576 OPERATING EXPENSES Depreciation 1,474,893,213 1,482,238,904 1,224,396,013 Provision for doubtful accounts 1,447,013,441 886,351,830 80,930,000 Compensation and benefits (Note 11) 577,464,111 401,772,192 264,976,299 Commission and advertising 540,140,393 503,126,270 260,444,679 Rent (Note 10) 579,633,764 381,120,694 230,153,408 Utilities and maintenance 266,181,205 159,561,055 81,878,973 Insurance and related security services 175,861,169 140,213,677 93,391,589 Provision for inventory losses 220,000,000 - - Others 450,861,689 291,568,195 274,235,432 5,732,048,985 4,245,952,817 2,510,406,393 OPERATING INCOME (LOSS) (795,205,958) 800,216,424 1,393,407,183 OTHER INCOME (EXPENSES) Net (Note 12) (221,237,833) 239,606,770 (148,887,546) INCOME (LOSS) BEFORE INCOME TAX (1,016,443,791) 1,039,823,194 1,244,519,637 PROVISION FOR INCOME TAX (Note 13) (401,285,007) 323,967,464 417,410,570 INCOME (LOSS) BEFORE MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY (615,158,784) 715,855,730 827,109,067 MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY 5,667,740 5,387,122 5,033,934 NET INCOME (LOSS) (P620,826,524) P710,468,608 P822,075,133 EARNINGS (LOSS) PER COMMON SHARE Basic (P0.46) P0.63 P0.89 Diluted (P0.41) P0.59 P0.89 ANNEX B Contact Persons: Salvador C. Martinez 845-6045 Deborah Anne N. Tan 845-6089 PRESS RELEASE The Pilipino Telephone Corporation ("Piltel") declared a net loss of P620.8MM for 1997 arising mainly from lower operating revenues due to the Company's reduced cellular subscriber base, a substantial bad debt provisioning expense, and a significant rise in interest expense. cdll The Company disclosed that its net operating revenues decreased from P5.0B in 1996 to P4.9B in 1997. The foregoing was attributed to the Company's extensive "clean-up" program which led to a decrease in its cellular subscriber base from approximately 330,000 as of year-end 1996 to approximately 200,000 as of year-end 1997. The Company qualified that its 1997 year-end subscriber base number does not include users of its cellular service via pre-paid cards, a product launched by Piltel in late 1997 which has generated approximately 47,000 users as of year-end. In line with this "clean-up" program, the Company recognized an expense for provision for doubtful accounts in the amount of P1.44B in 1997. Of this amount, P945MM was set up as a year-end, one-time provision to cover for all trade receivables with an aging of 90 days or more. "We want to take a conservative stance and resolve once and for all, this problem of receivables which has been plaguing us for the last two years", said Juan Velasquez, Piltel Chief Financial Officer. He further stated that, moving forward, the Company is in a better position to prevent any recurrence of this problem. The financial crisis that affected the country in the second half of 1997 also had an adverse impact on the Company's operations. The peso depreciation, the regime of high interest rates, and the Company's higher borrowing levels all served to increase the Company's interest expense to P553MM in 1997 from P339MM in 1996. For 1998 however, the Company is confident that it stands on solid ground to face the difficult challenges sure to be brought about by the anticipated slowdown in economic activity. Just recently, PLDT infused P1.7B in new equity money into Piltel, the first tranche of its P4.0B new equity commitment. The balance of the equity infusion is expected to come in the next few months. Piltel also just launched its Mobiline CDMA Digital service, a state-of-the-art cellular technology which is fast gaining popularity especially amongst the heavy users of cellular phones. The pre-paid card business of the Company is likewise gaining acceptance with the budget-conscious users. Further expansion of the pre-paid card business is in the offing. "1997 was a clean-up year for Piltel", Velasquez said, "but we now have a stable base of active, paying subscribers and are poised to recover lost ground." Footnotes 1. In addition to the above licensed common shares on December 19, 1997, the Honorable Commission approved the Request for Exemption from registration of issuance of 284,6000,000 common shares in favor of Philippine Long Distance Telephone Company 2. On December 13, 1996, the Honorable Commission, in its executive meeting, authorized the issuance by the registrant of P2,000,000,000 worth of long term commercial papers.