Philippine Petroleum Corporation

July 24, 1991 Philippine Petroleum Corporation 156 Valero Street, Salcedo Village Makati, Metro Manila Attention : D . L . Mendiola (Corporate Secretary) Gentlemen : This refers to your letter of June 25, 1991, requesting confirmation that your Corporation can declare cash dividends amounting to P105,399,111.00 out of the interim income for the year 1991. A corporation has a fiscal year in order to determine the results of its operation during the year, whether it earned profits or incurred losses. Of course, such results may also be computed monthly, quarterly or semi-annually, but a summary is always made at the end of the year to determine the performance of the company for the whole year. Since financial statements are generally prepared after the end of the fiscal year, dividends are declared as a general rule, after the fiscal period has ended when surplus profits are shown to exist. ( SEC Opinion dated July 16, 1971 addressed to Rajah Investment & Finance Corporation ) However, as an exception, the Commission, in a letter dated January 15, 1986 addressed to SGV & Company , opined that dividend declaration out of interim profits may be allowed, subject to the provisions of Section 43 of the Corporation Code, and subject further to the following conditions: 1. That the amount of dividends involved would not be impaired by losses during the remaining period of the year; 2. That projected income statement of the company for the remaining period of the year as well as the basis and assumptions used therein shall be submitted to the Commission; and 3. That should the company sustain losses during the year, cash dividends distributed to the stockholders of record must be correspondingly refunded to the company. In the case of subject corporation, it appears from the supporting unaudited interim income statements that the company's net income for the first quarter of 1991 and the succeeding two-months period ended May, 1991 amounted to P167,472,716 and P245,816,259, respectively. Both appear to be sufficient to cover the part of the proposed dividend declaration amounting to P105,399,111. Likewise, the projected net income of P265,000,000 at year ended 1991 may be considered conservative since the company's net income for the years ended December 31, 1990 and 1989 amounted to P496,924,208 and P506,765,630, respectively. cdll In view of the foregoing, the proposed cash dividend declaration by the Corporation amounting to P105,399,111 may be allowed subject, however, to the above-mentioned conditions. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman