PSE Circular for Brokers No. 628-99

March 30, 1999 PSE CIRCULAR FOR BROKERS NO. 628-99 SUBJECT : Davao Union Cement Corporation Record Date and Work Program for Pre-emptive Rights Offering Further to Circular for Brokers nos. 2377-98 and 2611-98, please be informed that the record date of the pre-emptive rights offering of 2,250,000,000 common shares and a Maximum of P750,000,000 Convertible Notes due 2004 of DAVAO UNION CEMENT CORPORATION has been set on April 21, 1999 . The details are as follows: A. Pre-emptive Rights Offering Amount of Proceeds P2,250,000,000.00 Offer Ratio Shareholders as of Record Date shall be entitled to subscribe, on a pre-emptive basis, to such number of Rights Shares, determined as follows: (1) for shareholders with less than 1,000 common shares held as of Record Date a maximum of 1,800 Rights Shares, and (2) for shareholders with more than 1,000 common shares held as of Record Date a maximum of 1,800 Rights Shares for every 1,000 common shares held as of Record Date, and a maximum of another 1,800 Rights shares for any incremental holdings of less than 1,000 common shares held as of Record Date. Offer Shares, par value 2,250,000,000 new common shares, P1.00 par value Offer Price P1.00 per share Record Date April 21, 1999 Ex-date April 15, 1999 Offer Period To be announced. Additional Subscription Subject to availability of Rights Shares, Second Round Offering shareholders as of Record Date shall have the right to subscribe to additional Rights Shares which were not otherwise subscribed to by the other shareholders. The allocation and distribution of such additional Rights Shares shall be decided by the Issuer whose decision shall be final. Minimum subscription to additional Rights Shares shall be 1,000 Rights Shares. Subscriptions in excess of the foregoing shall be in increments of 100 Rights Shares. Payment Terms Payable in full upon submission of the application form Underwriter AB Capital and Investment Corp. Stock Transfer Agent Stock Transfer Service, Inc. B. Underlying Shares of Convertible Notes Amount of Proceeds from Maximum of P750,000,000.00 issuance of Convertible Notes Convertible Notes Maximum of P750,000,000 worth of Convertible Notes due 2004 The Underlying Shares of the Offered Notes, upon conversion, will be listed with the PSE, while the Offered Notes will not be listed. Underlying Common Shares of Maximum of 750,000,000 new common Convertible Notes shares Offer Price 100% of the face value of the Notes Notes Entitlement The Convertible Notes will be offered on a pro-rata basis to shareholders as of Record Date which have subscribed to a minimum of 1,800 Rights Shares (the "Qualified Shareholders"). All Qualified shareholders shall have the right to purchase a maximum of P600 worth of Convertible Notes for every 1,800 Rights Shares subscribed to by such shareholder, and accepted by the Issuer and a maximum of another P600 worth of Convertible Notes for incremental subscriptions of less than 1,800 Rights Shares accepted by the Issuer. In addition, subject to availability of Rights Shares, Qualified Shareholders shall have the right to purchase additional Convertible Notes not otherwise purchased by the other Qualified Shareholders. The allocation and distribution of such additional Convertible Notes shall be decided by the Issuer, whose decision shall be final. Minimum purchase shall be P600 worth of Convertible Notes, and all purchases in excess thereof, inclusive of purchases of additional Convertible Notes, shall be in increments of P100 worth of Convertible Notes. Proposed Issue Date To be announced. Conversion Ratio The number of common shares to be issued upon conversion of the Notes (the Underlying Shares) shall be determined by dividing the principal amount of the Notes to be converted by the Conversion Price in effect on the Date. Fractions of the Underlying Shares will not be issued on conversion and no cash adjustments will be made in respect of any such fraction. LLjur Conversion Price The conversion price per each underlying Common Share shall be at: (1) a par value of P1.00 per share for the first 3 years from Issue Date; (2) P1.20 per share or a 20% premium to DUCC's par value from the 1st Banking Day after the 3rd year anniversary date of the Notes up to the 4th year anniversary date; and (3) P1.50 per share or a 50% premium to DUCC's par value from the 1st Banking Day after the 4th year anniversary date of the Convertible Notes up to the 5th year anniversary date of the Convertible Notes. Maximum Term of the Notes/ 5 years from Issue Date of the Convertible Maturity Date Notes Conversion Period At any time after the Issue Date and up to and including, the end of the close of business of the 5th Banking Day before the Issue's Final Maturity. Interest Payment Dates Quarterly Gross Coupon Rate The Convertible Notes shall bear interest of 6% p.a. from Issue Date up to the end of the 3rd year from Issue Date. Thereafter, the Notes shall bear interest at 8% p.a. up to the year from Issue Date. Interest will be paid quarterly in arrears and accrued on the basis of 360 calendar days. Call Option (Early Redemption) The Issuer may wholly or partially prepay the outstanding principal amount plus accrued interest of the Notes on any Banking Day after the lapse of 730 days from Issue Date, by giving at least 30 days prior written notice to the Note Holders through the Trustee; provided that (i) at the time such notice is given the Notes to be redeemed are convertible into common shares and (ii) weighted average market price as defined herein, of the common shares for the 20 consecutive trading days, the last of which occurs not more than 10 days prior to the date upon which notice of such early redemption is given, is at least 130% of the Conversion Price in effect on the last such Trading Day, provided further that the notice of prepayment shall be irrevocable once given and shall specify the date of redemption; provided furthermore, that the notice of prepayment may be given before the lapse of the above-mentioned 730 calendar day period. Amount of Prepayment The minimum amount of partial prepayment shall be equivalent to P50,000,000.00 and prepayment in excess of the minimum shall be in multiples of P50,000,000.00. All prepayments shall be applied in proportion to the outstanding Notes held by the Note Holders. The net proceeds from the offering of approximately P2.928 Billion, will be used to refinance a portion of DUCC's outstanding debt obligations originally incurred to finance the Company's working capital requirement and expansion project which began full commercial operations in January 1997. Attached is a copy of the Company's projected financial statements covering the fiscal year June 30, 1998-1999. LLpr For your information and guidance. (SGD.) JOSE LUIS U. YULO, JR. President and CEO DAVAO UNION CEMENT CORPORATION ASSUMPTIONS TO FINANCIAL PROJECTION The financial projection is presented on the basis of a one-year evaluation period, covering the period July to December 1998 actual operations and January to June 1999 budget figures. 1. PRODUCTION VOLUME The cement production volumes are as follows: (In bags) FY 98-99 Optg. Time Line 2 13,822,316 243.48 days Line 3 22,456,145 244.89 days Total 36,278,461 The clinker production volumes are as follows: (In bags) FY 98-99 Optg. Time Line 2 12,037,940 281.84 days Line 3 22,343,445 287.67 days Total 34,381,385 2. SALES VOLUME AND SELLING PRICES The sales volume and the domestic selling prices, which are on an ex-plant and per bag basis, and export prices which are on a free-on-board (FOB) and per bag basis are as follows: Volume Ex-Plant (in bags) (in pesos) Domestic Portland-bagged 13,460 71.00 Portland-bulk 2,916 69.78 Pozzolan 7,846 67.71 Total/Average 24,222 69.79 Export 12,681 29.12 Total/Average 36,903 55.81 Actual prices will fluctuate with actual supply and demand condition in the market. 3. VARIABLE COSTS, FIXED AND SEMI-VARIABLE COSTS Material usages & cost are tabulated as follows: FY 98-99 BFO/Coal/Petcoke Ratio Line #2 00/72/28 Line #3 02/63/35 Heat Rate (kcal/kg) Line #2 BFO 0.00 Coal 547.00 Petcoke 287.93 834.93 Line #3 BFO 23.01 Coal 437.47 Petcoke 341.12 801.60 Power Usages Kwh per bag Line #2 4.992 Line #3 4.946 Cost per kwh 1.84 Additive Gypsum (P/mt) 806.38 Line #2 Portland 3.74% Pozzolan 3.08% Line #3 Portland 3.77% Slag (P/mt) 672.05 Line #2 Portland 0.92% Pozzolan 0.33% Line #3 Portland 0.37% Pozzolana (P/mt) 127.12 Line #2 17.83% Paper bags Type 1 (kraft/WPP) 5.66/5.29 Type P (kraft/WPP) 5.64/5.28 Variable costs for each product line are as follows: Cost per bag (P) FY 98-99 Line No. 2 Portland bagged 27.08 Portland bulk 19.35 Pozzolan 22.09 Average 23.84 Line No. 3 Portland bagged 25.69 Portland bulk 19.87 Export 20.05 Average 22.12 Average Cost 22.69 4. CLINKER SALES AND TRADING GAIN Sold a total of 27,545 mt at an ex-plant price of P821.50/mt during the first semester. BCC will supply to DUCC Visayas market a total of 1,590 and 660 Portland bags and bulk respectively at a price of P32.80 per bag plus paper bags cost of P5.45 per piece. Trading gain of P38.3 million will be earned this second semester from the said transaction. 5. OPERATING EXPENSES Selling expenses include a fixed portion, plus a provision for doubtful accounts equivalent to .015% of net sales. General and administrative expenses are inclusive of P52.5 million as estimated costs for the increase/issuance of capital stock. Provision for contingencies equivalent to .75% of net sales are computed. LexLib 6. SALES COLLECTION Average collection period for the first semester was 46 days and will be close to 35 days for the second half. 7. BULK MATERIALS Targeted level of bulk materials for June 30, 1999 will fall from 20 to 30 days term. 8. DEBT SERVICE AND FINANCIAL CHARGES Breakdown of DUCC loans are as follows: EIB Loan LTCP Medium-term Long-term loan Loan amount as of P862 M P1,050 M P127 M P200 M 12/31/98 $20.5 Series B & C Chinatrust MBTC Interest rate 6.21%-7.12% t-bill rate of 14% 18% t-bill rate of plus 2.00% cgf plus spread of 14% plus 1.125% for B & spread of 1.375% for C 1.25% + GRT (15.125% for B) (15.7075%) 15.375% for C Principal payment P95.9 M P375 M 0 0 $2.3 M Payment date June 15, 1999 June 30, 1999 UCC advances amounting to P608.2 M as of December 31, 1998 will charge an interest of 14% per annum. Short term loans of P572.5 M bears 18% financial charges. Convertible debts will cost 6% interest per annum . LLjur Foreign exchange rate used is P41 . 00 to US $1 . 00 for fiscal year 1998-1999. 9. CAPITAL INFUSION Davao Union Cement Corporation intends to source the additional P2,250 million in the form of rights offering shares and P750 million issuance of convertible debts on May, 1998. Cash generated will be used to pay-off debts. 10. DIVIDENDS Preferred shares will earn 15.025% plus 5/8% for the second half of the fiscal year 1999. The assumptions have been prepared by the Company based on facts and conditions existing and known to management as of January 27, 1999. They are subject to continuing review, and where necessary, revisions, by Management. Certified by: (SGD.) RENE S. ONG Vice President Comptroller DAVAO UNION CEMENT CORPORATION PROJECTED INCOME STATEMENTS For the Fiscal Year Ending June 30, 1999 (IN THOUSANDS) INDICATED TOTAL Amount Per bag Sales Volume Domestic Portland bagged 15,176 66.58 Pozzolan 7,891 64.34 Portland bulk 3,606 64.63 Sub-total 26,673 65.65 Export 10,816 29.61 Total 37,489 55.25 Gross Sales P2,071,373 55.25 Value-added tax 177,058 4.72 Net sales 1,894,315 50.53 Variable cost of sales 853,811 22.77 Variable gross income cement 1,040,504 27.75 Variable gross income clinker 11,117 16.14 Trading Gain 1,039 9.00 Fixed and semi variable costs 384,373 10.25 Gross Profit 668,287 17.83 Operating expenses 136,750 3.65 Income From Operations 531,537 14.18 Foreign Exchange Loss 1,068 0.03 EBITDA 530,469 14.15 Financial Charges 460,190 12.28 Interest on Bonds Payable 7,500 0.20 Prov. for Contingencies 14,244 0.38 Prov. For Tax 481,934 12.86 Cash Income 48,535 1.29 Depreciation 583,994 15.58 Prov. For Doubtful Accounts 5,218 0.14 589,212 15.72 Net Income (Loss) P(540,677) (14.42) Certified by: (SGD.) RENE S. ONG Vice President Comptroller NOTE: The projections have been prepared by the Company based on facts and conditions existing and known to management as of January 4, 1999. They are subject to continuing review, and where necessary, revisions, by Management. DAVAO UNION CEMENT CORPORATION BALANCE SHEETS For the Fiscal Year ending June 30, 1999 (In Thousand Pesos) June 30, 1998 June 30, 1999 ASSETS CURRENT ASSETS Cash & Short term investment P299,833 623,241 Accounts Receivable Net 431,650 355,785 Accounts Receivable Non trade 52,535 52,535 Inventories 451,508 390,860 Prepaid Expenses 54,705 54,705 Total Current Assets 1,290,231 1,477,126 INVESTMENTS 32,638 62,638 PROPERTY, PLANT AND EQUIPMENT 7,403,870 6,943,443 OTHER ASSETS 42,104 42,104 TOTAL ASSETS 8,768,843 8,495,311 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes Payable 2,306,005 45,040 Accounts Payable and Accrued Expenses 508,141 508,141 Current Portion of Long Term Debt 788,728 616,358 Total Current Liabilities 3,602,874 1,169,539 DEFERRED INCOME TAX-NON CURRENT 208,829 208,829 LONG-TERM DEBT 1,820,989 2,344,631 TOTAL LIABILITIES 5,632,692 3,722,999 STOCKHOLDERS' EQUITY Common Stock (Authorized 6,000,000,000 shs.) 1,250,000 3,500,000 Preferred Shares (Authorized 1,000,000,000 shs.) 5,000 5,000 Additional Paid In Capital 1,480,697 1,480,697 Retained Earnings (Deficit) 400,454 (213,385) Total Stockholders' Equity 3,136,151 4,772,312 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY P8,768,843 8,495,311 CURRENT RATIO 0.36:1.00 1.26:1.00 DEBT/EQUITY RATIO 1.80:1.00 0.78:1.00 BOOK VALUE PER SHARE P2.11 P1.22 Certified by: (SGD.) RENE S. ONG Vice President Comptroller NOTE: The projections have been prepared by the Company based on facts and conditions existing and known to management as of January 4, 1999. They are subject to continuing review, and where necessary, revisions, by Management. DAVAO UNION CEMENT CORPORATION STATEMENT OF CHANGES IN FINANCIAL POSITION For the Fiscal Year ending June 30, 1999 June 30, 1999 WORKING CAPITAL WAS PROVIDED FROM Net Income (Loss) (540,677) Items not affecting working capital: Depreciation 583,994 Total from operations 43,317 Issuance of Common Shares 2,250,000 Issuance of Convertible Bonds 750,000 Proceeds from long-term Loan 570,000 Total 3,613,317 WORKING CAPITAL WAS USED FOR Decrease in long term debts 796,358 Capitalized Foreign Exchange Loss 39,654 Addition in Property, Plant & Equipment 83,913 Payment of Dividends Interest on preferred shares 73,162 Total 993,087 Increase (Decrease In Working Capital) 2,620,229 Other Sources (Uses): Accounts Receivable- 75,865 Inventories 60,648 Notes Payable (2,260,965) Current Portion of Long Term Debt (172,370) Total (2,296,821) Increase (Decrease in Cash & Short term investment) 323,408 Cash & Short term investment, beginning 299,833 Cash & Short term investment, end 623,241 Certified by: (SGD.) RENE S. ONG Vice President Comptroller NOTE: The projections have been prepared by the Company based on facts and conditions existing and known to management as of January 4, 1999. They are subject to continuing review, and where necessary, revisions, by Management.